A General Crisis of Capitalism will Soon Break Out

EDITOR’S NOTE: This essay insightfully and convincingly shows that capitalism has always depended for its life on exporting the “enclosure movement”, i.e., colonization, and contempt for human rights, i.e., killing, bullying and exploiting the disadvantaged, exporting surplus products and capital, and exporting pollution and war, in exchange for rich booties, cheap natural resources, cheap labor, and extra rich profits, making it possible to maintain the “welfare state” without reducing the rich’s extra fat gains, i.e., maintain temporary peace between the rich and the poor at home. When, however, with “globalization” of the capitalist economy, all this “exchange” between the “inside” and the “outside” becomes “inside” affairs within a closed system, capitalism is doomed. So, globalization of capitalism is not, as some famous scholar alleged, the end of history, but the end of capitalism.

The U.S. subprime crisis, the European sovereign debt crisis, China’s domestic demand deficiency, and carbon emissions reduction are the four issues that have been focusing global attention in the recent past. What do these issues signify? How will they develop? Where will they bring us to? These are the questions having been vehemently debated by world media and analysts.

Many people look at the four issues as mutually isolated ones: The subprime crisis is a problem with the U.S., due to lack of self-discipline and moral degradation of its financial institutions and abuse of credit by its poor people; The sovereign debt crisis is a problem with some of the European countries, due to their blindly and inflexibly sticking to high-level social welfare, that have forced their governments to get big loans from the Union by giving false information; Insufficient demand is a problem with China, due to her purposely keeping RMB currency rate at a low level to maintain the export orientation for her economy; Carbon reduction is even more separable from the other issues, having only to do with the environment and technology.

To many people, to talk about the crisis of capitalism is something outdated and even pedantic, because this was a Marxist theme and, with the collapse of the Soviet Union, and the opening up of China signifying the defeat of communism by capitalism, Marxism no longer holds water.

Obviously, those who are optimistic about capitalism and despise Marxism do not really understand the much-touted capitalism, nor Marxism, either. They are not aware that, ever since the very moment when capitalism was thought to have defeated communism, the moment when the Soviet Union collapsed and China opened up, capitalism has started to sink rapidly into the abyss of a general crisis.

The joining of former USSR member states and China into the capitalist world, especially that of China, has led to two important structural changes: a) Capitalism has expanded from a part of the world to all over the globe; and b) The natural environment can no longer be counted as a separable outside world, separable in the sense that human beings can extract material resources from there inexhaustibly and dump contaminant wastes in there unscrupulously without negatively affecting the capitalized human world itself. The existence of a non-capitalist world and a separable natural world has been a crucial condition for the survival and continuation of capitalism. And their being annexed into the capitalist human world has transformed capitalism from an open system into a closed one.

Before the former USSR and China were incorporated into the capitalist system, capitalism was still a regional existence from the global perspective. In 1990, the territories of the two countries combined amounted to over one fifth of all global land surfaces with more than a quarter of the world’s population.

At the same time, in spite of the two oil crises, which gave the capitalist world a first taste of resource shortage, though caused more by political reasons, world oil reserve life kept growing longer and longer in 1970s-80s, as more and more petroleum resources were discovered and oil extraction technology kept improving. Therefore, resource shortage was not commonly considered an issue yet. What is more important is that the public was not aware yet how serious the greenhouse effect was.

Of all the classical schools of economic thought up to the present, Marxism has presented the most profound insight into economic crisis. All other schools, whether Keynesian, or the Australian, or the Monetarist, or Schumpeter’s theory of “business cycles”, are one-sided.

Marx holds that economic crisis is an inherent attribute of capitalism. In a capitalist society, income distribution is spontaneously polarized: of the total profits, too much go to capitalists while too little to workers. While workers’ income is more spent on consumption, capitalists’ more on investment. Hence, the polarization of income distribution inevitably leads to a growth of production much faster than that of consumption, that is, overproduction, and finally to economic crisis.

Once there is overproduction, it would not be profitable to invest in the real economy, which leads to overcapitalization, i.e., too much money for too few investment opportunities, or so-called “excess liquidity”. Excess liquidity originates in overproduction, which in turn originates in aggravated inequality in income distribution.

Therefore, Marx holds that underconsumption, or overproduction, is the inevitable consequence of capitalist operation; that economic crisis is the inescapable fate of capitalism; and that capitalism is doomed for self-destruction. Marx’s conclusion is: to eliminate economic crisis, capitalism must be done away with and replaced by communism with public ownership of means of production. The reason is: public ownership of means of production will block the polarization of income distribution at its root.

During the one and half centuries since Marx drew that conclusion, however, capitalism has been showing a thriving tendency instead of withering away. Hence, some people jeered at him much earlier for his misjudgment, or even accused him of being stupid.

Marx was not wrong, but his theory was founded on a basic presumption, that is, that capitalism is a closed system without out-going channels for releasing excess production capacity, i.e., without external means for easing internal production situation.

