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    New Left Review 20, March-April 2003

    In a landmark engagement with Robert renner!"

    acco#nt of the long downt#rn of the world econom$

    "ince the %0", &iovanni Arrighi la$" o#t a "ocial and

    political econom$ of the role" of labo#r #nre"t, national

    liberation and corporate financiali'ation in the cri"i" ofthe po"t-war order, and the pro"pect" for a militari'ed

    () hegemon$ toda$*

    GIOVANNI ARRIGHI

    THE SOCIAL AND POLITICAL

    ECONOMY OF GLOBAL

    TURBULENCE

    Depression, wrote Thorstein Veblen shortly after the end of the Great

    Depression of 187396, is priarily a alady of the affe!tions of the

    b"siness en# That is the seat of the diffi!"lty# The sta$nation of ind"stry

    and the hardship s"ffered by the wor%en and other !lasses are of the

    nat"re of syptos and se!ondary effe!ts To be effi!a!io"s reedies

    "st, therefore, be s"!h as to rea!h this eotional seat of the tro"ble

    and # # # restore profits to a &reasonable' rate#(1) *etween 1873 and 1896

    pri!es had fallen "ne+enly b"t ineorably, in what Da+id -andes has !alledthe ost drasti! deflation in the eory of an .lon$ with pri!es, the

    rate of interest had dropped to the point where e!onoi! theorists be$an

    to !on/"re with the possibility of !apital so ab"ndant as to be a free $ood#

    .nd profits shran%, while what was now re!o$ni0ed as periodi! depressions

    seeed to dra$ on interinably# The e!onoi! syste appeared to be

    r"nnin$ down#()

    2n reality, the e!onoi! syste was not r"nnin$ down rod"!tion and

    in+estent !ontin"ed to $row not /"st in the newly ind"striali0in$ !o"ntries

    of the tie 4ost notably, Gerany and the 5 b"t in *ritain as wellso

    "!h so that, writin$ at the sae tie as -andes, another historian !o"ld

    de!lare the Great Depression of 187396 nothin$ b"t a yth# (3)e+ertheless, as Veblen s"$$ests, there is no !ontradi!tion in sayin$ that

    there was a $reat depression at a tie of !ontin"in$ epansion in

    prod"!tion and in+estent# :n the !ontrary; the $reat depression was not

    a yth pre!isely becauseprod"!tion and trade, in *ritain and in the worlde!onoy at lar$e, had !ontin"ed to epand too rapidly for profits to be

    aintained at what was !onsidered a reasonable rate#

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    nineteenth !ent"ry had led to a syste=wide intensifi!ation of !opetiti+e

    press"res on the a$en!ies of !apital a!!""lation# .n in!reasin$ n"ber of

    b"siness enterprises, fro an in!reasin$ n"ber of lo!ations a!ross the

    5>=!entred world e!onoy, were $ettin$ in one anothers way in the

    pro!"reent of inp"ts and disposal of o"tp"ts, thereby destroyin$ one

    anothers pre+io"s onopoliesthat is, their ore=or=less e!l"si+e

    !ontrol o+er parti!"lar ar%et ni!hes#

    This shift fro onopoly to !opetition was probably the ost

    iportant sin$le fa!tor in settin$ the ood for ?"ropean ind"strial

    and !oer!ial enterprise# ?!onoi! $rowth was now also e!onoi!

    str"$$lestr"$$le that ser+ed to separate the stron$ fro the wea%,

    to dis!o"ra$e soe and to"$hen others, to fa+o"r the new # # #

    nations at the epense of the old# :ptiis abo"t the f"t"re of

    indefinite pro$ress $a+e way to "n!ertainty and a sense of a$ony#(@)

    *"t then, all of a s"dden, as if by a$i!,

    the wheel t"rned# 2n the last years of the !ent"ry, pri!es be$an to

    rise and profits with the# .s b"siness ipro+ed, !onfiden!e

    ret"rnednot the spotty, e+anes!ent !onfiden!e of the brief boosthat had p"n!t"ated the $loo of the pre!edin$ de!ades, b"t a

    $eneral e"phoria s"!h as had not pre+ailed sin!e # # # the early

    187As# ?+erythin$ seeed ri$ht a$ainin spite of rattlin$s of ars

    and onitory

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    a !oparison as to "se the earlier eperien!e as a foil in assessin$ the

    +alidity and liits of *renners ar$"ent# 2n the first part of what follows, 2

    shall re!onstr"!t as best 2 !an *renners analysis, fo!"sin$ on its ost

    interestin$ and essential aspe!ts# 2n the se!ond se!tion, 2 re=eaine the

    ar$"ent !riti!ally, fo!"sin$ on its wea%nesses and liits# 2 will !on!l"de by

    in!orporatin$ y !ritiC"es into a re+ised +ersion of *renners ar$"ent#

    I. THE ECONOMICS OF GLOBAL TURBULENCE

    *renners ob/e!ti+e in The Boom and the Bubble, as in his earlier?!onoi!s of Global T"rb"len!e, is to pro+ide e+iden!e in s"pport of three

    !losely related propositions# The first is that the transformationof the lon$epansion of the 19BAs and 196As into the !oparati+e sta$nation of the

    197As and 198As was ins!ribed in the for!es that dro+e the epansion# The

    se!ond is that the persistence of !oparati+e sta$nation, fro 1973 to1993, was d"e priarily to the ways in whi!h the b"siness and

    $o+ernental or$ani0ations of the leadin$ !apitalist states responded to thesharp and $enerali0ed fall in profitability that ar%ed the initial

    transforation of epansion into sta$nation# .nd the third !ontention is

    that the revival of the 5 e!onoy after 1993 was not based on aresol"tion of the probles "nderlyin$ the lon$ downt"rn indeed, it ay

    a!t"ally ha+e a$$ra+ated the, as witness the world=e!onoi! !risis of

    199798 and the potentially e+en ore serio"s !risis that the 5 and world

    e!onoies ha+e eperien!ed sin!e the b"rstin$ of the new e!onoy

    b"bble#

    A+ (neven evelopment from oom to .ri"i"

    .s ar$"ed in detail in Global T"rb"len!e, and briefly s"ari0ed at the

    o"tset of The Boom and the Bubble, *renner sees both the lon$ boo ofthe 19BAs and 196As and the !risis of profitability between 196B and 1973,

    whi!h bro"$ht the boo to an end, as rooted in what he !alls "ne+en

    de+elopent# 2n *renners definition, this is the pro!ess whereby la$$ards

    in !apitalist de+elopent see% to and e+ent"ally s"!!eed in !at!hin$ "p

    with the world=e!onoi! leaders#(9)

    Eo!"sin$ on Gerany and Hapan as the ost s"!!essf"l aon$ the

    la$$ards who, after the e!ond orld ar, attepted to !at!h "p with prior

    de+elopental a!hie+eents of the 5, *renner ar$"es that it was the

    !apa!ity of these two !o"ntries to !obine the hi$h=prod"!ti+ity

    te!hnolo$ies, pioneered by the 5nited tates, with the lar$e, low=wa$e

    labo"r s"pplies !rowdin$ their !oparati+ely ba!%ward and r"ral sall=

    b"siness se!tors, that p"shed "p their rates of profit and in+estent#

    Thro"$h the early 196As this tenden!y did not ne$ati+ely affe!t 5

    prod"!tion and profit, be!a"se $oods prod"!ed abroad reained for the

    ost part "nable to !opete in the 5 ar%et and be!a"se 5 prod"!ers

    depended to only a sall etent on o+erseas sales# 2n this !r"!ial respe!t,

    therefore, "ne+en de+elopent was # # # still to a s"rprisin$ etent

    separate de+elopent# (1A) 2ndeed, altho"$h "ne+en e!onoi!

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    de+elopent did entail the relative de!line of the 5 doesti! e!onoy # # #it was also a pre!ondition for the !ontin"ed +itality of the doinant for!es

    within the 5 politi!al e!onoy;

    5 "ltinational !orporations and international ban%s, aiin$ to

    epand o+erseas, needed profitable o"tlets for their forei$n dire!t

    in+estent# Doesti!ally based an"fa!t"rers, needin$ to in!rease

    eports, reC"ired fast=$rowin$ o+erseas deand for their $oods# .n

    iperial 5 state, bent on !ontainin$ !o"nis and %eepin$ the

    world safe for free enterprise, so"$ht e!onoi! s"!!ess for its allies

    and !opetitors as the fo"ndation for the politi!al !onsolidation of

    the post=war !apitalist order # # # .ll these for!es th"s depended "pon

    the e!onoi! dynais of ?"rope and Hapan for the reali0ation of

    their own $oals#(11)

    2n short, "p to the early 196As, "ne+en de+elopent was a positi+e=s"

    $ae, whi!h b"ttressed a sybiosis, if a hi$hly !onfli!t"al and "nstable

    one, of leader and followers, of early and later de+elopers, and of he$eon

    and he$eoni0ed# (1) To paraphrase -andess a!!o"nt of the $reat

    depression of 187396, it had not yet be!oe e!onoi! str"$$lea 0ero=or e+en ne$ati+e=s" $ae that wo"ld benefit soe at the epense of

    others# 2n *renners own a!!o"nt of the onset of the lon$ downt"rn of

    197393, this is pre!isely what "ne+en de+elopent be!ae between 196B

    and 1973# *y then Gerany and Hapan had not /"st !a"$ht "p b"t had

    for$e(d) ahead of the 5 leader # # # in one %ey ind"stry after another

    tetiles, steel, a"toobiles, a!hine tools, !ons"er ele!troni!s

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    in their doesti! e!onoies by the eport=led prod"!tion boo with a

    repression of doesti! deand, whi!h f"rther in!reased both their trade

    s"rpl"ses and spe!"lati+e deand for their !"rren!ies# (1B) .t the end of

    Hohnsons adinistration and at the be$innin$ of ions, the 5

    $o+ernent did attept to t"rn the tide of $rowin$ international onetary

    instability, thro"$h fis!al a"sterity and ti$ht onetary poli!ies# oon,

    howe+er,

    the politi!al !osts of s"stainin$ a serio"s anti=inflationary poli!ynot

    to ention the alarin$ fall in the sto!% ar%et # # # pro+ed

    "na!!eptable to the ion .dinistration# ell before the defeat of

    the Fep"bli!ans in the !on$ressional ele!tions of o+eber 197A,

    and as hi$h interest rates threatened to !ho%e off the re!o+ery, the

    $o+ernent t"rned on!e a$ain to fis!al sti"l"s and the Eed

    a!!oodated with a poli!y of easy !redit# .s ion was to p"t it

    se+eral onths later, e are all >eynesians now#(16)

    The 5 t"rn to a!roe!onoi! epansionary poli!ies in id=197A so"nded

    the death %nell for the $olddollar standard# .s interest rates fell in the

    5nited tates, while reainin$ hi$h or in!reasin$ in ?"rope and Hapan,short=ter spe!"lati+e oney fled the dollar, sendin$ the 5 balan!e=of=

    payents defi!it 4short and lon$ ter thro"$h the roof# The half=hearted

    attept of the ithsonian .$reeent of De!eber 1971 to preser+e fied

    e!han$e rates thro"$h a 7#9 per !ent de+al"ation of the dollar a$ainst

    $old, and a re+al"ation of the ar% by 13#B per !ent and of the yen by 16#9

    per !ent a$ainst the dollar, failed to !ontain the renewed downward

    press"re that the ion adinistration p"t on the 5 !"rren!y thro"$h yet

    another ro"nd of e!onoi! sti"l"s# *y 1973, the press"re be!ae

    "nbearable, res"ltin$ in a f"rther a/or de+al"ation of the dollar and the

    foral abandonent of the fied=rate syste of e!han$e in fa+o"r of the

    float#(17)

