A log-jam of container ships waiting to dock and unload in Los Angeles ports. Semiconductor shortages generating a backlog of orders around the world for computers and electronic devices. A massive container ship beached in the Suez Canal clogging up global merchant sea traffic. Rising energy prices due to delivery delays in oil and natural gas. Shortages of food and consumer items in stores. The global economy’s transportation and logistical infrastructure appears to have broken down in recent months, threatening global commerce at the moment when the world economy is trying to recover from the coronavirus pandemic.
In the United States, more than 100 container ships were waiting in late October to unload tens of thousands of containers at the two ports of Los Angeles and Long Beach, which together account for 40 percent of all shipping containers entering the country, leading President Joe Biden to order that the Long Beach port operate round the clock. Similar bottlenecks in global trade have hit other countries around the world. Earlier this year, for instance, Chinese markets experienced shortages while ports reported major backups in outbound shipping to overseas markets. And in October, food shortages hit the United Kingdom due to port congestion.
The immediate explanation for the breakdown of trade and supply networks is the economic meltdown that the COVID-19 virus triggered around the world in 2020. The extent of the meltdown was staggering. More than 90 percent of the world’s countries fell into deep recession, compared to only 60 percent in the 2008 Great Recession, making it a truly global crisis, and the worst since the Great Depression of the 1930s. The meltdown and the disruption of industrial production it triggered were then followed by a chaotic and still ongoing reopening of the global economy, involving a sudden surge in pent-up demand that quickly outstripped supply.
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Behind this disruption of the global supply chain, however, is a larger story of capitalist globalization, which above all has involved the insertion in recent decades of every country into a new globally integrated production, financial and service system. This system is characterized by the fragmentation and decentralization of industrial production and distribution processes into numerous intermediate phases that are geographically scattered around the world.
By breaking down production into these fragmented global production chains, the emergent transnational capitalist class (made up of the owners and managers of the transnational corporate conglomerates that drive the global economy) is able to locate these phases in countries that offer the best “factor cost” considerations for maximizing profit and minimizing workers’ power, such as a ready supply of cheap labor in one locale, low taxes and a lax regulatory environment in another, and proximity to raw materials supplies or to final consumer markets in a third locale.
Billions of dollars in raw materials, intermediate goods and finished products have thus come to flow every day through the open veins of a vast globe-spanning network of transportation and logistics that keeps the global economy humming. More than 50,000 merchant ships operate in the oceans, the largest of which are loaded with up to 24,000 containers. Intermodal transportation introduced in the late 20th century standardized the size and design of these containers and the ships, trains, planes and trucks that transport them around the globe.
The breakdown of global trade and supply networks, so emblematic of capitalist globalization, has underscored just how dependent every country has become on this globally integrated system and highlights key fragilities in the global economy. Trade in intermediate goods, such as semiconductors and other industrial inputs, now account for a full 56 percent of all trade among the rich countries of the Organization of Economic Cooperation and Development that dominate the global trade system. This means that if global shipping is disrupted, in this case due to the pandemic shutdown, so too is industrial production and distribution networks in each country given such a high level of dependence on the importation of raw material and inputs, along with finished goods, from the global market.
More or Less Globalization?
The disruption of trade during the height of the pandemic led academics and pundits to declare that the world was moving into a period of “deglobalization” and reshoring of production that had previously been offshored. Yet rather than continuing to contract, the worldwide trade in goods actually reached an all-time high in 2021 as economies bounded back from the pandemic-induced trade implosion, according to a report by the United Nations Conference on Trade and Development. As trade recovered, the global transportation and logistics network was simply unable to keep up with the sudden surge in pent-up demand for consumer and producer goods.
The transnational capitalist class is too dependent on an open and integrated global economy for the continued accumulation of capital and power on a world scale to withdraw back into the confines of national economies. The corporate managers of the global economy, far from withdrawing from globalization, are expected to pursue diversification in supply chains and the nearshoring of production sequences that had previously been offshored. In particular, the transnational capitalist class and governments will set up new nodes in worldwide distribution networks in order to reduce dependence on a few key nodes and reduce the supply chain volatility that has become apparent in recent months, creating in the process denser webs and new geographic patterns of cross-border integration. Corporations have already begun to nearshore, that is, to relocate production and distribution networks closer to the global markets that they service. According to one industry report titled “The State of The Freight 2021,” almost 90 percent of shippers have set about to diversify their suppliers.
The bottlenecks in global trade and supply chains are likely to be overcome in the coming months, especially after the holiday shopping season, as global consumption patterns normalize and national economies are reactivated. In the larger picture, however, the supply chain breakdown is fueling an acceleration of digitally driven global economic restructuring that had already begun before the coronavirus outbreak.
Computer and information technology first introduced in the 1980s provided the original basis for globalization. It allowed the transnational capitalist class to coordinate and synchronize decentralized global production sequences and therefore to put into place the globally integrated production, financial and service system.
Now, so-called fourth industrial revolution technologies — including artificial intelligence; big data; machine learning; and autonomously piloted land, air and sea vehicles — are driving a new round of world capitalist restructuring. According to “The State of The Freight 2021” report, this restructuring will include the digitalization of supply and logistics networks. These new digital technologies offer the technical means to build a people-centered global economy built from the bottom up through a very different political and economic system than the current global capitalism. But for the moment, the transnational capitalist class controls the production and deployment of the new digital technologies and is using them to further concentrate power and wealth in its own hands.
