The Systemic Crisis & Reconfiguration of Capitalism

[Pablo Solón] We are living through a systemic crisis. It is not only a deep economic crisis; it is a crisis of humanity and of Planet Earth. It is a crisis that involves the entire society, the reconfiguration of imperialist and neo-colonialist powers, our values, the rights of women, the rights of nature and the rights of many groups that are oppressed and marginalized because of their nationality, culture, beliefs, sexual orientation and the existence of caste, patriarchal and authoritarian regimes.

The capitalist system has triggered this systemic crisis and there is no way to solve it without first overcoming capitalism. The capitalist system catalyzes this systemic crisis but we have to always have in mind that we cannot reduce everything to the economy. An alternative system has to also encompass a new way of relating with nature, the abolition of imperialism and neocolonialism, a new relationship between women and men, and other key aspects of life.

The crisis of capitalism 

We are not living through just a normal cyclical crisis of capitalism. This is worse than the Great Depression of the 1930s. The current crisis is global; it is not localized only in one country or one region. It began in the United States, it then spread to the European Union, and now it has landed in the emerging economies of Brazil, India, China, South Africa and Russia with different intensities and characteristics.

This crisis doesn’t involve only one aspect of the economy. It covers finance, production, trade, technology and other areas. This is not a temporary crisis. It is not a great storm that will pass after a period of time. The new normal will be this crisis getting deeper from here to there, with occasional moments of relief that will not last long.

The main reason for this crisis is the same as the reason for the previous crisis of capitalism, but in a new context. The crises in the capitalist system are due to the reduction of the rate of profit. The driving force of capitalism is capital. Capital, in order to exist, has to grow, has to have profit.

According to Karl Marx, capital is money used to buy something only in order to sell it again to realize a profit (M-C-M’).[1] In chapter four of Capital, he writes: “The simple circulation of commodities – selling in order to buy – is a means of carrying out a purpose unconnected with circulation, namely, the appropriation of use-values, the satisfaction of wants. The circulation of money as capital is, on the contrary, an end in itself, for the expansion of value takes place only within this constantly renewed movement. The circulation of capital has therefore no limits.”

In this race to the top, capital needs to colonize territories and natural resources, decrease the cost of human labor, develop new technologies and promote new financial, investment and trade rules that allow capital to gain more and more profit. When this process of endless growth finds limits (e.g. over production) and profit begins to decline, there is a crisis. This has happened several times in the past two and a half centuries. What is new now is that 1) the disproportionate amount of speculative capital in the markets, and 2) the fact that capital has reached and surpassed the limits of the Earth System.

Financialization and speculation out of control

The combined global Gross Domestic Product of goods and services produced in 2010 was $63 trillion, while the capital market reached the sum of $1.633 trillion. This is something new in the history of capitalism. In 1990, the global GDP of goods and services was $22 trillion, and the capital market was $158 trillion. This means that in 1990 the capital market was seven times more than the global GDP, while now it is 25 times bigger than the global GDP. In 20 years, the capital market has grown more than ten times larger, while the real economy only increased by three times. And the financial derivatives that in 1990 were only $2 trillion, reached $601 trillion in 2010, or 30 times more!

Through financialization, everything can be transformed into a financial instrument – or a derivative of a financial instrument – in order to be traded on the market. It can be a product of work and service, a debt, a risk, a mortgage, a future promise of sale, a currency, a tangible or intangible commodity… there are no limits for the process of financialization, and more and more, the profit of capital doesn’t rely on the real production of goods and services but on the buying and selling of these financial papers.

We are seeing a process of exponential speculation in capitalism. The financial system has too many bonds floating in the banks, certificates and papers that don’t have any relationship to reality. These financial instruments are capital, though, and they need to generate profit in order to remain as capital, because capital that does not grow and generate profit is at risk of being wiped out.

Why has speculation multiplied so exponentially? Because it is the way capitalists have found to make more and more profit regardless of the real growth of production in goods and services. Financial derivatives are bets about what is going to happen in the future. Banks bet that they can give more credits with high rates and less mortgages and have huge profits. Other banks bet that they can repackage those loans and sell them in the financial markets. Lenders are happy, borrowers too; the happiest ones are the those that have the biggest profits from just trading the financial derivatives. Everyone is happy until people cannot pay their loans. Then, the financial bubble explodes, and those papers don’t have any value at all.

