“Exploratory thinking on economic stagnation, non-traditional labor and points of strategic engagement” first appeared on PoliticalAffairs.net on May 28, 2014. Read it on PoliticalAffairs.net.
This article is based on a report to the National Board of the Communist Party USA.
Several months ago Lawrence Summers, a major economic thinker in establishment circles and leading operative in the Clinton and Obama administrations, in a short speech to the International Monetary Research Conference made some startling observations:
“We have all agreed,” Summers said, “… that a remarkable job was done in containing the 2007-2008 crisis; that an event that (was) worse than the fall of 1929 and the winter of 1930, ended up in a way that bears very little resemblance to the Great Depression.”
But there is, Summers went on to say, “another aspect of the situation that warrants our close attention … and it is this: the share of men, or women, or adults, in the United States, who are working today, is essentially the same as it was four years ago … I remember, at the beginning of the Clinton administration, we engaged in a set of long-run global economic projections. Japan’s real GDP today is about half of what we believed it would be … It is a central pillar of both classical models and Keynesian models that it is all about (economic) fluctuations around (full employment) … (but) I wonder if a set of older ideas that went under the phrase ‘secular (long term and persistent) stagnation are not profoundly important in understanding Japan’s experience, and may not be without relevance to America’s experience.” (my italics)
And then Summers going further said that long before the current crisis “a vast amount of imprudent (reckless) lending was going on,” but the economy was no way near operating at full capacity. “… even a great bubble,” he concludes, “wasn’t enough” to produce anything close to a full recovery.
Paul Krugman, Nobel prize winning economist and op-ed columnist of the New York Times, quickly picked up on Summers’ analysis of the current dynamics of the economy.
“We now know that the economic expansion of 2003-2007 was driven by a bubble. You can say the same about the latter part of the ’90s expansion; and you can in fact say the same about the later years of the Reagan expansion, which was driven at that point by runaway thrift institutions and a large bubble in commercial real estate. ” (Full article here)
“So how can you reconcile repeated bubbles with an economy showing no sign of inflationary pressures? Summers’s answer is that we may be an economy that needs bubbles just to achieve something near full employment.”
“And this hasn’t just been true since the 2008 financial crisis; it has arguably been true … since the 1980s.”
In a later New York Times op ed column, “A Permanent Slump?” Krugman elaborated on his earlier observations.
“But what if the world we’ve been living in for the past five years is the new normal? What if depression-like conditions are on track to persist, not for another year or two, but for decades?”
“You might imagine” he continued, “that speculations along these lines are the province of a radical fringe. And they are indeed radical; but fringe, not so much. A number of economists have been flirting with such thoughts for a while. And now they’ve moved into the mainstream.”
“And if Mr. Summers is right, everything respectable people have been saying about economic policy is wrong, and will keep being wrong for a long time.”
This, Krugman concluded, is “amazing stuff.” And he’s right. It is “amazing stuff,” coming from insiders in the economic establishment.
Talk about economic stagnation hasn’t been part of the conversation in “respectable economic circles” for approximately seven decades.
It was, as Krugman mentions, only on the agenda of the “radical fringe.” The last time it showed its face in mainstream conversations was during the Great Depression, when John Maynard Keynes, the great British economist, challenged the conventional wisdom of that era.
He argued that once the economy went into a nose dive, there was no self-correcting and automatic mechanism that would first cushion, then halt the downward fall, and finally, after a short interlude, power the economy back to full employment and a full recovery.
Alvin Hansen, his follower at Harvard at the time, argued similarly, that is, the economy’s structure and tendencies made persistent stagnation as distinct a possibility as dynamic s growth and full employment.
But with war mobilization and the special conditions that took shape at the war’s end, a long, and historically unprecedented, boom – what some called the “Golden Age of capitalism” – ensued and talk of stagnation quickly disappeared from official circles.
In its place, the old economic orthodoxy returned to its unchallenged perch – smug as before, but updated, quantified, and more convinced that steep and protracted downturns were a thing of the past. Cyclical movements of the economy were not ruled out entirely, but the conventional wisdom was that they would be shallow, rare, and followed in short order by a fresh and sustained surge in production, employment, income, and growth to levels surpassing the pre-crisis peaks.
Typical of this attitude was former Federal Reserve Chairman Ben Bernanke’s speech in 2004 titled “The Great Moderation.”
