The 2010 and 2011 issues of the UK-based journal Aufheben contain a two-part article called “Return of the Crisis.” This is the most helpful thing I’ve read about the 2007-8 financial crisis and its background so far, although I’m not sure if I agree with the overall argument. The second part may not be available online for some time (it can be ordered here or here), so below I’ll summarize its main theoretical contribution, highlighting the parts about China and asking some questions.

The gist of Aufheben’s argument is:

(1) Through neoliberal restructuring since the 1970s, capital overcame its crisis of profitability and restored its vitality by the mid-1990s.

(2) The rise of global banking and finance played a key role in this restructuring,

(3) as did China’s particular path of integration into global capitalism since 1992.

(4) The financial crisis of 2007-8 “was caused neither by an accident due to misguided policy, nor… an underlying crisis of stagnation of the real accumulation of capital,” but rather “an oversupply of loanable money-capital within the global banking and financial system that has arisen since the late 1990s. This in turn has been the result of developments in the real accumulation of capital – such as the rise of China, the take-off of the ‘new economy,’ and the continued liquidation of the ‘old economy’ – that have been central to the long upturn.”

(5) They tentatively conclude that “the nature and significance of the financial crisis is not that of a decisive turning point leading to an economic downturn or the end of neoliberalism, as many have supposed, but more of a point of inflection pointed to a new phase in the long upturn.” In a footnote they add, “The crisis could be seen as an earthquake caused by the shifting tectonic plates of global capital accumulation as the centre of accumulation gradually shifts away from the USA and the old advanced capitalist economies towards China and Asia” (2011:26).

According to Aufheben, most Marxist and Keynesian accounts of the 2007-8 financial crisis have refused to acknowledge that capitalism had overcome its systemic crisis of the 1960s-70s and restored itself to health by the mid-1990s. Such “stagnationist” accounts (such as Robert Brenner’s influential writings) have argued that the apparent upswing of the past two decades has consisted mainly of speculative bubbles, or unsustainable and unproductive state deficit spending. All along these observers had been predicting the big crash, and finally it seemed to come in 2008. According to Aufheben, however, the long upswing was grounded in real growth in the accumulation of fresh value from living labor, and the crash was not a symptom of underlying stagnation, but an outcome of factors involved in the restoration of profitability. They predict that the recession will abate rather than turning into a depression, since there are still plenty of profitable investment opportunities for all the money-capital sloshing around in the financial markets or waiting on the sidelines.

Here I want to interject:

- Since Aufheben wrote this, global inflation has risen above the capitalist ideal of 2%, with food prices reaching a record high, while the resumption of growth has remained only tentative, leading to fears of a return to the stagflation of the 1970s. Some people say this inflation may become even more daunting than the 1970s since it derives from a real scarcity of oil, and imbalances in the global food market due in part to efforts to replace oil with biofuels. I’m curious whether this would change Aufheben’s assessment at all.

- When China’s bubbles finally burst and its stimulus programs run out of steam, China’s demand for imported commodities (especially building materials) will fall. Since that demand has been essential to the global upswing of the past two decades, its sudden disappearance will surely hamper the recovery from the present global recession, but I noticed no mention of this in the article.

- China’s probable crash also seems likely to counteract the apparent shift toward China of the center of global accumulation. In any case, I’m not sure if such a shift is what’s happening. To be fair, neither is Aufheben: they pose this as just a possibility here and in their earlier articles on China. What I don’t recall them mentioning is the possibility that we’re moving toward a polycentric regime of accumulation. I’d like to see more discussion about each of these possibilities.

- Instead of either the stagnationist account or Aufheben’s, a third account of the crisis would be the following: Yes, accumulation was restored in the 1990s, but that cycle reached a saturation point by 2008, so before strong and sustained growth can resume, capital must undergo a new round of restructuring (destruction of excess capital, layoffs and rising unemployment, cuts of wages and taxes, etc.). That seems to be a reasonable interpretation of what has happened since the crash, no? Aufheben’s main evidence that the post-1980s cycle has not ended seems to be that the average rate of profit has remained historically high, despite the recession. But, for one, I’m not sure if that’s true (or how to find out). The only data I recall to this effect is a graph on page 25 of part 1 of the article (2010), but that shows “profits as % of corporate output” – I’m not sure if that’s the same as the average rate of profit (in a Marxian sense), and no indication is given of the source of this data. Maybe someone more familiar with such figures could help out here. And two, Aufheben’s assumption seems to be that it’s not a real crisis if the profit rate isn’t falling, but, although this is a conventional idea, some Marxists such as David Harvey have argued that the essence of crisis is the over-accumulation of capital – there’s too much capital that can’t connect with profitable investment opportunities (whether or not they exist), or investing, can’t realize the value thus produced, for example. Aufheben’s account would seem perfectly to illustrate this version of crisis theory, and that would also explain why the recession is lasting so long.

