stubborn stagflation



Considerations on the current stage of the expansion process of the globalization of capital

One of the contradictions that support the thesis of the decline of capitalism is found in the geopolitics of capital or, what is the same thing, in the relations of competition – cooperation and competition – of the national States that form the current globalized economy. The development of the "productive forces" - says Murray Smith in Invisible Leviathan[I] – “extrapolated the confines of the nation-state system, but it is still the individual nations that face the serious problems”, that is, the problems caused by the contradictory process of capital accumulation itself.

Here are some of them: the climate emergency, pandemics, ocean pollution, maintenance of commodity production chains, global inflation, etc. In this note, I only want to deal with the stagflation that now appears as a persistent and lasting phenomenon of capitalist production. Low growth with inflation is there as a new “normal” that will continue to haunt the future of capitalist economies in general. But, to do so, it is necessary to take two initial steps in order to frame this phenomenon in its objective conditions.

The first of them consists of presenting the current stage of the expansion process of the globalization of capital. An indicator of this historical process is shown in the figure below; it graphically shows the evolution of the ratio between total world exports and world GDP. Notably, three waves of globalization that mark the history of capitalism appear in this profile: between 1870 and 1914, between 1945 and 1980 and between 1980 and 2008; as well as a period of deglobalization between 1914 and 1945. In addition, the graph indicates the emergence of a new period of contraction in international trade, which occurs after the great crisis of 2008.

Periods of globalization occur under the little-contested hegemony of an imperialist power. The first of these takes place under English supremacy and the next two under American pre-eminence. The deglobalization that took place in the 2008th century resulted, as is well known, from the intensification of the conflict between the imperialist powers (Great Britain, the United States, Germany, Japan, etc.) and, for this very reason, it begins and ends with the first and World War II, respectively. It is assumed here that the year XNUMX marks the beginning of a deglobalization process that will extend over the next few years. Why?

With the profitability crisis and the drop in production in the 1970s, the hegemonic power began to lead a process of abandoning Keynesianism at the center and developmentalism at the periphery of the system, to replace it with asymmetrical but generalized neoliberalism. Now, in order to raise the rate of profit, the logic of competition could no longer be contained by state policies to protect the working class. Furthermore, an effort was made to engage all countries, including Russia (after 1990) and China (after 1978) in the world economy led by multinational corporations and the international banks of the capitalist center. Some Asian economies, especially China, were privileged as dynamic sources of accumulation since they could contribute exceptionally to raising the world rate of profit.

However, this second wave of post-World War II globalization would have to come to an end because the average world rate of profit began to fall again after 1997 – the year that marks the end of the neoliberal recovery and the beginning of the long depression (see chart below). ). Faced with this structural condition and the 2008 crisis – which threatened to lead the system to a collapse of unprecedented proportions –, the strategy of the imperialist center had to change. Behold, the hegemony of the West led by the United States began to be contested by the emergence of competing powers.

The economic growth rates of the Western core economies, which had fallen from a level of 5% a year in the first post-war decade to a level of approximately 2% a year in the new millennium, could fall even further. The perspective that these countries faced, according to the economists of the so-called mainstream, was of a “secular stagnation”. Against this background, as Michael Roberts wrote, “it became clear to the strategists of the center that globalization had brought gains, but that it had also generated accelerated growth in countries like Russia, China and East Asia”. And these powers did not conform to servile behavior; on the contrary, they also wanted to be a pole of political and military power.

It thus became clear that these latter countries were unwilling to accept the Western economic dominance of the past five centuries. Russia aimed to create an economic polarity with the countries of the European continent through the supply of gas and other mineral products. China had become the factory of the world, it had come to dominate the international trade of goods and, now, it was able to compete and rival more and more in the field of technological development.

With Donald Trump and later with Joe Biden, US imperialism then changed its strategy, trying to maintain the indisputable hegemony it had achieved in the post-World War II period. Thus, instead of the policy of inclusion that had lasted thirty years, it began to adopt a policy of containment of these dynamic periphery countries in economic, diplomatic and military terms. Europe then became a center of this geopolitical battle. Latin America, which had already, during this period, seen its development regress through deindustrialization and reprimarization, without ceasing to be a field of dispute, began to be haunted by growing barbarism.

The result of this process was the creation of a downward trend in the level of globalization through the introduction of a brake on the development of international trade. But to understand why stagflation now appears as a persistent phenomenon on the horizon of the world economy, it is first necessary to explain why inflation becomes stubborn. In any case, it is known that deglobalization is pernicious from the point of view of global capital accumulation.