    The assi+e de+al"ation of the dollar a$ainst the ar% 4by a total of BA per

    !ent, between 1969 and 1973 and the yen 4by a total 8# per !ent, fro

    1971 to 1973*renner !laisse!"red the %ind of t"rnaro"nd in relati+e

    !osts that (the 5 an"fa!t"rin$ se!tor) had been "nable to a!hie+e by

    way of prod"!ti+ity $rowth and wa$e restraint The t"rnaro"nd had a

    $al+ani0in$ effe!t on the 5 e!onoy# rofitability, in+estent $rowth and

    labo"r prod"!ti+ity in an"fa!t"rin$ sta$ed a !oeba!%, and the 5 trade

    balan!e was restored to a s"rpl"s# The ipa!t on the Geran and Hapanese

    e!onoies was /"st the opposite# The !opetiti+eness of their

    an"fa!t"rers was sharply !"rtailed, a%in$ it their t"rn to fore$o their

    hi$h rates of ret"rn if they wished to aintain their sales The world !risis

    of profitability had not been o+er!oe# *"t its b"rden was now ore e+enly

    shared aon$ the !hief !apitalist !o"ntries#(18)

    2n s", "ne+en e!onoi! de+elopent"nderstood as a pro!ess of

    s"!!essf"l !at!hin$ "p of la$$ard with leadin$ e!onoi! powersprod"!ed

    both the lon$ postwar boo and the !risis of profitability of the late 196As

    and early 197As# .s lon$ as the !at!hin$ "p was $oin$ on, it s"stained a

    worldwide +irt"o"s !ir!le of hi$h profits, hi$h in+estents and in!reasin$

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    prod"!ti+ity# *"t on!e the la$$ardsor at least two of the ost si0eable

    oneshad a!t"ally !a"$ht "p with the forer leader, the res"lt was a

    worldwide $l"t of prod"!ti+e !apa!ity and a !onseC"ent downward press"re

    on rates of profit# oon, howe+er, a assi+e, $o+ernent=s"pported

    de+al"ation of the dollar a$ainst the ar% and the yen distrib"ted the fall in

    profitability ore e+enly aon$ the three ain !apitalist powers#

    + 1ver-.apacit$ and er"i"tent )tagnation

    5ne+en de+elopent $enerated the e!ess !apa!ity that pro+o%ed the

    $eneral fall in the rate of profit between 196B and 1973# *"t it was the

    fail"re of !apitalist enterprises and $o+ernents to restore profitability to

    its pre+io"s le+els thro"$h the eliination of e!ess !apa!ity that was

    priarily responsible for the persisten!e of !oparati+e sta$nation o+er the

    two de!ades fro 1973 to 1993# 2n *renners !on!ept"ali0ation, there is

    o+er=!apa!ity and o+er=prod"!tion 4two ters he always "ses to$ether

    when there is ins"ffi!ient deand to allow hi$her=!ost firs to aintain

    their forer rates of profit# These firs are th"s obli$ed to !ease "sin$

    soe of their eans of prod"!tion and !an a%e "se of the rest only bylowerin$ their pri!es and th"s their profitability# There is o+er=!apa!ity and

    o+er=prod"!tion, with respect to the hitherto-eistin! profit rate# (19)?ither the o+er=s"pply of prod"!ti+e !apa!ity is eliinated, or the rate of

    profit "st fall, with all the dire !onseC"en!es that s"!h a fall entails in a

    !apitalist e!onoy, fro drops in the rates of in+estent and prod"!ti+ity

    $rowth to the de!line of real wa$es and le+els of eployent# *renners

    !ontention is that, at least "p to 1993, the o+er=s"pply of prod"!ti+e

    !apa!ity that "nderlay the !risis of profitability of 196B73, far fro bein$

    eliinated, if anythin$ in!reased f"rther, !ontin"ally depressin$ profitability#

    The !ontention is based on two lines of ar$"ent, one !on!ernin$ !apitalist

    enterprises and one !on!ernin$ $o+ernents# 2n *renners

    !on!ept"ali0ation of world !apitalis, there is no spontaneo"s ar%et

    e!hanis that will pre+ent o+er=!apa!ity fro de+elopin$ in a lar$e

    n"ber of ind"stries, or fro be!oin$ a !hroni! feat"re of the world

    e!onoy on!e it has de+eloped# Ji$her=!ost in!"bent firs ha+e both the

    eans and the in!enti+e to resist eit fro o+er!rowded ind"stries, while

    o+er=!apa!ity and fallin$ profits do not ne!essarily dis!o"ra$e new entry#

    Ji$her=!ost in!"bents resist eit be!a"se any of their tan$ible and

    intan$ible assets !an be reali0ed only in their established lines of

    prod"!tion and wo"ld be lost were (the in!"bents) to swit!h lines#

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    eistin$ o+er=!apa!ity and o+er=prod"!tion#(A)

    .t the sae tie, the a$$ra+ation of o+er=!apa!ity does not deter new

    entry and a !onseC"ent f"rther downward press"re on the rate of profit#

    :n the !ontrary# The initial fall in profitability # # # !an be epe!ted to

    intensify the world=wide dri+e for e+en lower prod"!tion !osts, thro"$h the

    !obination of e+en !heaper labo"r with e+en hi$her le+els of te!hniC"es instill later=de+elopin$ re$ions#(1) The ost !onspi!"o"s instan!e of s"!h

    new entry d"rin$ the lon$ downt"rn were prod"!ers based in so=!alled -ess

    De+eloped Ko"ntriesespe!ially in ?ast .sia, b"t also

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    !risis re!ession of 197@B and to !ontin"e to epand d"rin$ the reainder

    of the de!ade# e+ertheless, in their effe!ts >eynesian sti"li pro+ed to be

    profo"ndly abi+alent# hile s"stainin$ the $rowth of deand

    doesti!ally and internationally, >eynesian reedies helped to perpet"ate

    o+er=!apa!ity and o+er=prod"!tion, pre+entin$ the harsh edi!ine of

    sha%eo"t, indeed depression, that histori!ally had !leared the way for new

    "pt"rns (in profitability) Fed"!ed profitability, in t"rn, ade firs "nable

    and "nwillin$ # # # to brin$ abo"t as $reat an in!rease in s"pply as in the

    past when profit rates were hi$her # # with the res"lt that the e+er=

    in!reasin$ p"bli! defi!its of the 197As bro"$ht abo"t not so "!h in!reases

    in output as rises in prices The es!alation in inflationary press"res wasa!!opanied by re!ord=brea%in$ defi!its in the 5 balan!e of payents# *y

    197778 these defi!its pre!ipitated a de+astatin$ r"n on the 5 !"rren!y

    that threatened the dollars position as an international reser+e !"rren!y,

    (!learin$ the path) for a a/or !han$e of perspe!ti+e#(3)

    The !han$e !ae with the Fea$anThat!her onetarist re+ol"tion of 1979

    8A# .!!ordin$ to *renner, its ain ob/e!ti+e was to re+i+e profitability, not

    /"st or e+en priarily in an"fa!t"rin$, b"t in the low=prod"!ti+ity ser+i!e

    se!tor and, espe!ially, in the doesti! and international finan!ial se!tors,

    thro"$h red"!ed !orporate taation, in!reased "neployent and the

    eliination of !apital !ontrols# 5nli%e earlier, >eynesian sol"tions, howe+er,

    onetarist reedies so"$ht to restore profitability by adinisterin$ the

    harsh edi!ine of sha%eo"t# 5npre!edentedly ti$ht !redit pro+o%ed a p"r$e

    of that $reat led$e of hi$h=!ost, low=profit an"fa!t"rin$ firs that had

    been s"stained by the >eynesian epansion of !redit .ltho"$h inflationary

    press"res were rapidly bro"$ht "nder !ontrol, re!ord=hi$h 5 real interest

    rates and the risin$ dollar asso!iated with the threatened to pre!ipitate a

    worldwide !rash, startin$ in the 5#(@)

    The !rash was a+oided by the fort"ito"s ret"rn of >eynesianiswith a

    +en$ean!e# Fea$ans on"ental pro$rae of ilitary spendin$ and ta

    red"!tion for the ri!h # # # partly offset the ra+a$es of onetarist ti$ht !redit

    and %ept the e!onoy ti!%in$ o+er# Fea$anite poli!ies did, of !o"rse, brin$

    ba!% !"rrent=a!!o"nt defi!its, also with a +en$ean!e, espe!ially sin!e, fro

    this point onward, ost of the rest of the world in!reasin$ly es!hewed

    >eynesian p"bli! defi!its# .s in the 197As, "npre!edented defi!its pro+ided

    the in/e!tions of deand that were needed # # # to p"ll the world e!onoy

    o"t of the re!ession of 19798# 2n !ontrast to the 197As, howe+er, e+en

    lar$er 5 defi!its did not now pro+o%e a r"n on the dollar# :n the !ontrary,

    the p"ll of etreely hi$h real interest rates and a p"sh fro the Hapanese

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    nonetheless pro+ed !atastrophi! for lar$e se!tions of 5 an"fa!t"rin$#

    5nder stron$ press"re fro Kon$ress and any of the !o"ntrys leadin$

    !orporate ee!"ti+es, the Fea$an adinistration had little !hoi!e b"t to

    "nderta%e an epo!h=a%in$ re+ersal of dire!tion# The !entrepie!e of this

    re+ersal was the la0a .!!ord of epteber , 198B, whereby the G=B

    powers, "nder 5 press"re, a$reed to ta%e /oint a!tion to help .eri!an

    an"fa!t"rers by red"!in$ the e!han$e rate of the dollar# The +ery net

    day, the .!!ord was !opleented by stepped="p 5 den"n!iations of the

    "nfair tradin$ pra!ti!es of other !o"ntries# The den"n!iations soon

    es!alated into threats, s"pported by new le$islationost notably, the

    :nib"s Trade and Kopetition .!t of 1988 and the tr"!t"ral

    2pedients .!t of 1989to !lose off the 5 ar%et to leadin$ 4ostly

    ?ast .sian forei$n !opetitors# This was a bl"d$eon both to liit their

    iportsthro"$h +ol"ntary eport restraintsand to for!e the openin$ of

    their ar%ets to 5 eports and forei$n dire!t in+estent#(6)

    2n see%in$ a radi!al de+al"ation of the dollar while si"ltaneo"sly steppin$

    "p prote!tionist and ar%et=openin$ eas"res, the Fea$an adinistration

    was followin$ in the footsteps of ion, Eord and Karter# The o"t!oe of

    these initiati+es in the 198As and early 199As was nonetheless C"ite

    different to that of the 197As#

    The la0a .!!ord, and its seC"els, pro+ed to be the t"rnin$ point in

    the 5 an"fa!t"rin$ t"rnaro"nd, and a a/or watershed for the

    world e!onoy as a whole# 2t set off ten years of ore or less

    !ontin"o"s, and a/or, de+al"ation of the dollar with respe!t to the

    yen and the ar%, whi!h was a!!opanied by a de!ade=lon$ free0e

    on real wa$e $rowth# 2t thereby opened the way si"ltaneo"sly for

    the re!o+ery of !opetiti+eness, alon$ with the speed="p of eport

    $rowth, of 5 an"fa!t"rin$ a se!"lar !risis of Geran and

    Hapanese ind"stry and an "npre!edented eplosion of eport=based

    an"fa!t"rin$ epansion thro"$ho"t ?ast .sia, where e!onoies for

    the ost part tied their !"rren!ies to the dollar and thereby se!"red

    for their an"fa!t"rin$ eporters a a/or !opetiti+e ad+anta$e +is=

    I=+is their Hapanese ri+als when the dollar fell between 198B and

    199B#(7)

