Zombie Capitalism

Faced with the financial crisis that began in 2007 some economic commentators began to talk of 'zombie banks', financial...

Author: Chris Harman

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Faced with the financial crisis that began in 2007 some economic commentators began to talk of 'zombie banks', financial institutions that were in an 'undead' state incapable of fulfilling any positive function but representing a threat to everything else. However 21st century capitalism as a whole is a zombie system dead to achieving human goals and responding to human feelings but capable of sudden spurts of activity that cause chaos all around. Chris Harman shows how Marx's understanding of capitalism is essential for any explanation of how this world emerged and developed over the last century and a half. He shows that the roots of the crisis today lie not in financial speculation but much deeper in a crisis of profitability which 30 years of the neoliberal offensive have failed to reverse. The future of the system will not be a return to steady growth but repeated instability and upheaval, together with a rising ecological crisis. Finally he looks the force in society capable of ending the rule of capital —the global working class.

"A powerful, comprehensive and accessible critique of capitalism from one of the world's pre-eminent Marxist economists. This book needs to be read far and wide. It is a clear, incisive warning of the massive dangers posed by a 'runaway system' and the threat it poses for the future of humanity." Graham Turner, author of Credit Crunch: Housing Globalisation and the Worldwide Economic Crisis

Bubbles,

"Both essential reading for anyone who wants to understand the present crisis and its place in the history of < ipiijlif.m and an important cont'lbution to Marxist politic .si w onomy. " Alex Callinicoi, I ' r o f n t t o r of F.uropoan Studies. King'* College London

CHRIS HARMAN /IIH >i of A Peoples History of t h e W o r l d

W A S H E

; i; I». 1. '_VJ lAthrîi

< .I OBAL CRISIS AND m i RFLEVANCE OF MARX

Z o m b i e Capitalism: Global crisis and the relcvance of M a r x

Chris Harmatt First published in July 2009 by Bookmarks Publications Copyright O Bookmarks Publications ISBN 9781905192533 Cover design by Noel Douglas Typeset bv Bookmarks Publications Printed by Information Press

Contents

Introduction Part O n e : U n d e r s t a n d i n g the system: M a r x a n d B e y o n d 1

Marx's Concepts

21

2

M a r x a n d his Critics

41

3

T h e D y n a m i c s o f the System

55

4

B e y o n d M a r x : M o n o p o l y , W a r a n d the State

87

5

State S p e n d i n g a n d the System

121

P a n T w o : C a p i t a l i s m in the 2 0 t h C e n t u r y 6 8

The Great Slump

143

The Long B o o m

161

T h e end o f the g o l d e n age

191

Part Three: T h e N e w A g e o f G l o b a l Instability 9

T h e Years o f D e l u s i o n

229

10

G l o b a l C a p i t a l in the N e w Age

255

11

F i n a n c i a l i s a t i o n a n d the Bubbles that Burst

277

Part F o u r : T h e R u n a w a y System 12

The N e w Limits o f Capital

307

13

T h e R u n a w a y System a n d the Future for H u m a n i t y

325

14

W h o Can Overcome?

329

Notes

353

Glossary

393

Index

403

A b o u t the A u t h o r C h r i s H a r m a n is a leading m e m b e r o f the Socialist W o r k e r s Party ( w w w . s w p . o r g . u k ) . H e is the a u t h o r o f n u m e r o u s h o o k s i n c l u d i n g A Peoples

History

2 0 0 S ) , Revolution Fire Last Revolution:

Time:

of the

World

in the list 1968

Germany

e d i t o r o f International

and

(Bookmarks

Century

After

1999 a n d

Verso

( B o o k m a r k s 2 0 0 7 ) , The

( B o o k m a r k s 1 9 8 8 ) , The

Lost

1918 to 1923 ( B o o k m a r k s 1982). H e is the Socialism,

a quarterly journal o f M a r x i s t

theory ( w w w . i s j . o r g . u k ) . The Socialist W o r k e r s Party is linked t o a n i n t e r n a t i o n a l n e t w o r k o f o r g a n i s a t i o n s , for further i n f o r m a t i o n g o t o w v w . s w p . o r g . u k / international, p h p

Introduction

An unstable world . W e live in a n unstable w o r l d , a n d the instability is g o i n g to increase. It is a w o r l d w h e r e a billion people feel h u n g r y every day, a n d the hunger is g o i n g t o increase. It is a w o r l d w h i c h is destroying its o w n e n v i r o n m e n t , a n d the destruction is g o i n g t o increase. It is a violent w o r l d , a n d the violence is g o i n g to increase. It is a w o r l d w h e r e people are less h a p p y , even in the industrially a d v a n c e d countries, t h a n they used t o be,1 a n d the u n h a p p i n e s s is g o i n g t o increase. Even the m o s t craven a p o l o g i s t s for c a p i t a l i s m find it h a r d t o deny this reality a n y longer, as the w o r s t e c o n o m i c crisis since the Second W o r l d W a r c o n t i n u e s t o deepen as 1 write. T h e world's best k n o w n b a n k s have o n l y been saved f r o m g o i n g bust by vast g o v e r n m e n t bail-outs. T h o u s a n d s o f factories, stores and

offices

are c l o s i n g

Unemployment

across

Europe

and

North

America.

is s h o o t i n g u p w a r d s . T w e n t y m i l l i o n

Chinese

workers have been t o l d they have to return t o the villages because there are n o jobs for t h e m in the cities. A n I n d i a n employers' t h i n k t a n k w a r n s t h a t ten m i l l i o n o f their employees face the sack. A h u n d r e d m i l l i o n o f the w o r l d ' s people in the G l o b a l S o u t h are still threatened w i t h h u n g e r because o f last year's d o u b l i n g o f grain prices, w h i l e in the richest c o u n t r y i n the w o r l d , the U n i t e d States, three m i l l i o n families have been dispossessed f r o m their h o m e s in 18 m o n t h s . Yet just t w o years a g o , w h e n I began this b o o k , the message was very different: " R e c e n t high levels o f g r o w t h will c o n t i n u e , g l o b a l inflation w i l l stay q u i t e s u b d u e d , a n d g l o b a l current a c c o u n t imbalances will g r a d u a l l y m o d e r a t e , " w a s the " c o n s e n s u s " a m o n g mainstream

economists,

reported

the

Bank

Settlements. T h e p o l i t i c i a n s , industrialists,

ot

International

financiers

a n d com-

m e n t a t o r s all agreed. T h e y toasted the w o n d e r s o f free m a r k e t s 7

a n d rejoiced that " e n t r e p r e n e u r i a l g e n i u s " h a d been

liberated

f r o m r e g u l a t i o n . It w a s w o n d e r f u l , they told us, that the rich were getting richer because that p r o v i d e d the incentives w h i c h m a d e the system so b o u n t i f u l . Trade w a s g o i n g to obliterate h u n g e r in A f r i c a .

Economic

g r o w t h w a s d r a i n i n g the vast p o o l s ol poverty in Asia. T h e crises o f the 1970s, SOs, 90s a n d 2001-2 were m e m o r i e s w e c o u l d

put

b e h i n d us. There m i g h t be horrors in the w o r l d , w a r s in the M i d d l e East, civil w a r s in Africa, b u t these were to be b l a m e d on the shortsightedness o f essentially honest p o l i t i c i a n s in W a s h i n g t o n

and

L o n d o n w h o m a v have m a d e mistakes but whose h u m a n i t a r i a n in4

tervention was still needed to deal w i t h psychopathic maniacs. The w o r d s of those w h o saw things differently were i g n o r e d , as the media p o u r e d o u t candyfloss layers o f celebrity culture, u p p e r m i d d l e class self-congratulation a n d senseless nationalist e u p h o r i a over sporting events. T h e n in m i d - A u g u s t 2 0 0 7 s o m e t h i n g h a p p e n e d w h i c h began to sweep the candyfloss a w a y t o p r o v i d e a glimpse o f the u n d e r l y i n g reality. A n u m b e r o f b a n k s suddenly discovered thev c o u l d n o t bal•

4

4

ance their b o o k s a n d s t o p p e d l e n d i n g t o each other. T h e w o r l d ' s financial turned

system began g r i n d i n g to a halt w i t h a credit c r u n c h t h a t i n t o a crash o f the w h o l e system

in O c t o b e r

2008.

Capitalist c o m p l a c e n c y t u r n e d to capitalist p a n i c , e u p h o r i a to desperation. Yesterday's heroes became t o d a y s swindlers. F r o m those w h o h a d assured us of the w o n d e r s o f the system there n o w c a m e one message: " W e d o n ' t k n o w w h a t has g o n e w r o n g a n d we d o n ' t k n o w w h a t t o d o . " The m a n w h o n o t l o n g before been treated as the s u p r e m e genius overseeing the US e c o n o m i c system, A l a n G r e e n s p a n , o f the Federal Reserve, a d m i t t e d to the US C o n g r e s s t h a t h e still d i d " n o t fully u n d e r s t a n d w h a t w e n t w r o n g in w h a t he t h o u g h t were self-governing m a r k e t s V G o v e r n m e n t s have been t h r o w i n g h u n d r e d s o f billions t o those w h o r u n the b a n k s — a n d tens o f b i l l i o n s t o those w h o run the m u l t i n a t i o n a l car

firms—in

the h o p e that this w i l l s o m e h o w stop

the crisis. But they c a n n o t agree a m o n g themselves h o w t o d o this a n d even w h e t h e r it will w o r k or n o t . Yet o n e t h i n g is certain. T h e m o m e n t a n y part o f the g l o b a l e c o n o m y begins to stabilise they will forget the h u n d r e d s o f millions of lives that have been shattered by the crisis. A f e w m o n t h s w h e n b a n k s are n o t c o l l a p s i n g a n d profits are n o t falling t h r o u g h the floor a n d the apologists w i l l be p u m p i n g o u t candyfloss o n c e 7

Introduction

a g a i n . T h e i r futures will seern better a n d rhey will generalise this to the w o r l d at large w i t h renewed talk a b o u t the w o n d e r s o f capitalism a n d the i m p o s s i b i l i t y o f a n y a l t e r n a t i v e — u n t i l crisis hits a g a i n a n d t h r o w s them i n t o a n o t h e r p a n i c . Bur crises are n o t s o m e n e w feature o f the system. They have occurred at longer or shorter intervals ever since the

industrial

r e v o l u t i o n established the m o d e r n f o r m o f c a p i t a l i s m in Britain fully at the b e g i n n i n g o f the 19th century.

T h e poverty o f e c o n o m i c s The m a i n s t r e a m e c o n o m i c s t h a t is t a u g h t in schools a n d universities has proved c o m p l e t e l y u n a b l e t o c o m e t o terms w i t h such things. T h e Bank o f I n t e r n a t i o n a l Settlements recognises that: V i r t u a l l y n o o n e foresaw the G r e a t Depression o t the 1930s, or t h e crises w h i c h affected J a p a n a n d S o u t h Hast Asia in rhe early a n d late 1990s, respectively. In fact, each d o w n t u r n w a s preceded

by a

period

of non-inflationary

growth

exuberant

e n o u g h t o lead m a n y c o m m e n t a t o r s to suggest t h a t a " n e w e r a " had arrived.' N o t h i n g s u m s u p the i n c o m p r e h e n s i o n o f those w h o defend capitalism as m u c h as their i n a b i l i t y t o e x p l a i n the m o s t significant e c o n o m i c episode in the 2 0 t h c e n t u r y — t h e s l u m p of the 1930s. Ben Bernanke, the present head o f the US Federal Reserve a n d supposedly o n e o f m a i n s t r e a m e c o n o m i c s ' m o s t respected experts o n e c o n o m i c crises, a d m i t s that " u n d e r s t a n d i n g the Great Depression is the H o l v G r a i l o f m a c r o e c o n o m i c s ' " 4 — i n other w o r d s , he c a n find n o e x p l a n a t i o n for it. N o b e l e c o n o m i c laureate F d w a r d

C

Frescort describes it as " a . . . p a t h o l o g i c a l episode a n d it defies exp l a n a t i o n by s t a n d a r d e c o n o m i c s " . 5 For R o b e r t Lucas, a n o t h e r N o b e l L a u r e a t e " i t takes a real effort o f will t o a d m i t you d o n ' r k n o w w h a t the hell is g o i n g o n in s o m e areas"." These are n o t accidental failings. They are built i n t o the very ass u m p t i o n s o f the " n e o c l a s s i c a l " or " m a r g i n a l i s t " school t h a t has d o m i n a t e d m a i n s t r e a m e c o n o m i c s for a century a n d a quarter. Its founders

set themselves

rhe

task

of

showing

how

markets

" c l e a r " — t h a t is, h o w all the g o o d s in them will find buyers. But that assumes in a d v a n c e t h a t crises are n o t possible. 9 Introduction

T h e implausibility o f the neoclassical m o d e l in the face o f some o f the most o b v i o u s features o f capitalism has led to recurrent attempts w i t h i n the m a i n s t r e a m t o bolt extra elements o n t o it in an ad hoc way. N o n e o f these a d d i t i o n s , however, alter the basic belief t h a t the system will return to e q u i l i b r i u m — p r o v i d i n g prices, a n d especially wages, adjust t o m a r k e t pressures w i t h o u t h i n d r a n c e . Even J o h n M a y n a r d Keynes, w h o w e n t further t h a n a n y o n e else in the m a i n s t r e a m in q u e s t i o n i n g the e q u i l i b r i u m m o d e l , still assumed it c o u l d be m a d e to w o r k w i t h a degree o f g o v e r n m e n t intervention. There

were

always

challenges

to

such

complacency.

The

A u s t r i a n e c o n o m i s t Schumpeter derided any idea o f e q u i l i b r i u m as i n c o m p a t i b l e w i t h w h a t he s a w as the great positive virtue o f capi t a l i s m , its d y n a m i s m . S o m e o f Keynes's disciples w e n t further t h a n

he did in b r e a k i n g w i t h neoclassical

much

orthodoxy.

C a m b r i d g e e c o n o m i s t s tore a p a r t the theoretical basis o f the neoclassical school. Yet the o r t h o d o x y is as strongly entrenched in the universities a n d schools as ever, p u m p i n g i n t o the heads o f each n e w generation a picture o f the e c o n o m i c system that bears little r e l a t i o n s h i p to reality. T h e pressure o n students t o study the b o o k s p u t t i n g f o r w a r d such views as if they were scientific texts has led to Samuelson's Positive

Economics

Economics

and

Lipsey's

An

Introduction

to

selling m i l l i o n s o f copies.

It is h a r d l y surprising t h a t the e c o n o m i c s profession has difficulty c o m i n g t o terms w i t h those aspects o f the capitalist system t h a t have the greatest i m p a c t o n the mass o f people w h o live w i t h i n it. T h e o b t u s e t h e o r e m s t h a t fill e c o n o m i c t e x t b o o k s a n d a c a d e m i c j o u r n a l s , w i t h their successive algebraic c a l c u l a t i o n s a n d g e o m e t r i c figures, assume stability a n d e q u i l i b r i u m , a n d so have little t o say t o people w o r r i e d by the system's p r o p e n s i t y t o crisis. O n e o f the f o u n d e r s o f the neoclassical school, M a r s h a l l , observed nearly a century a g o that the e c o n o m i c theory he believed in w a s o f little use in practice a n d t h a t " a m a n is likely t o be a better economist if he trusts his c o m m o n sense a n d practical i n s t i n c t s " . ' Yet w h a t is involved is n o t just abstract a c a d e m i c scholasticism. T h e o r t h o d o x y is a n ideological p r o d u c t in the sense that it operates f r o m the s t a n d p o i n t o f those w h o p r o f i t f r o m the m a r k e t system. It presents their profiteering as the s u p r e m e w a y o f cont r i b u t i n g t o the c o m m o n g o o d , w h i l e a b s o l v i n g them o f a n y t h i n g t h a t goes w r o n g . A n d it rules o u r a n y f u n d a m e n t a l critique o f the present system, in a w a y t h a t suits those w i t h c o m m a n d i n g posit i o n s in e d u c a t i o n a l structures, c o n n e c t e d as they are to all the 10

Introduction

other

structures

of

capitalism.

The

radical

Keynesian

Joan

R o b i n s o n s u m m e d u p the situation: T h e radicals h a v e rhe easier case t o m a k e . They h a v e o n l y t o p o i n t t o the discrepancies between the o p e r a t i o n o f the m o d e r n e c o n o m y a n d rhe ideas by w h i c h it is s u p p o s e d t o be j u d g e d , w h i l e the conservatives have the well nigh i m p o s s i b l e task o f d e m o n s t r a t i n g that this is rhe best o f all possible w o r l d s . For the s a m e reason, however, the conservatives are c o m p e n s a t e d by o c c u p y i n g positions o f power, w h i c h they can use to keep criticism in c h e c k . . . T h e conservatives d o n o t feel obliged t o answer radical criticisms o n their merits a n d the a r g u m e n t is never fairly j o i n e d / But even m m t o f the " r a d i c a l s " usually start by t a k i n g the existing system for g r a n t e d . T h e a r g u m e n t s o f the radical Keynesians like J o a n R o b i n s o n h a v e always been in terms o f a m e n d m e n t s t o the system, t h r o u g h greater state intervention t h a n t h a t envisaged by the m a i n s t r e a m . T h e y h a v e n o t seen the system itself as driven by a n inner d y n a m i c w h o s e destructive effects are n o t restricted t o purely e c o n o m i c p h e n o m e n a . In the 21st century it is p r o d u c i n g wars, h u n g e r a n d c l i m a t e c h a n g e as well as e c o n o m i c crises, a n d d o i n g so in w a y s w h i c h threatens the very basis o f h u m a n life. C a p i t a l i s m t r a n s f o r m s society in its entirety as its sucks p e o p l e by rhe billions i n t o l a b o u r i n g for it. It c h a n g e s the w h o l e pattern by w h i c h h u m a n i t y lives, r e m o u l d i n g h u m a n n a t u r e itself. It gives a n e w character ro o l d oppressions a n d t h r o w s u p completely newones. It creates drives t o w a r a n d ecological d e s t r u c t i o n . It seems t o act like a force o f n a t u r e , creating c h a o s a n d d e v a s t a t i o n o n a scale m u c h greater t h a n a n y e a r t h q u a k e , h u r r i c a n e or t s u n a m i . Yet the system is n o t a p r o d u c t o f n a t u r e , b u t o f h u m a n activity, h u m a n activity t h a t has s o m e h o w escaped f r o m h u m a n c o n t r o l a n d t a k e n o n a life o f its o w n . E c o n o m i s t s write t h a t " t h e m a r k e t does t h i s " o r " t h e m a r k e t d e m a n d s t h a t " . But the m a r k e t is o n l y the c o m i n g together o f the p r o d u c t s o f m a n y d i s p a r a t e acts o f h u m a n creative activity, l a b o u r . W h a t the economists* talk disguises is that s o m e h o w these h a v e t u r n e d i n t o a m a c h i n e t h a t d o m i n a t e s the h u m a n s t h a t u n d e r t a k e such activity, h u r l i n g the w o r l d in a d i r e c t i o n t h a t few p e o p l e in their r i g h t m i n d w o u l d w a n t . Faced w i t h the f i n a n c i a l crisis t h a t began in 2 0 0 " , s o m e e c o n o m i c c o m m e n t a t o r s d i d begin t o t a l k o f " z o m b i e b a n k s " — 10 Introduction

f i n a n c i a l i n s t i t u t i o n s t h a t were in the " u n d e a d s t a t e " a n d incap a b l e of fulfilling a n y positive f u n c t i o n , but representing a threat t o e v e r y t h i n g else. W h a t they d o n o t recognise is t h a t 21st century c a p i t a l i s m as a w h o l e is a z o m b i e system, seemingly d e a d when

it c o m e s t o a c h i e v i n g h u m a n g o a l s a n d r e s p o n d i n g

to

h u m a n feelings, b u t c a p a b l e o f s u d d e n spurts o f activity t h a t cause c h a o s all a r o u n d .

A w o r l d turned against ourselves There has o n l y been o n e serious t r a d i t i o n o f analysis t o a t t e m p t to p r o v i d e an a c c o u n t o f the system in these terms. It is t h a t w h i c h o r i g i n a t e d in the w r i t i n g s o f K a r l M a r x a n d his long-time colleague Frederick Engels. M a r x c a m e t o a d u l t h o o d in the early 1840s, just as i n d u s t r i a l c a p i t a l i s m began t o m a k e its first, l i m i t e d , i m p a c t o n s o u t h e r n G e r m a n y w h e r e he w a s b o r n . Engels w a s sent by his father t o help m a n a g e a factory in M a n c h e s t e r , where t h e n e w system w a s already f l o u r i s h i n g . T h e y shared w i t h a l m o s t the w h o l e o f their g e n e r a t i o n o f G e r m a n intellectual y o u t h a desire t o o v e r t h r o w the oppressive Prussian feudal system o f class rule presided over by a m o n a r c h w i t h despotic powers. But they soon began to grasp t h a t the i n d u s t r i a l c a p i t a l i s m that w a s s u p p l e m e n t i n g f e u d a l i s m contained

oppressive

features

of

its

own.

Above

all

it

was

characterised by an i n h u m a n s u b o r d i n a t i o n o f the mass o f people to the w o r k they d i d . W h a t M a r x was b e g i n n i n g t o discover a b o u t the f u n c t i o n i n g o f this then-new system led h i m to u n d e r t a k e a critical r e a d i n g o f its m o s t e m i n e n t p r o p o n e n t s , p o l i t i c a l economists like A d a m S m i t h a n d D a v i d R i c a r d o . H i s c o n c l u s i o n w a s t h a t , a l t h o u g h the system vastly increased the a m o u n t o f w e a l t h h u m a n s c o u l d p r o d u c e , it also denied the m a j o r i t y o f t h e m the benefits o f this w e a l t h : T h e m o r e the w o r k e r p r o d u c e s , the less he has t o c o n s u m e . T h e m o r e values he creates, the m o r e valueless, the m o r e u n w o r t h y he b e c o m e s . . . [The system] replaces l a b o u r by m a c h i n e s , b u t it t h r o w s o n e section o f w o r k e r s back t o a b a r b a r o u s type o f labour, a n d it t u r n s the other section i n t o a m a c h i n e . . . It produces i n t e l l i g e n c e — b u t for the worker, s t u p i d i t y . . . It is true t h a t l a b o u r p r o d u c e s w o n d e r f u l things for the r i c h — b u t for the 12

Introduction

w o r k e r it p r o d u c e s p r i v a t i o n . It p r o d u c e s p a l a c e s — b u t for the worker, hovels. It p r o d u c e s b e a u t y — b u t for the worker, deform i t y . . . T h e w o r k e r o n l y feels h i m s e l f outside his w o r k , a n d in /

.

¥

'

his w o r k feels outside himself. H e feels at h o m e w h e n he is n o t w o r k i n g ; w h e n he is w o r k i n g he does n o t feel at h o m e . In his early w r i t i n g s M a r x called w h a t w a s h a p p e n i n g "alienation",

taking

up

a

philosophical

term

developed

by

the

p h i l o s o p h e r Hegel. M a r x ' s c o n t e m p o r a r y Feuerbach h a d used the term to describe religion. It w a s , he a r g u e d , a h u m a n creation that people had allowed-to d o m i n a t e their lives. M a r x n o w saw capitalism in the same way. It w a s h u m a n l a b o u r t h a t p r o d u c e d n e w w e a l t h . But u n d e r c a p i t a l i s m that w e a l t h was turned i n t o a monster d o m i n a t i n g t h e m , d e m a n d i n g t o be fed by ever m o r e labour. The object t h a t l a b o u r produces, its p r o d u c t , stands o p p o s e d t o it as s o m e t h i n g alien, as a p o w e r i n d e p e n d e n t of the producer. T h e m o r e the w o r k e r exerts h i m s e l f in his w o r k , the m o r e powerful the alien, objective w o r l d becomes w h i c h he brings i n t o being over a g a i n s t himself, the p o o r e r he a n d his inner w o r l d b e c o m e , a n d the less they b e l o n g to h i m . . . T h e w o r k e r places his life in the object; b u t n o w it n o longer belongs to h i m , b u t t o the object... 1 0 As M a r x p u t it in his n o t e b o o k s for Capital

in the early 1860s:

T h e rule o f the capitalist over the w o r k e r is the rule o f the object over the h u m a n , o f d e a d l a b o u r over living, o f the p r o d u c t over the producer, since in fact the c o m m o d i t i e s w h i c h b e c o m e the m e a n s o f d o m i n a t i o n over the w o r k e r are... the p r o d u c t s o f the p r o d u c t i o n process... It is the a l i e n a t i o n process o f his o w n social l a b o u r . " But M a r x d i d n o t s i m p l y record this state o f affairs. O t h e r s h a d d o n e so before h i m , a n d m a n y were to c o n t i n u e t o d o so long after he w a s d e a d . Fie also set o u t , t h r o u g h a q u a r t e r o f a century o f g r i n d i n g intellectual labour, t o try to u n d e r s t a n d h o w the system h a d c o m e i n t o b e i n g a n d h o w it created forces o p p o s e d t o itself. H i s w o r k s were n o t just w o r k s o f economics, but a " c r i t i q u e o f political e c o n o m y " , o f the system w h i c h other schools o f economics t o o k for g r a n t e d . H i s starting p o i n t w a s t h a t c a p i t a l i s m is a 13 Introduction

historical p r o d u c t , arriving w h e r e he f o u n d it as a result o f a dyn a m i c w h i c h drove it ever o n w a r d s in a process o f endless c h a n g e w i t h " c o n s t a n t revolutionising o f p r o d u c t i o n , u n i n t e r r u p t e d dist u r b a n c e o f all social c o n d i t i o n s , everlasting uncertainty

and

a g i t a t i o n " . 1 2 T h e e c o n o m i c studies o f the m a t u r e M a r x a i m e d to grasp the nature o f this d y n a m i c , a n d w i t h it the trends in the develo p m e n t o f the system. They are the indispensable starting p o i n t for a n y o n e w h o w a n t s to try t o grasp where the w o r l d is g o i n g today. H i s m e t h o d w a s t o analyse the system at different levels o f ab•

4

straction. In the first v o l u m e o f Capital

h e set o u t t o delineate the

m o s t general u n d e r l y i n g features o f capitalist p r o d u c t i o n . The second v o l u m e

deals w i t h the w a y i n w h i c h c a p i t a l , c o m m o d i t i e s

a n d m o n e y circulate w i t h i n the system, a n d the third v o l u m e 1 1 integrates the process o f p r o d u c t i o n a n d c i r c u l a t i o n to p r o v i d e m o r e concrete a c c o u n t s o f t h i n g s like profit rates, the crisis, the credit system a n d rent. M a r x s o r i g i n a l i n t e n t i o n h a d been to p r o d u c e further v o l u m e s , d e a l i n g a m o n g other t h i n g s w i t h the state, foreign trade a n d w o r l d markets. H e w a s u n a b l e t o c o m p l e t e these, a l t h o u g h s o m e o f his w o r k t o w a r d s them is c o n t a i n e d in various n o t e b o o k s by h i m . " Capital

w a s , t h e n , a n unfinished w o r k in

s o m e respects. But it w a s an unfinished w o r k t h a t a c c o m p l i s h e d the goal o f u n v e i l i n g the basic processes o f the system, integrating i n t o its a c c o u n t the very t h i n g s ignored by the static e q u i l i b r i u m analysis o f the neoclassical m a i n s t r e a m : technical a d v a n c e , accum u l a t i o n , recurrent crises a n d the g r o w t h o f poverty a l o n g s i d e the growth of wealth.

Using M a r x today For these reasons, a n y a c c o u n t o f the w o r l d system t o d a y has to begin w i t h basic concepts developed by M a r x . I try t o o u t l i n e these in the first three chapters o f this b o o k . S o m e readers f r o m a M a r x i s t b a c k g r o u n d m i g h t regard the a c c o u n t as r e d u n d a n t . But the concepts have often been m i s u n d e r s t o o d w i t h i n the M a r x i s t c a m p as well as outside it. T h e y have been seen as c o m p e t i n g w i t h the neoclassical to p r o v i d e a n e q u i l i b r i u m a c c o u n t o f price formation a n d then faulted for failing to d o so. ,ft O n e reaction has been t o d r o p key elements in M a r x s

own

analysis, keeping it o n l y as an a c c o u n t o f e x p l o i t a t i o n a n d o f the a n a r c h y o f c o m p e t i t i o n . A n o t h e r , a p p a r e n t l y o p p o s e d , reaction 14

Introduction

has been a n a l m o s t scholastic a p p r o a c h in w h i c h c o m p e t i n g interp r e t a t i o n s p o r e over texts by M a r x a n d Hegel. It is often as if M a r x i s t theory h a d been a m b u s h e d by its o p p o n e n t s a n d retreated i n t o a theoretical b u n k e r o f its o w n , just as detached as they are f r o m the real w o r l d . For this reason I have felt it necessary t o exp o u n d the basic concepts in a w a y w h i c h is (I hope) easy t o follow, s h o w i n g h o w they describe the interaction o f the u n d e r l y i n g forces t h a t determine the direction o f capitalist d e v e l o p m e n t . 1 have left detailed discussion o f other interpretations t o footnores. I have, however, felt it necessary to deal w i t h the m o s t c o m m o n objections t o M a r x s a c c o u n t f r o m m a i n s t r e a m e c o n o m i s t s in C h a p t e r T w o , since a n y o n e w h o studies e c o n o m i c s at school or university w i l l have their viewrs inflicted o n t h e m . Readers w h o have been lucky e n o u g h t o escape t h a t fate arc w e l c o m e to skip this chapter. W h e r e tlfb incomplerencss o f M a r x ' s o w n a c c o u n t does matter is in c o m i n g t o terms w i t h changes in c a p i t a l i s m since his d e a t h . T h i n g s he o n l y refers to in passing in Capital—the

g r o w t h o f mo-

n o p o l i e s , the i n t e r v e n t i o n by states in capitalist p r o d u c t i o n a n d m a r k e t s , the p r o v i s i o n of w e l f a r e services, w a r as a n e c o n o m i c w e a p o n — h a v e b e c o m e massively i m p o r t a n t . M a r x i s t s in the Hrst decades o f rhe 2 0 t h c e n t u r y were forced by circumstances

to

debate s o m e o f these matters, a n d there was a n e w burst o f creative t h i n k i n g in rhe 1960s a n d early 1970s. 1 a t t e m p t t o d r a w from such discussions the concepts needed to " g o b e y o n d

Capital"

a n d fill in gaps in M a r x s o w n a c c o u n t o f the system ( C h a p t e r s Four a n d Five). T h e rest o f the b o o k then tries to c o m e t o terms w i t h rhe d e v e l o p m e n t o f capitalism over the last 80 years, f r o m the great s l u m p o f rhe inter-war years to the crisis c a u s i n g t u r m o i l across the w o r l d as I w r i t e . T h e a c c o u n t m u s t be n o t s i m p l y one of e c o n o m i c processes, b u t ar every stage o f h o w the i n t e r a c t i o n o f c a p i t a l s a n d states o n a w o r l d scale gives rise t o w a r s a n d civil w a r s , h u n g e r a n d e n v i r o n m e n t a l disaster, as well as b o o m s a n d s l u m p s . N u c l e a r w e a p o n s a n d g r e e n h o u s e gases are as m u c h a p r o d u c t o f alienated l a b o u r as car factories a n d coal mines.

A n o t e o n the b o o k T h e instability o f rhe capitalist e c o n o m y has h a d its i m p a c t o n the w r i t i n g o f this b o o k . I set a b o u t w r i t i n g the first d r a f t w h e n w h a t I call " t h e great d e l u s i o n " — t h e belief t h a t the c a p i t a l i s m 15 Introduction

had

f o u n d a n e w w a y of e x p a n d i n g w i t h o u t c r i s e s — w a s at its height in late 2 0 0 6 . i viewed a n o t h e r e c o n o m i c crisis as i n e v i t a b l e , in m u c h the s a m e w a y t h a t s o m e o n e living in a city b u i l t o n a seism i c f a u l t line k n o w s

it is at s o m e p o i n t g o i n g t o suffer

an

e a r t h q u a k e . Bur I did n o t pretend to be a b l e t o predict w h e n this w o u l d h a p p e n , o r h o w destructive it w o u l d be. M y a i m , rather, w a s t o u p d a t e m y Explaining

the Crisis o f 2 5 years a g o , t a k i n g

i n t o a c c o u n t changes in the system since, b u t repeating the basic c o n c l u s i o n t h a t its b l i n d rush f o r w a r d w o u l d h a v e d e v a s t a t i n g repercussions for people's lives t h r o u g h the rest o f this century, creating i m m e n s e social a n d p o l i t i c a l crises w i t h p o t e n t i a l l y revolutionary implications. But one o f these blind rushes h a d its effect as I w a s finishing a 1 5 0 , 0 0 0 - w o r d d r a f t . T h e credit c r u n c h o f A u g u s t 2 0 0 7 turned i n t o the great crash o f September-October 2 0 0 8 , leading o n e apologist f o r the system, W i l l e m c a p i t a l i s m as we k n e w i t " .

Buiter, t o w r i t e o f " t h e e n d

of

M a n y details a b o u t the system w h i c h

I treated as part of the present were s u d d e n l y in the past, a n d everywhere there was an urgent d e m a n d for a n e x p l a n a t i o n as to w h a t b r o u g h t this crisis a b o u t . 1 had n o choice b u t to u p d a t e a n d restructure w h a t I h a d w r i t t e n , s h i f t i n g the e m p h a s i s in s o m e o f the chapters t o w a r d s the e n d o f the b o o k f r o m w h a t was g o i n g to h a p p e n over the decades t o c o m e , t o w h a t w a s h a p p e n i n g in the here a n d n o w . In the process I cut a b o u t a third o f the w o r d s o u t o f the d r a f t , r e m o v i n g a g o o d deal o f e m p i r i c a l detail in a n effort t o m a k e rhc w h o l e

book

m o r e accessible. A n v o n e

interested

in

greater derail c a n find s o m e in the 15 articles o n e c o n o m i c s I have w r i t t e n for the j o u r n a l International

Socialism

over the last t w o

decades, w h i l e s o m e o f the theorerical a r g u m e n t s are a r t i c u l a t e d m o r e fully in Explaining

the

Crisis.

Acknowledgements 1 o w e t h a n k s for reading a n d m a k i n g c o m m e n t s o n m y excessively long a n d disorganised draft to Tobias B r i n k , J o s e p h C h o o n a r a , Alex C a l l i n i c o s , N e i l D a v i d s o n , J a n e H a r d y , M i k e H a y n e s , Rick K u h n , M a t t Nichrer a n d M a r k T h o m a s . T h a n k s are also d u e for c o m m e n t s o n s o m e o f the preparatory material t h a t a p p e a r e d in International

Socialism

t o T o m Bramble, S a m F r i e d m a n , M e h m e t

U f u k T u t a n , Thomas Weiss a n d others, a n d f o r i n f o r m a t i o n o n 16

Introduction

profit rates t o R o b e r t Brenner a n d A n d r e w K l i m a n . 1 also have a huge intellectual debt t o m a n y other people. Pride o f place goes to w h a t I learnt i n m y y o u t h f r o m M i k e K i d r o n a n d T o n y Cliff. A l o n g with that there has been the stimulus over the years f r o m the w o r k s m

o f dozens o f others w h o have m a i n t a i n e d the tradition o f M a r x i s t e c o n o m i c analysis f r o m rhe late 1960s to the p r e s e n t — R i c c a r d o Bellofiore, H e n r y Bernstein, D i c k Bryan, Terry Bvers, G u g l i e m o C a r c h c d i , Francois C h e s n a i s , Francois D u m e n i l , A l f r e d o Saad F i l h o , Ben Fine, J o h n Bellamy Foster, A l a n Freeman, D a v i d Harvey, Peter G o w a n , C l a u d i o K a t z , J i m K i n c a i d , Costas Lapavitsas, Istvan Meszaros, Fred Moseley, Geert R e u t c n , A n w a r S h a i k h , a n d manyothers. S o m e I have been able t o listen to a n d discuss w i t h , most I have never met, a n d a few I disagree w i t h strongly. But all in o n e w a y or another have helped shape m y conclusions.

A note o n figures a n d terms A n y o n e a t t e m p t i n g t o e x p l a i n e c o n o m i c changes has little choice b u t t o use the statistical i n f o r m a t i o n p r o v i d e d by g o v e r n m e n t s , business o r g a n i s a t i o n s

and

international

institutions

like

O F C D , U N C T A D , the W o r l d Trade O r g a n i s a t i o n , rhe

rhe

World

Bank a n d the I M F . T h i s b o o k is n o exception. But readers s h o u l d be w a r n e d that s o m e o f the m o s t c o m m o n l y used figures can be m i s l e a d i n g in i m p o r t a n t respects. Figures for e c o n o m i c g r o w t h , in particular, are n o t as clear cut as they s o m e t i m e s seem. T h e g r o w t h they usually m e a s u r e is o f m a r k e t e d o u t p u t . But a lot o f the h u m a n l a b o u r t h a t a d d s to people s well-being is n o t m a r k e t e d . T h i s is true of the d o m e s t i c l a b o u r o f w o m e n a n d , t o a considerably lesser extent, m e n . It has also been true historically o f m u c h o f the f a m i l y l a b o u r on peasant l a n d . T h e result is t h a t there is a false impression o f increasing w e a l t h as h o u s e h o l d s begin to pay for things they used t o p r o d u c e outside the m a r k e t — w h e n a h o u s e w i f e gets a j o b a n d buys ready t o c o o k meals, or w h e n a peasant f a m i l y pays s o m e o n e else t o b u i l d a shed o n their l a n d w h e r e previously they w o u l d have d o n e the j o b themselves. Such changes lead the usually p r o v i d e d figures to give a n increasingly distorted p i c t u r e w i t h g r o w i n g m a r k e t i s a t i o n a n d the f e m i n i s a t i o n o f p a i d l a b o u r in recent decades. T h e officially provided figures also exaggerate the real rate of g r o w t h o f the things 17 Introduction

t h a t satisfy h u m a n need by c o u n t i n g in o u t p u t things like financial services w h i c h merely m o v e w e a l t h f r o m o n e pocket t o a n o t h e r — a g a i n a p a r t i c u l a r l y m a r k e d p h e n o m e n o n in recent decades. 1 * Finally m e a s u r e m e n t s o f o u t p u t per h e a d c a n n o t be e q u a t e d , as they are all t o o frequently, w i t h h u m a n welfare, since the o u t p u t is a l w a y s unevenly distributed between classes. Nevertheless, for w a n t of a n y t h i n g better, I h a v e h a d t o use such

figures.

A brief e x p l a n a t i o n o f s o m e o f the terms I use. G e n e r a l l y " W e s t " a n d " F a s t " are used in the w a y they were in the C o l d W a r decades o f the last century, w i t h " t h e W e s t " i n c l u d i n g J a p a n . " Third W o r l d " a n d " G l o b a l S o u t h " refer to the poorer parts of the w o r l d w h i c h were relatively u n i n d u s t r i a l i s e d for m o s t o f the 2 0 t h century, as d o the phrases " d e v e l o p i n g " or " u n d e r d e v e l o p e d c o u n t r i e s " used w i t h s o m e o f the statistics. T h e

"Communist

c o u n t r i e s " are those w i t h systems s i m i l a r t o t h a t o f the U S S R before 1 9 9 1 . " P r o d u c t i v e c a p i t a l " is t h a t e m p l o y e d i n i n d u s t r y or agriculture, as o p p o s e d to t h a t in finance a n d c o m m e r c e . Finally, capitalists are a s s u m e d t o be m a l e , since 9 9 . 9 9 percent o f t h e m were until o n l y a c o u p l e o f decades ago, w h i l e the workers they exp l o i t h a v e always been o f b o t h genders. I p r o v i d e a glossary in a n a t t e m p t t o m a k e the material m o r e accessible b o t h t o those fortunate e n o u g h n o t t o have studied m a i n s t r e a m e c o n o m i c s a n d t o those w h o are n o t yet f a m i l i a r w i t h M a r x i s t w r i t i n g s .

18

Introduction

Part O n e

UNDERSTANDING THE SYSTEM: MARX AND BEYOND

CHAPTER ONh

Marx's concepts

A world of commodities T h e m o s t o b v i o u s feature o f the e c o n o m i c system in w h i c h w e live is t h a t it is centred a r o u n d the b u y i n g a n d selling o f g o o d s o f all sorts. W e h a v e t o pay for f o o d , shelter, c l o t h i n g , energy t o light a n d heat o u r homes, transport to m o v e a r o u n d , everything we need t o keep ourselves a n d o u r families alive. A n d in o r d e r t o b u y w e have t o sell, even if all w e h a v e t o sell is o u r c a p a c i t y t o w o r k for others. O u r very lives d e p e n d o n the m o v e m e n t s o f c o m m o d i ties. H e n c e M a r x ' s starting p o i n t in

Capital:

T h e w e a l t h o f those societies in w h i c h the c a p i t a l i s t m o d e o f p r o d u c t i o n prevails, presents itself as a n i m m e n s e a c c u m u l a t i o n of commodities. M a r x w a s w r i t i n g at a t i m e w h e n m a r k e t r e l a t i o n s h a d still n o t p e n e t r a t e d large p a r t s o f t h e w o r l d . T h e r e were still societies in w h i c h all p r o d u c t i o n w a s for p e o p l e s i m m e d i a t e needs, w h e t h e r in " p r i m i t i v e c o m m u n i s t " societies based o n h u n t e r - g a t h e r i n g o r light a g r i c u l t u r e , 1 w h e r e p e o p l e agreed freely a m o n g themselves h o w a n d w h a t t o p r o d u c e , o r in p e a s a n t societies w h e r e a local lord o r ruler d i c t a t e d t o t h e m f r o m a b o v e . Even in m o s t o f t h e societies w h e r e the m a r k e t a l r e a d y e x i s t e d , the m a j o r i t y o f t h e p o p u l a t i o n wTere still subsistence f a r m e r s , p r o d u c i n g m o s t o f the i h i n g s they needed t o keep their f a m i l i e s alive, w i t h o n l y a s m a l l p r o p o r t i o n b o u g h t o r sold. T o d a y w e c a n e x t e n d M a r x ' s w o r d s t o say t h a t " t h e w e a l t h o f t h e w h o l e w o r l d , w i t h a f e w e x c e p t i o n s , presents itself as a mass o f c o m m o d i t i e s " . A n d the e x c e p t i o n s — t h e p r o v i s i o n , for i n s t a n c e , o f free h e a l t h a n d e d u c a t i o n

in a

n u m b e r o f a d v a n c e d c o u n t r i e s — a r e i n c r e a s i n g l y subject t o forces seeking t o c o m m o d i f y t h e m . T h i s n e a r u n i v e r s a l i t y o f c o m m o d i t y 21

p r o d u c t i o n m a r k s society t o d a y o f f f r o m a n y t h i n g t h a t has ever h a p p e n e d before. T o u n d e r s t a n d w h a t is h a p p e n i n g t o the w o r l d we h a v e t o begin by u n d e r s t a n d i n g the w o r k i n g s o f c o m m o d i t y production. M a r x w a s n o t the first to try to u n d e r s t a n d such w o r k i n g s . H e w a s preceded by the classical political e c o n o m i s t s — e a r l y supporters of capitalism w h o tried t o u n d e r s t a n d its basic d y n a m i c s as it struggled

t o break

through,

in a E u r o p e still d o m i n a t e d

by

l a n d o w n i n g classes. T w o were of special i m p o r t a n c e : A d a m S m i t h , w h o w r o t e in the 1 7 ~ 0 s at the t i m e w h e n the first m o d e r n factory, a s p i n n i n g m i l l , w a s o p e n i n g at C r o m f o r d in Derbyshire; a n d D a v i d R i c a r d o , w h o defended the interests o f the early industrialists against the big l a n d o w n e r s 4 0 years later in the a f t e r m a t h o f the N a p o l e o n i c wars.

Use value a n d e x c h a n g e value S m i t h is often treated as the p a t r o n saint o f present d a y c a p i t a l i s m a n d o f its neoclassical e c o n o m i c theorists. But he m a d e a n important

point,

developed

further

by

Ricardo,

which

has

been

c o m p l e t e l y obliterated by nearly all those m a i n s t r e a m e c o n o m i s t s w h o c l a i m t o f o l l o w in his footsteps. H e noted that once society is based o n p r o d u c t i o n for the m a r k e t , every c o m m o d i t y can be seen f r o m t w o completely different p o i n t s o f view: T h e w o r d v a l u e . . . h a s t w o different m e a n i n g s , a n d s o m e t i m e s expresses the utility o f s o m e p a r t i c u l a r o b j e c t , a n d s o m e t i m e s the p o w e r o f p u r c h a s i n g o t h e r g o o d s w h i c h the possession o f that object conveys. T h e o n e m a y be called " v a l u e in u s e " ; the other, " v a l u e in e x c h a n g e

T h e t h i n g s w h i c h h a v e the greatest

value in use h a v e frequently little or n o value in exchange; a n d o n the contrary, those w h i c h have the greatest value in exchange have frequently little or n o value in use. N o t h i n g is m o r e useful t h a n water: b u t it will purchase scarce a n y t h i n g ; scarce a n y t h i n g c a n be h a d in exchange for it. A d i a m o n d , o n the contrary, has scarce a n y value in use; b u t a very great q u a n t i t y o f other g o o d s m a y frequently be h a d in exchange for it. 2 M a r x ' s Capital

t o o k u p a n d developed this insight, r e m o v i n g cer-

tain a m b i g u i t i e s f o u n d in Smith's w o r k : 22

Understanding the System: Marx and Ik-yond

T h e utility o f a t h i n g m a k e s it a use v a l u e . . . Being l i m i t e d by the physical properties o f the c o m m o d i t y , it has n o existence a p a r t f r o m t h a t c o m m o d i t y . A c o m m o d i t y , such as i r o n , c o r n , or a d i a m o n d , is therefore, so far as it is a material t h i n g , a use v a l u e , s o m e t h i n g useful. T h i s property o f a c o m m o d i t y is indep e n d e n t o f the a m o u n t o f l a b o u r required t o a p p r o p r i a t e its useful qualities. But c o m m o d i t i e s are also: the material depositories o f e x c h a n g e v a l u e [which| presents itself as a q u a n t i t a t i v e r e l a t i o n , as the p r o p o r t i o n in w h i c h values i n use o f o n e sort are e x c h a n g e d for those o f a n o t h e r sort, a relation c o n s t a n t l y c h a n g i n g w i t h t i m e a n d place. T h i s distinction is n o t m a d e by t o d a y s m a i n s t r e a m

neoclassical

e c o n o m i s t s / T h e o n l y sort o f value they see is " m a r g i n a l u t i l i t y " , based o n people's subjective a p p r e c i a t i o n o f use values. N o r is it m a d e by s o m e o f those dissident economists w h o claim to be in the t r a d i t i o n o f R i c a r d o (the so-called " S r a f f i a n s " ) .

Their m o d e l is

based o n the inputs a n d o u t p u t s o f physical objects, in other w o r d s , again o n use values. Finally there are s o m e present d a y M a r x i s t s w h o argue the distinction is n o t relevant, since the i m p o r t a n t p o i n t M a r x was m a k i n g was a b o u t e x p l o i t a t i o n , n o t value. 6 In erasing the distinction m a d e by S m i t h , R i c a r d o a n d M a r x , all such theories miss s o m e t h i n g essential t o a system based o n comm o d i t y p r o d u c t i o n : everything that h a p p e n s in it is subject to t w o different sets o f scientific laws. O n the o n e side there are the l a w s o f the physical w o r l d — o f physics, chemistry, b i o l o g y , g e o l o g y a n d so o n . It is these w h i c h d e t e r m i n e the w a y s in w h i c h different things have t o be c o m b i n e d to p r o d u c e g o o d s (the different c o m p o n e n t s o f a m a c h i n e , the material structure o f a factory, t h e t e c h n i q u e s used in a surgical o p e r a t i o n a n d so o n ) a n d a l s o the usefulness o f those g o o d s t o those w h o f i n a l l y c o n s u m e t h e m (the n u t r i t i o n a l v a l u e o f f o o d , the w a r m t h p r o v i d e d by fuels a n d electricity, the n u m b e r o f children w h o can be a c c o m m o d a t e d

in a school or p a t i e n t s in a

h o s p i t a l , etc). O n the other side, there is the w a y things relate t o each other as exchange values. These often behave in a very different w a y t o use values. T h e e x c h a n g e v a l u e o f s o m e t h i n g c a n fall w h i l e its use Mrtrx's Concepts

23

value r e m a i n s unaltered. This has h a p p e n e d t o the price o f computers in recent years—the c o m p u t e r I used to w r i t e m y last b o o k w a s twice the price o f the m u c h m o r e p o w e r f u l o n e I a m using n o w . W h a t is m o r e , e x c h a n g e values are infinitely divisible w h i l e use values are usually n o t ; you m i g h t say t h a t a bicycle is w o r t h o n e twentieth o f a car, but if y o u cut a car u p i n t o twenty parts it is o f nil use t o a n y o n e . T h i s matters i m m e n s e l y w h e n it c o m e s to m

0

things w h i c h are i m p o r t a n t for m o d e r n c a p i t a l i s m like factories, oil wells, airliners, schools a n d hospitals. T h e m a r k e t treats these as exchange values t h a t c a n be infinitely d i v i d e d i n t o parts ( w o r t h so m a n y p o u n d s , pence, etc); b u t they have a physical existence t h a t c a n n o t usuallv be d i v i d e d in that wav. 0

•

The e x c h a n g e values o f c o m m o d i t i e s are also infinitely fluid. In the f o r m o f m o n e y thev can m o v e f r o m o n e part of the e c o n o m y t o another, f r o m o n e part o f the w o r l d t o another, be spent o n o n e item or any other o f the s a m e price. Bur the fluidity o f use values, like their divisibility, is restricted by their physical m a k e u p . Y o u can m o v e £ 1 0 0 m i l l i o n in cash from Britain to India overnight, b u t you c a n n o t m o v e a factory w o r t h i 100 m i l l i o n at a n y t h i n g like the s a m e speed. Use values a n d exchange values operate a c c o r d i n g to different, often contradictory, logics a n d a failure to see this leads to a failure to u n d e r s t a n d the most basic t h i n g a b o u t a c o m m o d i t y p r o d u c i n g e c o n o m y . It does n o t operate s m o o t h l y , just t h r o u g h the flow o f e x c h a n g e values, b u t is always subject to b u m p s , t o stopp i n g a n d s t a r t i n g , d u e to the e m b o d i m e n t o f e x c h a n g e values in use values w i t h physical properties t h a t limit their fluidity.

