Capitalism and crises

Page 1

From Paul Bowles and Henry Veltmeyer (eds). The Essential Guide to Critical Development Studies . London: Routledge, 2022

8 Capitalism and crises

Capitalism is having a bad 21st century. The East Asian  nancial crisis of 1997–1998 heralded it, the stock market crash of 2000 inaugurated it, and the 2008  nancial crisis nearly destroyed it. However, capitalist classes retained political power and neoliberal  nancialised capitalism, the result of the still-unresolved Long Downturn dating back to the 1970s, malingered on.While neoliberalism ideology continued celebrating capitalism, it clocked ever-lower growth, generated ever-greater inequality, and in  icted evermore ecological damage. Millions of young people began striking school to demand governments and corporations act to halt the climate emergency, only to be interrupted by another disastrous result of capitalism’s dysfunctional relation to nature,the 2020 novel coronaviruspandemic.The concatenation of public health, economic,  nancial and ecological crises that accompanied it threatens complete social and political breakdown.

So, what is it with capitalism and crises? Capitalism’s proneness to crises was apparent from its earliest days. Businessmen bemoaned glutted markets and falling pro  ts, fearfully contemplated the social and political consequences of rising unemployment or bank failures, and hatched schemes to reform monetary and  nancial systems to prevent the over- or under-supply of money.They also plotted with governments to manage and, if necessary, crush workers’ resistance and either colonise foreign territories or otherwise open them up to export surplus commodities and capital, import or export labour, and access cheap inputs to avert crises.

Classical political economy, which emerged to comprehend the novel social form, openly acknowledged this. It registered capitalism’s paradoxes—its equally proli  c production of riches and misery, its booms and slumps—but combined its insights—only labour produced value, capitalism was prone to gluts—with confusion and conundrum. Only capitalism’s greatest critic and analyst, Karl Marx, working with Friedrich Engels, resolved them in his unrivalled analysis (Desai, 2018; Dobb, 1973; Meek, 1973).

Marx’s critique of political economy (Marx, 1867/1977) portrayed capitalism as a system aiming to produce not the goods and services people needed, but value itself, its single commandment,‘Accumulate!’ Such value or capital accumulation was a quixotic and contradictory enterprise,involving unjust exploitation and anarchic competition. However, Marx’s work remained incomplete. He recognised and discussed but did not fully develop another point:capitalism required practically impossible social arrangements that were perpetually close to failing or breaking down and burdened sociality itself to breaking point while also involving societies in competition and con  ict. The mass of contradictions stemming from capitalism’s fragility, injustice, and anarchy regularly produced crises.Agencies outside the circuit of capital, usually the state, managed them. This modi  ed capitalism’s workings but could not eliminate capitalism’s crises: they were

DOI: 10.4324/9781003037187-10

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fated to destroy it. Humanity faced a choice: either transform capitalism into a radically di  erent society—recreating a strong,just,and orderly human society that produced what it needed, i.e., socialism—or humanity would go to capitalism’s grave with it.

The politically powerful naturally opposed such critique and supported currents that denied capitalism’s contradictions and crises: the ‘vulgar economy’ Marx derided, its culmination in neoclassical economics in the 1870s, which we know as neoliberalism today. If this was all, matters would have been simple. Clear blue intellectual and political water would have separated Marx’s analysis on the Left and neoliberalism on the Right. Unfortunately, the waters are very muddy.

Marx’s heirs only brie  y challenged neoclassical economics directly. As neoclassical economics penetrated universities, more and more intellectuals were trained in it before arriving at Marxism and they began pursuing ‘a policy of theoretical reconciliation’ between the two (Bukharin, 1914/1972).This denatured Marx’s legacy—replacing its complex historical understanding in which human agency was central—with the positivism of neoclassical economics. In any case, given that Marxism and neoclassical economics were theoretically and methodologically opposed, such reconciliation only prompted Marxist economists to question one or more central aspects of Marx’s critique, including his explanations of capitalism’s crises (Desai, 2020b). No wonder the greatest crises of capitalism—the Great Depression of the 1930s as much as the 2008  nancial crisis—found Marxism on the intellectual back foot. Meanwhile, when later critics of capitalism, such as John Maynard Keynes and Karl Polanyi, mounted their critiques of capitalism in terms of a critique also of neoclassical economics, thanks to ‘Marxist economics’, they assumed Marx was little di  erent from it and saw themselves as opposing Marx, despite strong links and similarities between their critiques and Marx’s.

In what follows, we  rst outline how capitalism’s contradictions and crises were analysed by Marx and later critics of capitalism such as Keynes and Polanyi before going on to discuss the mechanisms of the sheer variety of crises that arise from capitalist value production and the social fragility it requires.

Recommended reading: Desai (2018); Dobb (1973).

Karl Marx’s analysis of capitalism and its crises

Marx got to the root of capitalism’s novelty: surplus extraction through contradictory value production.Hitherto surplus had been extracted forcibly.How could it be extracted in capitalism with its voluntary market exchange? The answer lay in the precondition of capitalism: free wage labour.Workers in capitalism had a paradoxical double freedom: free to choose employers, but also ‘freed’, through force or fraud, from any other access to the means of livelihood,the land.This separation privatised and commodi  ed land and labour. It was the culmination of a long history of class exploitation (Marx, 1964) and involved the state centrally.

Capitalism also transformed market exchange.For centuries, it was focused on acquiring useful objects: commodities were exchanged for money to acquire other, more useful, commodities in a C-M-C circuit, as Marx represented it. Capitalism, however, was generalised commodity production whose characteristic circuit, M-C-M’, began with money invested in the purchase of labour, raw materials, etc., needed in the production of commodities and ended with the sale of the new commodities, returning a greater sum than originally invested.The state was centrally implicated in organising the nearimpossible conditions for this novel social structure.

