"Historically, the processes of globalization have always been the result of active state policy and action, as opposed to the mere passive surrender of state sovereignty to market forces. Market forces cannot operate in a vacuum. They are governed by man-made rules. Globalized markets require the acceptance by local authorities of established rules of the dominant economy."

—Henry CK Liu, "Super Capitalism and Super Imperialism: A Structural Link", Asia Times Online, October 12, 2007

A tsunami is building deep within the base of our society that will erupt into an economic and political crisis of unprecedented proportions. All of society is struggling to adapt to the disruption created as the economy shifts from the one base to another. This process is extremely uneven as the changes in the economy that began with the introduction of qualitatively new means of production - the robotic revolution in the workplace - come up against static relations of production - the relationship between labor and capital.

The laws, institutions and culture of the nation-states throughout the world reflect, uphold and protect the property relations of an economic base dependent upon production with human labor. This economic base is coming to an end. The emerging and arising base of society is an economy that is global and able to produce immense wealth with electronic robotic automation without human labor.

For over thirty years, as this arising global economy has taken shape, the ruling national elites of the world have straddled the chasm created by this shift from one base to another. From the towers in which they reside along with their apologists in academia and the media, they claim unprecedented growth of the world economy, ignoring the billions who are homeless and starving. During this time, the U.S. corporate state emerged as the dominant force, ensuring the global stability of capital through its financial, military and political hegemony.

It carried off this global role from its national base in a quid pro quo that benefited the ruling elites of the world while offering the means to consume through debt, and an appearance of wealth for the "middle class" social base that provides popular support for the U.S. political elite.

The developing economic crisis is shattering the illusion of economic success and stability and bringing domestic and global challenges to the U.S. corporate state. The underlying instability created by the shift from one economic base to another is overflowing into the social and political sphere. This opens up the opportunity for revolutionary change - a political struggle between the ruling class seeking to hold on to its power, and the new class of dispossessed who must fight for survival in an economy where wage labor is no longer the means to a paycheck to buy necessities.

This crisis will reveal further fundamental class divisions hitherto hidden by the ability of many middle income Americans to hold on to the American dream. It will shake up whatever remains of "middle class" complacency, as hundreds of thousands are driven down into poverty and become part of the new proletariat. The political struggle will rise to a new level.

Like all crises of capitalism, the root of this crisis is the inability of workers to buy back the goods they produce. But this crisis is qualitatively different from all earlier crises that could be resolved within the capitalist system. The new means of production have created a permanent economy of overproduction. This crisis cannot be resolved within capitalism. Its onset has been held off by the corporate state, acting in the interests of the ruling class, but everything the ruling class and its corporate state do only increases the severity of the impending crisis. Each step they take further undermines capitalism itself and creates the conditions for a political crisis and revolutionary change.

The State and the Economy

Capitalism has never existed without laws and institutions establishing, upholding and protecting the property interests of the capitalist class. The cries for free markets and freedom from government control are veils to prevent labor from understanding the extent to which the state apparatus controls and shifts wealth and resources to protect the interests of the minority, who own the means of production, against the interests of the vast majority, who must work in order to survive.

This state intervention in the interests of capital has differed through each of the stages of the growth of capitalism, as can be seen by the difference between the state's response to the Great Depression of the 1930's and the state's response to the developing crisis today. The Great Depression of the 1930's took place before the shift to the new economic base,at a time when human labor was essential to industrial production. Confronted with the massive financial, economic and social disruption of the Great Depression, the Roosevelt administration's actions upheld and protected the capitalist relations of production based in industrial production.

The state acted decisively in several ways. It enacted numerous regulatory laws to control the excesses of the banks, market speculation and corporate manipulation that had led to the stock market crash of 1929. Acting on the theories of economist J.M. Keynes, the state put purchasing power in the hands of workers through a number of government programs to provide jobs and stimulate job creation, in order to pull industrial production out of the depression, and to quash the growing workers' movement strongly influenced by communists.

The Roosevelt administration sought to save capitalism, to save business from itself, by preventing the conditions for another cyclical crisis. The National Labor Relations Board was established to regulate labor unions, and set federal minimum wage laws. The Social Security Act was enacted to keep purchasing power in the hands of retired and unemployed workers, through retirement insurance, unemployment insurance, and federal grants to states for persons with special needs.

At the point when conditions leading to the current crisis started to emerge over thirty years ago, these protections, which were intended to prevent a future crisis, were summarily jettisoned.

State shifts role as economic base shifts

The role of the state shifted as the economic base of society changed with the introduction of revolutionary means of production in the 1970's. The new electronic technology led to plant closings, permanent layoffs and job losses, and initiated a long-term trend of declining standards of living, rising permanent unemployment and decline of manufacturing in the United States. As the global economy emerged, steel mills moved to Brazil, and Japanese car sales challenged the U.S. auto market. General Motors started a trend that has continued to the present by posting higher earnings from its financing section than its auto production.

As the economic base of society shifted, and robots replaced workers, the state no longer needed to serve capital by educating and maintaining a labor force. Thus began the outright assault on workers domestically and abroad, shifting wealth from the poor to the rich. They broke unions, cut taxes for the rich, and introduced a brutal neoliberal global free-trade offensive and anti-labor government trade policies, and dismantled the safety net. The costs of health care and pension plans were shifted from corporations to workers. Social security surpluses were diverted to the U.S. fiscal budget to offset deficits. Congress suspended state usury laws, opening the way for mortgage and credit abuses.

The double sucker punch to the working class through loss of jobs to robots and tearing up the safety net significantly undermined the ability of the American workers to buy the goods produced, and threatened to break the circuit of capital. The state intervened by setting the conditions for a consumer economy based on debt, asset inflation and speculation.