Labour and money S m i t h a n d R i c a r d o were n o t c o n t e n t just w i t h seeing the d o u b l e n a t u r e of c o m m o d i t i e s . They w e n t o n to a r g u e t h a t it w a s o n l y possible t o ascribe exchange values to objects w i t h very different physical properties because they have o n e t h i n g in c o m m o n — t h e y are all p r o d u c t s o f h u m a n labour. As S m i t h wrote: T h e real price o f every t h i n g , w h a t every t h i n g really costs to the m a n w h o w a n t s to acquire it, is the toil a n d trouble o f a c q u i r i n g it. W h a t every t h i n g is really w o r t h to the m a n w h o has acq u i r e d it, a n d w h o w a n t s t o dispose o f it or e x c h a n g e it for 24


s o m e t h i n g else, is the toil a n d t r o u b l e w h i c h it can save t o himself, a n d w h i c h it c a n i m p o s e u p o n o t h e r people. W h a t is b o u g h t w i t h m o n e y o r w i t h g o o d s is p u r c h a s e d b y labour, as m u c h as w h a t w e a c q u i r e by the toil o f o u r o w n b o d y . . . They c o n t a i n the value o f a certain q u a n t i t y o f l a b o u r w h i c h w e exc h a n g e for w h a t is s u p p o s e d at the t i m e t o c o n t a i n the value o f an equal quantity. L a b o u r w a s the first price, the original purchase-money that w a s p a i d for all things. It w a s n o t by g o l d or by silver, b u t by labour, t h a t all the wealth o f the w o r l d w a s originally purchased; a n d its value, to those w h o possess it, a n d w h o w a n t to exchange it for s o m e new p r o d u c t i o n s , is precisely equal to the q u a n t i t y o f l a b o u r w h i c h it can enable them t o purchase or c o m m a n d . " T h i s u n d e r s t a n d i n g M a r x also i n c o r p o r a t e d i n t o his o w n analysis: T h e e x c h a n g e values o f c o m m o d i t i e s m u s t be c a p a b l e o f being expressed in terms o f s o m e t h i n g c o m m o n t o t h e m all, of w h i c h t h i n g they represent a greater o r less q u a n t i t y . T h i s c o m m o n " s o m e t h i n g " c a n n o t be a g e o m e t r i c a l , a c h e m i c a l , or any other n a t u r a l property o f c o m m o d i t i e s . . . If then w e leave our o f consideration the use v a l u e o f c o m m o d i t i e s , they h a v e o n l y o n e c o m m o n property left, t h a t o f being p r o d u c t s o f labour. But M a r x refined the analysis o f S m i t h a n d R i c a r d o in a very imp o r t a n t way. It w a s nor the particular concrete exertions o f l a b o u r as such that d e t e r m i n e d e x c h a n g e value. For different people w i t h different skills take different a m o u n t s o f t i m e a n d use different a m o u n t s o f effort t o p r o d u c e p a r t i c u l a r c o m m o d i t i e s : S o m e people m i g h t t h i n k that if the value o f a c o m m o d i t y is determined by the q u a n t i t y o f l a b o u r spent o n it, the m o r e idle a n d u n s k i l f u l the labourer, the m o r e v a l u a b l e w o u l d his c o m m o d i t y be, because m o r e t i m e w o u l d be required in its p r o d u c t i o n . " R a t h e r the e x c h a n g e v a l u e o f a c o m m o d i t y d e p e n d s o n the "socially necessary l a b o u r t i m e " : t h a t is required to p r o d u c e an article u n d e r the n o r m a l condit i o n s o f p r o d u c t i o n , a n d w i t h the average degree o f skill a n d intensity prevalent at the t i m e . . . Mrtrx's Concepts

25

It is social l a b o u r that has transformed nature to create the means that h u m a n s depend o n for a livelihood. So it is the a m o u n t o f social labour incorporated in it that constitutes the underlying value o f a c o m m o d i t y . T h e concrete l a b o u r o f i n d i v i d u a l s is transformed t h r o u g h exchange in a c o m m o d i t y - p r o d u c i n g society into a proportionate'" part o f " h o m o g e n o u s " , " s o c i a l " l a b o u r — o r

"abstract

l a b o u r " . M a r x calls this abstract l a b o u r the "substance of v a l u e " . It finds expression in exchange value a n d determines the level a r o u n d w h i c h the c o m m o d i t y ' s price will fluctuate o n the market: Every c h i l d k n o w s that a n y n a t i o n that s t o p p e d w o r k i n g , n o t f o r a year, b u t let us say, just for a few weeks, w o u l d perish. A n d every c h i l d k n o w s , t o o , t h a t the a m o u n t s o f p r o d u c t s corres p o n d i n g t o the d i f f e r i n g a m o u n t s o f needs d e m a n d differing a n d q u a n t i t a t i v e l y d e t e r m i n e d a m o u n t s o f society's aggregate l a b o u r . . . A n d the f o r m in w h i c h this p r o p o r t i o n a l d i s t r i b u t i o n o f l a b o u r asserts itself in a state o f society in w h i c h the interconnection

o f social

l a b o u r expresses itself as the

private

e x c h a n g e o f the i n d i v i d u a l p r o d u c t s o f l a b o u r , is precisely the e x c h a n g e value o f these products. 1 1 A l l the different k i n d s o f private

labour,

which

arc carried

on

independently

of

each

o t h e r . . . a r e c o n t i n u a l l y being reduced to the q u a n t i t a t i v e prop o r t i o n s in w h i c h society requires them. 1 2 Neoclassical e c o n o m i s t s tried t o develop a n o t i o n o f value o u r o f people's subjective j u d g e m e n t s , w i t h s o m e even trying to incorporate l a b o u r as " d i s u t i l i t y " .

Marx,

by c o n t r a s t , s a w v a l u e as

s o m e t h i n g objective, as i n d i c a t i n g the p r o p o r t i o n o f total social l a b o u r " e m b o d i e d " n in it. B u t w h a t t h a t value is o n l y c o m e s t o light as a result o f the c o n t i n u a l , b l i n d , interaction o f c o m m o d i t i e s o n the market. 1 4 T h e system as a w h o l e forces its i n d i v i d u a l comp o n e n t s t o w o r r y a b o u t h o w the i n d i v i d u a l l a b o u r they e m p l o y relates to l a b o u r elsewhere.' 5 H e calls this process the o p e r a t i o n o f "the law of value". Values, however, are n o t u n c h a n g i n g . A l l the t i m e there is the i n t r o d u c t i o n o f n e w techniques or n e w m e t h o d s s o m e w h e r e in the system. T h i s results in a c h a n g e in the a m o u n t o f socially necessary l a b o u r needed t o p r o d u c e certain c o m m o d i t i e s — a n d t h a t changes their exchange value. T h e use values o f objects r e m a i n fixed until n a t u r a l processes o f wear, tear a n d decay d a m a g e t h e m . But the exchange value o f t h i n g s — t h e value t h a t matters for the system as 26


a w h o l e — d e c l i n e s every t i m e the technical a d v a n c e s o m e w h e r e in the system decreases the a m o u n t o f l a b o u r required t o m a k e t h e m . T h i s leads M a r x t o a " c o u n t e r - i n t u i t i v e " c o n c l u s i o n w h i c h distinguishes his a c c o u n t o f the s y s t e m — a n d it is o n e w h i c h even s o m e M a r x i s t s have difficulties c o m i n g t o terms w i t h . A rise in p r o d u c t i v i t y reduces the value at w h i c h things exchange. It seems a b s u r d o n the face o f it. Yet there are n u m e r o u s e x a m p l e s o f increased p r o d u c t i v i t y c a u s i n g s o m e g o o d s t o fall in price c o m p a r e d to others. M a r x p r o v i d e d o n e f r o m his o w n time: T h e i n t r o d u c t i o n o f power-looms i n t o E n g l a n d p r o b a b l y reduced by one-half the l a b o u r required t o weave a given q u a n t i t y o f yarn i n t o c l o t h . T h e h a n d - l o o m weavers, as a m a t t e r o f fact, c o n t i n u e d t o require the s a m e t i m e as before; b u t for all t h a t , the p r o d u c t o f o n e h o u r o f their l a b o u r represented after the c h a n g e o n l y h a l f a n hour's social l a b o u r a n d consequently fell t o one-half its f o r m e r value. " T h o u s a n d s m o r e e x a m p l e s c o u l d be given today. For we are living in a p e r i o d in w h i c h technical a d v a n c e is m u c h faster in s o m e industries (especially those i n v o l v i n g microprocessors) t h a n others, a n d so the prices o f things like D V D s , televisions a n d c o m p u t e r s p r o d u c e d by industries using the m o s t t e c h n o l o g i c a l l y a d v a n c e d e q u i p m e n t are t e n d i n g t o fall w h i l e those in other industries using older techniques r e m a i n fixed or tend t o rise. T h i s is s o m e t h i n g o f central i m p o r t a n c e as w e shall see later w h e n w e discuss the dyn a m i c s o f 21 st c e n t u r y c a p i t a l i s m . O n c e c o m m o d i t y p r o d u c t i o n is generalised across a society, o n e p a r t i c u l a r g o o d c o m e s t o be used t o represent the value o f all others—money

( M a r x calls it " t h e universal e q u i v a l e n t " ) .

In

M a r x ' s d a y it w a s u s u a l l y in the f o r m o f g o l d (or s o m e t i m e s silver), a n d a certain q u a n t i t y o f g o l d (say a n o u n c e ) , p r o d u c e d by a certain a m o u n t o f average l a b o u r rime, c o u l d act as a measure o f the v a l u e for all the other g o o d s t h a t were b o u g h t a n d s o l d . As c a p i t a l i s m d e v e l o p e d as a system, b a n k s a n d t h e n g o v e r n m e n t s f o u n d t h a t they c o u l d use p a p e r notes ro stand in for g o l d in m a n y transactions a n d eventually to dispense w i t h reliance o n it at all, so l o n g as p e o p l e believed others w o u l d ( k n o w n t e c h n i c a l l y as " f i a t m o n e y " )

accept those

notes

for g o o d s . C r e d i t

from

b a n k s c o u l d also f u n c t i o n in the s a m e w a y , so l o n g as p e o p l e continued to trust the b a n k s . Mrtrx's Concepts

27

The development of commodity production had one important effect. It systematically distorted people's u n d e r s t a n d i n g o f reality t h r o u g h w h a t M a r x called the "fetishism o f c o m m o d i t i e s " : T h e . . . r e l a t i o n o f the p r o d u c e r s t o the s u m total o f their o w n l a b o u r is presented to them as a social relarion, existing n o t between themselves, bur between the products o f their l a b o u r . . . A definite social relation between m e n assumes, in their eyes, the fantastic f o r m o f a relation between things. In order to find an a n a l o g y , w e m u s t have recourse t o the mist-enveloped regions o f t h e religious w o r l d . In t h a t w o r l d the p r o d u c t i o n s o f the h u m a n b r a i n a p p e a r as i n d e p e n d e n t beings e n d o w e d w i t h life, a n d entering i n t o relation b o t h w i t h o n e a n o t h e r a n d the h u m a n race. So it is in the w o r l d o f c o m m o d i t i e s w i t h the p r o d u c t s o f men's hands. 1 " People speak o f " t h e p o w e r o f m o n e y " , as if its p o w e r d i d n o t c o m e f r o m the h u m a n l a b o u r for w h i c h it is a t o k e n ; or o f the " n e e d s o f the m a r k e t " , as if the m a r k e t w a s a n y t h i n g m o r e t h a n a n a r r a n g e m e n t for l i n k i n g together the concrete acts o f l a b o u r o f different h u m a n beings. Such mystical attitudes lead people to ascribe social ills t o t h i n g s b e y o n d h u m a n c o n t r o l — t h e

process

w h i c h the y o u n g M a r x h a d called " a l i e n a t i o n " a n d w h i c h s o m e M a r x i s t s since M a r x

have called " r e i f i c a t i o n " . S i m p l y

seeing

t h r o u g h such mysticism does n o t in itself deal w i t h the social ills. As M a r x n o t e d , s i m p l y arriving at a scientific u n d e r s t a n d i n g o f the character o f existing society leaves it intact just as " a f t e r the discovery o f the c o m p o n e n t

gases o f air, the a t m o s p h e r e

itself

r e m a i n e d u n a l t e r e d " . ' " But w i t h o u t seeing t h r o u g h the fetishism, conscious action to transform society c a n n o t take place. H e n c e the i m p o r t a n c e o f g r a s p i n g the d i s t i n c t i o n between use value a n d exc h a n g e v a l u e a n d o f g r o u n d i n g value in socially necessary labour.

E x p l o i t a t i o n a n d surplus v a l u e W e d o n o t only live in a w o r l d o f c o m m o d i t y p r o d u c t i o n . W e live in a w o r l d where control of most o f t h a t p r o d u c t i o n is concentrated in relatively few hands. In 2 0 0 8 the sales o f the world's biggest 2 , 0 0 0 c o m p a n i e s equalled a b o u t half o f total w o r l d output. 1 " If we assume that a r o u n d ten directors sit o n the b o a r d o f each o f the multina28


tionals, then che o u t of a world p o p u l a t i o n o f over six billion, a mere 2 0 , 0 0 0 people exercise decisive control over the creation o f w T ealth; in fact, the figure will be considerably lower than that because most o f the directors will sit o n the b o a r d s o f m o r e t h a n o n e Hrm. Production, o f course, is n o t carried o u t simply by the multinationals. A l o n g s i d e t h e m are a mass o f n a t i o n a l l y based medium-sized firms that have n o t achieved m u l t i n a t i o n a l status, a n d alongside them exist an even larger n u m b e r o f small firms, s o m e little m o r e than family operations e m p l o y i n g perhaps a c o u p l e o f people. But, even t a k i n g all these into consideration, only a small percentage o f the w o r l d s p o p u l a t i o n control the m e a n s o f p r o d u c t i o n responsible for p r o d u c i n g the m a j o r p o r t i o n o f its wealth. Those w h o d o n o t o w n a n d c o n t r o l such m e a n s o f p r o d u c t i o n have n o choice if they are t o m a k e a livelihood, b e y o n d the minim u m p r o v i d e d by welfare p r o g r a m m e s , other t h a n t o try to sell their ability t o w o r k to those t h a t d o . T h e y get p a i d a w a g e , w h i l e their l a b o u r p r o d u c e s g o o d s that are the p r o p e r t y o f those w h o c o n t r o l the m e a n s o f p r o d u c t i o n . S o m e of the value o f these g o o d s is used t o cover the wages o f the w o r k e r s , s o m e to pay for the materials used in p r o d u c t i o n , s o m e t o cover the w e a r a n d rear o f m e a n s o f p r o d u c t i o n . But s o m e f o r m s a n excess w h i c h is the basis o f the profits o f the o w n e r s — w h a t M a r x called " s u r p l u s v a l u e " a n d s o m e n o n - M a r x i s t economists s i m p l y call " t h e s u r p l u s " . A d a m S m i t h h a d already suggested w h e r e this s u r p l u s c a m e f r o m ( a l t h o u g h he did n o t stick consistently to this view): In the original stare o f things, w h i c h precedes b o t h the approp r i a t i o n o f l a n d a n d the a c c u m u l a t i o n o f s t o c k , the w h o l e p r o d u c t o f l a b o u r belonged to the l a b o u r e r . . . But as s o o n as the l a n d becomes private property, the l a n d o w n e r d e m a n d s a share o f the p r o d u c e . . . T h e p r o d u c e o f a l m o s t all o t h e r l a b o u r is liable t o the like d e d u c t i o n o f profit. In all arts a n d m a n u f a c tures the greater part o f the w o r k m e n stand in need o f a master t o a d v a n c e t h e m the m a t e r i a l s o f their w o r k , a n d their wages a n d m a i n t e n a n c e till it be c o m p l e t e d . H e shares in the p r o d u c e o f their l a b o u r , or in the value w h i c h it a d d s to the materials u p o n w h i c h it is bestowed; a n d in this share consists his profit.-10 Profit, then, arises w h e n the l a n d , tools a n d materials required for p r o d u c t i o n b e c o m e the private property o f o n e section o f society. T h i s section is then able t o get c o n t r o l o f the l a b o u r o f others. Mrtrx's Concepts

29

R i c a r d o t o o k u p a n d developed Smith's ideas. I n d o i n g so he p o i n t e d to a central a m b i g u i t y in Smith's o w n w r i t i n g s . S m i t h mixes w i t h the view that l a b o u r a l o n e creates value a n o t h e r app r o a c h , in w h i c h profits a n d rent as well as l a b o u r c o n t r i b u t e t o the final value o f goods. R i c a r d o rejected this latter view. Bur soon after his death in the 1820s it became the o r t h o d o x y a m o n g pro-capitalist economists. It w a s m u c h m o r e p a l a t a b l e to defenders o f the existing system t h a n i m p l y i n g that profits were parasitic o n labour. M a r x , however, s a w t h a t the d e v e l o p m e n t o f S m i t h s views by R i c a r d o c o u l d a l o n e p r o v i d e the basis for a scientific a c c o u n t o f h o w c a p i t a l i s m f u n c t i o n e d . Like R i c a r d o , he recognised it w a s a b s u r d t o say that profits s o m e h o w created value w h e n they were part o f value that h a d already been created. But he w e n t m u c h further t h a n R i c a r d o h a d in clarifying the issues a n d w o r k i n g o u t the i m p l i c a t i o n s o f the theory. The first i m p o r t a n t a d v a n c e he m a d e was to differentiate clearly t w o different m e a n i n g s given t o " t h e value o f l a b o u r " by S m i t h . O n the o n e h a n d it m e a n t the a m o u n t o f l a b o u r required t o keep the l a b o u r e r for the t i m e d u r i n g w h i c h he or she w o r k e d . A d a m S m i t h h a d argued: There is...a certain rate b e l o w w h i c h it seems i m p o s s i b l e t o reduce f o r a n y considerable time the o r d i n a r y wages o f even the lower species o f labour. A m a n m u s t a l w a y s live by his w o r k , a n d his wages m u s t at least be sufficient to m a i n t a i n h i m . T h e y m u s t even u p o n m o s t occasions be s o m e w h a t m o r e otherwise it w o u l d be impossible for h i m t o b r i n g u p a family, a n d the race o f such w o r k m e n w o u l d n o t last b e y o n d the first generation/ 1 ' F r o m this p o i n t o f view, the " v a l u e o f l a b o u r " was the v a l u e of the w a g e o f the labourer. But S m i t h also used the term " l a b o u r " to refer to the a m o u n t of l a b o u r actually performed by the worker. A n d , M a r x stressed, the t w o a m o u n t s were by n o means the same. L a b o u r , he pointed o u t , w a s like all other c o m m o d i t i e s in t h a t it was b o u g h t a n d sold. But it differed from them because it h a d the peculiar property that w h e n p u t t o use it performed m o r e l a b o u r t h a n required t o p r o d u c e it. In the 1850s he i n t r o d u c e d a n e w term designed t o m a k e the distinction between the t w o uses of the c o n c e p t o f l a b o u r in S m i t h a n d R i c a r d o ( a n d in his o w n earlier writings) absolutely clear. H e said t h a t w h a t the capitalist p a i d for w h e n he e m p l o y e d s o m e o n e 30


was n o t l a b o u r as such but " l a b o u r p o w e r " — t h e ability o f someone t o w o r k for a certain period o f time. T h e v a l u e o f l a b o u r power d e p e n d e d , like that o f any other c o m m o d i t y , o n the a m o u n t o f l a b o u r needed t o p r o d u c e it. W o r k e r s c o u l d n o t p r o v i d e l a b o u r p o w e r unless they h a d a d e q u a t e f o o d , c l o t h i n g , h o u s i n g , a certain a m o u n t o f r e l a x a t i o n , etc. These were their r e q u i r e m e n t s if they were to be fit a n d c a p a b l e of w o r k i n g . Their w a g e h a d to cover the cost o f these t h i n g s — t h a t is, t o c o r r e s p o n d t o the a m o u n t o f social l a b o u r needed t o p r o d u c e t h e m . T h i s d e t e r m i n e d the v a l u e o f l a b o u r power. It s h o u l d be noted t h a t M a r x did n o t see the m i n i m a l level o f subsistence a l o n e as d e t e r m i n i n g the value o f l a b o u r power. There was also the need to m a k e m i n i m a l provision for the u p b r i n g i n g o f the workers' children, since they w o u l d constitute the next generation o f l a b o u r power. A n d there was a " h i s t o r i c a l a n d

moral

element*' w h i c h depended o n the " h a b i t s a n d degree o f c o m f o r t " which the workers were accustomed to. W i t h o u t it they w o u l d n o t .ipply their full faculties to their l a b o u r a n d m i g h t even rebel against it. In this w a y the c u m u l a t i v e effect o f workers' struggles c o u l d influence the v a l u e o f l a b o u r

power. M a r x

w a s n o t , as he is

sometimes presented, a believer in an " i r o n l a w o f wages'' whereby only a fixed portion o f n a t i o n a l o u t p u t c o u l d g o to the w o r k e r s . " Be t h a t as it m a y , the l a b o u r people c o u l d p e r f o r m w a s greater t h a n the a m o u n t o f l a b o u r needed to p r o v i d e them w i t h at least a m i n i m a l l i v e l i h o o d — t o replenish their l a b o u r power. It m i g h t , for instance, take a n average o f o n l y four h o u r s w o r k a d a y t o p r o v i d e the level o f c o n s u m p t i o n necessary for s o m e o n e t o be able t o perf o r m a day's w o r k . But they c o u l d then p e r f o r m eight, nine or even ten hours w o r k a day. T h e extra l a b o u r w e n t t o the employer, so ih.it the value o f the g o o d s turned o u t by his factory w a s a l w a y s greater t h a n his investment. It w a s this w h i c h e n a b l e d h i m continually to get surplus value, w h i c h he c o u l d keep for himself or pass on to other m e m b e r s o f the capitalist class in the f o r m of interest nnd rent. I he relation between the e m p l o y e r a n d the w o r k e r h a d the appearance o f being between equals. T h e e m p l o y e r agreed t o give the wage a n d the w o r k e r his or her labour. N o coercion w a s involved. < )n the face o f it the s i t u a t i o n w a s very different to that between the slave o w n e r a n d the slave, or between the feudal lord a n d the serf. Ir w a s c o m p a t i b l e w i t h a juridical system based o n " t h e rights ! m a n " , o f e q u a l i t y before the l a w o f all citizens. Even if actually Mrtrx's Concepts

31

existing bourgeois societies were tardy in g r a n t i n g this, it seemed engraved o n their structure. Yet the surface a p p e a r a n c e o f equality hid a deeper inequality. T h e e m p l o y e r possessed the prerequisites f o r the w o r k e r s e n g a g i n g in social p r o d u c t i o n a n d getting a livelih o o d . T h e workers were " f r e e " in the sense that they d o n o t have t o w o r k for a n y i n d i v i d u a l firm or capitalist. But they c o u l d n o t escape h a v i n g to try t o w o r k for s o m e o n e . As M a r x p u t it: the w o r k e r c a n leave the i n d i v i d u a l capitalist to w h o m he hires himself whenever he likes... But the worker, w h o s e sole source o f l i v e l i h o o d is the sale o f his l a b o u r , c a n n o t leave the w h o l e class o f purchasers, that is the capitalist class, w i t h o u t renouncing his exisrence. H e belongs n o t to this or that bourgeois, but to the bourgeois class.-* T h e difference between the v a l u e o f the w o r k e r ' s l a b o u r p o w e r a n d the value created by the l a b o u r d o n e w a s the source o f the s u r p l u s v a l u e . O n c e the e m p l o y e r h a d g o t this s u r p l u s v a l u e , it c o u l d be kept directly as profit, it c o u l d be used t o pay o f f interest o n a n y m o n e y b o r r o w e d t o b u i l d the factory, or as rent t o the o w n e r of the l a n d o n w h i c h the factorv s t o o d . But h o w e v e r sur0

plus value w a s d i v i d e d u p i n t o profits, interest a n d rent, its source r e m a i n e d the excess w o r k d o n e by the w o r k e r s — t h e e x p l o i t a t i o n by those w h o o w n e d the m e a n s o f p r o d u c t i o n o f those w h o d i d n o t . O n c e the o w n e r h a d g o t the p r o f i t , he c o u l d use it t o b u i l d new m e a n s o f p r o d u c t i o n , increasing still further his capacity t o b l a c k m a i l w o r k e r s i n t o l a b o u r i n g for h i m o n his terms if they were to get a l i v e l i h o o d . It w a s this process w h i c h m a d e the e m p l o y e r a capitalist. It also gave a special m e a n i n g t o the w o r d " c a p i t a l " . The w o r d is used by m a i n s t r e a m economists a n d in everyday life s i m p l y to m e a n longterm investment as o p p o s e d to i m m e d i a t e c o n s u m p t i o n . But it has a deeper significance o n c e the m e a n s o f p r o d u c t i o n are in the control o f o n e g r o u p o f society, c o m p e l l i n g others w h o w a n t

a

l i v e l i h o o d t o w o r k for t h e m . It is n o w a p r o d u c t o f past l a b o u r w h i c h is able to e x p a n d t h r o u g h the e x p l o i t a t i o n o f current labour. It is, as M a r x p u t it, n o t a t h i n g , b u t a relation: Value-creating a n d value-enhancing p o w e r belongs n o t t o the w o r k e r b u t t o the c a p i t a l i s t . . . A l l the d e v e l o p m e n t o f the productive forces o f l a b o u r is d e v e l o p m e n t o f the p r o d u c t i v e forces 32


o f c a p i t a l . By i n c o r p o r a t i n g i n t o itself this power, c a p i t a l c o m e s alive a n d begins t o w o r k " a s if its b o d y were by love possessed".

Living

labour

thus

becomes

a

means

whereby

objectified l a b o u r is preserved a n d increased... 2 4 T h e fetishism o f c o m m o d i t i e s n o w takes the f o r m o f m a k i n g it seem t h a t creativity does n o t lie w i t h living h u m a n beings bur w i t h the p r o d u c t s o f their labour, so t h a t people talk o f capital creating wealth a n d employers " p r o v i d i n g people w i t h w o r k " , whereas in reality it is l a b o u r that a d d s to the v a l u e o f capital a n d the w o r k e r w h o provides l a b o u r to the employer.

A b s o l u t e a n d relative surplus value M a r x distinguished between t w o ways in w h i c h firms c o u l d raise the ratio o f surplus value t o wages. O n e was by the c r u d e m e t h o d of l e n g t h e n i n g the w o r k i n g day. H e called this " a b s o l u t e s u r p l u s v a l u e " . T h i s m e t h o d o f forcing u p profits w a s very widespread in the early days o f industrial c a p i t a l i s m , a n d M a r x in Capital

pro-

vides m a n y e x a m p l e s o f it. But M a r x also n o t e d in Capital

that

p r o l o n g i n g the w o r k i n g d a y over m u c h c o u l d be c o u n t e r p r o d u c tive for the capitalist: A p o i n t m u s t i n e v i t a b l y be reached, w h e r e extension ot the w o r k i n g day a n d intensity o f the l a b o u r m u t u a l l y exclude one another, in such a w a y t h a t l e n g t h e n i n g o f the w o r k i n g day bec o m e s c o m p a t i b l e o n l y w i t h a l o w e r degree o f intensity." So it w a s t h a t , after p u t t i n g u p massive o p p o s i t i o n to successive attempts t o p r o v i d e a legal l i m i t t o the w o r k i n g d a y for c h i l d r e n , m a j o r capitalist interests gave w a y t o w o r k i n g class p r e s s u r e — a n d sometimes f o u n d t h a t p r o d u c t i o n a c t u a l l y increased o n c e h o u r s were shorter. F o r m u c h o f the 2 0 t h c e n t u r y the m e t h o d o f prol o n g i n g the w o r k i n g day seemed to b e l o n g to the past. In t h e ulvanced i n d u s t r i a l c o u n t r i e s , at least, w o r k e r s ' resistance h a d lorced capitalists t o concede a shorter w o r k i n g week a n d h o l i d a y s sMth pay. The 7 2 - h o u r week ot V i c t o r i a n times h a d b e c o m e the IN h o u r week a n d then the 4 4 - h o u r week. But rhere w a s a n o t h e r range o f m e t h o d s for increasing the a m o u n t o f s u r p l u s value to be o b t a i n e d f r o m each worker, w h i c h Mrtrx's Concepts

33

M a r x called "relative surplus v a l u e " . It relied o n reducing rhe prop o r t i o n o f the w o r k t i m e that w e n t i n t o c o v e r i n g the cost o f replenishing worker's capacity to w o r k , t h a t is, their l a b o u r power. This t o o k three forms. The first w a s to i n t r o d u c e n e w machinery into the w o r k p l a c e , so as to increase p r o d u c t i v i t y a n d reduce t h e a m o u n t o f t i m e it t o o k for rhe w o r k e r s t o p r o d u c e g o o d s w h o s e sale w o u l d cover their wages. In effect, instead of, say, four h o u r s w o r k covering the cost o f their l a b o u r power, t w o hours w o u l d d o s o — w i t h t w o hours extra g o i n g t o p r o d u c e surplus value. M a r x s a w this as the m e t h o d o f increasing e x p l o i t a t i o n capitalists t u r n e d t o as they faced difficulties in e x t e n d i n g the w o r k i n g week a n y further in the m i d - l 9 t h century. T h e p r o d u c t i v i t y o f the w o r k f o r c e per h o u r became central, rather t h a n e x t e n d i n g the n u m b e r o f h o u r s w o r k e d . 2 6 Bur it w a s in itself o n l y a short-term e x p e d i e n t for the capitalist. T h e first capitalist t o i n t r o d u c e n e w m a c h i n e r y w o u l d be a b l e t o p r o d u c e the s a m e a m o u n t o f v a l u e w i t h less h o u r s o f labour. O n c e other capitalists also i n t r o d u c e d n e w m a c h i n e r y , rhe socially necessary t i m e needed for p r o d u c t i o n fell a n d w i t h it rhe v a l u e o f the g o o d s he sold a n d the excess surplus value he o b t a i n e d . I he second f o r m it t o o k was increased productivity in the cons u m e r g o o d s industries a n d agriculture. T h i s w o u l d reduce the a m o u n t o f l a b o u r t i m e needed to p r o d u c e their o u t p u t a n d the prices workers h a d to p a y for their m e a n s o f livelihood. This m e a n t t h a t the cost to the capitalists everywhere o f p r o v i d i n g workers w i t h their a c c u s t o m e d l i v i n g s t a n d a r d (of p a y i n g f o r their l a b o u r p o w e r ) fell, a n d the a m o u n t o f surplus value extracted c o u l d be increased w i t h o u t c u t t i n g real wages or e x t e n d i n g the w o r k i n g day. T h e t h i r d m e t h o d w a s t o intensify the pressure o n workers t o w o r k harder. As M a r x puts it, the o n l y w a y t o " c h a n g e the relative m a g n i t u d e s " of the w o r k i n g d a y g o i n g to the capitalist rather t h a n the w o r k e r w i t h o u t c u t t i n g real wages w a s to " c h a n g e either the p r o d u c t i v i t y o f l a b o u r or its i n t e n s i t y " . T h e r e w a s a drive t o i m p o s e " o n the w o r k m a n increased e x p e n d i t u r e o f l a b o u r in a given t i m e , heightened tension o f labour-power, a n d closer

filling

u p o f the pores o f rhe w o r k i n g - d a y . " ' " O r a g a i n , " W h a t is lost by s h o r t e n i n g rhe d u r a t i o n is g a i n e d by the increasing tension o f labour p o w e r " / ' T h e drive for increased p r o d u c t i v i t y b e c a m e a n obsession for big business, as w a s s h o w n by the m o v e m e n t for "scientific mana g e m e n t " f o u n d e d by the A m e r i c a n V W Taylor in the 1890s. 34


Taylor believed rhar every task d o n e in industry c o u l d be b r o k e n d o w n i n t o i n d i v i d u a l c o m p o n e n t s a n d t i m e d , so as t o d e t e r m i n e the m a x i m u m w h i c h workers c o u l d a c c o m p l i s h . In this way, a n y breaks in the t e m p o o f w o r k c o u l d be e l i m i n a t e d , w i t h Taylor c l a i m i n g he c o u l d increase the a m o u n t o f w o r k d o n e in a d a y bv as m u c h as 2 0 0 percent. " T a y l o r i s m " f o u n d its fullest expression w i t h the i n t r o d u c t i o n o f the assembly line in H e n r y Ford's car plants. T h e speed at w h i c h people w o r k e d n o w d e p e n d e d o n the speed at w h i c h the line m o v e d , rather t h a n their i n d i v i d u a l m o t i v a t i o n . I n other industries the s a m e pressure orr people t o w o r k flat o u t was achieved by increasing surveillance by supervisors, w i t h , for instance, mechanical counters o n m a c h i n e s i n d i c a t i n g the level o f w o r k achieved. A n d today a s i m i l a r a p p r o a c h is being a t t e m p t e d in a variety o f w h i t e collar o c c u p a t i o n s w i t h increased use o f assessment, a t t e m p t s at p a y m e n t by results, the use o f key stroke counters o n c o m p u t e r s , a n d so o n .

Accumulation and competition A w o r l d o f c o m m o d i t y p r o d u c t i o n is a w o r l d o f c o m p e t i t i o n between

producers.

It

is

this

element

of

competition

which

distinguishes a society based o n c o m m o d i t y p r o d u c t i o n a n d exc h a n g e value f r o m o n e w h e r e i n d i v i d u a l s or g r o u p s decide o n w h a t use values t o p r o d u c e f o r their o w n c o n s u m p t i o n . T h r o u g h e x c h a n g e the effort p u t in by those w o r k i n g in o n e u n i t o f production is linked to those o f m i l l i o n s o f o t h e r i n d i v i d u a l s in o t h e r units, but the link o n l y takes place t h r o u g h c o m p e t i t i o n between those t a k i n g the decisions a b o u t p r o d u c t i o n in the i n d i v i d u a l units. In F.ngels' phrase there is " s o c i a l p r o d u c t i o n b u t capitalist appropriation

.

T h e capitalist firm w h i c h exploits the w o r k e r is therefore, necessarily, in c o m p e t i t i o n w i t h o t h e r c a p i t a l i s t firms. If it c a n n o t o u t - c o m p e t e t h e m , e v e n t u a l l y it w i l l be forced o u t o f business. To o u t - c o m p e t e m e a n s k e e p i n g a h e a d in d e v e l o p i n g new, m o r e p r o d u c t i v e t e c h n i q u e s — o n l y in t h a t w a y can it ensure t h a t it is n o t g o i n g t o be d r i v e n o u t o f business by rivals p r o d u c i n g a n d selling g o o d s m o r e c h e a p l y t h a n it c a n . It c a n n o t g u a r a n t e e b e i n g able to a f f o r d n e w e q u i p m e n t u s i n g s u c h t e c h n i q u e s unless its profits are as h i g h as possible. But if it raises its p r o f i t s in o r d e r Mrtrx's Concepts

35

ro he able ro reinvest, so m u s t its rivals. T he fact t h a t each f i r m is i n v o l v e d in e x p l o i t i n g w a g e l a b o u r m e a n s t h a t n o n e o f t h e m dare rest o n its laurels. H o w e v e r successful a firm m a y have been in the past, it lives in fear of a rival firm investing profits in newer a n d m o r e m o d e r n plant a n d machinery. N o capitalist dare stand still for a n y length o f t i m e , for that w o u l d m e a n falling b e h i n d the c o m p e t i t o r s . A n d to fall b e h i n d is eventually t o g o bust. It is this w h i c h e x p l a i n s rhe d y n a m i s m ot c a p i t a l i s m . T h e pressure o n each capitalist t o keep a h e a d o f every other leads t o the c o n t i n u a l u p g r a d i n g o f p l a n t a n d machinery. /

S o it is t h a t c a p i t a l i s m becomes n o t merely a system o f exploiting

"free"

wage workers,

but

a c c u m u l a t i o n . T h e Communist

also a system Manifestos

of

compulsive

which M a r x

wrote

w i t h Hngels early in 1848, insisted: The bourgeoisie, d u r i n g its rule of scarce one h u n d r e d years, has created m o r e massive a n d m o r e colossal p r o d u c t i v e forces t h a n all the preceding generations put together. It e m p h a s i s e d the c o n t i n u a l t r a n s f o r m a t i o n o f industry

under

capitalism: T h e bourgeoisie c a n n o t exist w i t h o u t constantly revolutionising the m e a n s o f p r o d u c t i o n . . . C o n s t a n t r e v o l u t i o n i s i n g o f product i o n . . . d i s t i n g u i s h e s the bourgeois epoch f r o m all earlier ones. In Capital

M a r x sees the c o n t i n u a l drive to b u i l d u p ever bigger in-

dustry as the characteristic feature o f c a p i t a l i s m : Fanatically bent o n m a k i n g value e x p a n d itself, he [the capitalist] ruthlessly forces the h u m a n race ro p r o d u c e for p r o d u c t i o n s s a k e . . . A c c u m u l a t i o n for rhe sake o f a c c u m u l a t i o n , p r o d u c t i o n for p r o d u c t i o n ' s sake! ; i T h e w o r k ' s first v o l u m e begins w i t h a n a l y s i n g p r o d u c t i o n for the m a r k e t ( " c o m m o d i t y p r o d u c t i o n " ) , then l o o k s w h a t

happens

w h e n w a g e l a b o u r arises a n d l a b o u r p o w e r becomes a c o m m o d ity, a n d finally c u l m i n a t e s in s h o w i n g h o w p r o d u c t i o n u s i n g w a g e l a b o u r brings a b o u t a process o f c o m p u l s i v e a c c u m u l a t i o n that ignores h u m a n need a n d i n d i v i d u a l desires. 36


C a p i t a l is n o t then defined just hv e x p l o i t a t i o n ( w h i c h occurred tn m a n y precapitalist societies), b u t by its necessary drive to selfexpansion.

The

motivation

for

production

and

exchange

increasing the a m o u n t o f value in the h a n d s o f the capitalist

is

firm—

a process for w h i c h s o m e M a r x i s t writers use the (in m y view confusing) neologism "valorisation". So the system is n o t just a system o f c o m m o d i t y p r o d u c t i o n ; it is also a system o f c o m p e t i t i v e a c c u m u l a t i o n . T h i s creates limits to the a c t i o n possible n o t o n l y for w o r k e r s , b u t also for capitalists. For if they d o n o t c o n t i n u a l l y seek t o e x p l o i t their w o r k e r s as m u c h as is practically possible, they will n o t dispose o f the surplus value necessary to a c c u m u l a t e as q u i c k l y as their rivals. They can choose to e x p l o i t their w o r k e r s in o n e w a y rather t h a n another. But they c a n n o t choose n o t t o exploit their w o r k e r s at all, or even to e x p l o i t them less t h a n other capitalists d o — u n l e s s they w a n t t o g o bust. They themselves are subject t o a system w h i c h pursues its relentless course whatever the feelings o f i n d i v i d u a l h u m a n beings.

Surplus value, a c c u m u l a t i o n a n d the rate o f profit M a c h i n e s a n d r a w materials d o n o t themselves create value. O n l y the exercise o f h u m a n l a b o u r has a d d e d to the n a t u r a l w e a l t h that existed in a state o f n a t u r e a n d o n l v c o n t i n u e d h u m a n l a b o u r c a n 0

increase it still further. M a c h i n e s a n d r a w materials exist because h u m a n l a b o u r has been a p p l i e d in the past a n d they c a n n o t substitute for it in the c r e a t i o n o f n e w value. But they are necessary if l a b o u r is to achieve the average level o f p r o d u c t i v i t y prevailing in a p a r t i c u l a r society at a p a r t i c u l a r time. T h e final value o f g o o d s p r o d u c e d has t o i n c l u d e a n element c o v e r i n g the cost o f the machines a n d materials used. W h e n a c o m p a n y p r o d u c e s c l o t h by e m p l o y i n g w o r k e r s t o w o r k o n p o w e r l o o m s t h a t w e a v e w o o l , the price o f the f i n a l p r o d u c t has t o cover n o t o n l y the cost o f p r o v i d i n g the l a b o u r p o w e r o f the w o r k e r s (their wages) a n d the profit o f the c o m p a n y , b u t also the cost o f the w o o l a n d the w e a r a n d tear t o the p o w e r l o o m s . If the p o w e r l o o m c a n keep g o i n g for ten years, then in each year o n e t e n t h o f its cost has t o be covered by the a n n u a l sales o f the c l o t h — t h i s is w h a t a c c o u n t a n t s refer t o the depreciat i o n costs o f c a p i t a l . O r , t o p u r it a n o t h e r w a y , the

labour

i n c o r p o r a t e d in the v a l u e o f the c l o t h includes n o t o n l y the n e w Mrtrx's Concepts 36

socially necessary l a b o u r e x p e n d e d by the w o r k e r s , bur also the " d e a d l a b o u r " used to p r o d u c e the w o o l a n d o n e tenth o f the power loom. For these reasons, M a r x argued that the investment m a d e by the capitalist c o u l d be d i v i d e d i n t o t w o parts. O n e w a s the expenditure on

p a y i n g w a g e s to hire the workers. T h i s he called

" v a r i a b l e c a p i t a l " — b e c a u s e it w a s capital t h a t by p u t t i n g l a b o u r p o w e r to w o r k e x p a n d e d v a l u e t o create s u r p l u s v a l u e in the course o f p r o d u c t i o n . T h e other part w a s e x p e n d i t u r e o n the m e a n s o f p r o d u c t i o n . H e called this " c o n s t a n t c a p i t a l " because its existing value passed i n t o the v a l u e o f the g o o d s p r o d u c e d witho u t g r o w i n g a n y b i g g e r — i t s value w a s s i m p l y transferred t o the final p r o d u c t . In the case o f fixed c o n s t a n t c a p i t a l (factory buildings, m a c h i n e r y etc) this rook place over several p r o d u c t i o n cycles; in the case o f c i r c u l a t i n g c o n s t a n t capital (raw materials, energy, c o m p o n e n t s ) i n a single p r o d u c t i o n cycle. M a r x i s t s usually use the letter v t o s t a n d for variable capital (wages t h a t purchase w o r k e r s ' l a b o u r ) ; c t o s t a n d for c o n s t a n t capital ( p l a n t , e q u i p m e n t a n d raw materials); s t o stand f o r surplus v a l u e . T h e r a t i o o f s u r p l u s v a l u e to variable capital (wages) is the ratio o f the length o f the w o r k i n g day the w o r k e r gives t o capital compared

to that which

provides for

themselves—sometimes

called the rate o f e x p l o i t a t i o n . It can be represented by s/v. But for rhe capitalist, the ratio o f surplus value ro wages is n o t the o n l y t h i n g t h a t matters, since his investment is bigger t h a n simply w h a t he has spent o n wages. H e is interested in m a k i n g his total capital e x p a n d , n o t just t h a t w h i c h goes i n t o wages. W h a t matters, therefore, is the ratio o f surplus value to total i n v e s t m e n t — that is, expenditure o n instruments a n d materials o f p r o d u c t i o n as well as o n wages. This is the " r a t e o f p r o f i t " , w h i c h M a r x depicted as s/(c+v). It is affected n o t o n l y by rhe r a t i o o f surplus value to wages, b u t also by the ratio o f e x p e n d i t u r e o n i n s t r u m e n t s a n d m a t e r i a l s o f p r o d u c t i o n ( c o n s t a n t c a p i t a l ) t o w a g e s (variable c a p i t a l ) . M a r x called this last ratio (c/v) the " o r g a n i c c o m p o s i t i o n o f c a p i t a l " . This varies f r o m industry to industry a n d over time. Different prod u c t i o n processes c a n use the same a m o u n t o f l a b o u r b u t different a m o u n t s o f p l a n t a n d e q u i p m e n t ; the cost o f e q u i p m e n t in a factory e m p l o y i n g 1,000 people t o sew c l o t h i n t o clothes is less t h a n t h a t to e m p l o y the same n u m b e r t o smelt iron ore i n t o steel. T h i s has i m p o r t a n t i m p l i c a t i o n s for the d y n a m i c o f c a p i t a l i s m . It is 38


driven f o r w a r d nor o n l y by concern w i t h the ratio o f surplus value to w a g e s , b u t by the drive t o m a i n t a i n a n d increase the ratio o f surplus value t o different levels o f total investment. It is a p o i n t w e will have t o return to repeatedly.

Primitive a c c u m u l a t i o n T o d a y w e take the b u y i n g a n d selling o f l a b o u r p o w e r for g r a n t e d . It seems as " n a t u r a l " as the rising a n d setting o f the s u n . Yet n o w h e r e w a s it m o r e t h a n a m i n o r feature o f any societ> until a few h u n d r e d years a g o . So in E u r o p e in the late M i d d l e Ages, or in Africa a n d Asia at the t i m e o f E u r o p e a n c o l o n i s a t i o n in the 18th a n d 19th centuries, most people h a d at least s o m e direct access to the m e a n s of getting a l i v e l i h o o d — e v e n if they h a d to h a n d over a slice o f w h a t they p r o d u c e d to a parasitic l a n d l o r d . Peasants c o u l d g r o w f o o d o n their o w n land a n d craftsmen m a k e g o o d s in their o w n little w o r k s h o p s . W h a t c h a n g e d this, a c c o r d i n g t o M a r x , w a s a p r i m e v a l act o f r o b b e r y — t h e use o f force t o r e m o v e masses o f p e o p l e f r o m a n y c o n t r o l over the m e a n s o f p r o d u c t i o n . T h i s w a s often carried t h r o u g h by the state at the behest o f s o m e o f the m o s t privileged g r o u p s in society. In E n g l a n d a n d Wales, for e x a m p l e , the rise o f c a p i t a l i s m w a s a c c o m p a n i e d by " e n c l o s u r e s " — t h e forcible d r i v i n g o f peasants f r o m c o m m o n l a n d they h a d cultivated for centuries. I a w s against " v a g r a n c y " then c o m p e l l e d the dispossessed peasants to seek w o r k at whatever w a g e they c o u l d get. In Scotland the "clearances'* h a d the same effect, as the lairds d r o v e the crofters (small farmers) f r o m the l a n d so as to replace them first by sheep and then by deer. As Britain's rulers carved o u t a n e m p i r e for themselves t h r o u g h o u t the rest o f the w o r l d , they rook measures t o bring a b o u t the same separation o f the mass o f p e o p l e f r o m control over the m e a n s o f g a i n i n g a livelihood. In I n d i a , for e x a m p l e , they granted c o m p l e t e o w n e r s h i p o f the l a n d to the already highly privileged zamindar

class. In East a n d S o u t h Africa they usually

torced each h o u s e h o l d t o pay a fixed s u m o f m o n e y , a poll t a x , w h i c h it c o u l d o n l y raise by sending s o m e o f its m e m b e r s to seek e m p l o y m e n t w i t h E u r o p e a n ranchers or businessmen. M a r x called this process o f creating the c o n d i t i o n s for the g r o w t h o f capitalist p r o d u c t i o n " t h e p r i m i t i v e a c c u m u l a t i o n o f c a p i t a l " . M a r x tells h o w : Mrtrx's Concepts 38

I he discovery of g o l d a n d silver in A m e r i c a , rhe e x t i r p a t i o n , enslavement

and

entombment

in

mines

of

the

aboriginal

p o p u l a t i o n , the b e g i n n i n g o f the c o n q u e s t a n d l o o t i n g o f the East Indies, the t u r n i n g o f Africa i n t o a w a r r e n for the c o m m e r cial h u n t i n g o f black skins, signalised the rosy d a w n o f the era o f capitalist p r o d u c t i o n . . . But by itself this c o u l d not lead t o capitalist

p r o d u c t i o n . There

h a d , after all, been pillage o f o n e sort or a n o t h e r t h r o u g h o u t the history o f class society, g o i n g back ro B a b y l o n i a n times, w i t h o u t it l e a d i n g t o the r a p i d a c c u m u l a t i o n t h a t characterises c a p i t a l i s m . T h e forcible separation ot masses o f people f r o m a n y c o n t r o l over the m e a n s o f p r o d u c t i o n — a n d so f r o m a n y possibility o f m a k i n g a l i v e l i h o o d w i t h o u t selling their l a b o u r p o w e r — w a s indispensable. " T h e e x p r o p r i a t i o n o f the a g r i c u l t u r a l producer, of the p e a s a n t , f r o m the soil, is the basis o f the w h o l e process". 1 4 For this reason, it c a n be m i s l e a d i n g to refer t o a n y f o r c i b l e seizure o f w e a l t h bycapitalists as " p r i m i t i v e a c c u m u l a t i o n " / 5 In M a r x ' s writings it has t w o aspects: o n the one h a n d the "freei n g " o f the mass o f p o p u l a t i o n f r o m a n y direct access t o the m e a n s ot m a k i n g a l i v e l i h o o d ; o n the other the a c c u m u l a t i o n o f wealth by a class t h a t can use e c o n o m i c necessity t o m a k e s u c h "free l a b o u r " toil for it. O n c e c a p i t a l i s m h a d established itself, its o w n e c o n o m i c mecha n i s m s pushed the process o f s e p a r a t i n g people from c o n t r o l over rhe m e a n s o f p r o d u c t i o n even further, w i t h o u t necessarily needing intervention by the state or the use o f force to bring it a b o u t . T h u s in Britain in the late 18th century there were still h u n d r e d s o f thousands of h a n d l o o m

weavers, w h o w o r k e d

for themselves

w e a v i n g c l o t h t o sell. W i t h i n 50 years they h a d all been driven o u t o f business by capitalist firms using p o w e r l o o m s . In Ireland in the 1840s a terrible f a m i n e caused by the r e q u i r e m e n t t h a t h u n g r y peasants pay rent to ( m a i n l y British) l a n d l o r d s led a m i l l i o n to die o f h u n g e r a n d a n o t h e r m i l l i o n to a b a n d o n their h o l d i n g s a n d seek w o r k in Britain a n d the US. The m a r k e t c o u l d achieve such horrors w i t h o u t the direct help o f the state (except, of course, in protecting the property o f the l a n d l o r d s ) . C a p i t a l i s m h a d b e c o m e a self-sustaining a n d self-expanding system destined ro a b s o r b the w h o l e w o r l d i n t o its w o r k i n g s .

40


CHAPTER TWO

Marx and his critics

T h e neoclassical c r i t i q u e o f his t h e o r y o f v a l u e M a r x ' s theory o f v a l u e has been u n d e r a t t a c k ever since

Capital

w a s first p u b l i s h e d . T h e m o s t c o m m o n f o r m this attack takes is t o c l a i m t h a t c a p i t a l as well as l a b o u r creates v a l u e . A f t e r a l l , it is said, a w o r k e r using a m a c h i n e produces m u c h

more than

a

w o r k e r w i t h o u t o n e , a n d all the t i m e w o r k e r s are b e i n g replaced by m a c h i n e s t h a t d o the s a m e j o b . It is even p o s s i b l e t o c o n c e i v e o f a n e c o n o m y in w h i c h all w o r k is d o n e by m a c h i n e s . So neoclassical e c o n o m i s t s a r g u e t h a t n o t o n l y l a b o u r bur also c a p i t a l

is

involved in p r o d u c i n g tilings w h i c h satisfy h u m a n need. A n d just as l a b o u r gets p a i d a c c o r d i n g t o w h a t it c o n t r i b u t e s t o w e a l t h creation,

so d o e s c a p i t a l .