Aufheben’s focus is on demonstrating specific causes of the crash, and illustrating that these causes had facilitated the restoration of global capitalism’s overall health from the mid-1990s to the eve of the crash in 2007.

Let me go over these causes and the factors leading up to them, before returning to my own questions:

A.   Background

1. The resurgence of global banking and finance since the 1970s (which had be suppressed following the stock market crash of 1929), starting with

(a)  Nixon’s decision (fearing collapse of the US dollar, due to the recovery of competitive capitalism in western Europe and Japan, the arms race with the USSR, the war in Vietnam and unrest at home) to take the US dollar off the gold standard in 1971, and the ensuing collapse of the Bretton Woods system of fixed exchange rates;

(b)  the recycling of petrodollars through European bank accounts following OPEC’s quadrupling of the price of oil in 1973;

(c)  the emergence of less-regulated “offshore banking” of First World banks in the Third World (originally to recycle petrodollars)

(d) Thatcher’s 1979 deregulation of the flow of capital in and out of the British economy (following the trend established semi-legally by offshore banking), leading other countries to follow suit.

2. This deregulation of the flow of capital in and out of countries, and the development of transnational banking and finance, helped capital to overcome its crisis by

(a)  increasing pressure on the managers of the large monopoly corporations, whose shares were now more freely traded transnationally by investors primarily concerned with short-turn returns, to “face down opposition from their workforce and push through rationalization, downsizing and outsourcing of ‘non-essential’ functions in order to make their companies mean and lean”; and

(b) ensuring that any less-productive capital would be liquidated and “siphoned off into the financial markets, in the former of higher dividend payments, to swell the pool of free loanable money-capital (2011:13).”

3. This growing transnational pool of loanable capital helped to finance Reagan’s “military Keynesianism” of the 1980s, which in turn facilitated the recovery by

(a)   contributing to the collapse of the USSR and the Eastern bloc, opening those areas up to the service of the US-centered system of accumulation (and facilitating the integration into that system of the other “newly emerging market economies,” including China – a point not mentioned by Aufheben);

(b)  unintentionally financing (through Reagan’s “Star Wars” program) the research and development of the computer, information and communication technologies that laid the foundation for the emergence of “the new economy” in the 1990s.

4. By the time the US paid off its loans in the 1990s, new profitable destinations had already been created for the capital thus freed up (in addition to the less-productive capital being liquidated by the old monopoly companies through austerity, etc.):

(a)    the “newly emerging market economies”

(1)  The recycling of petrodollars through offshore banking had helped Third World governments to develop infrastructure for export industries.

(2) This foundation in the Third World, coupled with the First World’s falling rate of profit, political instability and working-class power, made transnational corporations more willing to take the risk of direct investment in the more developed parts of the Third World, starting in the 1970s but taking off in the late 1980s.

(3) The resurgence of global banking and finance also facilitated this process by facilitating loans to Third World governments, banks and businesses, and forming a global market for securities based on such loans.

(4) Again, I think the collapse of the USSR, etc., played another key role here (not mentioned by Aufheben). For one, the formerly socialist countries themselves became “emerging market economies”; and two, the collapse of those regimes increased the confidence of transnational corporations to invest in Third World export industries (since it would be more difficult for Third World governments to nationalize those industries without the backing of the USSR or China).

(b)  the “new economy” (which did and does include the production of much real value, in addition to the bubbles of the late 1990s)

(1) The resurgence global banking and finance facilitated commercial development of the technologies inadvertently pioneered by Reagan’s military Keynesianism, by providing access to a global pool of loanable capital willing to take big risks for the possibility of high returns.

(2) The old economy’s effort to overcome its stagnation created demand for the new technologies, which indeed helped increase the rate of profit through “rationalization,” downsizing, speeding up turnover time, etc.

5. The “Chinese characteristics” of China’s integration into the global system of capitalist accumulation also played key roles in restoring the system’s vitality and creating conditions for the crisis of 2008:

(a)   In contrast with other “emerging market economies,” China’s authorities “determined not to fling open the doors for foreign investment and invite any fly-by-night speculators in search of a quick return. Only foreign capitalists prepared to make long-term investments directly in the development of real production were to be welcome. Typically such direct foreign investment was to take the form of joint ventures, co-owned by (predominantly US) transnational corporations and the Chinese state (2011:16).”

(b)  This regulation (and notably China’s strict regulation of currency conversion) helped China to weather the 1997 East Asian financial crisis, and use it as an opportunity to become the hub of manufacturing in Asia.

