Category: Issue 2

US-China Economic and Military Competition and the Flight of Capital from Emerging Economies – Jörg Nowak, Ekrem Ekici

In the last issue, we have made two statements in our text on the national imperialist state: First, that a trade war between the US and China is not in sight, and second, that the national reorientation of the mightiest imperialist countries will increase the contradictions between emerging economies and the imperialist countries. As it stands now in November 2018, we were wrong about the trade war that has started to unfold, and is starting to depress growth and trade. And we were right about the effects of the policies of the Trump administration on emerging economies like Turkey, Mexico, Brazil, Argentina, India, Indonesia etc.: the rise in interest rates of the Fed and the temporary spike of the oil price during spring and summer 2018 led to popular unrest, currency crises, the outflow of investment from emerging economies and a renewed focus on debt in emerging economies.

The current situation is impregnated by two tendencies: 1. The competition between the US and China in a technological-military-economic race, accompanied by Japan and the EU as secondary competitors. 2. The subordination of emerging economies (excluding China) in the current scenario of higher interest rates in imperialist core countries.

We will start to outline the second phenomenon and then relate it back to the first one.

1. From emerging to stagnating economies

The mid term tendency in the relationship between imperialist economies and emerging economies is expressed in a change in the monetary policy: the end of quantitative easing in the US and the EU, and thus the end of the hyperliquidity flowing to emerging economies, accompanied by a tendency to higher interest rates in imperialist economies, most importantly the interest rate rises by the US Fed. This change in monetary policy is not the content of the reorientation at stake, but its instrument: the short term effect is an outflow of liquidity in dollars from the emerging economies, and ensuing currency crises, leading in the mid-term to a cementing of the subaltern position of emerging economies like Indonesia, Turkey, South Africa, the Philippines, India, Brazil and Argentina. For example, in May and June 2018 investors withdrew 14 billion dollar from EM bonds and equities (IIF 2018). Several currencies went down significantly in relation to the US dollar since November 2017, headed by the Argentine peso that fell about 50 % in one year, followed by the Turkish Lira that fell one third against the dollar, while other countries saw lighter but still quite significant depreciation of their national currencies: 10 % devaluation of the Brazilian Real in comparison with the US dollar, 10 % of the Indonesian Rupiah, 10 % of the Phillippine Peso, 12 % for the Indian Rupee and only 5 % for the Mexican Peso. The South African Rand is at the same level as one year ago compared to the dollar, but had dropped 10 % lower in August and September 2018. If one adjusts to inflation, emerging market currencies are at its lowest since the 1980s (Johnson 2018), the time of debt and currency crises, and the first major structural adjustment programs. The JPMorgan EM currency index is 11 per cent down compared to one year earlier, in early September 2018 it was even 14 per cent down since January 2018 (Allen 2018).

While the crises of currencies of emerging economies are not as serious as in the 1980s, high debt of the private corporate sector in emerging economies and current account deficits of those countries are the basis for the currency crisis. In countries like India and the Philippines with a dependence on oil imports the rising oil price increases the strain, while the governments of Brazil and Argentina faced pressure to abandon world market prices of petrol on their internal markets in the wake of popular pressure, expressed in the mighty truck drivers strike in Brazil in May 2018.

The mid-term tendency of those emerging economies will be rather that of “stagnating economies” – while they will still play a significant role for resource extraction, the absorption of consumer products, and low-wage industrial production, they will remain stuck in the middle-income trap – i.e. a large part of the population is poor, and the relatively small middle classes will not be able to catch up with their Western counterparts in terms of income, social security, public infrastructure etc. The most important issue is that those currency crises come with increased dependency on imperialist countries with higher costs for technological inputs (i.e. fertilizer, production machines), higher costs of imported consumer products, higher inflation and higher external debt. The effect highlighted by Heiner Flassbeck of a more competitive position for exports e.g. for Turkey1 due to the depreciation of the Turkish currency will not outweigh the costs for the working class and producers in those countries with inflation and higher prices for imported goods. Thus, the short to mid-term effect of what Flassbeck wrongly termed ‘currency crises’ will be a severe limitation of the level of reproduction of working classes in emerging economies.

The slowdown of exports of emerging markets is not primarily an effect of the trade war and its tariffs, as it went down already between February and May 2018 from a 6.5 per cent year-on-year rate to 1.8 per cent according to the CPB Netherlands Bureau for Policy Analysis, and similar data have been provided by consultancy Capital Economics. Causes can be found in low growth in the Eurozone, China and emerging economies. With the depreciation of the Renminbi (down 10 % since February 2018 in comparison with the US dollar), China will increasingly compete with emerging economies in Southeast Asia in the area of manufacturing (Sender 2018).

While the high debt in many emerging economies – it increased about 40 trillion US dollars since 2008 due to the Institute of International Finance – raises the risk of banking crashes or a default of a national economy, the main tendency will be a halt of the forward march of emerging economies in increasing their share of the world market in trade and exports: the looming debt crisis will serve to dump wages and contain the ‘rise of the South’ in the context of world market participation.

China, which we qualified as one of the main imperialist countries in the last issue, plays the part of a global power stuck between the status of an emerging economy and a global superpower. It has features of both, and its potential to get rid of the features of an emerging economy is one of the drivers of the restructuring of the global capitalist system undertaken at the moment. We do not consider China as an emerging market, but as an upcoming power able to compete with other imperialist powers to some extent, while it does not have the same status, both in geopolitical differences with the imperialist bloc of the US, Germany, Japan and the UK, and in per capita income of its population. Thus, it is not a country that forms part of the imperialist core, but assumes an independent leading position, and aims to build alliances with states like Russia, Pakistan and other smaller states. We will turn now to the competition between China and the US on the economic and military plane.

2. Economic and military competition between US and China

In this section we will look at the effects of the changing China-US relation. Both China and the US are grappling with slow growth – China’s growth is still around 6 per cent this year but is clearly on a slow downward trajectory since the Xi government aims to decrease financial bubbles and to diminish debt. While US growth seems steady, there is not much substance to it: non-financial profits remain below the levels of 2014 and once the effect of the tax cuts in the US has subsided, numbers will look different (Roberts 2018). And both countries grapple with a lot of corporate debt. This is the background scenario for the current economic and military competition between the still hegemonic US and the still emerging People’s Republic of China.

The national reorientation of parts of the US ruling class is based to a large extent on the interests of the military-industrial complex that aims to draw a demarcation line regarding which types of production are outsourced to China and other countries, for the fear of losing control over strategic intelligence and war technology. Due to the new type of productive forces in which production machines and war machines increasingly overlap (artificial intelligence, drones, satellites and other computer technology), the current form of outsourcing and arms-length manufacturing risks losing the upper hand in military technology and access to intelligence information. This is the essential interest behind the Trump strategy, and it is not possible to divide this into an economic and a military interest since both are essentially intertwined. In other words: If Wal-Mart produces clothes in Bangladesh or Ethiopia it is not of relevance for the military-industrial complex. If important lines of high-tech electronic communication products are partly produced in China, or Silicon valley startups are founded by Chinese capital, it is highly relevant (Foroohar 2018). Between 10 and 16 % of venture capital in Silicon Valley was financed by Chinese capital between 2015 and 2017 and 25 per cent of graduate students in relevant subjects in the US are Chinese citizens. So there is much cooperation in the AI sector between Chinese and US commerce and research which will be difficult to disentangle. One example is the artificial intelligence lab of Chinese tech giant Baidu in Silicon Valley — Baidu announced in 2018 a cooperation with state-owned China Electronics Technology Group (CETC) which develops electronic war technology for the People’s Liberation Army. At the same time, CETC cooperates with the University of Technology in Sydney on projects related to AI (Hille/Waters 2018).

The US government decided on first measures for a disentanglement: a broader mandate for the Committee on Foreign Investment that could block further Chinese investment in Silicon Valley; the Export Control Reform Act, legislated in August 2018, with stricter requirements for exports. A corresponding list that will serve as criteria for export controls is being put together and might be released in 2019. Nonetheless, a strict separation between civil and military use of electronics will be difficult to implement and would at least require close cooperation of the US with countries like Germany and Japan if crucial technologies i.e. hardware like precision tool makers for semiconductors and software for machine learning are about to be sealed off from Chinese companies. The Chinese economy is obviously lacking behind in the research and development capacity compared with the US (King 2014). But recent initiatives at least try to fill this gap: the Chinese government funded private companies who work on potential military technology with 55 billion US dollar (Feng 2018) and the Chinese private company DJI already is global market leader for commercial drones, and China is already the third largest exporter for military drones after the US and Israel (Hille 2018).

The ideological excess that comes with every political strategy led the Trump administration to go way beyond crucial technology and expand trade tariffs to a number of irrelevant goods like washing machines, solar panels etc. The main complaint by US think-thanks and government figures is that Chinese scientists may spy in other countries for the Chinese government, a practice that is only legitimate in the eyes of Western governments if they themselves use it. The trade war itself has until now mainly led to a slowdown of economic activity in general. Orders for US soybeans from China went down considerably, and the US trade deficit with China went up about 4 % in September 2018 – this can be a result of stockpiling in the face of a coming trade war, but could probably persist since consumer goods companies in the US rely heavily on Chinese imports (Tett 2018).

A second aspect of geopolitical competition between China and the US is about influence on third countries. China has set up the One Belt One Road Initiative as a massive infrastructure program, based on debt financing. It is significant that the US recently restructured its development agency, renamed as International Development Finance Corporation in order to systematically support US investments with a volume of 60 billion dollars. This move is clearly a response to the global Chinese strategy.

