The Age of Monopoly

8/14/2019 The Age of Monopoly

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The Age of Monopoly-Finance Capital

John Bellamy Foster

(Notes from the Editors

This article was written for presentation in a panel on Capitalism in Crisis at theWorkshop on Marxist Theory and Practice in the World Today, Ho Chi Minh Academyof Politics and Public Administration, Hanoi, Vietnam, December 15, 2009.)

Three years ago, in December 2006, I wrote an article for Monthly Review entitledMonopoly-Finance Capital. The occasion was the anniversary of Paul Baran and PaulSweezys Monopoly Capital, published four decades earlier in 1966. The mostimportant question to address on the fortieth anniversary of Baran and Sweezys book, I

wrote, is:

Has capitalism changed, evolving still further within or even beyond the monopoly stageas they described it? There is of course no easy answer to this question. As in the case ofall major historical developments what is most evident in retrospect is the contradictorynature of the changes that have taken place since the mid-1960s. On the one hand, it isclear that the system has not yet found a way to move forward with respect to its drivingforce: the process of capital accumulation. The stagnation impasse described inMonopoly Capital has worsened: the underlying disease has spread and deepened whilenew corrosive symptoms have come into being. On the other hand, the system has foundnew ways of reproducing itself, and capital has paradoxically even prospered within this

impasse, through the explosive growth of finance.I will provisionally call this newhybrid phase of the system monopoly-finance capital.

The article went on to discuss the dual reality of stagnant growth (or stagnation) andfinancialization, characterizing the advanced economies in this phase of capitalism. Iconcluded that this pointed to two possibilities: (1) a major financial and economic crisisin the form of global debt meltdown and debt-deflation, and (2) a prolongation of thesymbiotic stagnation-financialization relationship of monopoly-finance capital.1 In fact,what we have experienced in the last two years, I would argue, is each of thesesequentially: the worst financial-economic crisis since the 1930s, and then the systemendeavoring to right itself by returning to financialization as its normal means ofcountering stagnation.2 It is thus doubly clear today that we are in a new phase ofcapitalism. In what follows, I shall attempt to outline the logic of this argument, as itevolved out of the work of Baran, Sweezy, and Harry Magdoff in particular, and how itrelates to our present economic and social predicament.

The Monopoly Stage


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In Monopoly Capital, Baran and Sweezy described advanced capitalism, exemplified bythe United States, as an economic and social order dominated by giant, monopolistic (oroligopolistic) corporationsthe product of the concentration and centralization ofproduction described by Marx in Capital. The central trait of the system was a tendencyfor surplus (value) to risea phenomenon made possible by the effective banning of

genuine price competition in mature, monopolistic industries, together with continuallyrising productivity. Under these conditions, the main economic constraint was no longerthe generation of surplus, but rather its absorption, i.e., a chronic lack of effectivedemand.3

In the usual analysis of capitalist spending, surplus can be absorbed in two ways: (1)capitalist consumption, and (2) investment. Capitalist consumption runs up against theinner dynamic of capital itself (Accumulate! Accumulate! That is Moses and theProphets!), while corporations normally refrain from carrying out net investment ifexpected profits on new investment are weak. Such expectations are affected by theexisting level of capacity utilization in industry; the presence of idle plant and equipment

deters business from investing in still more capacity. Since a rising surplus tendency,moreover, generally means that real wages are rising less than productivity (i.e., workersare more exploited), wage-based consumption is chronically weak relative to societyscapacity to produce, resulting in increasing excess capacity, and the atrophy of netinvestment. Under monopoly capital the long-term growth trend is therefore sluggish,characterized by a wide, and even widening, underemployment gap. The economy, inother words, falls far short of its potential growth rate, with underutilization of labor andcapital goods. Hence, the normal state of the monopoly capitalist economy, Baran andSweezy argued, was stagnation or an underlying trend of slow growth.

