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History & Theory

Left Debates: Fault Lines of the Global Crisis

Alex Callinicos, Bonfire of Illusions: The Twin Crises of the Liberal World, Polity, 2010

Review by Ashley Smith

Bonfire Of Illusions

We have entered a whole new, crisis-ridden and conflictual period in world history. The combination of George W. Bush’s disastrous occupation of Iraq and the global economic crisis has ripped apart the unipolar world order the United States attempted to construct after the Cold War. The so-called Washington Consensus is in tatters, the United Sates is bogged down in two disastrous occupations, and it faces new rivals, especially China, in an emerging multipolar world order.

The prolific Marxist writer Alex Callinicos deftly summarizes the fault lines of this new order in his new book Bonfire of Illusions, a popular outline of his more scholarly Imperialism and Global Political Economy. He argues that the twin crises of U.S. imperialism – the crisis of the free market and the occupation of Iraq – are rooted in the unresolved crisis of profitability and over accumulation that the world economy entered in the 1970s.

Despite its neoliberal policies, Callinicos argues, the United States has been unable to restore profits to the levels of the post-Second World War economic expansion called the long boom. To compensate for this underlying weakness, the United States turned to speculative finance and, especially after the Cold War, to its military power to maintain its dominance over the world system. In the wake of the twin crises, U.S. hegemony is now in decline. In successive chapters, he fleshes out the nature of the global economics crisis, the weakened state of U.S. imperialism, and a socialist alternative to the twin crises of the system.

He opens with a summary of the crisis of the system and the ideological convulsions it has caused. He shows how the neoliberal fantasies about a self-correcting market came crashing down with the investment bank Lehman Brothers. Neoliberals like Alan Greenspan were forced to admit flaws in their model of capitalism and endorse, the turn to state intervention. In the wake of neoliberal confusion, Callinicos shows how Keynesians, especially those influenced by Hyman Minsky, have advocated the reregulation of capitalism as a solution to the crisis. But as he shows, they fail to grasp the deep roots of the crisis in the system itself that regulation cannot overcome.

Marxism offers a far better explanation. In the tradition of Robert Brenner and the late Chris Harman, Callinicos argues the world economy never fully recovered from the crisis it went into in the 1970s. That crisis was rooted in a global rise in the organic composition of capital – the growth of technical investments over wage payments – expressed in overproduction of the means of production and commodities. Capitalists had built too many factories producing too many commodities that they could not sell at high enough rates of profit/ As a result, Callinicos contends, capitalism over the last forty years has suffered from “(i) a long-term crisis of over accumulation and profitability; (ii) a global financial system that is both chronically unstable and structurally unbalanced; and (iii) a growing reliance on credit bubbles to sustain economic expansion.”

While neoliberal policies smashed unions, cut workers’ standards of living, and deregulated the market, especially in finance, Callinicos argues they never overcame the persistent problem of over accumulation, the rise in the organic composition of capital, and the consequent squeeze on the rate of profit in the real economy.

Based on this argument, the British Socialist Workers Party went so far as to argue during the neoliberal boom of the 1990s that we had entered “the 1930s in slow motion.” Callinicos has retreated from this formulation in his books, as did his co-thinker Harman. Instead of denying the 1990s boom, Callinicos contends that it did not restore growth rates and profitability on par with the long boom, rather it relied on speculative bubbles – like the one in housing that popped, sending the economy back into crisis. In this model, the financialization of the economy is an expression of the underlying, long-term crisis in the system.

David McNally has subjected this theory to withering criticism in his article “From Financial Crisis to World Slump” published in Historical Materialism. Callinicos is forced in Bonfire to defend his reformulated view against McNally, and especially in a lengthy footnote, but even his new position is fairly unconvincing. His argument that the neoliberal boom’s growth and profitability rates do not compare to those of the long boom is a sleight of hand. The long boom was exceptional and dwarfs most booms in the history of capitalism. It was the result of peculiar conditions – the destruction of European and Japanese capital in the Second World War and the Cold War’s permanent arms economy. These maintained a low organic composition of capital and sustained the boom till the 1970s, when the classic dynamics of crisis returned to the economy.

A Real Boom and a Multipolar World

While not on par with the long boom, the last thirty years have produced an expansion of the system that is undeniable. Neoliberalism, however predatory and exploitative, did produce a boom, including ‘expanded reproduction’ of capital’ during the 1990s in the United States and Europe – two heartlands of the system. No doubt, Japan, which boomed in the 1980s, went through a long stagnation in the 1990s, but it was atypical. Moreover, the system produced new centers of capital accumulation in the so-called BRICs – Brazil, Russia, India, and China.

It simply won’t do, as Callinicos does, to dismiss the BRICs as a ‘broker’s fantasy’. He does, of course, admit the reality of the growth of China, but discounts the other countries’ growth as insignificant. In reality, as a recent issue of the Economist noted:

“Ten years ago rich countries dominated the world economy, contributing around two-thirds of global GDP after allowing for differences in purchasing power. Since then that share has fallen to just over half. In another decade it could be down to 40 percent. The bulk of global output will produced in the emerging world.”

As this journal has argued, there is no sense in denying the reality of the neoliberal boom. Of course, it was not on par in either growth rates or rates of profit with the long boom, and it has been interrupted by repeated crises of overproduction and exploded speculative bubbles every five to seven years. But such a pattern is fairly typical of the whole history of the system. Moreover, global GDP has expanded and, as the Economist notes, new centers of capital accumulation have arisen, most obviously China. The very dynamics of this boom produced the new global crisis, which has actually accelerated the shifting balance of power between states.

Callinicos, in the International Socialism journal as well as a sequence of books, has charted the shifting nature of these inter-imperial dynamics. In the 1995 book Marxism and the New Imperialism, he telescoped the development of a multipolar world order based on an exaggerated view of the economic crisis and decline of U.S. imperialism. Contrary to his expectations, the United States boomed in the 1990s and succeeded for a period in incorporating rivals into a neoliberal Washington Consensus of free-market capitalism.

The disastrous Iraq War and the economic crisis brought an end to that imperial order and precipitated the decline of U.S. imperial power. Nowhere was this more clearly demonstrated than in the inability of the United States to defend its ally Georgia against Russian imperialism. As Callinicos argues, “the war between Russia and Georgia made visible what is now widely believed to be the major long-term consequence of the Iraq war – namely, that far from affirming and entrenching U.S. primacy, the seizure of Iraq at once exposed and magnified American weakness.”

But Callinicos is today more cautious about the development of a multipolar world system than he was in the early 1990s. Because he downplays the reality of the neoliberal boom, he dismisses the rise of new centers of capital accumulation and therefore geopolitical rivals to the United States, from China and Russia to regional powers like Brazil, India, Iran, and Venezuela, to name a few. Dilip Hiro has outlined the real rise of the new international and regional rivals in After Empire: The Birth of a Multipolar World. While Hiro tends to exaggerate the developing multipolar world order, Callinicos tend to do the opposite.

He ends the book with a brief but compelling argument for a socialist solution to a world gripped by crisis and likely increasing war. He argues against the Keynesian fantasies of a regulated capitalism and for a whole new society based on the working class majority taking economic and political power into its own hands and democratically planning it to meet human need, which includes a habitable planet. Callinicos’s short book, disagreements aside, is a valuable outline of the conflicts and patterns of the developing new world order.

Reprinted with permission by International Socialist Review.