The synergy of reduced inflationary pressures, high real interest rates, massive inflows of capital and a rising dollar was in keeping with the Reagan administration’s objective of strengthening US finance capital. It nonetheless ‘proved catastrophic for large sections of US manufacturing’. Under strong pressure from Congress and many of the country’s leading corporate executives, the Reagan administration ‘had little choice but to undertake an epoch-making reversal of direction’. The centrepiece of this reversal was the Plaza Accord of September 22, 1985, whereby the G-5 powers, under US pressure, agreed to take joint action to help American manufacturers by reducing the exchange rate of the dollar. The very next day, the Accord was complemented by stepped-up US denunciations of the ‘unfair’ trading practices of other countries. The denunciations soon escalated into threats, supported by new legislation—most notably, the Omnibus Trade and Competition Act of 1988 and the Structural Impediments Act of 1989—to close off the US market to leading (mostly East Asian) foreign competitors. This was ‘a bludgeon both to limit their imports’—through ‘voluntary export restraints’—‘and to force the opening of their markets to US exports and foreign direct investment’. 
In seeking a radical devaluation of the dollar while simultaneously stepping up protectionist and ‘market-opening’ measures, the Reagan administration was following in the footsteps of Nixon, Ford and Carter. The outcome of these initiatives in the 1980s and early 1990s was nonetheless quite different to that of the 1970s.
The Plaza Accord, and its sequels, proved to be the turning point in the US manufacturing turnaround, and a major watershed for the world economy as a whole. It set off ten years of more or less continuous, and major, devaluation of the dollar with respect to the yen and the mark, which was accompanied by a decade-long freeze on real wage growth. It thereby opened the way simultaneously for the recovery of competitiveness, along with the speed-up of export growth, of US manufacturing; a secular crisis of German and Japanese industry; and an unprecedented explosion of export-based manufacturing expansion throughout East Asia, where economies for the most part tied their currencies to the dollar and thereby secured for their manufacturing exporters a major competitive advantage vis-à-vis their Japanese rivals when the dollar fell between 1985 and 1995. 
By 1993, the tendencies set off by the Plaza Accord, along with the prior shakeout of the US industrial structure provoked by the unprecedentedly tight credit of the early 1980s, resulted in a revival of US profitability, investment and production.  To paraphrase Veblen, the remedies concocted by the government to cure the ‘malady of the affections’ of US business seemed, at long last, to have reached the emotional seat of the trouble and restored profits to a ‘reasonable’ rate. The cure, however, had some serious side effects.
In Brenner’s view, the main problem was that the US revival had occurred primarily at the expense of its Japanese and Western European rivals and had done little to overcome the underlying over-capacity and over-production in manufacturing which haunted the global economy. This zero-sum nature of the revival was problematic for the United States itself. For one thing, ‘the ever slower growth of world demand, and in particular the related intensification of international competition in manufacturing’ limited the revival there, too. More compellingly, the United States could hardly afford ‘a truly serious crisis of its leading partners and rivals’, especially Japan. 
This contradiction surfaced starkly in the wake of the Mexican peso crisis of 1994–95. The crisis, and Washington’s rescue of the Mexican economy, led to a new run on the dollar, sharply accentuating its downward trend of the preceding decade. With the yen reaching an all-time high of ¥79:$1 in April 1995, ‘Japanese producers could not even cover their variable costs and . . the Japanese growth machine appeared to be grinding to a halt’ Still under the shock of the Mexican collapse and its disastrous impact on international financial stability (and with the upcoming 1996 presidential election looming in the background), the Clinton administration simply could not risk a Japanese version of the Mexican debacle.
Even if a Japanese crisis could be contained, it would probably entail the large-scale liquidation of Japan’s enormous holdings of US assets, especially Treasury Bonds. Such a development would chase up interest rates, frighten the money markets, and possibly [threaten] a recession at the very moment that the US economy appeared finally ready to right itself. 