Each

"factor

of

production"

gets

a

" r e w a r d " e q u a l t o its " m a r g i n a l o u t p u t " . There is a central fallacy in this a r g u m e n t against M a r x . It rests o f a static picture o f the e c o n o m y , in w h i c h capital a n d l a b o u r s i m p l y exist a l o n g s i d e each other. It ignores the p a l p a b l e reality t h a t the means a n d materials o f p r o d u c t i o n themselves have been p r o d u c e d . M a c h i n e s a n d factory b u i l d i n g s are n o t things that exist in their o w n right. They are the p r o d u c t o f p r e v i o u s h u m a n labour. T h e wheelb a r r o w w h i c h aids the toil o f the l a b o u r e r is itself the p r o d u c t o f the toil o f the metal worker. T h a t w a s w h y M a r x called the m e a n s o f p r o d u c t i o n " d e a d l a b o u r " (as o p p o s e d to present w o r k , w h i c h is " l i v i n g l a b o u r " ) . T h e y are the p r o d u c t s o f l a b o u r t h a t has t a k e n place p r e v i o u s l y — a n d c a n , if necessary, be replicated by the application o f l a b o u r today. T h e a m o u n t o f socially necessary l a b o u r needed t o reproduce them determines their current w o r t h . T h e failure o f neoclassical t h e o r y t o t a k e i n t o a c c o u n t the crea t i o n o f the m e a n s o f p r o d u c t i o n by l a b o u r is n o accidental f a i l i n g . Its f o u n d e r s in t h e late 19th c e n t u r y — t h e A u s t r i a n s M e n g e r a n d Bohm-Bawerk,

the

Englishmen

Jevons

and

Marshall,

the 4!

F r e n c h m a n W a l r a s , the Italian Pareto, a n d the A m e r i c a n C l a r k — b u i l t the a s s u m p t i o n o f a static system i n t o their theory. They viewed the w h o l e e c o n o r m

as like a street m a r k e t w h e r e the

buyers calculate w h a t c o m b i n a t i o n o f g o o d s gives t h e m rhe best v a l u e for rhe m o n e y they have g o t in their pockets, w h i l e the stallholders calculate the best price they can get for each o f their g o o d s . T h e m u t u a l a d j u s t m e n t o f the price each seller is w i l l i n g t o accept a n d each buyer is w i l l i n g to pay leads to all rhe g o o d s being sold. A n d , since each seller is in turn the buyer f r o m s o m e o n e w h o has *

4

b o u g h t f r o m s o m e o n e else, a w h o l e n e t w o r k o f prices is set u p w h i c h ensures that w h a t is p r o d u c e d is exactly w h a t people w a n t . W a l r a s c l a i m e d t o s h o w h o w this w o r k s for a n a t i o n a l e c o n o m y 4

w i t h h u n d r e d s o f pages o f e q u a t i o n s a n d g r a p h s . I n b u i l t into the w h o l e a p p r o a c h w a s a very unreal view o f capi t a l i s m . For, w h a t e v e r else c a p i t a l i s m is, it is n o t static. I n a real street m a r k e t , people d o nor agree i n s t a n t a n e o u s l y o n the prices for b u y i n g a n d selling. B u t neoclassical

theory a s s u m e d

that

t h r o u g h the m e d i a t i o n o f a central a u c t i o n e e r they c o u l d arrive at agreed prices instantaneously. Real life haggling often rakes quite a l o n g t i m e , w i t h prices across the m a r k e t as a w h o l e being arrived at t h r o u g h a process o f successive a d j u s t m e n t s . O n c e t h a t is t a k e n i n t o a c c o u n t divergences o p e n u p between rhe actual prices o f g o o d s a n d those presupposed in the theory. T h e actual p r o d u c t i o n o f g o o d s t h a t are ro be sold is a l w a y s a process t a k i n g place in time. "Price signals" d o not tell y o u w h a t will

be w a n t e d w h e n

p r o d u c t i o n is finished, b u t w h a t w a s w a n t e d before it began. T h e s i m u l t a n e i t y o f the theory is a m y t h , a n d the s i m u l t a n e o u s equations developed o n the basis o f its a s s u m p t i o n s bear little relation t o really existing c a p i t a l i s m . Faced w i t h rhe reality t h a t p r o d u c t i o n occurs over t i m e , h o w did the f o u n d e r s o f neoclassical e c o n o m i c s react? They d i d n o t a l l o w it t o affect their theory o n e iota. W a l r a s , for instance, recognised t h a t " p r o d u c t i o n requires a certain lapse o f t i m e " . But he then w r o t e he w o u l d deal w i t h the " d i f f i c u l t y purely a n d simply by i g n o r i n g the t i m e element at this p o i n t " ; 1 a n d w h e n he returned t o the issue it w a s t o a s s u m e t h a t " d a t a " r e m a i n e d " c o n s t a n t for a given period o f time",- as if the t r a n s f o r m a t i o n o f the w h o l e productive

apparatus

with

economic

growth

would

not

mean

c o n t i n u a l t r a n s f o r m a t i o n o f the structure o f s u p p l y a n d d e m a n d . M a r s h a l l w e n t as far as t o a d m i t t h a t " r i m e is the source o f m a n y o f rhe greatest difficulties in e c o n o m i c s " / since " c h a n g e s in the 42


v o l u m e o f p r o d u c t i o n , in its m e t h o d s , a n d its costs are ever m u t u ally m o d i f y i n g o n e a n o t h e r . " T h i s d i d n o t , however, s t o p h i m teaching the theory a n d a w h o l e g e n e r a t i o n of m a i n s t r e a m economists t a k i n g it as p r o o f o f the efficacy o f m a r k e t c a p i t a l i s m . A n u p d a t e d version o f Walras's m a t h e m a t i c a l m o d e l w a s p r o d u c e d in the earlv 1950s bv Kenneth A r r o w a n d G e r a r d D e b r e u w h i c h atj

d

tempted to take t i m e i n t o a c c o u n t . But A r r o w h i m s e l f recognised t h a t the m o d e l o n l y

works " i f you assume n o

technological

progress, n o g r o w t h i n p o p u l a t i o n a n d lots o f other t h i n g s " . 4 T h e refusal o f the neoclassical school to grasp the basic p o i n t that c a p i t a l i s m is a s y s t e m u n d e r g o i n g c o n t i n u a l t r a n s f o r m a t i o n that disrupts the old price structure a n d prevents a n y settled equil i b r i u m means t h a t it provides at best a n apologetic description o f things as they exist at a n y m o m e n t in t i m e , n o t an a c c o u n t o f economic developments and dynamics. T h e neoclassical school's o w n theory o f v a l u e , w h i c h it counterposes t o the theories o f S m i t h , R i c a r d o a n d M a r x , is in terms o f the utility w h i c h a c o m m o d i t y gives—that is, h o w i n d i v i d u a l s evaluate the c o m m o d i t y c o m p a r e d t o other c o m m o d i t i e s . But this leaves completely unresolved the basis for m e a s u r i n g the utility for o n e person c o m p a r e d t o another. H o w d o you measure the "utili t y " o f a glass o f water t o s o m e o n e in the desert w i t h the " u t i l i t y " o f a d i a m o n d tiara t o a princess? T h e m o s t y o u can d o is list the preferences o f i n d i v i d u a l s . But to e x p l a i n w h y the preferences o f s o m e i n d i v i d u a l s m a t t e r m o r e t h a n the preferences o f others y o u have t o explain w h y s o m e are wealthier t h a n o t h e r s — a n d t h a t depends o n factors to d o w i t h the structure a n d d y n a m i c o f capitalist society w h i c h " u t i l i t y " theory ignores. Pareto replaced the term " u t i l i t y " by " o p h e l i m i t y "

because, as

his A m e r i c a n c o n t e m p o r a r y Irving Fischer put it, " t h e great untutored a n d naive p u b l i c . . . find it h a r d to call a n overcoat n o m o r e truly useful t h a n a necklace, o r a g r i n d s t o n e t h a n a roulette w h e e l " . 6 S o m e later neoclassical theorists d r o p p e d a n y n o t i o n o f value a l t o g e t h e r — a l t h o u g h

" m a r g i n a l u t i l i t y " c o n t i n u e s to be

t a u g h t in school a n d college t e x t b o o k s to this day as the " m o d e r n " answer t o the l a b o u r theory o f value. Neoclassical e c o n o m i s t s have n o t succeeded in g i v i n g a n objective basis to their theory o f value, despite m o r e t h a n a century o f effort. O f course, ultimately, s o m e o n e m u s t w a n t to use s o m e t h i n g (or, at least be able to sell it to s o m e o n e else w h o will use it) if they are g o i n g t o p a y for it. But it is n o t use that determines price. Marx and his Critics 42

N o r can

"marginal

o u t p u t ' ' as defined by the

neoclassical

s c h o o l p r o v i d e a n answer. T h i s is m e a s u r e d , they a r g u e , by the value o f the c a p i t a l used u p in p r o d u c i n g it; bur w h e n they define the value o f that capital they d o so in terms o f the m a r g i n a l o u t p u t . T h e y e n d u p saying, in effect, t h a t " t h e m a r g i n a l value o f capital e q u a l s the m a r g i n a l value o f c a p i t a l ', o r " p r o f i t equals p r o f i t " . Statements o f this sort c a n n o t e x p l a i n a n y t h i n g . A l l they d o is to stare t h a t if s o m e t h i n g exists, it exists. O r t h o d o x e c o n o m i c s in fact does n o m o r e t h a n state that certain things are b o u g h t a n d certain t h i n g s are sold at present, w i t h o u t e x p l a i n i n g w h y these things are p r o d u c e d a n d n o t others, w h y s o m e people are rich a n d s o m e poor, a n d w h y s o m e g o o d s pile u p u n s o l d w h i l e people w h o desperately need t h e m g o witho u t , or w h y sometimes there are b o o m s a n d at other times s l u m p s . These p o i n t s were m a d e against m a r g i n a l e c o n o m i c s m o r e t h a n 80 years a g o by the A u s t r i a n M a r x i s t R u d o l f H i l f e r d i n g a n d the Russian revolutionary

N i c o l a i B u k h a r i n . They have been

put

across m o r e recently in a rigorously logical f o r m by dissident acad e m i c e c o n o m i s t s k n o w n as the " C a m b r i d g e S c h o o l " .

But the

c a p a c i t y o f dissident e c o n o m i s t s t o p o i n t o u t the absurdities in neoclassical theorv has n o t w e a k e n e d its h o l d o n a c a d e m i c econ o m i c s . It has s i m p l y led t o ever m o r e o b t u s e

mathematical

models being used to p r o v i d e a n a p p e a r a n c e o f scientific rigour. As J o a n R o b i n s o n p o i n t e d o u t h a l f a century ago: Q u a n t i t a t i v e utility has l o n g since e v a p o r a t e d b u t it is still c o m m o n t o set u p a m o d e l in w h i c h q u a n t i t i e s o f " c a p i t a l " appear, w i t h o u t a n y i n d i c a t i o n o f w h a t it is s u p p o s e d t o be a q u a n t i t y of. J u s t as the p r o b l e m o f g i v i n g a n o p e r a t i o n a l meaning t o utility used to be a v o i d e d by p u t t i n g it i n t o a d i a g r a m , so the p r o b l e m o f g i v i n g a m e a n i n g to the q u a n t i t y o f " c a p i t a l " is evaded by p u t t i n g it i n t o algebra. 8 R e c o g n i t i o n o f the difficulties w i t h their o w n theory has, o n occasions, forced those w h o otherwise accept the neoclassical system t o trv* to reinforce it w i t h elements f r o m the l a b o u r theorv # o f value. So M a r s h a l l suggested there m i g h t occasionally be merit in using a l a b o u r theory o f value: " t h e real value o f m o n e y is better measured for s o m e purposes in l a b o u r rather t h a n in c o m m o d i t i e s " , alt h o u g h he hastened t o a d d , " T h i s difficulty will n o t affect o u r w o r k in the present v o l u m e . . . " ' J o h n M a y n a r d Keynes also h a l f 44


grasped the l i m i t a t i o n s o f the very neoclassical system w h o s e postulates he t o o k for granted. At o n e p o i n t in his m o s t f a m o u s w o r k , the General

Theory

of Employment,

Money

and

Interest,

he

recognised t h a t y o u c a n n o t s i m p l y a d d together different sets o f physical c o m m o d i t i e s at o n e p o i n t in t i m e a n d c o m p a r e them w i t h .1 different set at a later point. 1 ' 1 To m a k e such c o m p a r i s o n s involves "covertly i n t r o d u c i n g changes in v a l u e " . " To deal w i t h this p r o b l e m , he d r o p p e d the usual a s s u m p t i o n s o f neoclassical theory a n d m a d e h a l f a turn ro a l a b o u r theory o f value,' suggesting t h a t o u t p u t c o u l d be measured by " t h e a m o u n t o f e m p l o y m e n t associated w i t h a given capital e q u i p m e n t ' 1 . 1

H e explained later:

I sympathise w i t h rhe pre-classical [sic] doctrine that everything is p r o d u c e d by labour, aided by w h a t used to be called art a n d is n o w called t e c h n i q u e , by n a t u r a l resources...and by the results o f past labour, e m b o d i e d in assets..."

4

Neither M a r s h a l l n o r Keynes w a s prepared t o g o further a n d jettison the neoclassical system as a w h o l e . Bur if they h a d taken their o w n observations o f these p o i n t s seriously, they w o u l d have been c o m p e l l e d to d o so. T h e failings o f the neoclassical system p r o v i d e at least a partial, negative, p r o o f o f M a r x ' s a p p r o a c h . For his theory o f value avoids such a subjective a n d static a p p r o a c h . M a r x ' s theory is objective because it is n o t based o n i n d i v i d u a l e v a l u a t i o n s o f a c o m m o d i t y , b u t o n the necessary a m o u n t of l a b o u r needed t o p r o d u c e it given rhe level o f technology existing in the system as a w h o l e at a particular p o i n t in t i m e — b o t h the direct living l a b o u r o f the w o r k e r a n d " d e a d l a b o u r " e m b o d i e d in rhe e q u i p m e n t a n d materials o f p r o d u c t i o n used u p in the p r o d u c t i o n process. For M a r x , it is the pressure different capitals exert o n each other, n o t rhe e v a l u a t i o n s o f i n d i v i d u a l s , that matters, since a n y capitalist w h o prices a comm o d i t y at a level higher t h a n rhe a m o u n t o f socially necessary l a b o u r needed to p r o d u c e it will s o o n be driven o u t o f business. The l a w o f value is therefore an external force o p e r a t i n g o n every capitalist t h r o u g h the interaction o f all capitalists once there is the general p r o d u c t i o n o f c o m m o d i t i e s for e x c h a n g e m e d i a t e d

by

money. Since rhe " i n d i v i d u a l c a p i t a l i s t s " , writes M a r x , " c o n f r o n t o n e a n o t h e r o n l y as c o m m o d i t y - o w n e r s , the "inner l a w ' enforces itself o n l y t h r o u g h their c o m p e t i t i o n , their m u t u a l pressure u p o n each other, w h e r e b y the deviations are m u t u a l l y c a n c e l l e d " . ' Marx and his Critics

45

T h e relation between capitals c a n n o t be u n d e r s t o o d as somet h i n g fixed a n d u n c h a n g i n g . It is a d y n a m i c process, based o n the interaction t h r o u g h rime o f different capitals, so t h a t the average "socially necessary l a b o u r " at any p o i n t is the result o f i n d i v i d u a l processes o f p r o d u c t i o n organised independently of each other w i t h different, often c h a n g i n g , a m o u n t s o f concrete labour. The first capitalist t o introduce a n e w technique in any section o f industry will be able t o p r o d u c e g o o d s w i t h less t h a n the a m o u n t s of l a b o u r prevailing in the system as a w h o l e , a n d will be able to capture markets from others. But once other capitalists a d o p t the technique, this advantage is lost. O n l y a capitalist w h o controls a very large part o f the market for particular c o m m o d i t i e s , or w h o can exert political pressure to impede others accessing his markets, will be able t o get a w a y for longer or shorter periods o f t i m e w i t h c h a r g i n g prices w h i c h reflect a m o u n t s o f l a b o u r higher t h a n those that are socially necessary. T h e l a w o f value o n l y operates as the result o f the pressures these different capitals exert o n each other t h r o u g h rime. A n y still p h o t o g r a p h from the m o v i n g film o f capitalist d e v e l o p m e n t will always s h o w discrepancies—and sometimes large o n e s — f r o m the l a w o f value. But the film itself will s h o w the discrepancies eventually

disappearing

under

the

pressure

of

inter-capitalist

c o m p e t i t i o n even as other discrepancies arise.

Value a n d prices It is this d y n a m i c aspect to M a r x ' s theory t h a t enables it t o deal w i t h a p r o b l e m that beset the a t t e m p t s by S m i t h a n d R i c a r d o t o base v a l u e o n labour. This is that the r a t i o o f l a b o u r t o investment varies f r o m industry t o industry. Yet in practice t h e rate o f profit (the ratio o f the s u r p l u s value to investment) does n o t v a n ' in the same way, even w h e n wages are m o r e or less the same level a n d the rate of e x p l o i t a t i o n m u s t be a b o u t rhe same. T h e prices o f g o o d s seem ro d e p e n d n o t o n the a m o u n t o f socially necessary l a b o u r needed t o p r o d u c e t h e m , bur o n a m a r k u p o n rhe cost o f capital investment. T h e bigger the capital investment the bigger, it seems, is the m a r k u p . A capitalist selling s o m e t h i n g p r o d u c e d by o n e person w o r k i n g o n an expensive m a c h i n e will expect a bigger m a r k u p t h a n for s o m e t h i n g p r o d u c e d by o n e person w o r k i n g o n a c h e a p m a c h i n e . T h e fact t h a t s o m e industries are m o r e " c a p i t a l i n t e n s i v e " t h a n others i m p l i e s t h a t prices have t o diverge f r o m 46


values in terms o f l a b o u r if profitability is n o t t o be m u c h lower in s o m e cases rhan others. T h i s is w h a t led A d a m Smith to dilute his l a b o u r theory o f value m

w i t h another, c o n t r a d i c t o r y a p p r o a c h . T h e sale of g o o d s p r o d u c e s a p a y m e n t that is d i v i d e d u p i n t o different " r e v e n u e s " — w a g e s for the workers, profit for the industrialist, interest for the banker w h o lent the industrialist money, a n d rent for the l a n d l o r d . S m i t h contradicts his o w n initial labour-based theory o f v a l u e by a r g u i n g that each o f these revenues a d d s to value. D a v i d R i c a r d o w a s m o r e consistent t h a n S m i t h a n d tried ro stick t o the p u r e l a b o u r theory. But this left a g a p in his t h e o r y t h a t e c o n o m i s t s w h o c a m e after h i m c o u l d n o t s o l v e — o n e w h i c h eventually o p e n e d the w a y to the neoclassical a b a n d o n m e n t o f the l a b o u r theorv o f value. 0

M a r x c o u l d , however, deal w i t h the p r o b l e m — u s u a l l y called the " t r a n s f o r m a t i o n p r o b l e m " — p r e c i s e l y because his m o d e l is a d y n a m i c o n e t h a t operates t h r o u g h time. H i s s o l u t i o n depends o n l o o k i n g at h o w firms will react to the emergence o f different profit rates. Those w i t h l o w e r profit rates will begin t o m o v e their capital elsewThere. T h i s w i l l cause a p o t e n t i a l shortage in w h a t they have been p r o d u c i n g , leading to a rise in prices a b o v e their value in l a b o u r terms. O t h e r firms w h o use those p r o d u c t s as i n p u t s t o their o w n

p r o d u c t i o n (either directly o r t h r o u g h

p a y i n g their

workers to buy t h e m t o replenish their l a b o u r power) 1 0 are forced to p a y the higher prices, in the process effectively h a n d i n g over some o f the s u r p l u s value in their o w n h a n d s . T h e e q u a l i s a t i o n o f rhe rare o f profit takes place t h r o u g h the redistribution o f surplus value w i t h i n the capitalist class. T h i s does n o t in a n y degree alter the fact t h a t the surplus value c a m e f r o m the e x p l o i t a t i o n o f w o r k e r s in the first place, a n d that every c h a n g e in the socially necessary l a b o u r t i m e needed to produce a c o m m o d i t y has a n effect o n its price. It is the flow o f a l r e a d y p r o d u c e d s u r p l u s v a l u e f r o m o n e capitalist t o a n o t h e r t h r o u g h t i m e t h a t equalises the rate o f p r o f i t ' " — w h i c h is also w h y there can be big differences between the rates o f profit in different parts o f the system w h e n there are i m p e d i m e n t s t o the flow o f value t h r o u g h rhe system (for instance, w h e n firms have very large a m o u n t s o f i n v e s t m e n t tied d o w n i m m o v a b l y in certain sorts o f fixed c a p i t a l o r w h e n states prevent i n v e s t m e n t m o v i n g o u t o f w h a t they see as priority industries). M a r x ' s s o l u t i o n to rhe p r o b l e m posed in S m i t h a n d R i c a r d o w a s attacked w i t h i n t w o years o f it a p p e a r i n g in V o l u m e Three o f Marx and his Critics

47

Capital

by the marginalist Bohm-Bawerk. The same a r g u m e n t s he

used have been e m p l o y e d repeatedly every since. They have often t h r o w n M a r x i s t s o n t o the defensive, w i t h m a n y accepting the core o f the criticism a n d retreating from the a t t e m p t t o understand the d y n a m i c s o f capitalism using M a r x ' s concepts. This h a p p e n e d , for instance, s o o n after the revival o f interest in M a r x i s m after rhe events o f 1968. Figures o n rhe left such as Ian Steedman a n d G e o f f H o d g s o n t o o k u p a r g u m e n t s essentially rhe same as those used against M a r x by Bohm-Bawerk ( a l t h o u g h they did n o t accept the marginaList theory o f value) a n d his successors like Samuelson.''* M a r x i s t scholarship, already o n the defensive for political reasons inside university economics faculties, often retreated into scholastic debates over texts or i n t o obtuse m a t h e m a t i c a l c a l c u l a t i o n s as remote from rhe real w o r l d as rhose o f their m a i n s t r e a m colleagues. The result overall w a s , as Ben Fine has pur it, u a n increasingly a n d exclusively academicised M a r x i s m " 1 " a n d " l i m i t e d w i t h rhe w o r l d o f capital as o p p o s e d to t h a t o f

engagement

CapitalV°

T h e criticism o f M a r x ' s a p p r o a c h centres a r o u n d the c o n t e n t i o n t h a t s i m p l y l o o k i n g at the m o v e m e n t o f v a l u e between c a p i t a l s after p r o d u c t i o n has taken place c a n n o r e x p l a i n final prices, since ir does n o t e x p l a i n the prices o f rhe i n p u t s i n t o p r o d u c t i o n (the m e a n s o f p r o d u c t i o n a n d l a b o u r p o w e r ) . For the i n p u t s themselves are c o m m o d i t i e s w i t h prices different t o rheir values. So M a r x ' s m e t h o d , it is c l a i m e d , e x p l a i n s prices in t e r m s o f prices, nor in rerms o f l a b o u r values. 21 T h e R i c a r d i a n , v o n Borrkiewicz, a t t e m p t e d in 1 9 0 7 to solve rhe p r o b l e m of d e d u c i n g prices f r o m l a b o u r values m a t h e m a t i c a l l y , using s i m u l t a n e o u s e q u a t i o n s . H e used a m o d e l in w h i c h there is n o c h a n g e in the a m o u n t o f capital investment f r o m o n e cycle o f p r o d u c t i o n t o the next ( w h a t is called " s i m p l e r e p r o d u c t i o n " ) . H i s e q u a t i o n s supposedly s h o w e d that a n y a t t e m p t to p r o v i d e a generally a p p l i c a b l e w a y o f t r a n s f o r m i n g l a b o u r values i n t o prices led ro o n e o f the " e q u a l i t i e s " taken for granted by M a r x n o t w o r k i n g . Hither total price did not equal equal total surplus

total value, or total profit

did

not

value.

Every a t t e m p t t o deduce prices f r o m values for most o f rhe 2 0 t h century ran i n t o the same p r o b l e m . T h e response o f M a r x i s t s w a s either t o a b a n d o n the central feature o f the l a b o u r t h e o r y o f value or ro c o n c l u d e , as for instance Paul Sweezy d i d in 1942, t h a t " r h e M a r x i a n m e t h o d of t r a n s f o r m a t i o n is logically unsatisfactory" but t h a t rhe " p a t t e r n s o f d e v e l o p m e n t " o f value a n d price " w i l l differ 48


o n l y in m i n o r d e t a i l s " . - A s o m e w h a t s i m i l a r c o n c l u s i o n w a s arrived at by M i g u e l Angel G a r c i a a n d A n w a r S h a i k h a m o n g others in the late I97()s using m o d e l s t h a t were m u c h less m a t h e m a t i c a l a n d easier t o f o l l o w t h a n v o n Bortkiewicz s.2* S h a i k h s h o w e d that total price c o u l d e q u a l total v a l u e , b u t total profit w o u l d

not

always e q u a l total s u r p l u s value. G a r c i a c l a i m e d to prove t h a t both equalities c o u l d h o l d . But he c o u l d o n l y d o so by a l l o w i n g a c h a n g e in rhe rate o f e x p l o i t a t i o n f r o m o n e p r o d u c t i o n cycle to the next, since the shift in prices caused by the m o v e m e n t s o f value between sectors caused changes i n the relative prices o f w a g e g o o d s a n d capital goods. 2 4 Since then, however, a n u m b e r o f M a r x i s t s have been able completely t o rescue M a r x ' s position by c h a l l e n g i n g the f u n d a m e n t a l a s s u m p t i o n m a d e by v o n Bortkiewicz, Sweezv, S h a i k h a n d m a n y o t h e r s — t h e reliance o n simultaneity. 2 5 T h e m e t h o d o f simultaneous e q u a t i o n s assumes t h a t the prices o f the i n p u t s t o p r o d u c t i o n have t o e q u a l the prices o f the o u t p u t s . Bur they d o n o t . T h e outputs are p r o d u c e d after the i n p u t s have g o n e i n t o p r o d u c t i o n . O r , ro p u t it a n o t h e r w a y , the value o f the i n p u t s for a process A will differ f r o m that o f rhe s a m e i n p u t s for a later process B — e v e n if in terms o f their physical c o m p o s i t i o n as use values they are identical. T h e value o f a ton o f steel used to m a k e a m a c h i n e t o d a y will n o t be the s a m e as the value used t o m a k e a n identical m a c h i n e next week. 7 * But, argue the critics o f M a r x , this still leaves the i n p u t s i n t o p r o d u c t i o n as prices, n o t as values, a n d t o reduce t h e m t o l a b o u r values involves an infinite regress. T h e investment need t o p r o d u c e rhe inputs needs t o be b r o k e n d o w n i n t o l a b o u r values, bur t h a t is nor possible w i t h o u t b r e a k i n g d o w n in turn rhe investment needed to p r o d u c e it, ad i n f i n i t u m . There is a s i m p l e response to those w h o pose the p r o b l e m like this: W h y ? W h y d o rhe investments needed t o p r o d u c e the i n p u t s have t o be b r o k e n d o w n in terms o f their l a b o u r v a l u e w h e n they themselves were p r o d u c e d ? 2 7 T h e starting p o i n t for l o o k i n g at any cycle o f p r o d u c t i o n is the m o n e y price o f the i n p u t s needed t o u n d e r t a k e it. T h e exercise o f l a b o u r in the p r o d u c t i o n process then a d d s a certain a m o u n t o f new v a l u e , w h i c h f o r m s the basis o f the n e w c o m m o d i t y , rhe price o f w h i c h in t u r n is f o r m e d t h r o u g h the m o v e m e n t o f surplus value f r o m capitalists w h o w o u l d otherwise get a higher t h a n average rate o f profit to those w h o w o u l d get a lower one. Marx and his Critics

49

There is n o need t o g o back in history ro d e c o m p o s e i n r o l a b o u r values rhe prices o f things w h i c h were p a i d for ar the b e g i n n i n g o f rhe p r o d u c t i o n r o u n d , in order t o u n d e r s t a n d rhe i m p a c t o f creating n e w value a n d s u r p l u s value o n the d y n a m i c s o f the system. It is n o m o r e necessary t h a n it is in physical d y n a m i c s t o d e c o m p o s e rhe m o m e n t u m o f an object that strikes a n o t h e r i n t o all the forces t h a t have previously acted o n it to create rhat m o m e n t u m , g o i n g right back ro the f o u n d a t i o n o f the universe w i t h the big b a n g ; or t h a n it is necessary in b i o l o g y ro k n o w the w h o l e history o f the e v o l u t i o n o f a n o r g a n i s m , g o i n g right back ro rhe first f o r m a t i o n o f o r g a n i c life f o r m s , in o r d e r to see w h a t the effect o f a genetic c h a n g e will be in the present. As G u g l i e l m o C a r c h e d i has p o i n t e d o u t , " I f this c r i t i q u e were s o u n d , it w o u l d m e a n rhe b a n k r u p t c y n o t o n l y of M a r x ' s transform a t i o n p r o c e d u r e b u t also o f social science in all its v e r s i o n s " i n c l u d i n g those that criticise M a r x : This critique, in fact, w o u l d have ro a p p l y t o a n y social phen o m e n o n i n a s m u c h as it is d e t e r m i n e d by other p h e n o m e n a , b o t h present a n d past. Social sciences, then, w o u l d become a n endless quest for the starting p o i n t o f the inquiry. It w o u l d never be possible t o analyse h o w s o m e current actions related t o the c u m u l a t i v e products o f past actions.

Skilled a n d unskilled l a b o u r T h e s a m e d y n a m i c character of M a r x s m o d e l also dispels w h a t has been presented f r o m B o h m - B a w e r k o n w a r d s as a n o t h e r problem for the l a b o u r theory o f value. T h i s is h o w the c o n t r i b u t i o n o f skilled l a b o u r t o value creation is to be measured. M a r x seems to see this as easily solved. H e writes that: skilled l a b o u r c o u n t s o n l y as s i m p l e l a b o u r intensified, or rather, as m u l t i p l i e d s i m p l e labour, a given q u a n t i t y o f skilled being considered e q u a l to a greater q u a n t i t y o f s i m p l e l a b o u r . . . T h e different p r o p o r t i o n s in w h i c h the different sorts o f l a b o u r are reduced to unskilled l a b o u r as their s t a n d a r d , are established by a social process that goes o n b e h i n d the b a c k o f the producers a n d , consequently, a p p e a r t o be fixed by custom. 2 * 50


This e x p l a n a t i o n is fully a d e q u a t e w h e n rhe s a m e j o b is d o n e by a skilled w o r k e r a n d unskilled worker, w i t h the skilled w o r k e r d o i n g it m u c h m o r e quickly. A n h o u r o f the skilled l a b o u r will be w o r t h m o r e t h a n o n e h o u r o f the average "socially necessary" l a b o u r in rhe svstem as a w h o l e , w h i l e the unskilled l a b o u r will be w o r t h less •

W

t h a n that. There is a p r o b l e m , however, w h e n it c o m e s t o skilled l a b o u r that c a n n o t be replaced by a greater q u a n t i t y o f unskilled labour. lr does n o t m a t t e r h o w m a n y unskilled l a b o u r e r s a capitalist employs, they will never be able t o d o the s a m e task as a skilled l o o l m a k e r or a systems analyst. H o w then can the value p r o d u c e d by the second g r o u p be m e a s u r e d in terms o f h o u r s o f l a b o u r o f the first g r o u p ? It seems t h a t any a t t e m p t t o d o so m u s t involve an arbitrariness t h a t u n d e r m i n e s the basic theory.

Bohm-Bawerk

argued t h a t w h e n M a r x writes t h a t " a social process" explains the m e a s u r e m e n t , he is t a k i n g for g r a n t e d t h a t w h i c h he is trying t o explain. For B o h m - B a w e r k this proved that it is n o t the a m o u n t o f l a b o u r in g o o d s w h i c h determines their prices, b u t the w a y people evaluate them in relation t o other g o o d s (their " u t i l i t y " ) a n d that ihis deals a death b l o w t o the l a b o u r theory o f value. H o w e v e r , the p r o b l e m for the theory evaporates o n c e the l a w o f value is seen as s o m e t h i n g w o r k i n g t h r o u g h time. T h e developm e n t o f t e c h n o l o g y a g a i n a n d a g a i n leads t o jobs e m e r g i n g that can o n l y be carried o u t by those w i t h particular skills. A t first there is n o objective measure o f the a m o u n t o f socially necessary l a b o u r time needed to p r o d u c e t h e m , a n d those in possession o f such skills or the g o o d s p r o d u c e d by t h e m c a n receive p a y m e n t s w h i c h bear n o o b v i o u s relation to l a b o u r t i m e . In effect, v a l u e flows to those c o n t r o l l i n g a m o n o p o l y of these skills f r o m the rest o f the system. But this is o n l y a transitory phase, even if sometimes a long o n e , as capitalists elsewhere in the system will d o their u t m o s t t o try t o g a i n c o n t r o l o f s o m e o f the benefits o f the n e w skills for themselves. There are t w o w a y s they can d o this. They c a n train n e w g r o u p s o f w o r k e r s t o a c q u i r e rhe skills. T h i s effectively a m o u n t s to u s i n g one sort of l a b o u r to create n e w l a b o u r p o w e r c a p a b l e o f d o i n g the skilled w o r k , so t h a t the final l a b o u r is in fact c o m p o s i t e labour, m a d e u p of rhe living l a b o u r o f the i m m e d i a t e w o r k e r s a n d a form of dead l a b o u r e m b o d i e d in their l a b o u r p o w e r as skills. T h e capitalists c a n get this extra element in l a b o u r p o w e r directly by o n rhe j o b t r a i n i n g for w o r k e r s (as w i t h a p p r e n t i c e s h i p systems), they Marx and his Critics

51

c a n leave its p r o v i s i o n to the w o r k e r s themselves ( w h e n w o r k e r s p a y to g o t h r o u g h courses to get skills qualifications) or they can rely in part 011 the state p r o v i d i n g it t h r o u g h its t r a i n i n g courses. But in each case, dead l a b o u r is e m b o d i e d in the e n h a n c e d l a b o u r power and

then transferred

i n t o rhe p r o d u c t s o f rhe

labour

process, as w i t h the dead l a b o u r e m b o d i e d in m e a n s a n d materials of production.30 B u t this still leaves a question unresolved. W h o trains the trainers?

Skilled

trainers c a n n o t

themselves

get

their

skills

from

unskilled workers. I f their skills are m o n o p o l y skills a n d they produce g o o d s that c a n n o t be produced by unskilled workers, however m a n y w o r k Together at the j o b , then those w h o o w n those g o o d s will be able t o charge m o n o p o l y prices that d o n o t reflect l a b o u r values, bur simply h o w m u c h people are prepared t o pay. T h i s will be true o f certain skills a n d certain g o o d s at any particular p o i n t in time. But over t i m e this l a b o u r t o o will be reduced t o s o m e objective ratio o f other labour. Capitalists elsewhere in the system w i l l actively seek o u t new technologies t h a t

undermine

such skill m o n o p o l i e s by e n a b l i n g the tasks t o be d o n e by m u c h less skilled labour. In this way, the reduction o f skilled l a b o u r ro unskilled l a b o u r over t i m e is a never e n d i n g feature o f capitalist acc u m u l a t i o n . If e n o u g h unskilled l a b o u r is trained u p t o the level o f skilled l a b o u r needed t o p r o d u c e p a r t i c u l a r c o m m o d i t i e s , those c o m m o d i t i e s will cease ro be scarce a n d their v a l u e will fall ro the level t h a t reflects the c o m b i n a t i o n o f the l a b o u r needed to reproduce average l a b o u r p o w e r a n d the extra cost o f the t r a i n i n g . A s C a r c h e d i puts it: D u e t o rhe i n t r o d u c t i o n

of new techniques

in the

labour

process, the level o f skills required o f an agent is lowered. T h e value o f his o r her l a b o u r p o w e r is then d e v a l u e d . W e can refer to this process as devaluation qualification

(of l a b o u r p o w e r ) through

de-

(of skills). It is this process w h i c h reduces skilled

t o u n s k i l l e d l a b o u r a n d thus (at least as far as the value o f l a b o u r p o w e r is c o n c e r n e d ) alters the e x c h a n g e relations between the c o m m o d i t i e s o f w h i c h those different types o f l a b o u r p o w e r are a n i n p u t . It is this real process w h i c h justifies the theoretical

reduction

of

skilled

to

unskilled

labour,

or

the

expression o f the f o r m e r as a m u l t i p l e o f the latter... T h e process o f d e v a l u a t i o n t h r o u g h d e q u a l i f i c a t i o n is a constant tendency in capitalist p r o d u c t i o n , d u e to rhe c o n s t a n t need 52


capitalists have t o reduce the level o f wages. O n the other h a n d , the s a m e techniques create n e w a n d qualified p o s i t i o n s (the counter-rendency) w h i c h , in their t u r n , are s o o n subjected to deq u a l i f i c a t i o n . . . A t any m o m e n t i n rime we can observe b o t h the tendency (the d e q u a l i f i c a t i o n o f certain p o s i t i o n s a n d thus the d e v a l u a t i o n o f the agents' l a b o u r p o w e r ) a n d rhe counter-tendency (the creation o f new, qualified p o s i t i o n s for w h i c h agents w i t h a high value of l a b o u r p o w e r are n e e d e d ) / L a b o u r m a v n o t be reducible t o socially necessary l a b o u r t i m e in4

9

*

stantaneously. But it is so reduced over t i m e t h r o u g h the b l i n d interaction o f different capitals w i t h each other. A g a i n the l a w o f value has ro be u n d e r s t o o d as pressurising the i n d i v i d u a l components t o operate in a certain way, n o t as a f o r m u l a establishing fixed, fast f f t z e n relations between t h e m . M a r x s basic c o n c e p t s survive all rhe criticisms o n c e they are not interpreted t h r o u g h the static f r a m e w o r k , i g n o r i n g the process of c h a n g e t h r o u g h t i m e that characterises the neoclassical system.

Marx and his Critics

53

Understanding the System: Marx and Beyond

CHAPTER THRLE

The dynamics of the system

Illusions a n d reality r h e history o f c a p i t a l i s m in M a r x ' s t i m e a n d t h a t o f his immediate successors w a s p u n c t u a t e d hv e c o n o m i c crises t h a t occurred a b o u t o n c e every ten years—there were 15 in the US in the 1 1 0 years between 1810 a n d 1920. For a few years firms w o u l d invest o n a large scale, t a k i n g o n n e w w o r k e r s ; b u i l d i n g n e w factories a n d b u y i n g new m a c h i n e s w o u l d create a d e m a n d for the p r o d u c t s o f industries like c o n s t r u c t i o n , steel a n d c o a l , w h i c h in t u r n w o u l d take o n n e w workers; the n e w workers w o u l d receive wages w h i c h in t u r n e n a b l e d t h e m ro b u y g o o d s . Very fast rates o f economicg r o w t h led firms to d o everything they c o u l d to lure p e o p l e f r o m the c o u n t r y s i d e — a n d increasingly f r o m other, poorer c o u n t r i e s — i n t o selling their l a b o u r p o w e r in the t o w n s .

Unemployment

w o u l d fall to a r o u n d 2 percent. T h e n s o m e t h i n g a l w a y s seemed t o go w r o n g . G i a n t firms w o u l d s u d d e n l y g o bust, c a n c e l l i n g the d e m a n d for the p r o d u c t s o f other industries, where firms w o u l d also g o bust; right across the e c o n o m y w o r k e r s — m a n y o n l y recently d r a w n i n t o i n d u s t r y — w o u l d be sacked; their loss o f b u y i n g p o w e r then ensured that the crisis ricocheted f r o m i n d u s t r y t o industry; p a n i c w o u l d sweep t h r o u g h rhe capitalist class, w h i l e u n e m p l o y m e n t shot u p virtually over n i g h t t o 10 percent or higher, where it w o u l d stay for m o n t h s or even years until a n e w p e r i o d o f r a p i d g r o w t h t o o k off. T h e m a i n s t r e a m e c o n o m i c s o f t h e t i m e denied that such "crises of o v e r p r o d u c t i o n " were e n d e m i c to the system, b a s i n g their arg u m e n t s o n a p o p u l a r i s e r a n d vulgariser o f A d a m Smith's ideas, Jean-Baptiste Say. H i s " l a w " a r g u e d t h a t s u p p l y a n d

demand

m u s t a l w a y s c o i n c i d e , since every t i m e s o m e o n e sold s o m e t h i n g 55

s o m e o n e else m u s t have b o u g h t it: s u p p l y , it w a s c l a i m e d , created its o w n d e m a n d . S o J o h n Stuart M i l l a r g u e d : Each person's m e a n s for p a y i n g for the p r o d u c t i o n o f o t h e r p e o p l e consists in those [ c o m m o d i t i e s ) that he h i m s e l f possesses. A l l sellers are i n e v i t a b l y by the m e a n i n g o f the w o r d b u y e r s . . . A general over-supply...of all c o m m o d i t i e s a b o v e the d e m a n d is...[an| i m p o s s i b i l i t y . . . People m u s t spend

their...

s a v i n g s . . . p r o d u c t i v e l y ; t h a t is, in e m p l o y i n g labour. 1 T h e f o u n d e r s of the neoclassical s c h o o l h a d to accept t h a t in practice the e c o n o m y experienced a " t r a d e cycle" o r "business cycle" o f b o o m s a n d recessions, in w h i c h for s o m e reason s u p p l y a n d d e m a n d did not a l w a y s balance as their theory c l a i m e d . Their reaction was t o b l a m e these things o n external factors t h a t s o m e h o w led

to temporary

distortions

in

an

otherwise

fundamentally

healthy system. So J e v o n s w r o t e t h a t the business cycle w a s a result o f sun spots w h i c h , he c l a i m e d , affected the c l i m a t e a n d therefore the p r o d u c t i v i t y o f a g r i c u l t u r e a n d the profitability o f trade, w h i l e Walras saw crises as disturbances caused by the failure o f prices t o respond to s u p p l y a n d d e m a n d , c o m p a r a b l e in effect to passing storms o n a s h a l l o w lake. S o m e later neoclassical economists did try t o develop theories o f the business cycle. A n w a r S h a i k h has s u m m e d u p their a p p r o a c h : t h e system is still v i e w e d as b e i n g self-regulating; o n l y n o w the a d j u s t m e n t is seen as b e i n g cyclical rather t h a n s m o o t h . . . I n o r t h o d o x t h e o r y a cycle is n o t a crisis... Cycles m u s t be v i e w e d as " s m a l l f l u c t u a t i o n s " . . . w h i c h a t first a p p r o x i m a tion

one

may

justifiably

neglect...

Violent

or

e x p a n s i o n s a n d c o n t r a c t i o n s arise f r o m e x t e r n a l

prolonged factors...

Crises, therefore, r e m a i n o u t s i d e the n o r m a l process o f capitalist r e p r o d u c t i o n . This view still persists in w h a t is k n o w n as "real business cycle theo r i e s " . These hold that: business cycles are rhe aggregate result o f the o p t i m u m response o f i n d i v i d u a l s to changes in the e c o n o m i c e n v i r o n m e n t . . . T h e e c o n o m i c cycle is a s s u m e d to have a stochastic [ i r r e g u l a r — C H ] oscillation a r o u n d a t r e n d / 56


I hey still d o n o t a l l o w w h a t they see as short-term a b e r r a t i o n s ro u n d e r m i n e their f a i t h in a n u n c h a l l e n g e a b l e system o f l a w s w h i c h lay d o w n h o w any efficient e c o n o m y m u s t operate.

I he possibility o f crisis Karl M a r x , by c o n t r a s t , a r g u e d t h a t the possibility o f general crises o f o v e r p r o d u c t i o n w a s b u i l t i n t o the very n a t u r e o f capitalism. H e destroyed the a r g u m e n t s based u p o n Say's l a w in a c o u p l e ot p a r a g r a p h s in the- first v o l u m e o f Capital.

O f course, he ac-

k n o w l e d g e d , every t i m e s o m e o n e sells an article s o m e o n e else buys it. R u t , argued M a r x , o n c e m o n e y is used ro e x c h a n g e g o o d s t h r o u g h rhe m a r k e t , it does n o t f o l l o w that the seller has then immediately t o b u y s o m e t h i n g else. M o n e y acts n o t o n l y as a measure o f value in directly e x c h a n g i n g g o o d s , b u t also as a m e a n s o f storing value. I f s o m e o n e chooses t o save the m o n e y they ger from selling a g o o d rather t h a n s p e n d i n g it immediately, then there will nor be e n o u g h m o n e y being spent in rhe system as a w h o l e t o buy all the g o o d s t h a t have been p r o d u c e d : N o t h i n g c a n be m o r e c h i l d i s h t h a n the d o g m a t h a t because every sale is a purchase a n d every purchase a sale, therefore rhe c i r c u l a t i o n o f c o m m o d i t i e s necessarily i m p l i e s e q u i l i b r i u m o f sales a n d purchases. If this m e a n s t h a t the n u m b e r o f a c t u a l sales is equal t o the n u m b e r o f purchases, it is mere t a u t o l o g y . But its real p u r p o r t is t o p r o v e that every seller brings his buyer to m a r k e t w i t h h i m . N o t h i n g o f the k i n d . T h e sale a n d the purchase c o n s t i t u t e . . . a n e x c h a n g e between a c o m m o d i t y - o w n e r a n d a n o w n e r o f m o n e y , between t w o persons as o p p o s e d t o each other as the t w o poles o f a m a g n e t . . . N o o n e c a n sell unless s o m e o n e else p u r c h a s e s . B u t n o o n e is f o r t h w i t h b o u n d

ro p u r c h a s e , because he has just s o l d .

C i r c u l a t i o n bursts t h r o u g h all r e s t r i c t i o n s as ro t i m e , p l a c e , a n d i n d i v i d u a l s , i m p o s e d by direct barter, a n d this it effects by s p l i t t i n g u p , i n t o the a n t i t h e s i s o f a sale a n d a p u r c h a s e , the direct identity t h a t in barter does exist between the a l i e n a t i o n o f one's o w n a n d the a c q u i s i t i o n o f s o m e o t h e r m a n ' s p r o d u c t . If the interval i n t i m e between the t w o c o m p l e m e n t a r y phases o f the c o m p l e t e m e t a m o r p h o s i s o f a c o m m o d i t y b e c o m e t o o great, if t h e split between rhe sale a n d the p u r c h a s e b e c o m e I he Dynamics of rhe System

57

t o o p r o n o u n c e d , the i n t i m a t e c o n n e x i o n between t h e m , their oneness, asserts itself b y p r o d u c i n g — a crisis/

T h e inevitability o f crisis These a r g u m e n t s used by M a r x in V o l u m e O n e o f Capital

"imply

the possibility, a n d n o m o r e t h a n the possibility, o f crises". 6 But in V o l u m e Three he w e n t further, t o a r g u e for the inevitability o f crises. H e did so by m o v i n g b e y o n d the m o s t abstract considerations a b o u t the b u y i n g a n d selling o f c o m m o d i t i e s w i t h m o n e y t o l o o k at the concrete process involved in capitalist p r o d u c t i o n a n d exchange. As is often r e m a r k e d , M a r x d i d not p r o v i d e a single, integrated a c c o u n t o f the crisis. R a t h e r he refers to different aspects o f the crisis in w r i t i n g s t h a t are scattered i n different parts o f the text.

