Classic Essays: The Crisis of US Capitalism
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Crisis of US Capitalism or the Crisis of the US Wage
and Salaried Worker?
by James Petras
[Originally posted: July 18, 2006]
¶ —Introduction
Progressive, leftist, radical and even a few “Bearish” Wall Street pundits have been arguing for years about the coming collapse, decline or demise of US capitalism. No amount of continued growth of billionaires, millionaires and multimillionaires, record earnings by investment houses and double digit profit growth of major corporations can convince our doomsayers to re-think their prophecies. Nothing has discredited the US left more than its apocalyptic visions of the Big Fall, in the face of robust growth. Given the “long term” or imprecise time frame and a ritualistic litany of profound structural weaknesses, their predictions are swallowed and regurgitated in the progressive media, websites and blogs where they are spread to a dubious public.
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While the Left preaches “the crisis and end” of US capitalism, most workers are complaining about the bigger take of their bosses, their intensified exploitation leading to rising productivity, their extended work day and work year because of cuts in vacation, sick time and holidays.For too many years, the Left has premised an “awakening” and presumable shift to the left by the working and middle classes on the “Collapse of Capitalism” (COC). In fact this argument has ignored several crucial issues, which I will discuss. The COC has not taken place because business, banking and the government have shifted the entire burden of adapting US capitalism to the demands of the market onto the back of the wage and salaried workers. What is called the “Crisis of Capitalism” is in reality the “Crisis of Labor”, by which I mean several things: 1) the relative and absolute decline in living standards — evident in the elimination of a) corporate-funded pension plans and the increase in worker payments to pension plans; b) the elimination or reduction in payments to health plans and the increased deductions from workers wages to pay for health, or the loss of any health coverage; c) the double-digit growth in the costs for energy, health, education and medicines which are not calculated in the consumer price index, used as a marker to estimate wage, social security and pension payments and d) the rising tide of “give backs” by sclerotic, over-paid (six-digit) trade union executives, which decrease living standards and increase profits for the corporations. The deregulation of environmental, workplace and consumer protection agencies has led to health problems and loss of income for wageworkers but greater profits for the corporate beneficiaries. The central thesis of this paper is that the correct focus for a radical revival is in the intensification and extension of exploitation of labor, the environment and consumers by corporate capital, which enables the US corporate economy to continue growing and overcoming any momentary down-turn. Predictions of US capital collapse are built on a specious set of arguments, which are easily turned on their head and which misdirect our attention from the real tasks of joining the struggle at the workplace, the environment and in the sites of consumption. The Facts Against the COC Theory “Currently (July 2006) US companies remain on track to achieve the longest ever stretch of double digit profit growth” reads the Financial Times. (July 5, 2006) For 12 consecutive quarters profits at US companies have grown by at least 10%. The projection is for this profit rate to continue through 2007. Profits are what sustain, not collapse, capital. Double-digit profits over several years are not indicators of declining capitalism. What it does strongly suggest is that the corporate “slash and burn” policies toward worker pay and benefits turns up record profit runs. It means that impotent and ineffectual trade union bureaucrats by facilitating “give backs” have established a pattern of exploitation, which consolidates high returns for capital. Far from a world of collapsing capitalism, recent history has witnessed a virulent growth of capitalist billionaires and millionaires particularly in the regions of commodity booms and high growth rates. Between 2004 and 2005, the number of millionaires (including billionaires) in Africa increased by nearly 12%, in the Middle East and Latin America by nearly 10% and Asia-Pacific by 7%. (FT, June 21, 2006) There are now 8.7 million millionaires in the capitalist system, an increase of 6.5% since 2004. The super rich are becoming richer with their total assets rising 8.5% in 2005 to an estimated $33 Trillion USD. (FT, June 21, 2006) Over 80% of these million-billionaires are from North America, Europe and Asia. Their rising wealth is the result of capitalist growth — based on rising rates of exploitation of labor, raw materials and the environment. The inequalities in pay between the US capitalist ruling class and workers increased 4 fold between 1990 and 2004. In 1990 the average CEO pay at 367 big corporations was 100 times that of a worker; by 2004 the ratio was approximately 430 times. It is abundantly clear that key problem of capitalism is its increasing inequality resulting from heightened exploitation — not its “imminent collapse” or “decline”. If speculation is leading to the eventual collapse of the US economy, it is difficult to understand the enormous and sustained number of record-setting transactions mainly consummated and funded by US investment banks (IB). Between May 2005 to May 2006, all five of the top five financial advisers engaged in mergers and acquisitions were US-based (Goldman Sachs, JP Morgan, Citigoup, Morgan Stanley and Merrill Lynch), the same