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Book Review: Zombie Capitalism: Global Crisis and the Relevance of Marx by Chris Harman

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During mid-August 2007, a number of banks discovered that they couldn't balance their books, so they stopped lending to each other. Credit suddenly became scarce and the financial system first ground to a halt, then plummeted into free-fall, leading to the crash of October 2008. The reaction of major economists was bafflement. Alan Greenspan of the Federal Reserve said he didn't know what had gone wrong, and didn't know what to do. He told Congress that he "did not fully understand what went wrong in what I thought were self-governing markets."

Many of us were taught economics from textbooks that talked about equilibrium which resulted when wages and prices balanced out; markets automatically cleared, attracting productive investment, leading to growth. The idea was simple: the markets would bring about whatever adjustments were necessary to draw the appropriate resources to the appropriate places. We were also told that capital is the source of wealth and that investors were its creators.

And yet throughout its history, capitalism has been dogged by wave after wave of crises. Unfortunately, the equilibrium model of economics hasn't been able to explain this fundamental characteristic of capitalist systems. Ben Bernanke says that "understanding the Great Depression is the Holy Grail of macroeconomics." Edward C. Prescott, Nobel Laureate, says that it was a "pathological episode and it defies explanation by standard economics."

Of course, there have been many attempts to patch up the equilibrium model to try to explain such massive periodic crises, how markets which were supposed to "clear" somehow didn't. But there has been another tradition in economics which has had no problem explaining the periodic crises: Marxist economics.

There are those of course who immediately identify anything Marxist as being a defence of the Russian communist system, its centralised command state structure, its massive exploitation of working people for accumulation of wealth, and the slavish devotion of communist parties around the world to the Russian centre.

Chris Harman, in his book Zombie Capitalism, has no truck with Stalinism nor the state capitalist system of Russia, and his analysis is as incisive in dealing with state capitalist economics of the eastern bloc and China, as he is in examining the Western economies. He starts the book with an exposition of the labour theory of value, which shows how value is produced not by capital, but by labour itself. The difference between the cost of labour power and the value it produces is what is realised as profit.

Marx, of course, detailed this in enormous detail in his work Capital, including an explanation of how the value embodied in the means of production itself, the factory equipment, tools, raw materials, is also sourced from labour, and how capital circulates. The illusion that capital is a source of wealth gives rise to many of the assumptions of the equilibrium model that so singularly fails to explain modern economics.

Harman provides a detailed analyses, based on the figures from the OECD, UNCTAD, the WTO, World Bank, and the IMF, of how crises developed, what happened to the movement of capital, what were the dynamics driving the crises, and the political responses of governments. This is no mere political tract, arguing for Marxism: it is a detailed and thorough application of Marxist economic principles to the economic history of the twentieth century and covers all of the areas problematic for mainstream economists.

Why, for example, does the rate of profit tend to fall, and what factors mitigate it? Why do those factors become less and less effective? As capital concentrates, the marginal gain for each unit of additional production drops, and Harman shows how this is the motor for territorial aggression, the development of the state, and the expansion of state spending. How has globalisation affected the role of state spending? Why is it not working?

Turning to eastern Europe and Russia, Harman shows how competitive pressure from the growing world economy led revolutionary Russia to economic isolation precipitating a political crisis that led to a bureaucratic class taking control in the late 20s. By making production the servant of accumulation, state capitalism developed in the USSR, exploiting working people in exactly the same way as western capitalism.

Following WWII, most economists were predicting a return to slump but again, contradicting the accepted economic theories of the times, it didn't happen. Instead, the world saw the longest boom in 20th century economic history. Without explanation, many economists declared that capitalism had overcome its inherent tendency to crisis. Despite the tendency for the rate of profit to fall, in the US it was rising. What was the explanation? There were various attempts to explain it in terms of technical innovation, immigration of young workers, and the like.

Harman provides an alternative and much more explanatory account. Following the war, armament spending rose in the US from 4% of GNP to over 13% in five years, funneling surplus value in the form of investment in the military, an amount equal to 60% of the US gross capital formation. Such a massive stimulus to US industry fueled the boom, generating demand across all subsidiary industries, and crucially in a sector which was insulated from the effects of the rest of the economy.

As capital became more and more internationalised throughout the 70s, domestic markets found themselves in competition with lower labour cost countries. Crisis returned with a vengeance. State intervention to protect domestic producers became common and states took on more overt business interests as their own.