    *y 1993, the tenden!ies set off by the la0a .!!ord, alon$ with the prior

    sha%eo"t of the 5 ind"strial str"!t"re pro+o%ed by the "npre!edentedly

    ti$ht !redit of the early 198As, res"lted in a re+i+al of 5 profitability,

    in+estent and prod"!tion# (8) To paraphrase Veblen, the reedies

    !on!o!ted by the $o+ernent to !"re the alady of the affe!tions of 5

    b"siness seeed, at lon$ last, to ha+e rea!hed the eotional seat of the

    tro"ble and restored profits to a reasonable rate# The !"re, howe+er, hadsoe serio"s side effe!ts#

    2n *renners +iew, the ain proble was that the 5 re+i+al had o!!"rred

    priarily at the epense of its Hapanese and estern ?"ropean ri+als and

    had done little to o+er!oe the "nderlyin$ o+er=!apa!ity and o+er=

    prod"!tion in an"fa!t"rin$ whi!h ha"nted the $lobal e!onoy# This 0ero=

    s" nat"re of the re+i+al was probleati! for the 5nited tates itself# Eor

    one thin$, the e+er slower $rowth of world deand, and in parti!"lar the

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    related intensifi!ation of international !opetition in an"fa!t"rin$ liited

    the re+i+al there, too#

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    the f"ll dilation of the new e!onoy b"bble and the other, the ipa!t of

    the b"bble on the re+i+al# -et "s eaine ea!h ar$"ent in t"rn#

    2n his ?!onoi!s of Global T"rb"len!e, written before eC"ity pri!es went

    thro"$h the roof at the end of the 199As, *renner epressed serio"s do"bts

    abo"t whether the on$oin$ re+i+als of the 5 and world e!onoies

    !onstit"ted a definiti+e trans!enden!e of the lon$ downt"rn# Je fo"nd littlee+iden!e of the %ind of syste=wide re!o+ery of profitability that wo"ld

    ha+e si$nalled the o+er!oin$ of the se!"lar proble of an"fa!t"rin$

    o+er=!apa!ity and o+er=prod"!tion# Je did a!%nowled$e that, in the wa%e

    of the re+erse la0a .!!ord, the 5nited tates had eperien!ed an eport=

    led boo whi!h !ontrib"ted s"bstantially to settin$ off ore rob"st eport

    $rowth in both ?"rope and Hapan# This tenden!y held o"t the possibility

    that the ad+an!ed !apitalist e!onoies are finally ready to follow a

    ithian re!ipe of "t"ally self=reinfor!in$ $rowth thro"$h spe!iali0ation

    and the $ains fro trade Je nonetheless went on to ar$"e that the

    o"tbrea% of the ?ast .sian !risis of 199798 deonstrated the persisten!e,

    or e+en a stren$thenin$, of the tenden!y towards o+er=prod"!tion and

    o+er=!apa!ity#(33)

    *renner also entioned the possible eer$en!e of another optiisti!

    s!enario, whereby

    the flood of low=pri!ed $oods !oin$ fro Hapan and the rest of .sia

    wo"ld ainly ser+e # # # not so "!h to for!e down 5 prod"!ers

    pri!es and profits as to red"!e their prod"!tion !osts, enhan!in$ their

    !opetiti+eness, in!reasin$ their ar%"ps and sti"latin$ f"rther

    !apital a!!""lation# They wo"ld, by the sae to%en, re+i+e the lo!al

    e!onoies, a%in$ possible the $reater absorption of 5 iports#

    Kopleentarity wo"ld, in other words, o+erride !opetition, settin$

    off a +irt"o"s "pward spiral, with the 5 p"llin$ alon$ the world

    e!onoy toward a new boo#(3@)

    :n balan!e, howe+er, *renner was s!epti!al abo"t the li%elihood that this

    alternati+e s!enario !o"ld a!t"ally ateriali0e# Father, he epe!ted world

    eports to $row ore rapidly than world ar%ets, perpet"atin$ and

    ea!erbatin$ the lon$er=ter trend towards o+er=!apa!ity and o+er=

    prod"!tion# 2n parti!"lar, he fo"nd it hard to belie+e that the radi!al

    de+al"ation of .sian !"rren!iesespe!ially that of the yen, by soe @A per

    !ent sin!e 199Bwo"ld not eer!ise an e!r"!iatin$ downward press"re on

    5 an"fa!t"rers pri!es and profits#

    2n this ore probable s!enario, red"ndant prod"!tion wo"ld yet a$ain

    "nderine the $ains fro trade and competition would end up

    trumpin! complementarity# The a!!eleratin$ s"pply of world eportsin the fa!e of shrin%in$ ar%ets, far fro f"ellin$ 5 profits and

    s"stainin$ the boo, wo"ld "nder!"t the and thereby the re!o+ery,

    in this way !"ttin$ short a syste=wide se!"lar "pt"rn and ris%in$ a

    serio"s new t"rn downward of the world e!onoy#(3B)

    2n the two years followin$ the p"bli!ation of Global T"rb"len!e,

    s%yro!%etin$ 5 eC"ity pri!es and a propt re!o+ery of the world e!onoy

    fro the ?ast .sian !risis i$ht ha+e seeed to in+alidate this pessiisti!

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    !on!l"sion# .ltho"$h the new e!onoy b"bble had already b"rst and

    "!h of the hype s"rro"ndin$ the sharp 5 e!onoi! "pt"rn of the 199As

    had waned before The Boom and the Bubblewas !opleted, two C"estionsreained open; first, how did the b"bble fit in the s!hee of thin$s laid o"t

    in Global T"rb"len!eN .nd se!ond, how did its o!!"rren!e affe!t *renners

    epe!tations for the f"t"re of the 5 and world e!onoiesN

    2n answer to the first C"estion, *renner has no diffi!"lty in eplainin$ the

    b"bble in ters of the "nintended, b"t !ertainly not "nwel!oe, effe!ts of

    the re+erse la0a .!!ord on the one side, and the Eederal Feser+es

    p"rposef"l n"rt"rin$ of risin$ eC"ity pri!es on the other# ?+en before 199B,

    the re!o+ery of profitability in 5 an"fa!t"rin$ had translated into an

    in!rease in sto!% pri!es# The re+erse la0a .!!ord aplified this in!rease

    for forei$n in+estors by p"shin$ "p the +al"e of the dollar#

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    easy !redit re$ie were ne!essary !onditions of the eC"ity=ar%et b"bble#

    *"t the ain a!ti+e for!e in its dilation were 5 non=finan!ial !orporations,

    whi!h eploited these !onditions to rat!het "p their borrowin$ for the

    p"rpose of b"yin$ shares in !olossal C"antitieseither to a!!oplish

    er$ers and a!C"isitions or to siply re=p"r!hase 4retire their own

    o"tstandin$ eC"ities ?nterin$ "pon the $reatest wa+e of a!!""lation of

    debt in their history, 5 !orporations p"ped "p share +al"es at

    "npre!edented rates# in!e risin$ eC"ity pri!es, by pro+idin$ $rowin$

    paper assets and thereby in!reased !ollateral, fa!ilitated still f"rther

    borrowin$, the b"bble was enabled to s"stain itself, as well as to f"el the

    stron$ !y!li!al "pt"rn already in pro$ress#(38)

    Impact of the b#bble

    This brin$s "s to o"r se!ond C"estion# Jow did the b"bble affe!t the re+i+al

    already in pro$ressN Did it !han$e the !onditions of the "pt"rn to render

    ore probable the eer$en!e of one of the optiisti! s!enarios abo"t

    whi!h *renner had been so s!epti!al in Global T"rb"len!eN *renners

    answer is that, by f"rther in!reasin$ international o+er=!apa!ity and o+er=prod"!tion, the b"bble ade any s"!h o"t!oe e+en less li%ely# The

    inflation of the paper +al"e of their assets, and the b"bble=ind"!ed wealth

    effe!t on !ons"er deand, led !orporations to in+est well abo+e what

    was warranted by their a!t"ally reali0ed profits# .s a res"lt, as soon as the

    wealth effe!t !eased to s"bsidi0e prod"!ti+ity $rowth, in+estent and

    !ons"er deand, firs # # # were bo"nd to s"ffer tr"ly e!r"!iatin$

    downward press"re on their rates of ret"rn# 2ndeed, writin$ in id=AA1,

    *renner already obser+ed the initial ipa!t on the 5 and world e!onoies

    of the b"rst b"bble and the h"$e $l"t of prod"!ti+e !apa!ity left in its

    wa%eost notably, a disastro"s de!line in the non=finan!ial !orporate

    profit rate, whi!h wiped o"t +irt"ally all of the $ains in profitabilitya!hie+ed in the epansion of the 199As and a sharp !ontra!tion in !apital

    a!!""lation#(39)

    2n spe!"latin$ on how serio"s the ens"in$ downt"rn wo"ld be, *renner

    rea!hes essentially the sae !on!l"sions he had !oe to fo"r years earlier

    in Global T"rb"len!e# Je points o"t that the "nderlyin$ C"estion is still

    whether the bi$ re!essions and !rises # # # that had p"n!t"ated the 199As,

    as well as the rise of new ind"stries all a!ross the ad+an!ed !apitalist

    world, had finally rid international an"fa!t"rin$ of its tenden!y to

    red"ndant prod"!tion and ade for the # # # in!rease in !opleentarity

    that was reC"ired to finally s"pport a dynai! international epansion :n

    balan!e, he a$ain finds that no s"!h sha%eo"t had a!t"ally o!!"rred# :nthe !ontrary, in his /"d$eent the b"rstin$ of the b"bble left the 5

    e!onoy wei$hed down by any of the sae sta$nationist for!es that

    held ba!% the Hapanese e!onoy at the end of its b"bblethat is, boththe downward spiral set off by the b"bble=in=re+erse and an internationalan"fa!t"rin$ se!tor still !onstrained by o+er=!apa!ity and o+er=

    prod"!tion# .ltho"$h the 5 ay be in a position to a+oid the ban%in$

    !risis that has !rippled Hapan, it nonetheless la!%s the enoro"s sa+in$s

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    and !"rrent=a!!o"nt s"rpl"ses that ha+e enabled Hapanso farto "ddle

    thro"$h# 2t is therefore +"lnerable, not /"st to the destr"!ti+e red"!tions in

    deand that wo"ld ens"e fro attepts to red"!e the h"$e indebtedness

    of 5 !orporations and ho"seholds, b"t also to the possibility of

    withdrawals of forei$n in+estent and !onseC"ent r"ns on the dollar#(@A)

    5nder these !ir!"stan!es, the 5nited tates is ore li%ely to lead theworld e!onoy into a self=reinfor!in$ re!ession than a re!o+ery# 2n a sense,

    s"!h a re!ession wo"ld !onstit"te a !ontin"ation of the international !risis

    of 199798, whi!h was teporarily postponed by the last phase of the 5

    sto!% ar%et r"n="p b"t ne+er f"lly resol+ed# .s in that earlier !risis, ?ast

    .sia will on!e a$ain pro+e the worlds powder %e$, with assi+e o+er=

    !apa!ity in Hapan and elsewhere in the re$ion eer!isin$ a stron$ downward

    press"re on profitability, lo!ally and $lobally#(@1) r"dently, *renner does

    not !oit hiself to any parti!"lar s!enario# *"t the o+erwhelin$

    ipression with whi!h we are left is that the lon$ downt"rn is far fro

    o+er indeed, that the worst is yet to !oe#

    II. LONG DOWNTURN IN WORLD-HISTORICAL

    PERSPECTIVE

    e are all in debt to *renner for pro+idin$ a systeati! analysis of $lobal

    t"rb"len!e whi!h !ontrasts sharply with the pre+ailin$ iedia!y and

    s"perfi!iality of eistin$ a!!o"nts of the relationship between the 5nited

    tates and the world e!onoy o+er the past half=!ent"ry# 2 !annot thin% of

    a better startin$ point fro whi!h to "nra+el the !opleities of that

    relationship# .t the sae tie, we sho"ld not be s"rprised if an analysis of

    this s!ope raises ore C"estions than it !an resol+e# -et "s see what these

    C"estions are and in whi!h dire!tions we sho"ld loo% in order to pro+idesoe answers#