Another form to impose conditions on poorer countries is the Trump way of bilateral negotiations, under the threat of tariffs on exported goods, which aims to create favourable conditions for US capital, a newly packaged form of blackmail which ran as demands for ‘free trade’ since the 19th century, and now comes under the more honest label ‘America first’. One specific feature of Trump’s variant is that it is openly debated and not negotiated behind closed doors, often combined with hostilities and public attacks, and mixed up with strictly political agendas as in the case of the US pastor in Turkey, the border wall that Trump wants to build against Mexican immigration, and the personal attacks against the Canadian prime minister after the G 7 meeting.

Various countries will become a playground for this bidding for influence. While Western countries are still clearly ahead of Chinese influence in Africa, there are some countries in Latin America where Chinese investment exceeds US investment if not in some cases all Western imperialist investment altogether. This is why the political turn to the right in Brazil with its immense resource reserves in agriculture, iron, bauxit and above all petroleum was such a decisive manoeuvre. While Mexico with an incoming leftist president will probably balance between Chinese and US influence, Bolsonaro in Brazil can be expected to limit Chinese economic and political influence as much as possible. Given that a large part of Brazilian agrobusiness – Bolsonaro’s main power base – is competing mainly with US agrobusiness and is delivering the largest chunk of soy and other goods to China, it will be interesting to see how this contradiction will be managed on the ideological level.

3. The inability of capital to end the crisis

The phenomenon at the base of this form of economic restructuring is the inability of capital to end the current crisis. According to the theory of crisis of Japanese Marxist Uno Kozo, every crisis is an opportunity for capital to get rid of old capital equipment (via bankruptcies, downscaling etc.), and the crisis ends as soon as the productive capacities have been renewed with more updated technology (Walker/Kawashima 2018; Uno). Given the ongoing slump in labour productivity that we have pointed at in our contribution to the last issue, we witness the inability to update technology in those companies that are not major TNCs with an amount of 10-15 % zombie companies in the core capitalist countries. The subordination of emerging economies and the depreciation of their currencies is thus a displacement of this crisis since this will ease profit rates momentarily through access to cheaper goods in the face of lower currency rates, and increased access to raw materials and formerly state-owned enterprises or public sectors. The electoral victory of far-right Jair Bolsonaro in Brazil demonstrates this well: The privatisation of the education system, the postal service, further parts of state-owned energy companies like Eletrobras and Petrobras, and enhanced access to Brazilian oilfields and other mineral resources are the core agenda of the new incoming government. Thus, we are facing the mighty return of forms of the comprador bourgeoisie in Latin America, and possibly in other countries, trying to leverage both with the US and China (and Japan, Canada, Australia and EU countries) as investors and buyers, and without much scope for an independent national development. The illusion that emerging markets and the BRICS could delink from the imperialist core of capitalism was a short one. Thus, the alternative to a recovery of productivity growth — which capital seems unable to succeed with in the mid-term — is a more violent imperialism, and stricter subordination of emerging economies.

At the same time, the two leading economies, China and the US will continue to engage in a competitive struggle to get hold of high-tech technologies, both as productive and military capacity. The main aim of the US government is to stop the Chinese economy and government to catch up to the US in both areas, while a significant amount of Chinese economic sectors, like retail and fast food, remains under control of US companies (Starrs 2018). Both economies have their own zombie sectors that they struggle to get rid of and a high level of corporate debt. The way how China and the US will balance out between advances in the high-tech sector, the managing of debt bubbles and bankruptcies of SMEs, and the ability to increase or at least maintain wage levels of workers will be decisive in the coming year, and any major imbalance can lead to a new financial crisis as the volatile stock markets in late summer 2018 have shown.


Allen, Kate, 2018: Dollar strength hits emerging market bonds sales. Financial Times. November 7.

Feng, Emily, 2018: China pours money into private sector military technology. Financial Times. November 11.

Foroohar, Rana, 2018: Globalised business is a US security issue. Financial Times, July 15.

Hille, Katrin, 2018: China’s drone makers zero in on armed forces. Financial Times, November 9.

Hille, Kathrin and Richard Waters, 2018: Washington unnerved by China’s ‘military-civil fusion’, Financial Times, November 8.

Institute of International Finance, Global Debt Monitor – July 2018. July 9.

Johnson, Steve, 2018: Emerging market currencies at ‘multi-decade lows’. EM FX may be at its cheapest since the 1980s in inflation-adjusted terms. Financial Times, November 1.

King, Samuel, 2014: Lenin’s theory of imperialism: a defence of its relevance in the 21st century. Marxist Left Review, No. 8.

Kozo, Uno, Theory of Crisis, trans. Ken Kawashima, Leiden: Brill, forthcoming.

Roberts, Michael, 2018. America’s halfway house. 7 November.

Sender, Henny, 2018: China can no longer be counted on for EM growth. Financial Times, 7 November.

Starrs, Sean Kenji (2018):  Can China Unmake the American Making of Global Capitalism? in Leo Panitch and Greg Albo, eds. Socialist Register 2019: A World Turned Upside Down? London: Merlin Press; New York: Monthly Review Press.

Tett, Gillian, 2018: China is winning the trade war with America for now. Financial Times, 15 November.

Walker, Gavin and Ken Kawashima, 2018: Surplus alongside excess: Uno Kozo, Imperialism, and the Theory of Crisis. Viewpoint Magazine No. 6,

Weatley, Jonathan, 2018: Rising debt leaves emerging markets at epicentre of worries, Financial Times, July 14.

1 See Heiner Flassbeck and Ekrem Ekici on the crisis in Turkey here:

Marxist or Keynesian macro? – Michael Roberts

Can we talk about Marxist ‘macroeconomics’? After all, macroeconomics is an invention of Keynesian economics through the development of the concept of gross domestic product and macro identities such savings equals investment etc.i Mainstream macroeconomics separated itself from microeconomics, the analysis of markets (supply and demand) or, to be more to the point, what is the value of a unit of production for sale. For the classical economists of the early 19th century capitalism, there was no distinction between the micro and the macro. The task was to analyse the motion and trends in ‘economies’ and for that a theory of value was a necessary tool but not an end in itself.

Microeconomics became an end in itself as a way of combating the dangerous development in classical economy towards a theory of value that implied the exploitation of labour and conflicting social relations. So the labour theory of value was replaced with the marginal utility of purchase by the consumer as a result.ii

Political economy’ started as an analysis of the nature of capitalism on an ‘objective’ basis by the great classical economists Adam Smith, David Ricardo, James Mill and others.  But once capitalism became the dominant mode of production in the major economies and it became clear that capitalism was another form of the exploitation of labour (this time by capital), then economics quickly moved to deny that reality.  Instead, mainstream economics became an apologia for capitalism, with general equilibrium replacing real competition; marginal utility replacing the labour theory of value and Say’s law replacing crises.

Macroeconomics appears in the 20th century as a response to the failure of capitalist production – in particular, the great depression of the 1930s. Something had to be done. John Keynesiii took marginalist theory from his mentor, Alfred Marshalliv, and dynamically moved it beyond supply and demand among individual consumers and producers onto the aggregate. Mainstream ‘bourgeois’ economics could no longer rely on the comforting theory that marginal utility would equate with marginal productivity to deliver a general equilibrium of supply and demand and thus a harmonious and stable growth path for production, investment, incomes and employment. The equality of aggregate supply and demand, Say’s law, was denied. It had to be recognised that capitalism was subject to booms and slumps, to (permanent) disequilibria, and thus to regular crises. And these crises had to be dealt with – to be ‘managed’. That required macroeconomic analysis.

In a sense, bourgeois economics had to put back the economic clock to classical economics – the study of aggregate trends – but without returning to ‘political economy’, which recognised that economics was really about social structure and relations and not a theory of things.

At first, it appeared that modern Keynesian macroeconomics had done the trick. In the ‘golden age’ of post-1948 capitalism, economic growth was strong, employment was full and incomes rose without significant increases in inequality (inequality was there, although, according to Thomas Piketty, it had been reducedv). So (macro) economics could provide policies to ‘manage’ capitalism successfully.

This turned out to be an illusion. The first simultaneous international recession of 1974-5 was followed by the deep slump of 1980-2 and growth slowed, unemployment rose and over the next three decades inequality of income and wealth rocketed. The final nail in the coffin of bourgeois macroeconomics was the Great Recession of 2008-9 and the subsequent Long Depression of low growth in output, trade, investment and wages for the last ten years.

Mainstream ‘bourgeois’ economics failed to spot the global financial crash and a slump that matched the crash of 1929 and the Great Depression. Mainstream economists considered a return of a similar crisis like the 1930s as impossible as most were stuck in the illusions of ‘demand management’ from the 1960s. Even worse, macroeconomics had suffered a reaction back to the ideas of general equilibrium and crises caused by ‘imagined shocks’. Dynamic stochastic general equilibrium (DSGE) models were the order of the day. Along with a revival of the equilibrium microeconomics of the marginalists and the Lucas Critiquevi, there developed a theoretical justification for deregulation, privatisation and weakening of the power of labour – wrapped up in the label of ‘neoliberalism’.

Recently, mainstream economists have been debatingvii why ‘economics’ was unable to see the global financial crash coming and/or provide effective policies to end it. Mainstream economists John Quiggin and Henry Farrell summed up the debateviii: some blame non-academic economists. Others blame prominent academics. Others still say that economic advice doesn’t really matter, because politicians will pay attention only to the advice that they wanted to hear anyway.”

