‘The Endless Crisis: How Monopoly-Finance Capital Produces Stagnation and Upheaval from the USA to China’ reviewed by Hans G Despain

Reviewed by Hans G Despain

About the reviewer

Hans G Despain is Professor of Economics and Department Chair at Nichols College, Massachusetts. He …


This is a most remarkable and important book. It is political economy at its best. It offers a sophisticated explanation of the socio-economic crisis facing the global and domestic economies. The authors further argue that the socio-economic crisis cannot be resolved without a total transformation away from the oligopolistic capitalistic system.

The work of Foster and McChesney can be embraced by all heterodox political economy traditions. Their basic premise begins with Marxian political economy, combine with insights from Veblen, Galbraith, and Post-Keynesian ideas consistent with Hyman Minsky and modern monetary theory, feminist and environmental ideas, and a profound understanding of issues of labor. As impressive is their synthesis of heterodox political economy, their greatest achievement is their ability to illuminate the internal contradictions of contemporary oligopolistic finance capitalism.

The book consists of six well-integrated chapters. Chapter One explains the theory of monopoly capital and stagnation as developed by Paul Baran and Paul Sweezy. Chapter Two argues that finance, insurance, and real estate (FIRE) has grown in importance and is now the primary form of monopoly capital dominating global economies. Chapter Three demonstrates that concentration and centralization have increased during the twentieth and twenty-first centuries. Moreover, since 1975 the importance of multinational corporations and information technology has soared. Chapter Four explores the “internationalization” of monopoly capital and the global exportation of stagnation. Chapter Five demonstrates there is now a “global reserve army of labor” which has strengthened the position of multinational corporations and weakened the position of workers worldwide. Finally in Chapter Six the authors contend that China will not be the source of global recovery, but rather of global stagnation. The internal contradictions of the Chinese economy and the “superexploitation” of the Chinese workers by both multinational and Chinese corporations are sure to soon generate severe stagnation and the possibility of a global recession.

Each chapter can be read independently, each is full of insights. Taken together they tell a most remarkable story: namely, that contemporary capitalism will not successfully recover. Stagnation is the future of the global economy. Inequality will continue to rise and tens of millions will remain chronically unemployed.

This historical account and explanation of the contemporary economic quagmire begins with the theory of monopoly capital as developed by Baran and Sweezy, who in turn drew directly and heavily from Marx. The basics are quite simple, although paradoxical: competition generates a lack of competition. Through market and marketing competition, the giant corporations come to dominate the economic landscape. Galbraithian corporate “planning” and market control exemplifies the behavior of giant corporations and the governing mode of system management. The most efficient firms reinvesting profits successfully in the accumulation process is what Marx called the concentration of capital. Acquisition of competitors and vertical mergers for purposes of economies of scale and scope is the centralization of capital. The historical outcome of market competition is the oligopolization of industry, or monopoly capital.

Monopoly capital is a form of industrial institutional organization extraordinarily capable of generating profits. The oligopolistic corporate hegemony of monopoly capitalism benefits from economies of scales and scope, massive marketing and branding, political lobbying, absence of efficaciously organized labor, and tacit collusion with so-called competitors. Successful oligopolistic corporate hegemony fabricates enormous sales, engineering massive revenues, and behemoth profits. But profits become the Achilles’ heel for the system. Full surplus reinvestment in expanded reproduction becomes all but impossible. Monopoly capitalism becomes so productive, corporations so enormous, and profits so great, that there is literally a lack of reinvestment opportunities to absorb the surplus value created. Thus, at the macroeconomic level, stagnation manifests as the normal state.

Except at the margin of the “sales effort” General Motors cannot get more cars in American garages. Coca Cola cannot get more Coke into American refrigerators. McDonalds cannot get any more Big Macs into the bellies of Americans. No more cars, no more cola, no more Big Macs are needed. Thus, four main strategies to increase profits emerge: 1) compete at the margin for market share; 2) conglomerate, by reinvesting profits in other industries (e.g., Coca Cola’s acquisition of Columbia pictures); 3) financialization of the company’s profits, by either forming a financial arm within the conglomeration (e.g. GM and GMAC), or hire a financial institution such as Goldman Sachs, JP Morgan, Morgan Stanley, etc. to financialize the enterprise’s profits; 4) expand overseas.

Each of these has internal limits. Competing for market share is limited by industry saturation and the high cost of competitive advertising. The limit of conglomeration is the management of the entire operation and centralization of capital beyond economies of scale and scope. Thus, giant corporations turn to financialization and expansion overseas. The limits here are crucial. Even with the creation of a subsidiary banking arm or hiring a financial institution to manage a portfolio of investments, there are too few investment projects to absorb all the successful production, sales, and the behemoth profits of giant corporations.

