An uneasy economist looks into the future

by Gary, New Jersey
(from Communist Voice #9, August 1, 1996)


. A book review of Lester C. Thurow's The Future of Capitalism, 1996.

. Lester Thurow is a leading ideologue of US imperialism. He is a former dean of MIT's Sloan School, an editor of both Newsweek and the New York Times, an economist of world note, and general consultant to the US elite. His previous books include Head to Head and The Zero-Sum Society. His latest, The Future of Capitalism, attempts to modify some of his predictions, but mostly it presents the new world view he would like to put forward on behalf of US capital in the wake of some economic changes currently shaking the world. In short, it presents the views of a significant section of the US monopoly capitalist class about the current state of world imperialism -- something we are trying to get a handle on ourselves. Sorting through the dozens of topics, any one of which could be dealt with separately, there is a wealth of data, summations of data and historical parallels of great interest.

. Thurow presents 5 great, underlying forces which he says are determining the current events of the world today (all within the framework of global capitalism). Briefly, these are (in his terminology):

. 1. The end of communism -- both the Soviet empire and socialism as a movement in Western society (although he constantly refers to the "socialist trend" in Europe affecting bourgeois policy there -- reflecting the propaganda of state-capitalist politics = socialist politics);

. 2. The era of man-made brainpower industries -- the dominant companies are no longer based on natural resources but on technology, which means capital does not have to be centralized in a few locations to be viable, but can be scattered;

. 3. Demography -- the world's population according to Thurow is too big (once again), but also it's moving between countries and continents more, and it's older;

. 4. A global economy -- capital can chase cheap labor and technology faster and easier than ever before; and

. 5. It is a multipolar world with no dominant power.

. Half the book is spent explaining these "new" forces. The rest takes up their consequences.

. Thurow's "discoveries" are trends that we are all aware of. His "end of communism" is the lull in the world socialist movement, in part tied to the collapse of the Soviet state-capitalist empire. Like all the capitalist apologists he is once again trying to bury Marx once and for all.The de-centralization of capital is occurring as a cycle in the constantly upgrading of technology at the expense of the majority of the population; however it is still dominated by finance capital, and the process of monopoly continues to grow, but he doesn't discuss that. At every capitalist cycle, it produces an "excess" of population -- this is an effect not a cause, and capitalist hacks have always raised this bogeyman since capitalism's inception. And yes, imperialism does create an ever integrated global economy, and today the imperialist powers are numerous, with the US not as dominant (relatively) as before. Thurow's earthshaking trends reflect some features of the current state of world imperialism, but his intent is not to elucidate but to present his program for saving capitalism (and the US monopoly capitalists in particular) by reforming certain peripheral features and smoothing its rough edges.

. Of particular note in all this is a) his analysis of the state of the world's working class, and b) the coming economic cataclysm.

. The state of the working class: Thurow presents some good statistics showing what everyone knows, that the rich are getting richer and the poor poorer. According to his stats, 1968 was a watershed year. That is when the rate of inequality in society started to rise rapidly, so that

  1. "By the turn of the century the real wages for non-supervisory workers will be back to where they were at mid-century, fifty years earlier, despite the fact that the real per capita GDP more than doubled over the same period of time." (pg 6)

In the 1980's, in the US for example, all the gains in male earnings went to the top 20% of the workforce only, with 64% going to the top 1%. If you use incomes rather than earnings, the top 1% get 90% of the total income gains. (pg 21) The real per capita GDP rose 36% from 1973 to 1995, but the real wages of the vast majority of the workforce fell 14%. (pg 2). Thurow calls this "surging inequality", and presents it as a necessary adjustment to these "new" forces shaping capitalism, and not the same old inherent contradiction of capitalism -- the inevitable impoverishment of the working class. And since he doesn't have to worry about things like socialism (as he looks over his shoulder), he suggests we only tinker slightly with the system to ease the pain. He actually suggests advertising more to older people to create markets instead of to the young because that's where the money and numbers are! Thanks, Lester.

. The other major phenomenon in the working class that Thurow presents is rising unemployment and a structural change in the composition of the working class. He shows that the real US unemployment rate is at least 14% (the official figures, 5.7% plus those unemployed but not counted, 4.6% plus involuntary part-timers, 3.4%). There are also another 4% who have dropped out of the official economy. This brings unemployment to 18%. In addition there is another 14% who are either in temporary jobs, or who work sporadically "on call", or self-employed independent contractors, many of whom have been forced out of their jobs in downsizing and are scrambling to make a living. This represents a third of the workforce either unemployed or living precariously in unstable and iffy work situations. European figures are far higher. Many countries are officially in double digit numbers, and the average official unemployment rate in Europe is double the US's. In Japan, unemployment approaches the EEC official numbers, as idle workers are kept on the payroll since their lifetime guarantee of employment has replaced a government social security system.

