Just Like My Dreams They Fade and Die

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Review of 'The Boom and the Bubble', Robert Brenner, Verso £15.00

Amid the dismal picture global capitalism has presented since its supposed 'triumph' in 1989, there has been one apparent success story--the United States. The boom of the second half of the 1990s was hailed as the emergence of a 'New Economy' powered by information technology that was no longer subject to the normal ups and downs of the capitalist cycle. Despite the sharp recession experienced by the US manufacturing industry and the collapse of the Wall Street stockmarket boom in the last two years, many business boosters still claim that the US economy is about to resume the spectacular expansion of the late 1990s.

Understanding the real dynamics of US capitalism therefore urgently demands clear and critical thinking. The Marxist historian Robert Brenner takes us some way towards such an understanding in his latest book. The Boom and the Bubble punctures many myths. Brenner points out that 'during the first half of the 1990s, all three great capitalist economic blocs experienced their poorest economic performance by any standard measure for any five-year period since 1945'. The second and third biggest economies--Japan and Germany--performed even worse in the second half of the decade than they had in the first.

Only the US economy began to grow relatively quickly, but even then at a lower rate than at the height of the postwar boom in the 1960s. Brenner argues that US labour productivity grew in the late 1990s at a rate that, while the fastest for 20 years, was lower than that of the 1960s, and that some European economies performed just as well. More important, the partial recovery in productivity growth was driven by a massive surge in investment.

This investment boom had two major causes. The first was a significant rise in the rate of profit. US capitalists reacted to the economic slumps of the mid-1970s and early 1980s by ruthlessly restructuring their firms, writing off outdated plant and equipment, laying off huge numbers of workers, and driving down the wages of those still left in jobs. They were also helped by the devaluation of the dollar that followed the 1985 Plaza agreement among the leading capitalist states.

This recovery in US competitiveness put the German and Japanese economies under increasing pressure. To help Japan recover from the stagnation in which it has been trapped since the collapse of the speculative 'bubble economy' at the beginning of the 1990s, the Clinton administration let the dollar rise against other currencies. This began to squeeze the profitability of US exporters, and of the other east Asian economies, whose currencies were tied to the dollar.

The reaction of the US state to the crisis that then swept Asia in 1997-98 and threatened to bring down the world economy provided the second driving force of the boom. Alan Greenspan, chairman of the US Federal Reserve Board, slashed interest rates and did everything he could to expand the stockmarket bubble. Higher share prices encouraged companies and wealthy households (Brenner shows that most Americans didn't get a look in at the Wall Street bubble) to borrow heavily to finance, respectively, investment and consumption.

This 'stock market Keynesianism' which kept the US boom going for another two and half years till the fall in the rate of profit in manufacturing that started in 1997 dragged the whole economy down. Even now, the New Economy sectors--technology, media, and communications in particular--are stuck with vast productive capacity that they built in the expectation that the boom would continue but cannot now profitably use. Brenner concludes that Japanese-style stagnation is a real possibility facing US capitalism.

Brenner provides a valuable reconstruction, supported by carefully marshalled and analysed statistical evidence, of the changes in fortunes experienced by the leading capitalist powers in the past 20 years. He also puts the movement of the rate of profit--for Marx the fundamental cause of economic crises--at the centre of his analysis. Unfortunately, Brenner is sceptical about Marx's own explanation of the falling rate of profit, and his analysis treats changes in real wages and in exchange rates as mainly responsible for shifts in profitability. This means that his argument gives us more insight into the short term mechanics than the long term dynamics of the era of capitalist crises that began in the early 1970s. For all that, there is much to learn from in 'The Boom and the Bubble'.