US President Joe Biden’s October 5 speech in Michigan in support of his administration’s infrastructure spending program was largely a chronicle of the decline of US capitalism.
Repeating his claim that the United States was now at an “inflection point,” Biden began by noting that for most of the 20th century, the United States ruled the world by a significant margin through investment. in infrastructures such as roads, highways, bridges, ports. and airports.
“We invested to win the space race. We were the world leaders in research and development, which led to the creation of the Internet, but something happened. We slowed down, we stopped investing in ourselves.
America’s infrastructure was once the best in the world, he continued, but now the World Economic Forum ranks the United States 13th. The situation was even worse in early childhood education, with the Organization for Economic Co-operation and Development ranking the United States 35th out of 37 countries.
“All of these investments that have fueled the strong economy, we have eased off on gas,” he said. And then came an astonishing remark from the leader of the world’s most powerful economy: “I don’t know what happened.
As the World Socialist Website reported yesterday, Biden’s speech was framed in terms of competition with China, as he noted important areas of the economy where China is ahead of the United States.
But Biden left unanswered the question of the underlying reason for the historic decline in the industrial capacity of American capitalism.
The answer lies in another “inflection point”: the end of the postwar economic boom and the transition of the US economy since the early 1980s.
The falling rates of profit that ended the boom disputed the myth of the so-called Keynesian economy that skilful demand management by governments could regulate the contradictions of capitalism.
The rise in profits and living standards that had marked the 1950s and 1960s was replaced in the 1970s by the phenomenon of stagflation – the combination of low growth, high unemployment and rising wages. price – something that had never happened before.
The profitability crisis led the American ruling class to initiate a violent restructuring of the economy and class relations – a process which was followed, with national variations, by its counterparts around the world.
The spearhead of the US and global offensive has been the high interest rate regime initiated by the Federal Reserve under President Paul Volcker, appointed by Carter.
Swathes of American industry were destroyed and a massive offensive was launched against the working class, starting with the crushing of the air traffic controllers’ strike in 1981 and the destruction of their union, PATCO, an operation carried out with the full collaboration of the AFL-CIO union bureaucracy.
The US economy eventually emerged from the Volcker-induced recession – the deepest since the Great Depression of the 1930s – but it was undergoing a vast transformation.
This involved the development of globalized production methods whereby large companies outsourced their manufacturing activities, very often to other companies and countries, including China, to take advantage of less labor-intensive sources. dear.
In our country, the profits from these operations were deployed in the financial markets, so that the dominant form of corporate wealth accumulation was increasingly not investing in new facilities and equipment – the growth of industrial capacity leading to the expansion of jobs as it had done. been in the boom period, but securing profits through financial manipulation. That is, parasitism, and not productive activity, was now at the center of the American economy.
This process, aided and encouraged by the policies of the US Federal Reserve, began under Reagan in the 1980s and then reached increasingly high heights in the 1990s under the Clinton administration which dismantled the last vestiges of the regulations imposed on finance as a result of the Depression.
The internal decay and degradation at the heart of this new mode of accumulation was exposed during the 2008 financial crisis. A 2011 Senate report on the crisis revealed that it was not a ‘Natural disaster, but the result of a complex high-risk financial situation. some products; undisclosed conflicts of interest; and the failure of credit rating agencies and the market itself to curb Wall Street excesses.
In the words of Democratic Senator Carl Levin, who chaired the subcommittee that conducted it, the investigation revealed a “financial snake pit plagued by greed, conflict of interest and wrongdoing.”
However, in the aftermath of this devastating report, nothing was done to address the root cause of the crisis. On the contrary, Wall Street has been bailed out by the government to the tune of hundreds of billions of dollars. The Fed instituted the quantitative easing policy by which trillions of dollars were pumped into financial markets, not only to continue the speculation that had led to the crisis, but allowing it to reach new heights.