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Where such conditions are established (the process is far from complete on a world scale even today), exploitation takes a novel form.Workers sell their labour power, their capacity for work, and, when the ‘justice’ of markets prevails, capitalists buy it at its value. They nevertheless extract surplus value simply because the value of what the worker produces is far in excess of what her labour is worth, the comparatively small amount needed to keep her and her family. If it were not, would the capitalist, who seeks a return greater than the capital he invested, bother to employ labour? Many believe that Marx considered the resulting injustice, the vertical axis of value production, the private appropriation of the product of social labour, the most fundamental contradiction of capitalism (Desai, 2010).

Finally, Marx showed how capitalists and other property owners struggle over the distribution of surplus value through relentless competition between industrial capitalists and political struggle between them and the owners of land and money. This anarchy formed the horizontal axis of value production. Competition determines the value of products,pushing down their price to their‘socially necessary’level,below which existing knowledge and technology will not permit it to go, destroying weaker  rms and enlarging stronger ones in the process. Political struggle determines how much rentiers—the owners of land and money—are rewarded.

No sooner had Marx published the core of this analysis in Capital’s  rst volume in 1867 than neoclassical economics emerged.

Recommended reading: Marx ([1867]1977).

From vulgar economy to neoclassical economics

It happened when Ricardo’s conviction that value arose from labour had given rise to Ricardian socialism, when Marx resolved classical political economy’s outstanding questions into a major indictment of capitalism, and when European working classes began organising on a mass scale. Capitalist classes could no longer politically a  ord acknowledgements of capitalism’s contradictions and antagonisms.They needed unambiguous justi  cations of capitalism (Clarke, 1991).

The marginalist revolution of 1870 produced neoclassical economics as if on cue, re  ning and synthesising ‘vulgar economy’, the facile justi  cations of capitalism Marx had dismissed.Where classical political economy and Marx studied capitalist society as a historically distinct and evolving whole, made and unmade by the struggles of classes, parties,and states,and vulgar economy had insisted on laissez-faire,neoclassical economics separated‘the economy’as a distinct social realm with its own laws.Unlike Marx’s dialectical laws, made and unmade by human actions, neoclassical laws were like those of nature, externally imposed, only to be obeyed. Max Weber, who was originally trained in neoclassical economics,constructed a veritable new social scienti  c division of labour around ‘the economy’, arguing that modern capitalist societies di  erentiate into autonomous spheres whose speci  c laws need separate study through separate disciplines such as economics, sociology, political science, etc.The generality of his argument notwithstanding, it was the economy’s autonomy that mattered most.

In this separate‘economic’realm,neoclassical economics narrowed the focus of analysis to exchange,leaving out production;to prices leaving out values;and to the agency of individuals,leaving out classes and political action.This erased the problem of injustice and exploitation,which requires attention to production.As for anarchy,neoclassical economics bought into two  ctions.First,Jean Baptiste Say’s‘law’that there could be no gluts in markets.It was

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a critically important step in denying capitalism’s contradictions and crises. Secondly, there was Ricardo’s conception of comparative advantage claiming,against the evidence,that free trade bene  ted all nations, erasing the international contradictions of capitalism.Thus, neoclassical economics gave us ahistorical capitalism:stable,eternal,and unchanging.It was also cosmopolitan,conceiving a seamlessly uni  ed world economy whose division into rich and poor countries was irrelevant. Now we lost the central plot—of class and national struggles and competition—that makes capitalism’s tumultuous history intelligible.

ForWestern capitalists,neoclassical economics has been the gift that keeps on giving.It eliminates any discussion of capitalism’s fragility,injustice or anarchy and permits capitalists to keep control over the economy such that growth is reliant on capital accumulation.The ‘autonomy of the economy’ is conveniently invoked against state interventions favouring labour, while those in favour of capital proliferate, thanks, not least, to its contradictions and crisis tendencies.

Recommended reading: Bukharin ([1914]1972); Clarke (1991).

Post-neoclassical critiques of capitalism

Neoclassical economics may have changed the discourse about capitalism but not capitalism itself and new critiques continued emerging.Take Keynes and Polanyi.

John Maynard Keynes mounted arguably the next greatest indictment of capitalism through a critique of neoclassical economics amid the economic turbulence of twoWorld Wars and a Great Depression. Although Keynes and Marx are contrasted as ‘reformist’ and ‘revolutionary’ respectively, not only is the intellectual relationship stronger than usually imagined—for instance, Keynes derived his early critiques of Say’s Law from Marx’s distinction between the circuits of commodities and capital (Sardoni,1997:198)— the analyses are remarkably similar, focused on the working class, criticising Say’s Law and comparative advantage, and pointing to surfeits of commodities and capital as key problems (Desai, 2009).

Karl Polanyi criticised capitalism for treating land, labour, and money as commodities when they were not, leading to the ‘double movement’—the spread of markets and the response of social reform. Neither this argument in itself, nor its connection with Marx’s, is widely understood. In reality, classical political economy and Marx appreciated well enough that land, labour, and money were not commodities; special laws determined their prices.The term  ctitious commodities became necessary as a questioning of the neoclassical assumption that everything o  ered for sale is a commodity (Desai, 2020a). The ravages of the commodi  cation of the main elements of production had led in the 19th century to the double movement, but now needed consciously organised socialism.

Recommended reading: Desai (2009, 2020).

Crises and their variations

We must note four things before going on to outline the variety of capitalism’s crises. Contrary to neoclassical economics, there is not and cannot be, a ‘pure’ or ‘purely economic’capitalism.Capitalism is everywhere born in non-capitalist societies and can never entirely transform them. Engels noted that complete capitalism ‘does not exist even in England and never will exist’: revolutionaries like him ‘shall not let it get so far as that’. No actually existing capitalism is reducible to the mechanisms of value production alone. Secondly, in Capital Marx focused on showing how capitalism extracts surplus value and

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how it is distributed among the non-working classes even when capitalism is on its best behaviourand equal values are exchanged on the market. However, he well knew that capitalism frequently employs fraud and harnesses pre-existing hierarchies, of say gender or race or the new-found force of the state for its gains.Thirdly, Marx analysed myriad mechanisms of crises, with usually more than one at work in any given historical crisis, interacting in complex ways with one another. Finally, these crisis mechanisms and the pressures they generate force states to act to mitigate, if not eliminate, them through actions of domestic repression or reform and of international imperialist expansion or resistance to it.These actions further ensure that capitalism is not, and can never be, a purely‘economic’system but a political economy domestically and at the international plane, not a ‘global economy’ seamlessly uni  ed by markets but a geopolitical economy in which states and their relations of competition and struggle are central.

