Masthead graphic based on a painting by Gudrun Thriemer.

Monday, February 09, 2009

Robert P. Brenner, Jeong Seong-jin, “Overproduction is the Heart of the Crisis,” Asia-Pacific Journal, Vol. 6-1-09, February 7, 2009.

Jeong Seong-jin: Most media and analysts label the current crisis as a “financial crisis.” Do you agree with this characterization?

Robert Brenner: It’s understandable that analysts of the crisis have made the meltdown in banking and the securities markets their point of departure. But the difficulty is that they have not gone any deeper. From Treasury Secretary Paulson and Fed Chair Bernanke on down, they argue that the crisis can be explained simply in terms of problems in the financial sector. At the same time, they assert that the underlying real economy is strong, the so-called fundamentals in good shape. This could not be more misleading. The basic source of today’s crisis is the declining vitality of the advanced economies since 1973, and, especially, since 2000. Economic performance in the U.S., Western Europe, and Japan has steadily deteriorated, business cycle by business cycle, in terms of every standard macroeconomic indicator -- GDP, investment, real wages, and so forth. Most telling, the business cycle that just ended, from 2001 through 2007, was -- by far -- the weakest of the postwar period, and this despite the greatest government-sponsored economic stimulus in U.S. peacetime history.

Jeong: How would you explain the long-term weakening of the real economy since 1973, what you call in your work “the long downturn”?

Brenner: What mainly accounts for it is a deep, and lasting, decline of the rate of return on capital investment since the end of the 1960s. The failure of the rate of profit to recover is all the more remarkable, in view of the huge drop-off in the growth of real wages over the period. The main cause, though not the only cause, of the decline in the rate of profit has been a persistent tendency to overcapacity in global manufacturing industries. What happened was that, one-after-another, new manufacturing power entered the world market -- Germany and Japan, the Northeast Asian NICs (Newly Industrializing Countries), the Southeast Asian Tigers, and, finally, the Chinese Leviathan. These later-developing economies produced the same goods that were already being produced by the earlier developers, only cheaper. The result was too much supply compared to demand in one industry after another, and this forced down prices and, in that way, profits. The corporations that experienced the squeeze on their profits did not, moreover, meekly leave their industries. They tried to hold their place by falling back on their capacity for innovation, speeding up investment in new technologies. But, of course, this only made overcapacity worse. Due to the fall in their rate of return, capitalists were getting smaller surpluses from their investments. They, therefore, had no choice but to slow down the growth of plants and equipment and employment. At the same time, in order to restore profitability, they held down employees’ compensation, while governments reduced the growth of social expenditures. But the consequence of all these cutbacks in spending has been a long-term problem of aggregate demand. The persistent weakness of aggregate demand has been the immediate source of the economy’s long-term weakness.

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