None of those responsible have been charged for the criminal offenses they committed. In fact, such action was explicitly ruled out by Obama’s Attorney General Eric Holder in 2013 when he said it could destabilize both the US and global economy. Banks and financial institutions were not only “too big to fail”, those in charge of their operations were “too big to be jailed”.
The period since the global financial crisis has seen speculative free-riding reach ever higher heights. The rise and rise of the stock market and the emergence of increasingly obscure forms of speculation have been fueled by the ever-larger injections of money from the Fed – more than $ 4 trillion since the near financial collapse. March 2020 total at the start of the pandemic.
The development of high technology and the production of ever more sophisticated computer chips is one of the key areas of the economy of tomorrow. It is here that some of the most egregious expressions of free-riding can be found, as a recent report by economist William O Lazonick made clear on the New Economic Thinking website.
Lazonick has been documenting for some time the growth of share buybacks by large companies, to increase the value of their shares, to the detriment of productive investment. He advances the reformist utopian perspective that if this could be stopped, business could at least be turned to action for the common good.
Nonetheless, his work provided valuable information. In his latest analysis, he focuses his attention on high-tech companies seeking billions of dollars from the Biden administration under the Useful Incentives for Semiconductor Production Act (CHIPS) act. for America.
The law, which provides for $ 52 billion, was passed by the Senate in June and is now awaiting House approval. The Semiconductor Industry Association (SIA) describes it as “bipartisan legislation that would invest tens of billions of dollars in semiconductor manufacturing incentives and research initiatives over the next 5-10 years to strengthen and maintain the industry. US leadership in chip technology, which is essential to our economy and national security.
But as Lazonick and co-author Matt Hopkins report, most member companies pushing for the passage of the CHIPS for America law wasted the support they received in the past.
They note that among the signatories to the SIA letter sent to Biden in February this year are five major buyers of shares. Intel, IBM, Qualcomm, Texas Instruments and Broadcom achieved a combined total of $ 249 billion in buybacks during the decade 2011-2020, or 71% of their profits and nearly five times the subsidies they are currently seeking at the over the next decade.
The scale of the buyouts is even greater in another lobby group, the Semiconductors in America Coalition (SIAC) formed in May this year to push through the legislation. This group includes Apple, Microsoft, Cisco and Google. These companies spent a total of $ 633 billion on share buybacks during the period 2011-2020, more than 12 times the amount required by law.
Between October 2012 and June 2021, Apple alone spent $ 444 billion on buybacks, or 87% of its net income. This is in addition to the $ 114 billion paid out in dividends, which is an additional 22% of net income.
SIA corporate lobbyists have a clear idea of where the political winds are blowing, with the Biden administration’s emphasis on the need to fight China. They wrote in their February letter that the decline in the United States’ share of global semiconductor chip manufacturing capacity from 37 percent in 1990 to 12 percent in 2020 was “largely because the governments of our global competitors offer significant incentives and subsidies to attract new semiconductor manufacturing facilities. , while the United States does not.
As for Biden’s avowed ignorance of the reasons for America’s decline, Lazonick and Hopkins say he’s well aware of the role of share buybacks. They note that as vice president in 2016, he wrote an opinion piece in the the Wall Street newspaper that “the government should look at regulations that encourage share buybacks and tax laws that discourage long-term investments, saying that” the future of the economy depends on it. “
But this president of Delaware, the home of American tax evasion companies, has long been a bought and paid creature of Wall Street. Moreover, the growth of free riding has become so entrenched in the financial system and the economy as a whole that attempts to curb it threaten to trigger a financial and economic crisis. The US response to its manufacturing decline will not be a throwback to the past but rather, as the paralysis of Chinese telecommunications giant Huawei demonstrates, an intensification of attacks on rivals.
To the extent that industrial and manufacturing capacities develop, they will stem from the war push, anchored in the objective logic of the strategy of “strategic competition” with China that the Biden administration has placed at the center of its agenda.