Marx identi  ed a range of crisis mechanisms and examined some more fully than others in his incomplete work.Ernest Mandel identi  ed overproduction (or underconsumption), disproportionality, and the tendency of the rate of pro  t to fall (TRPF) as distinct crisis mechanisms in Marx’s work. Paul Sweezy likewise identi  ed crisesassociated with falling rates of pro  ts and realisation.We can, however, take a wider, more systematic, view.

While crises certainly occur in production and circulation, the core realms of value production, capitalism relies on the right conditions in at least  ve other realms.Value is expressed and, critically for capitalists, preserved in money and states must furnish money of stable value.Money is inseparable from credit and states must ensure that  nancial systems function to facilitate accumulation. Further, states must create and maintain the legal and political framework of private property, to secure its growth and manage its crises. Internationally, the unevenness of capitalist development and the imperialist pressures generated by dominant states call forth the response of combined development, protectionist industrialisation, whether capitalist, as in Germany, the US, or Japan in the nineteenth century, or communist, as in the Soviet Union or the People’s Republic of China in the twentieth. The resulting dialectic of uneven and combined development (Desai, 2013) ensures the plurality of nation-states and competition, struggle, and con  ict between them. Finally, like all other modes of production, capitalism relies on the free resources that nature provides.

In each of these six spheres, crises may take two forms: an intra-class horizontal form arising from competition and struggles among property-owningclasses;andan inter-class vertical form, arising from class struggle between them and workers. These six sources and two forms give us at least 12 di  erent mechanisms of crises (Table 8.1).

Let us take them in turn.There is the TRPF because, in competing for market share, capitalists invest in cost-reducing technology. The ‘  rst mover’  rm initially enjoys increased pro  ts because it can sell above its new lower cost while remaining below competitors’ still-high costs. While some competitors go bankrupt, others catch up by making similar investments.As they do, they depress the price to the new, lower,‘socially necessary’ level and also push down the rate of pro  t in that sector to the average unless counteracted, temporarily, by some factor.Those who dismiss the TRPF argue that no capitalist would invest unless it increased his pro  ts. However, Marx’s argument was that the capitalists are ‘forced to introduce new machinery in order to keep … market share’ and that ‘[n]o capitalist knows in advance what the result of this decision to buy new machinery will be’ (Mandel, 1981: 35–36).

Both Marx and Keynes considered falling pro  ts a secular trend, punctuated but not reversed by up-ticks,weakening the impulse to invest as capitalism matured.The resulting

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Table 8.1 Crises by source and form

Form/SourceProductionRealisationMoneyFinanceStateInternationalEcological

Intra-class TRPF*DisproportionDe  ationCredit crunch / speculative bubbles Fiscal crisisUneven vs. capitalist combined development Corporate ecological destruction

Inter-class Pro  t squeezeOverproduction / underconsumption In  ationMortgage crisisLegitimation crisis Uneven vs. popular or socialist combined development Ecological destruction from human desperation

* TRPF, tendency of the rate of pro  t to fall.

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surfeit of capital would spell the obsolescence of capitalism and capitalists. However, exactly how it contributes to crisis is not entirely clear. Marxists squabble over how exactly to measure the pro  t rate, but how its lowering slows investment su  ciently to constitute a crisis remains unclear. Certainly, di  erences in rates of pro  t explain why capital shifts from less to more pro  table sectors. However, can it explain rises or falls in aggregate investment? Where reasonably developed  nancial systems exist, low pro  t rates should hardly prevent and could even spur investment if promising new technology appears. Meanwhile, high pro  t rates amid low demand and pro  t expectations only lead capitalists to hoard their money as  nancial ‘investment’, increasing the amount of capital seeking a share of existing returns, putting more downward pressure on pro  t rates (Freeman, 2013). Keynes had emphasised that investment is motivated by pro  t expectations as much as existing pro  t rates while the most ambitious attempt so far to explain the Long Downturn since the 1970s in terms of declining pro  t rates (Brenner, 1998) attributes them to overproduction and overcapacity in relation to existing demand, a more complex matter.

Pro  ts are squeezed when rising wages reduce rates of exploitation and pro  ts. Many Marxist economists dismiss pro  t squeezes theoretically, arguing that rates of exploitation can rise even when pro  ts are falling, and empirically by noting that other factors, particularly international price pressures, explained most of the decline in pro  tability between 1965 and 1973 (Brenner,1998:101–102).Neither argument demonstrates,however, that rising wages cannot decrease pro  t rates and they did threaten pro  ts at least in some countries in the economic crisis of the 1970s (Glyn, 2006) as productivity growth slowed.

Crises of competition in circulation are classic symptoms of capitalism’s anarchy,leading to disproportionate production between sectors: for instance, too many investment goods and too few consumption goods, or vice versa:‘too many shirts, too few tractors’. However, crisis in circulation arising from the injustice of class exploitation is far weightier. Since what workers are paid is always considerably lower than what they produce, and since there is no guarantee that the capitalist, who appropriates the rest, will spend it, whether on lavish consumption or investment, there is never any guarantee that all the goods arriving on markets will be sold. Periodic gluts are inevitable. They signify overproduction in relation to existing demand or underconsumption in relation to existing production.Though many Marxists favour the former term, they are interchangeable. Certainly, Marx believed that the ‘ultimate reason for all real crises remains the poverty and restricted consumption of the masses’ (Marx, 1981: 615). In emphasising that high wages and full employment were necessary to prolong, if not ultimately stabilise, capitalism, Keynes agreed. Marxist economists deny that paucity of consumption demand is a crisis mechanism by proposing that capitalism can be a never-ending production of producers’ goods. However, while investment and consumption demand together make up aggregate demand, investment demand for production goods relies on demand for consumption goods (Desai, 2010). As Marx pointed out, the production of constant capital (his term for investment goods) is ‘ultimately limited’ by consumption demand because ‘production of constant capital never takes place for its own sake, but simply because more of it is needed in those spheres of production whose products do go into individual consumption’ (Marx, 1867/1977: 420).

