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ELR0010.1177/1035304614520669The Economic and Labour Relations ReviewSarmehmet Duman

Non-Symposium Article
ELRR
The Economic and

A theoretical framework for

Labour Relations Review
2014, Vol. 25(2) 240252
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global economic crisis: DOI: 10.1177/1035304614520669
elrr.sagepub.com
The financial market and
the real economy

zgn Sarmehmet Duman

pek University, Turkey

Abstract
This article argues that the current global economic crisis is an outcome of the excessive
growth of the financial market over the real economy, and hence, of fictitious profits over
real profits. In investigating the interrelation between the financial market and the real
economy, it makes a comparative inquiry into two key assertions regarding economic
crisis within Marxism: the tendency for the rate of profit to fall and overaccumulation
of capital. Accepting the claim that economic crisis is inherent to capitalism, this article
probes the role of countervailing tendencies in battling the tendency for the rate of
profit to fall. While crisis is an outcome of both the extensive growth of fictitious profits
and the tendency for the rate of profit to fall, the latter is identified as the fundamental
reason for the current crisis. Labour market reforms that were implemented following
the emergence of the economic crisis represent the resurgence of countervailing
tendencies and are the most explicit evidence that the fundamental reason for the crisis
resides in the real economy.

JEL Codes: D24, E44, J40

Keywords
Current global economic crisis, fictitious profit, financial market, labour market
reform, Marxist theories of crisis, overaccumulation, rate of profit, real economy, real
profit

Corresponding author:
zgn Sarmehmet Duman, pek University, Turan Gne Bulvar, 648. Cadde, 06550, Oran, ankaya,
Ankara, Turkey.
Email: oduman@ipek.edu.tr
Sarmehmet Duman 241

All science would be superfluous if the form of appearance of things directly

coincided with their essence that precisely here vulgar economics feels
completely at home, these relationships appearing all the more self-evident to it,
the more their inner connections remain hidden, even though they are
comprehensible to the popular mind

(Marx, 1991: 956)

Introduction
This article aims to interrogate the fundamental reason for the current global economic
crisis, through an analysis of the nature of economic crises in capitalism. It briefly out-
lines the perspectives of Keynesians and classical economists on crisis and discusses
Marxist theories of economic crisis in detail. Its central focus is on an elaboration of the
interrelation between the two key assertions regarding the nature of crisis in Marxism,
namely, the tendency for the rate of profit to fall and the overaccumulation of capital, and
it also compares these perspectives.
The purpose is to uncover the fundamental reasons (forms of existence) of economic
crisis by distinguishing them from the triggering factors (forms of appearance), that is,
factors playing a direct role in the appearance of the crisis but not underlying its exist-
ence. For this purpose, it undertakes an inquiry into the main tenets not only of finan-
cialisation and the growth of fictitious profit in the financial market but also into the
tendency for the rate of profit to fall and the size of non-fictitious (real) profit in the real
economy. It scrutinises the gap between the growth of the financial market and the real
economy and between the levels of fictitious profit and real profit. The excessive growth
of fictitious profit in the financial market and the falling rates of real profit in the real
economy are shown to develop a gap, which necessitates an increase in the rate of real
profit. For a better understanding of the strategies employed to increase the rate of profit,
the article also elaborates on the countervailing tendencies that are directly related to the
labour process, that is, labour market reforms.
A theoretical framework set up in the early pages is used as a basis for analysing
the current global economic crisis through a comparative analysis of the growth of
fictitious profits and of real profit. It is argued that the fundamental reason for the
global economic crisis is falling rates of profit in the real economy, even though the
crisis was triggered by the financial boom. In regard to structural reforms imple-
mented for economic recovery, it is claimed that labour market reforms introduced
during the current crisis have been designed to increase the rate of profit, and this
constitutes the clearest evidence that the real economy stands as the fundamental
reason for the economic crisis.