The Structural Crisis of Global Capitalism
The global economy may be bouncing back from the depths of the pandemic-induced implosion. Notwithstanding fears of what The Economist called “the shortage economy,” and barring unforeseen circumstances, global supply will likely catch up to and again overtake global demand. However, given the underlying structural crisis of global capitalism, worldwide economic turbulence is here to stay. On the eve of the pandemic, growth in the European Union countries had already shrunk to zero; much of Latin America and sub-Sahara Africa was in recession; growth rates in Asia were steadily declining; and North America faced a slowdown.
Despite claims to the contrary by mainstream economists, crisis is endemic to capitalism, and instability rather than equilibrium is the natural state of the system. The history of capitalism is one of periodic crises of two types. One is cyclical, sometimes called the business cycle, and shows up as recessions. They typically occur about every ten years. There were recessions in the early 1980s, the early 1990s, and the early 2000s. The other is a more serious structural crisis. Cyclical crises may affect only certain countries or regions whereas structural crises generally affect the entire world economy.
In the course of the 20th century the system experienced two great structural crises, the Great Depression of the 1930s and the crisis of stagnation and inflation (known as “stagflation”) of the 1970s. Both these crises had their origin in what political economists call overaccumulation. This refers to a situation in which enormous amounts of capital (profits) are built up, but this capital cannot find productive outlets for reinvestment. This capital then becomes stagnant, as capitalists hold on to their accumulated profits rather than reinvesting them, throwing the system into crisis. The 2008 global financial collapse marked the onset of a new structural crisis in world capitalism.
Social polarization and inequality worldwide had already reached unprecedented levels prior to the pandemic, with just 1 percent of humanity controlling over half the world’s wealth and the top 20 percent controlling 94.5 percent, while the remaining 80 percent had to make do with just 5.5 percent. Almost every country in the world has seen an increase in inequality during the pandemic. New digital technologies that are now at the very core of the global economy have greatly increased productivity and corporate profits even as the worldwide economic restructuring made possible by these technologies has resulted in a globally expanding mass of the under- and unemployed, those precariously employed, and the marginalized, or surplus humanity. Given extreme levels of inequality, the global market is unable to absorb the output of the global economy, leading to the chronic stagnation associated with structural crises.
In recent years, accumulation has sputtered forward in ebbs and flows as the transnational capitalist class has searched for outlets to unload its mounting surplus of uninvested capital. Wild financial speculation and escalating government, corporate and consumer debt drove growth in the first two decades of the 21st century, but these are temporary and unsustainable solutions to long-term stagnation. In the wake of the 2008 financial collapse, the U.S. and other Western governments turned to policies known as “quantitative easing,” which essentially means that government treasuries print money and inject it into the banking system as cheap credit — even involving negative interest rates. Quantitative easing ends up creating mountains of what is known as fiat money, or government-issued currency that is not backed by a commodity, aggravating the gap between fictitious capital and the productive economy.
Fictitious capital refers to money thrown into circulation without any base in commodities or in production. Fiat money exists on paper but does not correspond to real wealth in the world. In other words, this fictitious capital represents less the creation of new value than the mirage of a bustling economy, as stock markets surge, asset values inflate and credit expands. But sooner or later it has to all come crashing down in the absence of a far-reaching restructuring of the system involving an expansion of global demand through state regulation of speculative capital and redistribution of wealth downward.
Moreover, apart from the prospects of collapse itself, the out-of-control printing of money may, in the long run, trigger uncontrolled inflation that would further destabilize the global economy. The major portion of the $10 trillion in global stimulus packages during the pandemic went to corporate bailouts and to injections of liquidity into the banking system. While the stimulus did spur recovery, it has also flooded the global economy with even more excess liquidity, sparking fears of an inflationary spiral.
Over the long run, inflation hurts working people by eroding their purchasing power, but it also undermines finance capital since loan and credit portfolios lose value. Given the domination that finance capital exercises over the entire global economy, an inflationary spiral would destabilize financial circuits and therefore aggravate existing crisis tendencies.
Some economists have warned of stagflation, which refers to the combination of stagnation and inflation, as shortages due to supply bottlenecks and a short-term surge in demand, along with excess liquidity in circulation, fuels inflation even as long-term aggregate global demand remains stagnant. In simplified terms, stagflation came about in the 1970s as a result of overstretched Keynesian polices that sought to pump up demand in the face of stagnation tendencies. The emerging transnational capitalist class pushed for Keynesianism to be replaced by neoliberal polices, and then imposed these polices on the world’s people through globalization. In turn, deleterious social polarization brought about by neoliberalism has generated conditions for the ongoing crisis of overaccumulation.
Beyond economic turbulence, global capitalism remains mired in a political crisis of state legitimacy and capitalist hegemony. A global revolt has gained momentum since 2008 and escalated in the years leading up to the pandemic and then during the contagion itself. Political crisis and social decay after years of neoliberal hardship and conflict are leading to the collapse of states in countries such as Lebanon and Haiti. Strike activity in the United States escalated in October (“Striketober”) while millions of workers refused to go back to poverty wages and miserable work conditions, leading to labor shortages throughout the economy. Seen from the viewpoint of the ruling groups, the current supply chain bottlenecks are the least of the system’s problems.