But it is n o t t h a t difficult t o c o n s t r u c t a coherent a c c o u n t

f r o m these. T h e starting p o i n t is that c o m p e t i t i v e a c c u m u l a t i o n m e a n s t h a t capitalists are s i m u l t a n e o u s l y trying ro increase the o u t p u t of their g o o d s as m u c h as possible at the same t i m e as trying ro m a x i m i s e profits by h o l d i n g d o w n wages. But wages c o n s t i t u t e a m a j o r part o f rhe m o n e y available ro b u y goods. P r o d u c t i o n rends t o m o v e in one direction, the c o n s u m p t i o n o f the masses in the other: T h e c o n d i t i o n s o f direct e x p l o i t a t i o n , a n d those o f realising it, are n o t identical. T h e y diverge nor o n l y in place a n d t i m e , but also logically. T h e first are o n l y l i m i t e d by the p r o d u c t i v e p o w e r o f society, the latter by the p r o p o r t i o n a l relation o f rhe various branches o f p r o d u c t i o n a n d the c o n s u m e r p o w e r o f society. B u t this last-named is based o n a n t a g o n i s t i c c o n d i t i o n s o f distribut i o n , w h i c h reduce t h e c o n s u m p t i o n o f rhe b u l k o f society t o a m i n i m u m v a r y i n g w i t h i n m o r e or less n a r r o w limits. It is furt h e r m o r e restricted by the tendency ro a c c u m u l a t e , the drive to e x p a n d capital and

p r o d u c e s u r p l u s value o n a n

extended

scale... I h e m o r e productiveness develops, the m o r e it

finds

itself at variance w i t h the n a r r o w basis o n w h i c h the c o n d i t i o n s of consumption rest../ S o m e people have interpreted this passage as m e a n i n g t h a t the mere fact that w o r k e r s are exploited limits the scale o f the m a r k e t a n d creates crises. Such " u n d e r c o n s u m p t i o n i s r " versions o f M a r x i s m 58


share s o m e features in c o m m o n w i t h the f o r m o f the m a i n s t r e a m economics t h a t developed in the 1930s u n d e r the influence o f Keynes. T h e c o n c l u s i o n seems t o be that c a p i t a l i s m c a n escape i risis if the state intervenes t o raise c o n s u m p t i o n the m o m e n t a recession seems likely t o develop. But M a r x ' s o w n a r g u m e n t does nor s t o p w i t h p o i n t i n g ro the possibility o f c o n s u m p t i o n falling b e l o w p r o d u c t i o n . H e goes o n to insist t h a t the d o u b l e n a t u r e o f o n e set o f c o m m o d i t i e s , those that m a k e u p the m e a n s o f p r o d u c t i o n , as b o t h values a n d use values, m a k e s that inevitable. A Russian M a r x i s t e c o n o m i s t o f the late 1920s, Pavel V M a k s a k o v s k y , spelt o u t h o w this d o u b l e n a t u r e w o r k s itself out. 1 0 As w e have seen, the e x c h a n g e value o f goods is determined by the a m o u n t o f l a b o u r required t o p r o d u c e them u s i n g rhe average level o f techniques a n d skill o p e r a t i n g in the system as a w h o l e ( w h a t M a r x refers t o as " a b s t r a c t l a b o u r " ) . But their p r o d u c t i o n involves concrete h u m a n l a b o u r b r i n g i n g objects ( " u s e v a l u e s " ) i n t o physical interaction w i t h each other. T h e correct relations between different e x c h a n g e values a n d different use values m u s t exist for p r o d u c t i o n to take place. The m o r e industry develops, rhe more complicated these relations become. Textile m a c h i n e s c a n n o t be p r o d u c e d w i t h o u t steel; steel w i t h o u t i r o n ore a n d coal; coal w i t h o u t c u t t i n g machinery, w i n d i n g gear a n d so o n . But the chains o f physical interaction depend o n chains o f b u y i n g a n d selling, in which coal firms sell to steel firms, steel firms t o textile firms a n d textile firms to c o n s u m e r s — t h a t is, ro people w h o get wages or profits to spend from other firms so l o n g as these can sell their goods. Such l o n g , i n t e r t w i n e d c h a i n s l i n k i n g p r o d u c t i o n t o final cons u m p t i o n o n l y f u n c t i o n if t w o c o m p l e t e l y different c o n d i t i o n s are fulfilled. T h e correct physical relations between things t h a t g o to produce other t h i n g s has t o exist determined by the l a w o f physics, chemistry a n d biology. B u t , at the s a m e rime, each act o f production has to e x p a n d the a m o u n t o f value (ie the a m o u n t o f average ibstract l a b o u r ) in the h a n d s o f rhe o w n e r s o f each particular firm. I he physical o r g a n i s a t i o n o f the p r o d u c t i o n o f use values has s o m e h o w t o correspond w i t h the capitalist d e t e r m i n a t i o n o f prices by values. Discrepancies between rhe t w o requirements m e a n t h a t the expansion o f p r o d u c t i o n inevitably leads t o bottlenecks in the supply of raw materials, causing their prices t o rise, c u t t i n g i n t o the profits of those capitalists w h o buy t h e m , a n d so redistributing surplus I he Dynamics of rhe System

59

v a l u e f r o m the capitalists p r o d u c i n g finished g o o d s a n d c o m p o nents ro those p r o d u c i n g r a w materials. It also m e a n s t h a t the d e m a n d for o n e vital c o m m o d i t y , l a b o u r power, c a n begin t o exceed the supply, leading t o u p w a r d pressure o n wages (at least in m o n e y terms, a l t h o u g h workers m a y n o t see it like this if rising raw material prices cut i n t o rhe b u y i n g p o w e r o f the e x p a n d e d wage). T h a r is n o t all. I f it were, the p r o b l e m w o u l d s i m p l y be a tendency t o w a r d s d i s p r o p o r t i o n a l i t y between the different parts o f the e c o n o m y . '

Bur there are f u r t h e r p r o b l e m s . P r o d u c t i o n w i l l

n o t take place at all unless capitalists t h i n k they can sustain themselves i n c o m p e t i t i o n w i t h o t h e r capitalists, by g e t t i n g a rate o f p r o f i t at least e q u a l t o the average in rhe system as a w h o l e . To g u a r a n t e e this they h a v e repeatedly t o reorganise

production,

u s i n g m o r e a d v a n c e d t e c h n i q u e s to increase p r o d u c t i v i t y

per

worker. Bur as all the capitalists try t o d o this, they c o n t i n u a l l y reduce the average a m o u n t o f l a b o u r needed t o p r o d u c e g o o d s — a n d therefore the v a l u e o f the g o o d s . T h e physical q u a n t i t y o f g o o d s p r o d u c e d by the system will tend t o rise, b u t the value o f each i n d i v i d u a l g o o d w i l l tend t o fall. T h e t w o t h i n g s necessary for the system t o f u n c t i o n , the physical o r g a n i s a t i o n o f p r o d u c t i o n a n d the f l o w o f v a l u e t h r o u g h rhe system, b o t h

change

r e p e a t e d l y — b u r w i t h o u t there being a n y a u t o m a t i c c o m p a t i b i l i t y between the changes t a k i n g place. Firms undertake p r o d u c t i o n by b u y i n g physical e q u i p m e n t (machines, b u i l d i n g s , c o m p u t e r s a n d so o n ) at prices d e p e n d e n t o n the average a m o u n t of l a b o u r needed t o p r o d u c e t h e m at a p a r t i c u l a r m o m e n t in time. But even as p r o d u c t i o n is t a k i n g place, increases in p r o d u c t i v i t y elsewhere in the system are r e d u c i n g rhe value o f t h a t e q u i p m e n t a n d o f the g o o d s the firm is p r o d u c i n g w i t h it. The firm's c a l c u l a t i o n s o f profitability were based o n the a m o u n t it h a d to spend o n this e q u i p m e n t in the past, n o t o n w h a t its present value i s — b u r it is o n its initial investment that the firm has t o m a k e a profit. S o the r a p i d rate o f a c c u m u l a t i o n t h a t characterises the b o o m has the effect o f c u t t i n g the prices o f each u n i t o f o u t p u t , a n d this hits the profits to be m a d e o n investments m a d e earlier in the b o o m . Not

only

do

rhe

values

of

goods

keep

changing,

but,

M a k s a k o v s k y s h o w s , rhe reaction o f capitalists t o these changes leads prices t o diverge f r o m values. A s profits fall, s o m e firms s t o p n e w investments for a p e r i o d . T h i s reduces the d e m a n d for rhe g o o d s o f the other firms t h a t previously supplied t h e m . These then 60


try t o m a i n t a i n their sales by c u t t i n g their prices b e l o w the levels determined by value w h i l e they sack w o r k e r s in o r d e r to try ro protect their profits o n rhe g o o d s they are selling ar reduced prices a n d ar t h a t s a m e t i m e cancel their o w n investments for fear they will n o t be profitable. A w a v e o f c o n t r a c t i o n goes t h r o u g h the e c o n o m y a n d w i t h it a general r e d u c t i o n o f prices below values. The c o n t r a c t i o n does n o t last forever. S o m e firms g o b a n k r u p t , a l l o w i n g other firms t o buy plant a n d e q u i p m e n t o n the c h e a p a n d to cur rhe wages w h i c h workers are prepared ro accept. Eventually, .1 p o i n t is reached where they c a n expect ro get higher t h a n average profits it they e m b a r k o n a n e w r o u n d o f i n v e s t m e n t a n d a n e w wave o f e x p a n s i o n takes o f f as capitalists rush ro rake a d v a n t a g e ot the better business c o n d i t i o n s . C o m p e t i t i o n leads firms t o undertake a le\^l o f i n v e s t m e n t w h i c h

t e m p o r a r i l y exceeds the

existing o u t p u t o f n e w machinery, c o m p o n e n t s a n d r a w materials. I he " o v e r p r o d u c t i o n " of the d o w n t u r n is replaced by " u n d e r p r o d u c t i o n " in the u p t u r n , a n d just as prices before were b e l o w values m the s l u m p , n o w they rise a b o v e values in the b o o m . But this o n l y Lists until all the n e w p l a n t a n d m a c h i n e r y pass i n t o p r o d u c t i o n , increasing o u t p u t at the s a m e t i m e as r e d u c i n g the value o f individual g o o d s , m a k i n g s o m e i n v e s t m e n t u n p r o f i t a b l e a n d g i v i n g rise in t i m e to yet a n o t h e r d o w n t u r n . T h e central p o i n t is t h a t the cycle is n o t a result o f m i s t a k e n decisions by i n d i v i d u a l capitalists o r their g o v e r n m e n t s , b u t o f rhe very w a y value expresses itself in prices. T h i s takes place t h r o u g h .1 c o n t i n u a l oscillation w i t h prices arising a b o v e a n d falling b e l o w values, n o t t h r o u g h s o m e c o n t i n u o u s e q u i l i b r i u m . This c a n n o t be grasped w i t h o u t starting w i t h the objective contradictions expressed in the n o t i o n o f value. O n l y by dialectically d r a w i n g o u t these c o n t r a d i c t i o n s w a s M a r x able t o p r o v i d e a n overview o f the system s d y n a m i c .

(Credit a n d

financial

capital

I he spells o f e x p a n s i o n a n d c o n t r a c t i o n arc m o d i f i e d a n d intensified by the role played by c r e d i t — a n d those w h o play a special part in the d e v e l o p m e n t o f this, the bankers. C a p i t a l passes t h r o u g h different f o r m s in rhe c o u r s e o f capitalist p r o d u c t i o n . 1 1

It begins as m o n e y . T h i s is used t o

buy

i n s t r u m e n t s a n d m a t e r i a l s o f p r o d u c t i o n a n d l a b o u r p o w e r as I lit* Dvrumics of rhe System J /

61

c o m m o d i t i e s , w h i c h in t u r n arc c o m b i n e d i n the

production

process t o p r o d u c e o t h e r c o m m o d i t i e s . These are sold t o get m o r e m o n e y , w h i c h is then used t o b u y m o r e m e a n s o f product i o n a n d l a b o u r p o w e r . In this w a y o n e cycle o f

production

f o l l o w s a n o t h e r endlessly, so t h a t "every e l e m e n t " in it " a p p e a r s as a p o i n t o f d e p a r t u r e , transit a n d r e t u r n " . 1 ' So capital takes the f o r m o f m o n e y , o f c o m m o d i t i e s , o f m e a n s o f p r o d u c t i o n a n d l a b o u r power, then o f c o m m o d i t i e s a g a i n a n d finally o f money. For the system ro operate, all these f o r m s have to exist simultaneously. If p r o d u c t i o n is ro keep g o i n g w i t h o u t a s t o p , there has to be a supply o f m o n e y to buy c o m m o d i t i e s , a s u p p l y of c o m m o d i t i e s to be b o u g h t as p r o d u c t i v e c a p i t a l a n d a s u p p l y o f l a b o u r power. T h e cycle ot capitalist p r o d u c t i o n , then, is m a d e u p o f three interconnected c i r c u i t s — o f m o n e y , o f p r o d u c t i v e capital a n d o f c o m m o d i t i e s . Each circuit fulfils a f u n c t i o n for c a p i t a l acc u m u l a t i o n — a n d does so to s o m e extent a c c o r d i n g to a d y n a m i c o f its o w n . In the early stages o f c a p i t a l i s m , w h e n rhe units o f p r o d u c t i o n were s m a l l , the p r o d u c t i v e capitalist c o u l d operate to s o m e degree i n d e p e n d e n t l y . H e h a d the possibility o f

financing

the b u y i n g o f

plant a n d m a c h i n e r y a n d p a y i n g his w o r k e r s f r o m his o w n pocket. H e also h a d t h e possibility o f selling his o u t p u t directly ro those w h o c o n s u m e d it. But as the i n d i v i d u a l enterprises grew bigger, the capitalist often f o u n d his o w n resources were n o t e n o u g h ro pay in a d v a n c e for all the p l a n t , m a c h i n e r y a n d materials he needed. H e h a d t o b o r r o w f r o m others. H e c a m e to rely o n credit, a n d o n special institutions, b a n k s , ready to lend t o people in return for interest o n these loans. At the same t i m e , as the scale o f the m a r k e t grew, he c o u l d o n l y sell his g o o d s by relying u p o n specialists in the wholesale a n d retail trades, w h o w o u l d nor be able ro pay h i m for all those g o o d s until they h a d , in t u r n , sold them t o the final c o n s u m e r s . T h e productive capitalist b o r r o w e d o n rhe o n e h a n d a n d lent o n the other. C r e d i t b e c a m e an indispensable part o f capitalist p r o d u c t i o n . A n d the greater the extent o f capitalist p r o d u c t i o n w i t h i n a p a r t i c u l a r e c o n o m y , the longer a n d m o r e c o m p l e x b e c a m e rhe c h a i n s of credit, o f b o r r o w i n g a n d l e n d i n g . T h e p r o d u c t i v e capitalist c o u l d also b e c o m e a large scale lender. H i s fixed c a p i t a l — h i s factory b u i l d i n g a n d m a c h i n e r y — w a s o n l y renewed every few years. Bur p r o d u c t i o n p r o v i d e d a m o r e or less c o n s t a n t f l o w o f profits. H e c o u l d lend these profits to others in the 62


interim before r e n e w i n g his o w n fixed c a p i t a l — a n d w o u l d d o so in return for the p a y m e n t o f interest. O n c e c a p i t a l i s m is fully developed as the d o m i n a n t w a y o f prod u c i n g in a p a r t i c u l a r e c o n o m y , the lending o f past profits by those productive capitalists w h o d o n o t wish to i m m e d i a t e l y reinvest becomes rhe chief source o f the f u n d s for those capitalists w h o d o wish to invest but lack sufficient past profits t o d o so. T h e

financial

system emerges as a n e t w o r k o f institutions t h a t m e d i a t e between different p r o d u c t i v e capitalists ( a n d the stare, i n s o f a r as discrepancies t h a t exist between

its i m m e d i a t e

tax

income

and

its

i m m e d i a t e e x p e n d i t u r e lead it t o also b o r r o w a n d lend). T h o s e w h o r u n the financial institutions are o u t to m a k e profits just as m u c h as rhe p r o d u c t i v e capitalists are. They h a v e f u n d s o f their o w n (their b a n k i n g capitals) w h i c h pay for the expense o f their o p e r a t i o h s a n d bridge a n y g a p t h a t m i g h t o p e n u p between iheir l e n d i n g a n d b o r r o w i n g (or, at least, are m e a n t t o bridge the g a p — a l l roo often in the history o f rhe system they have n o t ) , a n d they expect to earn a profit o n t h e m , just as the p r o d u c t i v e capitalists d o o n their c a p i t a l s . There is a difference, however. T h e financial

capitalists' profits d o n o t c o m e directly f r o m p r o d u c t i o n ,

but f r o m a share they get o f the p r o d u c t i v e capitalists' profits in return for l e n d i n g to t h e m — t h a t is, interest p a y m e n t s . The rate o f interest has often been confused in m a i n s t r e a m econ o m i c w r i t i n g s w i t h rhe rate o f profit. But in fact the level a n d direction o f m o v e m e n t o f rhe t w o are q u i t e different. T h e rate o f profit, as w e have seen, is determined by the ratio of surplus value 10 investment in the p r o d u c t i o n process. By contrast, the rare o f interest d e p e n d s solely u p o n the s u p p l y a n d d e m a n d for l o a n a b l e lunds. If there is m o r e m o n e y available for l e n d i n g in a n e c o n o m y , then the rate o f interest will tend t o fall; if there is a n increased d e m a n d f o r b o r r o w i n g it will tend to rise. Since rhe profits o f p r o d u c t i v e capitalists are the m a j o r source «>l rhe f u n d s for l e n d i n g , a high rate o f profit will e n c o u r a g e a lower rate o f interest. O n the other h a n d , if profits are l o w , m o r e productive capitalists will themselves w a n t ro b o r r o w a n d this will exert a pressure for interest rates to rise. H o w these c o n t r a d i c t o r y pressures o n interest rates w o r k themselves our d e p e n d s o n other factors, p a r t i c u l a r l y b o r r o w i n g a n d l e n d i n g by the state a n d rhe m o v e m e n t o f f u n d s in a n d o u t o f a n a t i o n a l e c o n o m y . But these other factors c a n n o t d o a w a y w i t h the pressures o f real p r o d u c t i o n on rhe financial sector. I he Dynamics of rhe System

63

O t h e r c o m p l i c a t i o n s arise o u t o f this state o f affairs. The lending that financial institutions m a k e is not necessarily restricted to rhe a m o u n t they actually have at their disposal as a result o f their o w n investment a n d b o r r o w i n g . T h e

financial

i n s t i t u t i o n s can

assume that w h a t they have b o r r o w e d will n o t h a v e to be p a i d back immediately. Therefore they can extend their l e n d i n g b e y o n d their i m m e d i a t e m e a n s , trusting that e n o u g h o f it w i l l be p a i d back for t h e m to meet their o w n debts as they become d u e . This makes sense so long as rhe productive secror o f the system is e x p a n d i n g its o u t p u t ; increased l e n d i n g t o d a y can be p a i d back out o f increased o u t p u t a n d surplus value in rhe n o t t o o distant future. Such prophecies a b o u t increased l e n d i n g being recoverable are self-fulfilling u p t o a degree, since the increased l e n d i n g t o productive capital encourages it in rurn ro increase its o w n levels o f investment, a n d to p r o d u c e m o r e profits f r o m w h i c h to repay the b a n k e r s . But i n v a r i a b l y a p o i n t is eventually reached w h e n the drive for financial profits leads ro levels o f l e n d i n g a b o v e w h a t c a n be p a i d back our of t h e e x p a n s i o n o f real o u t p u t , p r o d u c i n g financial crises on rhe o n e h a n d a n d a t t e m p t s to escape their i m p a c t t h r o u g h fraud o n rhe other. As M a r x puts it. " T h e credir system accelerates rhe material d e v e l o p m e n t o f the p r o d u c t i v e forces a n d the w o r l d m a r k e t " , b u t does this t h r o u g h d e v e l o p i n g " t h e incentive to capitalist p r o d u c t i o n , e n r i c h m e n t t h r o u g h e x p l o i t a t i o n o f rhe l a b o u r of others, to the m o s t pure f o r m o f g a m b l i n g a n d swind l i n g " . 1 4 f i n a n c e drives " r h e process |of p r o d u c t i o n ] b e y o n d its capitalist limits" resulting in " o v e r t r a d e , o v e r p r o d u c t i o n a n d excessive credit" 15 in ways that r e b o u n d o n p r o d u c t i o n itself. M a r x ' s view o f this process f o r e s h a d o w e d by a century the currently fashionable a c c o u n t o f H y m a n which

financial

Minsky, 1 * a c c o r d i n g

to

o p e r a t i o n s i n v a r i a b l y m o v e o n f r o m a stage o f

n o r m a l profitable business ( " h e d g i n g " ) t o o n e o f s p e c u l a t i o n w h i c h culminates at a p o i n t (a " M i n s k v m o m e n t " ) w h e n all o f w h a t is lent c a n n o t be r e c o v e r e d — a n d encourages Ponzi 1 or pyram i d schemes whereby m o n e y f r o m new investors is simply used to pay high iiterest rates t o old investors. The final c o m p l i c a t i o n is t h a t financial institutions d o n o t onlyuse their f j n d s to lend ro p r o d u c t i v e capital. They also lend t o individuals

for

their

own

requirements

(notably

for

buying

property), or t o b u y shares in already existing c o m p a n i e s t h r o u g h the stock exchange. Such use o f f u n d s is expected ro earn the g o i n g rate o f interest, just as l e n d i n g to p r o d u c t i v e c o n c e r n s does, a n d 64


lor rhis reason is regarded by the financial institutions as a n "investment" o f " c a p i t a l " . Yet it in n o w a y contributes to the process of c a p i t a l a c c u m u l a t i o n , a n d rhe interest earned is parasitic o n w h a t is t a k i n g place in the p r o d u c t i v e sector o f rhe e c o n o m y . For this reason M a r x calls it "fictitious c a p i t a l " , describing it as " t h e m o s t fetish like f o r m o f the relations o f capital", 1 - since " c a p i t a l appears as a mysterious a n d self-creating source o f interest" a n d "it becomes the property o f m o n e y to generate value a n d yield interest, m u c h as it is an a t t r i b u t e o f pear trees to bear pears".'*

Finance, speculation a n d the crisis W e have seen t h a t the profits o f p r o d u c t i v e capital are rhe m a i n source o f the Kinds that the b a n k s have a t their disposal for lending, a n d

that

the p r o d u c t i v e capitalists*

need

for f u n d s

for

a c c u m u l a t i o n is a m a j o r source o f b o r r o w i n g from the b a n k s . This means t h a t the cycle o f e x p a n s i o n a n d c o n t r a c t i o n o f n e w investment is a c c o m p a n i e d by a cycle o f e x p a n s i o n a n d c o n t r a c t i o n o f lending. But the t w o cycles are nor fully in phase w i t h each other. C r e d i t e x p a n d s as rhe b o o m begins t o take off, w i t h s o m e capitalists keen to lend rising profits a n d o t h e r capitalists keen ro borrow, all c o n v i n c e d t h a t there w i l l be n o p r o b l e m s o f r e p a y m e n t \s ith interest. But eventually a p o i n t is reached w h e r e the frenzy o f investment begins t o exceed the f u n d s c o m i n g f r o m pools o f previous profits. F i r m s o u t b i d o n e a n o t h e r as they try to get access t o i liese p o o l s , raising the level o f interest they are prepared t o pay t o net credit. R i s i n g interest rates cut i n t o profits just as rising r a w material prices a n d m o n e y wages d o so as well. They a d d t o the pressures t i p p i n g the system from e x p a n s i o n i n t o crisis. T h e contraction t h a t f o l l o w s m a k e s firms a n d b a n k s m u c h less w i l l i n g t o li u d — r h e y fear they m a y need every p e n n y themselves as their revenue f r o m sales threatens t o decline. B u t c o n t r a c t i o n also increases tin need for m a n y firms t o b o r r o w if they are g o i n g t o m a k e u p the shortfall in their sales i n c o m e s a n d n o t be forced i n t o b a n k r u p t c y by u n p a i d bills. Interest rates c o n t i n u e to rise for a rime, despite the shortage o f profits t o pay t h e m , a n d a d d t o the d o w n w a r d h trees in the system. F l u c t u a t i o n s are i n t e n s i f i e d because o f s o m e t h i n g else t h a t h a p p e n s a t the h e i g h t o f rhe b o o m . F i r m s a n d b a n k s see t h a t l e n d i n g is a q u i c k w a y t o b o o s t their p r o f i t s . T h e y offer credit IIK*Dynamics of the System

65

t h r o u g h " f i n a n c i a l p a p e r " (in effect p r o m i s e s to p a y ) o f v a r i o u s sorts far in excess o f their cash reserves o n the a s s u m p t i o n t h a t o t h e r p e o p l e a n d i n s t i t u t i o n s w i l l trust in such " p a p e r "

and

accept it as p a y m e n t f o r c o m m o d i t i e s w i t h o u t t r y i n g i m m e d i ately t o t u r n it i n t o c a s h . In effect, credit created by the b a n k s c o m e s t o be treated as a f o r m o f m o n e y — a n d as " c r e d i t m o n e y " is c o u n t e d in certain measures o f the m o n e y supply. Such easy credit encourages each firm to u n d e r t a k e massive productive investments as it competes ro get a bigger slice o f the e x p a n d i n g m a r k e t t h a n its rivals, even t h o u g h this causes their c o m b i n e d o u t p u t t o far exceed the capacity o f rhe m a r k e t to a b s o r b it. Easy credit also enables those o n friendly terms w i t h rhe b a n k s t o e m b a r k o n an orgy o f l u x u r y spending, a n d all sorts o f c r o o k s a n d fraudsters to join in the very profitable business o f b o r r o w i n g in order to lend a n d lending in order t o borrow. The real, u n d e r l y i n g processes o f p r o d u c t i o n , e x p l o i t a t i o n a n d c r e a t i o n o f surplus value get completely h i d d e n f r o m v i e w — u n t i l the e c o n o m y s u d d e n l y starts t u r n i n g d o w n a n d all the bits o f paper w h i c h represent credit have t o be repaid from profits w h i c h are t o o small t o d o so. A t this p o i n t firms a n d b a n k s c o m e ro distrust the ability o f each other ro p a y back w h a t has been b o r r o w e d , a n d l e n d i n g can g r i n d ro a virtual stop in w h a t is t o d a y called a "credit c r u n c h " : T h e c h a i n o f p a y m e n t o b l i g a t i o n s d u e at specific dates is b r o k e n in a h u n d r e d places. T h e c o n f u s i o n is a u g m e n t e d by the attend a n t c o l l a p s e o f the credit s y s t e m . . . a n d leads t o violent a n d acute crises, t o s u d d e n a n d forcible depreciations, t o the actual s t a g n a t i o n a n d d i s r u p t i o n o f the process o f r e p r o d u c t i o n , a n d t h u s to a real falling o f f in reproduction. 2 0 T h e b e h a v i o u r o f " f i c t i t i o u s c a p i t a l " serves f u r t h e r t o intensify the general boom-recession cycle o f c a p i t a l i s m . Despite its nonp r o d u c t i v e n a t u r e , the m o n e t a r y v a l u e o f fictitious c a p i t a l at a n y p o i n t in t i m e represents a c l a i m o n real resources t h a t can be converted i n t o cash a n d f r o m cash i n t o c o m m o d i t i e s . W h e n , say, share prices are rismg d u r i n g a b o o m , they a d d t o the c a p a c i t y o f their o w n e r s to b u y g o o d s a n d tend t o intensify the b o o m ; w h e n they fall w i t h a recession, this a d d s t o the pressure, r e d u c i n g expenditure

through

the e c o n o m y

as a w h o l e . T h e

inevitably

u n s t a b l e , s u d d e n l y f l u c t u a t i n g , prices o f the v a r i o u s sorts o f fictit i o u s c a p i t a l a d d t o the general i n s t a b i l i t y o f rhe system as a 66


w h o l e . T h e y intensify the s w i n g s f r o m b o o m t o recession a n d back, a n d they also play h a v o c w i t h the capacity o f m o n e y t o provide a fixed m e a s u r i n g rod for value. M a j o r e c o n o m i c crises a l m o s t i n v a r i a b l y involve crashes o f b a n k s a n d other financial institutions as well as the b a n k r u p t c y o f productive firms a n d rising u n e m p l o y m e n t for workers. It is easy then for people to m i s u n d e r s t a n d w h a t is h a p p e n i n g a n d t o b l a m e finance,

the b a n k s or m o n e y for the crisis, rather t h a n rhe capital-

ist basis o f p r o d u c t i o n .

I he m o d e r n i t v o f M a r x 4

M a r x ' s p i c t u r ^ o f crisis w a s far a h e a d o f his c o n t e m p o r a r y mainstream e c o n o m i s t s . It w a s n o t until the 1930s that study o f crises began t o be t a k e n seriously by the m a i n s t r e a m . E v e n the archpriest o f free m a r k e t e c o n o m i c s , H a y e k , c o u l d a d m i t in

one

passage t h a t M a r x w a s responsible for i n t r o d u c i n g , in G e r m a n y at least, ideas t h a t c o u l d e x p l a i n the trade cycle, w h i l e " t h e o n l y satisfactory theory o f capital we yet possess, t h a t o f B o h m - B a w e r k had " n o t helped us m u c h further w i t h the p r o b l e m s o f the t r a d e cycle". 2 1 Recurrent e c o n o m i c crises are as m u c h a part o f o u r w o r l d as o f M a r x s. S o m e at least o f the ideological heirs o f J o h n Stuart M i l l , levons a n d B o h m - B a w e r k d o n o t try t o conceal the f a c t — a t least w h e n they are w r i t i n g for an elite u p p e r class a u d i e n c e in rhe itnancial

Times or rhe Economist,

rather t h a n p r o p a g a n d i s i n g to

the masses. So the long-time Conservative chancellor o f the exchequer

in

Britain,

Nigel

Lawson,

who

once

embraced

the

" m o n e t a r i s t " d o c t r i n e that crises were a n accidental result o f central b a n k e r s a l l o w i n g the m o n e y s u p p l y t o g o w r o n g , 2 2

was

eventually a r g u i n g t h a t he w a s n o t responsible for the s l u m p w h i c h f o l l o w e d the i m p l e m e n t a t i o n o f his policies because rhe "business cycle*' is inevitable. They see the crisis as "creative destruction" w i t h o u t m a k i n g clear t h a t the creative element consists «»f wealth for o n e class, w h i l e rhe destruction is of the livelihoods of others. I will return t o the question o f crises in the 21st c e n t u r y later in iIns b o o k . A l l that needs t o be said for the m o m e n t is t h a t there is n o p r o b l e m a c c o u n t i n g for t h e m by s t a r t i n g w i t h M a r x . I n d e e d , the only serious question c o n f r o n t i n g M a r x ' s crisis theory does n o t IIK*Dynamics of the System

67

arise f r o m the occurrence o f crises today, but rather f r o m rhe fact t h a t for three a n d a h a l f decades, from 1939 ro 1974, a m a j o r capitalist c o u n t r y like Britain d i d n o t experience a recession in w h i c h e c o n o m i c o u t p u t fell, w h i l e rhe biggest e c o n o m y , rhe U S , o n l y experienced o n e very b r i e f such recession (that o f 1948-9). T h e absence o f such crises b e c a m e a m a j o r element in e c o n o m i c discussion in rhe decades o f the 1950s, 1960s a n d early 1970s. A n d w i t h o u t c o m i n g to terms w i t h it, o n e c a n n o t grasp the intractability o f the boom-recession cvcle todav. 4

4

4

H o w e v e r , if crises were a n inevitable feature o f c a p i t a l i s m for M a r x , they were n o t in themselves the central p o i n t in his analysis o f its long-term d y n a m i c . They were a cyclical feature o f the system w h i c h ir h a d m a n a g e d t o c o p e w i t h several times by rhe t i m e Capital

w a s p u b l i s h e d , however great the h a r d s h i p they h a d

caused t o the mass o f the p o p u l a t i o n , the distress t o those capitalists w h o

went

bust, or

rhe occasional

outburst

of

popular

discontent. They were n o t in themselves g o i n g t o b r i n g the system to a n end. A s the Russian revolutionary Leon Trotsky pur it nearly 4 0 years after M a r x ' s d e a t h , " c a p i t a l i s m does live by crises a n d b o o m s , just as a h u m a n being lives by i n h a l i n g a n d e x h a l i n g " . ' T h e long-term d y n a m i c c a m e f r o m elsewhere t h a n the crisis— f r o m t w o long-term processes at w o r k in the system, processes t h a t were a p r o d u c t o f its ageing as it w e n t t h r o u g h each repetition o f the cycle o f e x p a n s i o n a n d c o n t r a c t i o n .

T h e tendency o f the rate o f profit to fall The

theory

T h e first o f these processes is w h a t M a r x called " t h e l a w o f rhe tendency o f rhe rate o f profit t o f a l l " (sometimes called, for short, by M a r x i s t s since, " r h e falling rare o f p r o f i t " — t h e phrase I will often use here). T h i s is o n e o f the m o s t difficult parts o f M a r x ' s theory for newc o m e r s t o his ideas to u n d e r s t a n d , a n d a l s o o n e o f the m o s t c o n t e n t i o u s . N o n - M a r x i s t e c o n o m i s t s reject it. So the often perceptive

Observer

economic

columnist

William

Keegan

has

d e n o u n c e d M a r x ' s a c c o u n t as " a n obsolete e c o n o m i c t e x t b o o k w h i c h w a s itself w r i t t e n d u r i n g the early, faltering p h a s e o f u n i f o r m e d capitalism*'' q u o t i n g rhe French e c o n o m i s t M a r j o l i n t o the effect t h a t , " A m o d i c u m o f experience a n d s o m e k n o w l e d g e 67


o f history w a s e n o u g h ro cast d o u b t o n the [Marxist] t h e o r y o f a n inevitable decline o f c a p i t a l i s m o w i n g t o a falling rate o f profit"'. 24 M a n y M a r x i s t s w h o accept rhe theory o f v a l u e a n d the m a i n contours o f M a r x ' s a c c o u n t o f rhe crisis are just as dismissive of it. 1 O t h e r s hedge r o u n d their s u p p o r t for it w i t h so m a n y p r o v i s o s as to effectively cur it o u t o f a n y a c c o u n t o f the system's long-term development. Yet M a r x himself regarded it as absolutely central. It e n a b l e d h i m to assert that c a p i t a l i s m is d o o m e d by rhe very forces o f prod u c t i o n w h i c h it itself unleashes: T h e rate o f self-expansion o f c a p i t a l i s m , or rhe rate o f profit, b e i n g the goal o f capitalist p r o d u c t i o n , its f a l l . . . a p p e a r s as a threat t o t h e x a p i t a l i s t p r o d u c t i o n process. 26 This "testifies t o the mcrelv historical, transitory character o f the capitalist m o d e of p r o d u c t i o n " a n d t o the w a y t h a t " a t a certain stage it conflicts w i t h its o w n further d e v e l o p m e n t " . I t s h o w e d that " r h e real barrier o f capitalist p r o d u c t i o n w a s capital i t s e l f " . " M a r x d i d n o t pick the idea t h a t p r o f i t rates fall o u t o f t h i n air. It w a s c o m m o n a m o n g e c o n o m i s t s w h o preceded him.21" As Eric H o b s b a w m has s a i d , " T w o t h i n g s w o r r i e d the early 19th century b u s i n e s s m e n a n d e c o n o m i s t s : the rate o f their p r o f i t s a n d the rate o f e x p a n s i o n o f their i n d u s t r i e s . " A d a m S m i t h h a d believed p r o f i t rates m u s t fall as a result o f increased c o m p e t i t i o n a n d R i c a r d o because o f s u p p o s e d " d i m i n i s h i n g r e t u r n s " in agriculture." 1 M a r x p r o v i d e d a n e x p l a n a t i o n w h i c h d i d n o t d e p e n d o n s u c h q u e s t i o n a b l e a s s u m p t i o n s , 3 1 b u t u p o n g r a s p i n g t h a t the d y n a m i c o f c a p i t a l i s t a c c u m u l a t i o n c o n t a i n s w i t h i n it a n irresolvable c o n t r a d i c t i o n . E a c h i n d i v i d u a l c a p i t a l i s t c a n increase his o w n c o m p e t i t i v e ness t h r o u g h increasing rhe p r o d u c t i v i t y o f his w o r k e r s . T h e w a y 10 d o this is for each w o r k e r t o use m o r e a n d m o r e " m e a n s o f p r o d u c t i o n " — t o o l s , m a c h i n e r y a n d so o n — i n his o r her w o r k . I hat i n v o l v e s the m e a n s o f p r o d u c t i o n e x p a n d i n g m o r e r a p i d l y t h a n the w o r k f o r c e . There is a g r o w t h in the r a t i o o f the

physical

extent o f the m e a n s o f p r o d u c t i o n t o t h e a m o u n t o f

labour

p o w e r w o r k i n g o n t h e m — a r a t i o t h a t M a r x calls rhe " t e c h n i c a l c o m p o s i t i o n o f c a p i t a l *V ? But o t h e r t h i n g s b e i n g e q u a l , a g r o w t h in the physical extent o f the m e a n s o f p r o d u c t i o n will a l s o be a g r o w t h in the level o f i n v e s t m e n t needed t o b u y t h e m . S o there I IK* Dynamics of the System

69

w i l l also be a n e x p a n s i o n in the r a t i o o f i n v e s t m e n t t o the w o r k force. in the v a l u e o f the m e a n s o f p r o d u c t i o n c o m p a r e d w i t h w a g e s (or, t o use M a r x ' s t e r m i n o l o g y , o f " c o n s t a n t c a p i t a l " t o " v a r i a b l e c a p i t a l " ) . I his r a t i o is M a r x s " o r g a n i c c o m p o s i t i o n o f c a p i t a l " (as e x p l a i n e d in C h a p t e r O n e ) . " Its g r o w t h , for M a r x , is a logical c o r o l l a r y o f c a p i t a l a c c u m u l a t i o n . Yet the o n l y source o f value a n d surplus value for the system as a w h o l e is labour. So if i n v e s t m e n t g r o w s m o r e r a p i d l y t h a n the l a b o u r force, it m u s t also g r o w m o r e r a p i d l y t h a n the creation o f n e w v a l u e , a n d profit c o m e s from this. In short, capital investment g r o w s m o r e r a p i d l y t h a n the source o f profit. As a c o n s e q u e n c e , there will be a d o w n w a r d pressure for the ratio o f profit t o investm e n t — o n rhe rate o f profit. T h e reason for the g r o w t h o f i n v e s t m e n t is c o m p e t i t i o n — t h e need of each capitalist t o p u s h for greater p r o d u c t i v i t y in order t o stay a h e a d o f c o m p e t i t o r s . But h o w e v e r m u c h c o m p e t i t i o n m a y c o m p e l rhe i n d i v i d u a l capitalist to take part in this process, f r o m the p o i n t o f view o f the capitalist class as a w h o l e it is disastrous. For, as w e s a w in the p r e v i o u s chapter, capitalists m e a s u r e the success or failure of their u n d e r t a k i n g s n o t in terms o f the total profit they b r i n g in but i n terms o f the rate o f profit. T w o o b j e c t i o n s are often raised t o this picture o f M a r x ' s . T h e first is that technological a d v a n c e does n o t a l w a y s involve increasing the ratio o f m e a n s o f p r o d u c t i o n to w o r k e r s — t h a t it can be "capital

saving"

rather t h a n

"capital

intensive".

If

scientific

k n o w l e d g e is progressing a n d being applied as n e w technologies, t h e n s o m e o f these technologies m a y e m p l o y less m a c h i n e r y a n d r a w materials per w o r k e r t h a n o l d technologies. A t a n y o n e rime rhere will be some n e w technologies t h a t are capital-saving. T h i s is true. But it does n o t refute M a r x . For there are likelv t o 4

be a greater n u m b e r o f " c a p i t a l i n t e n s i v e " rather t h a n " c a p i t a l s a v i n g " i n n o v a t i o n s . A t a n y given level o f scientific a n d technical k n o w l e d g e s o m e i n n o v a t i o n s m a y indeed be capital-saving. Bur w h e n all these have been e m p l o y e d , there w i l l still be other innovations

(or

at

least

capitalists

will

suspect

rhere are

other

i n n o v a t i o n s ) to be o b t a i n e d o n l y by increasing the level o f investment

in m e a n s of p r o d u c t i o n . T h e fact t h a t s o m e

technical

progress can take place w i t h o u t a n y rise in the ratio o f capital t o l a b o u r does n o t m e a n t h a t all the a d v a n t a g e s o f technical progress c a n be gained w i t h o u t such a rise. If a n i n d i v i d u a l capitalist c a n increase the r a t i o o f c a p i t a l t o w o r k e r s he will be able to invest in 70


and take a d v a n t a g e o f i n n o v a t i o n s t h a t need m o r e capital as well is those t h a t d o n o t . If he c a n n o t increase this ratio then he will benefit o n l y f r o m those i n n o v a t i o n s t h a t d o n o t — a n d he w i l l lose o u t in c o m p e t i t i o n w i t h those w h o c a n . Since, in theory at least, ihere is n o l i m i t t o the possible increase in the r a t i o o f m e a n s o f p r o d u c t i o n t o workers, there is n o theoretical l i m i t to possible inn o v a t i o n based o n this m e t h o d o f c o m p e t i t i o n . In rhe real w o r l d , every o p e r a t i n g c a p i t a l i s t

takes it

for

granted t h a t rhe w a y to g a i n access ro rhe m o s t a d v a n c e d technical c h a n g e is t o increase the level o f i n v e s t m e n t in m e a n s o f p r o d u c t i o n o r " d e a d l a b o u r " ( i n c l u d i n g rhe d e a d l a b o u r accum u l a t e d in the results o f past research a n d d e v e l o p m e n t ) . It is o n l y in rhe pages o f the m o s t esoteric j o u r n a l s o f political econo m y t h a t a n y g n e i m a g i n e s t h a t the w a y for rhe F o r d

Motor

( o m p a n y t o meet c o m p e t i t i o n f r o m G e n e r a l M o t o r s o r T o y o t a is to cut the level o f p h y s i c a l i n v e s t m e n t per w o r k e r . T h e c a p i t a l i s t usually recognises t h a t y o u c a n n o t get the benefits o f i n n o v a t i o n w i t h o u t p a y i n g for it. For these reasons the average a m o u n t o f m e a n s o f p r o d u c t i o n per worker, M a r x ' s " t e c h n i c a l c o m p o s i t i o n o f c a p i t a l " , will rise— a n d w i t h it the " o r g a n i c c o m p o s i t i o n o f c a p i t a l " . O n l y o n e t h i n g c o u l d s t o p the pressure for this rise: if for s o m e reason there w a s a shortage o f profit-seeking investment. In such a case the capitalists w o u l d be forced to forego hopes o f a c h i e v i n g the i n n o v a t i o n s possible t h r o u g h greater i n v e s t m e n t a n d settle for those they m i g h t stumble u p o n by accident. T h e second a r g u m e n t a g a i n s t M a r x ' s a c c o u n t c l a i m s changes in t e c h n i q u e a l o n e cannot

that

p r o d u c e a fall in the rate o f

profit. For, it is s a i d , capitalists w i l l o n l y i n t r o d u c e a n e w techn i q u e if it raises their p r o f i t s . But if it raises the p r o f i t o f o n e capitalist, then ir m u s t raise rhe average profit o f the w h o l e capitalist class. So, for instance, S t e e d m a n states, " T h e forces o f c o m p e t i t i o n will lead to t h a t selection o f p r o d u c t i o n m e t h o d s industry by industry w h i c h generates the highest possible u n i f o r m rate o f p r o f i t t h r o u g h rhe e c o n o m y " . " T h e same p o i n t has been accepted by v a r i o u s M a r x i s t s e c o n o m i s t s over the last 4 0 years, lor instance by G l y n , H H a r r i s o n H i m m e l w e i t , 3 * Brenner 1

and

I h i m c n i l a n d Levy**—and has been e l a b o r a t e d m a t h e m a t i c a l l y by ( ) k i s h i o . w T h e y c o n c l u d e t h a t capitalists w i l l o n l y a d o p t c a p i t a l intensive techniques t h a t seem t o reduce their rate o f profit if t h a t rate is a l r e a d y b e i n g squeezed either by a rise in real wages or b y IIK*Dynamics of the System

71

external c o m p e t i t i o n . These things, nor rhe o r g a n i c c o m p o s i t i o n o f c a p i t a l , h i t the rate o f profit. M a r x ' s o w n writings p r o v i d e a s i m p l e answer ro a n y such argum e n t : t h a t rhe first capitalist ro invest in a n e w technology gets a c o m p e t i t i v e a d v a n t a g e over his fellow capitalists w h i c h enables h i m ro g a i n a surplus profit, b u t t h a t this surplus will n o t last o n c e rhe n e w techniques are generalised. W h a t the capitalist gets in m o n e y terms w h e n he sells his g o o d s d e p e n d s u p o n the average a m o u n t o f socially necessary l a b o u r c o n t a i n e d i n t h e m . If he introduces a new, m o r e p r o d u c t i v e , techn i q u e , b u t n o other capitalists d o so, he is p r o d u c i n g g o o d s w o r t h the same a m o u n t o f socially necessary l a b o u r as before, b u t w i t h less e x p e n d i t u r e o n real concrete l a b o u r p o w e r . H i s profits rise. 40 But once all capitalists have i n t r o d u c e d these techniques, the v a l u e o f rhe g o o d s falls until it c o r r e s p o n d s t o the average a m o u n t o f l a b o u r needed ro p r o d u c e them u n d e r the n e w techniques. T h e add i t i o n a l profit d i s a p p e a r s — a n d if m o r e m e a n s o f p r o d u c t i o n are used t o ger access ro rhe n e w techniques, the rate o f profit falls. 41 T h e i m p l i c a t i o n s o f M a r x ' s a r g u m e n t are far reaching. T h e very success o f c a p i t a l i s m at a c c u m u l a t i n g leads t o p r o b l e m s for further a c c u m u l a t i o n . E v e n t u a l l y the c o m p e t i t i v e drive o f capitalists t o keep a h e a d o f o t h e r capitalists results in a massive scale o f n e w investment w h i c h c a n n o t be sustained by the rate o f profit. If s o m e capitalists are ro m a k e a n a d e q u a t e profit it can o n l y be ar the expense ot other capitalists w h o are driven o u t o f business. T h e drive ro a c c u m u l a t e leads inevitably ro crises. A n d rhe greater the scale o f past a c c u m u l a t i o n , the deeper the crises will be. The countervailing

tendencies

M a r x ' s theory, it s h o u l d be stressed, is a n abstract a c c o u n t o f the m o s t general trends in the capitalist system. Y o u c a n n o t d r a w from ir i m m e d i a t e c o n c l u s i o n s a b o u t the concrete b e h a v i o u r o f the e c o n o m y ar a n y i n d i v i d u a l p o i n t in space a n d t i m e . Y o u have first ro l o o k at h o w t h e general trends interact w i t h a r a n g e o f o t h e r factors. M a r x himself w a s fully a w a r e o f this, a n d b u i l t i n t o his acc o u n t w h a t he called " c o u n t e r v a i l i n g t e n d e n c i e s " . T w o are o f central i m p o r t a n c e . First, rhere is increasing the rate o f e x p l o i t a t i o n . If each w o r k e r conrribures m o r e s u r p l u s value this w i l l c o u n t e r a c t rhe fact that there are fewer w o r k e r s per unit o f i n v e s t m e n t . T h e increased exp l o i t a t i o n c o u l d result f r o m increasing rhe length o f the w o r k i n g 72


day ( M a r x s " a b s o l u t e s u r p l u s v a l u e " ) , c u t t i n g real wages, increasing the physical intensity o f l a b o u r or a fall in the cost o f p r o v i d i n g w o r k e r s w i t h a l i v e l i h o o d as a result o f increased productivity. In this case the capitalist c o u l d increase the p r o p o r t i o n of each i n d i v i d u a l w o r k e r ' s l a b o u r t h a t w e n t i n t o s u r p l u s v a l u e , even if rhe worker's living s t a n d a r d w a s n o t reduced. Such an increase in the rate of exploitation

c o u l d c o u n t e r a c t s o m e o f the

d o w n w a r d pressures o n the rate o f profit: the total n u m b e r o f workers m i g h t n o t g r o w as fast as total i n v e s t m e n t , b u t each worker w o u l d p r o d u c e m o r e surplus value even if he or she did n o t suffer a w a g e cur or have t o w o r k a n y harder. There is, however, a limit t o the capacity o f this m e t h o d to c o u n t e r the d o w n w a r d pressure o n profit rates—the n u m b e r o f hours in the w o r k i n g day. The n u m b e r o f hours per day that g o i n t o p r o v i d i n g f o r * h e u p k e e p o f the w o r k e r can fall f r o m four ro three, or from three to t w o , but it c a n n o t fall b e l o w zero! By contrast investment in means o f p r o d u c t i o n can increase w i t h o u t limit. 4 1 Take the e x a m p l e o f a firm w h i c h e m p l o y s a static w o r k f o r c e o f 10,000. Even if it w o r k e d them as l o n g as was physically possible each d a y (say, 16 hours) a n d p a i d them n o wages, its d a i l y profit c o u l d n o t exceed the value e m b o d i e d in 3 0 , 0 0 0 x 16 hours labour. I his is a limit beyond w h i c h profit c a n n o t grow. But there is n o such limit o n rhe degree t o w h i c h investment can g r o w (and w i t h such a high level of exploitation there w o u l d be an e n o r m o u s quantity of old surplus value ro be turned i n t o new enlarged investment). So a p o i n t will be reached where profits stop g r o w i n g , even t h o u g h c o m p e t i t i o n forces the level o f investment t o c o n t i n u e rising. T h e f .itio o f profits to i n v e s t m e n t — t h e rate o f p r o f i t — w i l l tend t o fall. The second " c o u n t e r v a i l i n g f a c t o r " is t h a t rhe increase in the p r o d u c t i v i t y o f l a b o u r m e a n s rhere is a c o n t i n u a l fall in the i m o u n t o f l a b o u r t i m e — a n d therefore o f v a l u e — n e e d e d t o produce

each

unit

of

plant,

equipment

or

raw

materials.

The

technical c o m p o s i t i o n o f capital " — t h e physical ratio o f factories, machines, etc t o w o r k e r s — g r o w s . But the factories, m a c h i n e s a n d so o n get cheaper t o buy. A n d so the e x p a n s i o n o f investment in \ alue terms w o u l d be rather slower t h a n the e x p a n s i o n in material terms. T h i s w o u l d c o u n t e r a c t t o s o m e extent the tendency for the value o f investment t o o u t s t r i p rhe g r o w t h in surplus value. There have been c l a i m s t h a t this is m o r e t h a n just a "countervailing t e n d e n c y " to M a r x s law a n d in fact completely destroys it. ( nttcs argue, using m a t h e m a t i c a l e q u a t i o n s provided by O k i s h i o , 11»« Dynamics ol rhe System

7 1

that technical progress m e a n s t h a t g o o d s are a l w a y s being produced m o r e cheaply t h a n in the p a s t / ' If a rise i n the ratio of dead to living l a b o u r in a certain industry increases productivity, the price o f its o u t p u t will fall c o m p a r e d t o the o u t p u t o f other industries. Bur t h a t in t u r n will reduce the costs o f investment in these industries a n d its ratio to labour. Lower investment costs will lower the organic c o m p o s i t i o n o f capital a n d raise the rate o f profit. Ar first glance the a r g u m e n t l o o k s c o n v i n c i n g . It is, however, false. It rests u p o n a sequence o f logical steps w h i c h y o u c a n n o t take in the real w o r l d . Investment is a process o f p r o d u c t i o n that takes place at o n e p o i n t in time. T h e c h e a p e n i n g of further investm e n t as a result o f i m p r o v e d p r o d u c t i o n techniques occurs at a later p o i n t in t i m e . T h e t w o things are not simultaneous. 4 4 There is a n o l d s a y i n g , " Y o u c a n n o t b u i l d the h o u s e o f t o d a y w i t h the bricks o f t o m o r r o w . " T h e fact t h a t the increase in productivity will reduce the cost o f getting a m a c h i n e in a year's t i m e does n o t reduce the a m o u n t a capitalist has t o spend o n getting it today. A n d if s o m e o t h e r capitalist buys the cheaper m a c h i n e , it i m m e d i a t e l y reduces the value o f the m a c h i n e o w n e d by the first capitalist. W h i l e the n e w capitalist m i g h t be able to turn o u t g o o d s in a m o r e profitable w a y , the first capitalist has to d e d u c t f r o m his profits the loss in the value o f his machine. 4 5 W h e n capitalists measure their rates o f profit they are comparing the surplus value they get f r o m r u n n i n g p l a n t a n d m a c h i n e r y w i t h w h a t they spent o n a c q u i r i n g it at s o m e p o i n t in the p a s t — n o t w h a t it w o u l d cost t o replace it today. T h e p o i n t has a d d e d importance w h e n it is remembered that the real process of capitalist investment takes place in such a w a y that the same fixed c o n s t a n t capital ( m a c h i n e s a n d buildings) is used for several cycles o f prod u c t i o n . T h e fact t h a t the cost o f the investment w o u l d be less if it t o o k place after rhe second, third or f o u r t h r o u n d o f p r o d u c t i o n does n o t alter rhe cost before the first r o u n d o f p r o d u c t i o n . T h e alleged d i s p r o o f o f M a r x arises, as does the so-called transformation problem, from applying simultaneous equations

to

processes r a k i n g place t h r o u g h time. S i m u l t a n e o u s e q u a t i o n s , by d e f i n i t i o n , assume simultaneity, w i t h n o passage o f rime. T h e decline in the value o f their invested capital certainly does n o t m a k e life any easier for rhe capitalists. To survive in business they have ro recoup, w i t h a profit, rhe full cost o f their past investm e n t s , a n d if technological a d v a n c e m e a n s these investments are n o w w o r t h , say, half w h a t they were previously, they have t o pay 74


o u t o f their gross profits for w r i t i n g o f f t h a t s u m . W h a t they have gained o n the swings they h a v e lost o n the r o u n d a b o u t s , w i t h "depreciation"

of capital causing them

as big a h e a d a c h e as a

s t r a i g h t f o r w a r d fall in the rate o f profit. 4 6 C a p i t a l i s m is based n o t just o n value b u t u p o n the

self-expansion

of the values e m b o d i e d in capital. T h i s necessarily implies a comparison o f current surplus value with the prior capitalist investment from w h i c h it flows. T h e very n o t i o n of "self-expanding values" is incoherent w i t h o u t it. A n d the loss o f value of the e q u i p m e n t a n d materials o f p r o d u c t i o n t h a t have already been p a i d for is detrimental t o the self-expansion o f value. T h e fall in the cost o f investment m i g h t help the n e w capitalist. But he in t u r n is u n d e r pressure f r o m still o t h e r capitalists w h o invest after h i m in still cheaper e q u i p m e n t . A n d all the time the existence o f s u r p l u s value m a d e in p r e v i o u s r o u n d s o f p r o d u c t i o n a n d a v a i l a b l e for investment in still newer techniques serves t o push u p the ratio o f investment to the l a b o u r force. There is c o n t i n u a l g r o w t h in the mass o f surplus value seeking an outlet for investment. The m o r e o f this surplus value an individual capitalist can get h o l d o f , the bigger the investments he can m a k e a n d the m o r e productivity-increasing i n n o v a t i o n s he will be able to introduce c o m p a r e d to his competitors. A capitalist m a y be able t o buy t o d a y a m a c h i n e w h i c h is twice as productive as o n e he paid the same price for a year ago. But that is n o help to h i m if a rival is using greater a c c u m u l a t e d surplus value to buy a m a c h i n e four times as productive. T h e individual capitalist can stay in business o n l y if he spends as m u c h surplus value as possible o n new m e a n s o f production. If rhe means o f p r o d u c t i o n become cheaper, that o n l y results in his h a v i n g to buy m o r e o f them in order to achieve competitive success. So long as rhere is m o r e surplus value available for investment than there w a s previously, the organic c o m p o s i t i o n o f capital will tend t o rise, other things being equal. ' It m a k e s n o difference if the physical means a n d materials o f p r o d u c t i o n are c h e a p e r — t h a t just causes m o r e o f t h e m to be employed.