Economic stagnation, in this sense, should not be confused with technological orconsumer-product stagnation. Indeed, the constant development of the technology ofproduction that characterizes capitalism in general (including its monopoly stage) onlyincreases the productive potential of the system, intensifying its overaccumulationtendencies. The system could conceivably be rescued from its economic doldrums underthese circumstances by the appearance of an epoch-making innovation on the scale of thesteam engine, the railroad, and the automobile, in terms of total economic-geographicaleffectsgenerating a vast demand for new investment, independent of existing incomeconstraints. Yet no such epoch-making innovation, Baran and Sweezy argued, was on thehorizon.

It was true that monopoly capital had proven extremely innovative in generatingmountains of new consumer productsthe result, in numerous cases, not of thesatisfaction of genuine needs but of the artificial manufacture of wants. But, despite itsfabled creative destruction and the proliferation of waste, the system was unable toovercome a chronic tendency to market saturation.4

Monopoly Capital was published at the end point of the post-Second World Wareconomic golden agea period seemingly far removed from stagnation. This was atime when mainstream economists (not for the last time) were proclaiming the end of the


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business cycle. But the prosperity of the system in the mid-1960s, Baran and Sweezyinsisted, was attributable to a number of special stimuli outside the normal economicprocess that acted as countervailing factors to stagnation. Some of these were temporary,others more or less permanent. Of the more or less permanent factors, they pointed to amassive sales effort, which had penetrated the production process itself, together with the

growth of FIRE (finance, insurance, and real estate). Militarism and imperialism, in theform of the Cold War and the wars in Korea and Vietnam, had also boosted themonopoly capitalist economy by soaking up unused productive capacity. In contrast,civilian government spending, as a share of GDP in the United States, they argued, hadalready reached its outer limits in the late 1930s, thereby limiting its stimulative role.(This has remained true up to the present day, with civilian government consumption andinvestment as a percentage of GDP over the last four decades staying at approximatelythe same level as in the late 1930s.)5 The overall analysis pointed to a system in whichvarious countervailing factors were insufficient in the long run to keep it from sinkingback into stagnation.

Stagnation and the Financial Explosion

Capitalism fell into a severe crisis in the early to mid-1970s. But rather than astraightforward phenomenon of stagnation, what emerged was stagflation (i.e., a sluggisheconomy plus inflation). The dominant interpretation was that inflation was the realculprit, and hence the main strategy became one of economic restructuring in its variousrubrics: monetarism, supply-side economics, neoliberalism. The Age of Hayek replacedthe Age of Keynes. Federal Reserve Board Chairman Paul Volckers interest rate shockin the late 1970s, which ushered in the third world debt crisis, was part of this wholerepressive shift. In the United States, a new wave of military spending and imperialinterventionism was coupled with efforts to curtail the income of the working class,redistributing income and wealth from the poor to the rich. Internationally, this took theform of global restructuring with third world debt as its leverage, ushering in a period ofneoliberal globalization.

Sweezy and Magdoff (who joined the former as coeditor of Monthly Review in 1969)continued to argue throughout this period that stagnation constituted the underlyingtendency of the monopoly capitalist economy and that the growing weaknesses inproduction or the real economy were papered over by the massive increase of finance. Inthe 1970s and 1980s, they published The End of Prosperity (1977), Stagnation and theFinancial Explosion (1987), and other works, focusing on the constant expansion of thefinancial superstructure of the capitalist economy on top of a productive base thatincreasingly showed signs of structural weakness. Among the forces countering thetendency to stagnation, they observed in the latter work, none has been more importantor less understood by economic analysts than the growth, beginning in the 1960s andrapidly gaining momentum after the severe recession of the mid-1970s, of the countrysdebt structure (government, corporate, and individual) at a pace far exceeding thesluggish expansion of the underlying real economy. The result has been the emergenceof an unprecedentedly huge and fragile financial superstructure subject to stresses andstrains that increasingly threaten the stability of the economy as a whole.6


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The trends in the speculative growth of the credit-debt system identified by Magdoff andSweezy only accelerated over the succeeding decades. Total private debt in the U.S.economy rose from 110 percent of GDP in 1970 to 293 percent of in 2007. (Aggregatedebt, including government debt held by the public, rose from 150 percent of GDP in

1970 to 346 percent in 2007.) Financial instability was increasingly evident in recurrentcredit crunches. The growth of debt, Monthly Review argued, was like a drug addiction,in the sense that more and more of the drug was necessary to get the same stimulatingeffect, along with the slow deterioration of the morphological condition of the subject. Inthe 1970s, the increase in U.S. GDP was about sixty cents for every new dollar of debt.By the early 2000s, this had declined to about 20 cents for every new dollar of debt.

