Review Article

Capitalism, Crisis and Ecology

Anirban Biswas

Saral Sarkar has been writing for many years on his favourite subject, eco-system. He is an eco-socialist par excellence. This encyclopaedic *work of his has encompassed a wide range of subjects, and pressed into service an astonishingly large number of facts and theories, and the opinions of different schools of economists at different phases of the history of the capitalist world since the early twentieth century. This book may be called a history of capitalism and economic theories in the twentieth century. Hence it can be safely argued that it is essential reading to all those interested in the subject.

The author starts from a discussion of the Marxist theory of crisis. In this chapter, which is incidentally the first chapter of the book, he has discussed the various versions of this crisis as advanced by eminent Marx-scholars, but has concluded dismissively, "My own explanation for the fact that capitalism has not collapsed yet, and my answer to the question of whether that will ever happen  ...have a lot to do with the limit to resources and the sinks of nature (i.e. the capacity of nature to absorb human-made pollution and environmental degradation)." This comment sums up the main thrust of the work. But he explicitly deals with this topic only in Chapter XI of the book and there are as many as ten chapters in between. These chapters are not, however, useless, because they dwell at length on the history of the different phases western capitalism has gone through ever since the 1920s. He has also discussed the various explanations and policy prescriptions that emerged in response to the different problems that capitalism continued to face in different periods including the present neo-liberal phase. Hence the book has many attractions for even a lay reader. The recent recession that is far from over as yet has created an interest in the history of earlier depressions and crises, and the remedial measures and the controversies related with these measures. One of the merits of Saral Sarkar's books lies in that here the reader will find his curiosity largely satisfied. In this work, the focus is on stagnation and crisis. What is really impressive is the author's familiarity with the writings of all eminent economists, who have written on this subject in different phases of stagnation. About the discussion of the first chapter, it may be said that in Marx' magnum opus, Das Capital, there is no consistently and systematically articulated theory of crisis, and Marxist scholars as well as political functionaries have debated over the subject for a long time. A crisis does not necessarily lead to a revolution, as history has shown. The October Revolution took place not because capitalist accumulation on a world-scale stopped, but because the conscious action of Russian Bolsheviks could successfully breach the weakest link in the chain of imperialism. This is a topic that the author would have done well to discuss. Yet it cannot be gainsaid that the chapter will familiarize the uninitiated with these theories, and the author's presentation of these theories is remarkably accurate.

The author's description of the great stock market crash of the 1920s and the great depression following it is also praiseworthy particularly because he has presented a lot of information, much of which is unknown to many, including the present reviewer. Sarkar has observed how a boom in production led first to a normal rise in share prices, then to a speculative boom and finally to the slump. His argument that the continuous fall in share prices led to a fall in consumption demand and hence a decline in output is fairly persuasive. About the recent recession, it can be said that the recession in the USA, by lowering the stock prices, hit the purchasers of those stocks spread across many countries. A second point to note that the USA served as a large market for the goods of other countries, including India and China, and this was another reason why the US-led recession hit these countries so severely. Here the crisis may be fitted into the theory of under consumption. One may try to discern the operation of the 'wealth effect' also. The discussion of the third chapter (The Saviors of Capitalism) begins with a presentation of main propositions of orthdox economics regarding the stability of capitalism, the new theories that emerged—it is interesting that the author has cited Schumpeter's work on Development, published in 1912 and recognizable as a break from the orthodox tradition—and how these theories were applied in formulating policy prescriptions. To the relatively uninitiated, the discussion is enlightening, although to those familiar with the history of macroeconomic thought, this would appear common knowledge. In any case, the discussion is refreshing. The discussion on the New Deal and the Nazi prescriptions is accurate as far as the presentation of historical events is concerned. The reviewer thinks that the emphasis on rearmament in Nazi Germany could have been discussed in a little more detail. The problem of unemployment was solved in Germany, but "a considerable part of the potential increase in the purchasing power of the broad masses of the population was allocated to armaments" (Michael Kalecki, 1935). The author's analysis of the similarity between Keynes's and Marx's ideas is meaningful, but a point should have been emphasized. Marx considered capitalism as a historical category, and wanted to find out its law of motion. Keynes's outlook was very much narrower and circumscribed by his concern about short-run problems ("in the long run, we are all dead") of capitalism. This narrow bourgeois outlook certainly stood in the way of a proper understanding of Marx. The author's account of the rise of Keynesianism is richly informative, and what is really commendable is that this account will enable even a lay reader, who has not attended any classroom lecture or read a textbook on Keynesian economics will be able to learn what Keynes really meant. The discussion on Schumpeter, who is now almost forgotten, is also useful and necessary. Schumpeter was concerned with unravelling the dynamics of the capitalist economy in his own way—in this sense he had a much broader vision than Keynes—and that is why his works should find a lasting place in the history of economic thought. The author has, however, correctly reminded readers that the long post-war boom should not be attributed only to the application of Keynesian economics.

