Paul Krugman and Joseph Stiglitz may be celebrity economists, but it is an economic historian whose earlier work focused on the origins of capitalism in late feudal Europe who has turned out the most compelling and comprehensive account of the crisis gripping contemporary global capitalism.

UCLA Professor Robert Brenner’s recent work is a solidly argued and empirically impeccable restatement of the centrality of overproduction in capitalism–a problem that has preoccupied thinkers as diverse as Marx, Joseph Schumpeter, Joan Robinson, Ernest Mandel, Paul Baran and Paul Sweezy. Brenner’s distinctive contribution is to sketch out the specific dynamics and consequences of overproduction or underconsumption in the era of integrated, globalized production and markets. The picture he draws is not one of corporations denationalized by economic integration and states whose powers have been eroded, as in much current writing on globalization. In Brenner’s global economy, state elites battle to gain a competitive edge for their corporate elites. But if national competition is central, so is the common interest among the competing elites of the central economies to expand the global economy. The trajectory of the US economy is largely determined by this volatile relationship of competition with and dependence on the other global capitalist centers of Europe, Japan and–though to a much lesser degree–East Asia.

The Argument

In Brenner’s view, the post-World War II era is divided into a period of dynamic global economic expansion from the late 1940s to the early 1970s and one marked by persistent crises and uneven growth since then–a relatively dismal period broken only by the seven-year US boom in the 1990s. Whereas in the first phase, the United States, Europe and Japan derived mutual benefit from global expansion, from the early 1970s on, economic growth became largely a zero-sum game, in which one center economy’s advance was purchased with stagnation or recession in its neighbors.

Since the 1970s, the key problem for the center economies has been a chronic tendency toward overcapacity and thus a steady decline in profitability. Disposing of old capital stock, increasing productivity and regaining profitability has been an urgent need of each center economy, but achieving it has run into opposition from established monopolies, organized labor and powerful rival center economies.

By delinking the dollar from the gold standard and effectively devaluing it, the Nixon Administration hoped to steal a march on its rivals. It was, however, left to the Reagan Administration to decisively restore the American economy’s edge, and this it did via three mechanisms: breaking organized labor to hold down wages; maintaining high interest rates to attract capital to the United States; and engineering the infamous “Plaza Accord” in 1985, which drastically pushed up the value of the yen and set the stage for the “relentless rise” of the mark to make the Japanese and German manufacturing sectors bear the lion’s share of adjustment. In a global economy marked by overcapacity, the result was eventually to push both Japan and Germany into recession and lay the ground for greater US competitiveness and profitability in the late 1980s and early 1990s.

The effect was, however, two-edged, for even as US manufacturing regained profitability, it was also threatened by the prolonged recession that settled over Japan and Germany, which degraded the capacity of these economies to absorb US exports, which had served as a key engine of the US manufacturing recovery. In an increasingly integrated global economy, Brenner points out, “the fact remains that while the US economic revival took place largely at the expense of its leading rivals, that it had to do so was ultimately at the cost of the US economy itself.” Consequently, Washington under the Clinton Administration engineered the “reverse Plaza Accord” in the mid-1990s, when the value of the dollar was allowed to rise relative to the yen in an effort to help spark an export-led recovery in Japan. Just as the Plaza Accord had essentially been a rescue operation of US industry by Japan and Germany, so was the Clinton-Rubin reversal of the rising dollar a US-engineered bailout of Japan’s crisis-bound manufacturing sector.

This move, however, failed to spark sustained economic revival in Japan. And a great part of the reason was that the global overcapacity problem had become even more acute owing to the Japanese conglomerates’ moving a great many of their labor-intensive manufacturing operations to China and East Asia, precisely to escape being rendered noncompetitive by the rising yen. But even as it failed to reactivate the Japanese economy, the reverse Plaza Accord played a key role in undermining the competitiveness of the Northeast Asian and Southeast Asian economies whose currencies were tied to the rising dollar. When these economies, with their sizable markets, collapsed during the East Asian financial crisis in 1997-98, the global crisis of overproduction intensified.