Led by Treasury Secretary Robert Rubin, the United States entered into an arrangement with Germany and Japan to take joint action aimed at reversing the upward trend of the yen and the downward trend of the dollar. This double reversal was to be achieved by a further lowering of interest rates in Japan, relative to those of the United States, and by substantially enlarging Japanese purchases of dollar-denominated instruments such as Treasury bonds, as well as German and US purchases of dollars in currency markets. Later called the ‘reverse Plaza Accord’, the agreement represented ‘a stunning—and entirely unexpected—about-face in the policy stance of both the US and its main allies and rivals, in much the same way as had the original Plaza Accord of 1985’. 
Through this volte-face, the governments of the world’s largest economies switched roles in their minuet of mutual help. ‘Just as Japan and Germany had had to accede to the Plaza Accord . . . to rescue US manufacturing from its crisis of the first half of the 1980s, at great cost to themselves, so the US [was now] obliged to accept a quite similar bailout of Japan’s crisis-bound manufacturing sector—again with epoch-making results’.  For the switch transformed the ongoing US economic revival into the boom and bubble of the second half of the 1990s—the subject matter of Brenner’s third main contention, to which we now turn.
C) Unsustainable Revival
Brenner’s argument on the precariousness of the economic revival of the 1990s is more difficult to pin down than his contentions concerning the crisis of the late 1960s and early 1970s, and the persistence of relative stagnation from 1973 to 1993. The difficulty arises from the presence of two overlapping arguments: one involving the nature of the revival, before the full dilation of the ‘new economy’ bubble; and the other, the impact of the bubble on the revival. Let us examine each argument in turn.
In his ‘Economics of Global Turbulence’, written before equity prices went through the roof at the end of the 1990s, Brenner expressed serious doubts about whether the ongoing revivals of the US and world economies constituted ‘a definitive transcendence of the long downturn’. He found little evidence of the kind of system-wide recovery of profitability that would have signalled ‘the overcoming of the secular problem of manufacturing over-capacity and over-production’. He did acknowledge that, in the wake of the ‘reverse Plaza Accord’, the United States had experienced an export-led boom which contributed substantially to setting off more robust export growth in both Europe and Japan. This tendency ‘held out the possibility that the advanced capitalist economies are finally ready to follow a Smithian recipe of mutually self-reinforcing growth through specialization and the gains from trade’ He nonetheless went on to argue that the outbreak of the East Asian crisis of 1997–98 demonstrated the persistence, or even a strengthening, of the tendency towards over-production and over-capacity. 
Brenner also mentioned the possible emergence of another ‘optimistic’ scenario, whereby
the flood of low-priced goods coming from Japan and the rest of Asia would mainly serve . . . not so much to force down US producers’ prices and profits as to reduce their production costs, enhancing their competitiveness, increasing their markups and stimulating further capital accumulation. They would, by the same token, revive the local economies, making possible the greater absorption of US imports. Complementarity would, in other words, override competition, setting off a virtuous upward spiral, with the US pulling along the world economy toward a new boom. 
On balance, however, Brenner was sceptical about the likelihood that this alternative scenario could actually materialize. Rather, he expected world exports to grow more rapidly than world markets, perpetuating and exacerbating the longer-term trend towards over-capacity and over-production. In particular, he found it hard to believe that the radical devaluation of Asian currencies—especially that of the yen, by some 40 per cent since 1995—would not exercise an excruciating downward pressure on US manufacturers’ prices and profits.
In this more probable scenario, redundant production would yet again undermine the gains from trade and competition would end up trumping complementarity. The accelerating supply of world exports in the face of shrinking markets, far from fuelling US profits and sustaining the boom, would undercut them and thereby the recovery, in this way cutting short a system-wide secular upturn and risking a serious new turn downward of the world economy. 
In the two years following the publication of ‘Global Turbulence’, skyrocketing US equity prices and a prompt recovery of the world economy from the East Asian crisis might have seemed to invalidate this pessimistic conclusion. Although the ‘new economy’ bubble had already burst and much of the hype surrounding the sharp US economic upturn of the 1990s had waned before The Boom and the Bubble was completed, two questions remained open: first, how did the bubble fit in the scheme of things laid out in ‘Global Turbulence’? And second, how did its occurrence affect Brenner’s expectations for the future of the US and world economies?