    The !entral thesis "nderlyin$ all *renners !ontentions is that the

    persisten!e of relati+e sta$nation in the world e!onoy at lar$e o+er the

    last thirty years has been d"e to too little eit and too "!h entrytoo

    little and too "!h, that is, relati+e to what wo"ld be reC"ired in order to

    restore profitability in an"fa!t"rin$ to the le+el it had attained d"rin$ the

    lon$ boo of the 19BAs and 196As# .s we ha+e seen, *renner tra!es this

    tenden!y to the "t"ally reinfor!in$ a!tion of the beha+io"r of hi$her=!ost

    in!"bent firs and the poli!ies of the $o+ernents of the worlds three

    lar$est e!onoies# .s a res"lt of this !obination, ea!h of these three, and

    the world e!onoy at lar$e, were pre+ented fro p"r$in$ s"perfl"o"s,hi$h=!ost eans of prod"!tion by the standard capitalist methods ofban%r"pt!y, downsi0in$, and layoffs#

    Ji$her !ostOlower profit firs were th"s able to lon$ o!!"py e!onoi!

    positions that !o"ld, in the abstra!t, e+ent"ally ha+e been ass"ed

    by ore prod"!ti+e, hi$her profit, and ore dynai! enterprises# *"t

    allowin$ the less prod"!ti+e, less profitable firs to $o o"t of

    b"siness by lettin! the business cycle ta"e its natural course wo"ld

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    +ery li%ely ha+e t"rned the lon$ downt"rn, with its relati+ely serio"s

    b"t nonetheless liited re!essions, into outri!ht depression iplyp"t, the pre!ondition for restorin$ the syste to health was a debt=

    deflation, leadin$ to what in$do for the 5nited tates as the leadin$

    !o"ntry, and the 5 and Gerany for Gerany and Hapan as the la$$ards,

    *renners interpretation of the late=twentieth=!ent"ry lon$ downt"rn !an

    eC"ally well be applied to that of the late nineteenth !ent"ry#

    Differen!es between the two lon$ downt"rns were, in %ey respe!ts, e+en

    ore iportant than siilarities, as we shall see# Pet, fa!ed with a sit"ation

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    of intensifyin$ !opetition !oparable to that of the late twentieth !ent"ry,

    world !apitalis in the late nineteenth !ent"ry eperien!ed relati+e

    sta$nation for ore than twenty yearswith plenty of lo!al or short=li+ed

    !rises and re!essions, b"t witho"t the %ind of syste=wide sha%eo"t whi!h,

    a!!ordin$ to *renner, is the standard !apitalist ethod of restorin$

    profitability# 2n an"fa!t"rin$, in parti!"lar, there !ontin"ed to be too

    "!h entry and too little eit, as well as a/or te!hnolo$i!al and

    or$ani0ational inno+ations whi!h intensified rather than alle+iated

    !opetiti+e press"res syste=wide#(@B) .nd yet, in spite of the absen!e of

    a syste=wide sha%eo"t, in the !losin$ years of the !ent"ry profitability

    was restored, $eneratin$ the "pt"rn of the ?dwardian belle poque#

    .s ar$"ed in detail elsewhere, and f"rther spe!ified in a later se!tion of this

    arti!le, this "pt"rn !an be tra!ed to a response to syste=wide

    intensifi!ations of !opetition that has !hara!teri0ed world !apitalis fro

    its earliest, pre=ind"strial be$innin$s ri$ht "p to the present# This response

    !onsists of a syste=wide tenden!y, !entred on the leadin$ !apitalist

    e!onoy of the epo!h, towards the finan!iali0ation of pro!esses of !apital

    a!!""lation# 2nte$ral to the transforation of inter=!apitalist !opetition

    fro a positi+e= into a ne$ati+e=s" $ae, this tenden!y has also a!ted as

    a %ey e!hanis for restorin$ profitability, at least teporarily, in the

    de!linin$ b"t still he$eoni! !entres of world !apitalis# Ero this

    standpoint we !an dete!t reseblan!es, not /"st between the $reat

    depression of 187396 and the lon$ downt"rn of 197393, b"t also

    between the ?dwardian belle poque and the 5 e!onoi! re+i+al and$reat e"phoria of the 199As#(@6)

    hile a +erdi!t on the e+ent"al o"t!oe of the 199As re+i+al i$ht be

    preat"re, we %now that the ?dwardian belle poque ended in the!atastrophes of two world wars and the inter+enin$ $lobal e!onoi! !rash

    of the 193As# This !ollapse is, in fa!t, the only o!!"rren!e of the last

    !ent"ry and a half that !orresponds to *renners ia$e of a syste=wide

    sha%eo"t or o"tri$ht depression# 2f this is indeed what is si$nified by

    *renners ia$e, we "st !on!l"de that s"!h a sha%eo"t appears to ha+e

    been an e!eptional o!!"rren!e rather than the standard or nat"ral

    !apitalist ethod of restorin$ profitability# hat has re!"rred th"s far is the

    tenden!y for "ne+en de+elopent, in *renners sense, to $enerate a lon$

    boo, followed by a lon$ period of intensifyin$ !opetition, red"!ed

    profitability and !oparati+e sta$nation itself followed by an "pt"rn of

    profitability, based on a finan!ial epansion !entred on the epo!hs leadin$

    e!onoy# The one and only systei! brea%down of the last 1BA years has

    o!!"rred in the transition fro the first to the se!ond ro"nd of "ne+ende+elopent#

    .ontra"ted tra4ectorie"

    The C"estion then arises of whether a !oparable brea%down is now in the

    a%in$, and whether s"!h an o!!"rren!e is as f"ndaental a !ondition for

    the re+itali0ation of the $lobal e!onoy as *renner sees to thin%# 2n order

    to answer this C"estion, we "st hi$hli$ht not /"st the siilarities b"t also

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    the differen!es between the two lon$ downt"rnswhi!h are, indeed,

    eC"ally stri%in$# .ltho"$h both downt"rns were !hara!teri0ed by an

    es!alation of !opetiti+e str"$$les, these "nfolded alon$ radi!ally different

    paths# .s pre+io"sly noted, in 187396 the ain for of inter=enterprise

    !opetition was a pri!e war, res"ltin$ in the ost drasti! deflation in the

    eory of an# Klosely related to this tenden!y, the $o+ernents of the

    ain !apitalist !o"ntries s"b/e!ted their !"rren!ies to the self=re$"latin$

    e!haniss of a etalli! standard, thereby s"rrenderin$ de+al"ation and

    re+al"ation as a eans of !opetiti+e str"$$le#

    2n!reasin$ly, howe+er, $o+ernents be!ae a!ti+e s"pporters of their

    doesti! ind"stries thro"$h prote!tionist and er!antilist pra!ti!es,

    in!l"din$ the !onstr"!tion of o+erseas !olonial epiresthereby

    "nderinin$ the "nity of the world ar%et# .ltho"$h *ritain !ontin"ed to

    pra!ti!e free trade "nilaterally, it also reained in the +an$"ard of

    territorial epansion and epire b"ildin$ o+erseas# Ero the 188As, this

    tra/e!tory of intensifyin$ interstate !opetition in o+erseas=epire b"ildin$

    translated into the es!alation of the araents ra!e aon$ risin$ and

    de!linin$ !apitalist powers, whi!h e+ent"ally !ae to a head in the Eirst

    orld ar# .ltho"$h *ritain was an a!ti+e parti!ipant in this s!rable, it

    !ontin"ed to pro+ide the world e!onoy with !apital thro"$h two a/or

    wa+es of o+erseas in+estentin the 188As and in the 19AAswhi!h

    in!l"ded po"rin$ si$nifi!ant f"nds into the 5nited tates#

    2n all these respe!ts, the !opetiti+e str"$$le d"rin$ the late twentieth

    !ent"rys lon$ downt"rn "nfolded alon$ a radi!ally different path# D"rin$

    the 197As, in parti!"lar, !oodity pri!es $enerally rose rather than fell, in

    what was probably one of the $reatest syste=wide inflations in a tie of

    pea!e# .ltho"$h inflationary press"res were !ontained in the 198As and

    199As, pri!es !ontin"ed to rise thro"$ho"t the downt"rn# .t its o"tset, the

    last ten"o"s lin% between onetary !ir!"lation and a etalli! standardthe

    $olddollar e!han$e rate established at *retton oodswas se+ered and

    ne+er a$ain restored# .s *renner "nders!ores, the $o+ernents of the

    ain !apitalist !o"ntries were th"s in a position to "se the de+al"ation and

    re+al"ation of !"rren!ies as a eans of !opetiti+e str"$$le# .nd while

    they did so systeati!ally, they nonetheless !ontin"ed to proote the

    inte$ration of the world ar%et thro"$h a series of ne$otiations whi!h

    f"rther liberali0ed $lobal trade and in+estent, e+ent"ally res"ltin$ in the

    foration of the orld Trade :r$ani0ation#

    Ear fro bein$ "nderined, the "nity of the world ar%et was th"s f"rther

    !onsolidated d"rin$ this period# or was there any si$n of an araent

    ra!e aon$ risin$ and de!linin$ !apitalist powers# :n the !ontrary, after

    the final es!alation of the Kold ar ars b"ild="p in the 198As, $lobal

    ilitary !apabilities be!ae e+en ore !entrali0ed in the hands of the

    5nited tates than they had been pre+io"sly# .t the sae tie, instead of

    pro+idin$ !apital to the rest of the world e!onoy, as *ritain had

    thro"$ho"t the nineteenth=!ent"ry downt"rn and finan!ial epansion, sin!e

    the 198As the 5nited tates has been absorbin$ !apital at histori!ally

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    "npre!edented rates, as *renner hiself notes#

    2n all these respe!ts, the tra/e!tory of the !opetiti+e str"$$le in the latest

    lon$ downt"rn differs radi!ally fro the pre+io"s one# Jow !an we a!!o"nt

    for this !obination of siilarities and differen!es between the two, and

    what new li$ht does this %ind of !oparison throw on *renners analysis of

    $lobal t"rb"len!e o+er the last thirty yearsN 2n dealin$ with these iss"es, 2will fo!"s on the three ain short!oin$s of *renners ar$"ent# The first

    !on!erns labo"r!apital relations the se!ond, so=!alled ortho"th

    relations and the third, inter=!apitalist !opetition itself# -et e deal with

    ea!h in t"rn#

    A+ 1#tflanking Labo#r Re"i"tance

    2n Global T"rb"len!e and, to a lesser etent, The Boom and the Bubble,*renner presents his a!!o"nt of the lon$ downt"rn as a !ritiC"e of what he