But Quiggin and Farrell reckon the real reason that mainstream economics failed to be of any use was the lack of agreement among economists on what to do.  Economists could not agree on whether austerity was good or bad for the economy; or on whether economists had any influence over politicians.  And the reason for this lack of agreement was not due to differences on theory but to “sociology”.  By this they meant that mainstream economists are not pure objective ‘economists’ but are “deeply bound up with the political systems that they live within.”

Quiggin and Farrell explain that, “prominent academic economists, far more than other social scientists, are likely to go back and forth between universities and roles in the Treasury Department, Federal Reserve, International Monetary Fund and World Bank. This means that economics has far more political clout than other social sciences, but it also has reshaped the profession, turning external policy influence into an important form of internal disciplinary prestige.” 

In other words, economists with jobs in government and the central bank go with the flow (from the forces of capital): “So the world of economic politics and the world of economic thought are deeply intertwined. Channels of influence rarely flow only in one direction, as some economists have discovered to their dismay.”

This conclusion seemed to surprise as well as upset Quiggin and Farrell.  Yet, if they had read Marx, they would have expected nothing else.  As Marx pointed out 150 years ago, in a footnote to the chapter on Commodities and Money in Capital, while making the distinction between classical economics and vulgar economics“Once for all I may here state, that by classical political economy, I understand that economy which, since the time of W. Petty, has investigated the real relations of production in bourgeois society, in contradistinction to vulgar economy, which deals with appearances only, ruminates without ceasing on the materials long since provided by scientific economy, and there seeks plausible explanations of the most obtrusive phenomena, for bourgeois daily use, but for the rest, confines itself to systematizing in a pedantic way, and proclaiming for everlasting truths, the trite ideas held by the self-complacent bourgeoisie with regard to their own world, to them the best of all possible worlds”ix 

Even earlier, Frederick Engels had anticipated the trend of economics in his Outlines Of A Critique Of Political Economy in 1843: “The nearer to our time the economists whom we have to judge, the more severe must our judgment become. For while Smith and Malthus found only scattered fragments, the modern economists had the whole system complete before them: the consequences had all been drawn; the contradictions came clearly enough to light, yet they did not come to examine the premises and still accepted the responsibility for the whole system. The nearer the economists come to the present time, the further they depart from honesty”.

And in Theories of Surplus Value, Marx described the vulgar economists—by no means to be confused with the economic investigators we have been criticising—translate the concepts, motives, etc., of the representatives of the capitalist mode of production who are held in thrall to this system of production and in whose consciousness only its superficial appearance is reflected.  They translate them into a doctrinaire language, but they do so from the standpoint of the ruling section, i.e., the capitalists, and their treatment is therefore not naïve and objective, but apologetic.”x

In other words, all the obstruse theory presented by modern mainstream economics is presented as purely neutral, unbiased and logical, but in reality it is not “naïve and objective” but merely an apologia for the capitalist mode of production. “It was henceforth,” Marx wrote, “no longer a question whether this theorem or that was true, but whether it was useful to capital or harmful, expedient or inexpedient, politically dangerous or not. Pure, selfless research gave way to battles between hired scribblers, and genuine scientific research was replaced by the bad conscience and the evil intent of apologetic”.xi 

Recently, two mainstream economistsxii commented: “Any scientific enterprise needs to be grounded in solid empirical knowledge about the phenomenon in question. Milton Friedman put this well in his Nobel lecture in 1976: “In order to recommend a course of action to achieve an objective, we must first know whether that course of action will in fact promote the objective. Positive scientific knowledge that enables us to predict the consequences of a possible course of action is clearly a prerequisite for the normative judgment whether that course of action is desirable.” 

Sounds good, but unfortunately, they continued: “Many of the main empirical questions in macroeconomics are the same as they were 80 years ago when macroeconomics came into being as a separate sub-discipline of economics in the wake of the Great Depression. These are questions such as: What are the sources of business cycle fluctuations? How does monetary policy affect the economy? How does fiscal policy affect the economy? Why do some countries grow faster than others? Those new to our field or viewing it from afar may be tempted to ask: How can it be that after all this time we don’t know the answers to these questions?”  Indeed!

However, the authors remain optimistic. For them, the problem is not that economists are locked into an apologia for the capitalist system, but that it is difficult to ‘identify’ the right variables in any causal analysis. In other words, economics is a positivist science like physics but it is just behind in its understanding of ‘the economy’ compared to physics because of the extra difficulty in empirical work.

Economics could progress in the same way that ‘natural science’ has. Macroeconomics and meteorology are similar in certain ways. First, both fields deal with highly complex general equilibrium systems. Second, both fields have trouble making long-term predictions. For this reason, considering the evolution of meteorology is helpful for understanding the potential upside of our research in macroeconomics. In the olden days, before the advent of modern science, people spent a lot of time praying to the rain gods and doing other crazy things meant to improve the weather. But as our scientific understanding of the weather has improved, people have spent a lot less time praying to the rain gods and a lot more time watching the weather channel.“

Unfortunately for the authors, such progress towards the truth will not take place in economics. To think so is just naïve. To quote Milton Friedman as the epitomy of unbiased, objective positivist scientific analysis demonstrates that naivety. Friedman was the peer example of an ideologist for capital, including his job as an advisor for General Pinochet after his coup against the democratically elected government of Chile in the 1970s.

Yes, economics is a science, in my view.  More accurately, as Marx says, it is political economy, the study of the social relations of the capitalist mode of production. Yes, we need to test economic theories against the facts xiii by identifying the causal variables. Indeed, we should make predictions to test our theories.xiv

But do not expect the body of mainstream economics to do so in any systematic way.  It has been hopelessly distorted by the need to preserve and defend the capitalist system.  As the authors say: “Policy discussions about macroeconomics today are, unfortunately, highly influenced by ideology. Politicians, policy makers and even some academics have held strong views about how macroeconomic policy works that are not based on evidence but rather on faith.”

Ten years since the Great Recession, it is worth reminding ourselves of some of the lessons and implications of that economic earthquake.xv First, the official institutions and mainstream economists never saw it coming.  In 2002, the head of the Federal Reserve Bank, Alan Greenspan, then dubbed as the great maestro for apparently engineering a substantial economic boom, announced that ‘financial innovations’ i.e. derivatives of mortgage funds etc, had ‘diversified risk’ so that “shocks to overall economic will be better absorbed and less likely to create cascading failures that could threaten financial stability”.  Ben Bernanke, who eventually presided at the Fed over the global financial crash, remarked in 2004 that “the past two decades had seen a marked reduction in economic volatility” that he dubbed as the Great Moderation. And as late as October 2007, the IMF concluded that “in advanced economies, economic recessions had virtually disappeared in the post-war period”.xvi

Once the depth of the crisis was revealed in 2008, Greenspan told the US Congress, “I am in a state of shocked disbelief” He was questioned “in other words, you found that your view of the world, your ideology, was not right, it was not working” (House Oversight Committee Chair, Henry Waxman). “Absolutely, precisely, you know that’s precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well”.xvii

The great mainstream economists were no better.  When asked what caused the Great Recession if it was not a credit bubble that burst, Nobel Prize winner and top Chicago neoclassical economist Eugene Fama respondedxviiiWe don’t know what causes recessions. I’m not a macroeconomist, so I don’t feel bad about that. We’ve never known. Debates go on to this day about what caused the Great Depression. Economics is not very good at explaining swings in economic activity… If I could have predicted the crisis, I would have. I don’t see it.  I’d love to know more what causes business cycles.”

Soon to be IMF chief economist, Olivier Blanchard, commented in hindsight that, “The financial crisis raises a potentially existential crisis for macroeconomics.” … some fundamental [neoclassical] assumptions are being challenged, for example the clean separation between cycles and trends” or “econometric tools, based on a vision of the world as being stationary around a trend, are being challenged.xix

As for the causes of the global financial crash and the ensuing Great Recession, they have been analysed ad nauseam since.  Mainstream economics did not see the crash coming and were totally perplexed to explain it afterwards. The crash was clearly financial in form: with collapse of banks and other financial institutions and the weapons of mass financial destruction, to use the now famous phrase of Warren Buffett, the world’s most successful stock market investor.  But many fell back on the theory of chance, an event that was one in a billion; ‘a black swan’ as Nassim Taleb claimed.xx

Alternatively, capitalism was inherently unstable and occasional slumps were unavoidable. Greenspan took this view: “I know of no form of economic organisation based on the division of labour (he refers to the Smithian view of a capitalist economy), from unfettered laisser-faire to oppressive central planning that has succeeded in achieving both maximum sustainable economic growth and permanent stability. Central planning certainly failed and I strongly doubt that stability is achievable in capitalist economies, given the always turbulent competitive markets continuously being drawn toward but never quite achieving equilibrium.  He went on, “unless there is a societal choice to abandon dynamic markets and leverage for some form of central planning, I fear that preventing bubbles will in the end turn out to be infeasible.  Assuaging the aftermath is all we can hope for.”xxi

Many saw only the surface phenomena of the financial crash and concluded that the Great Recession was the result of financial recklessness by unregulated banks or a ‘financial panic’.  This coincided with some heterodox views based on the theories of Hyman Minsky, radical Keynesian economist of the 1980s, that the finance sector was inherently unstable because “the financial system necessary for capitalist vitality and vigour, which translates entrepreneurial animal spirits into effective demand investment, contains the potential for runaway expansion, powered by an investment boom.”  Steve Keen, a follower of Minsky put it thus: “capitalism is inherently flawed, being prone to booms, crises and depressions.  This instability, in my view, is due to characteristics that the financial system must possess if it is to be consistent with full-blown capitalism.”xxii  

Of the mainstream Keynesians, Paul Krugman railed against the neoclassical school’s failings but offered no explanation himself except that it was a ‘technical malfunction’ that needed and could be corrected by restoring ‘effective demand’.xxiii 

But what about Marxist macroeconomics or to be more exact Marxian political economy? Were the practitioners of Marxism able to offer answers that the mainstream failed to do? My answer is short: in so far as Marxist economists adopted the macro analysis of Keynesian economics, they failed. In so far as they rejected Keynesianism and relied on Marx’s law of value (rejected by Keynes) and on his law of profitability (ignored by the mainstream), Marxist economists had something to say.