Tied to an increasingly integrated but keenly competitive global production system and market, the US manufacturing sector saw its profits stop growing after 1997. By the end of the decade, the gap between capacity and output was, according to The Economist, the largest since the Great Depression. By April 2001, practically all key industrial sectors were suffering tremendous overcapacity, with the worst situation existing in the telecommunications sector, where only 2.5 percent of the infrastructure laid down was being utilized.

With manufacturing and the rest of the “real economy” ceasing to absorb investment profitably, capital migrated to the speculative sector, where a period of hyperactive growth in high-technology stocks was carefully nursed by the low-interest-rate policy and “New Economy” talk of Federal Reserve Chairman Alan Greenspan. Grounded in the illusion of future profitability of high-tech firms, the dot-com phenomenon extended the run by about two years. “Never before in US history,” Brenner contends, “had the stock market played such a direct, and decisive, role in financing non-financial corporations, and thereby powering the growth of capital expenditures and in this way the real economy. Never before had a US economic expansion become so dependent upon the stock market’s ascent.”

But with the profitability of the financial sector being dependent on the underlying, actual profitability of the manufacturing sector, the finance-driven growth ultimately had to run out of steam. The dizzying rise in market capitalization of nonfinancial corporations from $4.8 billion in 1994 to $15.6 trillion in the first quarter of 2000 represented what Brenner characterizes as an “absurd disconnection between the rise of paper wealth and the growth of actual output, and particularly of profits, in the underlying economy.” The loss of $7 trillion in paper wealth in the stock market collapse that began in March 2000 represented the rude reassertion of the reality of a global economy crippled by overcapacity, overproduction and lack of profitability. With the mechanism of “stock-market Keynesianism” having been exhausted, the capacity of the US economy to avoid a serious and prolonged downturn has been greatly eroded, though Brenner is cautious about writing it off.

Missing: Kondratieff and China

The Brenner canvas of postwar expansion and decline has a remarkable affinity to the theory of the early Soviet-era economist Nikolai Kondratieff that capitalism moves forward in fifty-to-sixty-year “waves” that ascend, crest and descend into a deep trough. Yet, surprisingly, The Boom and the Bubble does not contain a single reference to Kondratieff.

This is intriguing.

Perhaps Brenner is trying to distance himself from deterministic interpretations of Kondratieff, which have either posited the exploitation and exhaustion of new technologies as the central driver of long-wave activity or proclaimed the inevitability of a massive, Great Depression-like crisis.

If this is the case, Brenner is right to be wary of sounding apocalyptic, given the resiliency that has enabled US-dominated global capitalism to surmount crises in the past five decades. He fails, however, to discuss the factor that should serve as the greatest reason for caution: China. China’s potential role of serving as an exit strategy for the current crisis of overcapacity is underlined by the fact that it has absorbed a yearly average of $45 billion in foreign capital since the late 1990s, making it by far the biggest recipient of foreign investment in the South. China is, however, still focused on export-oriented production, making it a critical contributor to global overcapacity. Should China turn toward a strategy of hitching capitalist growth principally to the expansion of domestic purchasing power, it could turn into the engine that would ward off, perhaps for a few decades, the specter of global stagnation. Already China is the world’s largest market for cellular phones, and troubled Ericsson’s move to establish a manufacturing base there indicates that key players in the crisis-ridden telecom sector see their salvation in China.

Missing: The Crisis of Reproduction

Barring a sharp turn by China’s leaders, the likelihood of a Kondratieff-like deflationary–if not depressive–phase is really great at this point. One is not likely, however, to draw this grim conclusion from an analysis that hews narrowly, as Brenner’s does, to developments at the level of production, to the dynamics of overproduction. Focused at that level, the furthest Brenner can go is to state that “it is not easy to see what forces exist to push the economy forward.”

However, what is unique about the current conjuncture is the coming together of a crisis of production and a crisis of reproduction of the system, the latter referring to the re-creation of the political and cultural context necessary for global capitalism to survive and thrive. Global politics, the dynamics of cultural hegemony and the interplay of key institutional actors are what is missing in Brenner’s broad canvas, and these are the elements whose interaction will determine whether or not the consequences of the crisis of overcapacity can be contained.

Despite capitalism’s famed resiliency, containment of the crisis at the level of production is increasingly less of an option owing to the current intersection of the crisis of overproduction with three related “superstructural” crises–something that either did not occur earlier in the post-World War II period or was marked by much less intensity.