Crisis-prone nature of capitalism: the ceaseless need for

profit increase
The main scholarly and political debate on the current global economic crisis questions
the nature of economic crisis: is it a crisis of the management of capitalism or a crisis
inherent to capitalism?
242 The Economic and Labour Relations Review 25(2)

Bourgeois theorists argue that every crisis results from a different cause, which is
either an external shock disrupting the presumed equilibrium between supply and
demand or an internal disturbance restraining market equilibrium (Clarke, 1994: 2). For
Keynesians and classical economists, insufficient institutional regulation and deficient
policies create the tendency to crisis, which can be healed by institutional and policy-
based reforms (Clarke, 1994: 3). Keynesians identify the mechanisms producing crisis as
ranging from market imperfections arising from agents unequal and/or unfair access to
information to a plethora of non-economic causes typically grouped together as animal
spirits, and they promote state intervention to combat economic instability (Resnick
and Wolff, 2010: 170). Neoclassical economists, on the other hand, assert that state inter-
vention is the basis of market imperfection, and markets should be left to heal them-
selves (Resnick and Wolff, 2010: 171).
Alternative explanations to those of Keynesians and classical/neoclassical economists
are offered mainly by Marxist theories, which perceive crisis as inherent to capitalism. In
Marxs work, the focus is not on the crisis as catastrophic event, but [on] the inherent
tendency to crisis underlying the permanent instability of social existence under capi-
talism (Clarke, 1994: 192). Between his early writings and later manuscripts, Marxs
emphasis shifts to the subordination of the production of things to the production and
appropriation of surplus value as the ultimate cause of all crises (Clarke, 1994: 195).
At a broad glance, Marx associates crises with many different theories such as the ten-
dency for the rate of profit to fall, overproduction, underconsumption, disproportionality
and overaccumulation, not prioritising one over the other (Clarke, 1994: 8).
Following Marxs theoretical contribution, debate on the nature of economic crisis is
widespread among Marxist scholars. A range of Marxist theories explain crises in terms
of tendencies for the rate of profit to fall (Paul Sweezy), overaccumulation (Otto Bauer),
overproduction (Karl Kautsky, Friedrich Engels), underconsumption (Rosa Luxemburg)
and disproportionality (Rudolf Hilferding), all of which reach a consensus on the neces-
sity of crisis as an essential and ineradicable feature of the capitalist mode of production
(Clarke, 1994: 4, emphasis in original). Hence, in conformity with Marxs own writings,
Marxist theories of crisis agree that crisis is inherent to capitalism.
Among Marxist theories of crisis, two main groups can be found. In the first group, the
tendencies to overproduction, underconsumption and disproportionality highlight the rela-
tionship between production and consumption and involve notions of both intervention in
and regulation of the market. In the second group, the tendencies for the rate of profit to fall
and towards overaccumulation emphasise the relationship between production and profit.
As this article focuses on the fundamental reasons for the current global economic crisis,
discussion of the link between production and consumption is not relevant, and so, we can
pass over the tendencies to overproduction, underconsumption and disproportionality. The
focus is rather on the interrelation between production and profit, and hence, we focus on
the tendency for the rate of profit to fall and on overaccumulation of capital.
In analysing the theoretical grounds of economic crisis, this article stresses the mutual
determination of the tendency for the rate of profit to fall and overaccumulation, but also
prioritises the former over the latter. The capitalist mode of production is not a linear
process, and the tendencies for the rate of profit to fall and towards overaccumulation are
not mutually exclusive. Hence, it is important to unveil the non-linear production process
Sarmehmet Duman 243