Most Marxists did not see the crash and the ensuing Great Recession coming either.  There were a few exceptions:  In 2003, Anwar Shaikh reckoned the downturn in the profitability of capital and the downwave in investment was leading to a new depression.xxiv And yours truly in 2005 said: “There has not been such a coincidence of cycles since 1991. And this time (unlike 1991), it will be accompanied by the downwave in profitability within the downwave in Kondratiev prices cycle. It is all at the bottom of the hill in 2009-2010! That suggests we can expect a very severe economic slump of a degree not seen since 1980-2 or more” xxv .

Very few Marxist economists looked to the original view of Marx on the causes of commercial and financial crashes and ensuing slumps in production.  Most Marxists accepted something similar to the Minskyite view, seeing the Great Recession as a result of ‘financialisation’ creating a new form of fragility in capitalism.xxvi

However, some did return to what Marx said and tried to make it relevant to now. One such was Guglielmo Carchedi, who summed that view up in his excellent, but often ignored Behind the Crisis with: “The basic point is that financial crises are caused by the shrinking productive base of the economy. A point is thus reached at which there has to be a sudden and massive deflation in the financial and speculative sectors. Even though it looks as though the crisis has been generated in these sectors, the ultimate cause resides in the productive sphere and the attendant falling rate of profit in this sphere.”xxvii Agreeing with that explanation, the best Marxist macro book on the crash remains that by Paul Mattick Jnr, Business as usual. xxviii

Marxist ‘macro’ has generally failed because it has been more Keynesian than Marxian; and it has been too easily attracted to the surface of things and not to the inner core of socio-economic relations under capitalism. The Marxian law of value has been regarded as irrelevant; the Marxian law of accumulation has been ignored; and the Marxian law of profitability denied. So Marxian macro has not developed a clear explanation of the causes of recent crises.

If we do not develop general theories then we remain in ignorance at the level of surface appearance.  In the case of crises, every slump in capitalist production may appear to have a different cause.  The 1929 crash was caused by a stock market collapse; the 1974-5 global slump by oil price hikes; the 2008-9 Great Recession by a property crash.  And yet, crises under capitalism occur regularly and repeatedly.  That suggests that there are underlying general causes of crises to be discovered.  Capitalist slumps are not just random events or shocks.

The scientific method is an attempt to draw out laws that explain why things happen and thus be able to understand how, why and when they may happen again.  Of course, it is difficult to get accurate scientific results when human behaviour is involved and laboratory experiments are ruled out.  But the power of the aggregate and the multiplicity of datapoints help.  Trends can be ascertained and even points of reversal. The Lucas critique was an attempt to deny this.

A general theory of crises also reveals that capitalism is a flawed mode of production that can never deliver a harmonious and stable development of the productive forces to meet people’s needs across the globe.  Only its replacement by planned production in common ownership offers that.

Marxist economics often seems divided between those who spend their time pouring over Marx’s works to understand their deeper meaning without relating it to contemporary events; and those who take empirical evidence without analysing through ‘the prism of value’ and so end up repeating the mistakes of bourgeois macro.

Interpreting Marx’s voluminous writings to ascertain what in his theory of crises is useful, but only to some extent.  Marx’s contribution must be the foundation of any effective and relevant theory of crises under capitalism.  But there can be many interpretations and Marx’s unfinished works lead to ambiguities that can exercise academics and scholars for a lifetime!  So there are severe limits on this type of research.  Even if we were to agree on what Marx’s theory of crises is (or even that he had one – because that is disputed), what if he were just wrong?

Moreover, it is 150 years since Marx developed his analysis of capitalism based on the main example of British capital in the mid-19th century.  The world and capitalism has moved on since then – in particular, it is the US that is now the dominant hegemonic capital, capitalism is now global and controlled even more than before by finance capital.  Thus a theory of crises must take into account these new developments.  Also, we have much more data and information to work on compared to Marx’s limited access.  The task now is not to keep analyzing and re-interpreting Marx, but to stand on his shoulders and raise our understanding. Marxian macro, like mainstream macro, faces the difficulties of empirical research, but that is no excuse for not trying.

For example, the difficulties of measuring the rate of profit from the view of Marxian categories are manifold.  First, we must use official statistics that are not accumulated in the best way to measure Marxian categories.  Indeed, some Marxist economists reckon that trying to measure the rate of profit using official statistics in money is impossible and pointless.  Others reckon that the data are so poor we cannot do it practically.  It is the job of any scientific analysis to overcome these theoretical and practical difficulties in measurement.  And many Marxist economists are doing just that.

On categories, should we measure the rate of profit of the whole economy, or just the capitalist sector, or just the corporate sector, or just the non-financial corporate sector, or just the ‘productive’ sector?  Should or can we include variable capital and circulating capital in the denominator?  Should we measure gross profit or net profit after depreciation?  Can we measure depreciation correctly?

Yes, there are big differences in the level of the rate of profit in different countries.  Theoretically, Marx’s law would suggest a higher rate of profit in so-called emerging economies where the organic composition of capital should be lower (more use of human labour).  And we would expect that, as these countries industrialise, the organic composition of capital would rise and the rate of profit would fall.  And the empirical work that has been done shows just that.xxix

Theoretically too, we would expect capital flows to be towards those economies with higher rates of profit.  There is some evidence to suggest this is the case – in the period of globalization, capital flows to the emerging economies rose sharply. But it is also the case that flows among the more advanced economies (Europe, US, Japan) are still larger.  That is perhaps due to trade and investment pacts and the huge stock of capital already in these areas.  Finance capital flows more efficiently and effectively there.  Also in the recent period of ‘financialisation’ and with falling profitability in productive capital, capital has flowed into fictitious capital markets (portfolio capital) and not into the more productive sectors. All these various measures are useful and possible.  The data are available for many major economies and many Marxist scholars have now made such measurements. 

What increases confidence in this work is that, by and large, whatever measure is used, it shows, for most countries, over time that the rate of profit has been fallingxxx, of course, not in a straight line because there are periods when the ‘counteracting factors’ dominate, if only for a while.  And each major slump produces a temporary recovery in profitability.  But these turning points are also broadly at the same time.  All this increases confidence that Marx’s law of profitability is valid and relevant to an explanation of recurrent crises under capitalism and also its eventual demise as a mode of production.

And yet Marx’s law is denied or ignored, not only by mainstream macro but also by the majority of Marxian economists. The reason that profitability is not considered in any discussion of crises is both ideological and theoretical. Mainstream economics has no real theory of crises anyway: crises are just chance, random events or shocks to harmonious growth under capitalism; or they are the result of the interference in competition and markets by governments, or central banks; or they are result of monopoly or financial recklessness or greed.  Mainstream economics also denies any role or concept of profit in its marginalist theories of production and demand. 

This is deliberate: there is no place for a theory of profit based on the exploitation of labour power (Marx’s value theory).  Diminishing returns on utility and productivity lead to no profit at the point of equilibrium. Also, heterodox/Keynesian theories deny the role of profit, as they too are based on marginalism and (im)perfect competition. Crises are therefore the result of a ‘lack of effective demand’ caused by an ‘irrational’ change in expectations (‘animal spirits’). It has nothing to do with the profitability of capital, apparently – or more precisely the exploitation of labour. And yet capitalism is a system of production for profit in competition.  So why is profit not a determinant in investment and production?  It is an ideological refusal to accept that.  Instead apparently, everybody gets their fair share according to their (marginal) contribution.  The mainstream finds no explanation of crises as a result; and the Keynesians look to ‘demand’ not profit as the driver of crises.

The mainstream view is understandable – as it represents the interests of capital, not labour and so denies the social contradictions involved. But it is less understandable why Marxian macro, on the whole, rejects profit and profitability as the underlying driving force of capital and thus regular and recurring crises of capitalism.

Take the most eminent Marxist economist today – with the widest popular appeal – David Harvey. Harvey has made it clear on numerous occasions that Marx’s law of profitability is irrelevant, wrong and even rejected by Marx himself (in his later years). So we must look away from the contradictions of the production of surplus value as the kernel of macroeconomic crises and instead consider the contradictions in other parts of the ‘circuit of capital’, namely the realisation and distribution of surplus value or profit.xxxi Harvey’s arguments are mainly theoretical and descriptive. There is little or no empirical work.

On the other hand, eminent Marxian economists, Gerard Dumenil and Dominique Levy base themselves very much on the data.xxxii D-L argue that the depression of the 1880s was a classic profitability crisis; that the crash of 1929 and the depression of the 1930s was not.  Instead it was one of rising inequality and debt, sparking a speculative slump.  The 1970s was another classic profitability crisis, but the global financial crash of 2008 and the Great Recession was similar to 1929 and the 1930s – a result of rising inequality and debt. Their main argument against the relevance of Marx’s law of profitability as an explanation of crises is the rise in profitability in the major economies from the 1980s.