When forming his theoretical model, Marx observed and studied capitalism in its purest sense, or ultimate sense, considering only the decisive inner factors while ignoring external conditions. But it is just those external conditions that have caused the lapse in his theory.

These external conditions are: the existence of a non-capitalist world, which co-existed side by side with the capitalist one; and that of the natural world, in which the capitalist world is situated.

The incursion of the non-capitalist world has yielded two positive results for the capitalist countries: discovery of new markets for dumping products, thus releasing their internal pressure of excess production capacity; and availability of cheap raw materials and cheap labor, making it possible to reduce production costs and hence commodity prices, thus expanding their internal consumption. The two results have greatly eased the internal situation of excess production in the capitalist world.

Capitalist exploitation of the non-capitalist world have been carried out in the following ways: In Africa, European colonists opened up plantations, dumped products, and trafficked in black slaves; In the Americas and Australia, they massively slaughtered native inhabitants, developed plantations, and dumped products; In Asia, the Britons ruled over India directly, dumped British textile products there, and obtained from there a continual supply of agricultural products and other raw materials; they forced their way into China on gunboats, compelled her to trade with foreigners, dumped opium and other British products there, and imposed huge indemnities on her government to be paid in silver.

The first result is either the capability of making new products meeting potential consumption demands not yet satisfied, or the reduction of costs in producing existing lines of goods, thus being able to lower their prices and expand their consumption on existing markets. Both results will promote sales, assimilate production capacity surplus and ease overproduction.

The second result is further changing or damaging the natural environment. Technology means the skills for changing nature in ways as suit human needs. The more advanced the technology, the more changed the nature. Take for instance the production line invented by Ford. It is a progress in technology that led to sharp cuts in production cost and big increase of automobile sale. When sale goes up, the demand for steel products, rubber etc. will also go up. More iron ore and coal have to be excavated and more rubber trees planted. Hence greater changes in the natural environment where there are iron- and coalmines, rubber plantations, and coal-burning factories. One of the grave consequences is global warming due to increasing emissions of carbon dioxide. Wealth is actually the parts of nature that have been changed by technology. More wealth means more parts of nature changed.

With its triumph over communism and encompassing the former USSR and China in its sphere, capitalism has been rapidly globalized and the non-capitalist part of the world dwindled away almost completely. Thus, the capitalist world has become a closed one, without an outside non-capitalist world as an outlet for its excess production capacity and surplus products.

At the same time, in combination with the rapid progress of information-based technology, the domination of the whole world by big capital has stimulated excess growth of production capacity, excess demand for natural resources, and thus over accelerated change of nature. The negative impact of tremendous changes of nature has become more and more obvious, especially since the turn of the century, in the following two aspects: the shortage of resources is becoming ever more severe, and carbon emission and pollution ever more worsening. The global warming induced by greenhouse effect is especially worrisome and a global agreement on gas emission reduction is yet to be reached.

Thus, to release excess production capacity through further incursion into nature by way of technical progress is no longer an efficient path, as more products to produce and sell means more consumption of natural resources, which is no longer possible, and more emission of greenhouse gas, which is no longer allowed.

In a word, with no non-capitalist world co-existing and with a natural world totally integrated into the human society, the present situation confronting capitalism has fully met the condition presumed by Marx, that is, operating as a closed system.

Is there, then, excess production capacity in the present capitalist world? Unfortunately, yes. As a matter of fact, there is too much excess production capacity in the world today, as seen in the simultaneous happening of U.S. subprime crisis, European sovereign debt crisis, and China’s domestic demand deficiency, etc.

The United States, the European Union, and China are the biggest three economies of the present-day world, of which the former two are both suffering from a debt crisis, either in the private sector or in government administration. No matter whether borrowed by private individuals or by the government, both kinds of loans have been spent on consumption or to boost domestic consuming capacity. Americans borrowed money to buy houses, which directly boosts consumption; while the Greek and other European governments borrowed money to pay for high welfare benefits at home, which also becomes, directly or indirectly, part of domestic consuming capacity. Now that the debt situations have become crises, which mean that they cannot afford to pay back, future consuming capacity in both the U.S. and in the E.U. will be greatly constricted.

China does not have a debt crisis, but there is explicit deficiency of domestic demand, deficiency in consuming capacity. It is interesting if we look at the issue the other way round: the reason why China has all along a problem with domestic demand is just because the poor cannot borrow money for consumption nor does the government borrow money to promote social welfare; while the reason why there has been no problem with domestic demand in the U.S. and the E.U. is because the poor can borrow for consumption and their governments are willing to borrow to maintain social welfare.

To sum up: the fully globalized and, therefore, closed system of capitalist economy today, threatened with severe resource shortage and confronted with the pressure for carbon emission reduction, can no longer ease overproduction so as to maintain its survival and sustainability through incursions into a non-capitalist world and further into the world of nature. And, unfortunately, severe overproduction has actually appeared, as shown in the European-American debt crises and China’s demand deficiency.

Therefore, Marx’s prediction one and a half centuries ago will soon be a reality — the general crisis of capitalism is coming near. None of the governments and peoples of the world should think that they can get away with it.