Rethinking crisis

by Sam Gindin and Leo Panitch

[NOTE: This article originally appeared in Monthly Review, November 2002. It’s supposed to be online there, but something else seems to be mistakenly in its place. I’m posting it here as I want to link to it, and will delete this version when the MR site is fixed. – Mike]

In their April 2002 Review of the Month, Monthly Review’s editors present a particularly clear statement of the view that the American economy, and with it global capitalism, has been stagnating since the early seventies and is now facing the threat of a financial crisis. It is our view that by focusing on the fragility of American capitalism and searching for data that provide evidence of the next and deeper economic crisis, the left tends to downplay the significance of the continuing capacity of American capital and the American state to restructure the world “in its own image.” The left has, all too often, still not come to terms with the reconstitution of the American Empire that followed the crisis of the early seventies. Absorbed with confirming how crisis-prone capitalism is (no doubt in the expectation that this will make it easier for us to mobilize opposition to the system), the left has paid too little attention to the question of the capacity of the state to contain crises.

Though we will concentrate below on particular empirical issues raised by the April Review of the Month, the clear implication of our argument is that we need, as well, to rethink and develop much of our theory of crisis and clarify the role that economic analysis plays in our strategy. Our comments will generally parallel the useful structure of the MR article and conclude with some observations on an alternative orientation.

The Slowdown of Growth

The April Review of the Month’s analysis begins by pointing to the slowdown in growth over the past quarter century. There is no disputing this, nor that this slowdown reduced the openings for social reforms in both the first and third worlds. And, as MR’s editors correctly point out, this slowdown was not simply a matter of bad and easily reversible policies. The slowdown-which affected Europe as well as the United States (and eventually Japan)-was based on the inability to generate comparable source of dynamism as the unique circumstances of the post-war period faded, and on the fact that capitalism’s concessions to the working class during that earlier period weakened class discipline and increased, rather than reduced, working class expectations. While American capital did, in the early sixties, attempt to stimulate its way out of the crisis, it was soon clear, because of the above, that this was not sustainable without seriously aggravating inflation. A slowdown in growth was therefore inevitable.

It took some time for the American state to come to grips with this crisis, and the eventual solution-even more so than the crisis itselfmeant painful disruptions and reversals in people’s lives. Yet the slowdown in the post-1973 period and American capital’s response must be kept in perspective. The rapid growth of the post-war period cannot be taken as a standard to judge the present. A longer historical perspective clearly shows that the post-1973 period was in fact not unusual in terms of growth; it was the quarter century that came before that was unique (see Table 1).

Growth rates in the post-1973 period were not uniform, of course. The seventies were a transition period and by the early eighties-after the Federal Reserve applied the equivalent of shock therapy to the U.S. economy (launching neoliberalism)-profit rates, the rate of accumulation, productivity, and growth began their turnaround (slowly at first but then accelerating by the mid-nineties). Between 1983 and 2000, per capita growth in the United States averaged over 2.4 percent-less than the 3 percent of the sixties, but nevertheless a quite “respectable” level.’ By the end of the century, the American economy was experiencing its longest recession-free period ever. As for world growth, while it slowed down significantly after 1973, it still doubled in real terms over the following twenty-five years with a 40 percent increase on a per capita basis (all of this occurring in the context of growing inequalities both within and between countries).2

Moreover, and as MR’s editors themselves emphasize (Chart 3, p. 7), while real wages stagnated, manufacturing productivity did very well. Manufacturing productivity actually grew faster in the nineties than in the sixties (see Table 2), and in the seventeen years after 1982, average annual productivity in manufacturing increased even faster (3.4 percent) than in the seventeen golden-age years between 1952 and 1969 (2.6 percent).3

Nor can this improvement in productivity be reduced to a temporary high-tech blip. It was rooted in the Volcker response to the crisis of the seventies and the very significant restructuring that followed. That restructuring preceded the emergence of, and included many other facets than, the new digitized sector of the economy. The digitized economy was nevertheless important-while the ability of the new technology to solve all economic problems has been wildly exaggerated-its incorporation into other managerial strategies and wide dissemination throughout the economy still has significant potential for future productivity growth. This digitized economy is not only relevant for exotic high-tech applications, but also in low-wage sectors like retail and fast foods and in traditional sectors like auto. In the latter, for example, it contributes to design, engineering, sales, inventory control, coordination of decentralized production operations, and supplier relations (outsourcing). The integration of such technologies has not yet been exhausted within the auto majors and its dissemination amongst smaller auto firms, as well as through many other parts of the economy, has only begun.

