Contribution to the International Communist Seminar
‘Economic Crises and Possibility of a Major World Crisis’
Brussels, 2-4 May 2002

www.icsbrussels.org , ics[at]icsbrussels.org

Hungary

Hungarian Karl Marx Society

The Stages of Capitalism by Lenin and the Factors of the Contemporary Crisis of Transnational Capitalism

1. The downward tendency of the profit rate, the crisises and the stages of capitalism

During its history of centuries, capitalism went through considerable changes and partial modifications of form. Again and again, it adapted to the changing circumstances, assuring by this the continuity of capitalist reproduction.
What forced capitalism to do so? Many economic and political processes. For example, the existence of the socialist system contributed to the evolution of "welfare state", and the independence fights of the colonial countries helped the creation of neo-colonialism instead of the colonial system. The revolution in communication and transportation offers new logistic solutions for the capitalist companies. This has supported the transplantation of processing industry production to the low-wage countries. This list could be continued. However, if we want to discover the regularities operating in the background of the social movements, we must dig deeper.
According to the scientific historic and materialist aspect, the most fundamental factors of those extorting the periodical renewal of capitalism are the downward tendency of the profit rate and the cyclic development and crisises of capitalism.
As we all know it, the evolution of the avarage profit rate is influenced by many factors in capitalism. The increase in exploitation (and through this the increase in the value-added rate), and the acceleration of the payback period raise the average profit rates (the ration per unit locked-up capital). However, the growth in the value composition of capital (and the growth in its organic composition in the background, that is technology/labour-force) which is normal in the long-run, has stronger influence than the previous factors. The downward nature of the profit rate becomes the basic tendency. The eras of capitalism can also be looked at as answers to the declining tendency of the profit rate which improve the profitability of production periodically again and again.
The downward tendency of the profit rate is in connection with the cyclic development of capitalism - although the latter one is indirectly fed by the anarchy of the capitalist market. The factor meaning blessing in the boom-phase, becomes a destroying power in recession times. The increase in the organic composition of capital, that is the automization of production assures extra income and profit in boom times. The very same technology, however, contributes to the evolvement of over-supply, that is over-production. In crisis-time, profit becomes exhausted - since this is capitalist crisis itself. Suddenly the decrease and exhaustion of the average profit becomes clear. (One example from the recent past: according to official statistics, in the USA the average profit rate in processing industry rose over 10 percent in the 80s. During the crisis-years of the early 90s, this fell to 3 percent. By the middle of the 90s it grew to 10 percent again, then, owing to the new crisis, decreased to 6 percent by the mid of 2001, and has fallen further.)
The renewals and partial changes of form of capitalism (the partial renewal of the production relations and so the superstructure) are necessarily enforced by the crisises resulting from the declining profit rate and the market competition.
V.I. Lenin described the phases of capitalism he knew in his work titled "Imperialism, the Highest Peak of Capitalism". He wrote of competitive capitalism which, in the last third of the 19th century, turned into monopole capitalism dominated by the monopolies. The declining tendency of the profit rate, the profit competition and the technological development demanded by market competition led to the concentration and centralization of capitals. In the 19th century the evolution of private monopolies started after the first international economic crisis in 1847, and this process accelerated after the world market crisis in 1875.
In his study titled 'Imperialism, the Highest Peak of Capitalism', Lenin introduced the evolution of imperialism, the world-hegemony system of capitalism. That is, the extension and deepening of the colonial developed capitalist powers' world economic and world political domination based upon open force, the economic and territorial distribution and redistribution of the world.
Lenin knew that the progression of capital concentration would be impossible to stop. He saw the interpenetration of producing and financial capital, which strengthened the parasitical nature of capitalism. He knew that the capitalist state vindicated the interests of big capital in any of the historical situations. However, he could not see in advance the details of further development. Perhaps he was too optimistic, he did not take the renewal ability of capitalism and the internal difficulties of socialism into consideration.
The deepest crisis of capitalism, the Great Depression "produced" state monopolist capitalism which became general after World War II. State capitalism, too, meant the partial renewal of the capitalist production relations. The increasing economic and social role of the state gave space for the sharpened contradictions of capitalism. The state's economy and consumption incentives became the means of conserving the boom. This was also an answer to the challenges and social measures of the socialist system which strengthened after World War II.
In parallel with the stabilisation of the state monopolist capitalism, the world-hegemony, imperialist system of capitalism was also renewed. As a consequence of the independence fights by the people of the ex-colonial countries and because of the existence of socialism, the colonial system (which was essentially based on physical force) was replaced by neo-colonialism which is based on economic pressure. This also meant the partial renewal of the production relations, the world-wide production relations. Even wide-range nationalisations were executed in the developing countries without any considerable change in the order and measure of international exploitation.
Capitalism, and with that the world-wide imperialist order arrived to the gate of a new era at the turn of the 60s and the 70s. The reserves of the extension of capitalist production were exhausted, superfluous capitals were accumulated world-wide, the Bretton-Woods order of international payments fell into a crisis. It seemed that there was no new free space for imperialist expansion on Earth.
This was when another partial renewal of the capitalist production relations, the new phase of capitalism, transnational capitalism began. Its main characteristics are: capital concentration and centralisation of measures never seen before within the transnational companies that are more and more penetrated also with each other; the transplantation of processing industry to the countries of low wage-costs; financial balloon and financial speculation which considerably increased the parasitism of capitalism; the coming of neo-liberal economic principles into the foreground and so the degradation of the state's economic and social role, the reduction of the workers' social rights gained before.
The international neo-imperialist system of capitalism was also completed with new elements. In the early 70s, parts of the capitals that were superfluous owing to "over-accumulation" were extended as credits to about 150 developing and semi-advanced countries. By doing so, the developed countries prevented the devaluation of their capitals, the gained demand and markets for their own export products, and, by increasing the interests, they gained perpetuity. But it was even more important that neo-colonialism got a new strong rein by which (and with the help of the IMF and the World Bank) they were able to force the developing countries on the path of liberalisation. The most important, however, was that they succeeded in alluring the European socialist countries into the debt trap. The leaders who were not vigilant because of the petty bourgeois tendencies and the conscious enemies of socialism drove the socialist countries into this trap. This, beside the internal petty bourgeois distortions and inadequate economic policies, made economic growth particularly difficult in the socialist countries. All this contributed to the transition in a great extent, which meant the occupation of new (receiving, raw material producing and capital investment) markets for imperialism. Neo-imperialism might celebrate the victory. It extended its economic power and political influence almost all over our Globe. (Even China got deeply into its economic sphere which is severely trying the political superstructure of the enormous country.)