We now leave the spheres of value production and realisation and venture to their preconditions. Capitalism inherits the state institution of money but requires it to behave like a commodity. Only states can create money even as capitalists suspect them of

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devaluing it for its own political convenience. Capitalism also needs money to retain its value even though its own dynamics lead to  uctuations in that value. Competition pushes down prices unrelentingly, leading to de  ation, increasing the value of money, and reducing the inducement to invest.

While commodities tend to decline in value as capitalism develops, the  ctitious commodities—land,labour,and money—whose prices are determined by their own special laws, can (arguably, must) rise, leading to in  ation, devaluing money. Cost-push in  ation occurs due to high bargaining strength of labour or primary commodity producers. Meanwhile, the mismanagement of money by states can also lead to in  ation. Within limits, in  ation acts as a spur to spending, both consumption and investment, and can stimulate production. Beyond a point, however, italsoundermines both.

All money already being debt, the realm of capitalist  nance is that of private credit.

Though it is structured to appear just like any other form of pro  t making, it is actually entirely di  erent. It produces nothing and relies on skimming o  other incomes, whether wages, pro  ts, or rent. It must also be heavily regulated, and supported, by the state, something that became glaringly clear when states and central banks bailed out  nancial institutions in recent  nancial crises. In the realm of  nance, horizontal crisis mechanisms can be credit crunches—one set of capitalists, bankers, being unwilling to lend, whether to other bankers or productive investors,as in 2008—and asset bubbles as capitalists compete to corner returns for their idle capital through speculation in asset markets, driving prices up and returns down.As ever-thinning margins require ever more borrowed money to keep speculation going, asset price crashes can also lead to banking crises, as in 2008.

In the vertical, inter-class, plane, the most common  nancial crises are mortgage crises, which occur with high default rates of credit extended for consumption to workers or petty producers whose wages are insu  cient to service the debt.The recent ‘subprime crisis’ in the United States was an important but not the only instance: mortgage crises had preceded the Crash of 1929.

In the state or political realm, capitalists cause  scal crises—state revenues falling short of expenditures—by competing to o  -load the costs of the state running their common a  airs to others through tax cuts and to appropriate the bene  ts of public action, like subsidies. Fiscal crises handicap states in ensuring accumulation.Tax cuts for the rich are justi  ed with claims that they will invest, create jobs, and increase state revenues, though this is rare.The resulting  scal crises usually result in curtailing social spending, which further contributes to declines in growth and legitimacy. This is precisely the form of inter-class political crises of legitimacy which can require concessions unwelcome or intolerable to capital.

In capitalism’s international relations,the geopolitical economy of capitalism that Marx termed ‘the relations of producing nations’, the very plurality of states, re  ecting that of capitals,guarantees crises.They take an intra-capitalist form when they arise from competition between nationally organised blocs of advanced capital, such as the competition for markets and colonies that culminated in the FirstWorldWar. In our own time, they compete for limited markets, the underlyingcause of the Long Downturn (Brenner, 1998), investment opportunities, resources, and labour.

‘Inter-class’ geopolitical crises can take the form of refusals of the less-developed periphery to provide outlets for advanced country excess capital and commodities and to contribute to the stability of core capitalism by keeping their exports cheap—such as oil price increases of the 1970s or contemporary surges in commodity prices (Patnaik &

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Capitalism and crises 75

Patnaik, 2016)—and by undertaking their own development, in capitalist (India, Brazil, South Korea) or socialist (Soviet Union, People’s Republic of China) forms.

Finally, on a planetary scale, the capitalist organisation of production and labour, what Marx called our ‘metabolism with nature’, has everywhere led to the degradation of the very Earth that guarantees our existence.Here too,the two axes of value production result in distinct forms of ecological damage. Competition among capitalists to simply produce and sell us more and more products and services,to persuade us falsely that we need them, to corner resources to do so results in abuse and overuse of resources and land, pollution, reduction of biodiversity, and climate change.

On the class exploitation axis, working people everywhere are forced to denude nature—for  rewood,land for houses,agriculture,or pasture,as unregulated waste dumps, or by buying cheap and shoddy goods representing a waste of resources—because they are left with an ever-shrinking share of the social product.The environmental issue is not economic growth and population, it is the capitalist organisation of our metabolism with nature.

Recommended reading: Desai (2010).

Conclusion

The mechanisms of value production and its conditions are rife with possibilities for crises.Every major crisis is a complex amalgam of more than one of these.If the argument of this essay is accepted, readers will see that the historically novel fragility, injustice, and anarchy of capitalism were noted by the earliest observers of capitalism and Marx laid the foundation for a larger coherent understanding of capitalism in his incomplete oeuvre,and latercritics of capitalism added new elements to our understanding in ways thatbuilt on it.The picture we get is of a social form that requires so many things to go just right at once that its smooth functioning is an impossibility, leaving it perpetually prone to crisis on practically every front.

Reference

Brenner, R. (1998).“The Economics of Global Turbulence.” New Left Review, I(229): 1–265. Bukharin,N.(1914[1972]).The EconomicTheory of the Leisure Class.NewYork:Monthly Review Press. Clarke, S. (1991). Marx, Marginalism and Modern Sociology: From Adam Smith to MaxWeber (2nd ed). Basingstoke: Macmillan Academic and Professional.

Desai, R. (2009).“Keynes Redux:World Money after the 2008 Crisis,” in Anthony,W. & Guard, J. (eds.), Bailouts and Bankruptcies, pp. 123–144. Halifax: Fernwood Press.

