John Bellamy Foster and Robert McChesney’s new book on the economic crisis, explaining the tendency to stagnation of the era of monopoly-finance capitalism, is clear and compelling, argues Peter Stauber

Many people will be aware that our economy is in trouble. And many will also be aware that it will stay in trouble for some time to come. The British government keeps on pushing its austerity agenda, which, in addition to wrecking the lives of hundreds of thousands of families and individuals who have their benefits slashed, further sucks demand out of the economy, making a speedy recovery increasingly unlikely. The developments in mainland Europe are similar. As European leaders force austerity policies on indebted countries, the outlook for the people across the continent is grim, and many will indeed think that what we have been living through since 2007 is an ‘endless crisis’.

However, John Bellamy Foster and Robert W. McChesney have not written yet another book about how short-sighted and ideological responses to the financial crash have prolonged the crisis, or indeed made it worse. They tackle a much more systemic problem, as the slightly unwieldy subtitle suggests: How Monopoly-Finance Capital Produces Stagnation and Upheaval from the USA to China. In short, they concern themselves with the tendency of the capitalist economy towards stagnation; a trend which long precedes the financial crisis and has been apparent in the USA, Europe and Japan at least since the 1960s. The reason why our economy has become so dependent on the finance sector, the authors argue, is precisely this stagnation tendency.

Unsurprisingly, mainstream economics has been very slow to recognise this as a major issue. ‘The reason for this,’ the authors write, ‘can be traced to the fact that neoclassical economists and mainstream social science generally have long abandoned any meaningful historical analysis. Their abstract models, geared more to legitimizing the system than to understanding its laws of motion, have become increasingly otherworldly’ (p.5). Very unlike mainstream economists, Foster and McChesney do not confine themselves to theoretical analyses of stagnation and monopolisation, but trace the historical development of stagnation theories over the past century, drawing mainly on the work of Marxist economist Paul Sweezy, but also Joseph Schumpeter and John M. Keynes.

The book’s argument is laid out clearly and convincingly, and is supported by a wealth of facts and figures as well as Marxist theory. Monopoly capitalism has its origins in the late nineteenth century, when the era of competitive capitalism (the age of liberalism, during which there was a huge development of factories and infrastructure), gave way to an economic system in which capital was increasingly concentrated. The enormous productive capacity of this system, however, has to deal with growing problems of effective demand and overaccumulation: ‘Once industry had been built up and existing productive capacity was capable of expanding output rapidly at a moment’s notice … the demand for new net investment for the rapid expansion of Department I [factories, railways, communication infrastructure etc.] was called into question.’ Therefore, too much production becomes an ever-present threat, that is to say, the system ‘tends at all times to generate more surplus than can be easily absorbed by investment (and capitalist consumption)’ (p.35).

Under monopoly capitalism, where ‘the benefits of economic progress tend be concentrated in the growing surplus of the big firms rather than disseminated more broadly by falling prices throughout the entire society’ (p.37), this tendency becomes more severe. Slow growth and stagnation, then, are not anomalies, but rather the general way in which the system works. The challenge is rather to account for the opposite state of affairs, ‘to explain the anomaly of fast or full-employment growth, focusing on those specific historical factors that serve to prop up the system’ (p.39). The economic boom years after World War II, for example, can be explained by the effects of automobilisation, military spending, the re-building of Europe and Japan, and the build-up of consumer liquidity during the war. As the influence of these outside factors waned, the boom began to run out of steam in the 1970s.

What happened after the crisis of 1974-5 was that a ‘new, partial fix’ for the economy emerged: the creation of a financial superstructure on top of the productive base. As there was no outlet for the vast surpluses in the real economy, capital sought refuge in financial assets, speculating on the increase of their value. The result was ‘the creation of mountains of debt coupled with extraordinary growth in financial profits’ (p.42). Since the 1970s, there were fifteen major financial crises that can be traced to this accumulation of debt and extension of credit. Financial expansion has become the main solution to the problem of stagnation, but it cannot overcome the structural weakness of the economy, the authors write.

An interesting point is made about the perceived increase in competition that the world economy has experienced since the 1970s. To many people, the setbacks that the American automobile industry suffered at the hands of German and Japanese manufacturers seemed to be the result of increased competition on a global scale. The reality, however, is more nuanced: ‘Most of these skirmishes were being fought out by increasingly centralized global corporations, each aiming to maintain or advance its relative monopoly power … Twentieth-century monopoly capitalism was not returning to its earlier nineteenth-century competitive stage, but evolving into a twenty-first century phase of globalized, financialised monopoly capital’ (p.74).

While there is a concentration of capital on the one hand, there are falling wages for the labour force producing the surplus, as Foster and McChesney explain in the chapter on the global reserve army. Since competition takes the form of a search for the most low-cost position, which includes a reduction in labour and raw material costs, the vast pool of labour in the third world needed to be tapped. Thanks to the integration of the workforce in the former Soviet countries and urbanisation in the third world, this global labour force has grown from 1.9bn to 3.1bn in the thirty-odd years since 1980. ‘The existence of an enormous global reserve army of labour thus forces income deflation on the world’s workers, beginning in the global South, but also affecting the workers of the global North, who are increasingly subjected to neoliberal “labour market flexibility”’ (p.149).

The book concludes with the rise of China and its integration into global capitalism. The authors do not believe the predictions that the country’s economy will continue to grow at double digit figures for the foreseeable future. China too is facing increasing over-accumulation problems, while domestic consumption is very low and has been declining as a share of GDP; the result of falling wages and declining household incomes. So ‘the core contradiction thus lies in the extreme form of exploitation that characterizes China’s current model of class-based production’ (p.165). This exploitation, of course, is driven by ‘the search for higher profits, most of which accrue to multinational corporations’ (p.172). Any attempt to re-balance the Chinese economy will run up against this fundamental problem.

Foster and McChesney manage to link the big picture, i.e. economic developments over decades and centuries, to the real-life effects of modern monopoly capitalism, down to the Chinese workers who carry out the same movement thousands of times a day and find themselves twitching at night. The book is not always easy to read, which is mostly due to its rather technical subject matter, but for anyone interested in the way modern financial capitalism works – or rather does not work – it is surely a fascinating read.