Below is an excerpt from Capitalisms World Disorder: Working-Class Politics at the Millennium by Jack Barnes, one of Pathfinders Books of the Month for October. It is taken from the chapter titled So Far from God, So Close to Orange County: The Deflationary Drag of Finance Capital, which is based on a talk by Barnes at a socialist educational conference in Los Angeles over the 1994-95 New Years weekend. Copyright © 1999 by Pathfinder Press. Reprinted by permission.
BY JACK BARNES
The world capitalist economy has entered a long-term deflationary crisis, a contraction that cannot be fundamentally reversed by the ups and downs of the business cycle. With their profit rates under long-term pressure, the capitalists are in their lean and mean period, their just-on-time period, their downsizing, computerizing, and de-layering period. They are laying off workers and other employees, speeding up production, and raking in short-term cash in the bargain.
But the one thing the capitalists are not doing, and are incapable of doing, is expanding productive capacity to anywhere near the degree they need to fuel another gigantic boom, set industrial profit rates on a long-term upward course, and accelerate capital accumulation. Even as capitalists temporarily boost their returns by cutting costs and taking a bigger slice of market share away from their rivals, the long-run profit expectations of capital are such that they are still not investing in new plant and equipment that draws more and more workers into expanded production.
The money that is going into new equipment goes largely into ways to make us work faster to produce more with fewer co-workers. That does not expand productive capacity, however. It intensifies speedup and extends the workweek. But that alone does not create the basis for the rising profit rates and capital accumulation that marked the post-World War II capitalist boom until it began running out of steam by the early 1970s.1
In fact, instead of issuing stock to finance expansionthe classic source of capital formation extolled in standard economics textbooksU.S. corporations for most of the 1980s and 1990s have actually bought more previously offered stock from each other than they have issued in new shares. Capitalists have also issued large quantities of high-interest corporate bondsgone deep into debt, in other wordsto finance takeovers and buyouts.2
So, the worlds propertied families have been fighting among themselves more and more to use credit to corner a bigger cut of the surplus value they collectively squeeze from working people. They have been blowing up great balloons of debt. But ever since the 1987 stock market panic, and at an accelerated pace since the onset of world depression conditions at the opening of the 1990s, the capitalists have been plagued by the problem that first one balloon, then another, and then yet another begins to deflate. And they have no way of knowing which balloon will go next until they start hearing the whoosh, and by then it is often too late.
All of us were children once and have blown up balloons. They can expand very slowly, very gradually. But then try to let the air out. That is harder to control. Remember? The balloons can get away and ricochet all over the room.
With returns on investments in capacity-expanding plant and equipment under pressure since the mid-1970s, owners of capital have not only been cost cutting; the holders of paper have been borrowing larger and larger amounts to buy and sell various forms of paper securities at a profit. They blew up a giant balloon of debt in Orange County over a period of years; the bondholders thought they had died and gone to heaven. Then the balloon began to deflate, as they learned the hard way that interest rates go up as well as down .
Over the past couple of decades, upturns in the business cycle have relied on floating large amounts of fictitious capitalballooning debt and other paper values. The capitalists are now paying the piper for the lack of sufficient economic growth during that period to keep rolling over the loans.
There can be little doubt about the option that corporate America has chosen in the 1990s: downsizing has triumphed over rebuilding, wrote Stephen Roach, chief economist for the Wall Street investment house, Morgan Stanley, in November 1996. Downsizing means making do with lessrealizing efficiencies by pruning both labor and capital . Historically, periods of accelerating productivity have been associated with increased employment.
Roach reports in a later article that computer hardware accounted for 57 percent of the growth in capital spending from 1994 to 1997. But the vast majority of such spending goes to replace obsolete equipment, not expand capacity. With the slowdown in the U.S. capitalist economy in late 1998, capital investment excluding computers was in fact declining.
2. One of the consequences of corporate restructuring, Wall Street economist Edward Yardeni told the Barrons financial weekly in March 1996, has been to generate an enormous amount of corporate cash flow . [Companies] have hesitated to build new plant and equipment. Instead, they are to a certain extent buying their competitorsand by doing so they are basically buying back stock. In the third quarter of 1998, according to U.S. government figures, the withdrawal of shares from the market via buybacks and corporate mergers and acquisitions reached record levels, for a net shrinkage in sharesafter accounting for stock newly issuedat an annual rate of $234 billion. Since the early 1980s, the nearly $2 trillion in stock that has disappeared from the market through buybacks and corporate takeovers is greater than that newly issued.