“One of the most striking features of the economic landscape over the past twenty years or so has been a substantial decline in macroeconomic volatility … Several writers on the topic have dubbed this remarkable decline in the variability of both output and inflation ‘the Great Moderation.'”
Mind you, this was only a few years before the biggest economic collapse since the 1930s, in the midst of a jobless recovery, and on the long heels of three decades of wage stagnation and growing income inequality. But for Bernanke and others of his craft, the only remaining chore was to squeeze any remaining “variability” out of the movement of the economy.
The observations of Summers and Krugman, therefore, are a crack, if not a rupture, in the official orthodoxy has finally occurred from within establishment circles.
(This article is based on a report to the National Board of the Communist Party last December, months before the release of the new book by French social scientist Thomas Piketty. Piketty too challenges the official orthodoxy in general and to neoliberalism orthodoxy in particular, but with much greater reach than either Summers or Krugman.)
Indeed, in making the claim that stagnation could well be the capitalism’s new template – not dynamic growth lifting all boats – Summers and Krugman are opening up analytical, programmatic, and political-practical space for liberals, progressives, socialists, communists, and the broader people’s movement to reach a far bigger audience with respect to the causes and solutions to the twin crises of growing joblessness and rising economic inequality.
I suppose it’s obvious, but let me say, our response to the new insights of Summers and Krugman (and now Piketty) shouldn’t be offhandedly and arrogantly dismissive. Smugness has no place in a modern and mature Party of the 21st century. We shouldn’t be in the business of scoring points and posturing.
In fact, if truth be told, we didn’t always distinguish ourselves in disclosing the actual dynamics, contradictions, and interrelations of the economy in recent decades either; we didn’t hawk “The Great Moderation” nor conceal the exploitive and unjust nature of capitalism to be sure. But we did predict on more than on occasion deep going crises that never materialized. And when they didn’t, we barely paused to catch our breadth before predicting another steep economic plunge in the not too distant future.
Our mistake was twofold: political and methodological. Politically, our desire for radical change was so acute that we simply saw any negative turn in the economy as a sure sign of a coming economic breakdown, which in turn triggered in our fertile imagination a mass rebellion from below.
Methodologically, we became trapped in Marxist theoretical abstractions and models that should be no more than an entry point and window to study the “on the ground” movement and contradictions of the capitalist economy. But we turned them into an end point rather than a point of departure of economic analysis, and thus gave them an explanatory and predictive power that they were never meant to possess.
In other words, we either forgot, or never fully learned, that the laws and categories of capitalist development are effective analytical tools only to the extent that they come in contact with concrete material reality and its inevitable messiness and contradictions.
Indeed, they gain their explanatory power in a fulsome sense only when and to the extent that they intermingle with competing economic tendencies and actual economic processes, clashing political currents, the scope, depth, and direction of the class and democratic struggle, and a range of unforeseen developments.
That capitalism experiences periodic crisis – some cyclical and temporary, others more deep going and longer term – is indisputable. But that reality doesn’t relieve us, anymore than it relieved Marx, Engels, Lenin, and other Marxists, from a concrete and systematic study of capitalism’s movement and contradictions, which we failed to do.
There were some exceptions – one being Vic Perlo. Perlo was more sober minded – who studied closely some of the new economic phenomena in the 1980s that are topics of discussion today (profits of control, rising economic inequality, economics of racism, privatization and dispossession, power of finance capital, etc.).
But perhaps none inside the Marxist tradition analyzed stagnation and its dynamics more or as early as the late Paul Sweezy and Harry Magdoff, the former editors of Monthly Review. In a series of articles, Sweezy and Magdoff revealed painstakingly and in a notably accessible style that the tendency toward stagnation and slow growth was present, pronounced, and internal to functioning of capitalism.
As they saw it, stagnation was built into its very structure and dynamics. It was the progeny of the transition of capitalism from its younger competitive stage to its more mature monopoly capitalist stage.
Capitalism at this stage, they argued, is dominated by giant corporations that have enormous productive and monopoly power/control over the entire accumulation process (production and distribution/consumption), which when combined resulted in the under utilization of productive capacity and the over accumulation of surplus/investible capital.
Moreover, the only way to counteract this tendency toward stagnation is through irrational, wasteful, and unproductive forms of spending surplus capital/surplus value – military buildup, advertising and consumerism, privatization, and especially in recent decades financial engineering and manipulations. Each of them provided sinks, however irrational, for profitable investment, which, in turn, stimulated economic growth and employment, while counteracting the pressures of stagnation.