During the last forty years (1970-2010), the U.S. economy, and the world economy as awholedespite rapid growth in parts of Asiahas experienced a secular slowdown. Therate of growth (adjusted for inflation) of the U.S. economy has slowly subsided, decadeby decade: it was lower in the 1970s than in the 1960s; lower in the 1980s and 90s than

in the 1970s; and lower in 2000-09 than in the 1980s and 90s. Net non-residentialinvestment declined from 4.8 percent of GDP in 1965-1966 to 2.6 percent in 2005-2006.Real hourly wages of nonagricultural workers peaked in 1972, and, by 2006, had fallenback to their 1967 level. While wage and salary disbursements as a percentage of GDPdropped from 53 percent in 1970 to 46 percent in 2006. The same general tendency tostagnation affected Europe and Japan as well.7

Financialization

By the late 1980s (following the 1987 stock market crash) and continuing into the late1990s, Sweezy was wrestling with the notion of financialization as a more or less permanent tendency of advanced monopoly capitalismthe other side of thestagnationist coin. In 1997 he wrote: the three most important underlying trends in therecent history of capitalism, the period beginning with the recession of 1974-75 [are]: (1)the slowing down of the overall rate of growth; (2) the worldwide proliferation ofmonopolistic (or oligopolistic) multinational corporations; and (3) what may be called thefinancialization of the capital accumulation process. (Globalization, a fourth trend, heargued, was a much longer, more complex, variegated phenomenon, reflecting the growthof imperialism, and going back to the very beginnings of the capitalist world economy.)8

Financialization can be defined as the shift in the center of gravity of the capitalisteconomy, from production to finance. Financial crisis and instability, Sweezy observed,had always been an element at the peak of the business cycle. But how did one explainthe expansion of financialization as a long-term trend? Was it possible that financialspeculation now managed to feed not on rapid growth, but on slow growthinvertingpast historical experience? It was obvious that corporations and wealthy investors thathad surplus at their disposal sought to preserve and expand their money capital in the faceof vanishing investment opportunities by pouring it into speculation in a variety of assets.Financial institutions, it was no less apparent, were able to provide a seemingly infinitesupply of exotic and opaque financial instruments: all sorts of futures, options, and


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derivatives. But the continuation of such a casino economy over decadesalbeitinterrupted by credit crunches, with the central banks intervening as lenders of last resortto keep the whole game goingrepresented nothing less than a qualitative transformationin the capitalist economy.

As Sweezy posed the problem in a twenty-five year retrospective on Monopoly Capital:In the established tradition of both mainstream and Marxian economies, we [had] treatedcapital accumulation as being essentially a matter of adding to the stock of existingcapital goods. But, in reality, this is only one aspect of the process. Accumulation is alsoa matter of adding to the stock of financial assets. The two aspects are, of course,interrelated, but the nature of this interrelation is problematic to say the least.9 Still, anumber of aspects of this interrelation were increasingly evident:

Financialization could help lift a stagnant economy, through the employment created inthe FIRE sector and all sorts of wealth effects that translated increased asset prices intonew demand.

