Capitalism, Crises, and Globalization: An Economic Analysis
PAC1: Defining the Exploitation Rate
v: Variable capital. These are the working hours needed to produce what workers consume. It’s the part of the total value assigned to the reproduction of workers, who spend all their income on goods.
p: Mass of surplus value, which corresponds to the profits of capitalists. Capitalists, as owners of the means of production, appropriate a portion of the produced value. The surplus is the value that workers produced over the wages they receive.
Exploitation rate: The ratio of surplus value (or profits) to variable capital (wages): p / v.
Forms of Increasing the Exploitation Rate
Increase in working hours: Increases the total value produced without increasing the value necessary for the reproduction of workers. In monetary terms, production increases without increasing wages. This involves an absolute increase of profits (p), while salaries (v) remain constant. An example: unremunerated overtime.
Reducing v: Reducing the real wages of workers or increasing productivity. This increases the surplus (p). Examples: process outsourcing, where services are entrusted to companies that pay lower wages, or relocation of a production plant to an area with lower wages.
Historical Trends in Exploitation Rate
Throughout history, workers’ struggles have led to reductions in working hours and increases in real wages, thus limiting ways to directly increase the exploitation rate. Productivity increases have gained greater importance, and technological processes replacing working capital have become the way to increase exploitation in later stages of capitalism. In more recent times, neoliberalism has led to the return of older forms of increasing the exploitation rate, such as extending working hours and reducing real wages. The direct increase in the exploitation rate becomes evident when people need to work more hours or harder to make ends meet, demonstrating the effects of extended working hours necessary to obtain wages that allow for the reproduction of workers.
Subconsumption Theory and Capitalist Crises
The subconsumption theory explains why capitalism does not generate enough effective demand. It posits that crises arise because capitalism inherently does not generate enough solvent demand. The main cause is the limitation on wage incomes. The expansive tendency of capitalist accumulation leads to the production of a value of goods that exceeds the capacity of consumption, which is limited by the fact that the dynamics of capitalism tend to increase the exploitation rate, lower wages, and invest more in productivity-increasing technological processes. This generates a gap between the value produced and that allocated to consumption.
Subconsumption and the Current Crisis
Wage income, a key element of solvent demand to absorb increasing production of goods and services, has deteriorated over the last decades of neoliberal policies (job insecurity, falling wages, etc.). The ability to consume was maintained and even expanded in recent years thanks to the expansion of credit, which allows workers to consume in exchange for future income. But credit does not solve the problem of subconsumption; it merely postpones it until credit and mortgage defaults become inevitable, decreasing the demand for consumer goods and housing. The financial sector itself exemplifies capitalism’s need to obtain a surplus. It does this through financial innovation and risk-taking, which then degrade its own solvency and restrict credit, further aggravating the lack of solvent demand.
Key Variables and Summary of Recent Developments
Since the start of the 2007 crisis, all major economic variables have shown a decline. The limited official data on private investment and global production suggest negative growth in 2009, with investment dropping to about half of its 2008 growth. Global GDP is also expected to decrease this year, with a slow recovery. Trade suffers from reduced production, decreasing compared to the previous year’s 9.7% drop, despite lower transportation costs due to reduced oil prices. Thus, the world economy appears stagnant or even declining in some variables.
Government and World Bank Responses to the Crisis
The G20 declaration emphasizes that prosperity is indivisible and growth must be shared, considering not only developed countries but also emerging markets and poor countries, and both current and future generations. It calls for an open world economy based on market principles, effective regulation, and stronger global institutions. The G20 committed to:
- Restore confidence and boost employment growth
- Reform the financial system to restore funds
- Strengthen financial regulators to restore confidence
- Finance and reform international financial institutions
- Promote global trade and investment
Agreements reached include:
- Tripling the available resources of the IMF
- Supporting a new allocation of Special Drawing Rights
- Supplemental loans for Multilateral Development Banks
- Supporting trade financing
- Granting financing to poor countries
The World Bank’s main recommendations to tackle the crisis include:
- Returning final control over the banking system to the private sector is essential for an efficient financial system reset.
- Advising countries to adopt social protection plans.
- Reducing redundancy payments for workers and eliminating the need for notice periods.
Impact of Recommendations on Demand
The priorities of these two groups of actors do not lie in strengthening the demand side; on the contrary, the systemic problems that lead to low solvent demand persist. Neither wage conditions nor social protection for the unemployed seem to be important for the G20’s recovery plan, which focuses on supply-side policies rather than demand. This is also evident in the World Bank’s recommendations, which include actions that may further impair consumption ability, such as limitations on social protection and free services. It is difficult to assess the actual impact of implemented measures, but they seem to be superficial patches that do not address the root causes of the crisis, attempting to revive and restructure the economy without changing the economic system.
Real vs. Financial Crisis
According to the article, the crisis is both real and financial, similar to the 1970s, when the neoliberal phase of capitalism began. The trend in rich countries has been that wage increases lag behind productivity growth. As this population performs the majority of global consumption, the decrease in their real income creates a noticeable problem of low solvent demand. The system’s easiest solution was cheap and easy credit, with banks focusing on mortgages and consumer credit. This is where the real economy converges with the financial. In contrast, the World Bank’s explanations focus solely on the financial side of the crisis, ignoring the structural issues in the economic system that led to it. Their recommendations focus on restoring and further strengthening free trade and deregulation to facilitate capital flow.
The Role of Financial Expansion in the Crisis
The financial expansion that began in the 1970s played a key role in the global crisis. The deregulation of financial markets led to a worldwide credit expansion, creating a complex and interconnected financial system. The real problems in the economy would have led to a slowdown in economic growth if it were not for the abundant and accessible credit that increased virtual and temporary consumption capacity and the potential for profitable business. But these bubbles ultimately triggered a financial crisis. The consequence of this expansion has been the rapid spread of problems in credit markets, affecting the entire financial system and consequently the real economies of affected countries.
Globalization Theories Reflected in the Crisis
Thesis 4: Multinational companies are the active agents in the process of economic globalization. Large multinational financial institutions extended junk mortgages and toxic assets worldwide.
Thesis 6: Globalization requires the free mobility of capital worldwide. This is an area where the process is most advanced. The financial system is interconnected and operates globally to provide capital where needed.
Thesis 8: The process of globalization is increasing polarization between rich and poor and deepening uneven development. Those who received more money and had better resources were surprised by the crisis’s origin, while those who lost their homes or faced foreclosures received less support, both official and private.
Thesis 9: The main obstacle to economic globalization these days is the survival of ‘national’ states, allowing the survival of different internal conditions in each country and thus hindering global homogenization. This thesis is evident in moments when countries prioritize their own interests, hindering the construction of a consistent global superstructure aligned with real power dynamics.