According to Sweezy and Magdoff, financialization – that is, the massive growth of the financial sector and the accompanying unprecedented buildup of debt, the explosion of speculative trading, the appearance and reappearance of unsustainable bubbles, the generation of spectacular levels of wealth to the top tier of the capitalist class, and, not least, the reassertion of the power and influence of finance capital – wasn’t an aberration nor the product of a new level of nearly insatiable greed of the capitalist class, nor the result of policy makers in Washington.
Rather the roots of financialization can be traced to the intersection of capital’s incessant drive to overcome barriers to its endless expansion, the mounting economic contradictions and declining profitability (especially in the material goods sector) of U.S. capitalism at the end of the long post war boom in the 1970s, and the growing challenges to the dominant position of the U.S. ruling class on a national and global level.
Over the next few decades, financialization grew to the point where it became the main determinant shaping the contours, structure, interrelations, and evolution of the national and world economy.
Debt is as old as capitalism. But what was different in the period of financialization (and Sweezy and Magdoff saw this sooner and with more clarity than anybody else) is that the production of debt and accompanying speculative excesses and bubbles were not simply passing moments at the end of a cyclical upswing, but essential at once to ginning up and sustaining investment and especially consumer demand in every phase of the cycle as well as forestalling a deep going realization (too many goods and too few buyers) crisis.
But, as we know now only too well, financialization is a two-edged sword. While it stimulated global demand, changed the structure of the national and global economy, gave a mega boost to the profits of the top layers of finance capital, and reflated the social power of U.S. imperialism on a national and global level, it also left in its wake an astronomical pileup of consumer, corporate, and government debt; introduced enormous instability into the arteries of the U.S. and world economy; drained capital and jobs from the productive sector of the economy, downsized and partially privatized the public sector; acutely heightened the exploitation of wage labor, intensified racial and gender inequalities; engineered the biggest redistribution of wealth in our nation’s history to the upper crust of U.S. finance capital; and, not least, greased the wheels for a hard economic landing and anemic recovery.
In other words, the growth of the financial sector was a parasitic and temporary fix – just as capitalist globalization was a geographical fix – to a sluggish economy and declining profitability. It couldn’t forever mask and compensate for slow growth, stagnation, and contradictions of the U.S. and global economy.
What gives added force to the stagnationist tendencies that Sweezy and Magdoff wrote about three decades ago is the vast changes that have occurred in the structure of the global economy since then.
On the one hand, at the apex of the world economy are now huge multi-national corporations and banks that have massive amounts of mobile capital ready at hand, control over supplies lines, production platforms, commodity chains, financial circuits, and pools of exploitable labor – all of which stretch across borders and oceans.
On the other hand, Marx’s army of employed and reserve army of the unemployed and underemployed and informal has doubled in size since the 1980s as China, India, and other states in the global South and former socialist countries were integrated into the world capitalist countries.
This sudden expansion of the working classes – most of who are without protection and live insecurely – is without parallel in human history. It’s hard to wrap one’s mind around it.
Moreover, the scale and breadth of this absorption of wage laborers into a network of exploitative relationships has radically altered and weakened the position of labor world wide – not only in the Global South, but in the advanced countries of the north as well. How could it be otherwise?
This massive and world historic re-leveraging of the relative positions of capital and labor has put enormous downward pressure on wage levels and living standards worldwide and punctured the organizing capacity/social power of the working class, while further augmenting the capital, wealth, and social power of the exploiting classes and multi-national corporations and banks.
Obviously, this deep and growing disparity in wealth and power at the level of the deep structures of the global capitalist economy constitutes a powerful source of stagnationist pressures on the U.S. and world economy as well as the main ground on which class, democratic, (and anti-imperialist) struggles will be fought out.
In these circumstances, austerity – the reduction of government spending in its many forms – is not an answer for the hundreds of millions gathered (but not yet united) around the pole of declining income, job opportunities, and life prospects; in fact, it will only make things worse in so far it reduces the buying power of working people and thus becomes another factor undermining any economic recovery. It main beneficiary is finance capital and the “too big to fail” banks.
Nor is a new round of financialization and its accompanying bubble a viable exit strategy (even if it were possible at this moment): been there, done that, still feeling the pain!
Nor should anyone hold out hope for the appearance of a new technological frontier that would turn into a major sink for investment and job growth. Apple, for example, employs tens of thousands, far less than the mass production industries of the 20th century and with fewer multiplier effects (auto meant auto parts, steel, rubber, plastics, highway construction, suburbanization, etc.).
