John Bellamy Foster: On the U.S. financial crisis

This is an extensive Marxist analysis of the crisis in the Monthly Review. I have just reproduced three brief snippets to give you an idea of what it is like.
The first snippet advances the theory that the role of finance has changed in advanced capitalism from an aid to production to being itself an engine of profit.
The second snippet claims that far from sustained growth being a feature of mature capitalism when capitalism matures it suffers from stagnation. Three reasons are given for this development.
The third snippet suggests that the basic contradiction in advanced capitalism is between a system that is run in the interests of a small group of oligopolists, crony capitalism one might call it, or monopoly finance capitalism, and the needs of humanity as a whole. In order to meet these needs capitalism would have to replaced.

Comment:
There are many aspects of this analysis that ring true but there are also many features of global capitalism that are ignored.
1) Developing economies provide an outlet for capital that is no longer needed (or is less profitably invested) in advanced capitalist economies. This is consistent with the fact that developing economies show faster growth rates than mature economies on the whole.
2) For a Marxist analysis the article does not explain events in terms of class conflict. How do these developments relate to the working class and the exploitation of labor to produce surplus value? The final paragraph explains nothing as to how capitalism would be transformed into socialism assuming that is the alternative system. In fact what would replace capitalism is not even described even as to the most general features of the system.
3) There are other contradictions that are also important in understanding mature capitalist development. Capitalist growth places severe strains on the environment that must limit its growth or result in much lower quality of life for future generations and destruction or degradation of many species. Capitalist growth also depletes resources so that in time necessary resources are no longer available as with oil. Both of these factors require that capitalism must become to some degree green to survive. These factors explain why even though many corporations resist environmentalism and tend to look at development of scarce resources in the short term time frame there is also a parallel development of green capitalism. Even reactionary governments are beginning to pay some attention to the problems of alternative energy sources and pollution. These developments together with the organic foods movement provide an outlet for investment in various sorts of green capitalism. The leftists often found advocating these developments mostly ignore the issue of private ownership of the means of production. Organic farms are not collectivised or usually even co-operatives. They are standard capitalist privately owned entities and the same is true for the manufacturers of green technology.
4) New outlets for capital are constantly being developed. Products become dated, fashion changes so new products are constantly needed. Through privatisation of prisons, hospitals, etc. etc. new outlets for capital to make profit are constantly enlarged. Mature capitalism is characterised by a continual erosion of the socialised sectors of the economy be it post office, prisons, or even many functions of the military. Note the private contractors in Iraq and Afghanistan.


Anyway I have rambled on long enough.

Numerous commentators have castigated the U.S. economy for its “monstrous bubble of cheap credit...with one bubble begetting another”—in the words of Stephen Roach, chairman of Morgan Stanley Asia. Elsewhere Roach has observed that “America’s bubbles have gotten bigger, as have the segments of the real economy they have infected.” Household debt has risen to 133 percent of disposable personal income, while the debt of financial corporations has hit the stratosphere, and government and non-financial corporate debt have been steadily increasing.18 This huge explosion in debt—consumer, corporate, and government—relative to the underlying economy (equal to well over 300 percent of GDP by the housing bubble’s peak in 2005) has both lifted the economy and led to growing instability.19

Mainstream commentators often treat this as a national neurosis tied to a U.S. addiction to high consumption, high borrowing, and vanishing personal savings, made possible by the infusion of capital from abroad, itself encouraged by the hegemony of the dollar. Radical economists, however, have taken the lead in pointing to a structural transformation in the capital accumulation process itself associated with the decades-long historical process—now commonly called financialization—in which the traditional role of finance as a helpful servant to production has been stood on its head, with finance now dominating over production........

There is, however, a radically different economic view, of which Magdoff and Sweezy were among the chief representatives, that suggests that the normal path of the mature capitalist economies, such as those of the United States, the major Western European countries, and Japan, is one of stagnation rather than rapid growth. In this perspective, today’s periodic crises, rather than merely constituting temporary interruptions in a process of accelerated advance, point to serious and growing long-term constraints on capital accumulation.

A capitalist economy in order to continue to grow must constantly find new sources of demand for the growing surplus that it generates. There comes a time, however, in the historical evolution of the economy when much of the investment-seeking surplus generated by the enormous and growing productivity of the system is unable to find sufficient new profitable investment outlets. The reasons for this are complex having to do with (1) the maturation of economies, in which the basic industrial structure no longer needs to be built up from scratch but simply reproduced (and thus can be normally funded out of depreciation allowances); (2) the absence for long periods of any new technology that generates epoch-making stimulation and transformation of the economy such as with the introduction of the automobile (even the widespread use of computers and the Internet has not had the stimulating effect on the economy of earlier transformative technologies); (3) growing inequality of income and wealth, which limits consumption demand at the bottom of the economy, and tends to reduce investment as unused productive capacity builds up and as the wealthy speculate more with their funds instead of investing in the “real” economy—the goods and services producing sectors; and (4) a process of monopolization (oligopolization), leading to an attenuation of price competition—usually considered to be the main force accounting for the flexibility and dynamism of the system.23 .........

The hard truth of the matter is that the regime of monopoly-finance capital is designed to benefit a tiny group of oligopolists who dominate both production and finance. A relatively small number of individuals and corporations control huge pools of capital and find no other way to continue to make money on the required scale than through a heavy reliance on finance and speculation. This is a deep-seated contradiction intrinsic to the development of capitalism itself. If the goal is to advance the needs of humanity as a whole, the world will sooner or later have to embrace an alternative system. There is no other way. (March 5, 2008)