The chapter on stagflation (a combination of inflation with stagnation) is worth reading. Orthodox economists tried to explain this phenomenon that emerged in the 1970s in terms of 'expected rate of inflation' and 'natural rate of unemployment'. When unemployment is greater than the natural rate, inflation may exist, but it is lower than the expected rate. In this way the concept of an 'expectations-augmented Phillips curve came to be developed.' Here the author rightly focuses attention on the successive oil price shocks, which fuelled inflation in the developed industrialized economies. Here it is tempting to quote the author: 'A larger portion of the industrialized countries' GDP flowed away into oil-exporting countries. And these countries did not spend all of this additional income on imports from industrialized countries. (P-98) But the question is why fighting inflation rather than fighting unemployment became the prime policy concern. One explanation might be that owing to the long boom, recessions and unemployment were no longer considered problems, and hence targeting inflation gradually became the major concern.  Another reason is the inability of the capitalist class to shift the burden of oil price shocks to the workers, who had passed many years in a state of welfare capitalism. Hence the former, aided by the ideologues, tried to impose some sort of political trade cycle, so as to keep a reserve army of labour in the name of 'sound finance'. This was the essential design of the concept of 'natural rate of unemployment', the message of which was that keeping inflation and inflationary expectations under control required accepting a certain, at times fairly high, rate of unemloyment. When, even during the downswing, wages rise, the new prosperity generation understandably became inclined to fighting wage inflation (and price inflation) rather than unemployment, because they had become convinced that unemployment would remain even with inflation.

The author's survey of the debate between Keynesians and monetarists is fairly detailed and his conclusion that ‘the distance between the two schools on this issue (the issue of employment and inflation) is much smaller than one might have thought’ is at least plausible. His elucidation of the 'supply-side economies', practiced by Ronald Regan and Margaret Thacher and resulting in inflation and a small rise in the rate of GDP growth, is also instructive. The attentive reader can also learn much from the author's analysis of the decline of Keynesianism in the West since the 1970s onwards. This decline had a serious politics and the play of powerful forces behind it, and the author unravels it. Here the opinions of economists like Amit Bhaduri and Joseph Steindel are echoed.

While discussing the decline of Keynesianism, the author cites the views of James Tobin, Joan Robinson and Richard Douthwaite. The former two are famous names, and Joan Robinson was a left Keynesian, who did not share Keynes's emotional attachment with the capitalist class. Douthwaite is a less known economist, but his views are important, at least in so far as he points out the role of banks and holders of big money capital in the rejection of Keynesianism. The author gives some other reasons, e.g. the expectation of anti-cyclical economic policy and the cautious attitude to new investments, the eruption of conflicts and the sway of the rich, the difficulty of limiting inflation in a situation of full employment, and the change in the attitude of the middle classes, who witnessed the phenomenon of stagflation. The arguments made by the author are thought provoking even if one may not agree with all of them.
The author has correctly argued that the phase of globalization that started decades earlier is not only internationalization of production, it is neo-liberal globalization in which capital is freely mobile, and market players freely trade in services and capital. He has also pointed out that labour, however, is not at all mobile. The author also describes in detail the debt crisis of the developing countries during the 1970s and the 1980s, and shows how enormous sums were transferred from the South to the North, which aggravated the crisis. The author also discusses the crash of 1987 and argues that the real economy could have been in a state of crisis but for the intervention of central banks, e.g. in Japan and the USA. The author has also discussed the success of the Clinton administration in creating jobs, and has given tentative explanations. The entire discussion is a strong rebuff to the economists like Jagdaish Bhagwati, brazen defenders of neo-liberal globalization.

The author's description of the economic situations in Latin American and East Asian countries in the 1990s is richly informative. But unfortunately sometimes the causal links in a transition from a recession to recovery are somewhat unclear. For example, as the author writes about Mexico, 'The growth rate fell from 4.5% in 1994 to—6.2% in 1995, and the unemployment rate rose from 3.5% in 1994 to 5.8% in 1995 (OECD 2004:203, 215). Wages fell, there were many demonstrations against the government, and the crime rate rose sharply.

In 1996, the crisis was overcome. The economy grew by 5.1% and unemployment fell to 4.4% (OECD). Also the national budget recorded a surplus. The foreign currency reserve reached the normal level and the confidence of foreign investors was restored. What the reader may fail to understand is how this recovery came about. In his almost graphic description of Argentina as well, such links are sometimes missing. In the seventh chapter of the book, the author has persuasively argued that in this era of neo-liberal globalization, the core Keynesian idea has failed. To quote his own words, 'Globalization has thrown a monkey wrench in the works of this idea'. (p-209) This view is in general true, but the author, although he has discussed the recent crisis in the final chapter, has failed to note the fact that this crisis is largely the crisis of globalization and in countries affected by this crisis, which first originated in the USA, Keynes is back with a vengeance. China is perhaps a glowing example of this. When globalization operates in full swing, bourgeois economics and bourgeois states may reject Keynes. But when globalization itself totters, they cannot but fall back on that old fogey. Again if ‘economic globalization is an ineluctable and logical outcome of the growth dynamics of capitalism’, this new Keynesianism must fail. Will capitalism then move towards another, more refined, version of the present globalization that has been passing through a severe crisis for the last six or seven years? The author, however, is convinced, quite correctly, that the privatization of deficit-financed economic stimulus cannot be the panacea. And his remark in this regard is cogent enough: 'We see therefore that for the purpose of stimulating the economy the state should rather impose higher taxes on the incomes of the wealthy. This alone is solid economic policy. However, politicians then reach the limit of their power in capitalism, where, in the final analysis, it is big money that determines policy.' This is where the inherent instability of capitalism comes out clearly. The author raises the issue of ecological balance and argues, plausibly enough , that while Keynes's neglect of this question may be forgiven, for the present Keynesians, this is an unpardonable offence.

