For Whom the Bell Tolls? Capital, Labor and the Global Financial Crisis

ABSTRACT

With the onset of the so-called “global financial crisis” in 2008 the world capitalist system suffered a shock that shook its very foundations, threatening the functioning of key financial institutions and the economies at the center of the system. However, the crisis merely served to restructure the system, destroying capital in the process but also regenerating conditions for a new round of accumulation. Finance capital, the major force behind and the principal detonator of the financial meltdown and its repercussions, recovered from its losses, and the capitalist class in its financial core was strengthened by a bailout of the financial institutions with public funds. In short, the crisis has been used to the strategic advantage of capital in its class war against labor, to further the accumulation of capital and the consolidation of capitalist rule. The point is that the crisis, like all crises, is functional for the leading elements of the capitalist class, allowing them to profit from the crisis while passing on the costs to the working class—to convert a systemic crisis (of capital and the state) into a crisis for labor.

KEYWORDS:

• Financial capital
• financialization
• global financial crisis
• crisis for labor

Acknowledgements

Part of this article comes from the following books: 1. James Petras and Henry Veltmeyer. 2013. Imperialism and Capitalism in the Twenty-First Century, 17–183. Ashgate Publishing. 2. James Petras and Henry Veltmeyer. 2014. The Global Capitalist Crisis and Its Aftermath: The Causes and Consequences of the Great Recession of 2008–2009, 79–99. Ashgate Publishing. Permission has been granted for re-use of James Petras and Henry Veltmeyer their own material.

Disclosure Statement

No potential conflict of interest was reported by the authors.

Notes on Contributors

James Petras is Professor Emeritus in Sociology at the State University of New York, Binghamton, USA, and Adjunct Professor in International Development Studies at Saint Mary’s University, Canada. He is the author of over 60 books on Latin American affairs and world affairs, including The Class Struggle in Latin America (Routledge 2017).

Henry Veltmeyer is Professor of Development Studies at Saint Mary’s University, Canada, and Universidad Autónoma de Zacatecas, Mexico. He has authored and edited over 40 books on Latin American and world affairs, including Imperialism, Crisis and Class Struggle: The Verities of Capitalism (Haymarket Books 2016).

ORCID

Henry Veltmeyer http://orcid.org/0000-0003-4967-0585

Notes

1. The IMF puts the losses from the global economic crisis at $4.1 trillion but this figure only includes losses directly attributable to the major banks and financial institutions.

2. It is estimated that the US billionaires, the 413 individuals (all men) at the center or top of the system and the epicenter of the recent financial crisis, have increased their holdings and fortunes—by some 30% since 2008. In Mexico, Carlos Slim, the world’s richest man, is reported to have increased his fortune by 38% since the end of 2008. Even without any further study it is evident that the state played a much more important role than the market in the restructuring of wealth in the aftermath of the crisis and the “recovery” by the small club of billionaires at the apex of the income distribution. For example, in Canada corporate tax rate as an anti-crisis measure was reduced (from 18.5% to 16% in the case of Canada), ostensibly so as to promote productive (employment generating) investments. Needless to say, these investments have not taken place. What has taken place are several rounds of bonuses paid out to the CEOs of the financial institutions and corporations that were bailed out or had failed to go under. The rich and super-rich owners of the capital invested in these corporations and institutions were the primary beneficiaries of the anti-crisis policies, bailouts and austerity measures adopted by governments everywhere within the system. Needless to add, the primary losers in this stacked game have been the working class (Landler 2009).

3. Vis-à-vis the state the crisis sometimes takes the form of a legitimation crisis, as for example, in the inability of the Latin American state today to justify its policy agenda of neoliberal globalization; it can also take the form of a fiscal crisis, as in the late 1970s when virtually every government in both the north and the south found itself unable to finance the programs of social welfare and economic development, or a debt crisis, as in 2011 when the US government found itself unable to finance its operations because of a debt overhang of $14 trillion.

4. The literature on the crisis is too voluminous to cite or review but see, inter alia, Berberoglu (2012), Foster and Magdoff (2008, 2009), Gills (2011) and Konings (2010).

5. On a “sociology of crisis” see Veltmeyer (2011).

6. In the United States, where this inordinate development and the associated “structure of social inequality” achieved its maximum expression, the social conditions of free market capitalism have brought about an extraordinarily acute and polarized class division reflected in the following statistics (see the Institute for Policy Studies [2006]). In 2007 one half of Americans owned only 2.5% of the country’s wealth while the top 1% owned 1/3 (33.8%). While in 2000 of this wealth only 15% was in the form of financial assets (stocks and bonds, etc.) in 2007 over 40% of it was. And needless to say, financial assets are particularly maldistributed—the bottom 50% owning less than 0.5% while the top 1% own 50.9%. The share of the top 1% in capital income went up from 36% in 1980 to 58% in 2003—and climbing. The average hourly earnings for US workers fell from $20.06 in 1972 to $18.5 in 2008 while the remuneration of CEOs rose by almost 300% (Bureau of Labor Statistics 2012; Institute for Policy Studies 2006). In 1950 the ratio of the average executive’s pay, only a part of total remuneration, to the average worker’s pay was 30 to 1. Since 2000 it has exploded to between 300 and 500 to one. And the recession has erased eight million private sector jobs in the United States alone, and 40 million Americans are now on food stamps. According to a Pew Research Center (2010) study approximately 37% of Americans between the ages 18 and 29 have been either unemployed or underemployed during the recession.

