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The "Great Transformation" of the 21st Century
by Joachim Bischoff and Christoph Lieber
Wednesday Jul 2nd, 2014 4:36 AM
An end of the Great Crisis is not in sight at the beginning of the 21str century... The regime of finance-market-driven accumulation has not brought forth any new formation of capitalism capable of development.

Political Economy of Surplus versus Market Failure

By Joachim Bischoff and Christoph Lieber

[Joachim Bischoff is an economist and sociologist and co-editor of the journal Sozialismus. Christoph Lieber is an editor of Sozialismus. This reading sample from Chapter 1 is translated abridged from the German on the Internet, VSA Verlag, Hamburg 2013,]

Current Epidemic of Overproduction in Historical Perspective

In the heyday of neoliberal globalization at the end of the 1990s, leading thinkers of the middle class gloried in the complement spread in the “Communist Manifesto” about the revolutionary role of the bourgeoisie in the development of capitalism. “The world market has given an immense impetus to trade, shipping and regional communication and has an effect on the expansion of industry… Where it gains rule, the bourgeoisie has destroyed all feudal, patriarchal and idyllic conditions…” (Marx/ Engels 1848).

The ideological estates even basked in the glorious song of Marxist social criticism since3 a relapse into an “epidemic of overproduction” seemed excluded once and for all. Crisis was yesterday and the negative side of capitalism did not need any smooth talking any more. In the Communist Manifesto, it was declared there would be an inevitable negative side-effect of the triumphant advance of middle class society: “In crises, a social epidemic breaks out that would have appeared an absurdity to all earlier epochs – the epidemic of overproduction. Society finds itself transported into a state of momentary barbarism, famine and a general war of destruction that seems to have cut off all its food. Industry and trade seem devastated. Why did this happen? This happened because it possessed too much civilization, too much food, too much industry and too much trade. Society’s available productive forces no longer serve to promote middle class ownership relations but are inhibited by them. As soon as they overcome this inhibition, they bring the whole middle class society into disorder and endanger the existence of middle class property. Middle class conditions become too narrow to grasp the riches produced by them” (Ibid. 468).

The epidemic of overproduction also suddenly changes the high level of wealth production into a state of barbarism, hunger and misery. All forms of undersupply mark a developed society today that was once proud of cushioning poverty in a net of basic provisions. As a result of a new outbreak of the Great Crisis in the past years, this is again the experience of the middle class world in the metropolises.

The financial- and economic crises that continued for years develop an enormous dynamic because all continents and countries in different ways are drawn into the shriveling process. The present world economic crisis – comparable in extent and intensity with the world economic crisis of the 1920s – is more than a momentous, far-reaching and protracted shriveling and choking of social areas of life. This crisis is an element of an unstable finance-market driven capitalism that is not future friendly and puts in question the earlier form of globalization. This extensive social crisis with its hard economic core logically becomes a theme for all social movements. How can this economic core be grasped? How should the connection of structures of production and the “financial superstructure” be understood that forms and influences the value-creation process more and more in the last decades? Friedrich Engels noted to Marx during their common analysis of the first world market crisis of modern capitalism: “The form in which overproduction is hidden is always more or less the expression of credit, this time with a changed cavalry” (1857).

Modern middle class capitalist society is a changeable organism understood in the process and in no way a hard crystal. In the Foreword to the first 1867 volume of “Capital,” Marx opposed simplified and mono-causal conceptions of capitalism. Capitalism can be understood as an historical totality in which incomplete social subsystems are completed or make possible repercussions and interactions of life spheres and was by no means fixed and finished at the beginning of the history of capitalism. Thus the economic core passes through historical stages that can be conceptualized as development forms of the capitalist reproduction- and accumulation process. For Marx “a certain production influences relations. It is a general illumination where all colors are modified in their peculiarity. It is a special other that determines the specific weight of all existence.” (Marx 1857/58).

Marx sees this main thread of analysis in the center of capitalist production relations that establishes the “social operating mode” (Marx 1867). This center is constituted in the interplay of exploitation and development of productive forces and results in a specific constellation of the subjective and objective factors of the capitalist production process (as a unity of the work- and exploitation process) on the plane of businesses and administrations (shop floor) and in characteristic arrangements of organized labor. [The specific capitalist production mode develops with the accumulation of capital and accumulation of capital develops with the specific capitalist production mode.” (Marx 1867) Historically the forms of development of “big industry” (up to the beginning of the 20th century) and the “Fordist-Taylorist operating mode” (the postwar decades to the end of the 1970s) are distinguished. With all contradictions and backward steps, the sequence of these two operating modes, especially the Fordist mode, leads to a higher development of subjectivity in the production process which then in the 1980s and 1990s led to a “chaos of transition forms” (Marx) of new production systems, systemic rationalization, lean production and others which did not yet condense to a really stable new post-Fordist operating mode capable of development.