Financialization was unable to alter the underlying problem of stagnation withinproduction, and, in some ways, even aggravated it.Growth of finance relative to the real economy also meant the appearance of financialbubbles that threatened to burst.The monopoly capitalist economy was increasingly dependent on the central banks aslenders of last resort to provide liquidity and capital in the event of a financial crisis.The more the central banks were effective at preventing the financial system fromcollapsing; the more they set things up for bigger crises down the line.If financial bubbles got big enough, they could overwhelm the capacity of central banksand the treasury departments of states to cope with the situation, in which case a seriousdebt deflation was conceivable.Economic power was shifting from corporate boardrooms to financial institutions andmarkets, affecting the entire capitalist world economy in complex ways, through aprocess of financial globalization.The growing role of finance was evident not just in the expansion of financialcorporations but also in the growth of the financial subsidiaries and activities of non-financial corporations, so that the distinction between the financial and non-financialcorporations, while still significant, became increasingly blurred.Financialization in the 1980s and 90s was the main new force in the much longer-termglobalization process, and was the defining element in the whole era of neoliberaleconomic policy.Financialization was increasingly interconnected in complex ways with government debt,transforming the role of deficits, particularly in the United States, the center of globalfinancialization.Given deep-seated stagnation tendencies, there was no alternative for the capitalisteconomy but continuing financialization.10The Great Financial Crisis and the Second Contraction

Building on this general model, we first mentioned the bursting of the real estate/housingbubble in Monthly Review as a potential destabilizing force in the U.S economyin an


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article that I wrote together with Harry Magdoff and Robert McChesneyin November2002. This was followed up with an article the following spring entitled WhatRecovery? in which we contended: The housing bubble may well be stretched about asthin as it can get without bursting. As the problem became still more critical, I wroteThe Household Debt Bubble for the May 2006 issue of Monthly Reviewpointing to

the unsustainable borrowing on home mortgages (with the greatest burdens falling onworkers), and the possibility of a bursting of the bubble with economy-wide effects. Thiswas followed by Fred Magdoffs November 2006 article on the The Explosion of Debtand Speculation. So, while some specific aspects of the first onset of the crisis in the latesummer of 2007 came as a surprise to us, the general development did not.11

As Carmen Reinhart and Kenneth Rogoff have indicated in This Time Is Different: EightCenturies of Financial Folly: Financial crises seldom occur in a vacuum. More oftenthan not, a financial crisis begins only after a real shock slows the pace of the economy;thus it serves as an amplifying mechanism rather than a trigger. What these sameauthors call the Second Contraction (the Great Depression was the First Contraction) can

thus be interpretedin the logic of our analysis hereas arising from stagnationaryforces leading to the bursting of the financial bubble, which then acted as an amplifyingmechanism.12

The Great Financial Crisis itself can be seen as kind of mean reversion of financialprofits back to the underlying stagnant growth trend in the real economy, resulting intrillions of dollars in losses. This, then, constituted a crisis of financializationof themain means of countering stagnation in production. In eighteen months, betweenSeptember 2007 and March 2009, $50 trillion in global assets were erased, including $7trillion in U.S. stock market wealth and $6 trillion in U.S. housing wealth. By earlyMarch 2009, the Dow Jones Industrial Average, adjusted for inflation, had fallen back toits 1966 leveli.e., to the point that it was at when Baran and Sweezy publishedMonopoly Capital more than four decades earlier.13

Today, in what appears to be a major reversala mere year and a few months after thecollapse of Lehman Brothers in late 2008, which generated fears of a complete meltdownof the financial systemwe are seeing the beginnings of an historically unprecedentedasset price driven recovery.14 The main strategy of the advanced capitalist states hasevolved from an immediate financial bailout, involving tens of trillions of dollars, to amuch more concerted attempt, for which there are no real historical analogies, to reinstatefinancialization as the motor force of the system. This, however, carries obvious dangers.In early November 2009, New York University economist Nouriel Roubini warned thatasset prices have gone through the roof since March in a major and synchronized rally,feeding what could turn out to be the mother of all highly leveraged global assetbubbles, encompassing a new US asset bubble. Later that month, Federal ReserveBoard Chairman Ben Bernanke cautiously responded to Wall Street concerns that thefinance-driven recovery posed the threat of a massive, soon-to-burst, asset bubble, bysimply stating (in a kind of non-denial denial): Its extraordinarily difficult to tell, butits not obvious to me[that] there are any large misalignments currently in the U.S.