But this development is explained by Marx’s law. Although profitability in the major economies stopped falling from the early 1980s up to the end of the 20th century due to counteracting factors, one of those counteracting factors was the switch from productive capital, where profitability did not recover, to financial and unproductive sectors like property.  Financial profits boomed and investment went into ‘fictitious’ sectors. 

Financialisation’ could be the word to describe this development.  But this buzz word in Marxist macro should not mean that finance capital is now the decisive factor in crises or slumps.xxxiii  Nor does it mean the Great Recession was just a financial crisis or a ‘Minsky moment’ (to refer to Hyman Minsky’s thesis that crises are a result of ‘financial instability’ alone).xxxiv Crises always appear as monetary panics or financial collapses, because capitalism is a monetary economy.  But that is only a symptom of the underlying cause of crises, namely the failure to make enough money! 

If Harvey and Dumenil-Levy are right, then we Marxists do not have a viable general theory of crisis as each major crisis under capitalism appears to have a different cause. So we may then have to fall back on the theories of the post-Keynesian/neo-Ricardians who look to a distribution theory, namely that some crises are ‘wage-led’ like the current one due to falling wage share resulting in a lack of wage demand; or ‘profit-led’, like the 1970s when wages squeezed profits.

But the evidence does not show that Harvey, Dumenil-Levy or the post-Keynesians are right.  All the major crises came after a fall in profitability (particularly in productive sectors) and then a collapse in profits (industrial profits in the 1870s and 1930s and financial profits at first in the Great Recession).  Wages did not collapse in any of these slumps until they started.

And Marx’s theory of crises does stand up to time. Marx’s law of profitability is intimately connected with Marx’s value theory as it rests on two assumptions, both realistic in Marx’s view.  The first is that all value is created by labour alone (in conjunction with natural resources) and that the capitalist mode of production and competition leads to a rising organic composition as a trend.  But capitalism is a monetary economy.  Capitalists start with money as the crystallised form of previously accumulated value, and then advance money to buy means of production and employ a labour force, which in turn produces a new commodity or service (new value) which is sold on the market for money.  Money leads to more money through the exploitation of labour.

Capitalism is a monetary economy but it is not a money economy (alone).  Money cannot make more money if no new value is created and realized.  And that requires the employment and exploitation of labour power.  Marx said it was a fetish to think that money can create more money out of the air.  Yet mainstream and some heterodox (even Marxist) economists seem to think it can.  When central banks expand the money supply through printing ‘fiat’ money or creating bank reserves (deposits), more recently so-called quantitative easing, this does not expand value.  It would only do so if this money is then put to productive use in increasing the means of production or the workforce to increase output and so increase value.  But, as Marx argued way back in the 1840s against the ‘quantity theory of money’, just expanding the supply of ‘fiat’ money will not increase value and production but is more likely to inflate prices and thus devalue the national currency, or inflate financial asset prices.  It is the latter that has mostly happened in the recent period of money printing.  Quantitative easing has not ended the current global depression but merely sparked new financial speculation. 

Unlike the Keynesians, the movement of personal consumption is not the driver of slumps, it coincides with them, and so is part of the description of a slump.  Indeed, personal consumption does not fall much in recessions (even in the Great Recession).  What does fall heavily is capitalist investment and this drops before the slump or any fall in consumption or employment.xxxv  So business investment is the driver not consumption.  Investment is part of ‘aggregate demand’ to use the Keynesian category, but it is led by profits and profitability – contrary to the theoretical view of Keynes-Kalecki who see investment as creating profit.  Their view is partly because Keynes and Kalecki accepted marginalism and rejected Marx’s value theory of profit as coming from the exploitation of labour.  Indeed, for Kalecki, profit is only ‘rent’ that comes from monopoly power replacing competition.  Thus we have loads of heterodox explanations of modern capitalism as one of ‘rent extraction’, monopoly capital, finance capital – but not plain capitalism making profit from the exploitation of labour.

If Marx’s laws of value, accumulation and profitability are invalid, either logically or empirically, then we would have to recognise that alternative macro theories may be right that imply capitalism can succeed, with or without ‘management’. And macroeconomic policies designed to ‘correct’ disequilibria can work.

Indeed, this is the message of many leftist heterodox economists that rely on a radical version of Keynesian theory. Keynes saw all his policies as designed to save capitalism from itself and to avoid the dreaded alternative of socialism. xxxvi For the most part, I think that Capitalism, wisely managed, can probably be made more efficient for attaining economic ends than any alternative system yet in sight, but that in itself it is in many ways extremely objectionable. Our problem is to work out a social organisation which shall be as efficient as possible without offending our notions of a satisfactory way of life.”  So “the class war will find me on the side of the educated bourgeoisie.”  

Keynes reckoned that as capitalism expanded, it would, through more technology, create a world of abundance and leisure.  Because of that abundance, the return on lending money to invest would fall.  So bankers and financiers would no longer be necessary; they could be phased out.  Well, that does not seem to be happening.  Indeed, the very ‘heterodox economists’ who claim that Keynes is a ‘progressive’ economist with great similarities to Marx now argue that capitalism is being distorted by ‘financialisation’ and finance capital – and that is the real enemy.  But what happened to the gradual phasing out of finance in late capitalism a la Keynes?

In contrast, Marx’s theory of finance capital did not foresee a gradual removal of finance; on the contrary, he describes the increased role of credit and finance in the concentration and centralisation of capital in late capitalism.  Yes, the functions of management and investment become more separated from the shareholders in the big companies, but this does not alter the essential nature of the capitalist mode of production – and certainly does not imply that coupon clippers or speculators in financial investment will gradually disappear.

So I reckon that the differences between Keynes and Marx are fundamental and any superficial similarities pale in comparison.  That is important because it is Keynesian macro that dominates in the labour movement, not Marxist macro, 200 years after his birth.xxxvii

vi The Lucas critique, named for Robert Lucas’s work on macroeconomic policymaking, argues that it is naive to try to predict the effects of a change in economic policy entirely on the basis of relationships observed in historical data, especially highly aggregated historical data

xxx See Carchedi and Roberts, A world in crisis: a global analysis of Marx’s law of profitability, Haymarket October 2018.

xxxiii file:///C:/Users/ToshibaT/Downloads/2ndWorldMarxismCongresspaper%20(1).pdf

Forget the Anthropocene (for a minute); we are living in the Idiocene – Toby Carroll, Jörg Nowak

Last year, Nordstrom’s advertised jeans caked in fake mud for US$425 dollars, creating a storm on social media. It was but the latest micro-level sign – complementing a surfeit of macro indicators – that we live in a sort of end times in which the idiots have ascended and the masses are dosed up on bread and circuses; a period characterised by a rotten ruling class, infotainment, crumbling education systems (that do the opposite of preparing people for purposeful participation in civic life) and palliative consumption, the latter assuaging the banality of everyday life with ever-diminishing doses of dopamine.

The fake mud jeans, a grotesquely ironic garment manufactured by exploited labour yet channelling working class chic, are still in reach of some middle class consumers, albeit probably via credit and at around six times the minimum monthly wage in Bangladesh. Yet, this garment was striking for both hinting at and forgetting the working class; emblematic of the conveniently compartmentalised lives that many now live, that seamlessly leverage off incredible levels of ignorance (especially of social, political and environmental realities), cynicism, technology-fuelled escapism and debt.

At the top end of town, we are now presented with a truly surreal smorgasbord of hyper-decadent forms of luxury consumption and apocalyptic panic within the global elite – with both often combined into a hedonistic end times elixir. The most striking examples are perhaps the Silicon Valley libertarian elite variously buying large swathes of the land in supposedly safe and social democratic locations such as New Zealand and or plotting to place humanity’s survival on colonising distant and hostile planets.

In February 2017, media reports revealed that Peter Thiel, PayPal’s co-founder, Facebook’s first professional investor and a prominent Trump supporter, was granted New Zealand citizenship under ‘exceptional circumstances’ after he purchased a large property without requiring foreign investment approval. This revelation was met with nonchalance from within the tech elite, who retorted that purchasing a New Zealand property was simply code for ‘apocalypse insurance’.

While YouTube is now littered with everyman doomsday preppers, flogging both prepper-ware on eBay and knowledge of how to ride out the coming zombie-film-esque end by storing canned food, building a bunker and engaging in combat training and survival tactics, the Silicon Valley variant are evidently preparing their own airfields and keeping their aircraft fully fuelled.

All of this is happening instead of, for example, investing in proper social security systems funded out of taxing people precisely like Thiel; an approach built to avert apocalyptic uprisings by establishing the sorts of socially-grounded institutions that libertarians so despise. In essence, these supposedly smart Silicon Valley superrich – who despite being socially stupid, attract near-automatic reverence from many – spend their wealth on constructing high security prisons for themselves, while doing their bit to tear up social compacts that were won by working classes. Meanwhile, such hypocrisy has the added ‘bonus’ of challenging housing affordability in host countries, with new propertied classes and estate agents relishing in housing price increases while everybody else struggles with stifling rents and an inability to buy property in an environment of declining social mobility and stagnating wages, the latter fuelled by the sorts of policies that neoliberals and libertarians treasure so dearly.