7. On these developments, and the associated reconfiguration of economic power, see Petras and Veltmeyer (2011).

8. For details, see http://europa.eu/rapid/press-release_DOC-12-2_en.htm.

9. On these changes in the capital-labor relation—which was extended by the agency of imperialist exploitation into a north-south development divide within the “new world order” of neoliberal globalization—see, inter alia, Berberoglu (2010), Davis (1984); Crouch and Pizzorno (1978), and Petras and Veltmeyer (2001).

10. Representing the most serious involution in the system of global capitalist production since the Great Depression, the systemic crisis of the early 1970s has been explained both in Marxist terms (as a fall in the average rate of profit, overproduction, underconsumption, etc.) and by French Regulationists (Lipietz 1987) as a crisis in the Fordist form of global production. In these terms, the crisis is essentially “structural”—rooted in the structure of the system, which is defined in the one case by a particular combination of productive forces and corresponding social relations, and in the other by the articulation of a certain “regime of accumulation” and a corresponding “mode of regulation.” Others, however (e.g., Marglin and Schor 1990), saw the cause of the crisis not so much in the structural limits of capitalist production as in its political limits—in the “profit crunch” deriving from the power of organized labor to demand concessions from capital under conditions of depressed capital accumulation.

11. The basic question addressed in the crisis literature (Konings 2010) is: How could small losses on subprime housing loans in the United States, estimated at about $100 million in early 2007, lead to a global financial and economic crisis? Worldwide stock markets plunged and housing values declined sharply during 2007–2008; and the IMF has projected that output losses are likely to be about $4.7 trillion between 2008 and 2015. Most experts were blindsided by the magnitude and speed with which this financial crisis, which originated in the United States, spread to the rest of the world. Large investment banks, big corporations, millions of jobs, and about $1 trillion of private capital flows to developing countries evaporated within days of the Lehman Brothers, collapse on September 12, 2008. Some argue that if Lehman had been bailed out, the US financial system would not have melted down and, consequently, a global recession could have been avoided. Others, such as Reinhart and Rogoff (2009), argue that even if Lehman had been saved it would still have had to be sacrificed later, along with other investment banks, because the system had exceeded sustainable levels: trillions of dollars had been borrowed against an asset bubble in stock and house prices.

12. On this see Veltmeyer and Petras (2012).

13. See the various case studies in Veltmeyer and Petras (2014).

14. On the formation of this state in South America where the conditions of its formation are most in evidence see Grugel and Riggirozzi (2012) and Macdonald and Ruckert (2009).

15. Moreover, in spite of the commodities boom, workers in Latin America have received little in terms of wage increases. An index of real average wages in the formal sector of the labor market in Argentina, Bolivia, Brazil, Chile, Colombia, Mexico, Peru, Uruguay and Venezuela shows some discouraging results. Using 2000 as the base year, ECLAC (UN Economic Commission for Latin America and the Caribbean) data yield a cumulative increase in average wages of just 0.46% by 2006 (ECLAC 2007, Table A-28). Studies undertaken by Petras and Veltmeyer (2009) in Brazil, as well as in Bolivia and Ecuador, point toward similar discouraging results. Notwithstanding the reduction in the incidence of poverty among income earners (down from 40% to 20% in these countries from 2003 to 2008), and the inclusion of the income poor in the government’s social programs (health, education and minimal welfare), to date there is scant to no evidence of improvement in the social condition of the people in the populous sector of society—the landless and semi-proletarianized rural workers and the urban proletariat of informal workers (Veltmeyer and Tetreault 2013).

16. According to a recent ILO (International Labor Organization) report, “The number of unemployed worldwide rose by 4.2 million in 2012 to over 197 million” (ILO 2013). And the report goes on to warn that global unemployment could increase even further in 2013. Global youth unemployment, meanwhile, remains particularly dire. According to the report, nearly 74 million people between the ages of 15 and 24 worldwide are unemployed. “Some 35% of unemployed youth in advanced economies have been out of a job for six months or longer,” the report continues. “As a consequence, increasing numbers of young people are getting discouraged and leaving the labor market.” And for those currently languishing in the global reserve army of labor, the forecasts for meager growth offer little hope for a reprieve.

17. See https://petras.lahaine.org/wall-street-take-off-2012-2013/.