Even if the dynamic of the capitalist development of productive forces and accumulation remains effective, no qualitative breakthrough to post-Fordism occurred for a long while. Such a breakthrough can only be reached politically – as will be shown in the following in different constellations of the economy and politics. “The crux of economic and social development in Germany consists in that a further- and higher development of labor in the sense of production concepts was slowed down and partly repulsed again and again. The present crisis constellation could be answered with a change of direction toward innovative labor policy. This is not presently in sight. A social reform program that carries out incisive system corrections and brings economic democracy under the conditions of the 21st century should be on the agenda” (Schumann 2013)…

A political enforcement of social regulation is needed that defies capital.

The crisis debates with different explanatory approaches have a boom season. The neoliberal counter-revolution of the last decades is at the center. Doesn’t the current development prove the enormous damages inflicted on the world by “unregulated capitalism,” the scandalous influence of Friedrich von Hayek, Milton Friedman and the Chicago school? EU commissioner Joaquin Almonia can be cited as an example: “Although solving short-term problems has priority, we should not forget that creating the foundations for a more stable and more responsible financial- and governmental system is ultimately central. What remains in Thatcher’s and Reagan’s ideological inheritance – the aversion toward all attempts to correct the undesirable effects of the laissez-faire of everything – has suffered shipwreck.” (Neuer Zuricher Zeitung NZZ, 4/21/2009). John Maynard Keynes is again talked about everywhere. A revival of Marxist theory of the criticism of political economy is underway. In many articles the outrages committed by greedy capitalists with the blessing of free enterprise economists, philosophers and other “reactionaries” are denounced. Moralizing capitalism criticism is very widespread: the “greed” of managers is responsible for the problem. This is usually combined with a reference to their extremely high salaries. [Unlike such moralizing criticism, forms of academic self-criticism already occurred in the ranks of the bourgeoisie at the beginning of bourgeois society. The ruthlessness with which classical political economy unsparingly addressed the paradoxes and contradictions of a society in which wealth policy produces its opposite – poverty – was both academically honest and academically commanded.” (Marx 1861/63) Classical political economy began the self-criticism of middle class society. Their (often vulgar) imitators nowadays are far removed from such an attitude.]

Prevailing opinion only interprets the new quality of capital accumulation in the last decades of the 20th century in a reduced and inadequate way with the catchword “globalization.” The thesis of the “epidemic of overproduction” opposes this interpretation. The essential changes refer to a radical upheaval of the production model (Fordism) and the international monetary- and credit-systems as well as a massive shift in distribution relations.

Hegemony of the financial markets and predominant financialization of businesses (capital stock and shareholder-value) form in reaction to these development tendencies. At the same time an adjustment of national economics to the “objective practical constraint logic” of the international markets is enforced politically.

Behind the backs of the economic elite and the political actors, the socially-regulated capitalism of the postwar era in the last three decades of the 20th century turned into a system where the financial markets have a determinative importance. More emphatically the social regulations carried out as a consequence of the great 1929 world economic crisis in the US and then with a time delay after 1945 in Western Europe were dissolved and a dynamic of accumulation of money- and lending-capital began that had to result in a serious economic crisis.

The cyclicity of the accumulation process was intensified by the heightening of the international division of labor in which the operating methods of big industry and Fordism are characteristic for metropolises while the periphery is mainly transformed into raw material suppliers for the industrial centers. Development of productivity, equalization of profit rates, the movement of interest rates etc. – all this happens in the rhythm of the cyclical movement as a more or less periodically recurring “sequence of vitality, prosperity, overproduction, crisis and stagnation” (Marx).

The dynamic of capitalist production with development and differentiation in the system of styles of work and needs always goes along with a specific development of the capital stock and social infrastructure. Up to the First World War, Europe and the US came to an understanding about the economic cycles and crises of the 19th century, mastered the initial capital shortage and attained a new state of development of capital surplus summarized by Keynes after the wars in a characteristic diagnosis of the times: “The inequality in distribution of wealth made possible those enormous accumulations of solid assets and capitalist investments that distinguish that age from all others. That was the main justification of the capitalist system” (Keynes 1920).

Social fixed capital is an important indicator for the civilized development state of the capitalist production method [This thesis is found early in Marx’ first Capital draft of 1857/58.]. The capital stock and a diversified and differentiated infrastructure along with a trained aggregate workforce as the subjective components of the productive force of social work are the central resources for organizing a modern capitalist society. They are also the pillars for further innovations and for the subjective-objective prerequisites of post-capitalist production relations. With the mastery of capital shortage, this socio-economic constellation also transforms the political and government structures of middle class society. The development of the living standard even of the subordinate classes leads to a spread of the fiscal economic basis of the state, to expansion of wage income into modern social work and to greater participation of the masses in politics.