2. The factors of the crisis of transnational capitalism at the Millenary

By the early 90s, it turned out that not even the "new" liberal-capitalist world economic order was able to provide a development free of economic crises. World economic crisis swept along the Earth. However, the recovery from that was supported and allowed by several factors. One of these was the occupation of the East-European markets and so the utilisation of the new capital investment opportunities. (Something similar had happened subsequent to the Asian financial crisis after 1977-78, when the transnational companies of the developed centre started offence for the markets of the newly industrializing countries and the buying of their production plants. All this also contributed to the relatively long-lasting prosperity of the developed capitalist countries in the 90s.) The considerable weakening of the competition by the socialist countries allowed them to push the wages down in the most developed countries, to reduce the social support systems in accordance with the liberal principles, and so reduce the accessory wage costs. The GDP share of capital grew and that of the workers lessened worldwide, the statistics said. Several other factors had their effects, as well. Thus, for instance, the former state intervention methods (elements of the Keynesian economic policy) were applied in the critical situations. Also, the capacities, that are - always - superfluous in a crisis situation, were gone. All these contributed to the increase in the profit rates and to the setting of a new economic cycle going.
So during the 90s, world capitalism produced a relatively long boom period. This was also allowed by the factors mentioned above. In addition, the application of the new information and other technologies and biological procedures, and the lower prices in transportation and telecommunication, also contributed. The prosperity was fed by the financial balloon and the virtual and irrealistic growth in the stock market indexes. Probably, it was even more important that the United States was able to shift the burdens of its economic difficulties (e.g. consequences of over-production) on the world (on Japan, then on Mexico in the form of regional crisises, then on the "small tigers" and mainly on South-America at the end of the decade). Last, but not least the greatest economy of the World Bank was financed with foreign capital in amounts never seen before. Through the debt service and exploitation of the developing countries, through the foreign direct investments, bond purchases, stock market and other securities investments of the other developed countries. The greatest foreign debt on Earth was accumulated by the United States.
The illusion of crisisless development of the "new economy" had faded away by 2001. The US economy and so the whole world economy fell into one of the deepest crisises since World War II. The capital loss at the stock markets, the production and the service sector has been the highest of the last 50 years.
The evolvement of the contemporary recession period has concluded from the very same deep-going general rules (profit rate, cyclic over-production and development) that have been mentioned above. (As we have seen it, the profit rates declined seriously in 2001.) In addition to these, the advantages gained from the occupation of the East-European region became exhausted or reduced. The boom of the 90s itself contributed to the evolution of the depression, and to the fact that the recession and capital loss are, in many respects, greater than the former ones. Actually, it has been made possible by the accumulation of enormous imbalances (e.g. the deficits of the balance of trade and payments of the USA, the negative savings rate of the American population, the indebtedness of the population, companies and the state budget, the irrealistic securities prices, etc.).