At the same time, ultra-libertarians in the tech industry have made huge profits and increased share prices by selling high-tech surveillance systems to, and making Faustian bargains with, state agencies and supporting true idiocratic royalty, such as Donald Trump. Their proclaimed belief in radical ‘independence’ from the state is easily compartmentalised, mostly to the culling of any social services that impose costs on their ability to accumulate, and they easily turn a blind eye to the inconvenient manner in which populists like Trump advocate policies that are far from libertarian or neoliberal in nature. Indeed, their ability to accumulate such staggering wealth is often dependent upon the plundering of public budgets and delivering crucial infrastructure to strengthen repressive state apparatuses. On this front, Thiel’s company Palantir was contracted to build and maintain a new system to help the US deportation agency ICE to integrate data and establish a comprehensive surveillance of immigrants. And despite their ostensible brilliance, it is now apparent from the Cambridge Analytica and US election influence scandals that the vast social media systems that big tech have developed – systems that feed people much of their information about the world – are easily gamed and exploited.

In terms of compartmentalisation and contradiction, there are of course myriad, and seemingly more modest, versions, including the so-called ‘climate refugees’ and ‘falling stars’ – part of the new cashed up Chinese elite living in urban areas. These people respectively use their holiday time to go to countries like Iceland where the air is still clean or upload photos of themselves on social media falling out of German cars and the like with luxury items sprayed out in the most ostentatious, yet supposedly cute (read ‘infantile’), displays of wealth.

With the apparent impossibility of making companies in China adhere to environmental law in an if-it-grows-it-goes atmosphere (crucial to maintaining political legitimacy and accumulation and supplying the outputs that algorithms ensure consumers buy), the trip to Iceland or Wales during the Lunar New Year holiday has actually become a very popular option, which is seen as having the added bonus of contributing to the economy.

Indeed, business experts exalted the fact that during the 2017 Lunar New Year, climate refugees helped bolster the revenues of airlines and the tourism industry, while of course neglecting the inconvenient fact that these climate refugees were contributing to further climate change and pollution by massively boosting carbon emissions. And the lower classes haven’t been neglected in benefiting from market solutions to extant conditions. For the less well off in China, people can now purchase cans of fresh air from places such as – wait for it – New Zealand.

We could go on and expand the list of ridiculous scenarios that characterise the idiocene era: the Russian billionaire intent on reconstituting the Russian monarchy on a Pacific Island; Jeff Bezos’ plans to engage in space tourism; the Australian billionaire determined to build a replica of the Titanic; the blatant tax dodging and egregious corruption now found at the highest levels all over the place from Europe to Asia that seems to receive little more than a collective shrug or the endorsement of an often equally questionable reactionary populist politician.

The essential message here is that the global elite has become so detached from the workings of everyday life that its members appear to have no concern for notions of maintaining legitimacy. This is not just about politicians in Hong Kong, South Korea and the US who don’t know how to buy toilet paper or metro tickets (which shouldn’t be surprising given that they never use public transport or shop at convenience stores). It’s about a complete loss of ideological and political leadership amidst various grand economic, political and environmental crises combining to reinforce one another.

The complementary double to daft idiocratic luxury consumption is the idiocratic politician. Bequeathed to us by politicians such as Clinton, Blair, Obama, Hollande and Merkel of the ‘extreme centre’, as Tariq Ali has dubbed it, the original purveyors of false fixes who advanced progressively-packaged policies that actually increased inequality and precariousness for many, idiocrats like Trump, Bolsonaro, Modi, Erdogan, Duterte, and Le Pen are increasingly successful.

Political idiocrats like to trade off their status as outsiders and or being self-made, ignoring the usual etiquette of more established liberal elites. However, they have even less of a clue of how to deal with today’s problems than the pseudo-progressive politicians that they now replace. Indeed, the idiocrats are the political equivalent of the doomsday preppers: instead of facing fundamental problems, they deny them, or retreat to dog whistle ‘solutions’ such as national identity, religion or national security.

The idiocratic action plan hinges simply upon simulating the capability to act, presenting the appearance of being action men in a world that has escaped our control, as Eric Hobsbawm once put it, while they are in reality completely incapable of conceiving and addressing problems that are beyond efforts limited to the nation-state and their anachronistic ideologies.

That the global elite is moribund and bereft of solutions is on display for all to see, and this is potentially good news. It is the first serious step in creating a new world that works for the many rather than the few. However, truly progressive change demands ideological leadership and coordinated action to shake populations from bread and circus distractions and deep cynicism, the latter only finding solace in preparing for the end. It also requires solidarity against the powers that be, remembering that the only real solutions are political, demanding a rebalancing of power and a wholesale transformation in the institutions governing human activity.

It seems quite emblematic of the ideological limitations of the technology-and-science-can-fix-everything times that we live in, that the only idea that the late Stephen Hawking could come up with in early May 2017 to solve the grand crises facing humanity was to leave Earth altogether; a truly outlandish substitute now taken seriously by many for the actual necessity of getting rid of the global elite and the socially and environmentally destructive system that it defends.

Imperialism and Neo-Protectionism In The Trump Era – By Adrián Sotelo Valencia


Up until now the investigations, judgments, predictions, analyses, desires, and projections about the recent electoral process of the United States have been studied through examining the campaign speeches given by Mrs. Clinton and Mr. Trump, the latter being elected president by the Electoral College. This current anti-democratic electoral system differentiates the vote of the “popular vote” to that of the Electoral College. The “popular vote” went to the Iron Lady, Mrs. Clinton with a 3 million differential against the business magnate Trump, losing only the Electoral College and as a consequence the presidency.

In the United States, the president and vice-president are chosen in November, not by the general public but by 270 delegates who, after being voted in, join the elitist Electoral College, which has a total of 538 members. That is, there is no universal, direct, and secret election but only an indirect one. As is the case in other capitalist countries, the founders of the country decided in 1787 that the general public should not be trusted, instead giving all the power of election to the states. This system was ratified by the Twelfth Amendment of the Constitution in 1804 and survives to this day.

A heap of analyses, opinions, and reports, from mass media or from social media networks, were diffused to coincide with the speeches of the candidates as an attempt to persuade the general public to support and vote for them. Mrs. Clinton’s discourse was practically the same as the arguments of past Democratic presidents, prioritizing warmongering threats against Russia and China. Meanwhile, the xenophobic, racist and conservative Trump primarily went against the undocumented and immigrants in general. He promised to “recover” the power of the United States — framed in what is known as “American Exceptionalism,” Dixit Seymour Martin LIPSET (2000) — through protectionist policies that have already existed under the neoliberalism of the “free market” functional to advanced capitalism in the environment of the “Welfare State” that everyone criticizes and repudiates today, especially the supporters of the “free market” (IMF and WB).

Despite this, we must point out that from a historic and imperialist geopolitical view, both of these discourses combine when their interests are threatened in any circumstance. In this sense, there should be no illusion of a “benevolence” from any of these forces when it comes to the problems and contradictions of capitalism as they will always position themselves against the workers and the oppressed peoples.

The elected president also promised to give a revitalization to the country’s industrialization that, according to him, was seriously damaged by past administrations. Very briefly we must point out that while Clinton represents the interests of a faction of the imperialists of speculative financial capital (of the fictitious type), Trump represents the faction of industrial capital that has lost out to inter-capitalist competition on a global scale. In particular, to active competitors such as China who has expanded its radius of action in recent years, namely in Latin America and Africa

Since it was Mr. Trump who was elected to head the imperialist presidency by this political system for the next four years, we center our analytical commentary on the perspectives that are opened up under his influence, especially in relation to Mexico’s subordination to the United States.

Imperialism as a system of domination

The United States cannot be treated as any other country with which it could be compared to (Mexico, South Africa or Brazil); additionally and different to these, it is the main representative and chief of the capitalist-imperialist world system through its economic and financial organisms such as the IMF and the WB; diplomats, such as the UN; the ministry of the colonies, as is the OAS to the United States, and militaries, such as NATO. This is often forgotten. Therefore, we agree with those who affirm, correctly, that whatever candidate is voted in by the College as president would, essentially, not change neither the vocation nor the imperialist practices of the United States on a global scale: he may have his own peculiar way of governing and making decisions but this is all within the unalterable framework of its imperialist policy in the world.

What is sure is that the electoral ritual was performed and now the president-elect is precisely the authoritarian business magnate that has promised to deport three million undocumented people from his country, claiming they are “thieves, murderers, addicts” among other labels, accentuating his profound racism and xenophobia and infecting North American society with it.

We are dealing with an imperialist system, which Lenin and other Marxist analysts of imperialism have depicted. Trump’s emergence does not in any way signify a change to its essence but rather the reaffirmation of this global capitalist system that came up in the middle of the nineteenth century. The United States continues to be an active protagonist despite this system’s accumulating problems and relative decadence as has been demonstrated by some authors linked to world system analysis as well as the Marxist theory of dependency.

With the endorsement and power given to president Trump by the imperialist system, he has reiterated his plans to build a wall along the border of the United States and Mexico to stop the influx of undocumented people, affirming that it will be paid for by Mexicans themselves. He has also said he will confiscate the remittances, that’s to say the salaries, of millions of undocumented workers gained from the work they carry out in the United States.

The media campaign that was carried out after Trump’s victory helped to highlight the atrocities and hardships that would emerge in the world economy, the United States, as well as in Mexico and other Latin American countries, after his ascendency to the presidency in January of 2017. However, this media coverage only helps to cover up the evident widely felt frustration that Mrs. Clinton was not favored by the electoral college, as most polls had suggested she would. All the more frustrating since she had obtained more of the popular vote against her competition who, at one point, even said he would not acknowledge the results if he lost. Though they are atrocities we insist that they are must be understood as hereditary of an imperialist system, independently of who it is headed by.