IB that predominated in 2004-2005. A similar pattern of increasing US financial dominance is evident from examining the top ten investment banks in relations to global debt capital markets and global equity markets. While some refer to this type of economic activity as “casino capitalism” they forget that the House never or rarely loses, it”s the players, not the banks that lose. What this means is that as the world”s banker, US finance capital is in a position to skim off lucrative fees throughout the world, highly parasitical in one sense, but hardly indicative of a coming collapse. The point that needs emphasizing is that the dynamic expansion of the US financial sector is not a sign of decline but of a highly effective form of direct and indirect exploitation. For example, multi-national corporations frequently consult the banks on strategies for acquisitions, mergers and sell-offs. The banks advise cuts in labor costs to make the firm more profitable and raise stock valuations; then the banks arrange loans for finance the transaction, leading to indebtedness and subsequent cuts in wages and benefits. The banks up front collect hundreds of millions of dollars in fees for their advice and “deal making” — putting pressure on the corporations to squeeze labor to pay the dealmakers. The key issue is not whether financial capital is “viable” or “sustainable” but what are the capital labor relations or more precisely the increased rates of exploitation, which allow the transaction to take place. Luxury goods industries are booming as profits of the ruling classes of the five continents are expanding. In the US alone, sales of luxury goods enjoy a compound annual growth of 12%. (FT June 5, 2006 p.3) In contrast, the numbers of workers covered by company-financed health plans and pensions declined by the same percentage or greater every year. Inequality is the great motor force of capitalist accumulation — a clear consequence of rising profits based on greater exploitation. Rising profits are clearly a sign that capitalism is expanding, not declining and that consolidation and not collapse is the defining reality. The conservative financial press has it right — not the Leftist doomsday pundits. “The rise and rise of US corporate profits” reads the FT editorial (June 10, 2006 p.6). US capitalism is experiencing a “historically unprecedented share of profits as a proportion of US gross domestic product . . .from 7% of GDP . . . in mid 2001 to 12.2% at the start of this year (Jan 2006).” (FT June 10, 2006) In direct contrast and a direct cause of rising profits, “the median US household income is 3 percent lower in 2006 than in 2000, according to the US census bureau.” (ibid) Profits have climbed by 123% over the past 5 years, jumping from $714.5 billion to $1.6 trillion” Moreover official data show that manufacturing profits have outstripped the rest of the economy — calling into question the notion that US industry is being “hollowed out” or disappearing. Despite rising costs of raw materials — petroleum, copper, zinc, nickel and iron — profits rose because labor costs which represent 70% of corporate expenses is declining due to greater exploitation of male and female workers, legal and illegal immigrants and declining total wage and benefit packets. Wall Street reports that Goldman, Sachs doubled its earnings in the second quarter of 2006 and forecasts for 2006 predict that new revenue for Wall Street banks will rise to $25 billion — double that of 2002. (FT, June 5, 2006 p. 17) It is time to get off our hands waiting for the “coming collapse (or decline) of capitalism.” The real issue is the declining living standards of US wage and salaried workers, the collapse of the welfare state, the extended work life and working hours, the job speed ups, the frequent firing and hiring of workers, the tension and insecurity of working families which accompany the unprecedented rates of revenue growth.
Conclusion While ninety one percent of US private sector workers are unorganized and total subjects to the commands of their employers, while the nine percent of US private sector workers organized into trade unions are led by six-digit salaried bureaucrats who specialize in “giving back” to employers workers rights and remain as captives of the pro-business Democratic Party, there is no reason to expect any serious challenge to the status quo. As is likely to happen with a turn in the business cycle, the economy slows or even goes into recession and profit margins decrease, capitalism will simply turn the screw even tighter on working class and salaried workers” wages, impose more of the costs of recovery on their backs, pressure the Democrats and Republicans for greater Federal handouts, tax rebates and cuts in pursuit of recovery. Only if new social and political movements, leaders and activists stop pandering to the soothsayers of a coming “Collapse of Capitalism” and a future “systemic decline” and start engaging in a deeper and more profound analysis of the “Dirty Secret” (Marx) and the source of “Wealth of All Nations” (Adam Smith), in the exploitation of labor and the class struggle can a beginning be made toward denotating the foundations of capitalism and bringing about its collapse and replacement. James Petras, a former Professor of Sociology at Binghamton University, New York, owns a 50-year membership in the class struggle, is an adviser to the landless and jobless in Brazil and Argentina, and is co-author of Globalization Unmasked (Zed). His book with Henry Veltmeyer, Social Movements and State Power: Brazil, Ecuador, Bolivia and Argentina, was published in October 2005. He can be reached at:jpetras@binghamton.edu.
Other Articles by James Petras
* Latin America, the EU and the US: The New Polarities
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