Finally, an export driven solution offers no hope either; one country’s exports are another country’s imports, all the more so in a weakly performing and increasingly integrated world economy.
What is needed is the restructuring of class and social relations, that is, political, economic, and ideological relations in a radical democratic (that is, consistently and deeply anti-corporate) and eventually socialist direction here and elsewhere.
In the near and medium term, common sense tells us that a struggle, which is as much political and ideological as well as economic, should pivot around a whole range of reforms at the political and economic level, including the broad scale conversion of a fossil fuel and militarized economy to production for jobs, peace, sustainability, and renewable energy – not to mention broad scale infrastructure renewal, a guaranteed social income for all, a reduction in the work week with no cut in pay, cooperative forms of ownership of old and new enterprises, and, not least, a major expansion of the public sector and public goods (education, housing, recreation and culture, retirement security, comprehensive and affordable heath, child, and old age care to name a few) and worker’s and people’s rights to organize.
The purpose of such reforms is not to “level the playing field” or to give everybody a “fair shot” or to establish “the same rules” for everybody, but to decisively change the rules and tilt the playing field at a national and global level in favor of the humanity’s overwhelming majority. In registering victories that significantly improve the conditions of life for hundreds of millions and change the power relations between dominant and subordinate classes and peoples, new entry points will also open up, not necessarily immediately, for more fundamental change in a socialist direction.
This, along with the existential crisis of climate change and the degradation of the natural systems that sustain the intricate and fragile web of life, I would strongly argue, constitute the overriding challenge for the world communist and working class movements in this century.
So where do we begin? My answer to that question is to begin where we are, that is, with the existing movements and struggles.
And what we see today is a growing movement and even more widespread sentiment against economic inequality, a low wage economy, and right wing extremism. Capitalism isn’t yet in a legitimacy crisis nor has the right wing been dislodged from its positions of power, but the voices and actions challenging the current economic (neoliberal) model are louder and growing as is the opposition to the far right that dominate the Republican Party, branches of the federal government and bureaucracy, and 25 or so state governments.
One day it is AFL-CIO President Richard Trumka bewailing the growth of inequality.
The next day it is President Obama, making a speech on economic inequality.
Then it is Pope Francis, condemning the modern “idolatry of money” and the “tyranny of unfettered capitalism.”
The books of Thomas Piketty and Elizabeth Warren are near the top on the New York Times best sellers list.
A progressive bloc in Congress opposes declining wages and incomes and shrinking job opportunities, and growing inequality, while combating the right and contesting right wing and centrist Democrats.
The election results last fall in New York, Seattle, Minneapolis, New Jersey and many other localities and states repudiated economic inequality.
In the countries of the Global South, governments and movements are insisting on economic justice.
While the struggle against economic inequality finds expression in multiple fronts and on multiple issues, one of the most compelling is the effort to raise wages. Into this vector of struggle are coming new faces and people. They are younger as well as older, black and brown as well as white, women as well as men, immigrant as well as native born, suburban and rural as well as urban. They also come from red as well as blue states.
Furthermore, millions of these workers labor in the new citadels of U.S. capitalism – and there is no bigger citadel than Walmart, which is the second largest corporation and biggest employer in the world. Employing a diverse workforce of 1.1 million, its business and labor practices have negatively reshaped everything from labor relations to global supply lines to countless communities.
If General Motors was the template of U.S. corporations in the 20th century then Walmart is the template in the 21st century. Its size, reach, and power enable it to bend nearly everything to its advantage, including class and labor relations across the length of the global economy.
But Walmart and other low wage retailers as they rake in money hand over fist are meeting resistance to their practices. And the resistance is taking many forms.
It is direct and indirect; it accents action and mass mobilization; it is – and correctly so – legislative and electoral as well as in the streets; it is creative and inventive; it is closely connected to the struggle for racial and gender equality; and its watchwords are inclusion and unity, not fragmentation.
In its corner are important sections of the U.S. labor movement, including the top leadership of the AFL-CIO.
We (and many, many others) are partisans of this struggle too. But it isn’t yet a strategic focus, that is, something that every communist and every collective gives time, energy, and our best thinking. That has to change. This struggle should become our preoccupation and passion.
Such a focus, in case anybody is worried, isn’t a turn away from the traditional sections of the working class. It’s not a back benching of our industrial concentration policy, which by the way was never intended to balkanize or create a pecking order within the working class; to the contrary its purpose was to activate, empower, and unite the working class as a whole.