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financial system. The Wall Street Journal ran this under the heading: Bernanke: NoObvious Asset Bubbles in the US Now.15

Wall Streets jitters, evident in late 2009, reflect the fact that financial markets haveballooned, with extraordinary rapidity, on top of a real economy in shambles. This has

raised fears, not so much of another bubble, but of a bubble that is inflating too fast andtoo massively, threatening to burst just as quickly and with devastating effect. AndrewHaldane, executive director for financial stability at the Bank of England, speaksominously of a doom loop. He estimates that the support that the United States andBritain have given to their banks in the current crisis amounts to nearly three-quarters ofthe GDP of these countries. This massive government support to financial institutions, heargues, is encouraging money managers to take on even greater speculative risks, settingthe stage for the next crash.16

Bubble driven economic growth, as Lawrence Summers, Obamas leading economicadvisor (director of the National Economic Council), observed in March 2009,

is problematic because of disruption and dislocationaffecting those who took part inthe bubbles excesses and those who did not. And, it is not entirely healthy even while itlasts. Between 2000 and 2007a period of solid aggregate economic growththetypical working-age household saw their income decline by nearly $2000. The decline inmiddle-class incomes even as the incomes of the top 1% skyrocketed has a number ofcauses, but one of them is surely rising asset prices and the fact that financial sectorprofits exploded to the point where they represented 40% of all corporate profits in 2006.

Summers, in issuing this statement, was well aware that there was no other recourse formonopoly-finance capital, and that the asset price inflation path to economic recovery,based on the financial bailout, carried this very danger. He thus sought to reassure hisaudience by declaring: of fundamental importance is ensuring that we do not exchange apainful recession for another unsustainable expansion. The official position of theObama administration is that another financial crash can be avoided by putting in placenew financial regulations.17 In reality, this fails to acknowledge both the structuralrelation between stagnation and finance, and the growing economic and political powerof finance.

Effective regulation of a financializing economy for any length of time is impossible forreasons that were explained two decades ago by Harry Magdoff: The more the debt-cum-speculation balloon is inflated, the more threatening does interference bygovernment regulators become, lest the balloon burst. Not only are central bankers andother officials restrained from interfering (except to rescue near-bankrupt large banks andgiant corporations), they are impelled to deregulate further in order to ease strains andovercome potential breaking points associated with financial excesses. On top of this,the growth of international capital markets limits the power of states to regulate them,forcing them to give way to financial market forces.18 Hence, although new regulationsmay be put in place, they will not, in the end, constitute effective restraints.


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The speed with which financialization was reinstated in the U.S. economy over the lastyear reflected the shift in power referred to above from boardrooms of non-financialcorporations to financial institutions and markets, which has increased even in the contextof the financial crisis. In 1990 the ten largest financial institutions in the United Statesaccounted for 10 percent of total U.S. financial industry assets. In 2008 this rose to over

60 percent. The same phenomenon is true globally with the ten largest banks in 2009accounting for 70 percent of global banking assets, compared with 59 percent in 2006.Under these circumstances, the fact that the top economic officials in the Obamaadministration all have direct ties to Wall Street is scarcely surprising.19

Although the U.S. economy is now exhibiting signs of an economic recovery, it is whatleading financial analyst David Rosenberg has called a Houdini Recovery. Fully 80percent of the total rise in profits in the United States in the third quarter of 2009 wasaccounted for by the financial sector (which represents only a quarter of the economy).Gross-value added in the non-financial corporate sector fell in the third quarter, for thefourth quarter in a row. Consumers are holding back on spending. Investment is still

weak. The increased profits in this putative recovery are a product of the weak dollar(which increases foreign-derived earnings), stagnant or falling unit labor costs (whichreflect the fact that unemployment is at the double digit level), and a decline in non-wageexpenses in the form of lower taxes, lower interest payments, etc. (due to stateinterventions).20

A New Stage of Accumulation?