Thus, while workers of this country have been plunged into extreme poverty, the U.S. has become the consumer for the global economy. This was made possible by state policies and practices favoring the financial sector at the expense of the industrial sector, and through dollar hegemony.

In 1999, the Clinton administration repealed the Glass-Steagall Act, a Depression era law that prevented banks from merging with brokers. This deregulation gave vertical financial conglomerates the ability to package loans as investments, opening the way for the subprime debacle. Tax laws were passed to make debt leveraging and financial speculation more profitable than investing in industrial capital. While taxing workers' incomes to the max, the IRS treats the income from the financial, insurance and real estate sectors as untaxed costs.

Fiscal giveaways and Federal Reserve policies helped inflate the real estate bubble. By lending debtors enough money to pay the interest charges, the financial sector was protected from defaults through its claims on the rest of the economy, polarizing society between creditors at the top and an increasingly indebted base at the bottom.

Exponentially soaring debt overhead threatens to plunge the economy into chronic depression as interest and other financial charges eat further and further into the economy's ability to spend on consumption and tangible capital investment. To cover increasing interest payments, workers cut back on consumption, debt-wracked companies cut back on new capital investment, research and development, and governments at all levels cut back on spending on infrastructure and services.

These shifts in the economy and state were accompanied by an ideological tidal wave to convince the American people that the only way labor can prosper is to let capital achieve high returns. It pulled workers into overextended mortgage and consumer debt by convincing them that asset inflation was real growth of wealth and that asset prices would continue to rise indefinitely. Workers lost their homes to this imaginary fig leaf of paper wealth. The ideological tidal wave worked overtime to convince workers to abandon their collective defenses in favor of fending for themselves individually in the name of freedom. The freedom they found was the freedom to lose job security and see wages and benefits fall without any recourse in a world of global labor competition.

The path for the U.S. from leader of the capitalist world following World War II to today's dominance of the global economy began in the 1970's, when the Nixon administration took the dollar off the gold standard. Subsequently the administration forced the oil-producing countries to price oil in dollars, thus creating an international pool of petrodollars that became the reserve currency for nations throughout the world.

Dollar hegemony is the key to the quid pro quo that allows the U.S. to dominate the world without increasing taxes to cover the costs of its wars and military budget. Thus, the corporate state has been able to maintain its "middle class" support, while waging an assault on jobs and standards of living. Dollar hegemony frees the U.S. corporate state from normal competition in world trade to become a fiat-money-making monopoly. Every other trading nation has to exchange low-wage goods for dollars that the U.S. alone can print freely, and that can only be spent in the dollar economy. For exporting countries, like China and OPEC, with whom the U.S. has huge trade deficits, the dollars are used to purchase Treasury bills and thus they are financing the US budget deficit. Dollar hegemony has permitted the U.S. to spend billions on its bloated military budget and carry out preemptive and endless wars while granting generous tax breaks to the rich.

The IMF, the World Bank, NAFTA and similar trade agreements caused the destruction of foreign economies and drove down wages domestically and abroad. Financial deregulation created a global orgy of speculation. Real public and private investment were replaced by a fantastic world of derivatives, hedge funds, securitized derivatives and leverage-without-limit that fed off of the dot.com bubble and the housing bubble. Speculation and Ponzi schemes replaced production of commodities as the driving force of the U.S. economy, leading headlong to today's international banking and credit crisis.

The productive relations of capital have become global. The goods purchased by the American consumer are produced in other countries under obscene conditions with wages of $1.00 a day, child labor, workers enslaved to their machines, and twelve-hour working days. The manufacturing sector in the United States has declined to 10% of Gross Domestic Product while the ruling class ruthlessly drives down wages and demands greater productivity from workers forced to compete with robots and the global workforce, and in the process discards a global class of permanently unemployed workers, creating a new proletariat.

Capitalism moving toward its destruction

Globally, dollar hegemony places the U.S. in an extremely vulnerable position - at the mercy of other countries' central banks. At this time, China, OPEC and Europe support U.S. dollar hegemony, but China in particular is biding its time, not confronting the U.S. now, but preparing a strategy for survival and global dominance. In this current financial sector crisis, the seeds are planted for the beginning of the end of U.S. hegemony.

Domestically, the proposed mortgage bailout is a bailout of the banking and mortgage industry for which workers will pay the price. Job losses, home foreclosures, the falling value of the dollar, and inflation are driving down standards of living, as more and more people find themselves part of the new proletariat as the American dream becomes a nightmare.

There is increasing evidence that this current financial crisis is leading to a systemic meltdown with the financial sector collapsing, and the shutting down of manufacturing and service industries with massive unemployment. The state is responding with unprecedented actions to nationalize and centralize banking and financial institutions.

Whether this is the beginning of a major economic and political crisis or whether it is a further stage in the corporate state's intervention to stave off the crisis cannot be known. What is known is that global society is undergoing revolutionary change, and that economic and political crisis is inevitable.

Global forces and domestic forces are converging to challenge the U.S. state. As the foundation of capitalist relations of production is undermined by revolutionary changes in the means of production, the U.S. corporate state has successfully staved off economic crisis and dominated the global economy from its national base. Each action that the state takes to protect the capitalist class brings the economy closer to a major breakdown that opens up the opportunity for revolutionary change.

The ruling class and its corporate state are preparing to replace capitalism with a new form of private property and exploitation. Revolutionaries are preparing the new proletariat for a revolutionary change of power to reorganize society around communal ownership of the means of production - a communist society. The political battles over which outcome will prevail are becoming clearer and intensifying. The opportunity is great; the responsibility to fight to victory is even greater.

 

October.2008.Vol18.Ed5
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