In the real world of production of goods and services, there is not enough space to capture all these financial derivatives. So some capital is burned, while other capital is reallocated into new financial speculative markets. The final result is that the rate of profit is too low or negative in many areas. The capitalist system goes into a deep crisis because those financial instruments are everywhere.

The boundaries of planet earth

The other factor that was not present in previous crises of capitalism is the limits of the Earth System. Capital, in its desire for endless growth, to generate more and more profit, has overshot the bio capacity of the Earth and is disturbing the vital cycles of nature, like the cycles of water and carbon. For the first time in 2 billion years, the world has surpassed 400 parts per million of CO2 in the atmosphere, and this process began with the Industrial Revolution that gave birth to the capitalist system.

Climate change is just one of the planet’s boundaries. Biodiversity loss, deforestation, pollution, and the destruction of ecosystems are all aggravated by the merciless attack of capital. Instead of a decline in the over exploitation of natural resources to re-establish the balance of the Earth system, we are seeing a new and more concerted assault on all natural resources.

Capital cannot and will not accept the limits of the Earth and the reality. Capital will bleed the planet dry. Some corporations will lose in this race, some capital will be wiped out, but others will keep going, grabbing all that is left. Capital does not have a nationality. It does not matter where its headquarters are (many are in tax havens). Capital will do whatever it can to increase profit. American, European, Japanese, Chinese, Brazilian, Indian… all capital seeks to expand, and they join forces and also fight between each other because there is not enough room for them all.

Capital, though, uses countries to develop measures to conquer markets, natural resources and cheap labor. Behind the disputes of different countries over territories are corporations. States and societies act on behalf of their national sovereignty and models of development, but in many cases, the driving force behind this is capital.

The reconfiguration of capitalism

Some analysts believe that capitalism will implode because of its increasing contradictions. I don’t think so. Capitalism is in a process of reconfiguration. The old times of the expansion of capitalism during the post Second World War period will never return. The new normal will be the permanent crisis and a permanent assault on nature and humanity. The capitalists are not sitting idly by, watching the system fall apart. They are implementing several measures to reverse their declining rate of profit. Some of these measures are:

A new attack on the labor force

Capital is seeking a greater reduction of wages and social benefits. Their main target is the welfare state of Europe. If they are able to dismantle this conquest of the European proletariat, they will establish a new baseline for all workers of the world. Capital uses the economic crisis to convince workers that there is no choice but to reduce wages and cut benefits. The crisis, in this sense, is an opportunity for capitalism to reconfigure itself and recover the concessions they gave to the working class in Europe after the Second World War.

Capital is promoting austerity plans in different regions. The transfer of private debt to the state is a way to increase profit, just like the privatization of public enterprises and services through this new strategy called Public-Private Partnership. All over the world, capital is promoting the transfer of labor to family spaces. It is cheaper to subcontract independent workers that work in their own homes than to have them in a factory with fixed costs, benefits and security requirements.

The precariousness of labor is spreading like a cancer that is being sold as a need. Youth and women are the first victims. The rate of unemployment is growing among those under 25 years of age, and women are increasingly over-exploited. The “economy” grows, but there is less employment. Factories have closed and jobs move overseas to countries where they can pay less than $35 a week. For developing countries that have suffered these kind of measures for decades, this is not something new, but for “First World” workers, this is a shock, and there is a growing battle and resistance. These measures of structural adjustment are now touching  emerging economies that did not suffer too much at the beginning of the crisis. This new attack on the labor force is global, and all countries will suffer. But the future is not written in stone. It all depends on the results of the struggles of workers and movements in Europe and other parts of the world.

A new wave of Free Trade Agreements and loans for “development”

We are seeing an escalation of negotiations of deeper and deeper free trade agreements (FTAs) and bilateral investment treaties (BITs) with different names: TPP, EU-FTA, EPA, TAPTA, Association Agreement, etc. Capital wants to remove all state interference in order to increase its rate of profit. On one hand, they want to reduce even more tariffs, subsidies and other protectionist measures, and on the other hand, they want to extend their private monopolies through longer periods of intellectual property rights and stronger measures to guarantee their investments and future profits.