and to prove the dialectical relationship between these interrelated tendencies. Scrutiny
of the economic crisis discloses the depths of the contradictions that have been at work
in the entire process of capital accumulation (Callinicos, 2010: 50).
Marx makes a distinction between constant capital and variable capital, the former
referring to the capital used to acquire machines and means of labour and the latter
defining the capital employed for buying the use of labour-power (Giacche, 2011: 21).
For profit accumulation to be realised, there should be a certain ratio between constant
capital and variable capital. With the growth of the capitalist mode of production, invest-
ment in constant capital increases in order to retain higher amounts of relative surplus
(Savran, 1988: 47). This brings a rise in the share of capital invested in machinery relative
to that invested in labour power (Giacche, 2011: 21), and hence, in the organic composi-
tion of capital. Simply in the absence of countervailing tendencies that will be scrutinised
in the later parts of this article (Marx, 1991: 12), the tendency for the rate of profit to fall
derives from a simple mathematical relationship between the rate of profit, the rate of
exploitation and the organic composition of capital (Clarke, 1994: 65).
The basis of surplus value is not constant capital but variable capital. Therefore, the
increase in the organic composition of capital creates a contradiction in the process of
capitalist production (Savran, 2008). In the long run, profitability will decrease when the
rise in the rate of organic composition of capital exceeds the rise in the rate of surplus
value (Tonak, 2009: 33).
When the rate of surplus value declines relative to invested constant capital, this also
leads to a fall in the rate of profit, which eventually results in overaccumulation of capi-
tal. In the contrary case, if the rate of profit catches up with the increase in the organic
composition of capital, overaccumulation does not follow. Hence, the fall in the rate of
profit is the fundamental reason for economic crisis, whereas overaccumulation of capi-
tal is initially the consequence of it. During the intricate production process, overaccu-
mulation turns into a cause of a further fall in the rate of profit. Therefore, among a
variety of Marxist theories of crisis, the tendency for the rate of profit to fall stands as the
most plausible one in explaining economic crises and generating a solution.
In parallel with the theoretical argumentation, it is essential to distinguish the funda-
mental reason from the triggering factors and consequences in the case of the current global
economic crisis (Savran, 2008). There is a need to question whether the fundamental rea-
son of the economic crisis is the boom in the financial market or the fall in the rate of profit
in the real economy. An inquiry into the economic crisis necessitates an integrated view of
the relations between financial phenomena and the dynamics of production, with specific
emphasis on the degree of financialisation and the rate of profit in the current context
(Harvey, 2006: 325326). To serve this purpose, the present analysis elaborates on the
financial market and the real economy with specific focus on fictitious profits and real
profits. It also evaluates the strategies created and implemented to increase the rate of profit
and to overcome the economic crisis.

The financial market and the real economy on the knife

edge: fictitious profit versus non-fictitious (real) profit
The financial market is the area for speculative and risky activity since financial instru-
ments and financial packages promise high returns to all (Tridico, 2012: 21). It is a
244 The Economic and Labour Relations Review 25(2)

product of financial deregulation, unrestrained competition and the marketisation of

large corporations, freeing banks and other elements of the financial market to pursue
whatever financial activity would bring the highest profits (Kotz, 2009: 307).
Finance becomes extensive both in promoting capital accumulation and in intensify-
ing its crises (Fine, 2009: 43). It has penetrated across all commercial relations to an
unprecedented direct extent (Fine, 2009: 43, emphasis in original). Moreover, it has
extended beyond the traditional to the personal and broader elements of economic and
social reproduction (Fine, 2009: 46). This penetration and extension of finance is called
financialisation, which engenders a means to cope with the difficulties of the accumula-
tion process.
Financialisation represents an attack on traditional capitalist relations among capital
holders as well as between capital and labour. It increases the mobility and velocity of
capital, making it not only more profitable but also more fragile, and channels profits of
the real economy to the financial market (Bonefeld etal., 1995: 39). Financial invest-
ment yields higher returns than productive investment (Bonefeld etal., 1995: 39). Capital
borrows more money to make up for falling profits to overcome difficulties for expanded
accumulation, but earned profits [are] increasingly placed on money markets (Bonefeld
etal., 1995: 39). That is to say, capital flees the factory and accumulates wealth in the
money form without a corresponding exploitation of labour-power in the factory
(Bonefeld and Holloway, 1996: 213).
Financialisation also functions to postpone the tendencies to economic crisis in the
capitalist mode of production. Migration of productive capital to the unproductive sec-
tors where individual capitalists realise higher profit rates not only increases the rate of
profit in the financial market but also decreases the risk of the tendency for the rate of
profit to fall in the real economy (Carchedi, 2011: 4). Capital transaction from the real
economy to the financial market decreases the investment into constant capital, which
prevents an increase in the organic composition of capital, and hence, a decrease in the
rate of profit for a limited time. Put plainly, financialisation postpones the tendency for
the rate of profit to fall.
Finance, however, is a sector where surplus value is not produced but only shared
(Boratav, 2009: 10). Financialisation results in the excessive development of the finan-
cial market over the real economy. The financial market seeks to manipulate higher
amounts of capital via borrowing and lending mechanisms. Proliferation of financial
tools, such as hedge funds, repo and mortgage credits, and the enlargement of the
financial market necessitate very high rates of capital accumulation to be transferred
from the real economy to the financial market. In this regard, financial capital is ficti-
tious, but the necessity for the profits in production to correspond stands as non-
fictitious, that is, real.
Since the rate of profit tends to fall and restricts both capital accumulation in the real
economy and capital transfer to the financial market, the rate of profit is never sufficient
to compensate the transactions of fictitious capital. As Clarke argued in an interview:

