The Crisis of Capitalism in Europe, West and East Özlem Onaran Monthly Review 2010 , Volume 62, Issue 05 (October) /

1. The Crisis of Capitalism in Europe, West and East ÖzlemOnaran Monthly Review 2010, Volume 62, Issue 05 (October) /

2. Prof. OzlemOnaran • Three dimensions to the current, unprecedented global crisis of capitalism: economic, ecological, and political. • 1. Economic: Capitalism is facing a major realization crisis—an inability to sell the output produced, i.e., to realize, in the form of • profits, the surplus value extracted from workers’ labor. • How is Neoliberalism used to solve the stagflation crisis of the 1970s ? • Abandoned the “Keynesian consensus” of the “golden age” of capitalism (relatively high social welfare spending, strong unions, and labor management cooperation). • Reduced the power of labor. • It succeeded- profit rates eventually recovered in the major capitalist economies by the 1990s.

3. Prof. OzlemOnaran Dismisses Peter Schiff's 'Job Creator' BS With Empirical Resea http://www.youtube.com/watch?v=lTKQVSz4U6k

4. 2. Scientifically, ecological limits to growth became clearly known In order for maintaining a sustainable environment, long-term economic growth must be equal to the “environmental productivity” growth rate, i.e., zero or quite low. Desirable in such a society would be : high employment and distribution of income for all classes. 2008 crisis: questions the usefulness of neoliberalism in the context of its goals, i.e., capital accumulation. Since the 1980s: Deregulation in labour, goods and financial system has been disorienting the world economy as it has created wider gap between the rich and the poor.

5. 3. Neoliberalism is an initial attempt to deal with the 1970s stagflation crisis • After leaving the policies based on the “Keynesian consensus” and turning away from the capitalism’s “golden age” (higher spending on social welfare, strengthening the unions, cooperation between labour and management) neoliberalist policies were introduced. • Profits increased but a greater risk of crisis arose as a result : investment and wages declined • To control the crisis, US boosted the economy with quick financialization- this stimulated debt-credit and other yields of wealth

6. US economy: • Rapid financializationled to increased demand through various wealth effects and debt-credit stimuli, despite the weakening of the underlying economy. • Debt-led growth could not be sustained and led to the systemic crisis • Unprecedented state intervention moderating the visible dimensions of the downturn. • But, the financial mechanisms that created the debt collapsed. • Now, how can State policies overcome the realization crisis (get profits by selling goods and reaping labour’s surplus value) .

7. 3. Decline in labor’s bargaining power

8. 4. High compensation of CEOs • Increasing margins of profit • Higher global profits for MNCs • Instead of “retain and reinvest” profits as capital, now it’s a move to “downsize and distribute” • Wages and remuneration relate to short-term not long term profitability • Capital investors are increasingly making asset purchases, not asset creation. • Markets have been deregulated mainly to support the interests of rentier-capitalists, not those who are producing goods.

9. Economic growth rates have been low and well below the mark • Playing the financial markets for high-profits through financial speculation • Labour’s purchasing power has declined as a result of unemployment and lower wages – decline in consumers of goods as a result – profit makers do not spend as much as those who earn wages (“a dollar transferred from a worker to a capitalist reduces total consumption spending”).

10. 5. Financial innovations may provide a short-term solution to any realization crisis: debt-led consumption growth. • When financial markets are deregulated allowing the market to create new instruments and forms of investment , e.g., mortgage-backed securities, collateralized debt obligations (CDO), and credit default swaps, the debt-led growth process emerged. • while the house prices continue to increase, creditors found this sector to be a highly profitable business. • When this model of debt-led growth showed the way for short-term growth and profits in production, the market became optimistic that fed on itself- however, underestimation of risks in such a market was quite disastrous in the long term • If policies were made to correct growing inequality in income and wealth accumulation, the crisis could have been stopped at least in the short term

11. 6. In Germany and Japan, moderation of wages suppressed domestic consumption and fueled exports. • Thus they had accumulated budget (current account) surpluses which led to capital outflows to the United States. • China and South Korea, the experience of the Asian and Latin American crises led to a policy of accumulation of foreign reserves as a hedge against speculative capital outflows • Within the Western countries (in Spain, Greece, Portugal, Italy, and Ireland), since there was no comprehensive industrial policy and public investments, costs of production (unit labor costs, i.e., wages divided by productivity) rose.

12. Unemployment rose sharply and it remained a long term problem, increasing labour as the industrial reserve army – the wages fell further and lost its bargaining power. • 7. The Eastern European Slowdown • Boom and bust cycles in the periphery are different from this long duration global crisis is that it is not a regional problem but a global financial disaster • Export markets have severely contracted. The extent of debt-led • consumption growth and household debt, payable mostly in • foreign currency, has made this crisis more severe. If local • currencies depreciate further, debt burdens will rise further as well, • deepening the crisis. • Slowdown in global demand, the decline in foreign direct investment (FDI) inflows, portfolio investment outflows, the contraction in remittances, and the credit crash are affecting all the developing countries

13. The Baltic Countries, Hungary, Romania, and Bulgaria, are more exposed than Poland, the Czech Republic, Slovenia, and Slovakia. • Poland is only experiencing stagnation rather than recession, thanks to its more diversified market and large domestic economy • If a nation’s currency buys less foreign currency, imports become more expensive. If the economy depends on imports, as many do, devaluation in turn leads to inflation

14. 8. Fiscal packages were also inadequate: in the most advanced economies, only 3 percent of total spending is on employment, just 10.8 percent on social transfers to low-income households, and 15 percent on infrastructure. Is there an alternative? 1. Fiscal policy has to be centered around a public employment program and a distributional policy. Public expenditures in labor-intensive services like education, child care, nursing homes, health, community and social services, as well as in public infrastructure and green investments, should be made 2. Regarding private-sector employment, it is important to avoid “socialization of the costs.” That is, working people and the unemployed should not have to pay the costs of the irresponsible behavior of global capital.

15. 3. The stimulus, employment packages, and green recovery plans should be financed from progressive income and wealth taxes, higher corporate tax rates, inheritance taxes, and taxes on financial transactions 4. Tax rebates and subsidies to low-income groups or extended unemployment benefits have been typical short-run solutions. However, these do not correct the overall deterioration in working class lives 5. the need for public ownership of financial institutions opens up new questions about critical economic sectors that society cannot leave in the private sector 6. regarding the international aspects of the European Union, how or whether the West supports the South and East in weathering the current global crisis will be critical for the political credibility of the EU.