    !alls s"pply=side theories of !apitalist !rises# .d+an!ed in +ario"s fors by

    -eft and Fi$ht ali%e, these !ontend that, by the 196As, labo"r had a!C"ired

    a le+era$e in the wealthier !apitalist !o"ntries s"ffi!ient to sC"ee0e profits

    and thereby "nderine the e!haniss of !apitalist a!!""lation# hile

    a!%nowled$in$ that labo"r ay indeed be in s"!h a position lo!ally and

    teporarily, *renner finds it in!on!ei+able that it !an wield the power

    ne!essary to pro+o%e a lon$=ter, syste=wide downt"rn#

    -abo"r !annot, as a r"le, brin$ abo"t a teporally etended,

    systei! downt"rn be!a"se, as a r"le, what i$ht be !alled the

    potential sphere of in+estent for !apital in any line of prod"!tion

    $enerally etends beyond the labo"r ar%et that is affe!ted by

    "nions andOor politi!al parties or is re$"lated by nors, +al"es, and

    instit"tions s"pported by the state# o firs !an $enerally !ir!"+ent

    and thereby "nderine the instit"tionali0ed stren$th of wor%ers at

    any $i+en point by in+estin$ where wor%ers la!% the !apa!ity toresist# 2ndeed, they "st do so, or they will find thesel+es

    o"tflan%ed and !opetiti+ely defeated by other !apitalists who will#

    (@7)

    2t follows that, as *renner p"ts it, +erti!al press"re on !apital, fro below

    that is, fro labo"r!o"ld not and did not brin$ abo"t the spatially

    $enerali0ed and teporally etended sC"ee0e on profits that "nderlies the

    lon$ downt"rn# :nly hori0ontal press"re fro inter=!apitalist !opetition

    !o"ld do so#(@8)

    This hypothesis is based on the ass"ption that there is in fa!t !heaper

    labo"r that !an be !obined with eans of prod"!tion ebodyin$

    soethin$ li%e the !"rrent le+el of te!hnolo$y witho"t loss of effi!ien!y4that is, at lower "nit !ost .!!ordin$ to *renner, this ass"ption is

    /"stified for two reasons# Eirst, labo"r for!es in re$ions with lon$ histories

    of e!onoi! de+elopent tend to re!ei+e wa$es that are s"bstantially

    hi$her than !an be eplained siply by referen!e to their relati+e le+el of

    prod"!ti+eness and se!ond, o+er siilarly etended tie periods,

    te!hni!al !han$e tends to red"!e the s%ill reC"ired to prod"!e any $i+en

    array of prod"!ts, with the res"lt that the labo"r for!e that !an a%e those

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    prod"!ts witho"t loss of effi!ien!y is !ontin"ally enlar$ed, and the wa$e

    reC"ired to pay it !orrespondin$ly red"!ed#(@9)

    2n short, for histori!al reasons whi!h *renner does not eplore, labo"r

    for!es in ad+an!ed !apitalist !o"ntries ha+e se!"red rewards for effort far

    hi$her than warranted by their prod"!ti+ity# This in itself a%es the

    +"lnerable to the !opetition of labo"r for!es thatfor eC"ally "neploredhistori!al reasonswor% for wa$es lower than their a!t"al or potential

    prod"!ti+ity i$ht warrant# .t the sae tie, te!hni!al !han$e !ontin"ally

    enlar$es this $lobal pool of "nderpaid wor%ers, or wo"ld=be wor%ers, who

    !an be obili0ed to o"tflan% the press"re on profitability !oin$ fro

    o+erpaid labo"r# The only press"re on profitability that !apitalists !annot

    o"tflan% is that whi!h !oes fro the !opetition of other !apitalists#

    There are two ain probles with this ar$"ent# Eirstly, it wo"ld appear to

    be lo$i!ally in!onsistent sin!e it !lais that, in the past, wor%ers in the

    ad+an!ed !apitalist !o"ntries had been able to $ain $reater rewards than

    warranted by their prod"!ti+ity, in !ontradi!tion to the theoreti!al !lai that

    any attept to do so wo"ld pri!e the o"t of the world ar%et# 2naddition, the ar$"ent o+erestiates the ease with whi!h, in the present

    no less than in the past, !heaper labo"r s"pplies !an be obili0ed to

    o"tflan% ore epensi+e ones# -et "s !larify these probles by loo%in$

    on!e a$ain at the histori!al re!ord#

    5ori'ontal v" vertical6

    .n analysis of the lon$ downt"rn of 187396 pro+ides stron$ e+iden!e both

    for and a$ainst *renners thesis on the predoinan!e of hori0ontal 4inter=

    !apitalist o+er +erti!al 4labo"r=!apital relations, in brin$in$ abo"t a lon$=

    ter and $enerali0ed sC"ee0e on profits# 2n s"pport of *renners ar$"ent,

    it !o"ld be pointed o"t that intense labo"r!apital !onfli!tseither in the

    for of s"stained stri%e a!ti+ity, as in *ritain and the 5nited tates, or in

    the for of wor%in$=!lass party foration, as in Gerany and elsewhere

    followed rather than pre!eded the onset of the lon$ downt"rn inprofitability# There !an be little do"bt that intense inter=!apitalist

    !opetition, in the for of a relentless pri!e war, was the ain, and prior,

    dri+in$ for!e for the s"bstantial in!rease in real wa$es that o!!"rred d"rin$

    the lon$ downt"rn, espe!ially in *ritain# 2t is also pla"sible to ass"e that

    risin$ real wa$es at hoe were at least in part responsible for the eplosi+e

    $rowth of *ritish o+erseas in+estent in the 188As# *renners ar$"ent for

    the late twentieth !ent"ry th"s fits %ey feat"res of the late=nineteenth=

    !ent"ry eperien!e# The fit, howe+er, is far fro perfe!t#

    .ltho"$h inter=!apitalist !opetition was "ndo"btedly the priary for!e

    sC"ee0in$ profitability and p"shin$ "p real wa$es thro"$h drasti! pri!e

    deflation, did not wor%ers resistan!e in the for of in!reasin$ stri%e

    a!ti+ity and !lass=based or$ani0ation !ontrib"te in a a/or way to that

    o"t!oe, by pre+entin$ noinal wa$es fro de!reasin$ as rapidly as

    pri!esN .nd did not this resistan!e itself affe!t the tra/e!tory of inter=

    !apitalist !opetition by stren$thenin$ the tenden!y, not /"st towards the

    eport of !apital fro *ritain and the iport of labo"r to the 5nited tates,

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    b"t also towards the politi!i0ation of that !opetition, thro"$h a re+i+al of

    neo=er!antilist pra!ti!es and o+erseas epire=b"ildin$ on an

    "npre!edented s!aleN hate+er the ea!t answer to these C"estions,

    *renners hard and fast distin!tion between hori0ontal and +erti!al !onfli!ts,

    and his a priorie!l"sion of the latter as a possible !ontrib"tin$ fa!tor to$eneral and persistent downt"rns in profitability, are ill=s"ited to "nra+el

    the !ople histori!al intera!tion between the two %inds of !onfli!ts#(BA)

    iilarly, *renners !ontention !on!ernin$ the ine+itable o"tflan%in$ of

    wor%ers le+era$e in !ore !apitalist !o"ntries thro"$h international fa!tor

    obility i$nores %ey aspe!ts of how that obility a!t"ally f"n!tioned d"rin$

    the earlier lon$ downt"rn#

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    b"t ass"ed its ideal=typi!al for in the 5F#(B3)

    The !o"rse of str"$$le alon$ both paths was f"ndaentally shaped by the

    two world wars# ?a!h of these was !hara!teri0ed by a siilar pattern; o+ert

    labo"r ilitan!y rose on the e+e of both wars, de!lined teporarily d"rin$

    the !onfli!ts thesel+es, and then eploded in their afterath# The F"ssian

    Fe+ol"tion too% pla!e d"rin$ the Eirst orld ars wa+e of labo"r ilitan!y,while that of the e!ond orld ar saw the spread of Ko"nist re$ies

    to ?astern ?"rope, Khina, orth >orea and Vietna# 2t was in this !ontet

    of es!alatin$ labo"r ilitan!y in the !ore, and ad+an!in$ re+ol"tion in

    peripheral and sei=peripheral re$ions, that the so!ial paraeters of the

    5 post=war world order were established#(B@) Th"s the for and intensity

    of inter=!apitalist !opetitionthat is, inter=iperialist ri+alries and world

    warsshaped the for and intensity of wor%ers str"$$les d"rin$ this

    period# e+ertheless, the feedba!% of these str"$$les on the tra/e!tory of

    inter=!apitalist !onfli!ts was e+en ore powerf"l in the first half of the

    twentieth !ent"ry than it had been d"rin$ the lon$ downt"rn of 187396#

    2ndeed, witho"t s"!h intera!tion, the establishent at the end of the

    e!ond orld ar of what .ristide Qolber$ has !alled a labo"r friendly

    international re$ie wo"ld be hard to eplain#(BB)

    .lon$ with the 5=sponsored re!onstit"tion of the world ar%et on new and

    ore solid fo"ndations, this re$ie !reated the instit"tional !onditions for

    the syste=wide re+i+al of profitability that "nderlay the lon$ boo of the

    19BAs and 196As# 2 ha+e no parti!"lar disa$reeent with *renners

    !ontention that "ne+en de+elopent, in his sense of the ter, was a %ey

    deterinant of the boo and of the lon$ downt"rn that followed# *"t his

    insisten!e that labo"r!apital !onfli!ts played no si$nifi!ant role in the

    etent, len$th and shape of this downt"rn sees e+en less warranted than

    for earlier !oparable periods#

    .la"" conflict"

    -et "s be$in by notin$ that, in the late twentieth !ent"ry, wor%ers

    str"$$les played a far ore pro=a!ti+e role +is=I=+is inter=!apitalist

    !opetition than they did in the late nineteenth !ent"ry# hereas in the

    earlier period the intensifi!ation of labo"r!apital !onfli!ts, and the ost

    si$nifi!ant in!reases in real wa$es, followed the onset of the downt"rn, inthe se!ond half of the twentieth !ent"ry they preceded it# 2n ar$"in$ his!ase a$ainst the role of wor%ers le+era$e in brin$in$ abo"t a syste=wide

    and persistent sC"ee0e on profits, *renner fo!"ses alost e!l"si+ely on

    the !ontainent of wor%ers power in the 5nited tates in the late 19BAs

    and early 196As; sin!e this o!!"rred before the !risis of profitability, he

    ar$"es, the !risis !o"ld not be d"e to wor%ers press"res# (B6)

    5nfort"nately, this narrow fo!"s on the sin$le tree of a short=ter and

    lo!al episode of !lass !onfli!t pre+ents *renner fro seein$ the forest of

    the multinational risin$ tide of !onfli!ts o+er wa$es and wor%in$ !onditionswhi!h, between 1968 and 1973, !"linated in what ?# J# helps *rown

    aptly !alled the pay eplosion#(B7) Koin$ in the wa%e of twenty years of

    risin$ real wa$es in the !ore re$ions of the world e!onoy, and at a tie of

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    intensifyin$ inter=!apitalist !opetition worldwide, this pay eplosion did

    not erely eer!ise a syste=wide downward press"re on profitability, as

    any ha+e ephasi0ed# (B8)

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    independent !ontrib"tion, not /"st to the sC"ee0e of profitability that