The main source of profit, interest and rent is surplus-value, which limits the rate of profit.
Profits above this limit are totally speculative and solely on paper, and do not have an equivalent
in the real world. If capital cannot increase the level of surplus-value to make these speculative
Sarmehmet Duman 245

profits real, reality would impose itself and this sort of crisis would emerge inherently. (Clarke,
2009)

Hence, financialisation, which is perceived as an avenue of emancipation from both

labour and the low-profit real economy, requires an increase in the rate of exploitation
and profit in production. It is dependent on increasing rates of profit in the real
economy.
The development of the financial market and financialisation in relation to the real
economy reveals that the financial market and the real economy are tightly intercon-
nected. A comprehensive analysis of the current global economic crisis revives the inevi-
tability of scrutinising the capitalist mode of production with a specific focus on the rate
of profit and the role of strategies implemented for increasing the rate of exploitation,
that is, labour market reforms.

The countervailing tendencies: The role of labour market

reforms in battling the tendency for the rate of profit to fall
In Marx (1992 [186367]), the rate of profit to fall is a tendency, and there are counter-
vailing tendencies, which cross and annul the effect of the general law, and which give it
merely the characteristic of a tendency (pp. 301302, cited in Giacche, 2011: 22). These
are the strategies created and implemented not only to avoid the tendency for the rate of
profit to fall, overaccumulation and over-financialisation but also to overcome economic
crises inherent to capitalism. The countervailing tendencies directly related to the labour
process are as follows: a rise in the rate of exploitation of labour, pushing wages below
their value, decreasing the cost of constant capital, relative overpopulation, foreign trade
and increase in interest-bearing capital (Giacche, 2011: 2224). Introduction of new
technology is also instrumentalised as a countertendency (Carchedi, 2011: 3). Moseley
(2011) argues that these strategies are complemented by cutbacks to health insurance and
retirement pension benefits, making workers work harder and faster on the job and mov-
ing production operations to low-wage areas around the world (p. 61).
The countervailing tendencies are designed to decrease the cost of production and
increase the rate of surplus value by various mechanisms. These include changes to the
labour process by lengthening the working day, increasing work intensity and productiv-
ity, reducing direct wages, indirect wages (social services) and deferred wages (pen-
sions), and changing the ratio between variable and constant capital (Giacche, 2011:
2224).
Intense implementation of these countervailing strategies started with the advent of
neoliberalism. The neoliberal agenda has impelled the prevention of the tendency for the
rate of profit to fall through the implementation of labour market reforms and the
reimposition of capitalist discipline on labour process following the economic crisis of
the early 1970s (Jessop, 2005: 57). With the increasing mobility of capital and the ten-
dency to shift production to countries with higher labour productivity and lower unit
labour cost, the aim is to transform the labour regime in order to increase the rate of
profit (Bonefeld, 2007: 113). A new organisation of work, a new flexibility and new
246 The Economic and Labour Relations Review 25(2)

