Systemic failures

Issue: 132

Gabriele Piazza

Gérard Duménil and Dominique Lévy, The Crisis of Neoliberalism (Harvard University, 2011), £36.95

Gérard Duménil and Dominique Lévy have made significant contributions to the understanding of Marxist economics over the years. Their new book focuses on neoliberalism and the most recent crisis. According to them, neoliberalism is a new phase in the evolution of capitalism that emerged in the wake of the structural crisis of the 1970s. This phase concentrated income in favour of a privileged minority. To achieve this, pressure was placed on the mass of salaried workers, free trade was promoted or enforced, and new and sophisticated financial mechanisms were created. The authors argue that “neoliberal globalisation” was imposed throughout the world, from the major capitalist countries of the centre to the less developed countries of the periphery, often at the cost of economic violence, corruption, subversion and war.

Duménil and Lévy maintain that modern capitalism has passed through three phases, punctuated by deep crises. These crises are the depression of the 1890s, the Great Depression of the 1930s, the crisis of the 1970s and the current “Great Contraction”. While they recognise that declining profit rates led to the crises of the 1890s and 1970s, they claim that the Great Depression and the current crisis of neoliberalism, by contrast, have different causes. These two crises, they maintain, both marked the culmination of a period of financial hegemony.

In order to understand the eruption of the current crisis, they argue, two mechanisms should be explored. The first is the quest for high income. The second is the unsustainable trajectory of the US economy. According to Duménil and Lévy, financialisation and globalisation were pivotal in achieving high incomes, the objective of neoliberalism. In contrast with the limits placed on finance after the Second World War, neoliberalism stimulated financial expansion, which accelerated after 2000 as ever more innovative financial assets and procedures were created. “Free trade”, the free movement of capital around the globe, and the globalisation of financial and monetary mechanisms are the pillars of neoliberal globalisation.

Overall, these processes created a fragile and unwieldy financial structure. In addition they made it harder for states to impose policies to control their economies, for example by preventing them from controlling interest rates. There are three basic aspects to the problems faced by the US economy: low and declining accumulation rates, the trade deficit and the growing dependency on financing from the rest of the world as domestic indebtedness has grown.

For Duménil and Lévy, the rise in consumption, notably by the wealthiest, was a central cause of crisis. They interpret it as being the result of overconsumption alongside under-accumulation and, associated
with this, too much financialisation, too much globalisation and the unsustainable macro trajectory of the US economy. They argue therefore that the subprime mortgage crisis destabilised an already shaky global financial structure.

Duménil and Lévy see neoliberalism as a new social order, a new form of capitalism. For them, there are now three classes or “social orders”: capitalists, the “popular class” made up of wage workers and lower-level salaried employees, and a “managerial class” in between. The social order changes when the managerial class sides with either of the other two. For example, in the 1930s and in the post-war period the managerial class sided with the popular class against the capitalists, leading to rising living standards and the welfare state. In the neoliberal order the managerial class sided with the capitalist financial class and the popular class was on the back foot. Therefore, they argue, the “crisis of neoliberalism” could produce new social “compromises”.

For Duménil and Lévy, the distinction between capital income and wages does not account for the complexity of social relations in contemporary capitalism. However, it is not clear how their “three classes” analysis can contribute to the understanding of contemporary capitalism. Marx’s analysis of class did not limit itself to the ownership of the means of production. In the third volume of Capital, Marx states that what makes social groups come together is how the revenues of one set of groups arise out of the exploitation of other groups.1 One can argue that the “managerial class” are paid out of the same surplus value appropriated by capitalists in the form of profit, and that they thus share the same interests.

Duménil and Lévy reject what they see as “monocausal” explanations, especially those focusing on the tendency for the rate of profit to fall. They argue that the crisis of 2008-9 could not be caused by falling profitability because it rose from 1982 to 2006. They claim there is no single explanation valid for all crises, except that they are all a “property” of capitalism. This is problematic: as Guglielmo Carchedi has pointed out in this journal,2 if this elusive “property” becomes manifest as different causes of different crises, while itself remaining unknowable, then we do not have a crisis theory. If we attribute the origins of crises to mistakes of the financial and monetary authorities as well as governments, we will not be able to explain their regular recurrence.

The origin of financial and speculative crises should be sought in the real economy, in the production of value and surplus value, rather than, as is fashionable nowadays, turning the relation of cause and effect upside-down.

Duménil and Lévy see the period of “finance hegemony” that characterised neoliberalism as a solution to the crisis of industrial capital caused by the fall in the rate of profit in the run-up to the 1970s. According to the authors, during the neoliberal decades, the profit rates of the non-financial corporations plunged while the profit rates of the financial sector increased, overturning earlier hierarchy. Nonetheless, the authors’ calculations fail to show clearly how the combination of the rate of profit for the two sectors caused an overall recovery in the rate
of profit.

Duménil and Lévy’s account of the rise of finance is illuminating. However, it fails to grasp the interrelation between finance and industry. The increasing importance of circuits of finance to the world economy was not in conflict with industrial capitalism but a product of its development.

From the early 1930s to the early 1970s monopolies developed within each capitalist country and, to a greater or lesser degree, merged their directions with that of the state. This was the culmination of the trend towards “state capitalism” already present at the time of the First World War. This was not benevolent, as terms such as “the Keynesian compromise” used by the authors imply. It was the result of the barbarity of all-out world war from 1939 to 1945 and of the nuclear permanent arms economy of the Cold War as Gonzalo Pozo discussed recently in this journal.3 Full employment was only a consequence of military competition, and, while in most highly industrialised countries this led to concessions to the working class, across much of the Third World it was a period of imperialist domination, dictatorship and privation for the masses.

The strategy pursued by ruling classes in this period had stopped working by the mid-1970s and accumulation began to burst out of the constraints of highly regulated economies. World trade grew more rapidly than world production, innovations in the most technologically advanced sectors required levels of resources that very few nationally based industries could mobilise. Various attempts by the state to organise capitalism on a national basis resulted in inflation without stopping the trend towards stagnation. Faced with difficulties achieving the old rates of profit at home, financial and industrial capital scoured the world for any opportunity for profit-making and the mushrooming of the circuits of international finance was a result. Where productive investment seemed to offer little reward, every sort of speculation was tried. Since speculative profits ultimately depend upon value created in production, this was bound to be self-defeating in the long run and the succession of speculative bubbles would feed back into the real economy and damage it. It is in this context that the crisis should be understood.

Duménil and Lévy’s empirical account of the subprime mortgage crisis is second to none. However, they fail to grasp the dynamic driving the system, a system based in industry and not only finance.

This has political implications because they also conclude that the best post-crisis scenario for the working class would be a contemporary version of the New Deal, with the Obama administration leading the way. In addition, Duménil and Lévy’s arguments seem to suggest that the cause of the crisis lies in the financial sphere and that regulation would solve the problem. A coherent explanation of the crisis has to look at the system as a whole and the way in which its different components act on each other.

Undoubtedly, this book is a great contribution to Marxist economics. But Duménil and Lévy fail to understand the starting point of Marxist political economy, producing a “half-explanation” of the crisis, one that does not fully grasp the dynamic of today’s capitalism.


1Karl Marx, 1894, Capital, volume 3,

2Guglielmo Carchedi, 2010, “Zombie capitalism and the origin of crises”, International Socialism 125, p124,

3 Gonzalo Pozo, 2010, “Reassessing the permanent arms economy”, International Socialism 127, p132,