    "nderlay the transition, b"t also towards la"n!hin$ the downt"rn alon$ an

    inflationary rather than deflationary path# This does not ean that inter=

    !apitalist !opetition was not also at wor% in sC"ee0in$ profits, nor that

    wor%ers and their so!ial power benefited fro the inflationary nat"re of the

    downt"rnthey !learly did not# .ll it eans is that *renners odelnear=

    absol"te predoinan!e of inter=!apitalist !opetition o+er labo"r!apital

    !onfli!tsfits the latest lon$ downt"rn e+en less than it did the pre+io"s

    one#

    Limit" to capital migration

    . !loser eaination of the effe!ts of !apital obility on labo"r le+era$e

    pro+ides f"rther e+iden!e for s"!h an assessent# 2n the 197As, in

    parti!"lar, there was indeed a stron$ tenden!y for !apital, in!l"din$

    ind"strial !apital, to i$rate to lower=in!oe, lower=wa$e !o"ntries#

    e+ertheless, as *e+erly il+er has do!"ented in $reat detail, the

    relo!ation of ind"strial a!ti+ities fro ri!her to poorer !o"ntries has ore

    often than not led to the eer$en!e of stron$, new labo"r o+eents inthe lower=wa$e sites of in+estent, rather than an "nabi$"o"s ra!e to

    the botto .ltho"$h !orporations were initially attra!ted to Third orld

    sites*ra0il, o"th .fri!a, o"th >oreabe!a"se they appeared to offer a

    !heap and do!ile labo"r for!e, the s"bseC"ent epansion of !apital

    intensi+e, ass=prod"!tion ind"stries !reated new and ilitant wor%in$

    !lasses with si$nifi!ant disr"pti+e power# This tenden!y was already in

    e+iden!e in the late nineteenth and early twentieth !ent"ries in tetiles, the

    !hief ind"stry of *ritish !apitalis# *"t it has been far stron$er in the

    leadin$ ind"stries of 5 !apitalis, s"!h as a"toobiles#(63)

    Th"s, !apitalist attepts to o"tflan% labo"r press"res on profitability

    thro"$h ind"strial relo!ation tended to depri+e !apital of the !onsiderable

    benefits asso!iated with prod"!in$ !lose to the wealthier ar%ets and in

    safer politi!al en+ironents, witho"t a!t"ally pro+idin$ any of the

    epe!ted benefits of ab"ndant low=wa$ed and easy=to=dis!ipline labo"r

    s"pplies# .!tin$ in !on/"n!tion with other fa!tors that will be dis!"ssed in

    the net two se!tions, this tenden!y ade its own !ontrib"tion to the

    assi+e redire!tion of transnational !apital flows in the 198As, fro low=

    and iddle=in!oe destinations to the 5nited tates# .$ain, 2 a not

    denyin$ that ind"strial relo!ation helped to "nderine wor%ers le+era$e in

    the !o"ntries that eperien!ed the $reatest net o"tflow of !apital# 2 a

    siply sayin$ that, $enerally spea%in$, it tended to ba!%fire on profitability

    and, in so far as the 5nited tates was !on!erned, the net o"tflow soont"rned into a h"$e net inflow# 2f labo"rs le+era$e de!lined in the !o"rse of

    the lon$ downt"rn, as it !ertainly did, !apital obility is not a +ery

    !on+in!in$ eplanation#

    -abo"r i$ration does not pro+ide a +ery pla"sible eplanation either# 2t is

    tr"e that labo"r i$ration o+er the last thirty years has !oe

    predoinantly fro poor !o"ntries, to a far $reater etent than in the late

    nineteenth !ent"rythereby !onstit"tin$ a $reater !opetiti+e threat for

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    wor%ers in the wealthier ind"strial !entres# e+ertheless, in the late

    twentieth !ent"ry the !apa!ity of wor%ers in the ri!her !o"ntries to forestall

    !opetition fro ii$rant labo"r for!es 4often thro"$h adheren!e to

    ra!ist ideolo$ies and pra!ti!es has been far $reater#(6@)

    2n s", *renners ar$"ent for the absol"te predoinan!e of inter=

    !apitalist !opetition o+er labo"r!apital str"$$les in deterinin$ syste=wide and persistent !ontra!tions in profitability isses the !ople

    histori!al intera!tion between hori0ontal and +erti!al !onfli!ts# .ltho"$h,

    world histori!ally, inter=!apitalist !opetition has indeed been the

    predoinant infl"en!epro+ided that we in!l"de inter=!apitalist wars

    aon$ the ost iportant fors of that !opetitionlabo"r!apital

    !onfli!ts were ne+er erely a dependent +ariable, abo+e all on the e+e and

    in the early sta$es of the latest lon$ downt"rn#(6B) ot only did !onfli!ts

    o+er wa$es and wor%in$ !onditions in !ore re$ions !ontrib"te to the initial

    sC"ee0e on profitability in the !r"!ial 196873 period ore iportantly,

    they for!ed the r"lin$ $ro"ps of !ore !apitalist !o"ntries to !hoose an

    inflationary rather than a deflationary strate$y of !risis ana$eent#

    To p"t it bl"ntly; by the end of the lon$ post=war boo, the le+era$e of

    labo"r in !ore re$ions was s"ffi!ient to a%e any attept to roll it ba!%

    thro"$h a serio"s deflation far too ris%y, in so!ial and politi!al ters# .n

    inflationary strate$y, in !ontrast, proised to o"tflan% wor%ers power far

    ore effe!ti+ely than international fa!tor obility !o"ld# 2t was, indeed, the

    $reat sta$nation=!"=inflation of the 197Assta$flation as it was !alled at

    the tieand its effe!ts on inter=!apitalist !opetition and labo"r!apital

    relations, that effe!ti+ely wore down wor%ers power in the !ore, openin$

    the way for its !ollapse "nder the ipa!t of the Fea$anThat!her

    !o"nterre+ol"tion# 2n order to !apt"re the f"ll si$nifi!an!e of this

    de+elopent and its ipa!t on the s"bseC"ent tra/e!tory of the lon$

    downt"rn, howe+er, it is not eno"$h to fo!"s on labo"r!apital relations#

    ?+en ore iportant were ortho"th relations, to whi!h we now t"rn#

    + )o#thern /7po"#re

    2n his !ritiC"e of s"pply=side theorists, *renner !ontrasts their disposition

    to +iew the world e!onoy as the ere s" of its national !oponents

    with his own attept to see systei! pro!esses as ha+in$ a lo$i! of their

    own#

    (T)he ephasis of the s"pply=side theorists on instit"tions, poli!y and

    power has led the to frae their analyses too hea+ily on a !o"ntry=

    by=!o"ntry basis, in ters of national states and national e!onoies

    to +iew the international e!onoy as a sort of spill=o+er of nationalones and to see systei! e!onoi! probles as stein$ fro an

    a$$loeration of lo!al ones# 2n !ontrast, 2 shall ta%e the international

    e!onoythe capital accumulation and profitability of the system asa wholeas a theoreti!al +anta$e point fro whi!h to analyse its!rises and those of its national !oponents#(66)

    -a"dable as this intent is, *renners analysis falls short of its proise# 2n

    The Boom and the Bubble, as in Global T"rb"len!e, he fo!"ses alost

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    e!l"si+ely on three national statesOe!onoies 4the 5nited tates, Hapan

    and Gerany and their "t"al relations, with o!!asional referen!es to

    other estern ?"ropean !o"ntries and the ira!le e!onoies of ?ast .sia#

    Khina appears only fleetin$ly towards the end of Global T"rb"len!e and in

    little ore detail in the !losin$ pa$es of The Boom and the Bubble# The +asta/ority of the worlds states and the b"l% of its pop"lation ha+e,

    apparently, no bearin$ on the f"n!tionin$ of *renners world e!onoy#

    *renner adits that !on!entratin$ on three !o"ntries does introd"!e

    distortions *"t witho"t spe!ifyin$ what these distortions are, he $oes on to

    /"stify his narrow fo!"s on three $ro"nds# Eirst, in 19BA, the 5, Geran

    and Hapanese e!onoies ta%en to$ether a!!o"nted for 6A per !ent of the

    o"tp"t 4in ters of p"r!hasin$ power parities of the se+enteen leadin$

    !apitalist e!onoies and by 199@ that fi$"re had risen to 66 per !ent#

    e!ond, ea!h of the three e!onoies stood # # # at the h"b of $reat

    re$ional blo!s, whi!h they effe!ti+ely dynai0ed and doinated# .nd

    finally, the intera!tion aon$ these three e!onoies was # # # one of the

    %eys to the e+ol"tion of the ad+an!ed !apitalist world thro"$ho"t the

    postwar period#(67)

    These preises are C"estionable on two $ro"nds# The !obined wei$ht of

    the three e!onoies in C"estion is indeed !onsiderable, tho"$h soewhat

    less than *renners so"r!es s"$$est# (68) e+ertheless, their !obined

    share of +al"e added in an"fa!t"rin$the bran!h of a!ti+ities on whi!h

    *renner !on!entrateshas de!lined si$nifi!antly in the !o"rse of the lon$

    downt"rn# The fall has been lar$ely d"e to the rapid ind"striali0ation of

    any !o"ntries of the worlds o"thwhat .li!e .sden has !alled The

    Fise of the &Fest'#(69)

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    he$eony whi!h ens"ed fro the es!alation of the Vietna war and the

    e+ent"al 5 defeat# .s for the Fea$anThat!her neoliberal

    !o"nterre+ol"tion, it was not /"st, or e+en priarily, a response to the

    "nsol+ed !risis of profitability, b"t alsoand espe!iallya response to the

    deepenin$ !risis of he$eony# .ll alon$, the tra/e!tories of inter=!apitalist

    !opetition and the intera!tion aon$ the worlds three lar$est e!onoies

    were shaped by the broader politi!al !ontet# The alost !oplete absen!e

    of world politi!s fro *renners story prod"!es not only distortions b"t

    indeterinateness as well#

    Konsider the !onneion between the !risis of profitability of the late 196As

    and early 197As and the !onteporaneo"s brea%down of the $olddollar

    e!han$e standard# .s we ha+e seen, *renner ipli!itly a!%nowled$es that

    politi!al !osts played a role in the abandonent of $old, b"t nonetheless

    "pholds the thesis that its priary deterinant was the !opetiti+e

    str"$$le between .eri!an an"fa!t"rers and their Geran and Hapanese

    ri+als# e ha+e already !riti!i0ed this ar$"ent for i$norin$ the relati+ely

    a"tonoo"s role that wor%ers le+era$e played in the !risis# e+ertheless,

    the ost iportant deterinant was neither inter=!apitalist !opetition nor

    labo"r!apital relations b"t the dire!t and, espe!ially, the indire!t effe!ts of

    the es!alation of the Vietna ar on the 5 balan!e of payents#

    .ltho"$h Vietna is !onspi!"o"s for its absen!e in *renners story, these

    effe!ts do !reep in on a few o!!asions# Th"s, stepped="p Vietna ar

    spendin$ is said to be the reason for the s"dden a!!eleration of pri!e

    inflation in the 5nited tates whi!h, between 196B and 1973, slowed down

    b"t did not stop the $rowth of real wa$es# This a!!eleration of inflation, in

    t"rn, is held responsible for the wea%enin$ of the !opetiti+e position of

    .eri!an an"fa!t"rers, both at hoe and abroad, +is=I=+is their Geran

    and Hapanese ri+als in the sae period#(71)

    These !as"al obser+ations show that e+en *renner is for!ed to

    a!%nowled$e that, behind the intensifi!ation of !opetition between 5 and

    forei$n an"fa!t"rers, and the +a$aries of labo"r!apital !onfli!ts in the

    5nited tates and elsewhere, there l"r%s an einently systei! b"t politi!al

    +ariable, whi!h his resear!h desi$n has r"led o"t of !onsideration# This

    l"r%in$ +ariable is the power str"$$le in whi!h the 5 $o+ernent so"$ht

    to !ontain, thro"$h the "se of for!e, the /oint !hallen$e of nationalis and

    !o"nis in the Third orld# .s the es!alation of the war in Vietna

    failed to brea% the ba!% of Vietnaese resistan!e, and pro+o%ed instead

    widespread opposition to the war in the 5nited tates itself, this str"$$le

    rea!hed its !lia in the sae years as the !risis of profitability# .s 2 ha+e

    ar$"ed elsewhere, the !osts of the warin!l"din$ those pro$raes aiedat stein$ the tide of doesti! oppositionnot only !ontrib"ted to the

    profit sC"ee0e, b"t were the ost f"ndaental !a"se of the !ollapse of the

    *retton oods re$ie of fied e!han$e rates and the assi+e de+al"ation

    of the 5 dollar that ens"ed#(7)

