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Rick Wolff

Capitalism in Crisis, Government Impotent

by Rick Wolff

11 September 2009

The media, academics, and politicians often speak and act as if government economic policies can or will "solve" or "end" or "overcome" capitalism’s crises. They don’t. They never have. The often-cited counter-example, FDR’s New Deal program in the 1930s, failed to get the US out of the Great Depression. World War 2 finally did that. Government economic policies targeted at crises are mostly secondary, weak sideshows. The main event is the intrinsic relationship between capitalism and its crises. Public attention is directed to the sideshows; we are distracted from the main event.

Crises are internal mechanisms of capitalism as a system. Capitalism is prone to recurring "bubbles" (uncontrolled speculations in real assets or financial instruments, excessive investment in productive capacity, etc.) that can threaten its survival. Thus, it has evolved crises (rising unemployment, bankruptcies, foreclosures) to "correct" its bubbles. Today, for example, after years of out-of-control lending and an unsustainable housing industry bubble, a crisis corrects those excesses by wiping out billions in debts, collapsing home prices, and so on. In the late 1990s, after years of out-of-control stock market speculations and unsustainable stock prices, a crisis in 2000 corrected those excesses by collapsing stock prices. In both examples, the corrections entailed the mass suffering associated with unemployment, bankruptcies (especially of small and medium-sized businesses), fiscal crises that cut public services, reduced pension and other social funds, and so on.

The capitalist system’s method of self-healing is crisis. When one of its recurring bubbles bursts, wealth is destroyed, people are fired, and production facilities are closed in a downward spiral of contraction. Eventually, the increasingly desperate unemployed, underemployed, and the still employed who fear job loss accept lower wages and fewer benefits. Likewise, bankrupt or downsized enterprises dump idle machinery onto the second-hand market, rent less space, buy fewer inputs, do less advertising, etc. The costs of equipment, space, materials, and ads then drop alongside the falling wages and reduced benefits. Costs will fall until businesses see profits in once again hiring workers and resuming production. The crisis has then done its job. The recovery starts, and capitalism begins its climb to the next bubble when the whole cycle repeats.

Government policies over the last two centuries of capitalism’s ascendancy have neither ended nor replaced crises as the system’s method for correcting capitalist excesses. Nor have government policies prevented such excesses from recurring. The two most recent excesses (the 1990s stock market bubble and the 2004-7 real estate/credit bubble) and resulting two crises prove that. Capitalism keeps generating excesses followed by crises followed by excesses. That is how the system works.

Government activities during crises typically serve three major purposes. Social welfare policies ease or at least make a show of easing mass suffering while the crisis proceeds to correct the previous excesses. Second, financial policies stimulate and regulate private enterprises and also bail out those firms whose imminent failure could jeopardize the system; such policies may lessen the extremes of the crisis as it proceeds to correct the previous excesses. Third, government statements blame the excesses, the crisis, and the suffering on "causes" other than the internal, routine workings of the capitalist system. Conservative officials stress that (1) mass suffering is the price "we must pay" to correct past excesses that they blame on workers or government or both and (2) "we should rely" on private business (freed of government- or worker-imposed constraints) to overcome those excesses. Liberal officials press to alleviate mass suffering associated with the crisis while insisting that (1) past excesses were caused by "greedy bad apples" and "unregulated" markets and (2) government interventions will overcome the current crisis and prevent future crises. Criticism of capitalism as a system is impossible — literally unthinkable — for either side.

Government policies are mostly window-dressing for the painful cycles of capitalism’s inherent instability. At best, they soften the sharper edges of crises. Because capitalists oppose changing or even questioning the system, recurring crises are left as the main instrument to correct recurring excesses. Capitalists render government policies impotent by using the profits they take from their enterprises directly (lobbying, bribes, etc.) or indirectly (public relations). Politicians dependent on the support of capitalists show "concern" for mass suffering in crises while they limit what the government actually does to the three side shows listed above. Predictably, government policies never get to the root problem of crises.

That problem is the capitalist system with its profound, built-in tensions. Inside all enterprises, endless struggles between workers and capitalists provoke decisions (e.g., over wages and benefits) leading to crises. Conflicts between boards of directors and shareholders provoke decisions (e.g., over investments) that contribute to crises. Market competition among enterprises provoke decisions (e.g., over outsourcing to sweatshops) that shape crises. Capitalism as an economic system structures internal conflicts among its participants that repeatedly generate excesses and crises.

One obvious response to crises would be to question the capitalist system that produces and reproduces them. That leads logically to evaluating alternative economic systems. Might reorganizing enterprises so workers became their own collective employers help to overcome the instability imposed by capitalism? Might local, regional, and/or national economic planning by democratically accountable agencies end the ways market competition produces bubbles and busts? Might replacing private property (contesting corporations and their shareholders) with a system of collective, socially accountable property help reduce economic excesses and crises?

Far from answering these key questions, most crisis discussions ignore them. They remain taboo because (and so long as) capitalists have the incentive and the resources to sustain their ban on questioning the system. Thus, pundits, politicians, and professors keep acting as if these were long-settled matters, as if no alternative to capitalism exists or is worth considering. Lacking the courage to question the system, they keep government policies from becoming more than impotent window-dressing.

Yet capitalism’s own crisis undermines its taboos. The numbers and social influence of capitalism’s critics are again growing. The system’s injustices, material wastes, and immense human costs provoke the questioning and the criticism that can identify changes needed finally to break the cycle of excess and crisis. The dialectic of contradiction, that old mole, besets capitalism anew.

Published by: Monthly Review- MR Zine

Rick Wolff is a Professor Emeritus at the University of Massachusetts in Amherst and also a Visiting Professor at the Graduate Program in International Affairs of the New School University in New York

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