Crisis a n d the falling rate But if the d e p r e c i a t i o n o f c a p i t a l t h r o u g h increased p r o d u c t i v i t y c a n n o t by itself save the rate o f profit, it c a n if it is c o m b i n e d w i t h s o m e t h i n g e l s e — t h e crisis. For the crisis involves s o m e capitals I IK* Dynamics of the System

75

being m a d e b a n k r u p t . They are then forced to dispose o f their capital n o t just at its depreciated v a l u e , but for a n y t h i n g they can get, however lirtle. T h e beneficiaries are those capitalists w h o survive the crisis. T h e y c a n pick u p m e a n s o f p r o d u c t i o n — a c c u m u l a t i o n s o f v a l u e — o n the cheap, e n a b l i n g t h e m t o restore their o w n rates o f profit. In this w a y depreciation c a n ease rhe pressure o n the capitalist system as a w h o l e , w i t h the b u r d e n o f p a y i n g for it falling o n those capitalists w h o were driven o u r o f business, b u t nor o n rhose w h o r e m a i n e d . T h o s e capitalists w h o die bear m a n y o f the costs o f depreciation for the system as w h o l e , m a k i n g it possible f o r those w h o live o n t o d o so w i t h lower capital costs a n d eventually higher rates o f profit t h a n w o u l d o t h e r w i s e be the case. " T h e crises are always but m o m e n t a r y a n d forcible s o l u t i o n s o f the existing contradictions. T h e y are violent e r u p t i o n s w h i c h for a t i m e restore the disturbed e q u i l i b r i u m " . 4 * There is a c o n t i n u a l d o u b l e interaction between the long-term tendency for the rate o f profit to fall a n d cyclical crises. T h e rise in the ratio o f investment t o l a b o u r e m p l o y e d as n e w i n v e s t m e n t takes place d u r i n g periods o f e x p a n s i o n exerrs a d o w n w a r d pressure o n the rate o f profit, just as it is u n d e r pressure f r o m rising r a w material prices a n d wages. T h i s can have a direct effect, w i t h the fall in the rate o f profit c a u s i n g firms ro stop investing, so causing recession in rhe c a p i t a l g o o d s industries w h i c h then spreads elsewhere. O r it c a n h a p p e n indirectly if firms are successful in p r o t e c t i n g the rare of profit t e m p o r a r i l y by forcing d o w n

real

wages. In that case, firms in the c o n s u m e r g o o d s industries c a n n o t sell all their g o o d s — o r , as M a r x p u t s it, they c a n n o t "realise the surplus v a l u e " t h a t they have e x p l o i t e d — a n d their profits fall, a g a i n p r o d u c i n g recession. 49 But the crisis in t u r n leads t o s o m e firms g o i n g b u s t a n d provides o p p o r t u n i t i e s f o r o t h e r f i r m s t o b u y u p their e q u i p m e n t a n d r a w m a t e r i a l a n d rake o n w o r k e r s at l o w e r w a g e s . If e n o u g h firms g o b u s t , the crisis itself can w o r k t o c o m p l e t e l y c o u n t e r a c t the long-term d o w n w a r d t e n d e n c y o f rhe rate o f p r o f i t . In s h o r t , the d e c l i n e in the rate o f p r o f i t helps p r o d u c e the cyclical crisis, b u t the cyclical crisis helps resolve the long-term decline in the rate o f p r o f i t . M a r x ' s a c c o u n t o f the falling rate o f profit w a s n o t p u b l i s h e d until 1 1 years after his d e a t h a n d did n o t have a big i m p a c t o n the analyses o f his followers in the next t w o decades. It barely featured 76


in the m o s t

important

works

of

Marxist

analysis

by

Rosa

I u x e m b u r g , V l a d i m i r L e n i n a n d N i c o l a i B u k h a r i n . It w a s accepted by R u d o l f H i l f e r d i n g b u t w a s n o t central ro his analysis.'" Ir was n o t until the 1920s that a concerted a t t e m p t w a s m a d e t o use it to analyse the l o n g term trajectory o f the system by the PolishAustrian

Marxist Henryk Grossman.

H e w a s reacting t o rhe

propensity o f m a n y M a r x i s t s t o d e n y t h a t c a p i t a l i s m w a s inevitably h e a d i n g t o a great crash, a " b r e a k d o w n " . H e t o o k u p the a r g u m e n t in the f o r m in w h i c h it h a d been put by the A u s t r i a n social d e m o c r a t O t t o Bauer, w h o c l a i m e d to s h o w t h a t c a p i t a l i s m c o u l d e x p a n d indefinitely, using s c h e m a f r o m M a r x in V o l u m e I w o o f Capital

d e p i c t i n g the interrelation between different sec-

tors o f capitalist p r o d u c t i o n .

1

G r o s s m a n c l a i m e d t o prove, as against Bauer, t h a t if these schema were applied over a sufficiently large n u m b e r o f cycles o f p r o d u c t i o n a p o i n t w o u l d be reached ar w h i c h the rate o f profit w o u l d be t o o l o w to a l l o w p r o d u c t i o n t o c o n t i n u e w i t h o u t c u t t i n g i n t o w o r k e r s ' real wages a n d the c o n s u m p t i o n o f rhe capitalist class itself. T h i s w o u l d h a p p e n because " r h e scope o f a c c u m u l a tion

expands...in

proportion

to

the

weight

of

rhe

already

a c c u m u l a t e d c a p i t a l " even as the rate o f profit tends to decline. I ventually a p o i n t w o u l d be reached w h e r e sustaining a c c u m u l a tion a b s o r b e d all existing s u r p l u s value, leaving n o n e for rhe luxury c o n s u m p t i o n o f the capitalist class, a n d then b e g i n n i n g t o i .it into the v a l u e needed to sustain the w o r k i n g class." Alternatively, if s u r p l u s value w a s used o n a n increasing scale to m a i n t a i n the rate o f profir o n existing i n v e s t m e n t , there w o u l d be i collapse in rhe mass o f s u r p l u s value a v a i l a b l e for n e w investment. T h e industries catering for investment w o u l d n o t be able t o f u n c t i o n . There w o u l d be " a b s o l u t e o v e r - a c c u m u l a t i o n " a n d " a state o f c a p i t a l s a t u r a t i o n in w h i c h rhe over-accumulated c a p i t a l laces a shortage o f investment o p p o r t u n i t i e s a n d finds it m o r e difficult

t o s u r m o u n t this s a t u r a t i o n " . 5 3 In either case the system

w o u l d n o longer be able t o r e p r o d u c e itself. There have been m a n y o b j e c t i o n s t o G r o s s m a n ' s a r g u m e n t s / 4 It is n o t clear f r o m his a r g u m e n t w h y rhe rare o f e x p a n s i o n o f investment has t o r e m a i n c o n s t a n t f r o m o n e cycle t o another, rather than s l o w l y decline in response t o the decline in the rate o f profit ind in d o i n g so reduce the tendency o f rhe o r g a n i c c o m p o s i t i o n o f capital t o rise. In that case the " b r e a k d o w n ' ' , it m i g h t seem, c o u l d be p o s t p o n e d for a very l o n g time. Further, G r o s s m a n ' s b o o k is IIK*Dynamics of the System

77

a m b i g u o u s a b o u t w h e t h e r his theory proves the inevitability o f crisis or rhe inevitability o f a c o m p l e t e b r e a k d o w n o f the system. H e recognises t h a t the crisis can c o u n t e r a c t the tendency o f rhe rare o f profit t o fall, b u t still c o n c l u d e s that: the m e c h a n i s m as a w h o l e tends relentlessly t o w a r d s its

final

end w i t h the general process o f a c c u m u l a t i o n . . . O n c e these counter-tendencies are themselves defused o r s i m p l y cease to operate, the b r e a k d o w n tendency gains the u p p e r h a n d a n d asserts itself in rhe absolute f o r m o f the final crisis." Yet it is possible to see h y p o t h e t i c a l c i r c u m s t a n c e s in

which

G r o s s m a n ' s a r g u m e n t s w o u l d apply. Intense c o m p e t i t i o n between c a p i t a l s — i t s e l f intensified by f a l l i n g profit r a t e s — c o u l d c o m p e l each t o invest in ever m o r e expensive m e a n s o f p r o d u c t i o n so as t o o b t a i n the a d v a n c e d technology that is a p r e c o n d i t i o n for survival. In this w a y the technical prerequisites o f successful c o m p e t i t i o n w o u l d c o n t r a d i c t the possibility o f m a i n t a i n i n g p r o f i t a b i l i t y ; the e m b o d i m e n t o f capital in certain use values w o u l d c o n t r a d i c t rhe possibility o f e x p a n d i n g its value. Resistance f r o m the w o r k i n g class c o u l d prevent restoration o f profit rates t h r o u g h the m e t h o d o f p a y i n g for l a b o u r p o w e r at b e l o w its r e p r o d u c t i o n costs. A n d s o m e t h i n g m i g h t prevent the usual boom-recession cycles f r o m d r i v i n g s o m e firms o u t o f business a n d easing the long-term problems o f others. G r o s s m a n ' s theory c a n then s h o w h o w the falling rare o f profit c a n p r o d u c e deep p r o b l e m s for the system, w i t h o u t being treated as definitive p r o o f t h a t c a p i t a l i s m has t o collapse o f its o w n accord.

T h e c o n c e n t r a t i o n a n d centralisation o f capital The second long-term process recognised by M a r x w a s w h a t he called the " c o n c e n t r a t i o n a n d c e n t r a l i s a t i o n " o f capital. 5 * Ir is n o t difficult t o grasp w h a t is involved. C o n c e n t r a t i o n refers to the w a y in w h i c h e x p l o i t a t i o n enables i n d i v i d u a l c a p i t a l s to a c c u m u l a t e a n d so g r o w larger. T h e s m a l l firm becomes a big firm a n d the big firm becomes a g i a n t — p r o v i d i n g it c a n survive each cyclical crisis. C e n t r a l i s a t i o n refers ro the w a y in w h i c h each crisis weeds o u t s o m e capitals, leaving those that r e m a i n c o n t r o l l i n g a bigger parr o f rhe w h o l e system. 78


This process has i m p o r t a n t i m p l i c a t i o n s — n o t all o f w h i c h were fully d r a w n o u t by M a r x himself. T h e bigger rhe i n d i v i d u a l units o f capital a n d larger the p r o p o r t i o n o f the system as a w h o l e they constitute, the greater will be the i m p a c t o n rhe rest o f rhe system every rime o n e o f t h e m goes bust. If a small firm stops m a k i n g profits a n d goes b u s t , this will destroy o n l y a small part o f the market for other, previously profitable, small firms t h a t s u p p l y it. There will be a verv limited d o m i n o effect. If, however, o n e o f the m

iuants o f the system goes bust, it c a n have a devastating i m p a c t o n other previously profitable big firms that d e p e n d e d o n it f o r their o w n m a r k e t s , a n d o n a n y b a n k s or other firms rhar have lent it money. T h e d o m i n o effect becomes an a v a l a n c h e effect. A t the s a m e t i m e , however, the ver\ size o f firms can p r o v i d e them w i t h p r o t e c t i o n f r o m m a r k e r forces u p ro a certain p o i n t . I he i n d i v i d u a l acts o f l a b o u r w i t h i n a great capitalist enterprise .ire n o t directly in c o m p e t i t i o n w i t h i n d i v i d u a l acts o u t s i d e it. Instead m a n a g e r i a l decisions d e t e r m i n e h o w they relate t o each other. As M a r x puts it: In m a n u f a c t u r e . . . t h e collective w o r k i n g o r g a n i s m is a f o r m o f existence o f capital. T h e m e c h a n i s m t h a t is m a d e u p o f numerous

individual

detail

labourers

belongs to the

capitalist...

M a n u f a c t u r e p r o p e r n o t o n l y subjects the previously independent w o r k m a n to the discipline a n d c o m m a n d o f c a p i t a l , b u t , in a d d i t i o n , creates a hierarchic g r a d a t i o n o f the w o r k m e n themselves... N o t o n l y is the detail w o r k distributed to the different i n d i v i d u a l s , but the i n d i v i d u a l h i m s e l f is m a d e the a u t o m a t i c m o t o r o f a fractional o p e r a t i o n . . . 5 7 I he great enterprises are like islands w i t h i n t h e system where the relation between the w o r k d o n e by i n d i v i d u a l s is organised by a plan, nor by rhe interrelation o f their products t h r o u g h the m a r k e t : W h a t . . . c h a r a c t e r i s e s division o f l a b o u r in m a n u f a c t u r e s ? T h e fact that rhe detail l a b o u r e r p r o d u c e s n o c o m m o d i t i e s . It is o n l y the c o m m o n p r o d u c t o f all rhe derail labourers rhar becomes a c o m m o d i t y . D i v i s i o n o f l a b o u r in society is b r o u g h t a b o u t by the p u r c h a s e a n d sale o f the p r o d u c t s o f different b r a n c h e s o f industry, w h i l e the c o n n e x i o n between the detail o p e r a t i o n s in a w o r k s h o p is d u e to the sale o f the l a b o u r p o w e r o f several w o r k m e n t o one capitalist, w h o applies it as c o m b i n e d l a b o u r IIK*Dynamics of the System

79

p o w e r . . . W h i l e w i r h i n the w o r k s h o p , the iron l a w o f proport i o n a l i t y subjects definite n u m b e r s o f w o r k m e n

to

definite

f u n c t i o n s ; in the society o u t s i d e rhe w o r k s h o p , c h a n c e a n d caprice have full p l a y in d i s t r i b u t i n g the p r o d u c e r s a n d their m e a n s o f p r o d u c t i o n a m o n g the various branches o f industry/* T h e islands o f p l a n n i n g w i r h i n rhe enterprises d o n o t exist a p a r t f r o m the sea o f c o m m o d i t y p r o d u c t i o n a r o u n d t h e m . T h e internal regime is a response t o the external pressure to extract a n d accum u l a t e surplus value in o r d e r t o c o m p e t e : " A n a r c h y in the social d i v i s i o n of l a b o u r a n d d e s p o t i s m in t h a t o f the w o r k s h o p are m u t u a l c o n d i t i o n s rhe o n e o f the o t h e r " /

T h e d e s p o t i s m arises

f r o m the pressure o n the capitalist t o relate the p r o d u c t i v i t y o f l a b o u r w i t h i n the enterprise ro rhe ever c h a n g i n g p r o d u c t i v i t y o f l a b o u r in rhe system as a w h o l e . But this c a n n o t be d o n e w i t h o u t u s i n g c o m p u l s i o n , pressing d o w n o n each worker, t o achieve w h a t is b r o u g h t a b o u t in the w i d e r society by rhe b l i n d interplay o f commodities. T h e l a w o f value operates between enterprises t h r o u g h

the

m a r k e t . W i t h i n the enterprise it has t o be i m p o s e d by c o n s c i o u s regulation o n the part o f the capitalist. P l a n n i n g w i r h i n capitalism is not the o p p o s i t e of rhe m a r k e t ; it is the w a y in w h i c h the capitalist tries to i m p o s e the d e m a n d s o f the m a r k e t o n the workforce. 6 0 The capitalist can often still have a certain leeway w i t h i n w h i c h to operate. T h e enterprise c a n m a k e profits if the m a r k e t for its o u t p u t is g r o w i n g rapidly despite costs o f p r o d u c t i o n internally dep a r t i n g m a r k e d l y f r o m those currently prevailing in rhe system as a w h o l e . T h i n g s are similar w h e n it has gained a m a j o r share o f rhe m a r k e t in a sector o f p r o d u c t i o n that requires very large a m o u n t s o f fixed capital. The p r o d u c t i o n m e t h o d s associated w i t h the physical structure ot its fixed capital (its use value) can be m u c h m o r e costly t h a n those available in the system as w h o l e (eg w h e n o l d machines using m a n y workers are used), but the enterprise is protected f r o m serious c o m p e t i t i o n for a long period o f t i m e by rhe sheer cost to n e w firms o f entering the industry to c o m p e t e w i t h it. T h e existence o f a certain c a p i t a l as a fixed, physically constituted use value as well as a potentially fluid exchange value means that the l a w o f value does n o t a p p l y t o it directly a n d instantaneously. This is n o t a state of affairs thar can last indefinitely. Eventually the d e v e l o p m e n t o f new, m o r e a d v a n c e d p r o d u c t i o n m e t h o d s in the wider system will lead ro it facing sudden serious c o m p e t i t i o n . 80


It is t h e n , t h r o u g h the i m p a c t of crisis o n it, that the enterprise is forced t o restructure so as to p r o d u c e a c c o r d i n g t o the l a w o f value or t o g o under. T h e m o r e enterprises there are t h a t have been relatively protected in the p a s t — t h a t is, the higher the c o n c e n t r a t i o n a n d centralisation o f c a p i t a l — t h e greater will be the crisis w h e n it eventually breaks. But in the interim the g i a n t firm can evade the c r i s i s — a n d sometimes the interim can be a very long time. If m a n y g i a n t firms are able ro d o this for a p e r i o d , the impression can arise t h a t that s y s t e m — o r part o f i t — h a s b e c o m e crisis free. W h a t is n o t noticed is that the price it pays-for a v o i d i n g crises is t h a t it is there is n o restructuring

to

offset

the

long-term

downward

pressure

on

profitability. C a p i t a l s a v o i d small crises, only to be hit, eventually, by a m u c h greater one.

I he o t h e r l i m i t o f c a p i t a l i s m ? I here is a final p o i n t that has often been lost in e x p o s i t i o n s o f M a r x ' s ideas: his stress o n the e x p a n s i o n o f the "forces o f product i o n " has been interpreted as identification w i t h e c o n o m i c g r o w t h .it all costs. Yet in b o t h the earlier a n d the later writings o f M a r x and Engels there is a keen awareness o f the c o n t r a d i c t o r y character o f such g r o w t h w i t h i n class societies in general a n d w i t h i n capitalism in particular. They w r o t e in 1845-6: In the d e v e l o p m e n t o f the p r o d u c t i v e forces there c o m e s a stage w h e n p r o d u c t i v e forces a n d m e a n s o f intercourse are b r o u g h t i n t o being w h i c h , u n d e r existing relations, can o n l y cause mischief, a n d are n o longer p r o d u c t i v e b u t destructive. 61 M a r x a n d Engels did n o t just view c a p i t a l i s m as generally destructive. They also p r o v i d e d the outlines o f a critique o f the p a r t i c u l a r ecological d a m a g e w r o u g h t by it, as writers like J o h n

Bellamy

l-oster have emphasised in recent vears. 6 : Vlarx s a w h u m a n beings an integral part o f the n a t u r a l w o r l d , " l a b o u r " , he wrote: is, in the first place, a process in w h i c h b o t h m a n a n d N a t u r e p a r t i c i p a t e , a n d in w h i c h m a n o f his o w n accord starts, regulates, a n d c o n t r o l s the material reactions between himself a n d IIK*Dynamics of the System

81

Ill

N a t u r e . H e opposes h i m s e l f ro N a t u r e as o n e o f her o w n forces, setting in m o t i o n a r m s a n d legs, head a n d h a n d s , the n a t u r a l forces o f his body, in o r d e r t o a p p r o p r i a t e N a t u r e ' s p r o d u c t i o n s in a form a d a p t e d t o his o w n wants. 6 3 Bur rhe drive o f capital t o create surplus value leads to it undermining o f the vitality o f n a t u r e — a n d rhe c o n d i t i o n s for h u m a n life: E x p l o i t a t i o n a n d s q u a n d e r i n g o f the vitality o f the soil takes the place o f c o n s c i o u s r a t i o n a l c u l t i v a t i o n o f the soil as eternal c o m m u n a l property, a n i n a l i e n a b l e c o n d i t i o n for the existence a n d r e p r o d u c t i o n o f a c h a i n o f successive g e n e r a t i o n s o f the h u m a n race. 64 There arises " a n i r r e p a r a b l e break in the coherence o f social int e r c h a n g e prescribed by the n a t u r a l laws o f l i f e V

"Capitalist

p r o d u c t i o n d e v e l o p s t e c h n o l o g y , a n d the c o m b i n i n g together o f various processes i n t o a social w h o l e , o n l y by s a p p i n g the o r i g i n a l sources o f all w e a l t h — t h e soil a n d the l a b o u r e r . . / ' 6 6 J u s t as "large-scale i n d u s t r y . . . l a y s waste a n d d e s t r o y s . . . l a b o u r - p o w e r ', "large-scale m e c h a n i s e d a g r i c u l t u r e . . . d i r e c t l y e x h a u s t s the natural

vitality

of

the

soil..."-"

Capitalist

production,

Marx

recognised, w a s s l o w l y d e s t r o y i n g the very basis o n w h i c h it, like all h u m a n p r o d u c t i o n , r e s t e d — t h e m e t a b o l i c interaction between h u m a n i t y a n d the rest o f the n a t u r a l w o r l d . 0

M a r x s r e m a r k s w e r e m a i n l y c o n c e r n e d w i t h rhe i m m e d i a t e effects o f c a p i t a l i s t a g r i c u l t u r e o n soil fertility, w h i c h in his t i m e c o u l d o n l y be o v e r c o m e by the use of g u a n o — n i t r o u s m i n e r a l deposits resulting f r o m t h o u s a n d s o f years o f b i r d d r o p p i n g s ro be f o u n d m a i n l y o n the coast o f n o r t h e r n C h i l e . M a r x ' s insights were t a k e n u p a n d d e v e l o p e d in this sense by K a r l K a u t s k y in rhe 1890s as i m p l y i n g a crisis o f f o o d p r o d u c t i o n in the short t e r m . But they seemed t o lose their relevance w i t h rhe discovery o f h o w n i t r o u s fertilisers c o u l d be m a d e artificially ( t h r o u g h the HaberBosch

process)

during

World

War

One

and

world

food

p r o d u c t i o n w a s a b l e t o e x p a n d w i t h o u t difficulty t h r o u g h o u t the 2 0 t h century. But analyses o f the relation between h u m a n i t y a n d nature had wider implications than a simple concern with food o u t p u t , as w a s spelt o u t by Engels in his t h e m a n u s c r i p t Dialectics

of Nature,

The

w h i c h w a s n o t p u b l i s h e d until 3 0 years after

his d e a t h , in the m i d - 1 9 2 0 s . 82


Here Engels noted t h a t , a l t h o u g h h u m a n s differ f r o m other animals in being able t o " m a s t e r " n a t u r e , this historically has often had unforeseen negative consequences w h i c h cancelled o u t initial gains. H e t o o k as an e x a m p l e rhe w a y in w h i c h deforestation h a d wreaked h a v o c o n Greece, M e s o p o t a m i a a n d Asia M i n o r : Thus w i t h every step w e are r e m i n d e d t h a t w e by n o m e a n s rule over nature as over a foreign people, like s o m e o n e s t a n d i n g outside n a t u r e — b u t t h a t w e , w i t h flesh a n d

blood and

brain,

belong t o nature a n d exist in its midst. 6 8 Scientific progress w a s s l o w l y p r o v i d i n g the m e a n s t o a v o i d c a u s i n g ecological c a l a m i t i e s by c o n t r o l l i n g a n d r e g u l a t i n g " p r o d u c t i o n a c t i v i t y " . B u t " t h i s r e g u l a t i o n " required

"something

m o r e t h a n iftere k n o w l e d g e " . It r e q u i r e d " a c o m p l e t e r e v o l u t i o n in o u r h i t h e r t o existing m o d e o f p r o d u c t i o n , a n d s i m u l t a n e o u s l y .1 r e v o l u t i o n in o u r w h o l e c o n t e m p o r a r y social o r d e r " . 6 " T h i s w a s necessary because: T h e i n d i v i d u a l capitalists, w h o d o m i n a t e p r o d u c t i o n a n d exc h a n g e , are able t o c o n c e r n themselves o n l y w i t h the m o s t i m m e d i a t e useful effect o f their a c t i o n s . . . In relation t o n a t u r e , as t o society, rhe present m o d e o f p r o d u c t i o n is p r e d o m i n a n t l y concerned o n l y a b o u t the i m m e d i a t e , the m o s t t a n g i b l e result; a n d then surprise is expressed t h a t the m o r e r e m o t e effects o f actions directed t o this end t u r n o u t to be q u i t e different, are mostly q u i t e the o p p o s i t e in character. 70 I he i m p l i c a t i o n is t h a t c a p i t a l i s m c o n t a i n e d a n o t h e r i n b u i l t l i m i t besides t h a t o f its i n b u i l t tendency ro e c o n o m i c crises. It is t h a t left to itself it c o u l d eventually destroy the very e n v i r o n m e n t a l conditions for any f o r m o f h u m a n existence, i n c l u d i n g its o w n . N e i t h e r M a r x n o r Engels developed this i m p l i c a t i o n . But it w o u l d b e c o m e very i m p o r t a n t a c e n t u r y later.

\ d y n a m i c a n d c o n t r a d i c t o r y system I he recognition that c a p i t a l i s m is an ever e x p a n d i n g system o f alienated l a b o u r runs t h r o u g h the pages o f M a r x ' s e c o n o m i c writings. It is a system in w h i c h p e o p l e s living force is taken f r o m them IIK*Dynamics of the System

83

a n d turned i n t o a system o f things that d o m i n a t e t h e m . C a p i t a l is l a b o u r that is t r a n s f o r m e d i n t o a m o n s t r o u s p r o d u c t w h o s e o n l y a i m is to e x p a n d itself: " C a p i t a l is d e a d labour, t h a t , vampire-like, o n l y lives by s u c k i n g l i v i n g labour, a n d lives the m o r e , t h e m o r e l a b o u r it s u c k s " . ' It is this w h i c h gives c a p i t a l i s m a d y n a m i c o f g r o w t h unparalleled in previous societies. T h e endless drive t o p u m p o u t s u r p l u s v a l u e in order t o further p u m p o u t yet m o r e surplus v a l u e , o f a c c u m u l a t i o n in order t o further a c c u m u l a t e , k n o w s n o b o u n d s . A s c a p i t a l i s m emerged in parts o f north west K u r o p e , it w a s c o m p e l l e d t o stretch o u t its tentacles to e n c o m p a s s the w h o l e e a r t h , subjecting ever m o r e l i v i n g l a b o u r to ir: T h e need of a c o n s t a n t l y e x p a n d i n g m a r k e t for its p r o d u c t s chases the bourgeoisie over the entire surface o f the globe. It m u s t nestle everywhere, settle everywhere, establish connections everywhere. T h e bourgeoisie has t h r o u g h its e x p l o i t a t i o n of the w o r l d m a r k e t given a c o s m o p o l i t a n character to p r o d u c t i o n a n d c o n s u m p t i o n in every country. To the great chagrin o f reactionists, it has d r a w n f r o m u n d e r rhe feet o f industry the n a t i o n a l g r o u n d o n w h i c h it s t o o d . All old-established n a t i o n a l industries have been destroyed or are daily being destroyed. They are dislodged by n e w industries, w h o s e i n t r o d u c t i o n becomes a life a n d death question for all civilised n a t i o n s , by industries t h a t n o longer w o r k

u p i n d i g e n o u s raw m a t e r i a l , but r a w

material

d r a w n f r o m the remotest zones; industries w h o s e p r o d u c t s are c o n s u m e d , n o t only at h o m e , bur in every quarter o f the globe. In place o f the old w a n t s , satisfied b y the p r o d u c t i o n of the country, w e find n e w w a n t s , requiring for their satisfaction the p r o d u c t s o f distant lands a n d climes. In place o f the old local a n d n a t i o n a l seclusion a n d self-sufficiency, we have intercourse in every direct i o n , universal interdependence o f nations." 2 W h a t stands o u t f r o m M a r x ' s analysis is precisely w h a t has been missing f r o m m a i n s t r e a m e c o n o m i c s since his r i m e — a sense o f the mass f o r w a r d rush o f capitalism." H i s m o d e l provides, as n o other has, a n a c c o u n t o f a system t h a t h a d e x p a n d e d to fill m o s t of Western E u r o p e a n d N o r t h A m e r i c a by rhe t i m e o f his death in 1 8 8 3 — a n d e x p a n d e d further t o fill the w h o l e globe in the 2 0 t h century. But t h a t is n o t all. H i s m o d e l w a s n o t o n l y of a self-expanding system, b u t o f one w h o s e e x p a n s i o n is based u p o n the interplay o f 84

Understanding the Svsteni: Marx and Bevond * 4

c o n t r a d i c t o r y forces that finds expression in the crisis a n d the d o w n w a r d pressure o n the rate o f profit. T h e e x p a n s i o n of rhe system simultaneously leads t o a massive g r o w t h in the productive forces—the capacity o f h u m a n i t y t o p r o d u c e its l i v e l i h o o d — a n d o f the t r a n s f o r m a t i o n o f these into destructive forces t h r o u g h the crippling o f people's lives. Capitalism

has

been

a totalising—I

am

tempted

to

write

" t o t a l i t a r i a n " — s y s t e m , in a w a y in w h i c h n o previous m o d e o f p r o d u c t i o n h a d been, c o m p e l l i n g the w h o l e w o r l d t o dance t o its frenzied r h y t h m s o f c o m p e t i t o n a n d a c c u m u l a t i o n . As it has d o n e so, the system as a w h o l e has c o n t i n u a l l y reacted back u p o n the ind i v i d u a l processes o n w h i c h it d e p e n d s . It forces each c a p i t a l t o lorce d o w n the price o f l a b o u r p o w e r t o the m i n i m u m t h a t will keep its w o r k e r s able a n d w i l l i n g ro w o r k . " 4 T h e clash o f capitals compels each t o a c c u m u l a t e in a w a y t h a t will p r o d u c e d o w n w a r d pressure o n profit rates for all o f t h e m . It stops a n y o f t h e m standing still, even if they occasionally b e c o m e a w a r e o f the devastation they are causing. It is a system that creates periodic h a v o c for all ihose w h o live w i t h i n it, a horrific h y b r i d o f Frankenstein's m o n ster a n d o f D r a c u l a , a h u m a n c r e a t i o n t h a t has escaped c o n t r o l ind lives by d e v o u r i n g the lifeblood o f its creators. It is this u n d e r s t a n d i n g w h i c h a b o v e all distinguishes M a r x ' s approach f r o m every school o f m a i n s t r e a m economics, o r t h o d o x a n d heterodox alike, a n d w h i c h m e a n s it a l o n e provides a g u i d e for analysing c a p i t a l i s m in o u r century. But d o i n g so m e a n s u s i n g Marx's concepts t o g o beyond M a r x .

I l»c I >vnamics of rhe System

85

Understanding the System: Marx and Beyond

CHAPTER FOUR

Beyond Marx: monopoly, war and the state

New developments M a r x d e p i c t e d a system t h a t w a s very d y n a m i c , b u t a l s o p l a g u e d w i t h seemingly i n s u p e r a b l e c o n t r a d i c t i o n s . Its very d y n a m i s m cont i n u a l l y led c a p i t a l t o try t o e x p a n d at a greater rate t h a n c o u l d be sustained by the l i v i n g l a b o u r p o w e r o n w h i c h it u l t i m a t e l y depended. T h e barrier t o c a p i t a l i s t p r o d u c t i o n , M a r x w r o t e , lay in capital itself. T h e i m p l i c a t i o n w a s t h a t as c a p i t a l i s m e n g u l f e d the w h o l e w o r l d , it w o u l d be subject t o longer a n d deeper s l u m p s , interspersed w i t h s h o r t e r a n d s h a l l o w e r p e r i o d s o f b o o m . A t the .une t i m e , the c o n c e n t r a t i o n a n d c e n t r a l i s a t i o n o f c a p i t a l w o u l d p r o d u c e a n ever greater p o l a r i s a t i o n b e t w e e n a c a p i t a l i s t class w h i c h w a s d i m i n i s h i n g in size a n d a w o r k i n g class t h a t a b s o r b e d i n t o itself the rest o f society. T h e m o d e l was by design a n a b s t r a c t i o n . M a r x consciously ignored m u c h o f rhe d a y t o day f u n c t i o n i n g o f m a r k e t s a n d m a n y o f i lie features o f p a r t i c u l a r capitalist societies in his a t t e m p t t o grasp the u n d e r l y i n g tendencies b u i l t i n t o rhe m o d e o f p r o d u c t i o n as Mich—its " g e n e r a l l a w s " . T h e w a y each o f the three v o l u m e s o f i si/)rial o p e r a t e d at a different level o f a b s t r a c t i o n m e a n t t h a t the third v o l u m e , by i n t e g r a t i n g p r o d u c t i o n a n d c i r c u l a t i o n , w a s closer in the a c t u a l o p e r a t i n g detail o f any really existing capitalist socirty than rhe first v o l u m e , even t h o u g h its analysis d e p e n d e d o n the l u s i c concepts developed there. It dealt n o t o n l y w i t h the equalisation o f profit rates, the d e v i a t i o n o f prices f r o m values, crises, a n d i hi tendency o f the rate o f profit t o fall, b u t a l s o w i t h credit a n d the I' i n k i n g system, c o m m e r c i a l profits, interest p a y m e n t s t o m o n e y l» inlers, a n d rents t o l a n d o w n e r s . But even the third v o l u m e delibi rately p a i d little a t t e n t i o n t o m a n y i m p o r t a n t things: foreign trade. 87

the i m p a c t o n the capitalist system o f a b s o r b i n g the still e n o r m o u s pre-capitalist parts o f the w o r l d or the role o f rhe state. M a r x h a d intended in rhe o r i g i n a l p l a n for Capital

he d r e w u p in the early

m a n u s c r i p t s o f rhe w o r k further v o l u m e s dealing w i t h such things. But he never h a d rime ro d o so, immersed as he w a s in d a y to day revolutionary political activity, c o m p e l l e d to m a k e a livelihood for himself t h r o u g h journalistic articles a n d , in the last years o f his life, plagued by illness, a l t h o u g h rhe three volumes he did fully or partially c o m p l e t e were themselves a n incredible achievement. T h e g a p between the m o d e l a n d the reality left m a n y questions u n a n s w e r e d a b o u t the course c a p i t a l i s m w o u l d take. These questions did n o t necessarily seem to m a t t e r that m u c h either t o M a r x a n d Engels or ro the activists in the n e w workers' m o v e m e n t s o f the 18~0s a n d 1880s. These were rhe years o f a l o n g p e r i o d o f crises k n o w n as rhe Great D e p r e s s i o n . T h e IJS steel m a g n a t e A n d r e w C a r n e g i e expressed the m o o d even in capitalist circles i n 1889: M a n u f a c t u r e r s . . . s e e savings o f m a n y y e a r s . . . b e c o m i n g less a n d less, w i t h n o h o p e o f a c h a n g e in the s i t u a t i o n . It is in a soil thus prepared rhar a n y t h i n g p r o m i s i n g o f relief is gladly w e l c o m e d . T h e m a n u f a c t u r e r s are in the p o s i t i o n o f patients that h a v e tried in vain every d o c t o r o f the regular school for years, a n d are n o w liable to b e c o m e rhe victim o f a n y q u a c k that appears... 1 A q u a r t e r c e n t u r y o f falling profit rates- led t o massive p o o l s o f poverty in L o n d o n a n d other cities a n d ro mass u n e m p l o y m e n t in the mid-1880s. 3 It w a s n o t surprising t h a t Frederick Engels c o u l d feel t h a t the logic o f M a r x ' s m o d e l w a s w o r k i n g itself o u r right in f r o n t o f his eyes in E n g l a n d as " t h e decennial cycle o f s t a g n a t i o n , prosperity, o v e r p r o d u c t i o n a n d crisis" seemed to give w a y t o " a p e r m a n e n t a n d c h r o n i c depression". 4 The trajectory o f capitalism s o o n , however, p r o v e d to be m o r e c o m p l i c a t e d t h a n rhe experience o f the 1880s suggested. Profit rates recovered in Britain in the 1890s, a n d the US a n d G e r m a n y •

went through a new wave of economic expansion.

There were

certain positive reforms for w o r k e r s that seemed to c o n t r a d i c t M a r x ' s picture: Bismarck granted pensions t o G e r m a n y ' s workers in 1 8 8 9 a n d a British Liberal g o v e r n m e n t p r o d u c e d a s i m i l a r scheme in Britain 2 0 years later, a l o n g w i t h free school meals; real wages rose in rhe last t w o decades o f the 19rh century, even if they tended to stagnate after that; 6 w o r k i n g h o u r s everywhere tended 88


to fall f r o m 12 or 14 h o u r s a day t o eight, a n d the w o r k i n g week to tall from six days t o five a n d a half." I he a p p a r e n t r e f u t a t i o n o f t h e p r e d i c t i o n s d r a w n f r o m M a r x ' s model led t o a crisis w i t h i n M a r x i s t r a n k s , k n o w n as the revisionist controversy. O u t o f it emerged t w o very different trends in the analysis o f capitalism w h i c h were t o c o n f r o n t each other again a n d again over the next century. E d w a r d Bernstein, o n l y a few years previously a close collaborator o f Engels, p r o d u c e d a r o o t a n d b r a n c h c r i t i q u e o f M a r x ' s methods and conclusions. "Signs o f an e c o n o m i c

worldwide

crash o f u n h e a r d o f ^ v i o l e n c e h a v e n o t been e s t a b l i s h e d " , he w r o t e . " O v e r p r o d u c t i o n in single industries does not m e a n general crises".' " W o r k i n g m e n " , he c o n c l u d e d , are n o t " u n i v e r s a l l y pauperised a ^ w r a s set o u t in the Communist

Manifesto'V

These

changes, he a r g u e d , h a d arisen because o f " t h e e n o r m o u s extension o f the w o r l d m a r k e t " a n d the r e g u l a t i o n o f p r o d u c t i o n w i t h the rise o f the i n d u s t r i a l c a r t e l s " so t h a t " g e n e r a l c o m m e r c i a l crises" were " i m p r o b a b l e " . Bernstein s " r e v i s i o n " o f M a r x w a s rejected by Engels' other collaborator, K a r l Kautsky. But this d i d n o t p r e v e n t m a n y socialists u;tivists c o m i n g t o accept in practice that c a p i t a l i s m h a d stabilised itself for the indefinite future. C h a l l e n g i n g such views m e a n t g o i n g further t h a n K a u t s k y a n d a d d i n g t o M a r x ' s analysis. It is this w h i c h , each in their o w n way, R u d o l f H i l f e r d i n g , V l a d i m i r L e n i n , Nicolai B u k h a r i n a n d R o s a L u x e m b u r g tried t o d o . S o o n it w a s n o t o n l y the purely e c o n o m i c f u n c t i o n i n g o f rhe system t h a t required s o m e t h i n g m o r e t h a n the basic a c c o u n t provided by M a r x . So t o o d i d a n e w p e r i o d o f i m m e n s e p o l i t i c a l c o n v u l s i o n s as 4 4 years o f peace in western E u r o p e gave w a y t o the most horrific w a r h u m a n i t y h a d yet k n o w n .

I lilferding: finance capitalism a n d i m p e r i a l i s m I he first M a r x i s t e c o n o m i s t t o p u b l i s h a detailed analysis o f the . hanges w a s the A u s t r i a n R u d o l f H i l f e r d i n g in his w o r k

Finance

< apita I, in 1911. Basing h i m s e l f o n d e v e l o p m e n t s in G e r m a n y , he argued t h a t b a n k i n g capital a n d industrial capital were m e r g i n g t o produce a synthesis o f the t w o , w h i c h he labelled " f i n a n c e capital' 1 . O n this basis g i a n t trusts a n d cartels w e r e e m e r g i n g that . o u l d d o m i n a t e w h o l e sectors o f industry: llcyond

Marx: Monopoly, War and the State

89

There is a c o n t i n u a l tendency for cartelisation t o be extended. T h e i n d i v i d u a l industries become increasingly d e p e n d e n t u p o n the cartelised industries until they are finally a n n e x e d by t h e m . T h e u l t i m a t e o u t c o m e o f this process w o u l d be the f o r m a t i o n o f a general cartel. T h e w h o l e o f capitalist p r o d u c t i o n w o u l d then be consciously regulated by a single b o d y w h i c h w o u l d determ i n e the v o l u m e of p r o d u c t i o n in all the branches o f industry. 1 0 H i l f e r d i n g d i d n o t see c o m p e t i t i o n as d i s a p p e a r i n g completely. H e emphasised the i m p o r t a n c e o f i n t e r n a t i o n a l c o m p e t i t i o n , p o i n t i n g ro the w a y the merger o f finance a n d i n d u s t r y inside a c o u n t r y led ro pressure o n its state ro use protectionist tax duties t o a i d its capitalists in their struggle a g a i n s t rivals in rhe w o r l d m a r k e t . " I t is n o t free trade E n g l a n d , b u r rhe p r o t e c t i o n i s t countries, G e r m a n y a n d the U n i t e d States, w h i c h b e c o m e the m o d e l s o f capitalist dev e l o p m e n t " , w r o t e H i l f e r d i n g . 1 1 Far f r o m c o n t i n u i n g w i t h

the

t r a d i t i o n a l liberal n o t i o n o f a m i n i m a l " n i g h t - w a t c h m a n state" the great trusts w a n t e d it t o have the p o w e r ro w i d e n its b o u n d a r i e s so as t o enlarge the m a r k e t in w h i c h they c o u l d g a i n m o n o p o l y profits: " W h i l e free trade w a s indifferent to c o l o n i e s , p r o t e c t i o n i s m leads directly t o a m o r e active c o l o n i a l policy, a n d t o conflicts o f interest between different states", 1 2 H i l f e r d i n g a r g u e d . " T h e policy o f finance capital is b o u n d ro lead t o w a r d s w a r " . 1 ' This analysis w e n t b e y o n d a n y t h i n g in M a r x . H e h a d witnessed the w a r s o f his lifetime a n d written a b o u t t h e m : rhe o p i u m wars o f Britain against C h i n a , the C r i m e a n War, the A m e r i c a n C i v i l W a r , a n d the Franco-Prussian W'ar. But these were wars, as he saw it, resulting

f r o m the drive o f c a p i t a l i s m

t o i m p o s e itself o n

the

r e m n a n t s o f the pre-capitalist w o r l d a r o u n d it. C a p i t a l i s m

had

c o m e i n t o the w o r l d " m i r e d in b l o o d " , b u t M a r x ' s m o d e l contained n o m o r e t h a n a few h i n t s as t o w h y fully established capitalist c o u n t r i e s w o u l d

be driven t o w a r w i t h each other.

H i l f e r d i n g h a d taken a first step t o w a r d s a M a r x i s m for the 2 0 t h century that explained w h a t h a d c h a n g e d since M a r x ' s t i m e in this a l l - i m p o r t a n t respect. There were, however, a m b i g u i t i e s in Hilferding ? s a p p r o a c h . T h e m a i n trend in his b o o k w a s to argue that rhe g r o w t h o f m o n o p o l i e s d i d n o t d o a w a y w i t h the tendency o f capitalism t o crisis, a n d their g r o w i n g reliance o n the state w o u l d lead to intensified international c o m p e t i t i o n , imperialism a n d the drive to war. But at p o i n t s there were suggestions t h a t pointed ro a very different c o n c l u s i o n — t h a t 90


the m o n o p o l i e s a n d the state c o u l d w o r k together t o d a m p e n the tendency t o w a r d s crisis: " T h e specific character o f capital is obliterated

in

finance

capital"

which

w a s able t o resolve

"more

successfully the p r o b l e m s o f the o r g a n i s a t i o n o f the social econo m y " , even t h o u g h it w a s still a class society, w i t h

"property

concentrated in the h a n d s o f a few giant capitalist groups"'. 1 4 This meant the m i t i g a t i o n o f the o l d style e c o n o m i c crisis: As capitalist p r o d u c t i o n develops, there is therefore a n increase... in the part o f p r o d u c t i o n t h a t c a n be carried o n u n d e r all circumstances. H e n c e the d i s r u p t i o n o f credit need n o t be as complete

as in

crises i n

the earlier

period

of

capitalism.

F u r t h e r m o r e , the d e v e l o p m e n t o f the credit crisis i n t o a banking crisis o n the o n e side a n d a m o n e t a r y crisis o n the other is m a d e m o r e difficult... 1 5 T h e mass psychoses w h i c h s p e c u l a t i o n generated at the beg i n n i n g o f the capitalist era...seem g o n e for ever.' 6 I iiiferding d i d n o t carry his a r g u m e n t t h r o u g h t o its logical conclusion in Finance

Capital,

a n d still w r o t e t h a t the system c o u l d

not d o a w a y w i t h " t h e cyclical a l t e r n a t i o n o f prosperity a n d depression". 1 7 But by the 1920s, w h e n he served as a minister in t w o W e i m a r R e p u b l i c g o v e r n m e n t s , he veered t o w a r d s Bernstein s app r o a c h w i t h a theory o f " o r g a n i s e d c a p i t a l i s m "

in w h i c h rhe

a n a r c h y o f the m a r k e t a n d the trend t o w a r d s crisis disappear. O n e c o r o l l a r y w a s t o d e n y that there w a s a n y t h i n g in c a p i t a l i s m inevitably leading t o war, since rhe " o r g a n i s e d c a p i t a l i s m s " in different countries w o u l d w a n t ro c o o p e r a t e w i t h each other. A s i m i l a r c o n c l u s i o n h a d already been reached in 1914 by K a r l k.uitskv, leading h i m t o o t o a p o s i t i o n t h a t barely differed in practice f r o m Bernstein's. B u t w h e r e H i l f e r d i n g p o i n t e d t o the merger ot finance a n d p r o d u c t i v e c a p i t a l i s m , K a u t s k y ' s a r g u m e n t rested on seeing a f u n d a m e n t a l d i s t i n c t i o n a n d a n t a g o n i s m o f interests between t h e m : T h e finance c a p i t a l i s t s . . . h a d a direct interest in t r a n s f o r m i n g each n a t i o n a l state i n t o a n a p p a r a t u s o f s u p p o r t for their o w n e x p a n s i o n . I m p e r i a l i s m w a s therefore directly linked t o

finance

c a p i t a l i s m . But the interests o f finance capital were n o t identical to those o f industrial capital, w h i c h c o u l d e x p a n d only by broadening its markets t h r o u g h free trade. It w a s f r o m the industrial llcyond

Marx: Monopoly, War and the State

91

sector that impulses t o w a r d s international c o n c o r d arose in the bourgeois c a m p . . . I m p e r i a l i s m , rhe expression o f o n e phase o f capitalist d e v e l o p m e n t a n d the cause o f a r m e d conflicts, w a s n o t rhe o n l y possible f o r m o f d e v e l o p m e n t o f capitalism. | J K a u t s k y stressed the role of a r m s firms i n particular as h a v i n g a n interest in i m p e r i a l i s m a n d war. But he m a i n t a i n e d that rhe econ o m i c costs of r e a r m a m e n t , w h i l e they favoured the d e v e l o p m e n t o f s o m e sectors o f industry, were d e t r i m e n t a l t o others. C a p i t a l in rhe industrial countries needed t o d o m i n a t e the " a g r i c u l t u r a l " countries in o r d e r to get r a w materials. But there w a s n o reason w h y capitalists s h o u l d n o t be able t o c o o p e r a t e t o d o this t h r o u g h a " s o r t o f super-imperialism".- 0 In h o l d i n g t h a t the drive t o w a r w a s s o m e t h i n g t h a t h a p p e n e d despite the interests o f m o s t capitalists, H i l f e r d i n g a n d K a u t s k y were articulating a view very similar t o that o f s o m e liberals. O n e w a s the influential e c o n o m i s t H o b s o n , w h o h a d p r o d u c e d his o w n theory o f i m p e r i a l i s m s o m e n i n e years before H i l f e r d i n g . H e s a w imperialism as the p r o d u c t o f o n e interest g r o u p , those connected w i t h certain financial institutions. 2 1 These opted for guaranteed returns o f interest o n overseas loans rather t h a n raking the risks involved i n industrial investment at h o m e , a n d w e l c o m e d colonial e x p a n s i o n as a w a y of m a k i n g sure rheir state guaranteed the safety o f their investments. So for H o b s o n rhe r o o t o f imperialism lay nor w i t h capitalism as such but w i t h finance capital a n d those he saw as benefitting directly f r o m i t — t h e b o n d - h o l d i n g rentiers

w h o re-

ceived their d i v i d e n d s regularly w i t h o u t ever h a v i n g t o w o r r y themselves w i t h p r o d u c t i v e or c o m m e r c i a l activity o f a n y sort. A n o t h e r British liberal, N o r m a n A n g e l l , argued a s i m i l a r posit i o n , i d e n t i f y i n g a n essentially peaceful d y n a m i c in c a p i t a l i s m , a l t h o u g h ascribing a m o r e benign role t o

finance—no

d o u b t influ-

enced by the u n h e s i t a t i n g w a y rhe central b a n k s o f France a n d G e r m a n y h a d sent g o l d to help Britain, a n d Russia h a d then sent g o l d to help G e r m a n y , d u r i n g the m a j o r financial crisis o f 1907.-" I n n o d e p a r t m e n t o f h u m a n a c t i v i t y " , he w r o t e , "is internationalisarion so c o m p l e t e as in finance. T h e capitalist has n o c o u n t r y , a n d he k n o w s , if he be o f the m o d e r n type, that a r m s a n d conquests a n d jugglery w i t h frontiers serve n o ends o f h i s . . . " S u c h a r g u m e n t s h a v e p e r c o l a t e d d o w n t h r o u g h rhe years t o t h e present day. S o t h e f o r m e r r e v o l u t i o n a r y M a r x i s t

Nigel

H a r r i s argues t h a t " b u s i n e s s has in general n o m o r e p o w e r over 92


governments t h a n p o p u l a t i o n s " a n d rhe threat to the w o r l d c o m e s not f r o m u n t r a m m e l l e d capitalism but f r o m rhe states w h i c h g u a r d iheir o w n interests. 24 Ellen W o o d is still a m i l i t a n t M a r x i s t , b u t her a r g u m e n t s are n o t t h a t different. She has criticised w h a t she calls "classical-Marxist theories o f i m p e r i a l i s m " o f the First W o r l d W a r years for failing to see t h a t the " ' p o l i t i c a l ' f o r m o f i m p e r i a l i s m , in w h i c h e x p l o i t a t i o n o f c o l o n i a l peoples a n d resources d e p e n d s on political d o m i n a t i o n a n d c o n t r o l o f t e r r i t o r y " , is " t h e essence o f //^-capitalist e m p i r e s " . 2 ' " C a p i t a l i s t class e x p l o i t a t i o n " , she insists, is a " p u r e l y e c o n o m i c process w h i c h , like capitalist class relations, concerns the c o m m o d i t y m a r k e t " . 1 ' F r o m this it f o l l o w s that, w h i l e c a p i t a l i s m needs a state to exert c o n t r o l over society, it does n o t need states t h a t enter i n t o conflict w i t h each other. M u c h the same a r g u m e n t is p u t by M i c h a e l H a r d t a n d Toni Negri i n their b o o k Empire.