First, it is required to see that inflation, at least creeping, became the post-war norm, after world money lost its anchor on the gold standard and formally became fiat. In sequence, it is necessary to know that inflation is created by companies, mainly by oligopolists or monopolists, whenever their net profitability condition (profit rate minus interest rate) is shown to be inadequate.[ii] in the face of demand impulses, in this case, they prefer to raise the selling prices of the goods they produce rather than expand production. In addition, it can also be seen that prices rise necessarily when there are restrictions on maintaining or increasing supply, even if demand is weak or falling less than supply itself. In the latter case, even if the profit margin increases, the profit rate may not necessarily rise.

Well, this last situation reported in the previous paragraph seems to have occurred in the last two and a half years in the face of negative supply shocks and increased production costs. The coronavirus pandemic forced the temporary closure of companies, caused disruptions in global supply chains, contracted the workforce market. Subsequently, the war in Ukraine began to compel the growth of energy, metal, food and fertilizer prices. As a result of these “supply shocks”, stagflation began to persistently afflict the world economy.

However, contrary to what believers in the “market economy” believe, there is now no hope that this situation will change in the near future. Stagflation will persist, haunting the prospects for recovery of the capital ratio economic system. This is what Nouriel Roubini says in The gathering stagflationary storm, article published on April 25, 2022 in Project syndicate: “even without the significant short-term factors [listed above], the medium-term perspective turns out to be one of a long dark night. There are many reasons to assume that the currently present stagflation will continue to characterize the global economy for years to come, producing high inflation, low growth, with possible recessions in many economies”.

Behold, the situation of the world economy in the coming years seems to be configured as similar to that observed during the period that started and ended with the two world wars, that is, between 1914 and 1945. “Since the 2008 crisis – says Roubini –, there has been a retreat from globalization and a return of various forms of protectionism”. And this situation, as the example of the XNUMXth century has shown, does not provide conditions for development, but a tendency towards stagnation that brings with it an increase in social tensions and rivalry between nations.

The policy of containment towards China and Russia and the growing fear of turmoil in the peripheral and poor economies will tend to further reduce the rate of profit in the central capitalist countries. In addition to the effect of the “law of tendency” enunciated by Marx, there are two additional reasons: (i) knowing that the pace of growth of the populations of these nations is now almost stationary, it should be noted that policies against immigration will prevent the markets of workforce in core countries are renewed; (ii) gains from more advanced countries provided by “unequal exchange” and by other forms of income extraction, always to the detriment of those lagging behind, could be partially lost.

The new cold war between the United States and China/Russia is already producing and will produce staflationary effects in the future. The current hot war in Ukraine, with the indirect participation of NATO and the direct participation of Russia, has raised the risk of a broader armed conflict in the future, and is already producing adverse shocks in trade and production. Economic sanctions, even if they function as “weapons” for the hegemonic powers, immediately disrupt the functioning of markets. But, even more importantly, they run counter to the expansive logic of capitalism. Some economists even argue that they could undermine the dollar's hegemony as the world's money in the coming years.

In summary: “the growing geopolitical tensions' – agrees the North American economist – “will probably lead to the relocation of manufacturing from China and from emerging markets to advanced economies (…). Thus, production will be misallocated to higher cost regions and countries.” “The decoupling of Sino-American production” – he continues – “will imply the fragmentation of the global economy, the balkanization of supply chains and greater restrictions on the transfer of information and technology – key elements of future trade”.

If stagflation now appears as the “new normal” in the medium term, in the long term things look no better. Behold, one cannot forget the growing risk that droughts, desertifications, hurricanes, torrential rains, etc. harm food production around the world. Climate change – as well as other pollution problems – will certainly have effects on the production of goods, which will appear in different ways, such as famines, waves of immigration, social conflicts, etc. As they are configured as supply restrictions, they also tended to appear as stagflation.

Without intending to exhaust all the factors that contribute to the growing turbulence and to the sharpening of the immanent disharmony of the capitalist economy – for example, it would be possible to add the problem of the rising cost of energy in the face of the necessary decarbonization –, it is necessary to end by mentioning a change in the creation of barriers by the process of capital accumulation.

In the mid-nineteenth century, Karl Marx mentioned that capital creates barriers, overcomes these barriers, to engender new and greater barriers. And this is so because the accumulation of capital is a process endowed with positive feedback – insatiable, he said – which tends to excess and which, for this reason, continually invents crises and catastrophes. Well, now he is producing barriers that are ultimate limits, “barriers” that he can no longer overcome.

Eleutério FS Prado is a full and senior professor at the Department of Economics at USP. Author, among other books, of From the logic of the critique of political economy (Ed. anti-capital fights).



[I] Smith, Murray EG – Invisible Leviathan – Marx's law of value in the twilight of capitalism. Chicago: Haymarket Books, 2018.

[ii] See chapter 15 of the book Capitalism – competition, conflict, crises by Anwar Shaikh (Oxford University Press, 2018) to learn about a more rigorous version of the theory of inflation and stagflation.

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