Desai, R. (2010).“Consumption Demand in Marx and in the Current Crisis.” Research in Political Economy,. 26: 101–141.

Desai, R. (2013). Geopolitical Economy:After US Hegemony, Globalization and Empire. Future ofWorld Capitalism series. London: Pluto Press.

Desai, R. (2018).“Political Economy,” in Diamanti, J., Pendakis,A., & Szeman, I. (eds.), Bloomsbury Companion to Marx. London: Bloomsbury.

Desai, R. (2020a). “Money as Fictitious Commodity: An Exploration,” in Desai, R. & Polanyi Levitt,K.(eds.), Karl Polanyi for theTwenty-  rst Century.Manchester:Manchester University Press.

Desai, R. (2020b).“Marx’s Critical Political Economy, Marxist Economics and Actually Occurring Revolutions against Capitalism.” ThirdWorld Quarterly, 41(8): 1353–1370.

Dobb, M. (1973). Theories of Value and Distribution since Adam Smith. Cambridge: Cambridge University Press.

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Freeman,A.(2013).“The Pro  t Rate in the Presence of Financial Markets:A Necessary Correction.” Journal of Australian Political Economy, 70: 167–192. Glyn, A. (2006). Capitalism Unleashed: Finance Globalization and Welfare. Oxford: Oxford University Press. Mandel, E. (1981).“Introduction,” in Karl Marx, Capital (Vol. III). London: Penguin. Marx, K. (1858[1973]). Grundrisse. London: Penguin. Marx, K. (1867 [1977]). Capital (Vol. I). London: Penguin. Marx, K. (1964). Pre-capitalist Economic Formations. NewYork: Monthly Review Press. Meek, R. (1973). Studies in the LabourTheory ofValue (2nd edn). London: Lawrence and Wishart. Patnaik, P., & Patnaik, U. (2016). ATheory of Imperialism. NewYork: Columbia UniversityPress. Sardoni, C. (1997).“Keynes and Marx,” in Harcourt, G. C. & Riach, P. (eds.),A Second Edition of the General Theory,Vol. 2, pp. 191–207. London: Routledge.

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9 Development, capitalism, imperialism, globalisation

A tale of four concepts

This chapter concerns a series of controversies that have long surrounded the concepts of ‘capitalism’, ‘globalisation’, and ‘imperialism’—controversies as to what they have to do with the idea of ‘development’: whether or how these concepts can serve as descriptors of the dynamics associated with this idea. For example, the terms ‘capitalism’ and ‘imperialism’refer to concepts and issues that are central to international political economy (IPE), a  eld of studies closely related to critical development studies (CDS), but reference to them is totally absent from mainstream development discourse.This absence from a CDS perspective is problematic, particularly in regard to the concept of ‘capitalism’, which makes reference to the system underlying the development process—a system that has a lot to do with ‘development’ in that its institutional and policy dynamics cannot be understood without reference to the constraints and structural forces generated by the workings of the capitalist system.

From a mainstream development economics perspective, capitalism not only provides an appropriate institutional and policy framework for expanding the available forces of production (progress, or economic growth), but it satis  es all of its system requirements, so much so that there is no need to question or study its workings and dynamics.Thus, capitalism as the operating system can be—and normally is—taken for granted by development economists, allowing if not compelling them to concentrate on its institutional and policy dynamics without having to concern themselves with the underlying operative system whose structural dynamics give meaning to the analytical construct‘development’.

Thus it is that the concept of capitalism features in development discourse by its virtual absence.This absence can be traced back to a tendency within the liberal philosophical tradition to separate the economic from the political,to treat both as independent systems that can be understood on their own terms. Within the liberal philosophical tradition, the political economy school of thought critiqued by Marx gave way to classical economics and political science as separate academic disciplines, both focused on the institutional and policy framework of the system rather than its pillars and structural dynamics. A consequence and feature of this mode of thinking was the virtual disappearance of ‘the system’ as a fundamental unit of analysis. Another consequence was a reductionist view of economics and politics as separate and distinct systems rather than as fundamentally interrelated institutions of capitalist development—development of the forces of production and an associated process of productive and social transformation

Development studies as an academic discipline emerged in a post-World War II context of an East–West ideological divide; formation of the BrettonWoods system of global governance; and most importantly, the quest by a number of countries in Asia and Africa to free themselves from the yoke of European colonialism and British imperialism, and,

DOI: 10.4324/9781003037187-11

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in this context, the formation of social movements demanding national liberation and revolutionary change. In this situation, both the idea of development and the project of international cooperation were constructed with the aim and the purpose of ensuring that the erstwhile colonies would take a capitalist rather than a socialist path towards national development (Sachs, 1992). At least, this was the view of some scholars in the political economy tradition of development studies and of others in a broader tradition of CDS, which emerged in the 1980s in the context of what was described as a ‘theoretical impasse’ (Munck & O’Hearn, 1999; Schuurman, 1993).

Whereas scholars and practitioners in the mainstream tradition of development studies tend to limit their concern to questions of institutional development and policy reform, adherents to a CDS approach are fundamentallyconcerned with the structural dynamics of the underlying system, which is to view capitalism as the fundamental problem, not as a system essential for delivering on the promise of development. This perspective is shared, inter alia, by adherents of Marxist political economy as well as proponents of critical theory and postdevelopment (on this see Chapters 3 and 6),and neo-Marxist theorists of ‘dependency and underdevelopment’ (see Chapter 5) as well as proponents of ‘world system theory’ (on this see Chapters 2 and 10) .

Capitalism and extractive imperialism: the evolution of a system

Although imperialist exploitation,colonial rule,and the projection of state power beyond the boundaries of the nation-state pre-existed the formation of capitalism as we understand it today by some three centuries (1500–1800), it did lead to the accumulation of merchant capital, which, like the appropriation of natural resource wealth in the form of gold and silver, as well as plantation agrofood products (sugar, rum, cotton) extracted under conditions of colonial rule and imperialist exploitation of slave labour, was an essential ingredient for bringing about capitalism in the 19th century.But what capitalism required, according to Marx, in addition to the accumulation of capital in the form of money, was the formation of a proletariat, dispossessed from their means of production and thus available for hire. Marx described this process of class formation—the separation of the direct producers or the peasantry from the land—as ‘primitive (or original) accumulation’ (Marx, 1867/1976).As Marx theorised, the capitalist development process thus would result in the ‘multiplication of the proletariat’ (a class dispossessed of their property in the meansof production, owning nothing except their labour power) in a process of productive and social transformation.