3. Perspectives according to the economic position of the USA

It is worth emphasizing some peculiarities of the present crisis which will influence the expected tendencies of the coming times.
The first important fact is that the worldwide interpenetration of the depressive trade fluctuations is stronger now than it was before. The hierarchic order of the world economy, dominated by the United States, has strengthened. The second fact is that it is not only the developing and primarily the emerging countries the economic growth rate of which is supported in its closing-up and harmonization by the world-wide network and the multifold and complex relations of the network elements of the transnational companies, but also the developed regions, at an even greater extent than before. The third fact that has great influence on the world economic basic processes is the international financial system. The financial balloon, which has become the field of limitless and often unforeseeable international speculation, and has considerably increased the risk of the world economic processes. One or two actual remarks must be made here. The value of the stock exchange securities made 10% of the world's GDP in the early 80s, it was equal to the latter one in 1999, then it decreased gradually, faster after the terror attack on the 11th of September in 2001, to 60%. During the previous months this index has risen again. The share of the US is even more interesting: here the value grew from 20% to 160% and is about 140-150% these days. It must be considered that previously to the Great Depression in 1929, the NYSE index tripled in three years and the value of the stock exchange securities reached 80% of the GDP. This 80% rate was reached again in the second part of 1990, and in addition it doubled until 2000. Thus the financial balloon, which has been fed by uncontrollable outlet and speculation of securities, and even by the government's internal cash generation during the recession fears, is still filled with primer. In such a situation the commercial failure of Argentina or Turkey, or the bankruptcy of big companies like Enron may have serious radiative effects. As the fourth peculiarity of the present crisis, it must be stressed that the structural problems of production and services are much more in the foreground than they have been in any of the recessions since World War II. By 2001 it became clear that in many of the industries there was considerable over-production, the reserves were swollen - despite the application of the developed information technology. It was clear that enormous surplus capacities had accumulated in the industrial and service sectors. Industrial production decreased in 2001 all over the world. The fifth important fact is that - according to previous estimations - the volume of the international trade grew by only 2% in 2000. This has already led to a trade war, primarily between the United States and Europe. Many of the experts are of the opinion that in the following years the international trade will give less pulling power to economic growth than it did in the 90s. It is probable that the extension of the domestic market will have greater influence. So (despite the assertion of liberal principles that are still forced on the developing world) the open or covert forms of governmental economy incentives have again been put into the foreground.
It is not an overstatement, nor the simplification of reality that the world economic processes of the coming years will basically be determined by the situation of the United States. The contribution and importance of the United State is so determining that we don't make a big mistake if here and now we concentrate mainly at the situation and development alternatives of the USA - of course, in their world economic contexts and effects. I will describe the possible development scenarios of the world economy relying on these.
At the end of 2001 and the beginning of 2002 the indications of the recession were still strong in the American economy.

At the same time, owing to the state economic political steps and interventions, there are several processes and phenomena that are against the further deepening of the recession and for stopping it. Beside the limited number of means of liberal economic policy (e.g. interest rate cut) the Bush-government also applies considerable state interventionist methods. The republican government, which has otherwise been raised into power with liberal economic political principles, is forced to use this "policy mix", or the means of the Keynesian economic policy - if we are open enough to say -, by the real economic situation and challenges.

What perspectives do these facts offer?
A "catastrophy-scenario" is possible but not probable. A huge bankruptcy, like that of Enron or Argentina, and the stock market panic going with that may deepen the crisis. However, in the spring of 2002, it seems that the income gained from the exploitation of the less developed world and the mentioned governmental methods will swing the engine of the world economy, the United States, over the highest peak.
So it is more feasible that the United States will slowly get out of the present recession, and thus the other regions, too, may take a more or less deep breath, and the new cycle of world economic development may start again. This scenario is also likely to happen owing to the special position of the United States: the possibility to incite the American economy through foreign financing; the economic political means and methods that are at the disposal of the government (low interest rate, internal cash generation, state economy incentive package, war expenditures, etc.); their experiences accumulated in crisis management; their ability to put at least a part of the crisis burden on other regions and countries; the bankruptcy of important industrial capacities all over the world; the so far several thousand billion dollars amount of the stock market losses, etc.
May the economic growth start, it will not be rapid. The fast growth in productivity will only be possible to be maintained if the labour force is quickly and resolutely reduced. Owing to this, unemployment keeps rapidly increasing, its rate will, according to several estimations, reach 7% by the middle or end of 2002. The reduction of the wages fund may undermine the consumers' spendings so badly that the recovery may be very much prolonged. According to experts, two years' 4% growth would be necessary for the companies to consider the creation of new capacities and so new jobs. "Jobless recovery" may restrain a more explicit economic growth for a long time, perhaps for years. Most of the analysers expect the yearly growth to be about 1% in the USA in 2002. Rapid economic growth is not probable in 2003 either, 2% growth is feasible. This, unless no other unexpected world economic event happens - may gradually rise to about 3% in the following years.
However, it must not be forgotten that under the present world economic circumstances, and according to the general cyclic development of the world economy, a new recession is very likely to start four-six years after the beginning of growth (around 2006-2008). The deeper and more long-lasting this recession is, the later the crisis period will start.
This optimistic scenario, however, has its drawback. The macro-economic imbalances, that will remain typical in the American and world economy even after the present depression and are more serious than they have been in the previous 50 years, would remain existing at a high degree. The recession of 2001-2002 has probably not been deep enough - partly owing to the state interventions - to "make order" efficiently. In case the world economy recovers from the present crisis, next time it will face an even deeper one.