    Nadir of () hegemon$

    .s *renner aintains, the dollar de+al"ation of 196973 did help the

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    5nited tates to foist the b"rden of the profitability !risis onto Gerany

    and Hapan and !he!% the press"re of risin$ oney wa$es on profits at

    hoe# *"t 2 wo"ld ar$"e that this redistrib"tion of the b"rden was lar$ely a

    by=prod"!t of poli!ies aied priarily at freein$ the 5 $o+ernents

    str"$$le for doinan!e in the Third orld fro onetary !onstraints# .t

    least initially, the liC"idation of the $olddollar e!han$e standard did see

    to endow the 5 $o+ernent with an "npre!edented freedo of a!tion in

    tappin$ the reso"r!es of the rest of the world siply by iss"in$ its own

    !"rren!y#(73) Jowe+er, this free hand !o"ld not pre+ent the defeat of the

    5nited tates in Vietna nor stop the pre!ipito"s de!line of .eri!an

    presti$e in its wa%e# 2ndeed, if anythin$, it worsened that de!line by

    pro+o%in$ a worldwide inflationary spiral whi!h threatened to destroy the

    entire 5 !redit str"!t"re and the worldwide networ%s of !apital

    a!!""lation on whi!h .eri!an wealth and power had be!oe ore

    dependent than e+er before#(7@)

    The de!line of 5 power and presti$e rea!hed its nadir in the late 197As

    with the 2ranian Fe+ol"tion, a new hi%e in oil pri!es, the o+iet in+asion of

    .f$hanistan and another serio"s !risis of !onfiden!e in the 5 dollar#

    *renner hardly entions this deepenin$ !risis of 5 he$eony as the

    !ontet in whi!h, between 1979 and 198, the onetary poli!ies of the 5

    $o+ernent !han$ed fro "ltra laity to etree ti$htness# Je does tra!e

    the swit!h to a de+astatin$ r"n on the 5 !"rren!y that threatened the

    dollars position as an international reser+e !"rren!y# *"t he has no

    satisfa!tory eplanation for the fli$ht and pays no attention to the .rab

    fears o+er .f$hanistan and 2ran whi!h, a!!ordin$ to Business Wee"# werebehind the s"r$e in the pri!e of $old to an all=tie hi$h of M87B in Han"ary

    198A# (7B) .s in the !ase of the liC"idation of the $olddollar e!han$e

    standard ten years earlier, war and re+ol"tion in the o"th, rather than

    inter=!apitalist !opetition aon$ the worlds three lar$est e!onoies,were the priary dri+in$ for!e of the onetarist re+ol"tion of 19798#

    E"ndaental !han$e in the onetary sphere on!e a$ain had a/or

    ipli!ations both for inter=!apitalist and !lass str"$$les in !ore re$ions# *"t

    the stron$est sti"l"s for the !han$e !ae fro the "nsol+ed !risis of 5

    he$eony in the Third orld rather than the !risis of profitability as s"!h#

    Jere too, the pe!"liarities of the late=twentieth=!ent"ry lon$ downt"rn ay

    be "sef"lly hi$hli$hted thro"$h a !oparison with that of 187396# Tho"$h

    seldo rear%ed "pon, differen!es in ortho"th relations between the

    two lon$ downt"rns are e+en ore si$nifi!ant than those of labo"r and

    !apital#

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    peoples of .sia and .fri!a and in their relations with ?"rope was the

    s"rest si$n of the ad+ent of a new era, and when the history of the

    first half of the twentieth !ent"rywhi!h, for ost historians, is still

    doinated by ?"ropean wars and ?"ropean probles # # # !oes to

    be written in a lon$er perspe!ti+e, there is little do"bt that no sin$le

    thee will pro+e to be of $reater iportan!e than the re+olt a$ainst

    the west#(77)

    The oent for the lon$er perspe!ti+e ad+o!ated by *arra!lo"$h has

    ob+io"sly not yet !oe# e li+e instead in a tie when the tri"ph, the

    seein$ly "nliited power of the est, a%es the earlier o"thern re+olt

    loo% insi$nifi!ant, if not f"tile# Pet the f"ndaental differen!e between

    ortho"th relations d"rin$ the two lon$ downt"rns reains, and neither

    the ori$ins, nor the tra/e!tory, nor the !onseC"en!es of the latest !an be

    a!!"rately de!iphered e!ept in its li$ht# To ill"strate the point 2 shall fo!"s

    on!e a$ain on the onetary aspe!ts of the two lon$ downt"rns#

    India!" contrib#tion

    2n the pre!edin$ se!tion we tra!ed the inflationary !hara!ter of the latestlon$ downt"rn to the so!ial and politi!al ipossibility of s"b/e!tin$ labo"r

    !apital relations in !ore re$ions to the dis!ipline of a etalli! standard, as

    they had been d"rin$ the late nineteenth !ent"ry# The nat"re and stren$th

    of this so!ial !onstraint within !ore re$ions, howe+er, thesel+es depend

    !riti!ally on the parti!"lar politi!al arran$eents that lin% the !ore to the

    peripheries# othin$ ill"strates this better than the !lose !onneion

    between *ritains adheren!e to the $old standard and its etra!tion of

    trib"te fro the "b!ontinent# *ritains 2ndian epire was !r"!ial in two

    ain respe!ts# Eirst, ilitarily; in -ord alisb"rys words, 2ndia was an

    ?n$lish barra!% in the :riental eas fro whi!h we ay draw any n"ber

    of troops witho"t payin$ for the# (78) E"nded entirely by the 2ndian

    tapayer, these for!es were or$ani0ed in a ?"ropean=style !olonial ary

    and "sed re$"larly in the endless series of wars thro"$h whi!h *ritain

    opened "p .sia and .fri!a to estern trade, in+estent and infl"en!e# (79)

    They were the iron fist in the +el+et $lo+e of Vi!torian epansionis # # #

    the a/or !oer!i+e for!e behind the internationali0ation of ind"strial

    !apitalis#(8A)

    e!ond, and eC"ally iportant, the infao"s Joe Khar$es and the *an%

    of ?n$lands !ontrol o+er 2ndias forei$n=e!han$e reser+es /ointly t"rned

    2ndia into the pi+ot of *ritains $lobal finan!ial and !oer!ial s"prea!y#

    2ndias balan!e=of=payents defi!it with *ritain, and s"rpl"s with all other

    !o"ntries, enabled *ritain to settle its defi!it on !"rrent a!!o"nt with the

    rest of the world# itho"t 2ndias for!ible !ontrib"tion to the balan!e of

    payents of iperial *ritain, it wo"ld ha+e been ipossible for the latter

    to "se the in!oe fro her o+erseas in+estent for f"rther in+estent

    abroad, and to $i+e ba!% to the international onetary syste the liC"idity

    she absorbed as in+estent in!oe#

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    of the international onetary syste#(81)

    2n enfor!in$ onetary dis!ipline at hoe on wor%ers and !apitalists ali%e,

    *ritains r"lin$ elite th"s fa!ed an alto$ether different sit"ation to that of

    5 leaders a !ent"ry later# Eor one thin$, the eer!ise of world=he$eoni!

    f"n!tionsin!l"din$ the endless series of wars fo"$ht in the worlds o"th

    did not in+ol+e the %ind of inflationary press"res that the Vietna aren$endered in the 5nited tates# ot only were the wars finan!ed by 2ndian

    oney b"t, fo"$ht by 2ndian and other !olonial troops, they did not reC"ire

    the %ind of so!ial ependit"re the 5 $o+ernent had to in!"r in order to

    !ontain doesti! opposition to es!alatin$ !as"alties#

    Kosts of war aside, "nli%e the 5nited tates in the late twentieth !ent"ry,

    *ritain !o"ld internali0e the benefits 4for its etropolitan s"b/e!ts and

    eternali0e the !osts 4on its !olonial s"b/e!ts of the !easeless str"!t"ral

    ad/"stents in+ol+ed in the s"b/e!tion of its !"rren!y to a etalli!

    standard# Koer!i+e !ontrol o+er the s"rpl"s of 2ndias balan!e of payents

    enabled *ritain to shift the b"rdens of its own persistent trade defi!its onto

    2ndian tapayers, wor%ers and !apitalists#(8) 2n a post=!olonial world, in!ontrast, no s"!h blatant !oer!ion was a+ailable# The 5nited tates fa!ed

    the star% !hoi!e of either balan!in$ its trade and !"rrent=a!!o"nts defi!it

    thro"$h a drasti! downsi0in$ of its national e!onoy and ependit"res

    abroad, or alienatin$ a $rowin$ share of its f"t"re in!oe to forei$n

    lenders# The !hoi!e of an inflationary strate$y of !risis ana$eent was

    not di!tated solely by the so!ial and politi!al ipossibility of s"b/e!tin$ the

    .eri!an national e!onoy to a drasti! downsi0in$, or by the relief fro

    forei$n !opetiti+e press"res that the strate$y !o"ld brin$ to 5

    an"fa!t"rers# 2t was also a ore or less !ons!io"s attept not to !hoosebetween the two eC"ally "npalatable alternati+es# The deepenin$ !risis of

    5 he$eony of the late 197As and the de+astatin$ r"n on the dollar it

    pro+o%ed were a sho!%in$ reinder that the !hoi!e !o"ld no lon$er be

    postponed#

    The onetary !o"nterre+ol"tion initiated in the !losin$ year of the Karter

    adinistration and p"rs"ed with $reater for!e "nder Fea$an was a

    pra$ati! response to this sit"ation# .s *renner notes, the t"rnaro"nd

    deepened rather than alle+iated the !risis of profitability# *"t as he does not

    note, it did re+ersebeyond the rosiest epe!tations of its perpetrators

    the pre!ipito"s de!line in 5 world power of the pre!edin$ fifteen years#

    (83) 2n order to "nderstand this "nepe!ted re+ersal, we "st on!e a$ain

    shift fo!"s to reeaine the pro!esses of inter=!apitalist !opetition that

    are at the !entre of *renners analysis#

    .+ 9inancial (nderpinning" of the () Revival

    *renner, as we ha+e seen, attrib"tes the persisten!e of o+erprod"!tion and

    o+er!apa!ity after 1973 partly to the beha+io"r of hi$her=!ost in!"bent

    firswhi!h had e+ery reason to defend their ar%ets and !o"nteratta!%

    by speedin$ "p the pro!ess of inno+ation and in+estent in additional fied

    !apitaland partly to the a!tions of the 5, Hapanese and Geran

    $o+ernents, whi!h a$$ra+ated rather than alle+iated the "nderlyin$

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    tenden!y towards too little eit and too "!h entry# e also noted that,

    while $o+ernental a!tion o!!"pies !entre=sta$e in *renners histori!al

    narrati+e, the theoreti!ally ore !r"!ial ar$"ent abo"t firs is for the

    ost part de+eloped ded"!ti+ely, on the basis of !ir!"stantial e+iden!e#

    . first proble with this !entral thesis is that it is alost e!l"si+ely

    fo!"sed on an"fa!t"rin$# *renner does not $i+e an epli!it /"stifi!ation forthis, as he does for his fo!"s on the .eri!an, Hapanese and Geran

    e!onoies# The theoreti!al and histori!al identifi!ation of !apitalis with

    industrial !apitalis appears to be for hias for ost so!ial s!ientists,

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    trend towards the finan!iali0ation of the non=finan!ial e!onoy#(87)