Marx theorised the resulting capitalist development process in terms of a General Law of Capital Accumulation, which speci  ed a twofold tendency, on the one hand towards the centralisation and concentration of capital, and on the other, to the transformation of an agriculture-based economy based on a traditional communalist culture and precapitalist relations of production (a peasant economy) into a modern industrial system based on the capital–labour relation.The working of this law can be traced out in diverse historical and regional contexts on the periphery of what would evolve into a world capitalist system as a process of forced rural out-migration and the formation of an‘industrial reserve army’ of surplus agricultural labour.

From a mainstream development economics perspective, articulated most clearly by the West Indian economist Arthur Lewis, the capitalist development of agriculture, and the consequent ‘unlimited supply of surplus labour’, functioned as a lever of capital accumulation, providing capitalists a source of cheap labour to fuel the development of

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A tale of four concepts

industry.As Marx saw it, this reserve army of surplus labour, resulting from the capitalist development of agriculture,also served as a lever of capital accumulation in holding down the cost of employed labour.

Until the 1980s,and the institution of a new world order based on a fundamental belief in the virtues of free-market capitalism,the development process more or less unfolded as both Arthur Lewis and Marx conceived of it.But the one aspect of this development process that Marx clearly anticipated, but neither he nor Lewis theorised, has to do with the globalising dynamics of capitalism, and its evolution as a world system with both a centre and a periphery, and the construction of an international division of labour that would lead to an uneven development of the forces of production, and—according to Andre Gunder Frank among other‘dependency’or‘world system’theorists—underdevelopment based on the superexploitation of workers and producers on the periphery.

There are di  erent ways of understanding the dynamics of this uneven capitalist development process. From a CDS perspective a determinant factor is the installation of a world order based on neoliberal principles and a programme of ‘structural reforms’ in macroeconomic policy, including ‘globalisation’, understood as the opening of the economies in both the centre and the periphery to the workings of free-market capitalism (Petras &Veltmeyer, 2001).The outcome of these ‘structural reforms’, which were implemented in Latin America and Africa with particularly destructive force and devastating impact, was anything but the reactivation of the accumulation process promised by the advocates of free-market capitalism and the boosters of ‘globalisation’ (Bhagwati, 2004;Wolf, 2004).The outcome, rather, included: (i) destruction of built-up forces of production in both industry and agriculture;(ii) an exodus of the‘rural poor’from agriculture and their rural communities and their migration to the cities in search of work; (iii) the formation of an urban and rural semiproletariat, with one foot in the urban economy (in the informal sector, where the urban poor are forced to work on their own account rather than exchange their labour power for a living wage) and the other in agriculture and the rural communities; (iv) the rapid advance of resource-seeking ‘extractive capital, and with it a reprimarisation of exports and a renewed dependence on FDI [foreign direct investment] and primary commodity exports’;1 and (v) generation of powerfulforces of resistance to the advance of capital on the extractive frontier and to the neoliberal policy agenda of governments in the region (Petras & Veltmeyer, 2011).

Development as imperialism

The idea of development, as understood by Sachs (1992) and his associates in postdevelopment theory, was deconstructed as a mechanism of neo-colonial mind control, a means of subjecting the target population in ‘developing countries’ to the dictates of capital. As noted above, the idea of development (and the project of international cooperation), viewed through the lens of a CDS perspective, was understood and theoretically reconstructed as a means of ensuring that those countries in the process of liberating themselves from the yoke of colonial rule would pursue a capitalist development path.Subsequently the idea of development was reformulated as a project of development assistance delivered to the rural poor by the state with international cooperation—to turn the rural poor away from the confrontational politics of the revolutionary movements and o  er them the option of a land reform programme combined with micro-projects of ‘integrated rural development’ (Veltmeyer, 2005).

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Overseas development assistance (ODA)—or, in more common parlance, foreign aid—is viewed by many theorists in the mainstream of development studies as a catalyst of economic development, providing a needed boost to developing economies to assist them in the process of industrial development and modernisation already traced out by the more advanced countries that now make up the rich club of ‘developed countries’ at the centre of the system (Pronk, 2004). But it is possible to look at foreign aid in a very di  erent way: as a means of advancing the geopolitical and strategic interests of the governments and organisations that provide this aid,designed to bene  t not the recipients but rather the donors. In the early 1970s, in the throes of a systemic crisis that brought about the end of the so-called ‘golden age of capitalism’, this view was expressed in the notion of ‘aid as imperialism’ (Hayter, 1971).

The idea of ‘development’ itself is often traced back to the Point FourProgram of ODA announced by President Truman on 20 January 1949. However, in its multilateral form it goes back to several projects funded by the International Bank of Reconstruction and Development (subsequently known as theWorld Bank) in Chile in 1948 and in Brazil and Mexico the year after.TheWorld Bank is an institutional pillar of the BrettonWoods system designed so as to resurrect a global form of capitalist development and a process of international trade.

In regard to both bilateral and multilateral forms of ODA, the US government was the major donor by far, and the foreign policy geopolitical and strategic considerations of the US government the most relevant in shaping the form of ‘foreign aid’.These considerations were not of one size or in one direction. From the beginning, there existed an extensive policy debate, particularly within the US, as to the value and possible uses of ‘foreign aid’.The central issue in this debate had to do with whether or not and how the US’s economic and broader geopolitical strategic interests could be served by means of ODA. In this connection, a number of voices were raised to the e  ect that it would not be in the economic interest of the US to promote economic development in backward areas of the world and that e  orts to contain the underdeveloped countries within the Western bloc would be ‘unrealistic’ and not fruitful for American interests.The dominant view,however,and the one that would eventually prevail,was that ODA was a most useful means of advancing the broader geopolitical interests of the US (to prevent the spread of communism) without, at the same time, damaging its economic interests. Indeed, in the context of this policy debate within the US, it was argued that ODA could be a useful instrument of US foreign economic policy in achieving the broad objective of containing communism.