4. Conclusions

The actual cyclic world economic crisis of 2001-2002 is the biggest one since World War II. Actually, each of the production and service sectors have been included, and it is the formerly pulling, technology intensive sectors that have been concerned the most seriously. World economic growth has become negative, has stagnated or has considerably declined in almost all of the countries of the Earth. The profits and profit rates have considerably fallen back. The capitalist companies and the financial investors with them have had to write off enormous losses of several thousand billions of dollars. We have experienced recession in production and the financial life at the same, all this may be considered a comprehensive, general world economic crisis.
The further deepening of the crisis, however, has been obstructed by the special factors mentioned above.
The tensions ("superfluous" production and service capacities bringing little profit, the unbalances of the trade, payment and sate budgets, the consumers' "over-consumption" and "under-consumption" elswhere, the indebtedness of countries, companies and people, etc.) that have remained in the international economy and its leading power, the United States, are greater than those previous to the Great Depression in 1929-33.
And we have not yet mentioned the fact that the wages have been stagnant or reduced in the developed countries, and the income differences between the classes and layers have grown. The production-transplanting policy of the multinational companies lessens the number of jobs. This allows the reduction in wages and the cancellation of social attainments. The trade unions, the civil movements and the progressive church circles show more and more determination against the harmful social effects of globalization conducted by the transnational companies.
At the same time, the transplantation of production to the developing and so-called emerging countries has led to a relatively comprehensive capitalist development only in very few and special cases. The social tensions have sharpened in these countries, as well (e.g. South-Korea, Brasilia, Argentina). At the beginning of new world order the GDP per capita was 12-14 times bigger in the developed world than it was in the developing world, today this rate is 22-25 times as big. Hunger and poverty has not slackened. The developing countries, which feel cheated by the international trade negotiations, are fighting more and more consciously against further trade liberalization. The group G77, which includes the developing countries, denounced the harmful consequences of the present globalization in the presence of 69 presidents and prime ministers at their meeting in Havanna in 2001. The globalization-critical movements have appeared and are getting stronger in the developing and the semi-advanced countries, as well.
The power of the movements operating in the developed and developing countries is increased by the recognition of their common interests. The most comprehensive manifestation of this were the Social World Forums organized in Porto Alegre, Brasilia, which are followed by the regional forums in 2002. Today these movements primarily express economic and social demands, but also have a sharp capitalism-critical edge. The Marxists' task is to deepen factor.
The expectable deeper world economic crisis itself cannot result in the collapse of the totally unjust capitalist world order. It also needs the conscious contribution of the people. This realization has started in the so-called anti-globalizational or globalization-critical movements.
In case there is no mass opposition of sufficient strength, capitalism will go through a new partial change of form. And as it always happens in the depressive periods, the conservative tendencies, that are antidemocratic, fascist-like and fascist in a bourgeois sense as well, will become - and have become from the United State through Western-Europe to Eastern-Europe - stronger. This is just what is happening in Hungary.
The opinion that capitalism has run out of its possibilities with the present system of its means is expressed by non-Marxists, too. L. Thurow, world famous professor at MIT, in his study published under the title 'The Future of Capitalism' in 1995, wrote that the only question is whether the serious problems of capitalism (increase in the income differences between and within countries, decreasing real wages, unbalances of international payments, emptying of the content of bourgeois democracy, etc.) will be solved in many small or one big crisis. At a conference held under the aegis of the FKP in May 2001, I. Wallerstein, the widely known leftist historian, spoke of the opinion that once each of the historical societies arrive to a stadium when they are not able to manage the accumulated contradictions with their own means. According to him, capitalism started a new Kondratiev-cycle in the last years of the 20. century the uprising phase of which will - expressing the crisis - bring about slow growth and many contradictions. This will be the last phase of capitalism which will be followed by a new social formation. (However, he did not want to speak of the nature of this.)


Peter Farkas
Hungarian Karl Marx Society