Profit without End: Capitalism Is Just Getting Started

Debates concerning the “Socialism of the 21st Century” are experiencing an upswing at the moment.  However, this century will initially be rather one of capitalism than socialism.  Not because there is once more an economic recovery.  Prosperity and crisis alternate constantly in capitalism, but behind this up-and-down process are tendencies towards an extension and further development of capitalism, which is nowhere near its end.

The Economic Miracle as an Episode

Modern industrial capitalism began in the 18thcentury in England.  The developmental catch-up process in France, Germany, and the United States of America already called English hegemony into question at the end of the 19th century.  In the first half of the 20th  century, capitalism also developed in Latin America and Southern Europe, whereas with the Russian Revolution and later the Chinese Revolution, a substantial portion of the globe withdrew from the direct intervention of capital.  Statist developmental dictatorships in those countries pressed ahead with a process of industrialization which did not involve a lesser number of victims than the development of capitalism in the West.

After two World Wars, a global economic crisis which eclipsed all previous crises, and after National Socialism and the Holocaust, the USA established itself as the hegemonic capitalist power with the Soviet Union as its antagonist.  Exceptional economic and political circumstances in Western Europe and North America led to a prosperity without precedent in the years between 1955 and 1974, which also contributed to the capitalist development of Japan.  During the period of this “economic miracle,” real income increased dramatically, and welfare state expenditures were expanded.  Capitalism, at least in the metropolis, seemed to have transcended crisis and poverty.

However, in the late seventies and eighties it became clear that the global economic crisis of 1974/75 did not merely constitute an interruption of this economic miracle.  Capitalist development remained prone to crisis, and as usual escape was sought in increased exports and accelerated technological development, above all in an increased exploitation of the forces of labor.  Real income stagnated or declined, welfare state expenditures were continually reduced.

The period of the economic miracle was merely an episode in the development of capitalism.  However, its influence dug deep into the collective subconsciousness, above all in Germany.  Within the rather leftist part of the political spectrum there still exists the belief that, with the “correct” economic policies, full employment can be conjured up; “unchained” capitalism must simply be properly regulated again.  But the period of the economic miracle also dominates the perceptions of the more radical left, as the development of capitalism since the miracle is perceived as a plunge towards a final crisis, or at least as a period of decline for capitalism — as if it were ever the purpose of capitalism to spread full employment and welfare among the people.  Crisis and unemployment are in no way a sign of capitalist decline; they are capitalist normality.

The expansion of capitalism continued vigorously, above all in East Asia.  The rise of the four “little Tigers” (Taiwan, Hong Kong, Singapore, and South Korea) in the seventies and eighties was followed at the beginning of the nineties by the four “little dragons” (Thailand, Indonesia, Malaysia, and the Philippines).

Global Competitive Capitalism

With the collapse of the Soviet Unionthe geopolitical system of coordinates was altered.  On the one hand, western capital now had direct access to Eastern Europe and Russia.  On the other hand, the East Asian emerging economies were no longer useful as bulwarks against “Communism.”  As a massive speculative bubble burst in 1997/98 and substantial industrial overcapacities were evident, the crash of these economies did not disturb the leading capitalist countries.  There no longer existed a geopolitical opponent into whose hands the crash could play.

Against this background, a global competitive capitalism emerged in the nineties, which was spurred by an internationalized financial system that had developed in the seventies and had continuously grown ever since.  Not only were new markets opened up globally; possibilities for increased profit were exploited via international valorization chains.

At the same time, the neo-liberal credo of a lean state without debt reached the high point of its effectiveness.  In constant tax-cut rounds, business and upper income groups were relieved and state budgets subject to a permanent imperative of austerity which demanded the cutting of social services and the privatization of state firms.

For capital, the conditions of valorization improved, and new spheres of investment opened up: not only privatized state businesses, but also privatized care industries (health insurance, elderly care).  The “individual responsibility” constantly demanded of citizens ultimately meant that they had to pay more, so profit could be made in new sectors.  The further development of capitalism, the subsumption of new spheres of existence under the logic of profit maximization, is already underway in the developed capitalist countries.