The decade after the First World War was marked by two central social-political challenges: with the state question and with the political regulation of “mass societies” that should transform in the course of century to societies of mass individualization. Through political conflicts and in cultural contradictions, the arch spans from the nationalization of the masses in people’s communities during the interwar period, the “formed society” and the “Great Society” in the 1960s and then accelerated through the 68-revolts as an epochal international event to the formation of many lifestyles that provide the framework for the development state reached today. In this development tendency, the paradox is explained “that the growing influence of the social state acted as a powerful individualization factor by giving considerable collective security services to the individual” (Castel 2005). [In the German intellectual realm, resistance against Marxist class language is very deep. Strictly speaking, the class term is taboo.

In the 19th century, the bourgeois state removed traditional obstacles often in a violent way and was always an intervention state in the expanding capitalist market relations. The middle class state was by no means merely a “liberal night-watchman state.” With the arising mass democracies after the First World War, it transformed itself to the modern welfare- and social state. The history of capitalism always goes along with political-governmental regulation-, deregulation- and re-regulation processes. Both the tendency to capital surplus and the first beginnings of welfare state and mass democratic modification of modern capitalism occurred in the Europe of the interwar time. Italian and German fascism, the New Deal in America and Soviet state socialism stand for the configuration of “strong” to “total” states and for the genesis of new mass culture forms of education or forced social approval and consensus.

The interwar time is a “model” for the fragile connection of the capit6alist market economy, social order and the democracy crisis at whose end stood the breach of civilization in genocide and world war. In 1944 the economic historian Karl Polanyi described this first great development section of European capitalism from the beginning 19th century to the breach of civilization in European fascism as a first “Great Transformation.” “The innate weakness of the society of the 19th century was that it was a market society, not that it was an industrial society.” Industry provides the basis for a further civilizing of capitalism or even for its mastery. However the politics of the “market utopia” with its repression of social state interventions could only annul the weaknesses and limitations of middle class production relations in the 1920s at the price of a catastrophic solution of the crisis. This tension of market regulation and political intervention pervades the whole 20th century and is emphasized by Polanyi to whom we will return again and again.

At the beginning of the 21st century, the developed capitalist societies find themselves in the train of a comparable great crisis like the end of the 1920s at an historical nodal point. The question is: do middle class capitalist relations prove too narrow for solving the crises of industrial production, the dismantling of the oversized financial superstructure and mast4ery of tensions in the international monetary system while steering societies to a second “Great Transformation” in Polanyi’s sense? [The protagonists of social reform-emancipatory conceptions originated politically from the leftist milieu or from the liberal bourgeoisie like Franz Neuman, Otto Neurath, Karl Polanyi, Gunnar Myrdal, John Maynard Keynes and others. They often developed more useful and future-friendly diagnoses of time than the political actors in the series of European social democracy or the communist world movement.]

An epidemic of overproduction is everyday reality again in all capitalist countries since the outbreak of the Great Crisis as in the first third of the 20th century. At the same time an intensification of the problems is manifest. On one hand, the dynamic of accumulation has clearly slowed. The recession in the euro-states blocks important sales markets. Growth in important threshold countries led by China is weakened. This darkens export prospects in the metropolises of capital. Prognoses that include a solution to this contraction-development are reserved as to a possible economic revival and fraught with great uncertainties. A constellation as in 2009/2010 in which parts of the world market (BRIC-states) cushioned the fall in the capitalist metropolises does not presently exist.

On the other hand, it is harder to solve the system-immanent crisis through an institutionally anchored austerity policy in metropolises. Public austerity programs amplify massive social inequality that further weakens the economic-social reproduction process. While we face the consequences of the “fiscal dictatorship” (Streeck) in the whole EU, US budgetary policy simultaneously faces a “radical upheaval” with savings and additional revenues amounting to 3% of the GDP ($500 billion) that occurred in Obama’s second term. The coincidence of European and US “austerity policy” may strangle once again a stimulation of the world market.

An end of the Great Crisis is not in sight at the beginning of the 21st century. It is completely open how the process of debt rescheduling or “de-leveraging” can succeed in this constellation without deflationary consequences, how the relative uncoupling of the financial and real economy can be driven back and the “infernal triangle” (Bofinger) of the state debt crisis, the banking crisis and recession can be broken. In short, the regime of finance-market-driven accumulation has not brought forth any new formation of capitalism capable of development.