What is more concerning is that sections of the Left have adopted this argument from an angle that defends the ominous and Neo-Panamericanist treaties such as the North American Free Trade Agreement; presenting personalities of the dominant elite such as Mrs. Clinton or Obama as “democrats and human right defenders”. Most unfortunately, they present them as the only alternative that could resolve the crisis in the global capitalist system, without understanding that the crisis is a genuine product of its structural, social, political and military contradictions that exceed, per se, the individual actions and good intentions of the rulers.

There’s little doubt that the swearing in and subsequent presidential term of Trump and his team of white multi-millionaires will have an impact on the world with their peculiar manner of intervening in domestic and world events. Two examples will suffice to illustrate this point. The president-elect managed to “convince” the owners of the North American company, Carrier, which specializes in air conditioning equipment, to stop moving its factory to Nuevo Leon State, Mexico, to supposedly “save” around one thousand jobs of North Americans in Indiana. Will the owners of the said company really maintain the salaries of these workers even though they are 14 times higher than the salaries they would pay Mexicans? Furthermore, the president-elect caused a diplomatic fallout due to a phone call with the president of Taiwan, causing the Chinese Foreign Ministry to complain to the United States for neglecting the diplomatic protocol which has been observed for decades.

We can add a third example: the racist and xenophobic irradiation from Trump and his entourage of white business magnates into their country’s social fabric, have intensified racism and has encouraged fascist organizations and militant ultra-right groups like the Ku Klux Klan, who have even held demonstrations in support of the president-elect. Thus uncovering the sewers of age-old historical racism, as well as uncovering the reality of class struggle in the United States.

These facts demonstrate the peculiar behavior of a ruler who must nevertheless be viewed from the unalterable framework of imperialist politics to which all representatives of the United States are obedient, within their own country as well as in relation to the rest of the world. Mexican authorities, from the presidential level, have docilely folded their arms when it comes to the threats that Mexican people will have to pay for Trump’s wall. Using the FTA as leverage, the United States have threatened to pull out from the agreement which will evidently cause job losses — the majority of which are precarious and badly paid — likely increasing the already intense crisis unfolding for the Mexican neoliberal capitalist owners whose sustenance is dependent on the manufacturers for exportation that has up until now only really benefited the big North American transnational companies. There has been no significant reaction from the representatives of the Mexican political regime who are, undoubtedly, waiting to receive orders from Washington to act. That is, to conform to their designs.

The parameters and coordinates of imperialism

Historically, capitalist-imperialism has constructed geopolitics and strategic coordinates and parameters of its action in the world’s space. The coordinates define the location and position in distinct places and spaces of the earth where, generally, military bases are established in order to guard and reproduce its interests. The parameters are what guides imperialist action in terms of achieving its objectives as set out in the coordinates. The above is described in order to argue that the imperialist system is not limited to the action of one country, be it the United States, Germany, France or England, a block (NATO) or a region (EU); rather, it corresponds to a global system within the very structure of operation of the historical capitalist mode of production in its current phase that we can characterize as neo-imperialist.

In this context, we insist that independent from the personality that may occupy the imperial presidency, namely the United States, the person in power must move within the strict framework that determines the parameters and coordinates of an imperialist system. In order for it to reproduce itself it has to comply with the established actions of deploying investments, land appropriation, invasions of nations and the imposition of any necessary policies (protectionist or free traders), reserving at any moment to resort to the use of force, and, as a last resort, to imperialist war.

A paradigmatic example today is Syria where the imperialist project commanded by the United States and the terrorist forces against the legitimate government of President Bashar Háfez al-Ásad who, whit the military, logistical and strategic support that Russia lends him as an allied power, exterminating extremist groups and liberating the territory in favor of the Arab nation. In this case, it is irrelevant if the Imperial Presidency is occupied by Obama, Clinton, or Trump. Ultimately, the only thing that changes is the “style of governing” but only within the structural context of the geopolitical and military interests that predominate it. That is why it is an illusion to think that the course of history would change if Clinton or another person had been elected over Trump. For example, in both cases there would have been no change in the behaviour of the United States towards Latin America in terms of trying to defeat progressive governments (Venezuela, Bolivia and Ecuador) as they already have done in Argentina and, through a parliamentary coup, in Brazil in the interest of North American organizations such as the IMF and WB.

Another example is the racist and xenophobic tirade by President Trump against immigrant workers and, especially, against undocumented Mexican migrants whom he has insulted through stating that he belongs to the white bourgeoisie and that they are simply Indians, drug addicts, criminals, and rapists, threatening to deport them from his territory. Similarly, he has threatened to reject the “North American Free Trade Agreement” that has been commanded, since its inception, by the big transnational companies who are predominantly North American, including Canadian and some Mexican businessmen, who are completely subordinated to their interests and mandate. In this respect, there has been a series of worries, alarms and tearful auguries that affirm that if this Pan-Americanist trade agreement were to disappear, the whole world would enter into a situation of chaos and anarchy, and the whole (capitalist) system would come to an end. These predictions reveal the extent to which great international capitalists invest and act in that ominous agreement. Of course, this calamitous scenario is promoted by the hegemonic media with a seat in the developed countries of advanced capitalism and their correspondents in the underdeveloped countries, generally dependent of and promoters of the dominant ideologies and therefore playing a central role.

Imperialist protectionism

As the representative of the interests of the factions of industrial capital in the United States, President Trump has proposed to boost a kind of protectionism, even threatening to sanction and tax businesses that look to invest and take their factories abroad, particularly to Mexico where real wages per hour are at around ten or fourteen times lower than in the United States. The deception in this policy is not so much that it cannot be practiced in real life, as has been shown in the different phases of the history of capitalism. It is more so due to the fact that his proposal, that has a certain dose of demagogy coming from a businessman-president prone to liberalism, is made in a moment when global capitalism finds itself submerged in a profound structural crisis. A crisis that is not just commercial, financial, trade and monetary, but also a natural crisis that is much more complex and profound. A crisis that is expressed in the ever more difficult ways that this system can produce the value and surplus sufficient to reverse today’s economic recession and, at the same time, predicting a new phase of growth of the global economy (Sotelo, 2010 & 2015). Although significantly lower than what was recorded in the period after World War II (called the “glorious 30 years”) a gloomy picture of quasi-stagnation is presented, only solved by the dynamic economies such as China and India who are nevertheless also presenting difficulties in recent months that concern the monetary and financial circles and businessmen of the West.

This is, then, the scenario of capitalist crisis in which the US government will have to operate for the next few years under the presidency of the Presbyterian D. Trump and, it seems, this will not just be a job for one government, but also for the other conservative governments of Europe, of Japan and Latin America, particularly, where rights and social gains have been drastically reversed against workers and the people as in Argentina and Brazil.

The crisis in Mexico is not just because of the uncertainties and convulsions of the national monetary and financial system caused by the presidential elections in the United States — and that actually benefits speculators and rentiers — but, fundamentally, because of the structural historical condition of the country’s dependence on the dynamics of the US economic cycle which subsumes virtually all of the Mexican macroeconomic variables to its designs. To such a degree that at present the pattern of accumulation of manufacturing-export capital depends on more than 80% of North American imports, enough for the government in power to the North to make it difficult for commercial transactions between both countries. Similar to the Cuban boycott, it submerges the national economy in a deep pit hardly surmountable under the vicissitudes of the validity of neoliberal policies widely promoted by the government regime led by the PRI and the Mexican partycracy.

This regime is precisely the fundamental variable necessary in order to keep things as they are, independent of the changes that have occurred in the North American political system. The Mexican authorities have their arms folded in response to the declarations of the new government of that country and have rushed to take a series of measures framed as so-called structural reforms (energy, labor, financial, educational). They have privatized public enterprises, particularly the energy sector, and sacrificed the rights and living and working conditions of the population by cutting social budgets in the areas of education, housing, health, pensions. They do this as a way to try and ease the difficulties rooted in the profound economic crisis of the country as well as to preserve their interests as the dominant class in a country that is dependent and underdeveloped before the power of the new imperialist bloc led by President Trump.

Everything points to the government and the lumpen-bourgeoisie businesses of Mexico maintaining their status as dependents and subordinates to the strategic interests of imperialism. In this scenario, it is probable that the political and social situation of the country, while it will become ever more complex, of course, will continue to be a huge problem for the majority of the people.

The gradual and surreptitious delivery of Mexican territory to transnational companies in energy, mining, water, natural resources, infrastructure, etc., adds to the historical-structural dependence of the country a new neocolonial status. A status that is entirely favorable to the geopolitical and strategic-military interests of the United States which, as we have already stated, under the permanence of this condition of dependent subordination of the country, will only expand and deepen under the auspices of the government of President Trump in the next four years and, probably, for another four years, until 2025, if he is re-elected by the College of Electors once his first term ends.

Crisis of imperialism, crisis of capitalism

The backdrop of the Obama administration fell like a heavy slab on a government that reaped the most negative results of recent decades. Not just because the Democratic candidate lost the elections, after having shown that she had the support of Wall Street and financial capital, but also because she had practically lost the war in Syria. The legitimate government of that country, with overwhelming military support from the Russian government, was able to finally liberate the strategic city of Aleppo, pushing out the terrorist forces that sought to divide the country favoring the geopolitical interests and strategies of the West and the United States. Lacking arguments to justify said defeat, the outgoing President Barack Obama accused Vladimir Putin of being Trump’s “promoter”; the architect of his triumph through “cyber-spying” practices used against the Democrats and their presidential candidate. The same candidate that was investigated and discredited by the FBI in a sort of “soft coup” using controversial emails that incriminated her in endangering the security of the State.