H a r d r w r o t e shortly before the US invasion o f

Iraq that the "elites" b e h i n d the decision to g o t o w a r " a r e incapable o f u n d e r s t a n d i n g their o w n interests". 2 "

I he classical theory o f i m p e r i a l i s m W r i t i n g in the m i d d l e o f the First W o r l d War, N i c o l a i Bukharin* 8 and V l a d i m i r Lenin-" d r e w very different c o n c l u s i o n s . T h e y began w i t h H i l f e r d i n g ' s description o f the i n t e g r a t i o n o f b a n k i n g c a p i t a l , industrial capital a n d the state, b u t removed f r o m it any sense o f the result being h a r m o n i o u s by stressing the w a y in w h i c h the role of rhe state in i n t e r n a t i o n a l e c o n o m i c c o m p e t i t i o n led to war. This w a s the o v e r r i d i n g t h e m e o f Lenin's p a m p h l e t

Imperialism.

Its a i m w a s to be a " p o p u l a r o u t l i n e " , s h o w i n g h o w the resort to w a r w a s a p r o d u c t o f the "latest stage o f c a p i t a l i s m " — t h e original subtitle t o the w o r k : H a l f a century a g o , w h e n M a r x w a s w r i t i n g Capital,

free com-

petition appeared to rhe o v e r w h e l m i n g m a j o r i t y o f e c o n o m i s t s t o be a " n a t u r a l l a w " . . . M a r x h a d p r o v e d that free c o m p e t i t i o n gives rise to the c o n c e n t r a t i o n o f p r o d u c t i o n , w h i c h , in t u r n , at a certain stage o f d e v e l o p m e n t , leads to m o n o p o l y . . . T h i s is s o m e t h i n g q u i t e different f r o m the o l d free competition

between

manufacturers...producing

for

an

unknown

m a r k e t . C o n c e n t r a t i o n has reached the p o i n t at w h i c h it is possible t o m a k e a n a p p r o x i m a t e estimate o f all sources o f r a w llcyond Marx: Monopoly, War and the State

93

materials (for e x a m p l e , t h e iron ore deposits) o f a c o u n t r y a n d e v e n . . . o f the w h o l e w o r l d . . . These sources are c a p t u r e d by gig a n t i c m o n o p o l i s t a s s o c i a t i o n s . . . T h e associations

"divide"

t h e m u p a m o n g s t themselves by agreement. 3W O n c e this stage is reached, c o m p e t i t i o n between the g i a n t corporations is n o longer based s i m p l y — o r even m a i n l y — o n the o l d purely m a r k e t m e t h o d s . T a k i n g c o n t r o l o f raw m a t e r i a l s so t h a t rivals c a n n o t get t h e m , b l o c k i n g rivals' access t o t r a n s p o r t facilities, selling g o o d s at a loss so as t o drive rivals o u t o f business, d e n y i n g t h e m access to credit, are all m e t h o d s used. " M o n o p o l i e s b r i n g w i t h them everywhere m o n o p o l i s t principles: the utilisation o f ' c o n n e c t i o n s ' for p r o f i t a b l e deals takes the place o f c o m p e t i t i o n in the o p e n m a r k e t " / ' The c a p i t a l i s t p o w e r s h a d

partitioned

the w o r l d

between

t h e m , b u i l d i n g rival c o l o n i a l e m p i r e s , o n the basis o f " a calculat i o n o f the strength o f t h e p a r t i c i p a n t s , their general e c o n o m i c , f i n a n c i a l , m i l i t a r y a n d o t h e r s t r e n g t h . " But " t h e relative strength o f these p a r t i c i p a n t s is n o t c h a n g i n g u n i f o r m l y , f o r u n d e r capitalism

there c a n n o t

be

an

equal

development

of

different

u n d e r t a k i n g s , trusts, b r a n c h e s of industry o r c o u n t r i e s " . A partit i o n o f the w o r l d t h a t c o r r e s p o n d e d t o the relative strength o f the great p o w e r s at o n e p o i n t n o longer d i d so a c o u p l e o f decades later. T h e p a r t i t i o n i n g o f the w o r l d gives w a y ro struggles over the r e p a r t i t i o n i n g o f the w o r l d : Peaceful alliances prepared the g r o u n d for wars a n d in their turn g r o w o u t o f wars. O n e is the c o n d i t i o n for the other, g i v i n g rise t o a l t e r n a t i n g forms o f peaceful a n d non-peaceful struggle o n o n e a n d the s a m e basis, t h a t o f imperialist c o n n e c t i o n s a n d interrelations o f w o r l d e c o n o m i c s a n d w o r l d politics. The epoch o f the latest stage of c a p i t a l i s m s h o w s us t h a t certain relations between capitalist associations g r o w u p , based o n rhe e c o n o m i c division o f the w o r l d ; w h i l e parallel t o a n d in connection w i t h it, certain relations g r o w u p between

political

alliances, between states, o n the basis o f the territorial division o f the w o r l d , o f the struggle f o r c o l o n i e s , o f the " s t r u g g l e for spheres o f i n f l u e n c e " / ' Britain a n d France h a d been able t o b u i l d great empires, d i v i d i n g Africa a n d m u c h o f Asia between t h e m . T h e N e t h e r l a n d s a n d 94


Belgium controlled smaller bur still e n o r m o u s empires in Indonesia ind the C o n g o . By c o n t r a s t , G e r m a n y h a d o n l y a few relatively small colonies, despite its e c o n o m y b e g i n n i n g to overtake that o f Britain. It w a s this discrepancy that lay behind rhe repeated clashes between the rival alliances o f great p o w e r t h a t c u l m i n a t e d in the First W o r l d War. Finally, w h e r e K a u t s k y focused s i m p l y o n the c o n t r o l o f the " a g r a r i a n " parts o f the w o r l d ( w h a t t o d a y w o u l d be called the I bird W o r l d or the G l o b a l S o u t h ) , L e n i n w a s insistent t h a t the imperialist

division

o f rhe w o r l d

was

increasingly

centred

on

industrial areas. " T h e characteristic feature o f i m p e r i a l i s m is precisely t h a t it strives to a n n e x not only agrarian territories, b u t even most highly industrialised regions ( G e r m a n appetite for B e l g i u m ; l ; rench appetite for L o r r a i n e ) " . ' 4 B u k h a r i n s Imperialism

and

World

Economy,

written shortly

before Lenin's w o r k , b u t a p p e a r i n g a f t e r w a r d s w i t h an introduction by L e n i n , m a d e the a r g u m e n t just as forcefully as he d r a w s o f tin consequences of the tendencies t h a t H i l f e r d i n g h a d described: Combines...in

industry and

b a n k i n g . . . u n i t e the entire

"na-

t i o n a l " p r o d u c t i o n , w h i c h assumes the f o r m o f a c o m p a n y o f companies,

thus

becoming

a

state

capitalist

trust.

C o m p e t i t i o n . . . i s n o w c o m p e t i t i o n o f the state capitalist trusts o n the w o r l d m a r k e t . . . C o m p e t i t i o n is reduced t o a m i n i m u m w i t h i n the b o u n d a r i e s o f the " n a t i o n a l " economies, o n l y ro flare u p in colossal p r o p o r t i o n s , such as w o u l d n o t have been possible in any o f the preceding historical e p o c h s . . . T h e centre o f gravity is shifted i n the c o m p e t i t i o n o f g i g a n t i c , c o n s o l i d a t e d a n d organised e c o n o m i c bodies possessed o f a colossal fighting capacity in the w o r l d t o u r n a m e n t o f " n a t i o n s " . . . - 5 Writing three years after the e n d o f the war, he drew o u t the implications even m o r e sharply: The state o r g a n i s a t i o n o f the bourgeoisie concentrates w i t h i n itself t h e entire p o w e r o f this class. C o n s e q u e n t l y , all remaining o r g a n i s a t i o n s . . . m u s t be s u b o r d i n a t e d to the state. A l l are " m i l i t a r i s e d " . . . T h u s there arises a n e w m o d e l o f srate power, the classical m o d e l o f t h e imperialist state, w h i c h relies o n state capitalist relations o f p r o d u c t i o n . H e r e " e c o n o m i c s " is organi s a t i o n a l l y fused w i t h " p o l i t i c s " ; the e c o n o m i c p o w e r o f the |V! the a g e i n g c a p i t a l i s m s .

As K e n n e t h

Galbraith

has

noted,

H i e G r e a t D e p r e s s i o n o f t h e 3 0 s never c a m e t o a n e n d .

It

merely d i s a p p e a r e d in the great m o b i l i s a t i o n o f t h e 4 0 s " . "

I he R u s s i a n v a r i a n t I here w a s o n e o t h e r m a j o r e c o n o m y w h e r e state d i r e c t i o n seemed n> p r o v i d e a n alternative ro b e i n g t o r n a p a r t in the m a e l s t r o m o f the w o r l d system. This w a s the U S S R . I n the 1930s nearly all commentators s a w it as based o n radically different principles t o those • »t Western c a p i t a l i s m — a n d this view persisted a m o n g m a n y right up u n t i l its i m p l o s i o n in 1989-91.The right defined ir s i m p l y as totalitarian* 1 , as i f there w a s n o d y n a m i c t o its e c o n o m y , a n d m a n y o n the left a d o p t e d a m i r r o r i m a g e view, s p e a k i n g o f it as " c o m m u n i s t " o r " s o c i a l i s t " , o r those w h o w e r e m o r e critical as "post-capitalist"

o r a " d e g e n e r a t e d w o r k e r s ' s t a t e " 8 . A l l these

different a p p r o a c h e s a s s u m e d a high degree o f c o n t i n u i t y between i he Soviet system as it operated in rhe 1930s a n d the r e v o l u t i o n a r y itrtte established in 191 "7. But t h e c e n t r a l m e c h a n i s m s d i r e c t i n g the S o v i e t

economy

were n o t e s t a b l i s h e d d u r i n g the r e v o l u t i o n , b u t in 1928-9 u n d e r the i m p a c t o f a p r o f o u n d e c o n o m i c a n d p o l i t i c a l crisis. By t h a t n i n e lirtle r e m a i n e d o f t h e r e v o l u t i o n a r v d e m o c r a c y t h a t h a d •

/

c h a r a c t e r i s e d t h e c o u n t r y in the i m m e d i a t e a f t e r m a t h o f t h e O c t o b e r R e v o l u t i o n o f 1 9 1 7 . A n e w b u r e a u c r a t i c layer h a d initeasingly concentrated

p o w e r in its o w n

hands amidst

the

d e v a s t a t i o n o f a n a l r e a d y e c o n o m i c a l l y b a c k w a r d c o u n t r y suflering f r o m t h r e e years o f w o r l d w a r f o l l o w e d by three years o f civil w a r . N e v e r t h e l e s s , t h e d r i v i n g force b e h i n d rhe e c o n o m y I he Great Slump

157

t h r o u g h t o t h e m i d - 1 9 2 0 s r e m a i n e d the p r o d u c t i o n o f g o o d s to satisfy rhe needs o f the p o p u l a t i o n , a n d l i v i n g s t a n d a r d s rose f r o m the a b y s m a l levels o f the w a r a n d civil w a r years, even il b u r e a u c r a t s ' living s r a n d a r d s rose d i s p r o p o r t i o n a t e l y m o r e t h a n those o f w o r k e r s a n d peasants. Then in late 1928 a w a v e o f p a n i c hit the b u r e a u c r a c y in the face o f w a r l i k e threats f r o m Britain a n d a d o m e s t i c crisis as peas a n t s held back supplies o f f o o d , creating h u n g e r in the cities. A f r a i d o f l o s i n g their c o n t r o l over the c o u n t r y t h r o u g h a c o m b i n a tion o f rebellion at h o m e a n d a r m e d pressure f r o m a b r o a d , the bureaucracy, led by Stalin, turned p r a g m a t i c a l l y t o a series o f m e a sures t h a t involved super-exploitation o f the peasantry a n d the w o r k i n g class in order to b u i l d the i n d u s t r y rhe c o u n t r y lacked. The c u m u l a t i v e effect w a s to p u s h the w h o l e e c o n o m y t o w a r d s a n e w d y n a m i c other t h a n t h a t o f fulfilling people's n e e d s — a dyn a m i c u l t i m a t e l y d e t e r m i n e d by m i l i t a r y c o m p e t i t i o n w i t h the various Western states. A s the C z e c h historian R e i m a n has said: There were not e n o u g h resources t o g u a r a n t e e the proposed rare o f industrial g r o w t h . T h e p l a n n i n g agencies therefore dec i d e d . . . t o balance the p l a n by m e a n s o f resources the econom\ d i d nor yet have at its d i s p o s a l . . . T h e fulfilment o f the plan dep e n d e d o n a very b r u t a l a t t a c k o n the l i v i n g a n d c o n d i t i o n s o f industrial w o r k e r s a n d t h e rural

working

population...

T h i s w a s a p l a n o f organised poverty a n d famine. 6 0 Stalin, justifying the s u b o r d i n a t i o n o f everything else t o accumul a t i o n , insisted, " W e are fifty or a h u n d r e d years b e h i n d

the

a d v a n c e d countries. W e m u s t m a k e g o o d this lag i n ten years. Either w e d o it or they crush u s " / '

u

T h e e n v i r o n m e n t in w h i c h we

are p l a c e d . . . a t h o m e a n d a b r o a d . . . c o m p e l s us t o a d o p t a rapid rate o f g r o w t h o f o u r i n d u s t r y " In u n d e r t a k i n g the task o f a c c u m u l a t i o n , the bureaucracy substituted itself for a capitalist class that n o longer existed. But the m e t h o d s it used were essentially those o f capitalist industrialisation elsewhere in the w o r l d . " C o l l e c t i v i s a t i o n " — i n reality the state takeover of the l a n d — i n c r e a s e d rhe p r o p o r t i o n o f a g r i c u l t u r a l o u t p u t a v a i l a b l e for industrial a c c u m u l a t i o n w h i l e d r i v i n g a ver\ high p r o p o r t i o n o f the peasantry f r o m the l a n d , just as enclosures h a d for E n g l a n d ' s early capitalists. T h e g r o w i n g industries were Capitalism in the 20th Century

mainly m a n n e d by w a g e l a b o u r — b u t s o m e s u b o r d i n a t e tasks were i irried our by s o m e m i l l i o n s o f slave labourers. T h e rights workers h id held o n t o t h r o u g h the 1920s were a b o l i s h e d . C o n t r o l o f the e c o n o m y by a single centralised state bureau• racy w i t h a m o n o p o l y o f foreign trade m e a n t a c c u m u l a t i o n c o u l d proceed w i t h o u t i n t e r r u p t i o n , as in the militarised state m o n o p o l y i apitalisms o f the West. But the e c o n o m y c o u l d n o t be isolated completely f r o m the w i d e r w o r l d system, a n y m o r e t h a n those of i .ermany a n d J a p a n c o u l d in t h e late 1930s. I m p o r t i n g m a c h i n e r y lor i n d u s t r i a l i s a t i o n f r o m the West d e p e n d e d o n e x p o r t earnings from grain at a t i m e o t f a l l i n g w o r l d p r i c e s — a n d that d e p e n d e d o n I he state seizing the grain f r o m starving peasants, s o m e m i l l i o n s o f w h o m d i e d . P r e o b r a z h e n s k v n o t e d , " A s exporters w e |rhe U S S R | are suffering severely f r o m rhe w o r l d crisis".* 3 There w a s , however, a relative i s o l a t i o n f r o m the w o r l d economy, a n d this m e a n t the a c c u m u l a t i o n c o u l d proceed as l o n g as there w a s s o m e surplus value, regardless o f the rate o f profit at any particular time. T h i s did n o t , however, o v e r c o m e e c o n o m i c contradictions. Fulfilling the p r o d u c t i o n p l a n s for heavy industry a n d a r m a m e n t s i n v a r i a b l y i n v o l v e d d i v e r t i n g resources t o t h e m f r o m c o n s u m e r g o o d s industries, w h o s e o u t p u t fell even as the e c o n o m y is a w h o l e e x p a n d e d at great speed. Such a n o u t c o m e w a s the opposite o f " p l a n n i n g " in a n y real sense o f rhe w o r d . I f t w o o f us p l a n t o g o f r o m L o n d o n t o M a n c h e s t e r but o n e o f us ends u p in ( i l a s g o w a n d the other in B r i g h t o n , t h e n o u r " p l a n " d i d n o t g u i d e o u r a c t i o n . T h e same w a s true of Soviet p l a n n i n g . As in the West c o m p e t i t i v e a c c u m u l a t i o n p r o d u c e d a d y n a m i c o f g r o w t h o n the one h a n d a n d o f c h a o s , inefficiency a n d poverty o n the other. It also p r o d u c e d a tendency t o i m p e r i a l i s t e x p a n s i o n b e y o n d national borders, as w a s s h o w n in 1 9 3 9 w h e n Stalin d i v i d e d Eastern I u r o p e w i t h Hitler, t a k i n g h a l f o f P o l a n d , E s t o n i a , L i t h u a n i a a n d I a t v i a — o n l y t o find in 1941 t h a t Hitler h a d set his eyes o n seizing and p i l l a g i n g the U S S R for G e r m a n c a p i t a l i s m .

Balance sheet o f a decade In the 1930s rhere h a d been a widespread feeling a m o n g the supporters o f c a p i t a l i s m o p p o n e n t s t h a t it w a s

t h a t it w r as in deep t r o u b l e ; a m o n g finished.

its

Lewis C o r e y h a d written o f the

"decline a n d decay o f capitalism"/- 4 J o h n Strachey t h a t " t h e r e c a n The Great Slump

14S

o n l y exist f o r rhe capitalist areas o f the w o r l d an ever m o r e rapid decay"

with

"rhe

permanent

contraction

of

production1,

P r e o b r a z h e n s k y of " t h e t e r m i n a l crisis o f the entire capitalist system", 6 6 L e o n Trotsky o f " r h e death a g o n y o f c a p i t a l i s m " . Their prophesies did n o t seem a b s u r d ar a t i m e w h e n the support ers o f c a p i t a l i s m were t o r m e n t e d by worries as to w h a t h a d gonew r o n g w i t h their supposedly i n f a l l i b l e system. Yet the desperateturn t o srate capitalism a n d massive a r m s p r o d u c t i o n a l l o w e d the system t o enter into a n e w phase o f e x p a n s i o n . T h e question rem a i n e d : for h o w long?

144

Capitalism in the 20th Century

• HIAPTER SEVF.N

The long boom

I he " G o l d e n A g e " o f Western c a p i t a l i s m M a n y e c o n o m i c forecasters expected the w o r l d e c o n o m y to slip into crisis a g a i n after the war, alter a brief period o f b o o m as in 1919. It d i d nor h a p p e n . W h a t f o l l o w e d w a s the longest b o o m rhat i apitalism h a d ever k n o w n — w h a t is often n o w called " t h e golden age o f c a p i t a l i s m " , or in France, " t h e g l o r i o u s thirty years". By the I ''70s A m e r i c a n e c o n o m i c o u t p u t w a s three times the 1940 level; ( i e r m a n e c o n o m i c o u t p u t w a s five times the (depressed) level o f 1947; French o u r p u r u p f o u r f o l d . A thirteen-fold increase in industrial o u t p u t turned J a p a n , still t h o u g h t o f as a p o o r c o u n t r y in iIn- 1940s, i n t o rhe second largest Western 1 e c o n o m y after the US. And a l o n g w i t h e c o n o m i c g r o w t h w e n t rising real wages, v i r t u a l l y lull e m p l o y m e n t a n d welfare p r o v i s i o n o n a scale people h a d o n l y been able to d r e a m o f previously. }

Conditions

were very different

in

A s i a , Africa

and

Latin

A m e r i c a — w h a t b e c a m e k n o w n as the " T h i r d W o r l d " after the b a n d u n g conference o f 1955. There massive poverty r e m a i n e d the lot o f the vast mass o f people. But the E u r o p e a n p o w e r s were forced t o r e l i n q u i s h their c o l o n i e s , a n d increased per c a p i t a economic

growth-

created

the

expectation

that

eventually

the

e c o n o m i c a l l y "less d e v e l o p e d " countries w o u l d begin to catch u p with the m o s t a d v a n c e d . It b e c a m e the o r t h o d o x y o n b o t h the r i g h t a n d m u c h o f the left t o p r o c l a i m t h a t the c o n t r a d i c t i o n s in the system perceived by M a r x h a d been o v e r c o m e . T h e key c h a n g e , it w a s a r g u e d , was t h a t g o v e r n m e n t s h a d l e a r n t t o intervene in the e c o n o m y t o c o u n t e r a c t tendencies t o crisis a l o n g the lines urged in the 1930s In J o h n M a y n a r d Keynes. A l l t h a t w a s n e e d e d f o r the system t o w o r k w a s f o r the e x i s t i n g state t o disregard o l d free m a r k e t ort h o d o x i e s a n d t o intervene in e c o n o m i c life t o raise rhe level o f 143

s p e n d i n g o n i n v e s t m e n t a n d c o n s u m p t i o n . T h i s c o u l d be d o n e either by c h a n g e s ir interest rates ( " m o n e t a r y m e a s u r e s " ) t o encourage private investment, or t h r o u g h increasing government e x p e n d i t u r e a b o v e its t a x revenues ( " f i s c a l m e a s u r e s " ) . " D e f i c i t f i n a n c i n g " o f the latter sort w o u l d increase t h e d e m a n d

for

g o o d s a n d so t h e level o f e m p l o y m e n t . Ir w o u l d a l s o p a y for itself e v e n t u a l l y t h r o u g h a " m u l t i p l i e r e f f e c t " ( d i s c o v e r e d by Keynes's C a m b r i d g e c o l l e a g u e K a h n ) . T h e extra w o r k e r s w h o g o t j o b s because o f g o v e r n m e n t e x p e n d i t u r e s w o u l d s p e n d their w a g e s , so p r o v i d i n g a m a r k e t for the o u t p u t o f o t h e r w o r k e r s , w h o in t u r n w o u l d s p e n d their w a g e s a n d p r o v i d e still bigger m a r k e t s . A n d as the e c o n o m y e x p a n d e d closer t o its full employment

level,

the

government's

revenue

from

taxes

on

i n c o m e s a n d s p e n d i n g w o u l d rise, u n t i l it w a s e n o u g h t o p a y for rhe p r e v i o u s increase in e x p e n d i t u r e . These

two

measures

were

soon

seen

as

the

archetypal

" K e y n e s i a n " tools' for getting full e m p l o y m e n t a n d accepted as es senrial for e c o n o m i c m a n a g e m e n t by b o t h Conservative a n d social d e m o c r a t i c politicians

in the

1940s,

1950s,

1960s a n d

early

1 9 7 0 s . Keynes h a d , as w e s a w in the last chapter, expressed m o r e radical n o t i o n s ar p o i n t s , n o t a b l y the c o n t e n t i o n thar t h e very process o f e x p a n d i n g c a p i t a l i n v e s t m e n t led ro a decline in the return o n i t — " r h e m a r g i n a l efficiency o f c a p i t a l " . 4 H e h a d even g o n e so far as t o urge rhe g r a d u a l " e u t h a n a s i a " o f the " r e n t i e r w h o lives o f f dividends^ a n d t o argue t h a t " a s o m e w h a t comprehensive socialisation o f investment w i l l p r o v e the o n l y m e a n s ot securing an a p p r o x i m a t i o n t o full e m p l o y m e n t " . 6 But Keynes himself shied a w a y f r o m these m o r e radical i n s i g h t s — " i n practice he was very c a u t i o u s i n d e e d " , writes his ultra-moderate biographer Skidelsky, a n d rhe version o f Keynesianism* t h a t h e g e m o n i s e d m a i n s t r e a m e c o n o m i c s f o r the 3 0 years after the Second W o r l d W a r p u r g e d Keynes's theory o f its radical elements. For this reason, rhe radical Keynesian J o a n

R o b i n s o n d e n o u n c e d ir as

"bastard Keynesianism".' M a i n s t r e a m e c o n o m i c s believed in those years t h a t it h a d rhe capacity ro e n a b l e g o v e r n m e n t s t o d o a w a y w i t h the crises that h a d p l a g u e d c a p i t a l i s m since the early 19th century. T h e capitalist system c o u l d n o w , the o r t h o d o x y p r e a c h e d , deliver endless prosperity, rising l i v i n g s t a n d a r d s a n d a decline in t h e level o f class s t r u g g l e — p r o v i d i n g g o v e r n m e n t s accepted its d i k t a t s a n d a v o i d e d the " m i s t a k e s " o f 1929-32. 144


J o h n Strachey h a d been by far the best k n o w n M a r x i s t writer on e c o n o m i c s in Britain in the 1930s. H i s b o o k s , The Nature ( J pita list Crisis, and

Practice

The Coming

of Socialism

Struggle

for Power a n d The

of

Theory

h a d t a u g h t M a r x i s t e c o n o m i c s to a

whole g e n e r a t i o n of w o r k e r activists a n d y o u n g intellectuals, w i t h ihe message t h a t c a p i t a l i s m c o u l d n o t escape f r o m recurring a n d ever deeper crises. Yet by 1 9 5 6 he w a s a r g u i n g , in his b o o k ( ontemporary

Capitalism,

t h a t Keynes h a d been right a n d Marx-

w r o n g o n the crucial question o f w h e t h e r the capitalist crisis c o u l d be reformed away. 1 0 Keynes's o n l y m i s t a k e , Strachey held, was that he failed t o see t h a t the*capitalists w o u l d have to be pressurised into accepting his remedies: " T h e Keynesian remedies...will be opposed by the capitalists certainly: bur experience s h o w s they can be i m p o s e d by the electorate". 1 1 The belief t h a t Keynes's ideas were responsible for the l o n g b o o m persists today, w i t h a w i d e s p r e a d view 011 the left that the . i b a n d o n m e n t o f those ideas is responsible for the crises o f recenr sears. This is essentially rhe position p u t f o r w a r d by the journalists D a n A t k i n s o n a n d L a r r y Elliot in a series o f b o o k s , t h e columnist Will

H u t t o n 1 J a n d the radical e c o n o m i c

Observer consultant

( . r a h a m Turner. 14 A version o f it is accepted by s o m e M a r x i s t s . (icrard D u m e n i l a n d D o m i n i q u e Levy ascribe the post-war g r o w t h 10 a " K e y n e s i a n " a p p r o a c h by i n d u s t r i a l c a p i t a l , in w h i c h accumulation

w a s based 011 a " c o m p r o m i s e "

with

working

class

organisations o n the terrain o f the welfare state. 15 D a v i d H a r v e y presents a p i c t u r e of c a p i t a l i s m e x p a n d i n g o n the basis o f " a class c o m p r o m i s e between c a p i t a l a n d l a b o u r "

in w h i c h " t h e state

could focus o n full e m p l o y m e n t , e c o n o m i c g r o w t h a n d the welfare of its c i t i z e n s " , w h i l e "fiscal or m o n e t a r y policies usually d u b b e d 'Keynesian* were widely deployed t o d a m p e n business cycles a n d to ensure reasonably full e m p l o y m e n t " . 1 6 Yet

the

most

amazing

fact

about

rhe

period

in

which

Keynesian ism reigned s u p r e m e as rhe official e c o n o m i c i d e o l o g y was that rhe measures it proposed for w a r d i n g o f f crises were n o t used. T h e e c o n o m y e x p a n d e d despite their absence until the 1960s 111 the US a n d the 1970s in Western E u r o p e a n d J a p a n . A s R C O M a t t h e w s l o n g a g o p o i n t e d o u t , the e c o n o m i c exp a n s i o n o f the post-war years in Britain d i d n o t d e p e n d o n the specific Keynesian " r e m e d i e s " t o recurrent crises o f b u d g e t deficits or a higher level o f g o v e r n m e n t i n v e s t m e n t t h a n in the pre-war years.1" M e g h n a d Desai has n o t e d , " I n the U S A Keynesian policies 'T he Long Boom

163

were s l o w ro he officially a d o p t e d . . . They finally t r i u m p h e d w i t h the Kennedy-Johnson rax cur o f 1964". 1 8 T h a r w a s after the Great B o o m h a d already lasted 1.5 years (25 years if y o u e x c l u d e the shortlived recession of the late 1940s). T h e s a m e p o i n t is m a d e for G e r m a n y by Ton N o t e r m a n s : " C o u n t e r c y c l i c a l d e m a n d m a n a g e menr

policies

were only

pursued

in

Germany...

during

the

1 9 7 0 s " . I n so far as g o v e r n m e n t intervention was used t o determ i n e rhe speed o f the e c o n o m y , it w a s t o s l o w d o w n b o o m s , not t o avert recessions, as with the " s t o p g o " policies o f British gov e r n m e n t s faced w r irh balance o f p a y m e n t s p r o b l e m s in the 1950s a n d 1960s. Bleaney, re-analysing the figures used by M a t t h e w s a n d others, c o n c l u d e s rhar Keynesianism played little role in the West E u r o p e a n l o n g b o o m , and o n l y a l i m i t e d o n e in the US. A n d he notes that it was rhe big increase in US levels o f m i l i t a r y expenditure c o m p a r e d w i t h rhe pre-war years t h a t p r o v i d e d m o s t o f the "fiscal s t i m u l u s " : "Largely because o f m u c h higher defence spending, total g o v e r n m e n t spending o n g o o d s a n d services increased by nearly 9 percent o f potential G N P " . : o T h e e x p l a n a t i o n of the b o o m as a result o f Keynesian policies is often c o m b i n e d w i t h references t o a " F o r d i s t " period in w h i c h rhe great capitalist c o r p o r a t i o n s accepted a c o m p r o m i s e w i t h workers based o n wages high e n o u g h to b u y a c o n t i n u a l l y

increasing

a m o u n t o f o u t p u t . T h e French e c o n o m i s t A g l i e t t a , for instance, has argued t h a t " F o r d i s m " regulated " p r i v a t e w o r k i n g class cons u m p t i o n " by "generalising the w a g e r e l a t i o n " t o g u a r a n t e e "rhe maintenance

cycle o f l a b o u r

power".21

So, for h i m

and

his

" R e g u l a t i o n S c h o o l " version o f M a r x i s m , Keynes is the p r o p h e t ot F o r d i s m , w i t h Keynes's criticism o f neoclassical e c o n o m i c s a n d his n o t i o n o f "effective d e m a n d " a partial recognition o f the need for p r o d u c t i o n a n d c o n s u m p t i o n to be integrated at a certain stage ot capitalist d e v e l o p m e n t . Certainly, o n e element in the d o m i n a n t state interventionist ideology o f the post-war decades w a s the c o n t e n t i o n t h a t welfare provision c o u l d c o u n t e r b a l a n c e cyclical ups a n d d o w n s in the d e m a n d for c o n s u m e r g o o d s . T h e " s u p p l y side" need o f capital t o ensure the r e p r o d u c t i o n o f l a b o u r p o w e r for it to exploit ( w h i c h we have looked at in C h a p t e r Five) seemed ro coincide w i t h " d e m a n d side"

worries a b o u t k e e p i n g m a r k e t s e x p a n d i n g .

Promises

to

e x p a n d welfare provision also suited social d e m o c r a t a n d Christian D e m o c r a t parties in E u r o p e as a w a y o f w i n n i n g votes a n d luring workers a w a y f r o m the C o m m u n i s t parties t o their left. Yet n o n e 144


this is a d e q u a t e t o e x p l a i n w h y the global e c o n o m y s h o u l d b o o m in rhe post-war years after s l u m p i n g pre-war. W h a t is m o r e , there w a s n o c o n s c i o u s policy by the " F o r d i s t " managers o f mass p r o d u c t i o n industries ro o p t for such a supposed k e y n e s i a n " policy o f raising real wages a n d welfare provision. As Robert Brenner a n d M a r k G l i c k say, US c a p i t a l never: resigned itself t o the p r i n c i p l e o f m a i n t a i n i n g labour's share or failed t o fight t o o t h a n d nail t o l i m i t the degree t o w h i c h wages kept u p w i t h the cost o f living o r w i t h productivity. There w a s never a n y t h i n g resembling a generalised " s o c i a l c o n t r a c t " o n h o w revenue w a s to be d i v i d e d between i n v e s t m e n t a n d cons u m p t i o n o r between profits a n d w a g e s . 2 I he reality w a s t h a t as c a p i t a l i s m e x p a n d e d in the

post-war

decades, the full e m p l o y m e n t that resulted forced employers a n d i he state t o pay m u c h m o r e a t t e n t i o n t h a n previously ro reproducing l a b o u r p o w e r a n d deflecting w o r k i n g class discontent. Both the conventional Keynesian a c c o u n t a n d " R e g u l a t i o n " theory c o n f u s e causes w i t h effects. In the process they fail to a c c o u n t for the m o s t significant feature o f the post-war decades: the rare o f profit in rhe US w a s between 5 0 a n d

100 percent h i g h e r t h a n in the f o u r

dccades before the Second W o r l d War. A n d it m o r e or less sustained t h a t higher level u n t i l the late I 9 6 0 s . :

It w a s this w h i c h

r x p l a i n e d w h y capitalists k e p t investing o n a scale sufficient t o keep the e c o n o m y b o o m i n g w i t h o u t m o s t states needing even t o ir> using the "counter-cyclical m e a s u r e s " suggested by Keynes. But h o w were such high profit rates achieved a n d sustained alongside r a p i d l y rising real wages? Parr o f the a n s w e r lies i n the i m p a c t o f the s l u m p a n d the war. Some firms h a d g o n e b a n k r u p t in the s l u m p . M u c h c a p i t a l h a d been w r i t t e n off. R e s t r u c t u r i n g t h r o u g h crisis h a d begun t o perform s o m e o f its o l d role o f a l l o w i n g capital t o u n d e r t a k e renewed a c c u m u l a t i o n w i t h a l o w e r rate o f profit. T h e destruction o f the war p r o v i d e d

further assistance. Vast a m o u n t s o f

investment

w h i c h w o u l d o t h e r w i s e h a v e raised the r a t i o o f investment t o labour (and therefore profits) were instead used for m i l i t a r y purposes. S h a n e M a g e , for instance, estimated the c o m b i n e d effect o f the crisis o f the 1930s a n d the Second W o r l d W a r o n rhe US econo m y : " B e t w e e n 1 9 3 0 a n d 1945 the capital stock o f rhe US fell from 145 billion dollars to 120 billion dollars, a net disinvestment 'TheLong Boom

165

o f s o m e 2 0 percent V 4 W r i t t e n o f f w a s a n a m o u n t equal to a fifth o f the pre-existing a c c u m u l a t e d s u r p l u s value plus all the a d d i t i o n a l surplus value p r o d u c e d over those 15 years. M e a n w h i l e capitalists in the defeated states, G e r m a n y a n d J a p a n , emerged f r o m the w a r w i t h m u c h of their c a p i t a l destroyed. They had n o choice but to write off m u c h o f the value o f old investments as thev 4

began a c c u m u l a t i o n afresh, w i t h a skilled l a b o u r force forced to accept l o w wages by rhe massive u n e m p l o y m e n t resulting f r o m military devastation. But these factors are n o r , in themselves, a sufficient e x p l a n a t i o n for rhe length a n d c o n t i n u i t y o f the b o o m . T h e y d o n o t explain w h y profit rates did n o t resume their d o w n w a r d slope o n c e new p r o d u c t i v e investment c a m e i n t o effect. H a d c a p i t a l i s m c o n t i n u e d o n its pre-war trajectory there w o u l d have been crises at leasi every ten years o r so. Yet, a l t h o u g h there were periodic dips in g r o w t h rates, sometimes described as " g r o w t h recessions", t h e n w a s o n l y one brief spell o f falling o u t p u t in rhe US (in 1949) a n d n o n e in the other m a j o r industrial countries for m o r e t h a n a quarter o f a century. A t t e m p t s have been m a d e t o e x p l a i n the b o o m as a result ot rapid t e c h n o l o g i c a l

i n n o v a t i o n , the waves o f i m m i g r a t i o n

ot

y o u n g w o r k e r s in the 1950s a n d 1960s, or the c h e a p e n i n g o f raw m a t e r i a l s f r o m rhe non-industrial countries. But such t h i n g s h a d n o t been able to prevent cyclical crises previously. Technological i n n o v a t i o n m i g h t have reduced rhe cost o f each u n i t o f n e w in vestment, b u t ir w o u l d also have reduced rhe life s p a n o f old investments, so increasing d e d u c t i o n s f r o m profits d u e to deprecia t i o n costs; massive i m m i g r a t i o n ro Britain f r o m Ireland a n d to the US f r o m E u r o p e h a d characterised the 19th century w i t h o u t stop p i n g pressures o n profit rates; the c h e a p e n i n g o f r a w materials w a s in part caused by the w a y rhe b o o m itself e n c o u r a g e d capitalists ro p r o d u c e synthetic substitutes w i t h i n the industrial e c o n o m i e s (ar tificial fibres, plastics, etc). There w a s , however, o n e n e w factor t h a t c o u l d e x p l a i n w h a t w a s h a p p e n i n g . There w a s a n unprecedented level o f peacetime a r m s s p e n d i n g . It h a d been o n l y a little over 1 percent o f G N P in the United States before the war. Yet post-war " d i s a r m a m e n t " left it at 4 percent in 1 9 4 8 , a n d it t h e n shot u p wirh the onset o f the C o l d W a r t o over 13 percent in 1950-53, r e m a i n i n g between five a n d seven times the level o f the inter-war years t h r o u g h o u t the 1950s a n d 1960s. 144


T h e military c o n s u m e d a n e n o r m o u s q u a n t i t y of invcstible surplus v a l u e t h a t w o u l d o t h e r w i s e have g o n e i n t o rhe p r o d u c t i v e economy-—according

to a calculation

by M i c h a e l

Kidron,

an

i i m o u n t e q u a l t o 6 0 percent o f US gross fixed c a p i t a l f o r m a t i o n . I he i m m e d i a t e i m p a c t o f such s p e n d i n g w a s to p r o v i d e a m a r k e t for the o u t p u t o f m a j o r industries: M o r e t h a n nine-tenths o f the final d e m a n d for aircraft a n d parts w a s o n g o v e r n m e n t a c c o u n t , m o s t o f it m i l i t a r y ; as w a s nearly three-fifths o f the d e m a n d for non-ferrous metals; over half the d e m a n d for c h e m i c a l s ' a n d electronic g o o d s ; over one-third the d e m a n d for c o m m u n i c a t i o n e q u i p m e n t a n d scientific instrum e n t s ; a n d so o n d o w n the list o f eighteen m a j o r industries I

one-tenth o r giore o f w h o s e final d e m a n d s t e m m e d f r o m governmental procurement.2' Phe role o f military e x p e n d i t u r e has been ignored by m o s t mainstream Keynesian a c c o u n t s o f the post-war b o o m a n d by m a n y Marxists. O n b o t h sides there has been a tendency t o identify capitalism w i t h the p u r e "free m a r k e t " f o r m it rook for a brief p e r i o d in Britain in rhe 19th century a n d t o see rhe state a n d rhe military .is e x t r a n e o u s t o it. M i s s i n g has been a n y sense o f the changes t h a t had already b e g u n t o be analysed by H i l f e r d i n g , B u k h a r i n a n d l.enin,

let

alone

the

further

transformations

brought

about

t h r o u g h s l u m p , w a r a n d the C o l d War. I

S o m e M a r x i s t s a n d a few K e y n e s i a n s d i d , however, grasp o n e i m p o r t a n t i m p a c t of a r m s s p e n d i n g . It p r o v i d e d a m a r k e t for the rest o f the e c o n o m y t h a t w a s n o t affected by rhe ups a n d d o w n s o f the w i d e r e c o n o m y — a buffer t h a t l i m i t e d the d o w n w a r d movement o f the e c o n o m i c cycle. So the A m e r i c a n M a r x i s t s P a u l Baran ind Paul Sweezy c o u l d see a r m s s p e n d i n g as a n i m p o r t a n t mechanism for a b s o r b i n g a n ever g r o w i n g " s u r p l u s " a n d o v e r c o m i n g overproduction. 2 * T h e y c o u l d n o t , however, e x p l a i n w h y t a x a t i o n to pay for it d i d not have the effect o f reducing d e m a n d elsewhere in the e c o n o m y . x\nd, as Bleaney has p o i n t e d o u r , the military purchases o f the US g o v e r n m e n t c o u l d n o t have played a m a j o r direct role in b o o s t i n g the E u r o p e a n economies. 2 7 T h e a c c o u n t o f the i m p a c t o f waste e x p e n d i t u r e (see C h a p t e r live) o n rhe d y n a m i c o f the w i d e r e c o n o m y p r o v i d e d by K i d r o n was able t o deal w i t h such p r o b l e m s , since its starting p o i n t w a s n o t " u n d e r c o n s u m p t i o n i s m " but the rate of profit. A r m s expenditure. I'he l ong Boom

167

like " u n p r o d u c t i v e " expenditures, m i g h t be a d e d u c t i o n f r o m p r o i its in rhe shorr term, b u t in the l o n g term it h a d the i m p a c t ot reducing the funds available for further a c c u m u l a t i o n a n d

so

slowed the rise in rhe ratio o f investment to the e m p l o y e d l a b o u r force (the "organic c o m p o s i t i o n o f c a p i t a l " ) . Kidron s logic found empirical confirmation in w h a t actually hap pencd to the organic c o m p o s i t i o n o f capital. Its rise in the post-war decades in the US was m u c h slower t h a n in the pre-slump decades. It was also m u c h lower t h a n that w h i c h occurred in post-war E u r o p e , where the p r o p o r t i o n o f n a t i o n a l o u t p u t g o i n g i n t o a r m s spending w a s considerably lower than in the US. 2 "

Arms, accumulation and planning T h e a r m s economies were n o t a result o f a c o n s c i o u s strategy a i m e d at w a r d i n g o f f s l u m p s . They f o l l o w e d f r o m the logic o f imperialist c o m p e t i t i o n in the C o l d W a r era. But sections o f capital certainly appreciated their effects in k e e p i n g the b o o m

going.

" M i l i t a r y - i n d u s t r i a l c o m p l e x e s " e m e r g e d , d r a w i n g together the m i l i t a r y a n d those i n charge o f the a r m s industries, w h i c h h a d a direct interest in p u s h i n g f o r w a r d the inter-imperialist conflicts. They were a b l e t o u n i t e the r u l i n g class as a w h o l e b e h i n d their policies n o t o n l y because o f fear o f the rival power, b u t also because o f the effect o f a r m s budgets in s u s t a i n i n g a c c u m u l a t i o n . J o h n Kenneth G a l b r a i t h described in the 1960s the inter-relation between government expenditure a n d w h a t he termed the " p l a n n i n g system" by w h i c h each large c o r p o r a t i o n p l a n n e d its investments m a n y years in advance: A l t h o u g h there is a w i d e s p r e a d s u p p o s i t i o n to the contrary, this increase [in stare expenditures]...has rhe strong a p p r o v a l o f the businessmen o f the p l a n n i n g system. T h e executive o f the great c o r p o r a t i o n r o u t i n e l y o p p o s e s p r o d i g a l i t y in g o v e r n m e n t expenditure.

But f r o m his pleas f o r p u b l i c e c o n o m y

defence

expenditures are m e t i c u l o u s l y excluded. 1 0 O n e effect o f such e x p e n d i t u r e s w a s t o a l l o w the great corporat i o n s ro u n d e r t a k e long-term p l a n n i n g o f their o w n investments w i t h the assurance t h a t they w o u l d be able t o m a k e a profit o n them a n d turn it i n t o cash by selling their g o o d s ( " r e a l i s i n g their 144


mirplus v a l u e " , to use M a r x ' s t e r m i n o l o g y ) . T h i s c h a n g e d their ini n n a l o p e r a t i o n s i n w a y s w h i c h seemed t o c o n t r a d i c t the usual i s s u m p t i o n a b o u t capitalist b e h a v i o u r being m o t i v a t e d by shorticrm profit r e q u i r e m e n t a n d price c o m p e t i t i o n for markets. G a l b r a i t h painted a picture o f howT the s i t u a t i o n a p p e a r e d : The m a r k e t is superseded by vertical integration. The p l a n n i n g unit takes over t h e source o f supply or the outlet; a transaction that is subject to b a r g a i n i n g over prices a n d a m o u n t s is thus replaced w i t h a transfer w i t h i n the p l a n n i n g u n i t . . . As viewed by the firm, e l i m i n a t i o n o f a market converts an external negotiation a n d hence a partially o r w h o l l y u n c o n t r o l l a b l e decision t o a matter f o r purely internal decision. N o t h i n g , we shall see, better explains m o d e r n industrial p o l i c y — c a p i t a l supply is the extreme c a s e — t h a n the desire ro m a k e highly strategic cost factors subject t o w h o l l y internal decisions. M a r k e t s can also be controlled. This consists in reducing or e l i m i n a t i n g the independence o f action o f those to w h o m rhe p l a n n i n g u n i t sells or from w h o m it b u y s . . . At the same time the o u t w a r d f o r m of the m a r k e t , i n c l u d i n g the process o f b u y i n g a n d selling, remains f o r m a l l y intact.' 1 At a time w h e n " t h e largest 2 0 0 m a n u f a c t u r i n g enterprises h a d t w o thirds o f all assets used in m a n u f a c t u r i n g a n d m o r e t h a n three fifths ol all sales, e m p l o y m e n t a n d net income", 3 2 this represented a huge section o f the US e c o n o m y in w h i c h m o s t e c o n o m i c operations were not subject ro the i m m e d i a t e vagaries o f the market. There was competition between rhe giants, but it w a s to a large extent undertaken by means different to the old c o m p e t i t i o n t o sell goods m o r e cheaply than one another. T h e giant firms learnt that they c o u l d w a r d o f f potential c o m p e t i t o r s by resorting t o non-productive m e t h o d s — t h e use of their wealth t o get a tight grip over distribution outlets; the use o f advertising t o hype u p their o w n products, regardless o f their intrinsic merits; the systematic cultivation o f well greased contacts with buyers f r o m governmental bodies. G a l b r a i t h t h o u g h t this represented a f u n d a m e n t a l c h a n g e in the nature of c a p i t a l i s m itself. A n d M a r x i s t s w h o defined c a p i t a l i s m simply in terms o f the "free m a r k e t " c o m p e t i t i o n between rival private capitalists c o u l d easily c o m e t o rhe same c o n c l u s i o n , since the huge area o f p r o d u c t i o n internal t o the great c o r p o r a t i o n s w a s n o t directly subject t o the l a w o f value. Extreme variations in the degree o f " x - e f f i c i e n c y " — t h e internal efficiency o f c o m p a n i e s — s h o w e d 'T he Long Boom

169

h o w far m a n y differed from rhe capitalist ideaL A n d capital did not a u t o m a t i c a l l y m o v e under the i m p a c t o f m a r k e t forces o u t o f sec tors wirh big fixed investments, a high o r g a n i c c o m p o s i t i o n ol c a p i t a l a n d a l o w rate of profit, as a simplistic reading o f

Capital

m i g h t suggest. W h e t h e r it d i d so or not depended o n the decisions o f m a n a g e r s w h o m i g h t decide to sacrifice short-term profitability for long-term g r o w t h within markets over w h i c h they already had a stranglehold. If rhe l a w of value c o n t i n u e d to operate it w a s in the long term, since eventually c o r p o r a t i o n s w o u l d n o t be able to grow a n d to keep rivals a n d newcomers to rhe industry at bay unless the\ c o n t i n u e d to get e n o u g h surplus value to m a k e massive n e w invest ments. But often they w o u l d o n l y discover whether they h a d done so o n c e the long b o o m itself c a m e ro a n a b r u p t end.