This argument on productivity goes against the grain of much of left thinking, with the slowdown in growth automatically linked to a loss in economic dynamism. The editors of MR, on the other hand, appreciate the impressive record in (manufacturing) productivity; their argument is rather, as we will see in the next section, that this leads to other problems.

The Tendency to Excess Capital

The April Review of the Month then shifts to a theoretical explanation of the alleged ongoing stagnation since the seventies, arguing that it is inherent in capitalism’s tendency to overinvest relative to effective demand. The evidence employed includes, first, a sharp decline in capacity utilization since the mid-seventies as part of capital’s response of “cutting back on their capacity utilization rather than reducing prices” (p. 5); and, second, the consumption-restraining impact of manufacturing wages that lag productivity by an ever-widening gap as well as the growing numbers of workers in low-wage service who can’t afford to buy all that the economy is producing.



The excess capacity explanation derives from the theory of monopoly capitalism that MR has been so long associated with. In this case it does not help, but hinders, an understanding of what’s been happening. The problem with the twin notions that corporations are keeping prices high and accepting lower capacity utilization is that neither is observably true. With regards to prices, inflation is currently relatively low and corporations in major sectors such as auto, computers, and (recently) steel, have been involved in well-publicized price wars. As for lower utilization of capacity, this misses the nature of excess capacity: it is not so much that individual firms have made a decision to underutilize their capacity and avoid plant closures-closures have in fact been common-as it is that the entry of domestic and foreign new firms (the latter through both exports and direct investment) has increased industry-wide capacity. The excess capacity is not the result of increased monopoly but of increased competition.

In any case, theorizations of crisis based on “excess capacity” are simply too loose if they fail to distinguish between additional capacity that develops during the course of a normal cycle (and will be corrected by recessions) and systemic structural crises. Nor does it direct us to the historically specific circumstances of each of the few structural crises capitalism has experienced.’ Because such crises have been so separated across time-a half century or so-they are also separated by such crucial social factors as the degree of proletarianization, the stage of class organization, the development of corporate forms and financial structures, the sophistication of state capacities, and the extent of international integration, etc. Each time we address a possible structural crisis that we think is caused by excess capacity, we must therefore also address not just the ongoing logic of capitalism but what is historically new about the context.

As for inadequate demand, the argument presented by the April Review of the Month is essentially that capital’s current strength relative to the working class blocks the realization of the surplus. This too tends to a notion of capitalism as always on the verge of collapse -when it is not too strong to realize its surplus, it is too weak to create an adequate surplus. How then has capitalism been able to reproduce itself for some two centuries now, and how do we explain the current fact that the United States has a large trade deficit, with its citizens actually consuming more than they are collectively producing?’ Moreover, a look at actual consumption rather than wages shows that real consumption per capita in the United States has in fact doubled(!) since 1970, from $11,300 in 1996 dollars to over $22,890 at the start of 2002. (Some of this, but certainly not all, reflects the increase in inequality, with the average pulled up by the astonishing capacity of those at the top to consume so much. But even so, it doesn’t counter the concrete ability to realize the surplus).6

What has happened, in addition to the increase in debt (discussed below), is that working class families have restructured their own lives to maintain and increase their consumption by having more family members work (spouses, students) and by increasing the average hours worked per person. Recognizing that rising consumption can coexist with stagnating wages is not only about understanding why the macroeconomy has not collapsed; it also involves two broader political issues. First, maintaining consumption through longer working hours has different implications for class formation than maintaining that consumption through wage struggles. The former, unlike the latter, reflects a defeat and steals more of workers’ time, leaving workers with less confidence in, and less time for, any kind of political engagement.7 Second, a specific strength of American capital and a critical part of its economic dominance has been its ability, relative to European capital, to extract so much more labor from its workforce. In the twenty-five years after 1973, hours worked per capita fell by over 12 percent in Europe but rose by over 12 percent in the United States. Along with the higher population growth in the United States, this has been an important part of clarifying why, between 1973 and 1998, the real growth in U.S. GDP grew about 40 percent faster than that in Europe even as European productivity growth surpassed that in the United States.