(c)   China invested almost half of its GDP in infrastructure development (and a large amount in education), gradually moving up the production chain to keep more value from the exports produced on the Asia-wide assembly line, and raising demand for imported materials from the other Asian countries (and eventually Africa and Latin America), thus helping to pull them out of their recession.

(d)  In 2002, when the dollars China was importing from sales to the US began to raise the RMB, the Chinese state began buying up the surplus dollars and using them to buy US treasury bonds, “helping the US government to finance both its own debt and the American economy’s growing trade deficit with China.”

(e)   “This recycling of China’s dollar surplus proved to be quite timely since it allowed the USA to pursue the expansionary fiscal and monetary policies necessary to mitigate the financial and economic aftershock of the dot-com crash.”

(f)    After the US recovered from the dot-com crash, China’s continued demand for US bonds helped to swell the global supply of loanable capital (a precondition for the 2008 crisis),

(g)   and so has the continued growth of China’s demand for imported materials, especially oil, which contributed to the tripling of the price of oil from 2001 to 2007, and the ensuing outflow of sovereign wealth funds from oil-producing countries into the global market of loanable capital.

B.   Immediate causes of the financial crisis of 2007-8

1. The global supply of loanable capital began to outstrip demand – starting with the dot-com crash of 2000. In addition to the reasons mentioned above are the following:

(a)   In the late 1990s, the dot-com boom had been a source of demand for loanable capital, and the liquidation of less-productive capital from the old economy had been a source of supply. Those dot-coms that survived the crash had already become profitable enough to finance their own development without borrowing.

(b)  This abundance of loanable capital facilitated takeovers of large companies through “leveraged buyouts.” This led companies of the old economy (which could not expect investment in expansion to bring quick returns) to stave off takeovers by increasing shareholder dividends, paying off loans, and buying back the company’s own shares. All exacerbated the oversupply of loanable capital.

2. The global oversupply of loanable capital – coupled with Greenspan’s monetary decisions aimed at reviving the US economy after the dot-com crash – put downward pressure on interest rates, in turn lowering the rate of profit for financial institutions (though not for companies in the real economy). In response, financial institutions tried to compensate by increasing the volume and complexity of their transactions, and the overall health of global capitalism bred complacency about the risk this entailed.

The rest (part 1 of the article) is mainly a straightforward play-by-play of the events from 2001 to 2008, and it’s already online, so I won’t go over that. (I recommend it if you’re still unclear about what actually happened.)

So to recap and rephrase my questions from above:

Aufheben interprets the 2008 financial crisis, as merely a “point of inflection pointed to a new phase in the long upturn” (and perhaps an “earthquake” caused by the shift from the US to China/Asia of the center of global accumulation), rather than an effect of an underlying crisis in the accumulation of value that would plunge the world into a depression akin to that of the 1930s. If so, how can we understand the failure of a real resumption of growth after over two years? How can we understand the global rise of inflation over the past few weeks (months in some places), with global food prices reaching record highs? If this inflation continues without a take-off of economic growth for a few more months, what will happen? Could we not understand this three-year crash/recovery recovery process as basically a normal recovery from a normal crisis of accumulation – establishment of a new cycle of accumulation by the destruction of excess capital, layoffs and rising unemployment, cuts to wages and taxes, “accumulation through dispossession,” etc?

Aufheben’s main evidence that this is not a real crisis of accumulation is that the average rate of profit has remained historically high, but, as mentioned above, I’m not sure if that’s correct (I hope someone more familiar with such figures can help out here), and even if it is, does a crisis of accumulation in a Marxian sense really require a falling rate of profit? I know that’s a conventional Marxist idea, but, if I remember correctly, David Harvey, in Limits to Capital (which attempted to follow through with the analysis Marx began in his notes for the unwritten volumes of Capital), argues that a falling rate of profit is not the essence of a crisis, but rather the over-accumulation of capital – there’s too much capital in the system that can’t connect with profitable investment opportunities (whether or not they exist), or, connecting with them, can’t realize the value thus produced, for example. Historically this has usually involved a falling rate of profit, but Aufheben’s account of the 2008 crisis as caused by an oversupply of loanable capital, despite high rates of profit, would seem perfectly to illustrate Harvey’s principle. Unfortunately I haven’t gotten around to reading whatever Harvey may have written about the 2007-8 crisis (except for one piece which I don’t recall addressing this question). But I’m curious what Aufheben or anyone else has to say about this. On one level this could just be semantics – how to define “crisis” – but at another level there is the question of whether what we’ve been experiencing the past two years has been capital’s attempt to overcome its crisis and establish a new cycle of accumulation, how long this will continue before another upswing, and how this will be affected by continued inflation and China’s probable crash.