. The US is different than other OECD countries, according to Thurow --

"America is uniquely a first world economy with a third world economy inside of it.. . .American corporations operate with a skill structure very different from that found in Japan or the European continent. They essentially use more managers and professionals (11.5% of the workforce in the US versus 5.7% in West Germany) to deskill the production process. This allows US firms to employ fewer mid-skill workers and more unskilled workers than would be the case in either Germany or Japan. Americans 'dumb down' the production process. German firms operate with fewer managers and professionals by 'skilling up' the bottom of the workforce." (pg 173)

The US, Japan and Germany all put pressure on lowering the average wages, but with different approaches -- the US has a larger unskilled sector with slightly lower unemployment, while Germany has a larger skilled sector at higher wages but with higher unemployment. This represents a major shift in the US over twenty years: the job losses are coming from the mid-skill levels in the US. Thurow presents "factor price equalization" to explain why this is happening and why capital rates of return aren't rising in proportion to falling wages, which has to do with a global market and free movement of labor and capital. In fact every scenario Thurow presents in the book about the future of capitalism includes falling wages and standards of living for workers in the industrialized countries. With cold economic equations, he shows how capitalism must go this way to be capitalism -- something Marx showed last century.

. The coming economic debacle: Thurow's main analysis, and the key to his theories, is international trade and the US trade deficits. He sees this as the weakest card which will bring down the house, and result in major economic readjustments and global depression. He wants to see a concerted effort by US capital to reduce the deficit to ease the coming crisis.

. His analysis is that huge trade deficits with Japan have financed the Pacific rim economic expansion, and that this situation is rapidly coming to an end. The Pacific rim runs large trade surpluses with Japan, which Japan covers with even larger trade surpluses with the US. The US has been able to carry this deficit by selling assets and borrowing. (Whether this is a conscious policy of finance capital or just coping with the situation after the fact is not clear.) The Japanese themselves have been doing a lot of this asset buying and lending, but they cannot keep this money-losing investment strategy going much longer. When they limit such investment, according to Thurow, the yen soars and the dollar plunges. Because of this shaky situation, the total net worth of Japanese property has dropped 36% in 5 years, and their stock market has gone from 39,000 in 1989 to 14,000 in 1992, a greater decline than the Stock Market Crash of 1929.And the depression has no end in sight in Japan -- at some point, Thurow says, the US will lose its ability to finance its trade deficit. In the end, a lower standard of living will be necessary to finance the debt.

"The epicenter of the economic earthquake will be the US, but the shock waves will be strongest on the Pacific Rim." (pg 198)

. The details of his scenario go like this: In Japan, export industries will shrink and throw millions out of work. A loss of the US-surplus-trade the rest of the world directly or indirectly enjoys will mean sales will fall all over the world. The US world trade deficit, and the concurrent world surplus with the US (which has generated $1 trillion in debt) is the foundation of the house of cards. And when it collapses it will produce major retrenchment of the world economy. The US will have to generate surpluses to pay its trillion dollar debt -- this means the rest of the world will lose its main market, and in an integrated world economy this means depression and stagnation. Thurow says this era of capitalism after World War II was operating with an economic locomotive to drive the world economy. The US has been that for 50 years, but it is no longer willing or able to do so. One reason he suggests is that the US doesn't have the Cold War to force it to keep its half of the world as healthy as possible.

. Finally, one interesting section of the book deals with the Mexican financial crisis of last year.It shows the domination of finance capital in the world of imperialism. Mexico's economy by imperialist standards was relatively healthy: its international debts were not out of line according to Thurow, in fact they were lower than a lot of industrialized countries; its budget was even balanced. However the peso was overvalued (Thurow doesn't say why, but the maneuverings of the Mexican bourgeoisie and their use of the state to maximize their plundering of the wealth would explain most of it.). This overvaluing caused its foreign exchange reserves to fall suddenly. A panic set in to get out of the peso and Mexican capital markets. The ultimate cause, according to Thurow, was in the US: because interest rates were so low here in 1992 and after, US finance capital put billions into Mexico to maximize their returns; when the overvaluing of the peso occurred, interest rates in the US were back up, so these same finance managers brought back billions, causing the foreign exchange crisis in Mexico and the subsequent panic. The IMF and the US government moved in to dictate Mexico's economy and financial policies. They demanded fiscal austerity (on an already balanced budget), revenues from oil paid directly into New York Reserve banks, and 100% interest to consumer loans. The result, a further 33% decline in workers standards of living after a decade of rapidly falling standards, and a permanent recession with 40% loss of domestic sales and no growth seen on the horizon. (pgs 225-228)The bailout was for the finance capitalists in the US, with the Mexican people paying the bill for saving imperialist financial stability and the Mexican bourgeoisie maneuverings. These runs on currency and the consequences are not limited to IMF-dominated countries -- a similar scenario happened in France in 1992.

. Thurow sums up his book:

"The intrinsic problems of capitalism visible at its birth (instability, rising inequality, a lumpen proletariat) are still waiting to be solved . . ."

He presents this as a defender of the system seeking his own brand of reforms to insulate the system from these cataclysms which are coming. He leaves revolution as a solution out of the picture of course, but the book has merit in that he openly lays out some of the major contradictions in world imperialism.

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Last changed on October 19, 2001.