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 ofprofits, 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 Reseahttp://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

Alternative1. 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 beingcompelled to increase their competitiveness via deep real wage cuts, as part of a more general shocktherapy in these countries. Sharp and long-lasting increases in unemployment, augmenting theindustrial reserve army, are likely to make the wage losses much strongerIn Japan, for example, the wage share declined by 8.9percent between 1992 and in 2007.

Germany is suffering from the curse of its neo-mercantilist strategy—growth based on exportmarkets via stagnant or declining wages, which had led to decades of stagnant domestic demand. Thechronic current account deficits of Greece, Portugal, Spain, and Italy—the outcome of the historicalfailure of the European Union and its single currency to provide for regional convergence—are nowproving to be detrimental, as financial investors are asking for much higher interest rates in return forthe government bonds of these deficit countries

The Eastern European Slowdownexcessive dependence on foreign capital flows

severely affected by the credit crash, capital outflows, and the currencycrises accompanying the banking crisis

FDI is still more robust than other capital flows, but in the first quarter of 2009, FDI inflowsfell by 20-80 percent

FDI not only finances but also creates current account deficits; the average profitrepatriation rate has been 70 percent in the region, and FDI has been about equal or less than therepatriated profits in Hungary, Slovakia, and the Czech Republic.

Overall, their greater fiscal capacity has helped many Western European countries toweather the shock better than developing countries

The most important obstacle today to initiating a progressive economic policy in Europe is thespeculation on public debt and the governments’ commitment to satisfy the financiers. Public financehas to be unchained via debt default in both the periphery and the core. Alternative policies mustinvolve 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 overemphasison low interest rates in the United States and very little debate about the liberalization of financialmarkets.

Policies to address a major root of the crisis, the dramatic pro-capital shift in incomedistribution, are nowhere to be found. With regard to global imbalances, much of the emphasis is onthe overconsumption of the United States or low wages and an undervalued currency of China, ratherthan wage dumping and stagnant domestic consumption in Germany.