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Review-a-Day
The Atlantic Monthly
Tuesday, July 2nd, 2002


 

The Boom and the Bubble: The US in the World Economy

by Robert Brenner

A review by Jack Beatty

In this careful study of "The US in the World Economy" (his subtitle), Robert Brenner includes more than fifty full-page tables documenting arcana such as "Manufacturing net profit rates indices: US, Germany, and Japan 1978-99" and the riveting "Index of corporate profits after tax net of interest versus New York Stock Exchange Index, 1980-2000." This strenuous statistical display is in the service of a question: Has the U.S. economy transcended the dynamics that led to more than twenty years of stagnation, 1973-1995, or will these re-emerge now that the economic boom and the stock-market bubble of the 1990s are over? Karl Marx, unmentioned by Brenner, defined the basic problem that afflicted the economy in the years leading up to 1973. It is the "anarchy of production," which leads capitalists to keep making things even when no market exists for them, leaving too many goods for too few customers. Brenner argues that this — not the spike in world energy prices brought on by the Arab oil embargo of that year — caused the plunge in manifold measures of economic progress after 1973. Glut resulted in stagnation, and glut, according to a 1999 survey in The Economist, is returning: In cars alone "[there is a] 30% unused capacity worldwide — yet new factories in Asia are still coming on stream." Over-investment and overproduction are the specters haunting the world economy.

For a hundred years after Marx the anarchy of production was sidestepped by the extension of markets within and among economies. Of equal importance was the invention of market arrangements — monopoly and oligopoly — that curbed the inherent disorder of capitalism. These inhibitions on the systemic tendency to glut weakened after the recovered European and Japanese economies began to export goods on a large scale to the United States. From 1965 to 1973 the rate of profit on the fixed capital assets of U.S. manufacturers fell by 43.5 percent. For worldwide manufacturing it fell by about 25 percent. The relative growth of the postwar era yielded to product-by-product competition between economies — Toyota versus Ford, for instance. The goal of U.S. economic policy over the next two decades, Brenner shows exhaustively, was to preserve our manufacturing base by manipulating the dollar, by enforcing selective protectionism, and by cajoling our trading partners into bailing out our manufacturers. U.S. manufacturers could have reacted to overcapacity by shifting resources "[from] over-supplied lines into new ones, where potential profitability was higher." Instead they chose to make more of the oversupplied goods. To compensate for falling profits they cut costs, especially wages, which from 1979 to 1995 grew by only an average of 0.65 percent a year — the result, in part, of management resistance to organizing drives. Union membership among manufacturing workers declined from 38.8 percent in 1973 to 17.6 percent in 1995. But restraining wages, however sensible for an individual industry or company, was irrational for the economy as a whole, threatening to shrink even further the falling or debt-haunted demand that is oversupply's invariable companion.

In Brenner's account, the boom and bubble of the nineties expansion was a holiday from the underlying crisis, a triumph of euphoria that merely served the celebrators' own ends. Alan Greenspan emerges as a kind of Ponzi of the money supply, who fed the stock-market bubble to sustain the boom, inducing the "irrational exuberance" he decried.

If the uneven development of the postwar era allowed the United States and the recovering industrial economies to grow in tandem, the "uneven development in reverse" of the 1980s and 1990s was more like a beggar-thy-neighbor growth, with the manufacturing economy of one nation flourishing only at the expense of another's. In the 1980s the Japanese and the Germans had to "rescue a crisis-bound US manufacturing economy that was being brought down by a fast-rising dollar in the context of international over-capacity and over-production." In the mid-1990s it had "become similarly necessary" for the United States to rescue the Japanese. Brenner is too much the scholar to venture beyond his evidence, but its implications are portentous. Future economic historians will make manufacturing in 2000 analogous with agriculture in 1900: just as the productivity revolution in farming meant that fewer farms and farmers were needed to supply growing numbers of people, the productivity revolution in manufacturing — robots in the role of tractors — means that manufacturing will be able to employ only a fraction of its current work force. The resulting shake-out will have incalculable social and political reverberations in the century ahead. Until it ends, the anarchy of production is likely to continue unabated.


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