The Eastern bloc was not immune from these pressures despite propaganda to the contrary. First Poland opened up to the West, attempting to mitigate its own crisis with foreign investment. By 1989 Russia was talking openly about its own economic crisis. State capitalism is still capitalism. The fall of the Berlin Wall was merely a political recognition of the global nature of the economic crisis with only global options remaining. Capital flow was the only option left on the table for the eastern bloc rulers.

Harman covers the development of the global economy and international financial institutions and shows that the tendencies to crisis inherent in capitalism are stronger now than ever.

There will be many who suffer a knee-jerk reaction when the name of Marx is mentioned, immediately coming out in a McCarthyite rash, dismissing everything that follows as communist propaganda. But for those who read this book, they will see there is a highly detailed and consistent analysis of the 20th century global economy with explanatory power and precision.  

While the leaders of the major financial institutions were baffled at what had happened, there were others who not only predicted it, but provided the detailed analysis to show what happened and why. At the very least, those interested in political and economic causes should give this book a read. Bernanke and Greenspan both might learn something new.

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About Bob Lloyd

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    Very interesting, Mr. Lloyd, and a great review. One does indeed has to make a relevant distinction between Marx the economist and Marx the philosopher of history. And while he may be justly criticized on the second score, Das Kapital was indeed regarded as a most germane work even by his political opponents.

    What tickles however is your extremely liberal stance on social issues, economics included, coupled with no less equally conservative position with respect to philosophy/sociology of science.

    This isn’t meant as a criticism – we’ve been there before – only as an observation.

  • http://www.leavingthelandofwoo.com Bob Lloyd

    [What tickles however is your extremely liberal stance on social issues, economics included, coupled with no less equally conservative position with respect to philosophy/sociology of science.]
    Interesting that you think I have a conservative position with respect to philosophy/sociology of science. If anything, I’d characterise my stance as having more in common with Bhaskar’s scientific realism which could hardly be considered conservative.

    And on Marx the philosopher versus economist, both aspects were integrally related and attempts to separate them get into difficulties. His political stance was predicated on the analysis of the nature of exploitation, the expropriation of surplus value, and his analysis of history looked at the fundamental connection between the forces of production and the relations of production.

    There is indeed a sterile academic backwater in marxist philosophy in which the political core of Marx’s work is removed so as to make the material more palatable – the postmodernists perfected that technique – but Harman’s book doesn’t suffer from that debilitating move. His book has a very strong clear political as well as economic message. No crude reductionism there.

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    Well, there were some additional assumptions besides about the progress and nature of history. [Of course, I do disagree with you your flat statement about the postmodernist contribution (there are thinkers and there are thinkers, and I refuse to lump them all together), but we won’t have to go into it now.]

    As to my characterization of your views on science as “conservative,” I’m employing a rather neutral term of analysis, not all that different from the way we use it in politics. “Conservative” implies ideas of the past; “progressivism” or “liberalism” the ideas of the present (and possibly the future). So in that sense, positivism is an old school. Other than that, no value judgment is implied, especially that the jury is still out.

    As to the present “science wars,” there’s always action and reaction when the old is confronted with the new. And it’s no different with politics. It always takes a long time before the dust settles.

    I will look up Bhaskar’s “scientific realism” position, though.

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    Here’s one link.

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    And another.

    I’ll make a comment or two after the read.

  • http://thingsalongtheway.blogspot.com/ Cindy

    As capital concentrates, the marginal gain for each unit of additional production drops, and Harman shows how this is the motor for territorial aggression, the development of the state, and the expansion of state spending. How has globalisation affected the role of state spending? Why is it not working?

    Bob, is this book comprehensible by mere mortals? It sounds like just the information I need.

    Excellent and effective review!

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    Yes, it surely is!

  • http://drdreadful.blogspot.com Dr Dreadful

    I’m not usually falling over myself in a rush to get to the economics section when I visit a bookstore or library, but this excellent commentary on what sounds like a fascinating book might cause me to make an exception. Thanks, Bob!

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    Yes, and I’ll also make it a point to get one myself.

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    “Recall Lenin’s advice that it is only the existence of matter as a whole, independently of human
    consciousness, to which philosophical materialists are committed. Everything else, all other
    concepts arise through the elaboration of human practice. Bhaskar’s main rhetorical technique is
    to make statements which are incontrovertible if made in reference to objective reality as a
    whole, but he makes them in relation to specific things. (Matter exists, but do strings?)
    Philosophical materialism has no commitment to the existence of any particular kind of thing.
    Only naïve realism believes that the existence of particular things is self-evident. Nothing can be
    said about matter by philosophy other than that it exists independently of human activity. Any
    particular part, capacity or aspect of that material world, any ‘generative mechanism’, cannot be
    shown to exist without resort to practical investigation and the invoking of epistemological
    criteria.”