This is not immediately obvious, because money does get invested. However, it is important to understand that invested capital is not necessarily investment into productive enterprises as much as it is pure speculation for financial gain from the difference of purchase price and sales price of a financial asset. In Marxian terms it is the removal of production from the monetary circuit: i.e., M – C … (P) … C´ – M´ is reduced to M – M´ (54). It is a Keynesian nightmare when capitalist enterprise becomes the bubble on a whirlpool of speculation. Otherwise, it is none other than the `Minsky moment’ (the moment of financial collapse). However, for monopoly capital theorists, the notion of a “moment” is highly misleading. Rather, the financial crisis that constitutes a Minsky moment is merely the logical endpoint of the normal state of stagnation. However, the normal state of stagnation is well-hidden behind illusions. These illusions are the hustle, bustle and commotion of FIRE (finance, insurance, and real estate). In 2007 borrowing in the U.S. economy had risen by 400 percent since 1978; real profits in the FIRE industries exploded by 800 percent. In the 1980s the FIRE portion of national income was 35 percent, in recent years it is well over 90 percent (17). Earnings from the production process and sales effort have diminished in importance and the role of capital gains has become increasingly important. In short, there are too few viable investment projects to absorb the massive profits generated by oligopolistic finance capitalism, bubbles are generated turning financial markets into casinos and the real economy is destabilized.

There have been fifteen major financial bubble explosions since 1970. “Not only have financial crises become endemic, they have also been growing in scale and global impact” (43). Foster and McChesney endorse the Post-Keynesian theories of money and financial instability. However, the theories of monopoly capitalism and stagnation have Foster and McChesney far less sanguine concerning issues of successful job programs, full-employment and economic stabilization from properly managed fiscal policy as advocated by Post-Keynesian theorists.

Neo-liberal policy has kept business and corporate taxes soft, interest rates low, and un(der)employment sufficiently high. Neo-liberal policy has increased profits, fed financialization, and further destabilized the normal state of low growth stagnation into a series of ever growing financial bubbles, bursts, and economic pathologies of inflation, un(der)employment, debt creation, debt deflation, and severe income inequality.

The growth of multinational monopoly capital has globalized the concentration and centralization of capital and spread stagnation as the normal state worldwide (122). The financial speculation has been extended to the global sphere with seriously inadequate global economic institutions to contain the economic carnage. The internationalization of the giant American corporation has skyrocketed the amount of foreign assets, foreign sales (107, table 4.1), and foreign employment (146, chart 5.2) of American multinational corporations.

The giant corporations turn to the foreign markets for real productive expansion outlets. They have relied on neo-liberal policy to pry open markets. Foster and McChesney point out that contradictions abound throughout the global economy, most spectacularly exemplified by the increasing inequality, superexploitation of global working classes, and the impoverishment of billions.

China illustrates these contradictions, and is a likely source of global instability. China has implemented neo-liberalism to a significant extent and allowed capital mobility to attract foreign capital. The result is an economy with national income constituted by nearly 50 percent investment spending and just over 30 percent consumption expenditures. This overinvestment has generated new capital stock, but overcapacity. Nouriel Roubini describes the Chinese overcapacity well: “sleek but empty airports and bullet trains” and “highways to nowhere, thousands of colossal new central and provincial government buildings, ghost towns, and brand-new aluminum smelters kept closed to prevent global prices from plunging” (161). This overcapacity is characteristic of industry after Chinese industry. New Capital lies idle. Investment projects fail to realize profits. China is overly reliant on exports, causing worries of a slump and international contagion within the global supply chains. Cronyism is endemic, with 90 percent of the richest 20,000 Chinese “related to senior government or Communist Party officials.” Superexploition of Chinese workers in the form of long hours, low wages, the absence of benefits and leisure has led to incidences of mass protest throughout China.

Neo-liberalism is not a new competitive phase of capitalism diminishing the importance of the nation state. Rather it is merely the political arm of the hegemonic oligopolistic enterprises, constituting a new form of imperialism (152-4). The result is Veblenesque predation (via neo-liberalism) and Marxian “superexploitation” (via oligopolistic hegemony) now dominating the global economy.

No fiscal policy or monetary management can completely eradicate the problems of stagnation, financial instability, predation, and superexploitation. The only solution is a systemic transformation; a democratization of the corporate workplace and institutional development toward socialism.

Foster and McChesney demonstrate the theories of monopoly capital, stagnation, financialization and neo-liberalism are remarkably well-suited to explain the Great Financial Crisis of 2008. They well argue that another collapse is imminent, because the internal contradictions generating the quadruple (socio-economic, political, environmental, and existential/personal) crises are an integral part of the ontological constitution of capitalism. Their synthesis of the Institutionalist, Post-Keynesian, Feminist, Green, and pro-Labor traditions is remarkable. Nonetheless the real strength of this theory is in its Marxian philosophical roots.

Monopoly Capital underscores the concentration and centralization processes. But those of us who understand Marx realize this is merely the tip of the social-theoretical iceberg. The predation and superexploitation, along with the achievements of giant corporations in the economies of scale and scope, are the processes of increasing relative surplus-value and absolute surplus-value respectively. In turn this pivots on the money fetishism, which is merely the most glaring form of commodity fetishism, whereby human beings take on the properties of commodities, and commodities are bestowed with human properties: e.g., in the belief that ‘money moves mountains’ (i.e., gets things done), for it is not money that ‘moves mountains,’ but people. Once the inversion has taken place in people’s minds, however, they act as if money moves mountains, and it is this inversion of reality in the form money fetishism that is the real basis of financial bubbles and recessions.

It is not just that Foster and McChesney have synthesized heterodox traditions of political economy, they have based their synthesis on Marxian economics which can be developed into a deep and penetrating philosophical understanding of the internal contradictions of hegemonic oligopolistic finance capital, and establish that the only alternative to the quadruple crisis generating system is complete transformation, in a word Socialism.

4 February 2013

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