In this article first published in 2002, Robert Kurz examines the cycles of booms and busts since the 1980s, identifies the United States as the linchpin of the world economy in its role as global consumer, points out that this role can only be sustained temporarily by way of credit and fictitious capital created by financial bubbles (a “pseudo-economy”) that increasingly renders the population superfluous for value production, predicts that “the real estate bubble will burst, too”, and concludes with the observation that “if the North American motor stops running, the whole world economy will grind to a halt”.
The Mechanism of Corrosion – Robert Kurz
It is said that when the United States coughs, the rest of the world catches a cold. The U.S. is the world’s greatest power not only politically and militarily, but also economically. In the 1980s Japan was still considered a serious competitor, one which would eventually overtake the U.S. After the collapse of the Soviet Union, there were the “Asian Markets” which were supposed to launch a new economic miracle. Later, everyone was talking about the Asian Tigers, and the “Pacific Century” was proclaimed. Chile and Argentina, exemplary Latin American students of neoliberalism, were also celebrated as harbingers of a new era of growth.
All that remains of these myths of capitalist optimism is a pile of ashes. In reality, there has been only one economic “miracle”, upon which all the others depended: the extraordinary boom of the 1980s and especially the 1990s in the U.S. But the latter was no longer just a traditional domestic economic conjuncture. The U.S. by no means constituted a model of political economy that, by virtue of its success, was imitated within their own frontiers by other countries, as the official propaganda would have us believe. On the contrary, previously self-sufficient merely by reason of its size, the North American economy has ended up exercising an actual suction effect on the whole world economy, and not just in an ideological sense.
The globalization process was essentially identical with an “Americanization” of the global flows of money and commodities.
In the past, economic cycles had taken place at different times in the various regions of the world, principally in the three great centers, Japan, the U.S. and Western Europe: an improvement in one place would usually be countered by a downturn in another, in such a way that a long-term equilibrium could be generated due to the reinforcement of exports to the more prosperous region and the cyclical reversal of this process. In contrast, in the 1980s and even more so in the 1990s the world economy entered a synchronized economic circuit, since so-called globalization was nothing but a increasing global adaptation to the North American economy. Since then, an increasing number of countries began to send their constantly expanding commodity surpluses to the U.S. by the only path left to them, that of export.
An always-increasing portion of the profits obtained in this fashion immediately flowed back as export of money capital to U.S. financial institutions. And more and more of the world’s direct investments also went to the U.S. to be placed directly at the disposal in loco of the apparently insatiable North American market.
Industry’s planet-wide quest for lower costs and the transnational relations linked to that search are constitutive elements of this evolution. What formally appears as flows of export and import of commodities between various national economies—and which is actually the expression of a global dispersion of diverse components of industrial production—essentially takes place through the generalized and unilateral adaptation to the U.S. A considerable part of the exports between the various regions of the world, above all from Europe to Asia and vice versa, but also within Asia and Europe, is not consumed at its destination; we are speaking of imports of machines, know-how, raw materials and intermediate products, whose ultimate end is, in turn, their export from their respective countries to the U.S. The global effect of the suction exercised by the North American economy is therefore much greater than the direct share of North American imports in world trade would show. To understand its true scale, one would have to take into account the part of world trade indirectly determined by the global flow of exports to the U.S.
It is no wonder, then, that the North American economy has become the economic motor of the world. What is a marvel is how it continues to play that role. For a long time now it has been no secret that this boom was essentially an event determined by financial bubbles and that the rapid pace of globalization during this epoch was basically a result of the globalization of financial bubbles. Industrial capitalism ran into the limits of its development. The new technology of microelectronics does not create additional jobs or a new foundation for the expansion of real capital accumulation; on the contrary, it makes labor increasingly superfluous and productive capacities ever less profitable.
For the first time, therefore, in modern history, the speculative bubble, a result of the expansion of the old (“Fordist”) industry, did not burst simultaneously with the installation of a new basic technology (microelectronics) in order to facilitate the passage to a new era of real accumulation but, to the contrary, it became even more inflated. The world’s faith in the prodigious strength of the world’s last superpower was necessary in order to make this improbable new economy seem workable. The central bubble could, therefore, only arise in the U.S., while bubbles of greater or lesser volume formed in the rest of the world. What was new about this process was not the speculative creation of fictitious values in the stock exchanges, but its extensive feeding upon the real economy. Throughout the world, growth, investments, jobs and consumption arose which were not paid for with profits and wages from the real economy, but by means of the fictitious multiplication of money. The lion’s share naturally fell to the U.S., the center of the whole mechanism. The logic of this pseudo-growth is simple: one actually buys before anything has actually been invested. The money comes from the air, so to speak, without labor, without machines, without any commodities being produced; it derives, in a totally “immaterial” way, from rising quotations on the stock exchanges. And with this money, “immaterially” augmented, one later buys labor, machines and commodities. The basis is unreal, as if one were to have built a skyscraper without any cement.
Furthermore, not only consumption and investments, but also the imposing military apparatus of the last world superpower was financed, to a great extent, by this cycle of “fictitious capital” in which the U.S. always constituted both the point of origin and destination. The consequence was a constant increase in the value of the dollar and an equally constant growth of the U.S. trade deficit.
