It’s always worth looking back. We are seeing a new economic crisis burgeoning in China. The yuan has been devalued, the stock market has sunk deep and now interest rates are being slashed to try and boost lending. In this case, we should look back to 2008 – as it was the last crisis, and we’ve yet to recover from it – to see what forces led to the crash. To understand where we’re going we must understand where we have been already. According to David Harvey, the causes of the 2008 financial crisis can be divided into six major factors:
1. The successful assault upon organized labor and its political institutions in the 1970s while mobilizing global labor surpluses, instituting labor-saving technological changes and increasing competition. The result has been global wage repressions (a declining share of wages in total GDP almost everywhere) and the creation of an even vaster disposable labor reserve living under marginal conditions.
2. Undermining previous structures of monopoly power and displacing the previous stage of (nation state) monopoly capitalism by opening up capitalism to far fiercer international competition. Intensifying global competition translated into lower non-financial corporate profits. Uneven geographical development and inter-territorial competition became key features in capitalist development, opening the way towards the beginnings of a hegemonic shift of power particularly but not exclusively towards East Asia.
3. Utilizing and empowering the most fluid and highly mobile form of capital – money capital – to reallocate capital resources globally (eventually through electronic markets) thus sparking deindustrialization in traditional core regions and new forms of (ultra-oppressive) industrialization and natural resource and agricultural raw material extractions in emergent markets. The corollary was to enhance the profitability of financial corporations and to find new ways to globalize and supposedly absorb risks through the creation of fictitious capital markets.
4. At the other end of the social scale, this meant heightened reliance on “accumulation by dispossession” as a means to augment capitalist class power. The new rounds of primitive accumulation against indigenous and peasant populations were augmented by asset losses of the lower classes in the core economies (as witnessed by the sub-prime housing market in the US which foisted a huge asset loss particularly upon African American populations.
5. The augmentation of otherwise sagging effective demand by pushing the debt economy (governmental, corporate and household) to its limits (particularly in the USA and the UK but also in many other countries from Latvia to Dubai).
6. Compensating for anemic rates of return in production by the construction of whole series of asset market bubbles, all of which had a Ponzi character, culminating in the property bubble that burst in 2007-8. These asset bubbles drew upon finance capital and were facilitated by extensive financial innovations such as derivatives and collateralized debt obligations.