Poverty Capitalism in the 21st Century

With China and India, two new capitalist powers became clearly noticeable in the 1990s which, with 1.3 and 1.1 billion residents respectively, comprised more than a third of the global population.  Both countries had experienced enormously high rates of economic growth over the years.  Whereas in China the mass of the forces of labor were exploited under conditions resembling those of early capitalism so that the world market could be flooded with cheap products, India has managed to bring about, via enormous investments in the educational system, a great deal of highly qualified and nonetheless cheap forces of labor (engineers, software developers, pharmacists) which are particularly attractive for foreign investors.  At the same time, income disparity as well as differences in regional development in both countries has increased sharply.

The capitalist development of India and China is at its very beginning; it may have a substantial influence upon global economy and politics in the future.  If in the course of the next few decades a middle class with purchasing power emerges — albeit comprising merely 20 to 30 percent of the population, with the rest living in poverty — in them, that alone would constitute a market of 600 to 700 million people, far larger than the expanded European Union.  At the same time, the massive army of poor people ensures a stream of cheap labor for the decades ahead.  For capital, all manner of things might become scarce in the 21st century, but cheap labor will not be among them.  The rate of surplus value will increase worldwide — relative surplus value increases with technological development, absolute surplus value with the extension of the working day and the sinking of real wages.

That even in the midst of economic upswings workers will be forced to accept a lengthening of the working day and cuts in wages, as is currently the case with employees at Deutsche Telekom, will no longer be an exception in the future.  It will simply not be noticed as much.  In Germany, the largest growth of jobs has occurred in the temporary labor sector.  In order to impose deteriorations in working conditions, one no longer has to change collective bargaining agreements and fire workers.  It’s enough simply to not renew employment relationships.

Insecure employment conditions are expanding, but the talk of a “precariat” presumes a non-existing commonality of interests.  A non-skilled woman who commutes between a “mini-job” at the supermarket check-out stand and various cleaning jobs doesn’t have much in common with an academic temporarily employed in various privately-financed research projects.

Inequalities will increase not just within nations but between them.  Poverty in Western Europe will mean something different in the next few years than the slum quarters of the emerging economies.  In countries like Germany, superfluous laborers will perhaps be held above water by an “unconditional minimum income”: an income at the level of the current Hartz IV reforms1 but without the costly “entitlement checks,” which will be used to justify the dismantling of all further welfare state services.

Currency Competition and Eroding American Hegemony

The USA as the sole remaining superpower is faced with a number of emerging intermediate powers: the BRIC states (Brazil, Russia, India, and China), as well as the sometimes more, sometimes less, unified European Union.  In international institutions such as the World Trade Organization, conflicts have already led to a partial paralysis; the International Monetary Fund has also undergone a substantial decline in importance in the past few years.

But competition does not occur solely over scarce resources such as oil, but also over global currency.  The dollar as a global currency has allowed the USA a massive indebtedness which not only contributes to its welfare but has made possible a military budget which is as large as that of all other countries put together.  The role of the dollar can then in turn be supported by economic strength and the threat of military force.

With the euro, whose importance as a trade and reserve currency has increased strongly, there is for the first time a potential competitor to the dollar.  The largest dollar reserves worldwide are held by Japan and China because of their gigantic export surpluses.  Even a partial conversion of these reserves into euros would substantially weaken the dollar and undermine the hegemonic position of the USA.  A collapse of the USA would not suit the Asian and European export-oriented economies, but a weakening of its power would.  But the hegemon will not just submit to such a process.  Already the last Iraq war was not only fought for access to cheap oil, but also in order to defend the dollar as an oil-trading currency.


1  Series of reforms enacted in Germany in 2005 and named after the former director of Volkswagen’s labor relations department, Peter Hartz.  The neo-liberal reforms represented the most drastic change to Germany’s post-war welfare system by, among other things, reducing the period of entitlement for short-term unemployment insurance and by abolishing long-term unemployment insurance in favor of an entitlement (so-called “Arbeitslosengeld II”) that provides a bare existential minimum of benefits.

Michael Heinrich is a mathematician and political scientist in Berlin.  He is managing editor of Prokla — Journal of Critical Social Science.  The following article originally appeared in German in the July 12th, 2007 issue of the leftist  newspaper Jungle World.  

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