T h e other a d v a n c e d capitalisms T h e picture so far has been o f the US e c o n o m y in the post-war b o o m . It w a s responsible for a p p r o a c h i n g h a l f o f total w o r l d o u t p u t at the end o f the war, a n d its d y n a m i c determined to a greai exrent w h a t h a p p e n e d elsewhere. But the big E u r o p e a n economies, w i t h substantial bur lower levels o f a r m s s p e n d i n g , s h o w e d m a n y o f the s a m e features. In Britain a n d ro a lesser extent France, great investments in a r m s industries h a d rhe effect o f d r a w i n g the rest ol the e c o n o m y f o r w a r d , c o u n t e r a c t i n g s o m e o f the pressures for the organic c o m p o s i t i o n t o rise a n d the rate o f profit t o fall, a n d per mirting continual

economic expansion—all

without

resorr

to

Keynesian measures. In G e r m a n y a r m a m e n t s were less i m p o r t a n t . But the role o f the g o v e r n m e n t r e m a i n e d i m p o r t a n t . O n e M a r x i s t a c c o u n t tells h o w : far m o r e t h a n in a n y other capitalist c o u n t r y the bourgeoisie in the Federal R e p u b l i c m a d e use o f the state apparatuses a n d the m o n e t a r y a n d fiscal system t o force c a p i t a l a c c u m u l a t i o n b\ m e a n s o f f a v o u r a b l e d e p r e c i a t i o n rates, credirs for reconstruction at f a v o u r a b l e rates o f interest a n d finance for investment. A l l this rook p l a c e in c o n t r a d i c t i o n t o the official neoliberal econ o m i c theory... 1 1 In J a p a n state c a p i t a l i s m a d v a n c e d further in its influence over civilian 144

industry

than

almost

anywhere

else in

the

Western


w o r l d — d e s p i t e a l o w level o f direct state o w n e r s h i p . T h e state a n d I he largest private firms w o r k e d together t o ensure that t h a t portion o f the n a t i o n a l i n c o m e t h a t h a d g o n e i n t o a r m s before 1945 n o w w e n t i n t o p r o d u c t i v e investment: I

The m o t i v e force for r a p i d g r o w t h w a s fixed investment in p l a n t a n d e q u i p m e n t . Private fixed investment grew f r o m ~\8 percent o f G N P i n 1946 t o 2 1 . 9 percent in 1961. 3 4

(

W h e n i m p o r t e d r a w materials were in short s u p p l y in rhe late 1940s a n d the 1950s the g o v e r n m e n t rook c h a r g e o f their allocation to industries it t h o u g h t w o u l d best c o n t r i b u t e t o the g r o w t h of the e c o n o m y , t o the b u i l d i n g u p o f key industries like coal

I

m i n i n g , iron a n d steel a n d the e x p a n s i o n o f exports. T h e M i n i s t r y o f I n t e r n a t i o n a l Trade a n d I n d u s t r y ( M i l l ) issued " g u i d e l i n e s " to industry w h i c h it ignored at its peril. T h e g i a n t firms t h a t h a d accepted the dictates o f the w a r e c o n o m y before August 1945 as essential t o m i l i t a r y e x p a n s i o n n o w accepted the dictates o f M i l l as essential t o peaceful e c o n o m i c e x p a n s i o n : Japanese entrepreneurs are v i g o r o u s in investing. T h e y will n o t confine their fixed investment w i t h i n the l i m i t o f gross profits or internal a c c u m u l a t i o n , u n l i k e the case o f entrepreneurs in other a d v a n c e d countries. Kven if the fixed i n v e s t m e n t is over a n d

I

a b o v e their gross profits, the enterprise will u n d e r t a k e invesr-

I

m e n t so l o n g as b a n k finance is a v a i l a b l e . " In other w o r d s , the heads o f big business a n d the state w o r k e d together to ensure the g r o w t h o f J a p a n e s e n a t i o n a l c a p i t a l i s m by ising the w h o l e mass o f s u r p l u s v a l u e a n d directing it touards

"strategic"

sectors,

regardless

of

considerations

of

short-term profitability. W h a t other state capitals d i d w i t h military considerations u p p e r m o s t , Japanese state c a p i t a l i s m did in the interests o f overseas m a r k e t c o m p e t i t i o n . E x p o r t s played a very i m p o r t a n t role in d r i v i n g the e c o n o m y f o r w a r d s . A n d thar m e a n t that J a p a n e s e g r o w t h w a s u l t i m a t e l y d e p e n d e n t o n the US a r m s economy. As R o b e r t Brenner s h o w s in a highly e m p i r i c a l study: G e r m a n a n d Japanese m a n u f a c t u r e r s derived m u c h o f their dynamism

by

means o f a p p r o p r i a t i n g

large segments o f

the

fast-growing w o r l d m a r k e t from the US a n d U K , while beginning 'T he Long Boom

171

to invade the US domestic m a r k e t . This redistribution o f market s h a r e — t h e filling o f orders ( d e m a n d ) by G e r m a n a n d Japanese manufacturers t h a t h a d formerly been supplied by US p r o d u c ers—gave a powerful boost to their investment a n d output. 3 6 It w a s n o t "social c o m p r o m i s e " a n d the " w e l f a r e state" t h a t p r o duced the l o n g b o o m a n d the " g o l d e n a g e " . R a t h e r they were all by-products of militarised state c a p i t a l i s m . Prosperity rested o n the cone o f the H - b o m b . r

L a b o u r p o w e r in the G r e a t B o o m T h r o u g h o u t the first post-war decades u n e m p l o y m e n t w a s at levels k n o w n previously o n l y d u r i n g brief b o o m periods. In the US u n e m p l o y m e n t w a s less t h a n 3 percent in the early

1950s; in

Britain it hovered between 1.5 a n d 2 percent; in West G e r m a n y a high level o f u n e m p l o y m e n t caused by the e c o n o m i c dislocation of the early post-war years fell t o 4 percent in 1957 a n d a mere 1 percent in 1960. So rhe p r o b l e m for industrialised capitalist states w a s n o t c o p i n g w i t h u n e m p l o y m e n t , b u t its o p p o s i t e — e n s u r i n g that e m p l o y m e n t grew at sufficient speed to feed capital's seemingly insatiable appetite for l a b o u r power. The US e m p l o y e d w o r k f o r c e rose by 6 0 percent between 1940 a n d 1970. Such e x p a n s i o n d e m a n d e d completely new supplies o f l a b o u r power. W h e t h e r politicians a n d g o v e r n m e n t administrators liked it or n o t , the state c o u l d n o t leave s u p p l y i n g the key raw material for e c o n o m i c or military competit i o n , labour, t o the vagaries o f a " f r e e " l a b o u r m a r k e t . T h e state had

to

supplement—and

even

partially

supplant—the

wages

system w i t h services a n d subsidies p r o v i d e d by itself o n a m u c h greater scale t h a n previously. O n e a n s w e r t o the shortage o f l a b o u r p o w e r lay in r e d u c i n g the a g r i c u l t u r a l w o r k f o r c e still m o r e , w i t h state-sponsored amalgam a t i o n s o f small

farms—an

approach

followed

in

much

of

Western E u r o p e . A n o t h e r lay in e n c o u r a g i n g massive e m i g r a t i o n o f people f r o m less developed countries t o the cities o f rhe industrial c o u n t r i e s ( f r o m Turkey, Eastern a n d S o u t h e r n E u r o p e t o G e r m a n y ; f r o m Y u g o s l a v i a , Portugal, Spain a n d Algeria t o France; f r o m the West Indies a n d rhe I n d i a n s u b c o n t i n e n t t o B r i t a i n ; f r o m Puerto R i c o t o t h e US). A t h i r d s o l u t i o n — a g a i n a d o p t e d a l m o s r 144


e v e r y w h e r e — w a s rhe d r a w i n g o f m a r r i e d w o m e n i n t o p a i d emp l o y m e n t . Yet each o f the w a y s o f e n l a r g i n g the l a b o u r

force

created n e w p r o b l e m s for capital a n d the state. Squeezing l a b o u r f r o m agriculture c o u l d w o r k o n l y if resources were p u t i n t o agriculture in order t o increase its productivity. T h i s c o u l d be very expensive. But the alternative w a s t h a t the provision of f o o d for the g r o w i n g u r b a n p o p u l a t i o n a n d r a w materials for industry w o u l d suffer, c r e a t i n g w o r k i n g class discontent a n d bottlenecks in a c c u m u l a t i o n . A n d e v e n t u a l l y there w a s little in rhe w a y o f spare l a b o u r p o w e r left i n the c o u n t r y s i d e t o p r o v i d e for the needs o f i n d u s t r y as the peasantry s h r a n k in n u m b e r s . M i g r a t i o n from the T h i r d W o r l d w a s a very c h e a p w a y o f getting l a b o u r power. T h e advanced c o u n t r y h a d t o bear n o n e of rhe costs of rearing a n d educating this part o f its labour force—effectively, it was g e t t i n g a subsidy f r o m the i m m i g r a n t workers' c o u n t r y o f origin. JK T h e new w o r k f o r c e was usually younger t h a n rhe " n a t i v e " w o r k f o r c e , a n d d e m a n d e d less in the w a y o f health care, old age pensions a n d so o n . A n d its m e m b e r s were usually m o r e prepared to tolerate l o w wages, harsh w o r k i n g c o n d i t i o n s , rigid discipline a n d so o n — i n short, t o be super-exploited. The p o o l f r o m w h i c h this new l a b o u r c a m e w a s potentially limitless. Yet there were practical limits. A s m i g r a n t w o r k e r s became accustomed

to

living

and

working

in

their

new

home,

they

d e m a n d e d c o n d i t i o n s closer t o those o f established w o r k e r s ; they w a n t e d decent a c c o m m o d a t i o n a n d welfare benefits. T h e state h a d either t o increase its e x p e n d i t u r e o n these t h i n g s — o r t o see growing social tensions t h a t c o u l d

lead

t o either intensified

class

struggles (to a considerable extent the revolt in France in 1968 w a s a revolt o f such new workers) o r t o " r a c i a l " clashes between o l d established a n d newer workers. U n a b l e t o afford the social expend i t u r e needed t o head o f f such sources o f social i n s t a b i l i t y — a n d eager t o deflect discontent a w a y f r o m itself—the state usually reacted by i m p o s i n g c o n t r o l s o n further i m m i g r a t i o n . T h e wholesale entry o f married w o m e n into the w o r k f o r c e also d e m a n d e d a certain level o f investment by the state. M e a n s h a d t o be f o u n d to ensure t h a t it did n o t lead t o the neglect o f child reari n g — t h e socialisation o f the next generation o f w o r k e r s — o r a b r e a k d o w n in the provision o f f o o d , shelter a n d c l o t h i n g for the male w o r k f o r c e . M a n y o f these m e a n s c o u l d be p r o v i d e d , at relatively l o w cost, w i t h

rhe a p p l i c a t i o n o f n e w technology.

The

refrigerator, w a s h i n g m a c h i n e a n d v a c u u m cleaner, the replacement 'T he Long Boom

173

o f the coal fire by electricity, gas or oil heating, the p o p u l a r i s a t i o n o f frozen foods, the spread o f fast food outlets, even the television set—all had rhe effect o f reducing the a m o u n t o f effort needed to ensure the reproduction o f b o t h present a n d future l a b o u r power. A n d they usually cost n o t a penny t o the state or capital, being paid for by the family o u t of the enlarged i n c o m e it received as rhe wife t o o k u p p a i d e m p l o y m e n t . C a r i n g for y o u n g children w h i l e both their parents w o r k e d created greater difficulties, since the provision o f nursery facilities could be costly for the stare—even if these costs t o o c o u l d often be recouped f r o m the wage o f the w o r k i n g wife. So all the m e t h o d s o f e x p a n d i n g the l a b o u r force c o u l d w o r k , u p ro a certain p o i n t — b u t b e y o n d that they tended t o i m p l y q u i t e considerable overhead costs. Welfare costs c o u l d be b o r n e w h i l e the system w a s e x p a n d i n g rapidly. The " i n s u r a n c e " principle en sured, as w e s a w in C h a p t e r Five, t h a t s o m e sections o f the w o r k i n g class p a i d for welfare provision t o other sections. T h e extra cost a m o u n t e d ro o n l y 2 or 3 percent o f G N P in Western E u r o p e , w h i l e in the US the srate m a d e a small s u r p l u s . B u r the costs w o u l d b e c o m e a b u r d e n once rhe G r e a t B o o m collapsed. There w a s a n o t h e r s o l u t i o n available t o the l a b o u r shortage. But it was even m o r e expensive. It w a s t o increase state expenditure o n rhe r e p r o d u c t i o n o f the labour force, so as ro increase the average level o f skill. In all the advanced countries there w a s a considerable increase in e d u c a t i o n a l expenditures d u r i n g the G r e a t B o o m — p a r t i c u l a r l y in the u p p e r grades o f secondary e d u c a t i o n a n d in higher education. 4 " Finally, rhere w a s a t h i r d area of e x p a n s i o n o f state expenditures designed t o increase p r o d u c t i v i t y — e x p e n d i t u r e s designed to p r o v i d e a feeling o f security for e m p l o y e d w o r k e r s . I n t o this category fell old age pensions a n d u n e m p l o y m e n t benefits. A s J a m e s O ' C o n n o r n o t e d , " T h e p r i m a r y purpose is to create a sense o f econ o m i c security w i t h i n the ranks o f e m p l o y e d w o r k e r s a n d thereby raise m o r a l e a n d reinforce discipline". 4 1 H e n c e in m a n y countries in the late 1960s wage-related u n e m p l o y m e n t benefits a n d redundancy p a y m e n t s were i n t r o d u c e d . They were the other side o f rhe " s h a k e - o u t " o f l a b o u r f r o m older industries. T h i s " s o c i a l i s a t i o n " o f l a b o u r costs h a d s o m e i m p o r t a n t consequences for the system as a w h o l e . U n d e r c o n d i t i o n s o f acute l a b o u r shortage, the n a t i o n a l capitalist state h a d t o tend a n d care for l a b o u r p o w e r as wTell as e x p l o i t it if p r o d u c t i v i t y w a s t o m a t c h i n t e r n a t i o n a l levels. But this m e a n t t h a t w o r k e r s h a d s o m e 144


possibilities o f b e i n g a b l e t o sustain t h e m s e l v e s w i t h o u t selling their l a b o u r p o w e r . T h e r e w a s a p a r t i a l n e g a t i o n ot the c h a r a c t e r of free l a b o u r — b u t o n l y a partial

n e g a t i o n , since the state ap-

plied all sorts o f pressures t o keep p e o p l e in the l a b o u r m a r k e t . Yet even this l i m i t e d " n e g a t i o n " o f the free l a b o u r m a r k e t w a s i b u r d e n t h a t p u t u p the o v e r h e a d s o f e a c h n a t i o n a l c a p i t a l . A s such they exerted a d o w n w a r d pressure o n the rate o f return o n the t o t a l n a t i o n a l i n v e s t m e n t . For a l o n g p e r i o d this d i d n o t seem to matter. O t h e r f a c t o r s w e r e ar w o r k

p r o t e c t i n g rhe rate o f

p r o f i t . B u t o n c e the u p w a r d d y n a m i c o f the b o o m

b e g a n ro

w e a k e n , the costs o f w e l f a r e b e c a m e a c r u c i a l p r o b l e m . T h e t w o f u n c t i o n s — o f increasing p r o d u c t i v i t y and

buying consent—were

n o longer c o m p l e m e n t a r y . C a p i t a l h a d t o try t o reduce the cost of m a i n t a i n i n g a n d i n c r e a s i n g p r o d u c t i v i t y , even if d o i n g so upset its o l d m A h a n i s m s f o r k e e p i n g c o n t r o l over the w o r k i n g class. T h i s w a s t o be a n i m p o r t a n t f a c t o r s h a p i n g class struggle once the l o n g b o o m faltered.

I he Eastern b l o c I he Western e c o n o m i e s a n d J a p a n were n o t the o n l y ones t o ichieve r a p i d g r o w t h rates d u r i n g the post-war decades. So t o o did the U S S R a n d the countries it d o m i n a t e d in Eastern E u r o p e . Soviet electricity o u t p u t grew by 5 0 0 percent between 1950 a n d 1 9 6 6 , steel o u t p u t by just u n d e r 2 5 0 percent, oil o u t p u t by 6 0 0 percent, tractor o u t p u t by 2 0 0 percent, fabric o u t p u t by 100 percent, shoe o u t p u t by 100 percent, rhe h o u s i n g stock by 100 percent.' 2 By the m i d - 1 9 7 0 s the s a m e c o n s u m e r g o o d s w h i c h h a d

transformed

^ p e o p l e ' s lives in Western E u r o p e a n d N o r t h A m e r i c a — t h e television set, the refrigerator, the w a s h i n g m a c h i n e — w e r e also m a k i n g their a p p e a r a n c e in Soviet a n d East E u r o p e a n h o m e s , even if m o r e slowly. 4 ' Since the collapse o f the Eastern bloc in 1989-91 it has usually been forgotten t h a t in the 1950s a n d 1960s even by m a n y Western o p p o n e n t s o f the U S S R t o o k it for granted that its g r o w t h rate w a s higher t h a n regimes elsewhere in the w o r l d h a d achieved. A t r e n c h a n t critic o f rhe system, Alec N o v c c o u l d write, " T h e success o f the Soviet U n i o n . . . in m a k i n g itself the w o r l d ' s second industrial a n d military p o w e r is i n d i s p u t a b l e " . 4 4 But simply g r o w i n g fast d i d not overcome the external pressures for m o r e g r o w t h , since even after decades o f industrialisation the 'T he Long Boom

175

Soviet e c o n o m y was still less t h a n h a l f the size o f its then m a i n mil itary competitor, the US. Indeed, in s o m e w a y s the pressures grew greater. A t the beginning o f industrialisation, there were e n o r m o u s reserves o f l a b o u r that c o u l d be released for industry f r o m agriculture. T h a t m e a n t it was n o t o f any great concern to those at the t o p o f the bureaucracy if m u c h o f this l a b o u r was used wastefully. It started t o m a t t e r as the c o u n t r y s i d e began t o e m p t y o f y o u n g m e n — l e a v i n g m u c h o f the agricultural p r o d u c t i o n needed t o feed the cities to be d o n e by d i m i n i s h i n g n u m b e r s o f ageing people. The slave l a b o u r c a m p s were run d o w n s o o n after Stalin's death in 19.53, in part for political reasons b u t also t o release inefficient slave l a b o u r for efficient e x p l o i t a t i o n as w a g e labour. It w a s a n ind i c a t i o n that the phase o f " p r i m i t i v e a c c u m u l a t i o n " w a s at a n end. There w a s recurrent talk w i t h i n official circles f r o m that t i m e onw a r d s a b o u t e c o n o m i c " r e f o r m " . D u r i n g o n e such phase, in 1970, the leader Brezhnev spelt o u t the rationale: C o m r a d e Brezhnev d w e l t o n the question o f the e c o n o m i c competition between the t w o w o r l d systems. " T h i s c o m p e t i t i o n takes different f o r m s , " he said. " I n m a n y cases w e are c o p i n g successfully w i t h the task o f o v e r t a k i n g a n d o u t d i s t a n c i n g t h e capitalist

countries

in

the

production

o f certain

types

of

o u t p u t . . . b u t the f u n d a m e n t a l question is n o t o n l y how 7 m u c h you

p r o d u c e b u t a l s o at w h a t cost, w i t h

w h a t o u t l a y s ot

l a b o u r . . . It is in this field t h a t the centre o f gravity between the t w o systems lies in o u r t i m e " . 4 5 This w a s the same logic o f competitive a c c u m u l a t i o n t h a t operated o n the sometimes h u g e state sector o f rhe Western industrial capitalisms—or, f o r that matter, o n the giant c o r p o r a t i o n s described by G a l b r a i r h . T h e o r g a n i s a t i o n o f p r o d u c t i o n inside the U S S R m i g h t i n v o l v e the p u t t i n g together o f different use values (so m u c h labour, so m a n y physically distinct raw materials, such a n d such a particular sort o f m a c h i n e ) to p r o d u c e further use values. But w h a t mattered to the r u l i n g bureaucracy w a s h o w these use values measured u p t o the s i m i l a r c o n g l o m e r a t i o n s o f use values p r o d u c e d inside the great c o r p o r a t i o n s o f rhe West. A n d t h a t m e a n t comp a r i n g the a m o u n t s o f l a b o u r used in the USSR to the l a b o u r used in rhe Western c o r p o r a t i o n s . O r , t o pur it in M a r x ' s terms, prod u c t i o n w i t h i n the U S S R w a s subject to the l a w o f value o p e r a t i n g o n the g l o b a l scale. 4 " 144


O n e o f the i l l u s i o n s created b y the r a p i d n o n - s t o p g r o w t h o f ihe U S S R w a s t h a t it p r o c e e d e d s m o o t h l y a n d r a t i o n a l l y acc o r d i n g to the v a r i o u s Five Year P l a n s , i n c o n t r a s t w i t h the u p s and d o w n s in t h e W e s t . But t h e relentless d r i v e t o a c c u m u l a t e h a d as a necessary b y - p r o d u c t d i s o r g a n i s a t i o n , c h a o s a n d w a s t e in w h o l e areas o f p r o d u c t i o n . A t the b e g i n n i n g o f every " p l a n " vast n e w i n d u s t r i a l p r o j e c t s w o u l d b e g i n t o be c o n s t r u c t e d . But .ilter a w h i l e it w o u l d b e c o m e clear t h a t they c o u l d n o t all be Imished.

Some

(usually

catering

for

people's

consumption

needs) w o u l d be " f r o z e n " , w h i l e rhe resources for t h e m w e r e diverted e l s e w h e r e (to the. p r o d u c t i o n o f m e a n s o f p r o d u c t i o n ) . I his m e a n t a c o n t i n u a l c h o p p i n g a n d c h a n g i n g o f rhe g o o d s resources were expected t o p r o d u c e ; s u d d e n pressure o n p e o p l e to p r o d u c e m o r e o f o n e p r o d u c t a n d less o f a n o t h e r ; c o n c e a l m e n t by p e o p l e at every level in the p r o d u c t i o n process o f the resources at their d i s p o s a l in case they w e r e s u d d e n l y pressed t o p r o d u c e m o r e ; massive a m o u n t s o f w a s t e as s o m e o f the t h i n g s c o n t a i n e d in the p l a n s were p r o d u c e d , b u t n o t o t h e r t h i n g s necessary f o r t h e i r use (such as t h e case i n rhe 1 9 8 0 s w h e n vast .1 m o u n t s o f fertiliser were w a s t e d because o n e o f the f r o z e n projects w a s the b u i l d i n g o f rhe f a c t o r y t o p r o v i d e the b a g s f o r p a c k i n g the f e r t i l i s e r ) / Since the collapse o f the Soviet U n i o n it has become h a b i t u a l o n both the left a n d the right to b l a m e all this simply o n bureaucratic irrationality, w i t h o u t a c k n o w l e d g i n g its similarity to the irrationality o f the m a n a g e r i a l d e s p o t i s m w i t h i n Western e n t e r p r i s e s — a n d the c o m m o n roots o f b o t h in the s u b o r d i n a t i o n o f h u m a n l a b o u r to competitive a c c u m u l a t i o n , that is, to the self-expansion o f capital. Yet it was possible t o trace each o f the f o r m s o f irrationality w i t h i n the Soviet e c o n o m y back t o o v e r i n v e s t m e n t — j u s t as it is w i t h managerial irrationality w i t h i n Western c o r p o r a t i o n s . There w a s n o t o n l y w a s t e in the Soviet-type e c o n o m i e s . T h e r e w a s a l s o unevenness in g r o w t h over t i m e , as in the W e s t . Studies m rhe 1 9 6 0 s , m a i n l y by Eastern E u r o p e a n e c o n o m i s t s , revealed the presence o f cyclical ups a n d d o w n s in e c o n o m i e s m o d e l l e d o n t h e U S S R . T h e C z e c h o s l o v a k s G o l d m a n a n d K o r b a t o l d in 1968 h o w : Analysis o f the d y n a m i c s o f industrial p r o d u c t i o n in Czechoslovakia, the G e r m a n D e m o c r a t i c Republic a n d H u n g a r y supplies a n interesting picture. T h e rare o f g r o w t h shows relatively regular 'T he Long Boom

177

fluctuations...

These

fluctuations

are even m o r e p r o n o u n c e d it

analysis is confined t o producer goods. 4 * T h e Y u g o s l a v B r a n k o H o r v a t w a s able to p u b l i s h a b o o k called Business Cycles in Yugoslavia4a

w h i c h pointed o u t that even before

the m a r k e t reforms o f 1968 the Y u g o s l a v e c o n o m y w a s " s i g n i h c a n t l y m o r e u n s t a b l e " t h a n ten other e c o n o m i e s that w e r e cited, " i n c l u d i n g the United States". A Western a c a d e m i c s h o w e d that such unevenness was already visible in the Soviet U n i o n f r o m the t i m e o f the first Five Year p l a n o n w a r d s . 5 T h e p a t t e r n o f unevenness s h o w e d great similarities w i t h the Western capitalist states d u r i n g the l o n g b o o m . Its o r i g i n lay in the

dynamics

of competitive

accumulation.

As

we

saw

in

C h a p t e r Three, at a c e r t a i n p o i n t i n a n y b o o m the c o m p e t i t i v e drive o f capitalists to invest leads to a d r y i n g u p o f existing s u p plies

of

raw

materials,

labour

and

loanable

capital

(ie

non-invested s u r p l u s value). T h e prices o f all these t h i n g s — c o m m o d i t y prices, m o n e y w a g e s a n d interest r a t e s — b e g i n t o rise u n t i l the least p r o f i t a b l e firms s u d d e n l y f i n d they are o p e r a t i n g at a loss. S o m e g o o u t o f business. O t h e r s s u r v i v e , b u t o n l y by a b a n d o n i n g planned investments a n d closing d o w n

factories.

T h e i r a c t i o n s in turn destroy m a r k e t s f o r o t h e r c a p i t a l s , f o r c i n g t h e m t o a b a n d o n i n v e s t m e n t s a n d close d o w n factories. T h e "excess d e m a n d " o f the b o o m gives rise t o rhe o v e r p r o d u c t i o n ot the s l u m p . T h e secret o f the Western l o n g b o o m o f the 1 9 4 0 s , 1950s a n d 1960s lay in the w a y rhe n a t i o n a l state c o u l d reduce the pressures l e a d i n g t o o v e r - a c c u m u l a t i o n (by d i v e r t i n g a p o r tion o f c a p i t a l i n t o n o n - p r o d u c t i v e m i l i t a r y c h a n n e l s ) ; take direct a c t i o n t o try t o m a i n t a i n a h i g h rate o f e x p l o i t a t i o n

(through

w a g e c o n t r o l s ) ; i n t e r v e n e t o s l o w d o w n the b o o m before it led key f i r m s t o b e c o m e u n p r o f i t a b l e ; a n d m a i n t a i n a

minimum

g u a r a n t e e d level o f d e m a n d t h r o u g h m i l i t a r y orders. T h e stare m o n o p o l y capitalist a r m s e c o n o m y w a s n o t able to d o a w a y w i t h the cyclical p a t t e r n o f c a p i t a l i s t a c c u m u l a t i o n . Specifically, it c o u l d n o t s t o p c o m p e t i t i v e pressures c a u s i n g capitalists t o tend t o e x p a n d p r o d u c t i o n d u r i n g u p t u r n s in the e c o n o m y o n a scale w h i c h exceeded the a v a i l a b l e resources. But ir w a s a b l e t o prevent s u c h spells o f " o v e r - a c c u m u l a t i o n " l e a d i n g t o s l u m p s o f the pre-Second W o r l d W a r sort. Something

o f the s a m e pattern

existed

in the

Soviet-type

e c o n o m i e s . Bottlenecks arose t h r o u g h o u t the e c o n o m y , threaten144


ing the closure o f vast sectors o f p r o d u c t i o n t h r o u g h shortages o f inputs. O u t p u t never rose nearly as r a p i d l y as p l a n n e d . T h e monetary f u n d s p a i d o u t by enterprises for m a t e r i a l s a n d

labour

exceeded the o u t p u t o f the e c o n o m y , g i v i n g rise t o inflationary pressures w h i c h f o u n d direct expression as price rises or " h i d d e n " expression as acute shortages o f g o o d s i n the shops. Left t o itself, over-rapid a c c u m u l a t i o n by c e r t a i n key enterprises w o u l d s o o n h a v e a b s o r b e d rhe resources m a n y enterprises d e p e n d e d o n t o keep o p e r a t i n g ar e x i s t i n g levels, l e a d i n g to the v\ holesale c l o s u r e o f their p l a n t s a n d the d e s t r u c t i o n o f rhe marLets for the o u t p u t o f o t h e r enterprises. It w o u l d have b e c o m e a crisis o f o v e r p r o d u c t i o n o f c o m m o d i t i e s . But as in the W e s t i n the l o n g b o o m , the state stepped in t o try a n d pre-empt this by " c o o l i n g d o w n " the e c o n o m y . It o r d e r e d enterprises ro " f r e e z e " certain i n v e s t m e n t s a n d t o divert resources t o o t h e r s . T h i s involved factories s u d d e n l y s w i t c h i n g f r o m o n e sort o f o u t p u t t o another. T h e m y t h o f the p r e - p l a n n i n g o f p r o d u c t i o n gave w a y to the reality o f after rhe event, " a p o s t e r i o r i " , a l l o c a t i o n , w i t h a repeated s h i f t i n g o f i n p u t s a n d o u t p u t s . O n e p l a n target w h i c h always suffered in the process w a s t h a t for c o n s u m e r g o o d s prod u c t i o n . T h e result w a s t o increase still f u r t h e r the d i s c r e p a n c y between t h e f u n d s l a i d o u t by enterprises o n w a g e s a n d

the

g o o d s a v a i l a b l e f o r these w a g e s t o b u y — t o increase o p e n

or

hidden inflation. D e e p social a n d political crises in 1 9 5 3 (East G e r m a n y ) , 1956 (Poland

and

Hungary),

1968

(Czechoslovakia)

and

1970-71

(Poland a g a i n ) s h o w e d h o w the tensions this p r o d u c e d c o u l d find sudden expression. But so l o n g as it w a s possible to restore g r o w t h rates, the tensions c o u l d be reduced, usually by a c o m b i n a t i o n o f repression o n rhe o n e h a n d a n d concessions over living s t a n d a r d s o n the other. Such remedies h i d t e m p o r a r i l y the u n d e r l y i n g pressures t o w a r d s crisis Those w h o failed t o analyse the system in terms o f c o m p e t i t i v e a c c u m u l a t i o n failed to see this. This w a s true o f the Western procapitalist theorists o f " t o t a l i t a r i a n i s m O n e writings o f rhe 1950s a n d

can search

their

1960s in vain for s o m e h i n t s that

R u s s i a n type systems c o n t a i n e d i n b u i l t e c o n o m i c c o n t r a d i c t i o n s . It w a s also true o f m o s t o f those w h o saw t h e m as s o m e sort o f socialist or workers" states. They were c o n t i n u a l l y over-optimistic a b o u t the e c o n o m i c p r o s p e c t s — i n their o w n w a y m i r r o r i n g the illusions o f the Western Kcyncsians. 'T he Long Boom

179

A r m s , profits a n d of the C o l d W a r T h e a r m s budgets of the great p o w e r s were central ro their econ o m i c development. But their roots were n o t n a r r o w l y e c o n o m i c . They flowed f r o m a n e w struggle to divide a n d redivide the w o r l d between the m a i n victors o f the Second W o r l d War, the US a n d the U S S R — t h e C o l d War. T h e US h a d a s p i r a t i o n s for its i n d u s t r i e s , the m o s t a d v a n c e d a n d p r o d u c t i v e in rhe w o r l d , t o penetrate the w h o l e w o r l d econ omy

through

"free t r a d e " .

The W e s t e r n

European

powers,

e x h a u s t e d by the war, w e r e in n o p o s i t i o n ro c h a l l e n g e it direct I > ( a l t h o u g h British p o l i t i c i a n s o f t e n expressed a p r i v a t e desire to d o so). Russia's rulers w e r e in a d i f f e r e n t s i t u a t i o n . T h e w a r ' s end

left t h e m

dominating

virtually

the w h o l e

of

northern

E u r a s i a , f r o m t h e b o r d e r s o f W e s t e r n E u r o p e r i g h t t h r o u g h ro the Pacific. W i t h levels o f i n d u s t r i a l p r o d u c t i v i t y less t h a n half those o f the U S , they were i n n o p o s i t i o n t o sustain themselves i n e c o n o m i c c o m p e t i t i o n t h r o u g h free t r a d e . But they c o u l d c o n rest the US a t t e m p t at g l o b a l h e g e m o n y by b l o c k i n g its access t o the e c o n o m i e s u n d e r their c o n t r o l — n o t just the territory o f the o l d R u s s i a n E m p i r e , b u t a l s o the c o u n t r i e s o f Eastern E u r o p e w h i c h rhey s u b o r d i n a t e d t o their m i l i t a r y - i n d u s t r i a l g o a l s . T h e U S , f o r its p a r t , rushed t o c e m e n t its h e g e m o n y over W e s t e r n Europe through financing pro-American Christian

Democrat

a n d Social D e m o c r a t p o l i t i c a l parties, rhe M a r s h a l l Plan for rev i v i n g E u r o p e a n i n d u s t r y w i t h i n p a r a m e t e r s f a v o u r a b l e t o US interests, a n d rhe c r e a t i o n o f the N A T O m i l i t a r v a l l i a n c e a n d setting u p US bases in Western E u r o p e . T h e pattern w a s laid for the next 4 0 years, o f each o f the t w o great p o w e r s reaching o u t t o d r a w as m u c h o f the w o r l d as possible i n t o its sphere o f influence so as t o gain a strategic a d v a n t a g e over the other. T h e y f o u g h t a b l o o d y w a r over c o n t r o l o f the K o r e a n p e n i n s u l a , n o t because o f the little w e a l t h it t h e n possessed, b u t because o f the strategic i m p l i c a t i o n s for the w h o l e of the East A s i a n a n d Pacific region. Each tried over rhe f o l l o w i n g decades t o extend its sphere o f influence by g i v i n g aid a n d a r m s ro states w h i c h fell o u t w i t h its rival. T h e C o l d W a r c o n f l i c t c o u l d n o t be e x p l a i n e d by e c o n o m i c s as o f t e n u n d e r s t o o d , in t e r m s s i m p l y o f p r o f i t a n d loss accounti n g . T h e a r m a m e n t s bills o f b o t h great p o w e r s s o o n exceeded a n y t h i n g their rulers c o u l d h o p e t o g a i n f r o m the increased 144


e x p l o i t a t i o n o f the lesser p o w e r s u n d e r their c o n t r o l . A t

no

fctage in the 1 9 4 0 s o r 1950s d i d total U S overseas i n v e s t m e n t (ler done the m u c h s m a l l e r r e t u r n o n t h a t i n v e s t m e n t ) exceed US s p e n d i n g o n a r m s . E v e n in the p e r i o d o f " d i s a r m a m e n t "

prior

co the o u t b r e a k o f t h e K o r e a n W a r " m i l i t a r y e x p e n d i t u r e totalled s o m e t h i n g like S 1 5 b i l l i o n a year. T h u s it w a s 2 5 times as high as the s u m o f p r i v a t e c a p i t a l e x p o r t s 1 . " By 1980 t o t a l exp e n d i t u r e o n " d e f e n c e " h a d risen t o a r o u n d $ 2 0 0 b i l l i o n — l e s s n o w t h a n t o t a l overseas i n v e s t m e n t o f $ 5 0 0 b i l l i o n , b u t still s u b s t a n t i a l l y m o r e t h a n the p r o f i t s t h a t c o u l d p o s s i b l y a c c r u e from that investment.

-

T h e p i c t u r e for the U S S R w a s s o m e w h a t similar. In the years 1945-50 it pillaged Eastern E u r o p e , r e m o v i n g p l a n t a n d equipment w h o l e s a l e from East G e r m a n y a n d R o m a n i a , a n d forced the region as a w h o l e t o accept prices b e l o w w o r l d m a r k e t levels for goods g o i n g t o the U S S R p r o p e r / 2 Bur even in t h a t period the econ o m i c g a i n s f r o m this m u s t h a v e been s u b s t a n t i a l l y less t h a n rhe escalation o f the USSR's a r m s b u d g e t o n c e the C o l d W a r h a d well and truly b e g u n . A n d f r o m

1955 o n w a r d s fear o f rebellion in

Eastern E u r o p e led rhe Soviet g o v e r n m e n t t o relax the direct econ o m i c pressure o n its satellites. T h e i m p e r i a l i s m w h i c h necessitated a r m s s p e n d i n g w a s n o t t h a t of a single e m p i r e in w h i c h a few " f i n a n c e capitalists" at the centre m a d e h u g e super-profits by h o l d i n g b i l l i o n s o f p e o p l e

down.

Rather it w a s the i m p e r i a l i s m o f rival empires, in w h i c h the combined capitalists o f each r u l i n g class h a d t o divert f u n d s f r o m p r o d u c t i v e investments t o m i l i t a r y e x p e n d i t u r e in order t o ensure that they h u n g o n t o w h a t they already possessed. T h e c a l c u l a t i o n in b o t h W a s h i n g t o n a n d M o s c o w w a s s i m p l e . To relax the level o f m i l i t a r y s p e n d i n g w a s t o risk losing strategic s u p e r i o r i t y t o the rival i m p e r i a l i s m , e n a b l i n g it t o e x t e n d its sphere o f d o m i n a n c e . So the R u s s i a n s lived in fear o f a n att e m p t e d US " r o l l b a c k " o f Eastern E u r o p e , w h i c h w o u l d

have

b r o k e n these e c o n o m i e s f r o m the U S S R ' s g r a s p , l e a d i n g i n t u r n to the p o s s i b i l i t y o f a n u n r a v e l l i n g o f the ties w h i c h b o u n d rhe o t h e r c o n s t i t u e n t parts o f the U S S R t o its R u s s i a n centre (somet h i n g t h a t d i d in fact h a p p e n e v e n t u a l l y w i t h the great e c o n o m i c a n d p o l i t i c a l crisis t h a t s h o o k rhe w h o l e Eastern b l o c i n the years 1989 t o 1 9 9 1 ) . A t the s a m e t i m e , the US feared for its h e g e m o n y . As o n e US s p o k e s m a n p u t it at the t i m e o f t h e K o r e a n

War,

" W e r e either o f the t w o critical areas o n the b o r d e r s o f the 'T he Long Boom

181

C o m m u n i s t w o r l d ro be o v e r r u n — W e s t e r n E u r o p e o r A s i a — t h e rest o f the free w o r l d w o u l d be i m m e n s e l y w e a k e n e d . . . i n econ o m i c and military strength..."'1 Ir was necessary, in other w o r d s , to t u r n vast a m o u n t s o f value i n t o m e a n s o f d e s t r u c t i o n — n o t in order t o o b t a i n m o r e value but t o h o l d o n t o t h a t already possessed. Such w a s rhe logic o f capital isr c o m p e t i t i o n applied t o the relations between states. So the C o l d W a r a m o u n t e d t o a n e w inter-imperialist conflict o f the sort de scribed by B u k h a r i n , a n d it soon o v e r s h a d o w e d the old imperialist conflicts between the West E u r o p e a n p o w e r s .

D e c o l o n i s a t i o n and d e v e l o p m e n t a l ism in the G l o b a l South Eighty five percent of h u m a n i t y lived outside the a d v a n c e d industrial countries. Their experience o f rhe " g o l d e n a g e " w a s very far from g o l d e n . T h e great m a j o r i t y still lived in rhe c o u n t r y s i d e , a n d there w a s little c h a n g e in the poverty t h a t p l a g u e d their d a i l y lives. O n e i m p o r t a n t political c h a n g e d i d , however, take place. T h e West E u r o p e a n powers, were forced, bit by bit, t o a b a n d o n direct c o l o n i a l rule, a process starting w i t h a w e a k e n e d Britain e n d i n g its 190 year o l d e m p i r e in I n d i a in 1 9 4 7 a n d e n d i n g w i t h Portugal h a n d i n g over p o w e r t o liberation m o v e m e n t s in Africa in 1975. T h e US replaced Western E u r o p e a n influence in s o m e regions. It t o o k c o n t r o l o f S o u t h V i e t n a m w h e n the French w i t h d r e w in 1 9 5 4 — u n t i l it t o o w a s forced t o w i t h d r a w after the most bitter ol w a r s in the mid-1970s. It became the d o m i n a n t influence in most o f the M i d d l e F'ast a n d parts o f Africa. But, like the E u r o p e a n p o w e r s , it retreated f r o m f o r m a l c o l o n i s a t i o n , g r a n t i n g i n d e p e n dence t o the P h i l i p p i n e s a n d k e e p i n g direct c o n t r o l o n l y over Puerto R i c o . T h i s retreat f r o m direct c o l o n i s a t i o n h a d as a direct c o r o l l a n the end o f t h e o l d clashes between the Western p o w e r s over rhe p a r t i t i o n i n g o f the rest o f the w o r l d . T h e drive t o w a r between t h e m seemed t o have g o n e o n c e a n d for all. It w a s also accompanied, as w e have seen, by s o m e t h i n g else unexpected by the classu theories o f i m p e r i a l i s m — l o s i n g their colonies did n o t s t o p Western e c o n o m i e s p a r t i c i p a t i n g in the l o n g b o o m a n d c o n c e d i n g regular rises in living s t a n d a r d s t o their workers. A n d the a d v a n c e d c o u n tries w i t h o u t a n y c o l o n i e s — W e s t G e r m a n y , J a p a n a n d I t a l y — h a d the e c o n o m i e s w h i c h e x p a n d e d fastest o f all. M e a n w h i l e , for the 144


first t w o post-war decades, exports o f capital stayed d o w n at the very l o w levels they h a d s u n k t o in rhe great s l u m p o f rhe 1930s. As M i k e K i d r o n p o i n t e d o u t in 1962: Even in B r i t a i n . . . t h e significance o f c a p i t a l exports has declined t r e m e n d o u s l y : latterly they have run at a b o u t 2 percent o f gross n a t i o n a l p r o d u c t c o m p a r e d w i t h 8 percent in the period before W o r l d W a r O n e ; they n o w a b s o r b less t h a n 10 percent o f savings c o m p a r e d w i t h s o m e 5 0 percent before; a n d returns o n foreign investment have been r u n n i n g at slightly over 2 percent o f n a t i o n a l i n c o m e c o m p a r e d w i t h . . . 10 percent in 1 9 1 4 . " Hie foreign i n v e s t m e n t t h a t d i d take place w a s decreasingly directed t o w a r d s the less industrialised parts o f the w o r l d : " T h e concentration

o f activity is increasingly w i t h i n

the developed

w o r l d , leaving all b u t a few d e v e l o p i n g countries outside the reach «r

of the n e w d y n a m i s m " . ^ T h e r e w a s a l s o a shift in the d e m a n d for T h i r d W o r l d products.

Raw

materials

from

agricultural

countries

had

been

i n d i s p e n s a b l e f o r i n d u s t r i a l p r o d u c t i o n in the W e s t b e f o r e the I irst W o r l d W a r , a n d c o l o n i a l c o n t r o l w a s a n i m p o r t a n t w a y for i n d u s t r i a l i s e d c o u n t r i e s t o ensure their o w n s u p p l i e s a n d b l o c k access t o their rivals. But n o w there w e r e synthetic substitutes for most r a w m a t e r i a l s — a r t i f i c i a l fertilisers, synthetic rubber, r a y o n , nylon,

plastics.

A

parallel

transformation

of agriculture

in

Western E u r o p e a n d N o r t h A m e r i c a reduced f o o d i m p o r t s f r o m the rest o f the w o r l d . By rhe late 1950s w i t h d r a w a l f r o m c o l o n i e s in Africa a n d Asia w a s n o longer the t h r e a t it w o u l d o n c e h a v e been ro the industrialists o f the E u r o p e a n c o u n t r i e s . C o m p a n i e s which h a d m a d e their f o r t u n e s f r o m p l a n t a t i o n s a n d m i n e s o f rhe ( i l o b a l S o u t h began t o diversify their i n v e s t m e n t s i n r o n e w lines of business. There w a s o n e great exception t o this p i c t u r e — o i l . Here w a s rhe t a w material o f r a w materials, the ingredient for m a n u f a c t u r i n g plastics, synthetic r u b b e r a n d artificial fibres, as well as p r o v i d i n g for massively e x p a n d i n g energy needs a n d p r o p e l l i n g rhe ever greater p r o l i f e r a t i o n o f m o t o r vehicles, ranks a n d aircraft. A n d the supplies o f it were increasingly t o be f o u n d o u t s i d e E u r o p e a n d North

America.

By the m i d - 1 9 7 0 s S a u d i A r a b i a ,

Iraq,

Iran,

K u w a i t , a n d the petty s h e i k h d o m s a r o u n d the A r a b i a n Peninsula were the countries that m a t t e r e d — a s w a s s h o w n by the r e m p o r a r y 'T he Long Boom

183

i n t e r r u p t i o n o f supplies d u r i n g the Arab-Israeli w a r o f 1 9 7 3 . h w a s n o t an accident t h a t the o n e version o f o l d style c o l o n i a l i s m »

t h a t c o n t i n u e d to get u n t r a m m e l l e d s u p p o r t f r o m all the Western states was the settler state o f Israel—fostered in its early years as a " J e w i s h h o m e l a n d " by British i m p e r i a l i s m , a r m e d for its seizure of 78 percent o f Palestine in 1948 by the U S a n d the U S S R , allied w i t h Britain a n d France in their a t t a c k o n Egypt in 1 9 5 6 , a n d b a c k e d wholeheartedly by the US in the aggression t h a t gave ir c o n t r o l o f the rest of Palestine in J u n e 1967. 56

I n d i g e n o u s governments a n d capitalist d e v e l o p m e n t T h e d i s m a n t l i n g o f the E u r o p e a n c o l o n i a l empires w a s a fact ot i m m e n s e i m p o r t a n c e for s o m e t h i n g like h a l f the w o r l d ' s p e o p k w h o h a d lived u n d e r rheir t h u m b . It also raised very i m p o r t a n t questions for those w h o h a d , in one w a y or another, fought against the h o l d o f those empires. W h a t h a p p e n e d t o i m p e r i a l i s m — a n d the fight against i t — i f empires n o longer existed? T h e reaction o f m a n y social d e m o c r a t s a n d liberals in the West w a s to say t h a t i m p e r i a l i s m n o longer existed. T h i s w a s , for in stance, the conclusion d r a w n by J o h n Strachey. In End of

Empire

( 1 9 5 9 ) he argued that rising living s t a n d a r d s m e a n t businesses n o longer needed colonies t o a b s o r b the surplus a n d prevent o v e r p r o d u c t i o n . In effect, he w a s saying t h a t H o b s o n ' s alternative to i m p e r i a l i s m , a reflation o f the d o m e s t i c e c o n o m y , h a d prevailed a n d solved the systems p r o b l e m s . A n i m p o r t a n t section o f rhe left rejected such reasoning. They c o u l d see t h a t the former c o l o n i a l countries were still p l a g u e d by poverty a n d h u n g e r — a n d t h a t the Western firms t h a t h a d benefited f r o m e m p i r e r e m a i n e d entrenched in t h e m . W h a t is m o r e , the end o f the E u r o p e a n empires w a s n o t the end t o the violence inflicted o n the peoples of T h i r d W o r l d , as the US state picked u p the cudgel o f the d e p a r t i n g E u r o p e a n s . Yet rejection o f facile talk a b o u t an e n d to i m p e r i a l i s m w a s often a c c o m p a n i e d by q u o t e s , p a r r o t f a s h i o n , f r o m Lenin's 1916 analysis w i t h o u t recognising the changes t h a t h a d occurred since it w a s w r i t t e n . H i s insistence t h a t the great Western p o w e r s were driven t o d i v i d e a n d redivide the w o r l d between t h e m t h r o u g h direct c o l o n i a l rule h a r d l v fitted a s i t u a t i o n in w h i c h c o l o n i c s h a d 0

g a i n e d i n d e p e n d e n c e . T h e response o f m o s t o f the left w a s quietly 144


to redefine i m p e r i a l i s m to m e a n s i m p l y the e x p l o i t a t i o n o f the I hird W o r l d b y Western capitalist classes, d r o p p i n g the drive towards w a r between imperialist p o w e r s s o central to Lenin's theory lor w h a t w a s in reality a version o f K a u t s k y s ultra-imperialism. At the s a m e t i m e they s i m p l y replaced talk o f c o l o n i a l i s m w i t h talk o f "neo-colonies" or "semi-colonies". Lenin h a d written o f "semi-colonies". For h i m these were places like C h i n a ar the t i m e o f the First W o r l d War, w h e r e " i n d e p e n dence" c o n c e a l e d c o n t i n u e d political s u b o r d i n a t i o n t o foreign a r m e d forces in p a r t i a l o c c u p a t i o n of the c o u n t r y . There were some places w h e r e things-did seem like this after the end o f direct c o l o n i a l c o n t r o l in the 1950s a n d 1960s. In m a n y cases the departing c o l o n i a l a d m i n i s t r a t i o n s were able to ensure that their place w a s t a k e n ^ y their o w n creatures, w i t h e n o r m o u s c o n t i n u i t y in the personnel o f the state, especially w h e n it c a m e ro key positions in the a r m e d forces. So, for i n s t a n c e , France h a d g r a n t e d " i n d e p e n d e n c e " to h u g e areas o f West a n d C e n t r a l Africa

by

h a n d i n g p o w e r ro people w h o c o n t i n u e d , as in the past, t o w o r k with French c o m p a n i e s , use the French c u r r e n c y — a n d periodically invite French t r o o p s in to m a i n t a i n " o r d e r " . But in s o m e o f the m o s t i m p o r t a n t cases independence d i d m e a n independence. G o v e r n m e n t s proceeded n o t o n l y t o take seats in ilie United N a t i o n s a n d set u p embassies all over the w o r l d . They also intervened in the e c o n o m y , n a t i o n a l i s i n g c o l o n i a l c o m p a n i e s , i m p l e m e n t i n g l a n d reforms, e m b a r k i n g o n schemes o f industrialisation

inspired

by

the

preaching

of

theorists

of

economic

d e v e l o p m e n t o r often by Stalin's Russia. Such things were undertaken w i t h v a r y i n g degrees o f success o r failure in I n d i a , E g y p t , Syria, Iraq, Algeria, I n d o n e s i a , G h a n a , E q u a t o r i a l G u i n e a , A n g o l a ind S o u t h K o r e a , as well as by rhe m o r e radical regimes o f C h i n a , ( uba a n d V i e t n a m . O v e r t i m e even s o m e o f the " d o c i l e " ex-colonial regimes began to f o l l o w the same p a t h . T h i s w a s t r u e , f o r instance, o f the M a l a y s i a n r e g i m e / o f the Shah's regime in Iran in the 1960s a n d early 1970s, a n d o f the Taiwanese regime. Even the dictator M o b u t u , b r o u g h t to p o w e r w i t h the help o f the C I A in ( o n g o - Z a i r e in 1965, n a t i o n a l i s e d the m i g h t y U n i o n M i n i e r e de I laut K a t a n g a m i n i n g c o r p o r a t i o n a l o n g w i t h 7 0 percent o f e x p o r t earnings three years later. To call regimes like Nasser s Egypt or N e h r u s I n d i a "neo-colon i a T or " s e m i - c o l o n i a l " w a s a travesty—as it w a s w i t h " p o p u l i s t " regimes in Latin A m e r i c a or rhe F i a n n a 'T he Long Boom

Fail g o v e r n m e n t s

in 185

Ireland. A t t e m p t s were m a d e in each case t o establish n o t o n l y in dependent political entities, b u t also i n d e p e n d e n t centres o f capital a c c u m u l a t i o n . These still operated w i t h i n a w o r l d d o m i n a t e d b\ rhe m u c h stronger c a p i t a l i s m s o f the a d v a n c e d countries, b u t the) were by n o means mere p l a y t h i n g s o f t h e m . A new " d e v e l o p m e n t a l i s t " o r t h o d o x y p o i n t e d the m e a n s by w h i c h such economies were m e a n t t o close the g a p w i t h the ad vanced

industrial

nations.