Mounting Debt

According to the April Review of the Month, it is only the rapid growth of private debt that accounts for why American capitalism has escaped a major depression. But this is seen as unsustainable; it only postpones the inevitable economic collapse.

The fact that debt is growing rapidly does indeed leave capitalism more vulnerable. Yet it is not good enough to project, on the basis of historically high levels of debt, that this must inevitability mean collapse. Is it possible, for example, that the notion of “high levels of debt” must be rethought in the light of other social and institutional changes? With the demographic changes in the work force, can families now carry more debt because the unemployment of one family earner no longer means the end of any income coming in? Have financial innovations and the deepening of financial markets made higher levels of consumer debt possible without a corresponding increase in the level of risk-just as in earlier periods the introduction of buying on credit and thirty-year mortgages raised debt to new plateaus? And what of the fact that the increase in debt has been accompanied by an increase in assets? Many consumers and corporations have borrowed precisely to increase assets at a time when interest has been low and assets inflated. A case could be made that, for many-though certainly not all-families net worth is still not in dangerous territory (even with the significant recent declines in the stock market to date). Of particular importance has been the sustained period of relatively low interest rates. The weakening of the working class and intensified competition have acted to keep inflation in check and allow for historically low interest rates. Along with the increase in hours worked per family, this means that debt can be high and rising, but the ability to meet the costs of that debt may remain (at least for those with jobs) manageable. For example, fifteen years ago, the ratio of debt to personal disposable income was about 80 percent and it stands at over 100 percent today; yet the interest costs of servicing that debt were, relative to disposable income, about 14 percent in both periods (the average over the past twenty years has been about 13 percent). A similar point can be made with regards to the corporate sector. While debt is high relative to current profit levels, the costs of servicing that debt relative to cash flow and liquid assets is not high by past standards: according to a study by the Deutsche Bank, net interest payments relative to cash flow were, for nonfinancial American companies, 40 percent in the 1990-1991 recession but currently down to 25 percent, and “the ratio of liquid assets to short term debt is at its highest level in 25 years.”‘ (Note also that, according to the Economist, both household debt and corporate debt, each as a share of GDP are higher in “conservative” Germany than in the United States.)9

Finally, American dependence on foreign debt to cover the trade deficit raises the prospect of the vulnerability of the U.S. economy to less money flowing in, with a falling U.S. dollar leading to a downward spiral. Won’t the subsequent pressures to raise interest rates affect the ability of consumers and business to handle their own debt and lead to a dramatic economic slowdown? It is clear that, like the stock market bubble, capital inflows into the United States couldn’t continue at their incredible levels. Yet before we predict a panic-driven “crisis,” we need to ask, as the Economist recently asked in an otherwise pessimistic report on the U.S. economy: “But where [else] to invest?” The United States may not continue to attract the amount of capital it did in the nineties, but unless there are alternatives of a comparable magnitude that are equally safe and attractive in the long term, a steady if bumpy adjustment in the American imbalances rather than any wholesale departure from the United States may be more likely.

Casino Capitalism

Alongside the issue of mounting debt, the April Review of the Month puts great stress on the new power of finance. Finance in its current form is equated with a parasitic speculation “no longer confined to the needs of production, employment and finance,” and setting the stage for a possible “financial meltdown [that] could further destabilize the world economy” (p. 10).

If anything, there has not yet been enough indignation and anger about the corrupt and undemocratic power of financial capital over our lives. But here again, a more sober analysis of the role of finance is essential, beginning with the fact that productive capital has not really been a victim of finance capital but an accomplice, readily accepting the changes that have given finance its additional clout.