To prevent the system from falling apart, in a Herculean e  ort to save capitalism from itself and reactivate the drive to accumulate,the capitalist class in the US and other leading economies of the world capitalist system in the 1970s launched a class war against labour as part of a series of measures aimed at restructuring the system in the search for a way out of the crisis (Bello, 2006; Crouch & Pizzorno, 1978; Davis, 1984; Marglin & Schor, 1990).These restructuring strategies included abandoning the capital–labour accord (an agreement for labour to share in productivity gains) that had not only kept the social peace throughout the postwar ‘golden age’ but brought about two decades of sustained economic growth and steadily rising wages. Other restructuring strategies included measures designed toreduce the share of labour (wages) in national income and thereby increase the pool of capital available for productive investment, geographic relocation of capitalist enterprises closer to sources of cheap labour, implementation of a more  exible

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A tale of four concepts 81

post-Fordist form of production, technological restructuring of theglobal production apparatus—and both  nancialisation and globalisation (Bello, 2006; Lipietz, 1982).

The concepts of capitalism and imperialism are frequently con  ated, the one reduced to the other. This is the case, for example, in the ‘new imperialism’ school of thought that emerged in the 1990s as an explanation of the globalising dynamics of capitalism unleashed by the installation in the 1980s of what was then a ‘new world order’ of neoliberal globalisation—a system ostensibly designed to liberate the ‘forces of economic freedom’ (free-market capitalism) from the regulatory constraints of the development state. This neoliberal world order not only served to liberate the ‘forces of economic freedom’ (the free  ow of investment capital, the market, the operation of multinational corporations), but, according to exponents of the theory of the ‘new imperialism’, to weaken the state,particularly in countries on the periphery of the world system.The argument advanced by these theorists is that these multinational corporations, released from the regulatory constraints of the state,no longer needed the imperial state to open up and pave the road towards capitalism on the periphery of the system; they could rely on their own economic power as agencies of the new imperialism (Magdo  ,2003;Panitch & Leys, 2004; Robinson, 2007). Needless to say, this theory of new imperialism was subjected to intense debate and a sharp critique by Marxist theorists such as James Petras, who continue to insist that imperialism is fundamentally a matter of power exercised by the state to advance the interests of the international capitalist class (Veltmeyer & Petras, 2005).

Globalisation and capitalism

Academic discourse in diverse  elds including development studies over the past two decades has been dominated by a new lexicon surrounding the notion of ‘globalisation’, understood generally as the integration of societies and economies across the world into one system (Bowles, 2008).2

The notion of globalisation contains a description and explanation of processes and trends that hitherto unfolded at the national level but that over the past few decades have spilled beyond the boundaries of the nation-state. In its most general sense ‘globalisation’ refers to the upsurge in direct investment and the liberalisation and deregulation in cross-border  ows of capital, technology, and services, as well as the creation of a global production system—global capitalism (Robinson, 2007). It is in this sense that the term was apparently coined in 1986, in the context of the eighth round of General Agreement on Tari  s and Trade (GATT) negotiations (Ostry, 1990). For the theorists of this process and its many advocates these  ows, both in scope and depth, together with the resulting economic integration and social transformation, have created a new world order with its own institutions and con  gurations of power that have replaced the previous structures associated with the nation-state, and that have created new conditions a  ecting people’s lives all over the world, including a greater interconnectedness (Holm & Sørensen, 1995; Therborn, 1999).

The de  ning feature of what we might describe as ‘critical globalisation studies’ is that it takes the ‘world’ rather than ‘society’ bound within the nation-state, or a sub-unit of this ‘society’ (local communities, for example), as the fundamental unit of analysis—as the setting and context for analysis.This approach has been particularly popular in development economics and political economy, with a focus on the structure and dynamics of capitalist development and international relations.

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Globalism has also been a prevailing trend in the study of development in its diverse permutations and dimensions—economic, social, political, cultural, and ecological. In e  ect, it has provided for new forms of analysis of processes that transcend the nationstate—that unfold on a global scale—processes that have been analysed and theorised in terms of ‘globalisation’ rather than capitalist development, the central concern of CDS.

As a description of widespread,epoch-de  ning developments and a prescription for action, globalisation has achieved a virtual hegemony,and so is presented with an air of inevitability that disarms the imagination and prevents action (and even thinking) in the direction of a possible systemic alternative—towards another world,a more just social and economic order.

Emerging in the mid-1980s as an alternative way of promoting a ‘new world order’ in which the ‘forces of freedom’ are liberated from the constraints of the welfaredevelopmental state, ‘globalisation’ has been viewed alternatively as a ‘project’, a means of ‘boost[ing] living standards’ (Rodrik, 2002), and as a ‘process’, or then again, as in the World Bank’s capitalist manifesto, the 1995 World Development Report, written to discourage workers around the world to resist, as both.3

In academe and in policymaking circles, globalism and globalisation are conceived of primarily in economic terms,i.e.,as a process of economic integration.But it did not take long for the concept of globalisation to penetrate and feature in the academic discourse of other academic disciplines such as political science and sociology. As constructed by social scientists in these ‘disciplines’ within a globalist framework,‘globalisation’ emerges as a multidimensional phenomenon rather than as strictly or narrowly ‘economic’. In this context it is conceived as the broadening,deepening,and speeding up of worldwide interconnectedness in all aspects of contemporary life, encompassing ideas and information, and values and beliefs, as well as economic and political practices based on a computerdriven technological revolution that has brought about a new information-rich postmodern form of society.