In answer to the first question, Brenner has no difficulty in explaining the bubble in terms of the unintended, but certainly not unwelcome, effects of the ‘reverse Plaza Accord’ on the one side, and the Federal Reserve’s purposeful nurturing of rising equity prices on the other. Even before 1995, the recovery of profitability in US manufacturing had translated into an increase in stock prices. The ‘reverse Plaza Accord’ amplified this increase for foreign investors by pushing up the value of the dollar. More important, the Accord ‘unleashed a torrent of cash from Japan, East Asia and overseas more generally into US financial markets, which sharply eased interest rates and opened the way for a mighty increase in corporate borrowing to finance the purchase of shares on the stock market’ Crucial in this respect were Japanese policies. Not only did the Tokyo authorities directly pump money into US government securities and the dollar, and encourage Japanese insurance companies to follow suit by loosening regulations on overseas investment. In addition, by slashing the official discount rate to 0.5 per cent, they enabled investors—including, above all, US investors—to borrow yen in Japan almost for free, convert them into dollars and invest them elsewhere, especially in the US stock market. 
This flood of US-bound foreign capital and the associated appreciation of the dollar were essential ingredients in the transformation of the pre-1995 boom in equity prices into the subsequent bubble. In Brenner’s account, however, the transformation would probably not have occurred without the encouragement of the Fed. Despite his famous December 1996 warning about the stock market’s ‘irrational exuberance’, Greenspan ‘did nothing to indicate by his actions any serious worry about orbiting equity prices’ On the contrary, while steadily expanding the domestic money supply, he did not raise interest rates significantly or impose greater reserve requirements on banks; nor did he raise margin requirements on equity purchases. Worse still, as the bubble gained momentum, Greenspan went much further.
By spring 1998, he would be explicitly rationalizing tearaway equity prices in terms of ‘New Economy’ productivity gains which he saw as at once keeping down inflation and giving credence to investors’ expectations of the ‘extraordinary growth of profits into the distant future’. He would also be expressing his warm appreciation of the stepped-up corporate investment and household consumption that flowed from the wealth effect of exploding asset values, and which strengthened the boom. . . . Equity speculators could hardly be faulted if they drew the conclusion that the Fed Chairman, despite his professed caution, found their exuberance not just not irrational, but also sensible and beneficial. 
The inrush of capital unleashed by the ‘reverse Plaza Accord’ and the Fed’s easy credit regime were necessary conditions of the equity-market bubble. But ‘the main active force’ in its dilation were US non-financial corporations, which exploited these conditions to ‘ratchet up their borrowing for the purpose of buying shares in colossal quantities—either to accomplish mergers and acquisitions or to simply re-purchase (retire) their own outstanding equities’ Entering upon ‘the greatest wave of accumulation of debt in their history’, US corporations pumped up share values at unprecedented rates. ‘Since rising equity prices, by providing growing paper assets and thereby increased collateral, facilitated still further borrowing, the bubble was enabled to sustain itself, as well as to fuel the strong cyclical upturn already in progress’. 
Impact of the bubble
This brings us to our second question. How did the bubble affect the revival already in progress? Did it change the conditions of the upturn to render more probable the emergence of one of the ‘optimistic’ scenarios about which Brenner had been so sceptical in ‘Global Turbulence’? Brenner’s answer is that, by further increasing international over-capacity and over-production, the bubble made any such outcome even less likely. The inflation of the paper value of their assets, and the bubble-induced ‘wealth effect’ on consumer demand, led corporations to invest well above what was warranted by their actually realized profits. As a result, as soon as the wealth effect ceased to subsidize productivity growth, investment and consumer demand, ‘firms . . . were bound to suffer truly excruciating downward pressure on their rates of return’. Indeed, writing in mid-2001, Brenner already observed the initial impact on the US and world economies of the burst bubble and ‘the huge glut of productive capacity left in its wake’—most notably, a disastrous decline in the non-financial corporate profit rate, which wiped out ‘virtually all of the gains in profitability achieved in the expansion of the 1990s’; and a sharp contraction in capital accumulation. 