discipline that is not compatible with the old trade union structures (Holloway, 1996:
134) are employed to increase competitiveness and attract global capital (Bonefeld etal.,
1995: 30).
Labour market reforms are designed to decrease wages, production costs and public
expenditure for generating an efficient, productive and profitable labour regime. Pushing
wages below their value remains one of the most important ways to check the tendency
of the rate of profit to fall (Marx, 1992: 305, cited in Giacche, 2011: 23). Deregulation
and flexibilisation policies promote a distinctive type of labour process, combining
multiskilled and unskilled workers in flexible ways based on the operation of flexible
machines and flexible systems (Jessop, 2007: 98). New technologies decrease the need
for labour and function to decrease the unit value of the output [and] the produced
means of production (Carchedi, 2011: 3). The new relationship between labour and cap-
ital is institutionalised by the policies of deunionisation, deregulation, flexibilisation and
restriction of social security rights.
Under the changing labour regime and production process, labour is compelled to
accept declining conditions, work intensification and downward wage pressures as
exploitation is intensified to increase the rate of profit (Bonefeld etal., 1995: 6566).
Labour is taken under control through restraints on trade union bargaining, deregula-
tion of employment, tax and poverty policies and reductions in public expenditure
(Bonefeld, 1996: 5253). Education, health and housing rights are delegated to mar-
ket forces (Bonefeld and Holloway, 1996: 219), and this serves the further expansion
of the financial market. High unemployment affects the rate of profit by decreasing
wages and increasing the rate of exploitation (Carchedi, 2011: 1317). Besides unem-
ployment, poverty and unsecured working conditions also force people into debt and
homelessness, which are used as a disciplinary force (Bonefeld and Holloway, 1996:
223). Labour is forced to pay the cost of the tendency for the rate of profit to fall.
However, the strategies employed for increasing the rate of exploitation, that is, the
countervailing tendencies and the labour market reforms, have not succeeded in revers-
ing the tendency for the rate of profit to fall. The following parts of this article, focusing
on the emergence of the current global economic crisis and the recovery policies imple-
mented during the crisis, will build the argument that economic crisis is inherent to the
capitalist mode of production.

The current global economic crisis: The gap between

fictitious profits and real profits
Since the economic crisis of the 1970s, the surplus value accumulated in the real econ-
omy has been shared by the financial market in order to decrease the organic composi-
tion of capital by limiting investment into constant capital and in order to achieve higher
returns of profit. Real profits have been transferred to the financial market rather than
being utilised in production (Tonak, 2009: 37). This capital transfer has downsized the
real economy. It has circumvented the tendency for the rate of profit to fall, and hence,
overaccumulation, for a certain period of time. Capital has fled from the risky and low-
profit real economy to the high-profit financial market, and growing levels of financiali-
sation have postponed and/or limited devalorisation of capital.
Sarmehmet Duman 247

Financialisation has enabled capitalist accumulation to grow rapidly. The financial