Despite all the old resentments concerning the U.S., the world of the market economy, which has come to be dependent on “fictitious capital”, knows what the world’s last superpower is worth. This applies, not least of all, to postmodern culture, which theoretically and artistically represents the capitalism of financial bubbles and which thus found its true home in the U.S., although it was French in origin. The postmodern cult of ambivalence, of virtuality and of “immaterial labor” was enthusiastic about North American imperialism. After the terrorist attack of September 11, the radical left also discovered its love for the stars and stripes and for the “western values” represented by the U.S., although these values have no substance in moral terms, just as finance capital has none in economic terms. Even in their pseudo-oppositional variants, the virtualized consciousness of the febrile consumers of commodities senses that its own form of subjectivity has something to do with the pseudo-economy of the U.S.
Meanwhile, a series of secondary bubbles burst in various countries. The first was that of Japan, more than ten years ago; then the Asian Tigers followed, along with Mexico, Russia, Turkey and Argentina. On each occasion, there was a serious collapse of the domestic fabric of the real economy which, in Japan, has yet to be put back on its feet. Nonetheless, the great economic catastrophe is still delayed, since the central economic bubble, in the U.S., and the second great Stock Exchange, in Europe, can still hold it off. Since the middle of the year 2000, this expansion was already a thing of the past. The Stock Exchanges in the U.S. and the European Union were surprised by the largest decline in postwar history. In this lapse, NASDAQ suffered losses of more than 80%. The basic global index, the Dow Jones, fell by 30%. Already having been awaited with dread for quite some time, the meltdown of the North American financial markets seemed to be immanent.
Accounting scandals and bankruptcies accumulate, from Enron to the insolvency of WorldCom, the largest up until now in the entire history of the economy. Enormous masses of fictitious assets are destroyed, the flow of money capital to the U.S. is interrupted, the dollar falls, and the financing of the constantly-increasing U.S. trade deficit is endangered.
The decisive question of the moment is to know to what degree the crisis of the financial markets will influence the real economy and to what extent the capacity of the U.S. to absorb the flows of the world’s “surplus” commodities will be curtailed. Apologetic economists and politicians state that there will be no repercussions, because the North American economy is very “strong”. The argument is paradoxical since, if it were true, the U.S. would not display the foreign trade deficit of a third world country. This state of affairs conceals not a superior economic reality, but a real economy which demonstrates, besides this aspect, many other parallels with critical regions of the periphery.
As in Great Britain, the infrastructure is aging and dilapidated for the most part; the highway network is defective; the means of transport is privatized and falling to pieces. Even the energy suppliers, also privatized, are in debt and operate under a cloud of suspicion; in California, as everyone knows, the supply of electricity has been periodically interrupted. The educational system is only first-rate at some of the costly elite universities but, generally, it is as miserable as that of Great Britain. The Anglo-Saxon countries have, by far, the highest rate of high-school illiteracy in the developed world. The supposedly prodigious productivity of the U.S., acclaimed by so many, is based principally upon low-wage sectors existing in all fields, since the contribution of microelectronic automation in industry is less than in Japan and the European Union. The U.S. is the leader in only a few fields, such as Software (Microsoft) and, naturally, the construction of “high-tech” armaments; but, in general, its industrial system is aging, and many products are no longer made in the U.S. By virtue of its real industrial weakness, the share of the service sector is greater there than in the other industrial countries. As in the Third World, the scene is characterized by a mass of “entrepreneurs of poverty” and by useless unskilled workers of every kind.
The last superpower is characterized by the monstrous disproportion between an overdeveloped hydrocephalous head, consisting of “high-tech” military devices and armament industries, and an underdeveloped economic body, which needs to be fed with the permanent flow of foreign money capital and commodities. Superior armaments do not, in the last analysis, constitute a superior economy, but are, rather, a factor of unproductive expense in capitalist terms. Disenchantment with the U.S. is inevitable, and appears to have begun to emerge.
The collapse is provisionally delayed by various factors, but taken as a whole they do not have a lasting effect. For example, the Bush administration on various occasions advanced credit for the purchase of arms, above all in the motor vehicle sector. This padded the statistics for the auto industry, just like rebates and zero-percent interest rates, which the great North American producers use to increase their sales despite the crisis, as had already occurred at the end of the 1980s. But unlike the situation of that era, today the maximum limit of private indebtedness has been reached. The subsidy of sales at the expense of profits cannot be sustained much longer. Nor can the arms boom of “Reaganomics” be repeated.
After a short pause during the years of the Stock Exchange expansion up to 1999, the North American federal deficit returned to high levels; another expansion of public debt reached the absolute limit much more quickly than in the 1980s.
It was not so much the arms spending and the interest rate cuts which slowed the pace of collapse as it was a shift in the direction of finance capitalism. Unlike the Stock Market crash, a financial bubble of real estate values formed in the U.S. which is now expended in consumption with as much vigor as inflated stock values were previously.
The loss of fortunes on the Stock Exchanges, however, is not compensated for by this development; the real estate bubble will burst, too. Currently, the “start-up” bohemians of the declining sectors of the internet, of telecommunications and the media, 25- to 40-year olds who suffer from a total loss of reality, continue consuming in the U.S. and throughout the western world as if nothing had happened. But the “bankrupt generation” will soon exhaust its lines of credit and will abruptly land on the hard ground of reality.
If the North American motor stops running, the whole world economy will grind to a halt. The disenchantment with the U.S. will not shift the center of economic and military power elsewhere, but will plunge the world market into a new dimension of crisis, accelerating global social decomposition and making palpable the historical obsolescence of the modern system of commodity production.
(This article was published in the journal Folha de São Paulo (Brazil) in August of 2002. It was taken from http://planeta.clix.pt/obeco. Translation from German to Portuguese: Luiz Repa. Spanish translation for Pimienta Negra: Round Desk.)
Translated from the Spanish translation in October 2008.