From capital’s overall perspective, finance has not only been critical to enforcing the discipline that is at the heart of neoliberalism-a discipline that has applied not only to labor, but also to both industrial capital and internal competition within finance itself. The role finance has come to play has also: a) contributed to reversing the falling productivity of real capital by facilitating shifts in the surplus across sectors; b) delivered the macro liquidity so crucial to keeping global capitalism on its feet, and the micro liquidity for the venture capitalists that-for all their excesses-contributed to maintaining the technological leadership of the U.S.; c) created a market for risk to offset business uncertainty in an environment of flexible exchange rates and global markets; and d) provided an effective service to productive capitalcomparable to other services like transportation-at historically low prices.

As morally objectionable as we may find the role of finance to be, and as hypocritical as we might find the notion that finance is contributing to “reducing risk” when it is itself responsible for much of that risk, the point is that from the overall perspective of capital, the new role of finance has come to be seen as essential. Even today, as concerns with the excesses of financial markets are widespread and there are pressures for increased regulation, the issue for capital and the state is better management of finance, not ending its new role. For the left, the problem is not finance, but the contemporary capitalism that finance has helped construct.

From the Old Crisis to a New One?

A slowdown does not a crisis make. The structural crisis that American capitalism faced in the seventies effectively ended in the early eighties with the Volcker shock, neoliberalism, and the implications of neoliberalism for financialization and globalization. Over the past quarter century, capitalism-and American capitalism in particular-has not only dramatically reorganized production with new technologies and new methods, innovated financially while developing a capability for containing and localizing financial crises, and extended its penetration into every corner of the globe; it has also intensified the commodification of every aspect of our lives and deepened the subordination of all social institutions to the demands of accumulation.” Yet it has only faced, at best, sporadic resistance. What both capital and the left discovered in country after country was the extent to which opposition – especially, but not only, that coming from the labor movement-was a paper tiger. For far too many on the intellectual left, expectations were lowered and dreams narrowed, unhappily reinforcing the defeat of the forces on the ground like unions. The actually existing crisis was consequently not that of capitalism, but of the forces opposed to it.

Not all of the left retreated. Amongst those who stubbornly hung on to their ideals, many seemed to find it equally necessary to hang on to the notion that the structural crisis of American-led capitalism continued and was, if anything, getting worse. Declarations of imminent crisis were tactically linked to the left’s capacity to mobilize others: those who argued that capitalism was far from being on its last legs were seen as not merely wrong, but even betraying the cause.

Yet the repeated-and mistaken-chorus of a breakdown around the corner has hardly helped the cause we share. As the left’s dire predictions failed to materialize, this eventually produced a loss in credibility and a confusion in strategic orientation. The question that should have been faced was not how to mobilize against a capitalism on its knees, but against a capitalism that was still in the process of revealing the singular dynamism that Marx discerned so clearly in the Communist Manifesto.

This is not a matter of ignoring the human costs of that dynamism (capitalism remains exploitative and a central barrier to full human development even when it is booming). And it is not a question of being seduced by the “end of history.” What we are stressing rather is the importance of soberly grasping the nature of the historical moment so as to develop an effective counter-politics. The present is characterized not by a continuation of the crisis of the seventies, but by new conjunctural tensions and contradictions that have developed since American capital’s successful evolution out of that earlier crisis. If we are to be able to probe these weaknesses properly, moreover, and take advantage of the openings they provide for building up anticapitalist forces, we need to face squarely some shortcomings in the left’s categories of analysis.

Conclusion: Theory and Strategy Today

The working class is absent in most theories of crisis. It may appear as an observer or a victim, but its role is not integrated into the possibility of a structural crisis emerging or the consequent depth of any such crisis. It is not only that without an active working class, any crisis is as likely to have reactionary results as stimulate a new opposition; it is that as long as capital faces no social limits on its options and freedom to act, capital-acting through the state-will be well-positioned to discover ways to limit and solve any system-threatening crises at our collective expense.11

Yet the state is also absent from most theories of crisis. Viewing crises in narrowly economistic terms reduces the state to an afterthought, rather than a critical element in determining if and when crises occur and how crises unfold. The current vogue of seeing globalization as disarming the state clearly reinforces this tendency to pass over the state’s role. Once we acknowledge, however, that the direction of the American economy is contingent on the role of the state (and the working class), our focus shifts to a different terrain: we can then not only ask where the economy seems to be heading, but must also address the capacity of the state to contain emerging crises. (The American state may not be able to prevent downturns, but it does have some capacity to manage both working-class resistance and the instability of global finance.) This means that we not only need to increase our capacities for economic analysis, but that we must politicize our analysis-not through polemic but through integrating the role of states into theories of crisis.