The “crisis of legitimacy” refers to the increasing inability of the neoliberal ideology that underpins today’s global capitalism to persuade people of its viability as a system of production, exchange and distribution. The disaster wrought by structural adjustment in Africa and Latin America; the chain reaction of financial crises in Mexico, Asia, Brazil, Russia, Argentina and on Wall Street; and the massive combination of extensive fraud and spectacular wiping out of investors’ wealth have all eaten away at the credibility of the system. The legitimacy of the transnational corporation–the engine of the system–is at its lowest in years, with more than 70 percent of Americans claiming even before Enron erupted that corporations had too much power over their lives. Also plunged into a crisis of credibility are those institutions that serve as capitalism’s system of global economic governance–the International Monetary Fund, the World Bank and the World Trade Organization–making them the weak link in the system.

Paralleling this crisis is mounting disaffection with Washington- or Westminster-type liberal democracies that have served as a central stabilization mechanism for global capitalism in the South–a site that hardly makes an appearance on Brenner’s stage yet has constantly been a critical point of vulnerability in the stable reproduction of the system globally. In places like the Philippines, Pakistan, Brazil and Venezuela, popular disillusionment with socially riven, economically stagnant electoral democracies oiled by money politics is rife among the lower classes and even the middle class; in the case of Pakistan, it is one of the factors that allowed General Musharraf to seize power.

But the crisis of legitimacy of liberal democracy is not limited to the South. It is also shaking up the United States, Japan and Europe. Beneath George Bush’s post-9/11 poll popularity continues to stir the widespread pre-9/11 feeling that, owing to overweening corporate influence, plutocracy and not democracy is now the US system of government. Despite Washington’s current posturing about punishing corporate fraud, the spectacular developments on Wall Street are perceived as a moral collapse in which both economic and political elites are implicated.

In Japan, ineptitude is the key characteristic associated by citizens with the interest-group-ridden conservative democracy that has presided over a decade of stagnation and decline.

While there is also much concern about corporate control of political party finances in Europe, an even greater subverter of democratic legitimacy is the widespread anger over the nontransparent process that technocratic elites allied to corporate elites have–in the name of European integration and technocratic and market rationality–eroded the principle of subsidiarity by funneling effective political and economic decision-making upward to techno-corporate structures, at the apex of which stands the European Commission, that are largely unaccountable to electorates on the ground. Electoral revolts like those associated with Jean-Marie Le Pen in France and the assassinated Pim Fortuyn in the Netherlands are manifestations of deep alienation with technocratic democracy.

Finally, there is the strategic crisis brought about by politico-military “overextension.” While there may be factions in Washington that see “military Keynesianism” as a way out of the current economic impasse, in fact the military equation at this juncture might be more of an unraveling factor. The recent expansion of US military influence into Afghanistan, the Philippines, South Asia and Central Asia may communicate strength. Yet, despite all this movement, the United States has not been able to consolidate victory anywhere–certainly not in Afghanistan, where nascent anarchy, and not a stable pro-US regime, reigns. Indeed, it is arguable that because of the massive disaffection the United States has created throughout the Muslim world, Washington’s political-military moves, including its pro-Israel policies, have worsened rather than improved the US strategic situation in the Middle East. This sense of being strapped into the roller coaster of overextension is probably what accounts for the reluctance of some factions in the Pentagon to follow the Cheney-Rumsfeld-Wolfowitz lobby’s push to invade Iraq. Meanwhile, even as Washington is obsessed with terrorism in the Middle East, political rebellions against neoliberalism are shaking up its Latin American backyard.

Kondratieff’s portrait of crisis was hardly deterministic. In his schema it was the volatile interaction of production and political and ideological crises that facilitated the descent of the long waves from crest to trough in the 1880s and again in the 1930s. The situation today, more than fifty years after the beginning of the post-World War II economic ascent, is analogous. Robert Brenner provides us with an insightful guide to the roots and dynamics of the crisis of the system of production, one that is more reliable than most of the treatises turned out by the hotshot deserters from the collapsing neoclassical paradigm. But his superb analysis of the crisis of production needs to be supplemented with an exploration of the parallel crisis of the system of reproduction to bring home both the depth of capitalism’s contemporary crisis and the volatility of the conjuncture.