The ninth chapter (Aspects of the Crisis of Capitalism) is interesting as well as insightful. The author is careful to distinguish between global capitalism and capitalism in itself, and argues that if the former breaks down, the latter will survive and continue to operate. This is a correct observation. Referring to the problem of unemployment and workers' discontent, the author asserts that unemployment is endemic to the capitalist system. While discussing the role of innovations in sustaining the economy, he, while arguing that some innovations, e.g. power generation from sunshine, wind etc may solve the present energy crisis, also points out that they are not commercially viable. This lack of viability may disappear in a more egalitarian and humane socio-economic system where money and commerce will cease to dictate the society, and the majority of the people will control the production processes. Under capitalism, such enterprises may not be economically viable, but one may dispense with the idea that capitalism is the terminus of history. The Soviet example is not very instructive in this regard, because whether and how far the Soviet State, which understandably went through many changes during its more than seven decades of existence, was a socialist state is debatable, simply because of the fact that those who announced the demise of socialism were themselves important functionaries of the communist party. This chapter also highlights other aspects of the crisis, namely increasing defensive and compensatory costs, rise in social violence etc.

In the tenth chapter, Sarkar brings more explicitly the issues of global warming, environmental degradation and depletion of non-renewable resources. He has also contested Marx's formulation of the labour theory of value. Marx's thesis of the value of a commodity being determined by the socially necessary labour time was based on the average technical conditions of production, and the vast labour-saving technological improvements that have since taken place does not negate this thesis. Of course, it is a pertinent question if scientists and inventors working under a corporation can be called wage-workers. The author has drawn attention to the pincer-grip crisis, which, he argues, originates from the laws of nature. In the penultimate chapter, the author, after discussing the views of Harry Shutt, an opponent of globalized neo-liberalism, Herman Daly, an ecological economist, and Johannes P Opschoor and Elmar Alvator, argues that neither global capitalism, nor cooperative capitalism are sustainable propositions. His own proposition comes out more clearly in his comment on Venezuela and Bolivia. 'On closer look, however, one does not see there a much more than a more egalitarian distribution and a (partial) nationalization of the oil and gas riches of the country. One could here speak of petro-socialism. It is, of course, better than petro-capitalism, but it can have only a short life in a few countries. It can remain alive only as long as fuel riches flow.' (P-314) It is, however, not clear what the author seeks to emphasize. Does he assert that practices of socialism will collapse when such riches will not be as abundant as they are now? He, however, makes his position clearer a little later. 'I believe an ecological socialism is the only alternative. Only with such socialism will we be able to overcome both the ecological and the social crises of the present.' ( p-315) But the problem is one cannot practice such socialism without some kind of socialist revolution.

The final chapter deals with the global crisis that is far from over as yet. The description of the course of the crisis in the first three years is fairly accurate. He has also brought into discussion the explanations of various economists and has rightly called them superficial. But he could have brought into discussion the views of economists like Fred Magdoff and Michael D Yates, which are not so superficial (Vide Magdoff and Yates : The ABCs of Economic Crisis,Monthly Review Press, 2009). The issue of limits to growth is important, but that is applicable to the capitalist world in general, and does not explain why the crisis erupted first in the USA. Finally, the author reverts to his emphasis on ecology. About the present crisis, he concedes that it is a crisis of (not 'crisis in') capitalism but argues that it is much more. ' It is the crisis of industrialism altogether, in whichever political frame it might be packed. ...Unfortunately, most ecological activists who are more or less critical of industrialism, at least those the present reviewer knows hesitate to clearly answer the question of what sort of apolitical-economic system should or could, replace capitalism and industrialism.' It may be said that all those who are concerned about the future of humanity must try to find out a really meaningful answer that is worth practicing. Such practice, however, may not turn out to be a peaceful one and vindicate Mao Zedong's idea that 'political power grows out of the barrel of a gun'. In conclusion, it can be said that the book is the work of a profound scholar who can write with authority and insight. The English translation of the original German version is excellent. All readers interested to know something about capitalism and economic thought in the twentieth century should benefit immensely from a reading of the book. ooo

*THE CRISIS OF CAPITALISM: A Different Study of Political Economy

by Saral Sarkar, Counterpoint, Berkeley, 368 pages, 2012.


Vol. 46, No. 39, Apr 6 - 12, 2014