Andrew Kliman, The Failure of Capitalist Production: Underlying Causes of the Great Recession, London: Pluto Press, 2012, 240 pages
Andrew Kliman’s book is a valuable addition to the many things written on the crisis, and well worth reading. It is probably the most detailed, and effective, assessment of the economic statistics behind what happened that is available, with his analysis interpreting the data from the perspective of Marx’s theory of value and capital accumulation. He makes very clear what he is arguing and gives full references for anyone who may wish to check his sources. This can make the book a little hard going in places, but this is a text for those who want to explore the real origins of the crisis, not one for those who are satisfied with populist attacks on corrupt politicians or greedy bankers. My principal criticism of his book is that it does not address the question of US imperialism, but first I will note the book’s strengths.
The Failure of Capitalist Production has two main theses. Firstly, it argues that the major post-war crisis of the 1970s did not result in enough destruction of capital values to provide the basis for sustained accumulation thereafter. This meant that profitability showed little, if any, sign of recovery and economic growth remained weak. This, in turn, set the stage for credit-driven, speculative bubbles, not least the biggest and most recent one that has burst with such intractable consequences. Secondly, and following from this analysis, it argues that the common radical arguments about the nature of the crisis are myths. ‘Neoliberal’ economic policies did not cut real wages and did not divert resources into finance and away from production. A close look at the data for the US finds no evidence for these assertions. Instead, the slow growth of incomes and investment is shown to be a consequence of problems with capital accumulation, problems that resulted from inadequate profitability.
In order to substantiate his points, Kliman conducts a thorough review of how to measure the rate of profit on capital investment. He focuses on the US, not only because America is the biggest capitalist power, but also because US data are the most comprehensive. However, he does not claim to come up with the ‘Marxist rate of profit’ for the US, thinking that there is no unambiguous way in which to derive such a thing from official statistics. Instead, he builds a clear case for using a number of profitability measures that reflect the pressures capitalist business is under. He makes a strong point about how commonly used measures of profit rates (using ‘current cost accounting’) give the impression that the US profit rate rose, but that these are not meaningful reflections of the rate of return earned by capitalist businesses.
Kliman notes that almost all measures of profit rates ‘rose sharply in the years immediately preceding the latest crisis’. Yet while a fall in the rate of profit may not have been a proximate cause of the crisis, it was a key indirect cause:
‘The rate of profit was low at the start of the 1980s and it never recovered in a sustained fashion. This led to a marked decline in the rates of capital accumulation and economic growth. Government policies kept this problem from getting out of hand, but also prolonged and exacerbated it.’ (p14)
His case is well made, and is convincing. These are critical points for an attack on the notion that mistaken government policies – or a ‘neoliberal coup’, as some writers suggest - are the root cause of the crisis. Kliman shows that the deterioration in profitability, investment, growth, etc, began in the late 1960s or in the 1970s, prior to the beginnings of the ‘neoliberal’ era that is usually dated from 1979-81 with the Reagan (US) and Thatcher (UK) political regimes.
He also argues that there has been no rise in the share of US national income going to corporations (pp124-128), a measure that he uses as a proxy for the rate of exploitation. The counterpart to this is that the share of workers’ incomes has not fallen, contrary to many reports. Kliman shows that although the wage share did decline, this was offset by a rise in medical, retirement and unemployment benefits, so that the total compensation of workers as a share of national income has not fallen (pp152-160). Real wage growth (including benefits) for US workers has also been positive. While this growth was slow, this was based on the slowdown of accumulation deriving from the low rate of profit (a chart illustrates this relationship on p91).
Weak profits and sluggish accumulation of capital were also the reasons behind the low interest rate regime that the US Fed implemented from the early 2000s. The Fed feared a ‘lost decade’ of growth (pages 38-47) as had already happened in Japan. These developments set the scene for the rise in consumer credit, subprime mortgages, the boom in derivatives trading and so forth. ‘Neoliberalism’ played no part in these events. Alongside this analysis, Kliman gives a critique of ‘under-consumption’ theories of crisis (Chapter 8) that divert attention away from profitability as the cause of the crisis and promote government spending plans as a solution.
In Chapter 7, Kliman demonstrates that a rising ‘organic composition of capital’ was the main driver of the downtrend in profitability. I would agree with this point, except that Kliman’s explanation looks odd. His argument is that the organic composition was very low in 1945, resulting in a high rate of profit. After 1945, the organic composition for new capital investments was much higher, and the rate of profit on new investments was much lower. But he claims that the organic composition did not rise on these new investments after 1945. Instead, in his view, the overall rate of profit fell because, over time, the total stock of capital was made up by a higher proportion of the newer, higher organic composition, lower profit rate investments (pages 134-137). This argument is made in a chapter that is full of technical detail, and is one of the few in his book that I find implausible. Although it is difficult to find a good proxy for the organic composition of capital with official statistics, my reading of reports on business investments would suggest that there has indeed been a rise in the organic composition on new investments in the post-war period.
Kliman’s book is a detailed discussion of the causes behind the current crisis, with the specific aim of focusing on US data and countering some common beliefs about trends in the US economy. To that extent, it is perhaps unfair to ask for a wider perspective. However, I think that his analysis is weakened by the absence of any discussion of imperialism, or even the key features of US imperialism.
His book has nothing on the role of the dollar, nor on the global domination of US finance that acts as a support for US capital. Neither does he take account of the benefits the US has gained from its exploitation of other countries in trade and investment. His argument, made to me in response to my questions on these points, and in this book, is that such benefits would have appeared in the figures for US corporate profitability. His conclusion remains that the US corporate rate of profit fell despite whatever the size of these benefits may have been.
However, while that is a fair point, to ignore America’s status as an imperialist power means that some important countervailing tendencies to declining profitability are set aside. It would have been a stronger point for him to argue that, despite US imperialism’s attempts to appropriate profits from other countries, and despite its success in doing so, this did not avert the crisis.
Kliman dismisses the impact of the earnings on US foreign direct investment by noting that the rate of return on these investments has also fallen over time (pages 78-80). This is true, but it ignores the fact that the rates of return on investment in oppressed countries are several times the rate earned in other imperialist powers! It is also worth recognising that in recent decades a large share of productive investments has been in oppressed, low wage countries, despite the fact that recorded FDI figures show the bulk of total assets and new investments as being in rich countries. Furthermore, in addition to FDI, many low wage countries, not least China, have been brought into imperialist companies’ value chains via trade relationships. This allows the benefits of cheap supplies of goods to be enjoyed by consumers, governments and businesses in the imperialist countries.
It would be tricky to put a value on these imperial benefits, and Kliman understandably focuses on data that he can more readily incorporate into his analysis. However, these points still deserve recognition. I would suspect that an important reason why US working class living standards have risen in recent decades, despite the onslaught of a capitalist class that has had a free hand to attack workers, is due to such benefits.
The absence of imperialism from Kliman’s analysis also leads him to conceive of the crisis as setting the ground for a struggle between capitalists and workers (Chapter 9). In the abstract this is true, but the more important reality is that workers in the imperialist powers usually support their states in any international conflict over economic privileges, and especially in war. Even opposition to the Iraq war in 2003, a war that was widely seen as criminal aggression, basically stopped once the troops had been sent in. Kliman’s book is a valuable attack on mistaken views of the crisis, and on calls for state regulation or spending as the solution. However, it elucidates neither the economics nor the politics of imperialism.
Tony Norfield, 13 March 2012
For these points, see John Smith’s analysis in a PhD thesis entitled ‘Imperialism & the Globalisation of Production’. The pdf (1.5MB) can be downloaded here.