market has accrued profit in forms of credit, mortgage, social insurance funds, bonds and
stock markets. However, despite the strategies implemented to increase efficiency and
profitability in the real economy, the levels of real profit could not have compensated
those of fictitious profit (Tonak, 2009: 37). In the US, financial sector profit as a share of
total corporate profit has increased from an average of 17.4% in 1960 to 1984, to
approximately 30% in the years 1985 to 2008, it averaged roughly 30%, reaching over
40% between 2001 and 2003 (Khatiwada, 2010: 2). To put it plainly, the growth of the
financial market has not had an equivalent in the real economy. Moreover, the trade of
financial capital in larger volume and higher velocity resulted in tighter integration of
national financial markets. Inflow and outflow of fictitious capital has led to the occur-
rence of endemic and epidemic crises in national markets.
The current global economic crisis has emerged under the lasting conditions of the
growth of the financial market over the real economy. According to Kotz (2009), who
acknowledges the origin of the current economic crisis in underconsumption (p. 311),
from 2005 onwards, the rise of fictitious profits created a large volume of financial capital
that exceeds productive investment opportunities as well as real profits (p. 308). Financial
capitalists searched for opportunities to lend the high amount of money accumulated, but
non-financial capitalists did not have a corresponding need for borrowing (Moseley, 2011:
61). Workers, on the other hand, became eager to borrow money since labour market
reforms had worsened their working and living conditions (Moseley, 2011: 61). In the
United States, household debt as a percentage of disposable personal income increased
from 59% in 1982 to 77.5% in 1990, 91.1% in 2000 and 128.8% in 2007 (US Bureau of
Economic Analysis, 2008; Federal Reserve System, 2008, cited in Kotz, 2009: 314).
Hence, contrary to Kotzs (2009: 311) argument that the problem of neoliberal capi-
talism is inadequate growth in aggregate demand, the worsening working and living
conditions of the working class had already generated the necessity for borrowing before
the current economic crisis. Fictitious profits have been sold as commodities in the finan-
cial market, and the working class has been the primary lender. In due course, the lending
process broadened from credit-worthy workers who were qualified for prime mortgages
to less credit-worthy workers who were qualified for subprime mortgages (Moseley,
2011: 61). No incomeno jobno asset (NINJA) borrowers were indebted, and this fur-
ther increased the risk of bankruptcy in the financial market.
The decrease in the safety of the financial market surfaced in the housing market. In
the beginning, the rise in mortgage rates in the housing market was accompanied by a
rise in housing prices, and borrowers were encouraged to buy new mortgages to pay the
old ones (Moseley, 2011: 64). However, when housing prices started to fall, the strategy
of refinancing loans could not be sustained, and borrowers could neither restructure nor
pay their loans (Moseley, 2011: 64). The bursting of the housing bubble began in 2006
and escalated in 2007 and 2008 (Moseley, 2011: 62). The mortgage sector was bank-
rupted, creating a domino effect in the world financial market. Based on this fact,
Moseley (2011) claims that the current economic crisis has resulted not from the ten-
dency for the rate of profit to fall (as the strategies for increasing the rate of profit have
succeeded), but from the decrease of the trustworthiness of borrowers, and hence, of the
financial market (p. 61).
248 The Economic and Labour Relations Review 25(2)

