Prof. Richard Wolff: Capitalism - Not China - Is to Blame for the Current Global Economic Decline [View all]

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Capitalism - Not China - Is to Blame for the Current Global Economic Decline

Tuesday, 22 December 2015 10:10
By Richard D. Wolff, Truthout | Op-Ed


Capitalism, like a speeding train, barreled into a stone wall in 2008. Shocked and dazed, its leaders have been trying to "recover." By that, they mean to fix the mangled tracks, reposition the locomotive and cars on those tracks and resume forward motion. No basic economic change, in their view, is needed or even considered. They see no absurdity in such a "recovery plan" - just as they saw no approaching catastrophe in the years leading up to 2008.

It was Marx who clearly explained in Capital the contradiction capitalism's leaders rarely grasp. Showing how capitalists compete (and survive in competition) by maximizing profits, he focused his readers on capitalists' strategies of "economizing" on the number of workers they hire (often by substituting machines) and/or replacing more costly workers with cheaper employees. The contradiction emerges when their economizing undermines the market for what capitalists must sell to survive. Boosting their profits by saving on labor often reduces laborers' total purchasing power, what they can afford to buy from capitalists. That hurts capitalists' sales and profits. Likewise, when workers' wages and salaries rise, the resulting benefits to capitalists' sales can be partially or totally reversed as higher wages cut into profits. The history of capitalism often wobbles between the poles of this contradiction.

Starting in the 1970s, capitalism intensified its economizing on labor. This became possible because huge new supplies of labor power entered the orbits of the established old centers of capitalism (Western Europe, North America and Japan). Most of those new, additional workers had previously been excluded from the labor forces available to those old centers. They had been kept away inside capitalism's formal and informal colonies in Asia, Latin America and Africa or else inside state capitalisms (Soviet Russia, Eastern Europe and China). After the 1970s, such workers were brought into direct capitalist employment either by migrating to Western Europe, North America and Japan or by the movement of capitalist enterprises from old to new centers (China, India, Brazil etc.).

Integrating those newly available workers into globalizing capitalism raised the total supply of labor power far above capitalists' demand for it. That supply-demand imbalance sharply lowered their wage bills and boosted their profits. Capitalists' lower outlays for workers' wages might have quickly depressed the purchasing power of the total working class, undermined the market demand for capitalists' output and thereby depressed profits: another case study of capitalist contradiction. However, the 1970s saw a quite unique development that postponed the depression of working-class demand. A massive expansion of consumer credit (mortgage debt, car loans, credit cards etc.) in the old capitalist centers took off. After the 1970s, workers offset stagnant or falling real wages there by borrowing.

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The eventual effect of capitalism's contradiction (notwithstanding its temporary postponement via credit) was predictable. Chinese production would slow down and thus cut its demands for raw materials, energy and many other basic production inputs. Falling sales of those inputs are now decimating the many national and regional economies that became dependent upon selling those inputs to the Chinese and other new capitalist centers. Thus global economic decline persists - notwithstanding the endlessly hyped "recoveries." .................(more)

http://www.truth-out.org/opinion/item/34095-capitalism-not-china-is-to-blame-for-the-current-global-economic-decline