We need to understand that amidst the decline of Keynesianism, deregulation and the spread of globalization, states remain at the core of the political reproduction of capitalist social relations. It is here that ruling classes are organized and subordinate classes disorganized, private property protected and expanded, and contracts enforced. It is through states that markets are developed, regulated, deregulated and reregulated (current scandals remind us of this). The change in the role of states that has occurred in recent decades, centered on the removal of barriers to global accumulation, is not so much about diminishing the role of the state, as transforming what it does and how it does it. And this is especially true of the American state, which has in many respects become a proxy global state. Given the role of the American state in acting on behalf of global capital, analysis of the developing capacities of the American state to carry out that role is central to any analysis of crises in the world economy.12

Yet at the same time, we need to discern the tensions and contradictions to which capitalist states are subject today. The American state’s ability to maintain its authority and capacity to act on behalf of global capital is conditional on its capacity to reproduce the material dominance of American capital. While universal global rules therefore become essential, the American state needs and demands the flexibility vis-a-vis any rules to defend this dominance. The line between measures necessary for that continued overall dominance, as opposed to measures that are simply reflective of particular American interests is, as we see with Bush, blurred and therefore a source of ongoing international strains even with the other leading capitalist states that are junior partners in the American empire, and this provides certain openings for oppositional forces.13 The current scandals in the United States, reflecting an arrogance that comes with success and a system that has not yet matched new circumstances to new forms of regulation, add another important dimension to ideologically challenging the competence and authority of those who manage what are ultimately society’s resources and wealth.

Another contradiction arises in the way globalization internationalizes domestic capitalist classes-in the sense of shifting their orientation towards global accumulation. In the third world, this means that there is no base within national capitalist classes for creating the domestic economic coherence that is fundamental to development. Limited parts of the economy are integrated into the global economy on unequal terms that reflect their dependence, while the rest of domestic life is excluded. Globalization consequently carries no general solution for third world development.14 Where progressive nationalist movements emerge in the first world, the absence of any potential for an alliance with a national bourgeoisie necessitates a more radical alternative of de-linking from the global economy-more radical because without such an alliance, the only alternative becomes democratic collective ownership and a significant degree of de-linking from global capitalism. The fact that global rule today works through crises in the third world that force restructuring-i.e., that crises have become an ongoing part of their landscape-means that even if these do not lead to any generalized collapse they do create openings for challenging the rationality of a system that depends on the perpetual creation of misery and uncertainty.

In terms of class relations within all states today, it is clear that while the state remains vital to capital, its legitimation function-so crucial during the “golden age” and potentially important again once an opposition emerges-has been significantly proscribed by the intensified priority given to accumulation. Similarly, the drive to constitutionalize property rights internationally (through international agreements like the North America Free Trade Area and institutions like the World Trade Organization) suffers from the social distance of international institutions and their lack of historical authority to legitimate such rights. This stage of the development of capitalist property rights consequently highlights and exposes-much like the original appropriation of the “commons”-property rights as coming at the expense of popular sovereignty.

The left in very few parts of the world currently has the capacity to dramatically affect the direction of change. Yet anticipating the next economic crisis is not a strategy. We need a strategy that, through probing the tensions and contradictions we have just identified, can develop the powerful ideological counter-offensives that will contribute to the long-term process of building left political forces with the capacity to bring about fundamental change.


1. Economic Report to the President, 2002, Table B-31. Angus Maddison, The World Economy, A Millennial Perspective (Organization for Economic Cooperation and Development, 2001), p. 264.