In speculating on how serious the ensuing downturn would be, Brenner reaches essentially the same conclusions he had come to four years earlier in ‘Global Turbulence’. He points out that the ‘underlying question’ is still ‘whether the big recessions and crises . . . that had punctuated the 1990s, as well as the rise of new industries all across the advanced capitalist world, had finally rid international manufacturing of its tendency to redundant production and made for the . . . increase in complementarity’ that was required ‘to finally support a dynamic international expansion’ On balance, he again finds that no such shakeout had actually occurred. On the contrary, in his judgement the bursting of the bubble left the US economy ‘weighed down by many of the same stagnationist forces that held back the Japanese economy at the end of its bubble’—that is, ‘ both the downward spiral set off by the bubble-in-reverse and an international manufacturing sector still constrained by over-capacity and over-production’. Although the US may be in a position to avoid the banking crisis that has crippled Japan, it nonetheless lacks ‘the enormous savings and current-account surpluses that have enabled Japan—so far—to muddle through’. It is therefore vulnerable, not just to the ‘destructive reductions in demand’ that would ensue from attempts to reduce the huge indebtedness of US corporations and households, but also to the possibility of withdrawals of foreign investment and consequent runs on the dollar. 
Under these circumstances, the United States is more likely to lead the world economy into a self-reinforcing recession than a recovery. In a sense, such a recession would constitute a ‘continuation of the international crisis of 1997–98, which was temporarily postponed by the last phase of the US stock market run-up but never fully resolved’. As in that earlier crisis, ‘East Asia will once again prove the world’s powder keg’, with massive over-capacity in Japan and elsewhere in the region exercising a strong downward pressure on profitability, locally and globally.  Prudently, Brenner does not commit himself to any particular scenario. But the overwhelming impression with which we are left is that the long downturn is far from over; indeed, that the worst is yet to come.
II. LONG DOWNTURN IN WORLD-HISTORICAL PERSPECTIVE
We are all in debt to Brenner for providing a systematic analysis of global turbulence which contrasts sharply with the prevailing immediacy and superficiality of existing accounts of the relationship between the United States and the world economy over the past half-century. I cannot think of a better starting point from which to unravel the complexities of that relationship. At the same time, we should not be surprised if an analysis of this scope raises more questions than it can resolve. Let us see what these questions are and in which directions we should look in order to provide some answers.
The central thesis underlying all Brenner’s contentions is that the persistence of relative stagnation in the world economy at large over the last thirty years has been due to ‘too little exit’ and ‘too much entry’—too little and too much, that is, relative to what would be required in order to restore profitability in manufacturing to the level it had attained during the long boom of the 1950s and 1960s. As we have seen, Brenner traces this tendency to the mutually reinforcing action of the behaviour of higher-cost incumbent firms and the policies of the governments of the world’s three largest economies. As a result of this combination, each of these three, and the world economy at large, were prevented ‘from purging superfluous, high-cost means of production by the standard capitalist methods of bankruptcy, downsizing, and layoffs’.
Higher cost/lower profit firms were thus able to long occupy economic positions that could, in the abstract, eventually have been assumed by more productive, higher profit, and more dynamic enterprises. But allowing the less productive, less profitable firms to go out of business by letting the business cycle take its natural course would very likely have turned the long downturn, with its relatively serious but nonetheless limited recessions, into outright depression Simply put, the precondition for restoring the system to health was a debt-deflation, leading to what Marx called ‘a slaughtering of capital values’ But since the only systematic way to achieve this was through depression, the only real alternative was continuing debt expansion, which contributed both to stagnation and financial instability. 
In his account of the long downturn, Brenner mentions two moments when the ‘standard’ capitalist method of structural shakeout was briefly at work: the early 1980s, under Reagan, and the mid-1990s, under Clinton. But as soon as the shakeout threatened to trigger a system-wide depression, the concerted action of the main capitalist states cut short the ‘slaughter of capital values’ through an expansion of public and private debt. ‘But while the growth of debt . . . was helping to stave off depression, it was also slowing down that recovery of profitability which was the fundamental condition for economic revitalization’. 