FTAs and BITs do not actually have to do mainly with attracting trade and foreign direct investment. Their true goal is to shrink as much as possible the participation of the state in the economy, with one single exception: when the banks and corporations go bankrupt and the state has to nationalize the banks’ debts. In other words, the public has to pay for the broken dishes.

The expansion of FTAs and BITs will affect the negotiations of the WTO that has been in a stalemate. The baseline for all FTAs and BITs are the WTO rules in manufactured goods, agriculture, services, intellectual property and other areas. What they don’t have through the WTO they want to conquer through new and more aggressive FTAs and BITs. It’s not possible to totally defeat the free trade regime if the WTO continues to exist, albeit in a stalemate.

After the recent election of a representative of Brazil as Director-General of the WTO, we will see a new moment in the negotiations of this multilateral body that promotes mainly the interests of big corporations.

While the main strategy of the US, EU and Japan is deeper free trade agreements, the BRICS countries (Brazil, Russia, India, China and South Africa) promote the expansion of their corporations through credits from their national development banks for different kinds of projects in other developing countries.

Their different approaches to free trade agreements and “development” credits are the expression of their different economic realities. The World Bank is the main instrument of the US and the EU, while countries like China and Brazil have national banks that are more powerful than the World Bank. So far, there are no free trade agreements enforced between the US and EU, on one hand, and China, India, Brazil and Russia on the other hand. Capital is pushing for more liberalization of markets and more public funds to expand its business overseas.

A new assault on Mother Earth: the meaning of “Natural capital”

This assault on nature implies not only the remaining material part of nature (land, water, forests, biodiversity, fossil fuels, minerals, etc.), but also the non-material part of nature, which includes the functions that ecosystem and nature provide.

All over the world, there is an explosion of extractive projects, land and natural resource grabbing, and mega projects of infrastructure and energy that reshape ecosystems. Corporations from very different countries compete for what they see as the remaining natural resources of the planet, while at the same time, they focus their attention on how to bring what they call “ecosystem services” into the market.

The idea is not only to commodify the wood from the forests, but the very capacity of the forest to capture and store carbon dioxide. This process is already occurring through what is called REDD (Reduction from Emissions from Deforestation and Degradation of Forests). In order to bring the functions into the market, capital needs to quantify the functions of nature that can be brought into the market and create a demand to trade those financial derivatives that will rely on those functions of nature. This demand is being created using, for example, the need to reduce greenhouse gas emissions. The logic is that the emissions that you cannot reduce at home can be “offset” with certificates that you buy signifying emissions reductions by someone else. In reality, these Certificates of Emission Reductions are permits to pollute. The more a corporation buys them, the more they can pollute.

The same can be applied to biodiversity, coastal areas, and other functions of nature. A corporation can offset its pollution or depletion of biodiversity by buying compensation certificates from another part of the world.

In this process of financialization of nature, no new value is produced, no goods or services are created through human labor. It is just the quantification, privatization and commodification of what already exists in nature. It is the business of the century! No need to create new merchandise, just profit and speculate with what has always been there!

This process of financialization of the functions of nature or environmental services as they are now called will create a new kind of property rights. Not property rights over material goods or intellectual property, but property rights over a function of nature. Legally, the owners of Certificates of Emission Reductions from forests will not own the forest, but rather the capacity of the forest to store CO2. But how do you separate one from the other? In reality, this new kind of invisible property rights will lead to control over the forest and other parts of nature.

This new speculative business is at the heart of what is called the “green economy.” The ideology of the “green economy” is a capitalism of three dimensions, including physical capital, human capital and natural capital.

To treat the functions of Mother Earth as “natural capital,” they are in the process of quantifying and assigning monetary value to different functions of nature. Once they create the financial mechanism, the market and the demand for these functions of nature will be Natural Capital, and capital will have a new market in which to invest and have profits.

Nature is a reality. Natural capital is just an invention to generate more markets for capital. These inventions are not easy to create. To create them, you need laws, conventions and institutions at local, national and international levels before you can have a market. That is why they need the UN and other agreements to create the green economy.

Natural capital markets are very volatile and speculative. A decline in projected demand can cause them to go into coma, like the carbon markets in Europe. But despite the pitfalls, they are moving forward at local, national and regional scales, as we can see in the REDD project between the State of California and Chiapas or the seven metropolitan carbon markets that China plans to build.