    “Critical Realism and Reality”, p. 6

  • http://thingsalongtheway.blogspot.com/ Died and Went to Heaven

    I went to Amazon.com to look at this book further. Which is worth doing, if for no other reason than to more closely inspect the really cool looking zombie George Washington dollar bill picture on the cover. Second, look what else I found!!!

    A People’s History of the World: From the Stone Age to the New Millennium by Chris Harman

    Very cool and guess what a reviewer of this book says: My personal favorite thing about “A People’s History of the World” is his insistence that ‘human nature’ is a construct: “Human beings, we have been told, have always been greedy, competitive and aggressive, and that explains horrors like war, exploitation, slavery and oppression of women. I argue very differently. ‘Human nature’ as we know it today is a product of our history, not its cause.”

    (That will be invaluable to my thinking–or maybe speaking more effectively about human nature, Roger.)

    Gotta have both of these books.

    Thanks, Bob!!!!

  • http://www.leavingthelandofwoo.com Bob Lloyd

    Roger, Bhaskar’s position on scientific realism changed somewhat and he went off on a mystical trip in his later writings. But two of the most interesting of his books are Reclaiming Reality, and Dialectic: the Pulse of Freedom, the latter being almost impenetrable in parts but worth the effort :) But enough on scientific realism :)

  • http://www.leavingthelandofwoo.com Bob Lloyd

    Chris Harman has been a prolific writer of exceptional quality and although he was not interested in an academic career, any one of his books would have secured him a post. His People’s History of the World is outstanding and well worth a read, as is his history of the German revolution 1918-23, and any of his works on Eastern Europe.

    Regrettably he died earlier this year, a great loss to the intellectual left.

  • http://www.leavingthelandofwoo.com Bob Lloyd

    [Bob, is this book comprehensible by mere mortals? It sounds like just the information I need.]
    Cindy, the book is very readably and easy to follow. There are some technical sections where Harman addresses the major difficulties for conventional economics, such as explaining the Great Depression, or the Japanese crisis, or their surprise at the collapse of the banking system, but his style is very clear throughout.

    Even if you haven’t studied economics, you will gain an enormous amount from the book. It’s also a pretty good primer for twentieth century economic history as well.

  • http://blogcritics.org/writers/irene-wagner/ Ask me about my internet Near Death Experience…

    There will be many who suffer a knee-jerk reaction when the name of Marx is mentioned, immediately coming out in a McCarthyite rash…

    Naw, McCarthyite rashes are sooo 1950’s. Vivisection of Falun Gong by the current Chinese communist government is what I free-associate with the word “Marx.”

    That said, I honestly don’t know enough about economics to be able to say I’ve rejected Marxist economic theory for any other reason than its association with brutal totalitarian regimes.

    I should do my homework and read this book, or at least put it on my “Books to Feel Guilty about Not Having Read Yet” list. Part of that homework would be reading reviews by Chinese human rights lawyers of “Zombie Capitalism.” I’ll have to wait until they’re not being held in captivity and tortured anymore to finish THAT part of the assignment.

  • http://drdreadful.blogspot.com Dr Dreadful

    Like the new username, Cindy (I presume). You should keep it!

  • http://drdreadful.blogspot.com Dr Dreadful

    Make that ‘Irene’. I just pointed my mouse over it.

  • http://blogcritics.org/writers/irene-wagner/ Ask me about my internet Near Death Experience…

    Died’n’Went and “Ask Me About” are two different ladies, Dr. D. Keep on mousin’!

  • http://www.leavingthelandofwoo.com Bob Lloyd

    [I should do my homework and read this book, or at least put it on my “Books to Feel Guilty about Not Having Read Yet” list. Part of that homework would be reading reviews by Chinese human rights lawyers of “Zombie Capitalism.” I’ll have to wait until they’re not being held in captivity and tortured anymore to finish THAT part of the assignment.]

    You’re absolutely right Irene that the Chinese authorities would be frightened by the book. Not only does it explain how China has always been state capitalist, subject to the same accumulation pressures as western states, but it also explains why the ruling class there uses such fierce repression.

    It shows that the Chinese regime has nothing to do with the politics of Marx despite their adoption of him as a political idol. Marx would have been on the street in Tiananmen Square fighting the political repression – that idea is rather too embarrassing for the Chinese authorities to countenance so I would expect the book to be banned.

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