    *renner does not pro+ide any indi!ator for his o+er=!apa!ity and o+er=

    prod"!tion odel !oparable to >rippners "ltiple indi!ators for the

    finan!iali0ation of the non=finan!ial e!onoy# e+ertheless, .nwar hai%h

    does pro+ide two indi!ators for !apa!ity "tili0ation in 5 an"fa!t"rin$

    one based on his own eas"re, and one on that of the Eederal Feser+e*oardwhi!h we ay ta%e as iperfe!t inverse indi!ators of o+er=!apa!ity#(88) .!ross the entire period 19@79B, both indi!ators show a $reat deal of

    fl"!t"ation in !apa!ity "tili0ation b"t no !lear lon$=ter trend# rippners "nabi$"o"s findin$s throw serio"s do"bts on *renners a prioriass"ptions !on!ernin$ the beha+io"r of in!"bent, hi$her=!ost

    an"fa!t"rers# The predoinant response of these firs to the irr"ption in

    their ar%ets of lower=!ost !opetitors does not appear to ha+e been a

    stren"o"s defen!e of their s"n% !apital, and a !o"nteratta!% thro"$h

    additional in+estent in fied !apital that f"rther in!reased o+er=!apa!ity#

    .ltho"$h this %ind of response was !ertainly present, the predoinant

    response was, in !apitalist ters, far ore rational# Konfronted with

    hei$htened international !opetition 4espe!ially in trade=intensi+e se!tors

    li%e an"fa!t"rin$, hi$her=!ost in!"bent firs responded to fallin$

    ret"rns by di+ertin$ a $rowin$ proportion of their in!oin$ !ash flows fro

    in+estent in fied !apital and !oodities to liC"idity and a!!""lation

    thro"$h finan!ial !hannels#

    This is what >rippner obser+es epiri!ally# *"t this is also what we sho"ld

    epe!t theoreti!ally, whene+er ret"rns to !apital in+ested in trade and

    prod"!tion fall below a !ertain threshold and inter=!apitalist !opetition

    be!oes a 0ero= or ne$ati+e=s" $ae# 5nder these !onditionspre!isely

    those whi!h, a!!ordin$ to *renner, ha+e !hara!teri0ed the lon$ downt"rn

    the ris%s and "n!ertainties in+ol+ed in rein+estin$ in!oin$ !ash flows into

    trade and prod"!tion are hi$h, and it a%es $ood b"siness sense to "se

    the to in!rease the liC"idity of assets as a defensi+e or offensi+e weapon

    in the es!alatin$ !opetiti+e str"$$le, both within the parti!"lar ind"stry or

    sphere of e!onoi! a!ti+ity in whi!h the fir had pre+io"sly spe!iali0ed and

    o"tside it# Eor liC"idity enables enterprises not /"st to es!ape the

    sla"$hterin$ of !apital +al"es whi!h, sooner or later, ens"es fro the o+er=

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    a!!""lation of !apital and the intensifi!ation of !opetition in old and new

    lines of b"siness, b"t also to ta%e o+er at bar$ain pri!es the assets,

    !"stoers and s"ppliers of the less pr"dent and irrationally e"berant

    enterprises that !ontin"ed to sin% their in!oin$ !ash flows into fied

    !apital and !oodities#(89)

    9inance the la"t ref#ge2n a sense, this !opetiti+e strate$y is nothin$ b"t the !ontin"ation by

    other eans of the lo$i! of the prod"!t !y!le that *renner hiself in+o%es

    in another !ontet# Eor the leadin$ !apitalist or$ani0ations of a $i+en epo!h,

    this lo$i! in+ol+es shiftin$ reso"r!es !easelessly, thro"$h one %ind of

    inno+ation or another, fro ar%et ni!hes that ha+e be!oe o+er!rowded

    4and therefore less profitable to those that are less !rowded 4and therefore

    ore profitable# hen es!alatin$ !opetition red"!es the a+ailability of

    relati+ely epty, profitable ni!hes in the !oodity ar%ets, the leadin$

    !apitalist or$ani0ations ha+e one last ref"$e, to whi!h they !an retreat and

    shift !opetiti+e press"res onto others# This final ref"$e is the oney

    ar%etin !h"peters words, always, as it were, the headC"arters ofthe !apitalist syste, fro whi!h orders $o o"t to its indi+id"al di+isions#

    (9A)

    2n this respe!t, as pre+io"sly noted, 5 !apital in the late twentieth !ent"ry

    was followin$ a tra/e!tory analo$o"s to that of *ritish !apital a !ent"ry

    before, whi!h had also responded to the intensifi!ation of !opetition in

    an"fa!t"rin$ thro"$h finan!iali0ation# .s Jalford

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    in the first half of the twentieth !ent"ry, the s!ale, self=!entredness and

    relati+e self=s"ffi!ien!y of the 5 e!onoy pro+ided .eri!an !apital with

    de!isi+e !opetiti+e ad+anta$es# 5 pria!y in the foration of +erti!ally

    inte$rated, "ltinational !orporations enabled it to o"tflan%, thro"$h dire!t

    in+estent, the rapant prote!tionis of the period# e+ertheless, the

    +ery s"!!ess of the 5nited tates in prootin$ the re"nifi!ation and

    epansion of the $lobal ar%et after the end of the e!ond orld ar

    diinished those ad+anta$es and the intensifi!ation of international

    !opetition that ens"ed t"rned the, in soe respe!ts, into handi!aps# .n

    epanded and "nified world ar%et enabled enterprises based in saller,

    less self=!entred and self=s"ffi!ient !o"ntries to en/oy e!onoies of s!ale

    and s!ope !oparable to those of 5 firs# The la!% of or$ani! inte$ration

    of the 5nited tates in the $lobal e!onoy, eanwhile, pre+ented .eri!an

    !apital fro ta%in$ f"ll ad+anta$e of the tenden!y towards finan!iali0ation

    whi!h was $ainin$ oent", at hoe and abroad, "nder the ipa!t of

    intensifyin$ !opetition and the asso!iated !risis of profitability#

    Jere lies yet another !ontradi!tion of the inflationary !risis=ana$eent

    strate$y that the 5nited tates adopted "nder ion# .s ar$"ed in the

    pre!edin$ se!tions, this had been di!tated by a !obination of e!onoi!,

    so!ial and politi!al !onsiderations whi!h, despite their di+ersity, had one

    "nderlyin$ $oal in !oon; the attept to preser+e the relati+e self=

    !entredness, self=s"ffi!ien!y and si0e of the .eri!an e!onoy# hate+er

    its s"!!ess in redistrib"tin$ the b"rden of the profitability !risis fro 5

    !apital to 5 labo"r and forei$n !opetitors, the strate$y ended "p by

    deepenin$ the !risis of .eri!an he$eony and by pro+o%in$ a de+astatin$

    r"n on the dollar whi!h threatened to destroy 5 finan!ial power in the

    world at lar$e# The ar$"ent de+eloped in this se!tion pro+ides "s with

    new insi$hts into the reasons for this deepenin$ !risis and for the s"!!ess

    of the onetarist !o"nterre+ol"tion in re+ersin$ the pre!ipito"s de!line of5 world power#

    5egemon$ and financiali'ation

    2n a n"tshell, the ain reason why the inflationary strate$y ba!%fired is

    that, instead of attra!tin$, it repelled the $rowin$ ass of liC"idity, released

    by the finan!iali0ation of pro!esses of !apital a!!""lation on a world

    s!ale, fro the 5 e!onoy and its !"rren!y# .nd !on+ersely, the ain

    reason why the onetarist !o"nterre+ol"tion was so st"nnin$ly s"!!essf"l

    in re+ersin$ the de!line in 5 power is that it bro"$ht abo"t a assi+e

    rero"tin$ of $lobal !apital flows towards the 5nited tates and the dollar# To

    be s"re, this rero"tin$ transfored the 5nited tates fro bein$ the ainso"r!e of world liC"idity and forei$n dire!t in+estent, as it had been in the

    19BAs and 196As, into the worlds ain debtor nation and absorber of

    liC"idity, fro the 198As "p to the present#(9B) .s we shall see, *renner is

    probably ri$ht in do"btin$ that le+els of indebtedness of this order are

    s"stainable in the lon$ r"n# e+ertheless, for twenty years now an

    es!alatin$ forei$n debt has enabled the 5nited tates to t"rn the

    deterioratin$ !risis of the 197As into a belle poque wholly !oparable to,

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    and in soe respe!ts far ore spe!ta!"lar, than *ritains ?dwardian era#

    2t has, first of all, allowed the 5nited tates to a!hie+e thro"$h finan!ial

    eans what it !o"ld not a!hie+e by for!e of arsto defeat the 5F in

    the Kold ar and tae the rebellio"s o"th# eynesianis with a +en$ean!e that res!"ed the 5 and world e!onoies

    fro the deep re!ession pro+o%ed by the swit!h fro etreely la to +ery

    ti$ht onetary poli!ies# This re!ession, and the ideolo$i!al and pra!ti!al

    liC"idation of the welfare state that a!!opanied it, was the tr"e t"rnin$

    point in the !ollapse of wor%ers le+era$e in the 5 and other !ore re$ions#

    To be s"re, the sta$flation of the 197As had already worn down wor%ers

    resistan!e a$ainst attepts to shift the b"rden of intensifyin$ !opetition

    onto their sho"lders# *"t it was only in the 198As that, in !ore !o"ntries in

    $eneral and the 5nited tates in parti!"lar, press"re fro below on oney

    wa$es s"bsided, and wor%ers !ae to rely on $o+ernental !ontrol of pri!e

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    inflation as their best !han!e of prote!tin$ their standards of li+in$#

    .s *renner aintains, the wea%enin$ of labo"rs le+era$e was $reater in

    the 5nited tates than in other !ore re$ions and thereby !ontrib"ted to the

    re+i+al of 5 profitability in the 199As# Pet altho"$h this was "ndo"btedly a

    fa!tor in the re+i+al, *renners narrow fo!"s on inter=!apitalist !opetition

    in an"fa!t"rin$ is a$ain isleadin$# Eor the t"rnaro"nd was priarilyd"e, not to the !oparati+ely slower $rowth of 5 real wa$es, b"t to the

    o+erall re=orientation of the .eri!an e!onoy to ta%e f"ll ad+anta$e of

    finan!iali0ation, both at hoe and in the world at lar$e# Ero this point of

    +iew, the de=ind"striali0ation of the 5nited tates and other !ore re$ions

    !ertainly had ne$ati+e !onnotations for the wor%ers ost dire!tly affe!ted

    by it b"t it had no s"!h dire eanin$ for the 5 e!onoy as a whole, and

    espe!ially its wealthier strata# Father, it was a ne!essary !ondition of the

    $reat re+i+al of 5 wealth, power and presti$e of the 199As, whento

    paraphrase -andess !hara!teri0ation of the ?dwardian erain spite of

    rattlin$s of ars in the o"th and forer ?ast or onitory referen!es to a

    !oin$ !lash of !i+ili0ations, e+erythin$ seeed ri$ht a$ain#

    III. A SOCIAL AND POLITICAL PERSPECTIVE

    Fadi!al as the fore$oin$ !riti!iss ay appear and, in soe respe!ts,

    a!t"ally are, they do not in+ol+e a ref"tation so "!h as a re!astin$ of

    *renners ar$"ent within a broader so!ial and politi!al perspe!ti+e# 2n the

    !on!l"din$ part of this arti!le, 2 shall a%e s"!h re!astin$ epli!it by

    drawin$ fro and addin$ to *renners a!!o"nt of the lon$ downt"rn and y