Thus, a focus on Walmart, fast food, and other low wage workers is an adaptation of our concentration policy to new realities, challenges, and motion within the working class. If you live in Michigan, for example, no one is saying that you forget about auto workers; or in California, to take another example, to say “see ya later” to the long shore workers. I could go on, but you get the gist.
This isn’t the first time that we have adjusted our labor and industrial concentration policy to a changing economic and political landscape. We have done it a number of times.
And we never did it alone, off in the corner. In each instance, sections of the labor movement were considering similar changes in their thinking and practice.
Now I’m sure someone is thinking that Big Box, fast food, and other low wage worker don’t have the same strategic power that, say the auto workers in Flint had in the winter of 1935 when they seized one and then two GM plants. (And by the way, the two main organizers of the sit-down were communists – Bob Travis and Wyndham Mortimer).
That’s difficult to argue on the face of it. But I would counter with two comments. First, strategic power doesn’t turn only on location in a complex system of social production. That strikes me as too economistic. It seems to me – and this is something that deserves much more discussion and study – that strategic power is something that can be acquired or constructed by other means. Location is important for sure, but in the end, strategic power, much like class consciousness and class power, is politically constructed.
To put it differently, strategic power isn’t simply about place in the production process. It’s also about relationships, outreach, alliances, unity, and, not least understanding/consciousness. It’s about mass and militant forms of struggle. It’s also about the fight against white and male supremacy at every phase of struggle. It’s about embracing undocumented workers and their struggles. It’s about thinking in people and nature before profit ways. It’s about a new level of independent political action in and outside of the two party system. It’s about new forms of cross border and cross ocean solidarity. And, it’s about decisively defeating right wing extremism, which, we shouldn’t forgot, is absolutely necessary if the broader movement hopes to more fundamentally realign politics, economics, culture, and mass thinking in a consistent anti-corporate and eventually socialist direction.
What is more, in each of these way that strategic power is constructed, I can’t but help think that the struggle and victories of Walmart, big box, fast food workers, and other low wage workers can only scale up and out labor the strategic power of the labor movement. The entry of this huge section of the working class into the family of labor will almost surely bring new spirit, energy, ideas, and, above all, power capacity into the labor movement.
Sometimes I think that we, myself included, think too narrowly and abstractly about our strategic focus, issues of strategic engagement, and strategic possibilities.
Again, I’m not suggesting that we backbench the industrial core of the working class. But our concentration policy has to take into account the fact the factory fortresses, industrial complexes, and massive concentrations of workers in this or that city or state in the 20th century are a permanent thing of the past; and in the meantime, new sections of workers have come on the stage, proving once again that class formation is an ongoing process that constantly enlarges, remixes, and changes the size, proportions, and strategic (political and economic) weight of the various components of the working class.
Can we ignore this reality? Can labor? By no means!
Labor can’t survive, let alone meet the challenges to this century, by remaining in its shell of the last century. That shell, if it is to survive and grow, has no alternative, but to open up. Clamming shut, to continue the metaphor, isn’t an option, but a death sentence.
Luckily, labor understands that, and is changing accordingly. Its reach more and more is encompassing the whole grid of exploitation and the millions of new occupants on it.
Can we do any less? Again adjusting our strategic focus isn’t, and was never a policy of turning our backs on any section of the working class.
Indeed, we never engaged in the separation of the layers of the dispossessed into distinct and unconnected categories, classes, or groups. While not everyone occupies the same space and status on the grid of exploitation and oppression – in fact, the spaces and statuses on the grid are many, unequal and deeply and historically embedded – we never lost sight of the common thread connecting the occupants across the constantly changing grid of exploitation and oppression. Indeed, we were always suspicious of analyses and efforts (and there were and are many) to segment workers (and peoples) into irreconcilable and unbridgeable camps. Our accent was dialectically and correctly on intersection, unity, and united struggle, even as we pointed to and struggled against differential and unequal places and statuses (racial/national, gender, unskilled, low wage, immigrant, etc.) on the grid of exploitation and oppression. Such an approach in my opinion will serve us well going forward.
Anyway, I hope at the coming convention that we can make a qualitative turn toward labor in general and low wage workers in particular. It is a win-win situation. Labor, the broader movement, and our Party will be the better for it.
The author retired as National Chair of the Communist Party USA in June 2014.