2. The numbers in Table I (p. 3) of the Monthly Review article consider medians as opposed to weighted averages (China gets the same weight as Ghana). This is useful in capturing the uneven development of global capitalism, but very misleading with regards to global growth and global opportunities for capital.

3. Productivity growth outside of manufacturing was generally slower and it also carried a larger weight during this period. To some extent the numbers outside of manufacturing are simply hard to assess given the well-know problems in determining productivity in the service sector (and generalizations need to be treated cautiously given the diversity of this “sector”). But from capital’s perspective, the growth of the service sector-including its lower productivity sections-represented new opportunities for accumulation, accessing labor, and for the consequent restructuring of services.

4. The modern history of capitalism includes, by general consensus, three major crises: one in the last quarter of the nineteenth century, the Great Depression, and the crisis that began in the late sixties or early seventies.

5. If the argument is that Americans are consuming but there is excess capacity in the United States because they are consuming goods made by others-i.e., that the United States is uncompetitive-that is quite a different argument (but one that has its own kinds of problems).

6. Economic Report to the President, 2002, Table B-31.

7. Similar to the point made in the earlier discussion on work time, the mechanism through which consumption is maintained matters very much to working class politics. When debt is public, it finances public goods like education and health care, supports a degree of decommodification of labor (e.g., unemployment insurance), and invites political mobilization to defend or expand such gains. When debt is privatized-when governments collect less taxes and provide less services-the burden is shifted to individuals who, in self-defense tend to look to private solutions like lower taxes both because the services aren’t as generous and because they need more disposable income to pay off their growing debts.

8. See Business Week, “Economic Trends” June 8, 2002.

9. Economist, August 24, 2002, p. 55.

10. Ironically, the greatest danger of the world slipping into a double-dip recession currently come not so much from the weakness of the American economy as it does from the weakness of Germany and Japan.

11. We won’t elaborate on this here, because we have each often made this point before. See Leo Panitch, Working Class Politics in Crisis (London: Verso, 1986), esp. ch 3; and Sam Gindin, “Turning Points and Starting Points: Brenner, Left Turbulence and Class Politics,” The Socialist Register 2001, (New York: Monthly Review Press, 2000).

12. See Leo Panitch, “The New Imperialism,” New Left Review-2, March/April, 2000; and Sam Gindin, “Social Justice and Globalization,”Monthly Review, June 2002.

13. See Peter Gowan, “The American Campaign for Global Sovereignty,” The Socialist Register 2003, forthcoming, fall 2002. This tension in the relationship between the role of the American state acting on behalf of global capital as well as on behalf of American capital has aggravated relations with Europe. This should not be seen as leading to any serious inter-imperialist rivalry-Europe’s demands, for all the rhetoric, are not about any fundamental challenge to the American state but basically pleas that the United States in fact act responsibly on behalf of all of global capital. Nevertheless, the tensions created between American and European governments do create openings for resistance to American imperialism (as evidenced in the large demonstrations in Europe around not only globalization but the Middle East and a possible invasion of Iraq).

14. Samir Amin, “Africa: Living on the Fringe,” Monthly Review, March 2002.

Sam Gindin is the Packer Chair in Social Justice, Department of Political Science at York University in Toronto. He was formerly Director of Research and Assistant to the President of the Canadian Auto Workers.
Leo Panitch is Distinguished Research Professor in Political Science at York University. He is the author of Renewing Socialism: Democracy, Strategy and Imagination (Westview Press, 2001), and co-author, with Colin Leys, of The End of Parliamentary Socialism: From New Left to New Labour (Verso, 2001). He is also coeditor, with Colin Leys, of Fighting Identities: Race, Religion and Nationalism: Socialist Register 2003, forthcoming from Monthly Review Press.
Published on 11 August, 2007 at 6:13 pm  Comments (2)  

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  1. […] a piece from 2002 from Panitch and Gindin on the topic, which I’ve posted before. Calling into question Monthly Review’s familiar diagnosis of […]

  2. […] Marxian crisis theory has been all that enlightening regarding the GFC, and that I agree with Panitch and Gindin that there are better things for socialists to do than predict the next crisis (or the indefinite […]

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