Global Capitalist Crisis: the Past, the Present, and the Future

Dr. Minqi Li, Associate Professor

Department of Economics, University of Utah

Salt Lake City, Utah

E-mail: minqi.li@economics.utah.edu

Webpage: content.csbs.utah.edu/~mli

2013

Long Waves and Institutional Changes • UK Hegemony, “Financial Expansion”, Small Government Monopoly Capitalism (Expansion 1893-1913; Structural Crisis 1913-1945) • US Hegemony, “Material Expansion”, Big Government Monopoly Capitalism (Expansion 1945-1973; Structural Crisis 1973-1991) • US Hegemony, “Financial Expansion”, Neoliberal Capitalism (Expansion 1991-2007; Structural Crisis 2007-?)

The Structural Crisis of 1914-1945 • Decline of UK Hegemony: intensification of interstate conflicts • Challenges of Western Working Classes • Challenges of Non-Western National Liberation Movements • Fundamental Instability of Small Government Capitalism

Global Capitalist Restructuring, 1945 • Pax Americana: Yalta Agreement; Cold War • Core: welfare state; capital-labor accord (accommodation of western working classes) • Periphery / Semi-Periphery: decolonization / import-substitution industrialization (accommodation of national liberation movements) • Big Government Keynesianism: stabilizing the unstable economy

The Structural Crisis of 1973-1991 • Relative Decline of US Hegemony • Growing Working Class Power in the Core / Semi-Periphery: declines of profit rates • The Minskian Paradox: socialization of investment risks without socialization of investment • Peak US Oil Production: OPEC achieved quasi-monopoly over the global oil market

Global Capitalist Restructuring, 1989 • Revival of US Hegemony: financialization; Reagan re-armament • Breaking the Working Class Power in the Core: monetarism; global capital relocation • Destruction of the Historical Semi-Periphery: structural adjustments; shock therapies • Rise of China: massive expansion of global reserve army of cheap labor

The Structural Crisis of Neoliberalism • (Resumed) Decline of US Hegemony • Neoliberal Global Economy: tendencies towards stagnation and financial instabilities necessitated export-led growth • Global Imbalances: US ran current account deficits / China, Japan, Germany, oil exporters ran current account surpluses • World Oil Production Stagnation: oil price surge 2003-2008

Global Capitalist Restructuring? • Decline of US Hegemony: what will be next? China? • The Geographic Expansion of the Semi-Periphery: rising global labor and resources costs? • The Minskian Paradox: can capitalism be stabilized, and at what cost? • Global Environmental Crisis: peak oil; climate change

Big Government Capitalism • C + I + G + NX = W + Π + T • Π = I + (C-W) + (G-T) + NX • Big Government: stabilizing capitalist profits during recessions • Central Bank: stabilizing capital asset prices during financial crises

Minskian Paradox • Modern Capitalism: cannot function without big government • Big Government: socialization of investment risks without socialization of investment • Private Sector: excessive risk-taking; tendency towards financial instability • Financial Crisis: forcing the government to intervene; rising costs of intervention (inflation, debt)

Economic and Financial Indicators of American Capitalism, 1875-2007 Small

Government (1875-1929)

Early Big Government (1948-1979)

Neoliberalism

(1983-2007) Fed. gov. expenditures as % of GDP

3.3 18.7 20.8

Ave. ann. growth rate of real GDP

3.8 3.8 3.3

Ave. ann. growth rate of per capita real GDP

1.9 2.4 2.2

Unemployment rate

5.6a 5.2 5.8

Inflation rate

1.0 3.7 2.6

Real interest rate

3.8 1.6 5.5

Business failures per 10,000 firms

100 42 86b

Bank failures per 10,000 banks

106 5 70

a 1890-1929; b 1983-2005

The Fiscal Dilemma • Fiscal Contraction Recession • Fiscal Accommodation: private sector surplus (3% of GDP) + current account deficit (3% of GDP) government sector deficit (6% of GDP) • Long-Term Government Debt: deficit (6% of GDP), nominal GDP growth rate (4%) debt-GDP ratio (150%) • Can a Fundamentally Unstable Capitalism Be Stabilized?

Substituting 1 Million Barrels per Day (50 Million Tonnes) • Natural Gas: 55 billion cubic meters (1.7% of world production; 56% of world annual growth) • Coal-to-Liquids: 200 million tonnes (2.6% of world production; 45% of world annual growth) • Electricity: 220 terawatt-hours (1% of world electricity generation; 34% of world annual growth) • Wind Electricity: 100 gigawatts (43% of world installed capacity; 286% of world annual growth) • Solar Electricity: 170 gigawatts (246% of world installed capacity; 586% of world annual growth; investment cost 800 billion dollars) • Biofuels: 270 million tonnes of corn (12% of world grain production; 245% of world annual growth)

Global Warming Scenarios

Global Warming

Scenarios

1-2C 3-4C 5-6C

Drought and

Desertification

Frequent heat waves Widespread drought

and desertification

Much of the world

ceases to be

inhabitable

Sea Ice and Ice Sheets Disappearing of

Arctic sea ice

Melting of Greenland

ice sheets

Melting of Antarctic

ice sheets

Sea Level Rise Several meters 25 meters 75 meters

Eco-systems One third of species

become extinct

Amazon rainforest

burns down

Massive species

extinction

Human Impact Half a billion people

at risk of starvation

Billions become

environmental

refugees

Catastrophic decline

of global population

Climate Feedbacks Possible initiation of

soil and ocean carbon

feedbacks

Arctic permafrost and

ocean algae

endangered

Runaway global

warming

Sources: Spratt and Sutton (2008: 26-32); Hansen (2010: 140-171).

Climate Stabilization Scenarios and Emission Budgets (Gt: billion tonnes)

Climate Stabilization Scenarios Scenario I Scenario II Scenario III

Atmospheric CO2 350 ppm 450 ppm 550 ppm

Atmospheric CO2-equivalent 450 ppm 550 ppm 700 ppm

Global Warming:a

IPCC Climate Sensitivity 2C 3C 4C

Hansen Climate Sensitivity 4C 6C 8C

Approximate 21st Century Emission Budgets:

Global Budgets:

Cumulative CO2 Emissions Budget 1,000 Gt 2,000 Gt 3,000 Gt

Less: early 21st century emissions 300 Gt 300 Gt 300 Gt

Remaining CO2 Emissions Budget 700 Gt 1,700 Gt 2,700 Gt

China’s Budgets

Cumulative CO2 Emissions Budget 210 Gt 420 Gt 630 Gt

Less: early 21st century emissions 70 Gt 70 Gt 70 Gt

Remaining CO2 Emissions Budget 140 Gt 350 Gt 560 Gt

a Long-term equilibrium temperature increase relative to the pre-industrial time.

Sources: IPCC (2007: 198-199, 227-229); Hansen (2010: 140-171).

Society’s Total Product

Surplus Product

Population’s Basic Needs

Replacement of Means of Production Used Up