Conclusion

The concepts ‘development’and ‘globalisation’ both make reference to descriptors of dynamics associated with the evolution of capitalism as world system.As such, they provide di  erent ways of understanding the dynamics of this system, albeit with a number of points of convergence and intersection. The major di  erence in the way that the development and globalising dynamics of the capitalist system are understood is between what we might describe as mainstream and critical conceptionsof development and globalisation. In the mainstream both concepts, and associated areas of studies, are separated from their roots in the workings of capitalism on people and countries according to their location in the system. In mainstream development and globalisation discourse—and thus analysis—the underlying operative system literally disappears from view in a concentrated focus on the institutional and policy dynamics of the system.As for CDS and critical globalisation studies,4 they provide complementary analysis of the globalising dynamics of the capitalist development process.

Notes

1 On the advance of extractive capital in the development process,or‘extractivism’,see Chapters 39 and 41; andVeltmeyer and Petras (2014).

2 Bowles identi  es four schools of thought on ‘globalization: (i) globalization as a primarily technologically driven process that strengthens markets and market actors while weakening

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A tale of four concepts

and requiring adaptation by nation states; (ii) globalization as a ‘myth’ that has not signi  cantly weakened the national basis of economic activity and the dominance of nation states; (iii) globalization as imperialism—a strategy designed to advance the economic interests of the global capitalist class and the imperial powers by removing the barriers to the expansion of foreign direct investments and the operations of the multinational corporations; and (iv) globalization as an inadequate descriptor of the processes under way in the neoliberal era, better described as regionalization or regionalism’.

3 Development also can be viewed as either a ‘project’ or as a ‘process’. In either case, ‘development’ is the outcome of actions consciously or purposefully taken to bring about a desired outcome, but if the outcome is intended than we can assumethat the actions taken or the underlying strategy was the causal factor or operating force. In many cases, however, the outcome was not intentional, but rather the unintended consequence of the action(s) taken. In these cases, ‘development’ can be viewed as the result of ‘structural’ forces.

4 On critical globalisation studies, see Chapter 10.

References

Bello, W. (2006). “The Capitalist Conjuncture: Over-accumulation, Financial Crises,and the Retreat from Globalisation.” ThirdWorld Quarterly, 27(8): 1345–1367.

Bhagwati, J. (2004). In Defense of Globalization. NewYork: Oxford University Press. Bowles, P. (2008). “Globalization: A Taxonomy of Theoretical Approaches,” in Veltmeyer, H. (ed.), New Perspectives on Globalization and Antiglobalization: Prospects for a New World Order, pp. 23–34. Aldershot, UK:Ashgate.

Crouch, C., & Pizzorno, A. (1978). Resurgence of Class Con  ict in Western Europe since 1968. London: Holmes and Meier.

Davis, M. (1984).“The Political Economy of Late-imperial America.” New Left Review, 143: 6–38.

Hayter,T. (1971). Aid as Imperialism. London: Penguin Books.

Holm, H.-H., & Sørensen, G. (eds.) (1995). WhoseWorld Order? Uneven Globalization and the End of the ColdWar. Boulder, CO:Westview.

Lipietz,A. (1982).“Towards Global Fordism.” New Left Review, 132: 33–47.

Magdo  , H. (2003). ImperialismWithout Colonies. NewYork, NY: Monthly Review Press.

Marglin, S., & Schor, J. (1990). The Golden Age of Capitalism: Reinterpreting the Post-War Experience. Oxford: Clarendon Press.

Marx, K. ([1867] 1976).“The Secret of Primitive Accumulation,” in Capital (Vol. I, Part VIII), pp. 507–509. NewYork: Penguin Books.

Munck, R., & O’Hearn, D. (eds.) (1999). Critical DevelopmentTheory. London: Zed Books.

Ostry, S. (1990). Governments and Corporations in a Shrinking World. Washington, DC: Council on Foreign Relations.

Panitch, L., & Leys, C. (2004). The New Imperial Challenge. NewYork, NY: Monthly Review Press. Petras, J., & Veltmeyer, H. (2001). Globalization Unmasked: Imperialism in the 21st Century. Halifax, Nova Scotia: Fernwood Publications; London: Zed Books.

Petras, J.,Veltmeyer, H. (2011). Social Movements in Latin America: Neoliberalism and Popular Resistance Basingstoke: Palgrave Macmillan.

Pronk, J.P. (2004). Catalysing Development:A Debate on Aid. Oxford: Blackwell. Robinson,W. (2007).“Beyond the Theoryof Imperialism: Global Capitalism and the Transnational State.” SocietiesWithout Borders, 2: 5–26.

Rodrik, D. (2002).“Feasible Gobalizations.”Working Paper. Cambridge, MA: Harvard University. Sachs,W. (1992). The Development Dictionary:A Guide to Knowledge as Power. London: Zed Books. Schuurman,F.J.(1993).Beyond the Impasse:New Directions in DevelopmentTheory.London:Zed Books. Stiglitz, J.E. (2002). Globalization and its Discontents. NewYork: Norton Press. Therborn, G. (1999). “What Does the Ruling Class do when it Rules? Some Re  ections on Di  erent Approaches to the Study of Power in Society.” Critical Sociology, 25(2/3): 224–243.

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Veltmeyer, H. (2005).“Foreign Aid, Neoliberalism and Imperialism,” in Saad-Filho,A. & Johnston, D. (eds.), Neoliberalism:A Critical Reader, pp. 120–127. London: Pluto Press.

Veltmeyer, H. (2013).“The Political Economy of Natural Resource Extraction: A New Model or Extractive Imperialism?” Canadian Journal of Development Studies, 34(1): 79–95.

Veltmeyer, H., & Petras, J. (2005). “Imperialism and Capitalism: Rethinking an Intimate Relationship.” International CriticalThought, 5(2): 164–182.

Veltmeyer,H.,& Petras,J.(2014).The New Extractivism:A Model for LatinAmerica? London:Zed Books. Wolf, M. (2004). Why GlobalizationWorks. New Haven, CT:Yale University Press. Wood, M.E. (2003). Empire of Capital. London:Verso.

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