The promise of the “green economy” is to decouple growth from environmental deterioration. In reality, they will just offset from rich regions to poor regions, disrupting nature even more because capital will flow to those functions of nature that produce the most short-term profit, and not those that are the most needed.

The “green economy” will create a financial bubble never seen before in relation to nature. After some decades, it will collapse, and much capital will be burned while other capital will again fly to new speculative markets. The “green economy” is not a solution for the planet, but it is a good business for trillions of dollars in capital seeking new sectors in which to make profits.

The other side of the “green economy” is the privatization of the material part of nature. Not the wood of the tree, but the tree as such, or in other words, a specific variety of tree. This is already happening through the patenting of seeds, trees, plants and different kinds of lifeforms, as well as through the development of GMOs and synthetic biology organisms. Nothing is more valuable than life. Who creates and modifies lifeforms will have a very profitable monopoly.

A new technological revolution?

The idea behind capital is that everything can be solved through money and technology. The imbalances of the planet are not seen as a threat, but as an opportunity to create new business through new technologies. The key question is who can develop technology that can conquer the market fastest. In this new phase of capitalism, we are seeing a new stage in the development of technologies that can have huge impacts on the planet and life. On one side of the spectrum is geo-engineering, and the other side is synthetic biology, with some other technologies in between like nanotechnology, biotechnology, etc.

Capital feels so powerful that some intellectuals have begun to speak of the re-genesis of life and the planet through these kinds of technologies. The geo-engineering proposals are, for example, fertilizing the ocean with seeds of iron to capture more CO2, or spraying sulfur into the atmosphere to deflect sunlight to prevent global warming. Through synthetic biology, some are thinking of sending CO2-eating molecules to the atmosphere, along with many other “solutions” that, if implemented, could accelerate the collapse of the whole Earth System.

Capitalism in the 21st century wants a new technological revolution that can re-launch capital, and in the race to do so, life as we know it is in jeopardy.

More interventions and authoritarian “democracies”

Capital is moving towards more authoritarian regimes and military interventions to implement this general assault.  Protests, insurrections and uprisings are taking place in different parts of the world. A process of land and resource grabbing for industrial corridors, mining, shale gas, big dams and other projects is creating a resistance that is exploding everywhere. The mobilization against the austerity measures in Europe continues with ups and downs. In less than five years, various types of initiatives have emerged such as Occupy Wall Street, the indignados, Arab springs, Idle No More, and others.

The response from the grassroots has been strong enough to take down some authoritarian regimes, but still has not been able to defeat the ongoing structural adjustment. Latin America is at the vanguard, with progressive governments that have emerged from social movements and mass mobilizations. These governments have implemented processes of nationalization of enterprises and natural resources, projects to redistribute wealth, and the development of sovereign decisions that before were unthinkable in the “backyard” of US imperialism. Nonetheless, these options have not yet broken with the logic of capital. They are still in state capitalist economies that rely mainly on extractive industries to redistribute wealth and guarantee popular support for re-election. The forces of imperialism have tried to counter the expansion of ALBA [2] through coups d’etat in Honduras and Paraguay and many violent destabilizing actions in Venezuela, Bolivia and Ecuador.

There have been or still are military interventions in Iraq, Libya, Mali, Syria and other parts of the world. The democracies in Europe do not want to hear about referendums in relation to the austerity plans. Despite the big protests in many countries in Europe, the governments have kept moving forward as authoritarian governments.

The criminalization of activists that fight against land grabbing, mega projects, and austerity measures is also spreading. More and more, capital has to use violence and authoritarian measures to impose its new plans. The response has been more and more resistance that, until now, has yet to converge into a sustained global movement of different sectors and continents.

The last word on the future of capitalism and this systemic crisis lies with the capacity of all these movements to join forces and shift from the defensive to the offensive position. That is something to not just be hopeful for, but also to work for. The task ahead for all of us is monumental.


Executive Director of Focus on the Global South and former Bolivian Ambassador to the United Nations.

[1] The M-C-M’ cycle of capital is the transformation of money (M) into commodities (C), and the change of commodities back again into money (M’) of altered value.

[2] ALBA is the Bolivarian Alliance for the Peoples of Our Americas (Alianza Bolivariana para los Pueblos de Nuestra América) formed mainly by Venezuela, Cuba, Bolivia, Ecuador and Nicaragua.