Brenner never tells us what a ‘depression’—as opposed to the ‘comparative stagnation’ of the long downturn—would look like. In the passages just quoted, the context suggests that it would be a far more destructive occurrence. But the difference is never made explicit, leaving us wondering, first, whether world capitalism has ever actually experienced this allegedly ‘classical’, ‘natural’, ‘standard’ shakeout and outright depression; second, if it did, what alteration in historical conditions has enabled contemporary capitalism to avoid the same experience; and finally, what are the implications of this change for the future of world capitalism and world society?
Two long downturns compared
In seeking answers to such questions, it is helpful to compare the sketch of the great depression of 1873–96, set out at the beginning of this article, with Brenner’s account of the long downturn or persistent stagnation of 1973–93. Notwithstanding the widespread designation of the earlier period as a depression, such a comparison immediately reveals striking similarities.  Both were lengthy periods of reduced profitability; both were characterized by a system-wide intensification of competitive pressures on capitalist enterprise; and both were preceded by an exceptionally sustained and profitable expansion of world trade and production. Moreover, in both periods the crisis of profitability and the intensification of competition sprang from the same sources as the preceding expansion: the successful ‘catching up’ by laggard countries with developmental achievements previously ‘monopolized’ by a leading country. Once we substitute the United Kingdom for the United States as the leading country, and the US and Germany for Germany and Japan as the laggards, Brenner’s interpretation of the late-twentieth-century long downturn can equally well be applied to that of the late nineteenth century.
Differences between the two long downturns were, in key respects, even more important than similarities, as we shall see. Yet, faced with a situation of intensifying competition comparable to that of the late twentieth century, world capitalism in the late nineteenth century experienced relative stagnation for more than twenty years—with plenty of local or short-lived crises and recessions, but without the kind of system-wide shakeout which, according to Brenner, is the standard capitalist method of restoring profitability. In manufacturing, in particular, there continued to be ‘too much entry’ and ‘too little exit’, as well as major technological and organizational innovations which intensified rather than alleviated competitive pressures system-wide.  And yet, in spite of the absence of a system-wide shakeout, in the closing years of the century profitability was restored, generating the upturn of the Edwardian belle époque.
As argued in detail elsewhere, and further specified in a later section of this article, this upturn can be traced to a response to system-wide intensifications of competition that has characterized world capitalism from its earliest, pre-industrial beginnings right up to the present. This response consists of a system-wide tendency, centred on the leading capitalist economy of the epoch, towards the ‘financialization’ of processes of capital accumulation. Integral to the transformation of inter-capitalist competition from a positive- into a negative-sum game, this tendency has also acted as a key mechanism for restoring profitability, at least temporarily, in the declining but still hegemonic centres of world capitalism. From this standpoint we can detect resemblances, not just between the great depression of 1873–96 and the long downturn of 1973–93, but also between the Edwardian belle époque and the US economic revival and great euphoria of the 1990s. 
While a verdict on the eventual outcome of the 1990s revival might be premature, we know that the Edwardian belle époque ended in the catastrophes of two world wars and the intervening global economic crash of the 1930s. This collapse is, in fact, the only occurrence of the last century and a half that corresponds to Brenner’s image of a system-wide shakeout or ‘outright depression’. If this is indeed what is signified by Brenner’s image, we must conclude that such a shakeout appears to have been an exceptional occurrence rather than the ‘standard’ or ‘natural’ capitalist method of restoring profitability. What has recurred thus far is the tendency for uneven development, in Brenner’s sense, to generate a long boom, followed by a long period of intensifying competition, reduced profitability and comparative stagnation; itself followed by an upturn of profitability, based on a financial expansion centred on the epoch’s leading economy. The one and only systemic breakdown of the last 150 years has occurred in the transition from the first to the second round of uneven development.