However, as Callinicos argues (2010), while the economic crisis was first manifested
in the financial system, this does not mean that it was generated there. Highlighting the
significance of both overaccumulation and profitability, he argues that the economic
crisis exposes the depths of the contradictions that have been at work in the entire pro-
cess of capital accumulation and not merely the dysfunctions of the financial markets
(2010: 50).
Besides research on over-financialisation and the financial boom, there are a sig-
nificant number of studies on the rates of profit in the United States that outline the
tendency for the rate of profit to fall in the last decades. In research conducted in
2009, Mohun states that the rate of profit in the US economy halved between 1965
and 1982, recovered to about its 1973 level by 1997, and thereafter fell sharply to
approach its 19791983 levels by 2001 (p. 1025, cited in Callinicos, 2010: 56).
Kliman (2010) also shows that the average rate of profit decreased from 20.3% in the
period of 19581980 to 14.3% in the period of 19812004 (pp. 2526, cited in
Giacche, 2011: 21). The average rate of profits fell from 4.3% in the seventh quarter
before the start of the recession to 0.4% in the fifth quarter before the recession
(Granados, 2012: 487). Dumenil and Levy (2002) affirm these arguments with the
statement that the value of the profit rate in 2000 is still only half of its value of 1948
(p. 439, cited in Callinicos, 2010: 56).
This research shows that the current global economic crisis is not essentially the result
of over-financialisation. The falling rates of profit also played a crucial role in the
(im)balance between the profits accumulated in the real economy and the financial mar-
ket. The tendency towards capital destruction manifested itself in spite of the counter-
tendencies and was revealed in the current economic crisis (Carchedi, 2011: 12). Hence,
it is plausible to argue that the crisis emerged as an outcome of both the extensive growth
of fictitious profits in the financial market and the tendency for the rate of profit to fall in
the real economy, the former being an endemic/epidemic characteristic of the financial
market and the latter being that of the capitalist mode of production. The financial boom
triggered the crisis (Savran, 2008), but the fall in the rate of profit underlay as the funda-
mental reason (Bahe and Kse, 2010; Savran, 2008; Tonak, 2009).
The economic crisis occurred as the result of the excessive growth of the financial
market over the real economy and of fictitious profits over real profits. The gap between
fictitious profits and real profits widened with the dual effect of both the financial market
and the real economy. The rate of fictitious profits increased with over-financialisation,
whereas the rate of real profits decreased due to the law of the tendency for the rate of
profit to fall in the capitalist mode of production. Hence, as in Marx, the crisis occurred
when the rate of profit is so low that corporate reserves are not sufficient to restore
liquidity of the banking system (Stravelakis, 2012: 187).
In the reverse scenario, however, if the tendency for the rate of profit to fall had been
overturned, the gap between fictitious profits and real profits would not have widened.
Therefore, despite the dual effect of both markets, it is crucial to underline that the cur-
rent crisis has taken place in the financial market but has its roots in the tendency for the
rate of profit to fall in the real economy. This statement can also be substantiated by the
analysis of the scope and content of recovery policies implemented following the emer-
gence of the crisis.
Sarmehmet Duman 249

The implementation of labour market reforms for

economic recovery
The impact of the current global economic crisis on particular economies has diverged in
accordance with the size of capital accumulation in the financial market and the rate of
profit in the real economy, that is, the width of the gap between fictitious profits and real
profits. The bigger the gap between fictitious profits and real profits, the more devastat-
ing is the effect of the crisis on an economy. Not only did the structures of the financial
market and the real economy differ but so did the gap between the fictitious profits and
real profits, on the basis of the scope of the countervailing tendencies implemented since
the introduction of the neoliberal agenda.
During the economic crisis, neoliberal discourse on the illusionary separation of the
political and the economic areas was temporarily replaced by arguments for the states
duty to assure the sustainability of the capitalist economy. The crisis has boosted the
states responsibility in overcoming the economic bottleneck and in restructuring the
capitalist relations. Capitalist states have pursued recovery policies and implemented
structural labour market reforms. In this regard, as Hay (2013) argued for the case of
Britain, the firmly established crisis discourse played a paradigm-reinforcing role in
policy-making and policy implementation processes (p. 23).
Following the banking crisis and credit crunch, capitalist states rescued a large num-
ber of systemically significant global financial institutions (Hay, 2011: 1). They sought
to transfer the burden of the crisis to society by providing credit and liquidity to the
market, introducing reductions in interest rates and taxes to promote consumption and
guaranteeing the investments of households and the nationalisation of banks. Production
incentives and tax exemptions have been implemented for enhancing the comparative
advantage of national industries, while financial market regulations have been intro-
duced for increasing public revenues and decreasing public expenditure.
As the most important structural reforms in overcoming the current global economic
crisis, comprehensive labour market reforms have been implemented to increase the rate
of profit in production and to close the gap between fictitious profits and real profits.
Labour market reforms have played a crucial role, with various restrictive measures
regarding the working conditions, wages and social rights (health, education, etc.), all of
which aim to intensify the exploitation of labour, and hence, to increase the rate of profit.
Owing to high levels of unemployment, labour power has become available in large
quantities and also for low wages (Carchedi, 2011: 13). In this regard, the economic
crisis has been instrumentalised to implement further restrictions on labour and hence to
increase the rate of profit in the real economy.
The recovery policies for the current global economic crisis presupposed not only a
greater production of surplus value percentagewise, but also the conditions for that
greater production to be realised (Carchedi, 2011: 14). They prioritised structural labour
market reforms, which aimed to increase the deregulation and flexibility of labour mar-
kets by institutionalising atypical forms of work and to decrease social expenditures by
social security and pension reforms. In other words, the countervailing tendencies have
been revived for the recovery of the capitalist mode of production. Accordingly, the
scope and content of recovery policies have provided evidence to the fact that the funda-
mental reason of the economic crisis resides in the real economy.
250 The Economic and Labour Relations Review 25(2)