During his annual speech, the Russian president pronounced himself on this case: “the administration of the outgoing United States President, Barack Obama, divided the nation due to calling for a rejection of the new president-elect (Donald Trump); this is a step toward dividing the nation”. He also reminded his audience that the Democratic Party did not only lose the presidential elections but also the Senate and Congress where the Republicans now have the majority of seats. He then, ironically asked: “was this also my doing?”, alluding to the accusations that make him directly responsible. “All of this demonstrates that the current administration suffers from structural problems and the elites of the Democratic Party do not understand reality”. He took advantage to affirm “… I see the data that says that 37% of the Republican Party voters sympathize with the President of Russia… this means that a great part of the United States public has the same idea about how the world should be, our common problems and dangers” (EFE and AP, Moscow, Russia, December 23, 2016).

These facts show, in the context of the crisis of the international capitalist system a point of inflection in word history characterized by the relative decline of the United States hegemony. They also show the emergence of new powers such as Russia, China, India, Iran, North Korea, among the most important and with undoubted nuclear capacity to destroy the planet several times over.

It is not by chance, therefore, that the rhetoric of the United States president resuscitates the old protectionist and nationalist policies and ideologies entangled with a furious racism, an exacerbated xenophobia and the practically unrealisable promise to recover the so-called “American exceptionalism” for “the good of the American people”, returning the historic imperial power which it had against most nations, particularly after the World War II. This “ideal” of the elected business magnate only helps to remind us of that phrase which was impregnated with racist stench, written by California’s State Attorney in 1930: “… It was us, the whites, that founded America first and we want to protect ourselves in our enjoyment of it” (Chomsky, 2011: 4).

In the mind of President Trump there is a dangerous imperial hologram that radiates rays of light in opaque circles that gradually dissipate until they practically vanish. Flanked by borders and walls that divide them, not only geographically, physically, territorially, and culturally, the United States intends to “shield itself” from “external enemies” such as the bulky and “dangerous” human crowds, like the millions of undocumented Mexican workers, that the new government equates to terrorists. It intends to do this by using its powerful military and anti-immigrant paramilitary groups (such as the official border patrol) and racists (such as the Ku Klux Klan), which most of the time is supported and promoted by the government of (okay? Yes) the United States. This is just a continuation and deepening of Obama’s “border security”, in other words its militarization, only now it is presented by Trump.

Up until now the Mexican authorities have done nothing but wait docilely, hoping for the new government of the United States to “sit down and negotiate”. It has to be made clear that you can only negotiate between equals and not while you are a subordinate as is the historical status for governments of nations that are dependent and oppressed as is the Mexican nation, who share similar migration policies towards its southern neighbour states with its northern neighbor, and to which they have always remained silent and submissive when it comes to deportations, murders, massacres and the ruthless super-exploitation of undocumented workers who receive some of the lowest wages in the world.

The delusions that things will improve when both countries feel they are negotiating, is not only a chimera, but a way of covering up their behavior, the harsh reality for millions of workers who cross the border every day in search of the much-sought and now deteriorating “American way of life”: in reality super-exploitation, precariousness of work and the ripping apart of social life.

One of the comparative advantages between Mexico and the United States, in terms of immigration and the cycle of capital, has been precisely the economic annexation of the former by the latter, which has led, historically, to agricultural and manufacturing production based largely on export maquiladoras. The Mexican economic system has specialized in the massive export of supernumerary, cheap, docile and flexible workforce that has practically no human and labor rights and that has nurtured the ranks of the army of workers in the United States allowing the bosses of this country to obtain large and juicy profits in their industries.

Therefore, undocumented activity is not, as the American president thinks, something harmful for the economic cycle and the reproduction of capital. On the contrary, it turns out to be the greatest advantage that North American capitalism has to obtain high rates of exploitation and masses of surplus value derived fundamentally from the combined mechanisms of intensive and extensive labor and the very low salaries that, even today, are below the wages of Chinese workers and other countries of the so-called third world.

This is one of the advantages that explains the historical dynamism of the US economy at least since the 1960s. That is why we say that the protectionist policies that President Donald Trump threatens to impose as part of his safety and labor policies in practice are not only doomed to failure. They will also have to be reworked according to reality, to a global competitive capitalism which is in crisis and whose internal dynamics of operation has installed super-exploitation of labor as the best system of production of surplus value and capital accumulation based on labor flexibility, labor deregulation, low wages, and on the monumental precarization of the components of the world of work and in the savage rejection of workers’ social and contractual rights practically all over the planet (SOTELO, 2018).

Following are just some of the myths that mobilized sectors of the electorate, including Hispanics, to vote for the Republican candidate: a) Immigrants take American jobs. b) there being a very limited number of jobs, a greater number of immigrants will bring more competition that will put a downward pressure on salaries. c) Undocumented workers, foreigners, particularly Mexicans that constitute the majority, are vicious, rapists and criminals, the reason why social life in North America is degraded. d) North American unions are against immigration because it harms the white American working class. e) Immigrants do not pay taxes. f) They are a burden on the economy. g) They send remittances to their countries of origin “damaging” the United States. h) They are a “danger” because they are invading the United States (CHOMSKY, 2011).

All these arguments-fallacies-myths promoted widely by the dominant media caught the minds and consciousness of North American society which is currently enveloped in a deep crisis —which, among other explanations, is the crisis of the “American way of life” and the so-called Welfare State. A society that is extremely malleable to the manipulation of the mass media and social media networks. These media outlets being the ones who introject, like a gospel yet lacking the message of the bona spe. Ideas that configure an ideological result, leading to the election of President Trump, which was unexpected indeed by most polls and experts.

Obviously, this ideological spectrum promulgated by the US ruling classes and the national and international media, harms the Mexico-US relationship and, in particular, casts shadows of uncertainty on the population of both countries. Above all, in Mexico, if we consider that currently, in the face of the structural, financial and monetary crisis, remittances are the central element in obtaining foreign currency in the face of the precipitous fall of oil and tourism derivatives. The latter case being due to the widespread violation of human rights as well as the official violence of the repressive and counterinsurgent practices of the Mexican State and, finally, to the generalized climate of insecurity in the country that “scares” tourists.

Under the current block of bourgeois power made up by the dependent dominant classes, especially by its monopolistic and financial factions completely committed to the dynamics of capital accumulation of the United States; by the partycracy, the leadership of corporate unionism and under the influence of irregular criminal groups that operate at ease throughout the country, it is practically impossible to think that the situation will change favorably in Mexico for the national and undocumented population under the Trump administration.

On the contrary, under the auspices of the crisis of the current pattern of accumulation and reproduction of the dependent capital specialized in manufacturing and maquiladora production for the world market, in particular, for the United States, the processes and trends that underpin the medium and long terms are those of deepening the structural and financial crisis of world capitalism that will become more extensive and profound. The United States itself, with the implementation of its protectionist and restrictive policies, now has to deal with problems arising from the necessary increase to military spending in order to counteract the growing nuclear power headed by Russia and China.

We insist that all these social, political, cultural, geo-strategic and military problems that surround the practices of imperialism on a global scale, in no way depends on the personality of those who temporarily assume the political power of the hitherto still greatest power of the planet (United States). Rather, it is the historical-structural conditions of multiple relationships and determinations of class struggles, economic and political crises, natural calamities and environmental disasters. It is the implementation of neoliberal economic policies under the auspices of the International Monetary Fund and the World Bank. It is the annexation of countries and territories, coups d’états, crises of bourgeois democracy and an endless number of problems whose solution is far from being found. These are what in the long term determine the action of the rulers and the peculiar way in which they affect the course of its development.

The new power of the protectionist United States is to deploy an imperialist praxis both within the United States, towards its own working class, its citizens, the undocumented, immigrants, health policies, salaries, education and social welfare among others, as well as its foreign policy vis-a-vis the great powers of the world and of regions such as Latin America.


In short, more than a crisis of globalization or of the “free market” economy linked to the neoliberal capitalist practices, the current systemic and civilizational crisis is part of a secular cycle of decline not only of Capitalism as a form of accumulation and exploitation of labor power, but as a mode of production and life, in which humanity no longer has any future or, if it does, it is from the perspective of barbarism, its own extinction.


¬ LIPSET, Seymour Martin, El excepcionalismo norteamericano. Una espada de dos filos, FCE México, 2000.

¬ SAPIR, Jacques, El nuevo siglo XXI. Del siglo americano al retorno de las naciones, El Viejo Topo, Madrid, 2008.

¬ SOTELO, Valencia, Adrián, Crisis capitalista y desmedida del valor: un enfoque desde los Grundrisse, coedición Editorial ITACA-UNAM-FCPyS, México, 2010.

¬ SOTELO, Valencia, Adrián, The Future of Work: Superexploitation&Social Precariousness in the 21st Century, Brill, Boston, USA, Brill, Boston, USA, 2015.

¬ SOTELO, Valencia, Adrián, United States. Geopolitics of the super-exploitation and the precariousness of work in a world in crisis (to be published).

¬ CHOMSKY, Aviva, Nos quitan nuestros trabajos y 20 mitos más sobre la inmigración, Editorial Haymarket Brooks, Chicago, Illinois, 2011.