The question I raised at the beginning of this article is: Has capitalism entered a newstage? In the 2006 article on Monopoly-Finance Capital I referred to monopoly-financecapital as a new phase of the monopoly stage of capitalism. If we see the stages ofcapitalismsay, nineteenth-century competitive capitalism and the twentieth-centurymonopoly capitalismas dynamic periods in which economic transformation creates thebasis of a whole new means of advance in accumulation, then the period of monopoly-finance capital does not seem to merit such a designation. Rather, the accumulation ofcapital has remained stagnant in the center of the system, while it has becomeincreasingly dependent on speculative finance to maintain what little growth there is.What we may be witnessing in the present phase is the weakening of capitalist productionat the advanced capitalist core as a result of a process of maturation of the accumulationprocess in these societies: hence, the stagnation-financialization trap. Financialization,however, has, paradoxically, helped to promote wealth and power in this context, creatinga complex, contradictory reality in the age of monopoly-finance capital. There can belittle doubt that this is an unstable situation, and that capital accumulation at the core ofthe system is, in many ways, running up against its historic limits.

The most complex issues facing us today, with respect to the economic workings of thesystem, are the most global ones. How is monopoly-finance capital related toimperialism, globalization, and financialization in the periphery of the world capitalisteconomy? This includes the question of the significance of the rise of the emergingcapitalist economies in Asia, particularly China and India today, but also South East Asia.


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There is no doubt that stagnation and financialization at the center of the capitalist worldeconomy are structurally related to new openings for export-driven industrialization inthe low-wage periphery. At the same time, the whole era of neoliberal financializationhas been tied to the third world debt crisis and to attempts to create a new financialarchitecture in underdeveloped economies, leading to new financial dependencies. Even

China and India, despite their huge economic advances, have not been able to break outof the imperial systems of foreign exchange and financial control, which leave them oftenpassively responding to initiatives determined primarily within the triad of the UnitedStates, Europe, and Japan. Emerging economies are now massive dollar creditors, yet theU.S. economy lies outside their control and continues to dictate the terms, reinforcingtheir reliance on external exportstogether with external outlets (and safe havens) for theresulting surplus. Financialization, with its attendant problems, is growing apace in Asiaas well. The World Bank, as reported by the Wall Street Journal, has recently raisedconcerns about asset price bubbles forming in Asia, particularly in real estate in China,Hong Kong, Singapore and Vietnam.21

According to Samir Amin, the dominant force in todays financialized globalization is theimperialist capitalism of oligopolies, of which financial oligopolies now constitute theheadquarters, backed up by the power of the states of the triad and the so-calledinternational economic organizations that primarily serve their interests (such as theWorld Bank and the IMF). This system can allow some degree of industrialization in theperiphery, but continues to seek to hold onto the reins of power through monopolies inforeign exchange, finance, technology, communications, strategic natural resources, andmilitary power.22

Worsening financial crises and the slowdown in the advanced capitalist economies showhow arthritic the overall system has become. The reality is that U.S. hegemony, thegeopolitical lynchpin of the empire of monopoly-finance capital, is in crisis. Thehegemony of the dollar, around which the whole world economy is organized, first cameinto question due to the vast export of dollars abroad at the time of the Vietnam War,causing Nixon to end the dollars conversion into gold. The dollar now appears to beresuming its secular decline, which could, at some point, usher in a global meltdown.23

Where all of this is leading us historically is, of course, difficult to say since theeconomic crisis tendencies of capitalism cannot be separated from larger social andenvironmental transformations operative on a global scale. World-system theoristImmanuel Wallerstein argues that we are currently in a transitionary phase between thecontemporary capitalist system and something else.24 In fact, the planetary ecologicalcrisis suggests that capitalist civilization may be generating a terminal crisis for the entireanthropocene era in earth history, which would inevitably spell, not only the demise ofcapitalism, butif we do not change coursecivilization as a whole.25

In the new speculative era, all that is solid is melting in air. In these difficult anddangerous times, there is no alternative to the development of socialist strategies ofsustainable human developmenton which all our hopes, at every level, must now rest.


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The Age of Monopoly

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