Conclusion
The current global economic crisis has influenced the world economy. Scholarly and
political debate on both the nature of economic crisis in capitalism and the fundamental
reasons of the current economic crisis has become vital. In the renaissance of theories of
crisis, this article has inquired into the nature of economic crisis and investigated the dis-
tinction between the fundamental reasons (forms of existence) and the triggering factors
(forms of appearance) in the context of the current global economic crisis. To serve this
purpose, it has briefly mentioned the perception of Keynesians and classical/neoclassical
economists and evaluated the diversity in Marxist theories of crisis. It made an inquiry
into two approaches in Marxism, the tendency for the rate of profit to fall and overaccu-
mulation, and provided a comparative analysis within the intricate production process.
This article has focused on two phenomena, namely, financialisation in the financial
market and the rate of profit in the real economy. It has investigated how and why the
capital accumulated in production fled the factory and contributed to the accumulation of
capital in the money form. Highlighting the excessive growth of the financial market
over the real economy, and hence, of fictitious profits over real, this article has claimed
that economic crisis is largely an outcome of the gap between fictitious profits and real
profits. Therefore, the fundamental reason of economic crisis resides in the structural
characteristics of the real economy, even though it might be triggered by the incidents in
the financial market.
Reliance has been placed on countervailing tendencies directly related to the labour
process, that is, labour market reforms, in order to battle the tendency for the rate of
profit to fall in the capitalist mode of production. In line with the challenges of the accu-
mulation of surplus value in the production process, exploitation of labour has been
intensified by increasing working hours, decreasing wages and restricting social security
rights. Despite the countervailing tendencies, the tendency for the rate of profit to fall
and the excessive growth of fictitious profits over real profits could not be reversed.
Based on this theoretical framework, the article has scrutinised the current global
economic crisis from the dimensions of the financial market and the real economy.
Drawing together recent scholarly analyses, it has presented the economic crisis as an
outcome of both the extensive growth of fictitious profits in the financial market and
the tendency for the rate of profit to fall in the real economy, the latter being the fun-
damental underlying reason. The current global economic crisis was triggered by the
financial boom, but it was based on the tendency for the rate of profit to fall in the real
economy.
It concludes that the capitalist state has implemented recovery policies and structural
labour market reforms in order to narrow down the gap between fictitious profits and real
profits and also to increase the rate of profit. The economic crisis has allowed
policy-makers to present structural reforms as a necessity for a successful recovery and
depoliticised and legitimised the enactment of labour market deregulation and flexibili-
sation, and restrictions on social rights. In this respect, the implementation of the coun-
tervailing tendencies as instruments of economic recovery constitutes the most distinct
evidence that the real economy stands as the fundamental reason for the current
economic crisis.
Sarmehmet Duman 251

Acknowledgement
Most of this research was conducted during my Jean Monnet Postdoctoral Fellowship at the
University of Sheffield, UK. I express my sincere gratitude to Professor Colin Hay, the editor of
the journal and two anonymous referees for their constructive and encouraging comments on an
earlier version of this article. The responsibility for any flaws in the argument is, of course, mine.

Funding
This research received no specific grant from any funding agency in the public, commercial or
not-for-profit sectors.

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Author biography
zgn Sarmehmet Duman is a member of the Department of Political Science, pek University,
Turkey. Her research interests include comparative politics, international political economy,
European social policy and Turkish politics.