It

held

that

capitalist

market

m e c h a n i s m s c o u l d n o t achieve that g o a l . As the staff o f the W o r l d B a n k later recalled o f " r h e d o m i n a n t p a r a d i g m at t h a t t i m e " : It w a s assumed that in the early stages o f d e v e l o p m e n t markets c o u l d n o t be relied u p o n , a n d t h a t the stare w o u l d be able ro direct the d e v e l o p m e n t process... T h e success o f state p l a n n i n g in achieving industrialisation in the Soviet U n i o n (for so it w a s perceived) greatly influenced p o l i c y m a k e r s . T h e m a j o r develo p m e n t institutions ( i n c l u d i n g the W o r l d B a n k ) s u p p o r t e d these views w i t h various degrees o f enthusiasm.™ Just as Keynesianism w a s d o m i n a n t w i t h i n b o u r g e o i s e c o n o m i c s in rhe a d v a n c e d countries at the t i m e , so statist, " i m p o r t substitu t i o n i s t " , doctrines were h e g e m o n i c w h e n it c a m e t o the T h i r d W o r l d . T h e m a i n p r o p o n e n t o f these in the 1940s a n d 1950s w a s the verv influential U n i t e d N a t i o n s E c o n o m i c C o m m i s s i o n L a t i n A m e r i c a , directed

by the A r g e n t i n i a n e c o n o m i s t

for

Raoul

Prebisch. It argued t h a t d e v e l o p m e n t c o u l d o n l y take place if the state intervened to b l o c k i m p o r t s to foster the g r o w t h o f n e w local i n d u s t r i e s , " since otherwise " d e p e n d e n c e " o n the a d v a n c e d capitalist e c o n o m i e s w o u l d prevent i n d u s t r i a l i s a t i o n . " 6 0 M o r e radical versions o f such " d e p e n d e n c y t h e o r y " d o m i n a t e d m u c h o f the left w o r l d w i d e in the 1960s. T h e w r i t i n g s o f Paul B a r a n (especially The Political

Economy

of Growth)

and Andre

G u n d e r F r a n k ( w h o talked o f the " r h e d e v e l o p m e n t o f underdev e l o p m e n t " ) 6 1 d o m i n a t e d m o s t M a r x i s t t h i n k i n g o n the subject (even t h o u g h G u n d e r F r a n k d i d n o t see himself as M a r x i s t ) . " Baran wrote that: Far f r o m serving as an engine o f e c o n o m i c e x p a n s i o n , o f tech n o l o g i c a l progress a n d social c h a n g e , the c a p i t a l i s t order in these countries has represented a f r a m e w o r k for e c o n o m i c stagn a t i o n , for a r c h a i c technology a n d for social b a c k w a r d n e s s . 6 ' 144


Adding: The e s t a b l i s h m e n t o f a socialist p l a n n e d e c o n o m y is the essential, i n d e e d

indispensable, c o n d i t i o n

for the a t t a i n m e n t

of

e c o n o m i c a n d social progress in u n d e r d e v e l o p e d countries. 1 1 ( . u n d e r F r a n k was just as a d a m a n t : N o c o u n t r y w h i c h has been tied t o the m e t r o p o l i s as a satellite through

incorporation

in

the w o r l d

capitalist

system

has

achieved rhe r a n k o t a n e c o n o m i c a l l y developed c o u n t r y except by finally a b a n d o n i n g the capitalist system."' " S o c i a l i s m " for Baran a n d " b r e a k i n g w i t h c a p i t a l i s m " for G u i l d e r I rank m e a n t f o l l o w i n g the m o d e l o f Stalinist Russia.'" The " d e p e n d e n c y " a r g u m e n t , w h e t h e r in its mainstream or radical f o r m , w a s a w e a k one. It assumed that capitalists f r o m the idvanced countries w h o invested in rhe T h i r d W o r l d w o u l d deliberately choose n o t to b u i l d u p industry even w h e n it w o u l d have been profitable. This did n o t fit the facts. There w a s considerable foreign finance o f industrial d e v e l o p m e n t in Tsarist Russia, Argentina a n d ihe British d o m i n i o n s before the First W o r l d War. N o r did Western states at all times use their p o w e r t o prevent industrialisation. Sometimes they did a n d sometimes they did not. Finally, a ruling c lass o f one country w h i c h depends o n bigger capitalist countries for m u c h o f its trade a n d investment does n o t completely lose its ability to

forge

an

independent

path

of

capital

accumulation.

The

I uropean economies, for instance, have long been ro a high degree dependent o n

what

h a p p e n s in the US e c o n o m y w i t h o u t

the

I uropean ruling classes simply b e c o m i n g A m e r i c a n puppets. So pervasive w a s the view t h a t " c a p i t a l i s m m e a n s underdevelopment"

t h a t p e o p l e read it back

i n t o s o m e o f the

Marxist

classics. B a r a n q u o t e d Lenin to back u p his case, w h i l e even someone as perceptive as Nigel H a r r i s c o u l d ascribe such views t o " t h e Bolsheviks in 1 9 1 7 V 7 Lenin's writings o n imperialism h a d in fact pur f o r w a r d a completely different view, as did Leon Trotsky's writings o f the late 1920s. Lenin wrote that the export o f capital "accelerates the develo p m e n t o f capitalism in rhe countries to which it is e x p o r t e d w h i l e Trotsky wrote that capitalism "equalises the cultural a n d e c o n o m i c development o f the most advanced a n d most b a c k w a r d countries" ,nV t he Long Boom

1S7

even if as it d i d so " d e v e l o p i n g some parts o f the w o r l d e c o n o m y w h i l e h a m p e r i n g a n d t h r o w i n g back the d e v e l o p m e n t o f others"."" W h a t m a i n s t r e a m d e p e n d e n c y t h e o r y d i d d o for a p e r i o d w a s p r o v i d e an ideological justification for m e t h o d s w h i c h e n a b l e d the rulers o f s o m e politically i n d e p e n d e n t states t o achieve impressive levels o f a c c u m u l a t i o n , even if o n l y for a p e r i o d . A r g e n t i n a ' s rati o f e c o n o m i c g r o w t h t h r o u g h rhe 1950s a n d 1960s w a s c o m p a r a ble w i t h t h a t o f Italy" 1 a n d

by the early

w o r k f o r c e w a s in industry, w i t h o n l y

1970s a t h i r d o f is

13 percent o n the l a n d .

Brazil's 9 percent g r o w t h rate w a s o n e o f the highest in rhe w o r l d a n d by the mid-1980s the Economist

c o u l d refer ro S a o P a u l o as

" a D e t r o i t in the m a k i n g " . " 4 S o u t h K o r e a experienced r a p i d ecu n o m i c g r o w t h o f a b o u t 8 percent a year after a g e n e r a l . Park C h u n g H e e , seized p o w e r in 1961 a n d forced the b i g firms (or chaebols)

t o w o r k w i t h i n a f r a m e w o r k established b y rhe state a n d

e m b a r k e d o n state capitalist i n d u s t r i a l i s a t i o n . C h i n a , w h e r e stare c o n t r o l o f the e c o n o m y c a m e closest t o the R u s s i a n m o d e l endorsed by the radical d e p e n d e n c y theorists, h a d a n e c o n o m i c g r o w t h rate n o h i g h e r t h a n these figures o n c e it h a d c o m p l e t e d the first short stage o f e c o n o m i c recovery f r o m 2 0 years o f civil w a r a n d J a p a n e s e i n v a s i o n . T h e i m p o s i t i o n o f p l a n s w h i c h diverted resources t o w a r d s n e w heavy i n d u s t r i e s — s t e e l , c e m e n t , e l e c t r i c i t y — i n a very p o o r , o v e r w h e l m i n g l y a g r i c u l t u r a l c o u n t r y like the C h i n a o l t h e early 1950s m e a n t s q u e e z i n g the l i v i n g stand a r d s o f rhe m a s s o f the p o p u l a t i o n . W h a t the peasants h a d g a i n e d t h r o u g h land reform in the previous decade, they n o w lost t h r o u g h rigorously enforced t a x a t i o n o f their o u t p u t . T h e n c a m e the ultim a t e l y disastrous a t t e m p t a t c o l l e c t i v i s a t i o n t h r o u g h

so-called

People's C o m m u n e s , in a n a t t e m p t t o b r i n g a b o u t a " G r e a t L e a p F o r w a r d " in e c o n o m i c d e v e l o p m e n t . T h e l e a p c u t t o t a l agricultural o u t p u t , led t o f a m i n e in vast areas o f rhe c o u n t r y s i d e a n d h a d t o be a b a n d o n e d . M u c h o f the n e w i n d u s t r y w a s far f r o m efficient. T h e g r o w t h o f h e a v y i n d u s t r y o u t o f all p r o p o r t i o n t o w h a t w a s h a p p e n i n g in t h e rest o f the e c o n o m y led t o a c u t e s h o r t a g e s ot i n p u t s needed t o keep p l a n t s r u n n i n g , a n d t o the p r o d u c t i o n o f o t h e r g o o d s w h i c h h a d n o i m m e d i a t e use. There w e r e m a s s i v e s w i n g s b e t w e e n spells o f fast i n d u s t r i a l e x p a n s i o n a n d spells o f near s t a g n a t i o n , a n d m a n y o f the g r a n d i o s e n e w g i a n t p l a n t s were o n l y a b l e to w o r k at a f r a c t i o n o f their capacity. T h e r e w a s u s u a l l y g r o w t h even in c o u n t r i e s t h a t w e r e n o t as successful as Brazil a n d S o u t h K o r e a . T h e m a n u f a c t u r i n g o u t p u t 144

187 Capitalism111the 20th Century

111 India grew by 5.3 percent a year f r o m 1 9 5 0 ro 198 I , a n d agriiillrural

output

by 2.3

percent, even

if there was

continual

d i s a p p o i n t m e n t at the e c o n o m y ' s i n a b i l i t y t o exceed a " H i n d u " r.rowth rate o f 4 percent. Sub-Saharan Africa h a d * p e r capita growth rates o f a r o u n d 2 percent in the early 1960s'" w h i c h " r o s e lo nearly 5 p e r c e n t by the e n d o f that d e c a d e " .

Egypt, whose

leader Nasser n a t i o n a l i s e d a l m o s t all o f industry, g r e w a b o u t 6 percent per year t h r o u g h the first h a l f o f the 1960s. Such o u t c o m e s hi terms o f levels o f e c o n o m i c g r o w t h were e n o u g h ro c o n v i n c e one " r e v i s i o n i s t " M a r x i s t , Bill W a r r e n , t o c o m e t o the c o n c l u s i o n in rhe early 1970s t h a t m o s t o f rhe rest o f the left w e r e w r o n g , t ountries in the T h i r d W o r l d c o u l d catch u p wirh the West without b r e a k i n g w i t h c a p i t a l i s m : T h e prospects % for successful c a p i t a l i s t e c o n o m i c d e v e l o p m e n t (implying industrialisation) of a significant n u m b e r of major underdeveloped progress

in

countries

capitalist

are

quite

industrialisation

good... has

Substantial

already

been

a c h i e v e d . . . In so far as there are obstacles to this d e v e l o p m e n t , they o r i g i n a t e n o t in c u r r e n t i m p e r i a l i s t - T h i r d W o r l d relationships, b u t a l m o s t entirely f r o m the i n t e r n a l c o n t r a d i c t i o n s o f the T h i r d W o r l d itself... T h e i m p e r i a l i s t c o u n t r i e s ' p o l i c i e s a n d their o v e r a l l i m p a c t o n the T h i r d W o r l d a c t u a l l y f a v o u r its i n d u s t r i a l i s a t i o n . . . 7 * I le p r o v i d e d figures s h o w i n g rhe real per capita e c o n o m i c g r o w t h ihat w a s in fact h a p p e n i n g . In c h a l l e n g i n g the a s s u m p t i o n of the radical version o f dependency theory he w a s o n strong g r o u n d . So too w a s h e w h e n he m a d e rhe p o i n t t h a t if the left s a w its m a i n priority as s u p p o r t i n g industrialising regimes as " a n t i - i m p e r i a l i s t " it could " f i n d itself directly s u p p o r t i n g bourgeois regimes w h i c h , as in Peru a n d Egypt, e x p l o i t a n d oppress w o r k e r s a n d peasants while e m p l o y i n g anti-imperialist r h e t o r i c " . But l a c k i n g f r o m his analysis w a s a n y real a c c o u n t i n g for rhe enormous

unevenness

between

Third

World

countries,

even

t h o u g h his o w n figures s h o w e d t h a t per c a p i t a a n n u a l g r o w t h in t w o o f the most p o p u l o u s countries, I n d i a a n d I n d o n e s i a , w a s o n l y 1.2 percent a n d

1 percent ( c o m p a r e d t o 6.8 percent for S o u t h

Korea, 4 . 9 percent for T h a i l a n d a n d 7.1 percent for Z a m b i a ) . H e also failed t o see that r a p i d capitalist d e v e l o p m e n t w a s nor necessarily s m o o t h a n d u n i n t e r r u p t e d t h r o u g h rime: 'T he Long Boom

189

Private investment in the T h i r d W o r l d is increasingly creating the c o n d i t i o n s for rhe d i s a p p e a r a n c e o f i m p e r i a l i s m as a system o f e c o n o m i c i n e q u a l i t y between n a t i o n s o f the capitalist w o r l d system, a n d . . . t h e r e are n o limits, in principle, ro this process. T h i s led h i m to m a k e a p r e d i c t i o n t h a t w o u l d s o o n be p u t the rest—and proved d r a m a t i c a l l y w r o n g : As for future prospects, the W o r l d Bank s view is t h a t the m a jority o f countries in the 1970s w i l l , as in the 1960s, r e m a i n free o f debt servicing p r o b l e m s . . . T h e Hrst three years o f the

1970s

strongly suggest t h a t this will be the case.""' W a r r e n h a d taken rhe c r u d e a c c o u n t by G u n d e r Frank a n d Baran that had maintained development was a n impossibility of and s i m p l y turned it u p s i d e d o w n . L a c k i n g w a s a n y sense o f the c h a o t i c , u n p r e d i c t a b l e character o f e c o n o m i c g r o w t h

for the

weaker sections o f the w o r l d system that Trotsky insisted o n w h e n recognising that c a p i t a l i s m does n o t a l w a y s lead to s t a g n a t i o n : By d r a w i n g countries e c o n o m i c a l l y closer to o n e a n o t h e r a n d levelling o u t their stages o f d e v e l o p m e n t , capitalism operates b\ m e t h o d s o f its o w n , that is t o say, by anarchistic m e t h o d s w h i c h constantly u n d e r m i n e irs o w n w o r k , set one c o u n t r y against another, o n e branch o f industry against another, d e v e l o p i n g some parts o f the w o r l d e c o n o m y while h a m p e r i n g a n d t h r o w i n g back rhe development o f others... I m p e r i a l i s m . . . a t t a i n s this " g o a l " by such antagonistic m e t h o d s , such tiger leaps a n d such raids u p o n b a c k w a r d countries a n d areas that the unification a n d levelling of w o r l d e c o n o m y w h i c h it has effected is upset by it even m o r e violently a n d convulsively t h a n i n the preceding epoch.4"1 It w a s a t r u t h t h a t w o u l d affect the lives o f m a n y h u n d r e d s o f millions o f people over the next four decades. In the G l o b a l S o u t h , as in the West, J a p a n a n d the Eastern bloc, variants o f w h a t Lenin a n d B u k h a r i n h a d called "stare c a p i t a l i s m ' did p e r m i t a l o n g p e r i o d o f e c o n o m i c g r o w t h . But those w h o extrapolated f r o m t h a t t o see a s m o o t h , crisis-free f u t u r e were soon to be p r o v e d w r o n g .

190

Capitalism111the 20th Century

< MlPTER EIGHT

The end of the golden age

I he crisis o f K e y n e s i a n i s m " I he N a t i o n a l B u r e a u o f E c o n o m i c Research has w o r k e d itself out o f o n e o f its first jobs, n a m e l y business cycles." S o p r o c l a i m e d I'.iul S a m u e l s o n in which

1 9 7 0 . Less t h a n three years later rhe crisis

was supposed

now

to

be i m p o s s i b l e

broke

upon

the

w o r l d — o r a t least u p o n the a d v a n c e d c a p i t a l i s t c o u n t r i e s a n d a big p a r t o f the T h i r d W o r l d . T h e " g o l d e n a g e " h a d c o m e t o a sudden e n d . T h e r e a c t i o n o f g o v e r n m e n t s e v e r y w h e r e w a s ro try t o keep it ftoing by resorting t o the K e y n e s i a n m e t h o d s they h a d c o m e t o believe i n f a l l i b l e . G o v e r n m e n t b u d g e t deficits, rare i n the p r e v i o u s three d e c a d e s , n o w b e c a m e the n o r m . T h e y failed t o restore the system t o its p r e v i o u s h e a l t h . N o t o n l y w a s there rhe first lapse i n t o negative g r o w t h — a real recession as o p p o s e d t o the " g r o w t h recessions" s o m e t i m e s k n o w n p r e v i o u s l y — w i t h s o a r i n g levels o f u n e m p l o y m e n t , b u t it w a s a c c o m p a n i e d b y rising levels o f inflation, w h i c h in a c o u n t r y like Britain c o u l d a p p r o a c h 2 5 percent. There were a t t e m p t s t o e x p l a i n w h a t h a p p e n e d as a result o f the i m p a c t o f the s u d d e n very b i g increase in t h e price o f oil in c t o b e r 1973 d u e t o the brief " Y o m K i p p u r " w a r between Israel a n d the A r a b states a n d the a c c o m p a n y i n g e m b a r g o o n o i l e x p o r t s by S a u d i A r a b i a . B u t the effect o f the price increase w a s o n l y t o reduce t h e n a t i o n a l i n c o m e s o f the a d v a n c e d c o u n t r i e s by a b o u t o n e p e r c e n t — a n d m o s t o f the m o n e y t h a t accrued t o the oil producers e n d e d u p b e i n g recycled back t o the a d v a n c e d c o u n t r i e s via the i n t e r n a t i o n a l b a n k i n g system. It w a s h a r d l y e n o u g h in itself t o e x p l a i n the scale o f rhe i m p a c t o n m o s t o f rhe w o r l d s y s t e m — a n i m p a c t w h i c h K e y n e s i a n m e t h o d s s h o u l d h a v e been sufficient t o deal w i t h a c c o r d i n g t o the then c o n v e n t i o n a l e c o n o m i c w i s d o m . W h a t is m o r e , the oil price increase d i d n o t t a k e place in isolation 221*

from other developments. Already three years earlier a " g r o w t h recession" h a d hit all the m a j o r e c o n o m i e s s i m u l t a n e o u s l y in .1 w a y w h i c h h a d not h a p p e n e d in rhe previous quarter century, a m i had been f o l l o w e d by a very sharp e c o n o m i c u p t u r n a n d accelei a t i n g inflation even before the oil price rise.1 In s h o r t , rhe recession that began at the end o f 1973 w a s the c u l m i n a t i o n o f precisely the sort o f e c o n o m i c cycle that Keynesian-style state interventions had s u p p o s e d l y consigned ro the history b o o k s . M a i n s t r e a m Kevnesians were at a loss. T h e y f o u n d t h a t their theory n o longer did a n y o f rhe t h i n g s they h a d c l a i m e d for it. As o n e Keynesian, Francis C r i p p s o f the Cambridge Review,

Economic

Policy

later p u t it, they s u d d e n l y realised rhat:

N o b o d y really u n d e r s t a n d s h o w the m o d e r n e c o n o m y w o r k v N o b o d y really k n o w s w h y we h a d so m u c h g r o w t h in the post w a r w o r l d . . . h o w the v a r i o u s m e c h a n i s m s slotted together. 2 M a n y Keynesians d r o p p e d their f o r m e r ideas o v e r n i g h t a n d en dorsed rhe " m o n e t a r i s t " theories p r o p a g a t e d b y M i l t o n F r i e d m a n a n d the C h i c a g o School o f e c o n o m i s t s . These held t h a t the ar tempts by g o v e r n m e n t s to c o n t r o l e c o n o m i c b e h a v i o u r h a d been misconceived. There w a s , they a r g u e d , a " n a t u r a l non-inflationary rate" o f u n e m p l o y m e n t , a n d a t t e m p t s t o reduce it by government s p e n d i n g were b o u n d to fail a n d t o merely cause i n f l a t i o n . All states s h o u l d d o , they insisted, w a s t o c o n t r o l the s u p p l y o f m o n e y so that it grew at rhe same speed as " t h e real e c o n o m y " — a n d rake such action as w a s necessary t o break d o w n " u n n a t u r a l m o n o p o lies" by t r a d e u n i o n s or n a t i o n a l i s e d industries, w h i l e h o l d i n g d o w n u n e m p l o y m e n t benefits so that w o r k e r s w o u l d t h e n be per suaded t o accept jobs at l o w e r wages. T h e reply o f apologists for c a p i t a l i s m t o its critics for 3 0 years h a d been t h a t it c o u l d be m a d e t o w o r k w i t h state i n t e r v e n t i o n . N o w ir w a s t h a t it c o u l d o n l y be m a d e t o w o r k if state intervent i o n w a s scrapped.

As the dissident r a d i c a l

Keynesian

Joan

R o b i n s o n s u m m e d u p the m a i n s t r e a m shift: T h e s p o k e s m e n o f c a p i t a l i s m were saying: Sorry c h a p s , w e m a d e a m i s t a k e , w e were nor offering full e m p l o y m e n t , b u t the n a t u r a l level of u n e m p l o y m e n t . O f course, they suggested t h a t a little u n e m p l o y m e n t w o u l d be e n o u g h t o keep prices stable. Bur n o w w e k n o w t h a t even a lot will n o t d o so. 3 192

Capitalism 111 the 20th Century

I a b o u r s p r i m e m i n i s t e r J a m e s C a l l a g h a n virtually a d m i t t e d this when he told his party's conference in S e p t e m b e r 1976: W e used t o t h i n k y o u c o u l d just spend y o u r w a y o u t o f recession by c u t t i n g taxes a n d b o o s t i n g g o v e r n m e n t b o r r o w i n g . I tell you i n all c a n d o u r t h a t t h a t o p t i o n n o longer exists; a n d insofar as it ever d i d exist, it w o r k e d by injecting inflation into the econo m y . A n d each t i m e t h a t has h a p p e n e d , the average level o f h

u n e m p l o y m e n t has risen.

I he p o i n t w a s repeated 2 0 years later by the future L a b o u r p r i m e minister, G o r d o n B r o w n : C o u n t r i e s w h i c h a t t e m p t ro r u n n a t i o n a l g o it a l o n e m a c r o e c o n o m i c p o l i c i e s based o n t a x , s p e n d , b o r r o w p o l i c i e s t o b o o s t d e m a n d , w i t h o u t l o o k i n g t o rhe a b i l i t y o f the s u p p l y side o f the e c o n o m y , arc b o u n d these d a y s t o be p u n i s h e d by rhe m a r k e t s in the f o r m o f s t i f l i n g l y h i g h interest rates a n d I c o l l a p s i n g currencies. 4 Politicians

and

academics

who

had

been

brought

up

on

keynesianism c a m e to accept the s a m e p a r a m e t e r s for d e c i d i n g e c o n o m i c policy as their o l d o p p o n e n t s , w i t h n o alternative to high levels o f u n e m p l o y m e n t , welfare cuts, " f l e x i b i l i t y " ro m a k e workers " m o r e c o m p e t i t i v e " a n d l a w s t o restrain " t r a d e u n i o n p o w e r " . K e y n e s i a n s w h o d i d n o t d r o p rheir o l d beliefs were pushed t o the m a r g i n s o f the e c o n o m i c e s t a b l i s h m e n t . By 2 0 0 7 a study s h o w e d t h a t " T 2 percent o f e c o n o m i c s t u d e n t s " were at educational i n s t i t u t i o n s w i t h o u t a single " h e t e r o d o x

economist"

w h o challenged " t h e neoclassical a n d neoliberal a s s u m p t i o n s " . 5 But the rush t o w a r d s m o n e t a r i s m by supporters o f the system was n o t a n y m o r e able t o c o m e t o terms w i t h the crisis t h a n Keynesianism. M o n e t a r i s m w a s , after all, little m o r e t h a n a regurgitation o f the neoclassical school w h i c h h a d d o m i n a t e d bourgeois e c o n o m i c s u n t i l the 1930s. J u s t as it h a d been i n c a p a b l e o f explaining the unprecedented severity o f the inter-war s l u m p , it wras incapable o f e x p l a i n i n g the crisis o f the 1970s a n d 1980s, still less l d e a l i n g w i t h it. In Britain the monetarist H o w e budget o f 1 9 7 9 was f o l l o w e d b y a d o u b l i n g o f b o t h inflation 6 a n d u n e m p l o y m e n t , a n d left industrial o u t p u t in 1984 15 percent b e l o w its level o f 11 vears before." T h e m o n e t a r i s t measures did n o t even m a n a g e ro I he F.nd of the Golden Age

193

c o n t r o l the money s u p p l y ; its broadest measures ( w h a t economists call M 3 ) g r e w in 1982 by 14.5 percent instead o f the intended 6 r« • 10 p e r c e n t / The policy merely served ro destroy m u c h o f local in dustrv, exacerbate the crisis o f the early 1980s a n d lay the g r o u n d for a n o t h e r crisis in 1990. S o m e economists w h o h a d a b a n d o n e d K e y n e s i a n i s m for m o m tarism in the mid-1970s c o u l d be seen deserting m o n e t a r i s m i n its turn i n the early 1980s. financial

Times c o l u m n i s t Samuel Brittan,

w h o h a d d o n e m u c h to p o p u l a r i s e monetarist ideas in Britain, was by 1982 criticising m a n y monetarist policies a n d c a l l i n g himself a "new-style K e y n e s i a n " . In the U n i t e d States, R e a g a n ' s e c o n o m i c advisers, faced w i t h the failure o f m o n e t a r i s t policies t o end a severe s l u m p , quietly ditched monetarism'' a n d a b a n d o n e d o n e ot m o n e t a r i s m ' s central p r i n c i p l e s — t h e balanced b u d g e t . Bur m u c h m a i n s t r e a m e c o n o m i c theory m o v e d in a different d i r e c t i o n . A " n e w classical" s c h o o l g a i n e d i n f l u e n c e t h a t c o n t e n d e d , very m u c h a l o n g the lines o f H a y e k in the 1930s, t h a i w h a t w a s w r o n g w i t h m o n e t a r i s m w a s rhar it left a role f o r the s t a t e — i n t e r v e n i n g in m o n e y m a r k e t s . F r i e d m a n , they c l a i m e d , h a d fallen i n t o the s a m e t r a p as Keynes by u r g i n g g o v e r n m e n t m o v e s t o shift the m o n e y s u p p l y : he w a s , in a c e r t a i n sense, " a K e y n e s i a n " . , u Such m o v e s , they insisted, c o u l d n o t alter business b e h a v i o u r in rhe h o p e d for w a y , since rhe " r a t i o n a l e x p e c t a t i o n s o f entrepreneurs w o u l d a l w a y s lead t h e m t o d i s c o u n t g o v e r n m e n t i n t e r v e n t i o n in a d v a n c e . F i d d l i n g w i t h the m o n e y s u p p l y , like g o v e r n m e n t deficit s p e n d i n g , s t o p p e d s u p p l y a n d d e m a n d intera c t i n g w i t h each o t h e r properly. " B o o m s a n d s l u m p s " , it w a s c l a i m e d , " a r e rhe o u t c o m e o f f r a u d u l e n t C e n t r a l Reserve b a n k ing". 1 1 It is an a m a z i n g c o m m e n t a r y o n the remoteness o f most a c a d e m i c e c o n o m i c s f r o m a n y c o n t a c t w i t h reality t h a t the new classicals c o u l d m a i n t a i n intellectual credibility w h e n they denied the i n s t a b i l i t y a n d i r r a t i o n a l i t y o f the laissez faire e c o n o m y in a p e r i o d w h i c h saw three m a j o r i n t e r n a t i o n a l recessions. T h e high p o i n t o f these ideas w a s w i t h a shortlived b o o m in the m i d t o late 1980s. It seemed t o v i n d i c a t e their o p t i m i s m a b o u t the benefits to e c o n o m i c g r o w t h o f d e r e g u l a t i o n , privatisation a n d the r e m o v a l o f all restraints o n rhe greed o f the rich. But they lost s o m e o f their lustre w i t h the renewed deep recession o f the earl\ 1990s. A different school o f free m a r k e t e c o n o m i s t s g a i n e d s o m e support within the mainstream.

This w a s the v a r i a n t o f the

" A u s t r i a n s c h o o l " influenced by the ideas o f J o s e p h Schumpeter, 194


which s a w the s l u m p - b o o m cycle a s i n e v i t a b l e — a n d a g o o d t h i n g . I he system, it a r g u e d , w a s c a p a b l e o f non-stop e x p a n s i o n , b u t • inly o n the basis o f "creative d e s t r u c t i o n " w h i c h destroyed o l d rorms of p r o d u c t i o n to clear the w a y for n e w ones. 12 But it w a s n o more able t h a n rhe m a i n s t r e a m K e y n e s i a n s , the m o n e t a r i s t s a n d ihe new classicals to a n s w e r a central q u e s t i o n : W h y w a s the system p l a g u e d o n c e again by recurrent crises a n d by a l o n g term decline i n average g r o w t h rates after three decades of unprecenred, a l m o s t crisis-free g r o w t h ? 1 3 It w a s the failure o f the anti-Keynesians t o c o m e to terms w i t h such p r o b l e m s t h a t led s o m e K e y n e s i a n s — a n d s o m e o n the far left influenced b y K e y n e s i a n i s m — t o b l a m e them for the demise o f the " g o l d e n a g e " . It w a s n o t the system as such, thev argue, that w a s In-hind rhe recurrent crises. But, as N o t e r m a n s has p o i n t e d o u t : If neither the recovery f r o m the G r e a t Depression or post-war g r o w t h can be attributed t o Keynesian policies...[itJ c a n n o t serve as a n e x p l a n a t i o n for the t e r m i n a t i o n o f full e m p l o y m e n t . " So where does the e x p l a n a t i o n lie?

W h e r e the crises c a m e f r o m issing f r o m all rhe m o s t i n f l u e n t i a l m a i n s t r e a m e x p l a n a t i o n s for the e n d o f the " g o l d e n a g e " w a s w h a t w a s h a p p e n i n g t o the rate o f p r o f i t . Yet v a r i o u s efforts at m e a s u r i n g it h a v e c o m e t o a single c o n c l u s i o n : it fell s h a r p l y between the late 1960s a n d rhe ( early 1980s. T h e results are n o t a l w a y s f u l l y c o m p a t i b l e w i t h each other, since there are different w a y s o f m e a s u r i n g i n v e s t m e n t in fixed capital, a n d the i n f o r m a t i o n o n profits p r o v i d e d by c o m p a n i e s a n d g o v e r n m e n t s are subject to e n o r m o u s distortions. 1 I red

Moseley, T h o m a s

Ahmet Tonak,1" Gerard

Michl,16 A n w a r Dumenil

and

Shaikh

Nevertheless, and

Dominique

Ertugrul

Levy, U f u k

T u t a n a n d Al C a m p b e l l , I K R o b e r t Brenner, E d w i n N W o l f f , " a n d Piruz A l e m i a n d D u n c a n K Foley

0

have all c o m e t o very s i m i l a r

conclusions. A certain p a t t e r n emerges, w h i c h is s h o w n in g r a p h s given by D u m c n i l a n d Levy (Figure 1) for rhe w h o l e business sector in the US a n d by Brenner (Figure 2) for m a n u f a c t u r i n g in the U S , G e r m a n y a n d J a p a n . I he F.nd of the Golden Age

195

Figure i: US profit rates accounting for (—) and abstracting from (—) the impact of financial relations '

Figure 2: US, German and Japanese manufacturing

net profits rates"

* West Germany 1950-90 and Germany 1991-2000

There is general agreement that profit rates fell f r o m the late 1 9 6 0 s until the early 1980s. There is also agreement t h a t they p a r t i a l ! ) recovered f r o m a b o u t 1982 o n , b u t w i t h i n t e r r u p t i o n s a t the end o f the 1980s a n d the end o f the 1990s, a n d never m a k i n g u p m o r i t h a n a b o u t h a l f the decline since the l o n g b o o m . A c c o r d i n g to W o l f f , the rare o f profit fell b y 5 . 4 percent f r o m 1966 to 1979 a n d then

"rebounded"

by 3.6 percent f r o m

1979 to

1997; Fred

M o s e l e v calculates t h a t it " r e c o v e r e d . . . o n l y a b o u t 4 0 percent ot the earlier d e c l i n e " ; 2 ' D u m e n i l a n d Levy t h a t " t h e profit rate in 196


1 9 9 7 " w a s "still o n l y h a l f o f its v a l u e o f 1948, a n d between 6 0 and 75 percent o f its average value for the decade 1956-65". 2 4 There were a t t e m p t s to e x p l a i n the decline in profitability in the 1970s as resulting f r o m a w a v e o f w o r k e r s ' struggle internationally w h i c h h a d s u p p o s e d l y forced u p the w o r k e r s ' share o f total income a n d c u t i n t o the share g o i n g t o c a p i t a l . T h a t a r g u m e n t w a s put

forward

by

Andrew

Glyn

and

Bob

Sutcliffe, 2 5

K o w t h o r n e , 2 6 a n d accepted in p a n b y Ernest M a n d e l . '

by

Bob

Glyn's

dnalysis has been given a f a v o u r a b l e m e n t i o n m u c h m o r e recently by M a r t i n W o l f . 2 8 Bur statistical analysis at the t i m e suggested i here h a d been n o increase in the share o f wages w h e n tax, capital depreciation a n d v a r i o u s other factors w e r e taken i n t o account.*' I he

argument

also

failed

ro

explain

why

all

the

Western

economies m o ^ e d i n t o crisis at the s a m e p o i n t in the mid-1970s. In Italy, Britain, Spain a n d France there were i m p o r t a n t improvements in the level of w o r k i n g class o r g a n i s a t i o n in the late 1960s and early 1970s. But there w a s n o s i m i l a r i m p r o v e m e n t in J a p a n and West G e r m a n y , w h i l e in the US " t h e r e w a s a sharp decline in real wages o f n o n - a g r i c u l t u r a l w o r k e r s f r o m late 1 9 7 2 t o s p r i n g 1975, w h i l e p r o d u c t i v i t y o n the w h o l e increased ' . " I

W h a t did seem to m a k e sense—and still d o e s — w a s M a r x s argument a b o u t the organic c o m p o s i t i o n o f capital. A m a i n s t r e a m study i»t the US e c o n o m y s h o w e d a rapid g r o w t h in the ratio of capital investment t o workers e m p l o y e d in m a n u f a c t u r i n g by over 4 0 percent between 1957-68 a n d 1968-73. , ) O n e study o f the U K showed a rise hi the capital-output ratio o f 5 0 percent between 1960 a n d rhe mid!970s.' : Samuel Brittan noted w i t h bewilderment: There has been an u n d e r l y i n g l o n g term decline in the a m o u n t

I

o f o u t p u t per unit o f c a p i t a l in m a n u f a c t u r i n g . . . T h i s is a fairly general experience in the industrial c o u n t r i e s . . . O n e c a n construct a fairly p l a u s i b l e story for a n y o n e c o u n t r y , b u t n o t for

•

the i n d u s t r i a l w o r l d as a w h o l e / * I he m o r e recent c a l c u l a t i o n s o f M i c h l , 3 4 M o s e l e y , S h a i k h

and

T o n a k , a n d W o l f f " have all c o n c l u d e d t h a t the rising ratio o f capital t o l a b o u r w a s an e l e m e n t in r e d u c i n g profit rates. It is a conclusion t h a t validates M a r x ' s position t h a t a rising ratio o f capital t o l a b o u r c a n cut i n t o p r o f i t s — a n d is a n e m p i r i c a l refutation of the p o s i t i o n held by O k i s h i o a n d others that this is impossible, but it still leaves o p e n w h y this h a p p e n e d then a n d n o t earlier. I he F.nd of the Golden Age

197

Ir is a n issue rhar c a n he resolved b y l o o k i n g a t c o n t r a d i c t i o n s w i t h i n the l o n g b o o m already being h i g h l i g h t e d in the early 1960s by those w h o explained the b o o m in terms o f the massive level of a r m s expenditures. A r m s s p e n d i n g w a s very u n e v e n l y d i s t r i b u t e d a m o n g the mosi i m p o r t a n t e c o n o m i e s . T h e y c o n s u m e d a very h i g h p r o p o r t i o n of rhe n a t i o n a l o u t p u t o f the US a n d the U S S R in the 1950s ( u p t o 13 percent in rhe first case, p r o b a b l y 2 0 percent o r m o r e in rhe second case), a low r er p r o p o r t i o n in B r i t a i n a n d F r a n c e , a n d a

much

s m a l l e r p r o p o r t i o n for G e r m a n y a n d J a p a n . T h i s d i d n o t matter u n d u l y in the first years after rhe S e c o n d W o r l d W a r , w h e n there w a s a relatively l o w level o f foreign t r a d e a n d m o s t firms were s u b ject t o l o w levels o f i n t e r n a t i o n a l e c o n o m i c c o m p e t i t i o n . The t a x a t i o n t o pay for rhe US a r m s b u d g e t c u t i n t o the profits ot A m e r i c a n firms, for instance, b u t this d i d n o t greatly d i s a d v a n t a g e a n y o n e such firm tn its d o m e s t i c c o m p e t i t i o n w i t h a n o t h e r . A n i l there w a s little for c a p i t a l i s t s t o c o m p l a i n a b o u t so l o n g as rhe overall rate o f profit d i d n o t decline m u c h f r o m its h i g h level in the i m m e d i a t e p o s t w a r p e r i o d . T h e positive effects o f a r m s s p e n d i n g m o r e t h a n c o m p e n s a t e d for the negative effects. B u t over t i m e rhe u n e v e n n e s s d i d c o m e t o matter. T h e U S , as p a r t o f its p r o g r a m m e t o use its d o m i n a n t e c o n o m i c p o s i t i o n t o c e m e n t its h e g e m o n y o u t s i d e the R u s s i a n b l o c , a l l o w e d access to its m a r k e t s t o the West E u r o p e a n states a n d J a p a n . Bur e c o n o m i e s w i r h l o w levels o f a r m s e x p e n d i t u r e c o u l d invest p r o p o r t i o n a t e l y m o r e a n d achieve faster g r o w t h rates t h a n the US c o u l d . O v e r time they b e g a n t o catch u p w i t h its levels o f p r o d u c t i v i t y a n d t o in crease their relative i m p o r t a n c e in the w o r l d e c o n o m y . C a p i t a l g r o w t h in J a p a n over the p e r i o d 1961-1971 w a s 1 l . X percent per year, w h i l e in West G e r m a n y over 1950-62 ir w a s 9.5 percent; these c o m p a r e d w i t h figures for rhe US for 1948-69 of o n l y 3 . 5 percent. 3 6 J a p a n a c c o u n t e d for 17.7 percent o f the c o m b i n e d a d v a n c e d c o u n t r i e s ' G N P in 1 9 7 7 a n d West G e r m a n y

13.2

percent; in 1953 the figures h a d o n l y been 3 . 6 a n d 6 . 5 percent re specrively. M e a n w h i l e , the U S share h a d fallen t o 4 8 f r o m percent. 1

T h e shift w a s e x p l a i n e d

by rhe benefits J a p a n

69 and

G e r m a n y g a i n e d f r o m the h i g h level o f w o r l d w i d e a r m s e x p e n d i ture, especially by the U n i t e d States, w i t h o u t h a v i n g t o sacrifice their o w n p r o d u c t i v e i n v e s t m e n t t o p a y for it. H a d all c o u n t r i e s h a d c o m p a r a b l e levels o f p r o d u c t i v e investment t o t h a t o f t h e West G e r m a n s a n d J a p a n e s e there w o u l d have been a very r a p i d l y rising L*>8

Capitalism in the 20th C e n n i n

ftlobal o r g a n i c c o m p o s i t i o n o f c a p i t a l a n d a d o w n w a r d trend in ilie rate o f p r o f i t . As it w a s , c a p i t a l h a d g r o w n in J a p a n

"much

more rapidly t h a n rhe l a b o u r f o r c e — a t m o r e t h a n 9 percent a yeat; (ii m o r e t h a n twice the average rate f o r t h e Western industrialised c o u n t r i e s . . . N o n - m i l i t a r y state c a p i t a l i s m s c o u l d o n l y e x p a n d w i t h o u t crises because they operated w T ithin a w o r l d system coni.lining a very large m i l i t a r y state c a p i t a l i s m . So the J a p a n e s e a n d G e r m a n experiences did n o t c o n t r a d i c t the thesis o f a r m s e x p e n d i t u r e as a n e x p l a n a t i o n o f world

growth and

stability. But they were a c o n t r a d i c t o r y factor i n this g r o w t h . Their very success m e a n t thatâ g r o w i n g c h u n k o f the w o r l d e c o n o m y was n o t w a s t i n g investible o u t p u t on a r m s . N o r w a s t h a t the e n d of the

matter. T h e

very success o f

the

low

arms

spending

economies begi^n t o p u t pressure o n the h i g h a r m s spenders to switch resources a w a y f r o m a r m s a n d t o w a r d s p r o d u c t i v e investment. For o n l y then c o u l d they begin to meet the challenge they laced in m a r k e t c o m p e t i t i o n from J a p a n a n d West G e r m a n y . T h i s w a s m o s t clearly the case for Britain. Its e c o n o m y w a s highly d e p e n d e n t o n foreign trade a n d it ran i n t o balance o f payments crises w i t h every spell o f rapid e c o n o m i c g r o w t h between the Lite 1940s a n d the late 1970s. Successive British g o v e r n m e n t s were lorced, reluctantly, t o a b a n d o n their n o t i o n s o f i m p e r i a l g r a n d e u r a n d to reduce the p r o p o r t i o n o f the n a t i o n a l p r o d u c t g o i n g o n def c n c e — f r o m 7 . 7 percent of G D P in 1955 t o 4 . 9 percent in 1970. In the case o f the U S , the pressure w a s less o b v i o u s at first, since even in 1965 foreign trade o n l y a m o u n t e d to a b o u t 10 percent o f ( i N P a n d the c o u n t r y enjoyed a trade s u r p l u s t h r o u g h o u t the 1950s a n d

1960s. Nevertheless, a r m s s p e n d i n g declined

from

a r o u n d 13 percent o f G N P d u r i n g the K o r e a n W a r t o between t o between 7 a n d 9 percent in the early 1960s. T h e pressure o f a r m s s p e n d i n g o n its i n t e r n a t i o n a l competitiveness w a s s u d d e n l y revealed w h e n it shot u p by a third w i t h the V i e t n a m War. T h e n e w level w a s nor a n y t h i n g like t h a t o f the K o r e a n War. Bur it was t o o m u c h for a US i n d u s t r y facing v i g o r o u s c o m p e t i t i o n for m a r k e t s . There w a s a n upsurge o f inflation at h o m e a n d W a l l Street t u r n e d Igainsr the war.™ T h e n , in 1971 for the first t i m e since the Second World War, US i m p o r t s exceeded US exports. President N i x o n w a s lorced i n t o t w o measures w h i c h further u n d e r m i n e d the stability of the w o r l d e c o n o m y : he cut US a r m s spending' 0 a n d he devalued the US dollar, in t h e process destroying the " B r e t r o n

Woods"

system o f fixed i n t e r n a t i o n a l currency e x c h a n g e rates that h a d I he F.nd of the Golden Age

199

acted as a f r a m e w o r k for the e x p a n s i o n o f w o r l d trade t h r o u g h o u t the post-war p e r i o d . T h e d y n a m i c o f m a r k e t c o m p e t i t i o n w a s relentlessly undercut ting the d y n a m i c o f military c o m p e t i t i o n . W h a t s o m e people called the ''crisis o f h e g e m o n y " 4 1 o f the system in the 1970s w a s , in fact rhe offspring of s o m e t h i n g else—the inherent instability o f a w o r l d o f state capitalisms engaged in t w o quire different d i m e n s i o n s ol c o m p e t i t i o n , e c o n o m i c a n d military, w i t h each other. O n e of the paradoxes o f c a p i t a l i s m , w e saw in C h a p t e r Three, is t h a t , a l t h o u g h a rising o r g a n i c c o m p o s i t i o n o f capital reduces a\ erage profit rates, it raises the profits o f rhe first capitalist to i n t r o d u c e new machinery. So the Japanese a n d West G e r m a n s , In e n g a g i n g in capital intensive forms o f i n v e s t m e n t , cut w o r l d profit rates, w h i l e raising their o w n n a t i o n a l share o f w o r l d profits. Their increased competitiveness in e x p o r t markers forced other c a p i t a l i s m s to pay, w i t h falling rates o f p r o f i t , for the increased J a p a n e s e a n d G e r m a n organic c o m p o s i t i o n s o f c a p i t a l . But this, in t u r n , p u t pressure o n these other capitalists to increase their c o m petitiveness by raising their o w n o r g a n i c c o m p o s i t i o n s . T h e falling profit rates o f the 1 9 7 0 s were the result. By 1973 the rates were so l o w that rhe upsurge in raw material a n d f o o d prices caused by the b o o m o f the previous t w o years w a s sufficient t o p u s h the ad vanced Western e c o n o m i e s into recession. Suddenly there w a s n o g u a r a n t e e for the m a j o r capitalist con cerns t h a t n e w investments o n the scale they needed to keep u p w i t h i n t e r n a t i o n a l c o m p e t i t i o n w o u l d be profitable. Investment began to fall sharply a n d firms tried t o protect their profits b y cut t i n g back o n e m p l o y m e n t a n d l a b o u r costs. D e c l i n i n g markets t h e n led to further falls i n profits a n d investment. T h e o l d pattern o f b o o m t u r n i n g i n t o s l u m p h a d returned after its 30-year break. W h e n g o v e r n m e n t s reacted by t r y i n g to boost d e m a n d w i t h b u d g e t a r y deficits, firms d i d n o t i m m e d i a t e l y res p o n d , as the m a i n s t r e a m Keynesians held t h a t they s h o u l d , by increasing investment a n d o u t p u t . Instead they increased prices to try t o r e c o u p their profits, t o w h i c h w o r k e r s w h o still h a d a degree o f confidence f r o m l o n g years o f full e m p l o y m e n t r e s p o n d e d b> fighting

f o r w a g e increases. G o v e r n m e n t s a n d central b a n k s were

then faced w i r h a choice. They c o u l d a l l o w the m o n e y s u p p l y ro e x p a n d so as t o a l l o w firms to further raise prices a n d protect prof its. O r they c o u l d try t o restrict the m o n e y s u p p l y w i t h

high

short-term interest rates, relying o n firms then being forced to 200


icsist w o r k e r s ' d e m a n d s . Typically they turned f r o m the first approach in the m i d - 1 9 7 0 s t o the second in the late I 9 ^ 0 s . But the success in restoring investment a n d creating a n e w period

of

growth d i d not last l o n g even wThen g o v e r n m e n t s h a d succeeded in Mibduing w o r k i n g class resistance. T h e rate o f proHt c o u l d n o t be raised a b o v e the pre-crisis level o f 1 9 7 3 , a n d in 1980-82 a second "oil s h o c k " w a s sufficient t o push the w o r l d i n t o a second serious recession, p r o v i n g that m o n e t a r i s m c o u l d n o m o r e restore conditions t o those o f the l o n g b o o m t h a n c o u l d Keynesianism.

I he limits o f state directed capitalism < a p i t a l i s m was c o m i n g u p against the limits of the state capitalist arategy for m a i n t a i n i n g a c c u m u l a t i o n . T h a t strategy h a d w o r k e d so long as states were able ro ignore the i m m e d i a t e effects o n the rate o f p r o f i t o f d i r e c t i n g s o m e o f the mass o f investible s u r p l u s value i n t o areas that were n o t i m m e d i a t e l y particularly profitable (the J a p a n e s e prioritising g r o w t h over profitability) or i n t o waste p r o d u c t i o n (the a r m s e c o n o m y ) . B u t this d e p e n d e d , firstly, o n the rate o f profit n o t d r o p p i n g t o o sharply, a n d , secondly, o n b e i n g able t o ignore h o w rhe competitiveness o f the p r o d u c t i o n o f particular g o o d s w i t h i n

the n a t i o n a l e c o n o m y c o m p a r e d t o t h a t

taking place elsewhere in the w o r l d system (or, in M a r x ' s language, to ignore the l a w o f value o n a w o r l d scale c o m p a r e d w i t h prod u c t i o n w i t h i n the i n d i v i d u a l u n i t s o f the n a t i o n a l e c o n o m y ) . By the m i d - 1 9 7 0 s b o t h p r e c o n d i t i o n s h a d been u n d e r m i n e d by the c o n t r a d i c t o r y d e v e l o p m e n t o f the l o n g b o o m itself. T h e rate o f profit h a d n o w fallen t o a degree w h i c h m a d e unproductive e x p e n d i t u r e s or n o t p a r t i c u l a r l y profitable areas o f investment a n increasing b u r d e n o n further a c c u m u l a t i o n . A n d the very d y n a m i s m o f the l o n g b o o m h a d p r o d u c e d a g r o w i n g interconnectedness between n a t i o n a l e c o n o m i e s . By 1 9 7 9 U S foreign trade a m o u n t e d to 31 percent o f o u t p u t , as against 10 percent in 1965.'" A m u c h larger p r o p o r t i o n o f industry t h a n before h a d to worry a b o u t the i n t e r n a t i o n a l c o m p a r i s o n s o f its costs. W h o l e industries s u d d e n l y f o u n d t h a t the v a l u e o f their o u t p u t h a d t o be recalculated o n the basis o f w h a t it w o u l d cost t o p r o d u c e it w i t h the m o r e a d v a n c e d techniques a n d l o w e r l a b o u r costs o f o t h e r c o u n t r i e s — a n d that m e a n t it w a s n o t high e n o u g h ro p r o v i d e "adequate'* profits. I he F.nd of the Golden Age

201

T h i s seems ro explain the well k n o w n stagnarion o f l a b o u r pro d u c t i v i t y in the US in the 1 9 7 0 s — t h e v a l u e o f the m a c h i n e r y o n >

/

w h i c h l a b o u r w o r k e d w a s o r i g i n a l l y reckoned i n terms o f how m u c h it cost t o p r o d u c e o r replace inside the US, b u t w i t h rising i n t e r n a t i o n a l trade, w h a t mattered w a s the l o w e r

figure

thai

w o u l d have obtained if w o r l d c o m p a r i s o n s were used. 44 In any case, the feature described by G a l b r a i t h , of firms being able t o d o w n p l a y the i m p o r t a n c e o f profit in the interests ol g r o w t h , was u n d e r m i n e d . A n d this w a s n o t o n l y a very significant c h a n g e for the state m o n o p o l y capitalism o f the US. It w a s t o have d e v a s t a t i n g consequences for those c o u n t r i e s w h i c h h a d

goni

m u c h further in rhe direction o f full b l o o d e d stare capitalism in rhe Eastern bloc a n d the T h i r d W o r l d . T h e y t o o were t o enter i n t o i n e w period o f crises.

T h e end o f the Stalinist m o d e l T h e a s s u m p t i o n o f c o n v e n t i o n a l t h i n k i n g o n the right as well as the left w a s t h a t the Soviet-type e c o n o m i e s displayed a very differ ent d v n a m i c to t h a t of the West. It w a s a s s u m e d , w i t h verv little •

'

»

dissent 4 until rhe 1970s a n d sometimes rhe 1980s, thar they c o u l d sustain high levels of g r o w t h indefinitely, even if they were also m a r k e d by m a j o r inefficiencies a n d tended to p r o d u c e l o w quality g o o d s . Typical of rhe a t t i t u d e o n the left, even f r o m people w h o were scathing a b o u t rhe d e n i a l o f workers" rights in such societies, w a s the p o s i t i o n Ernest M a n d e l held. H e w r o t e in 1956: I he Soviet U n i o n m a i n t a i n s a m o r e or less even r h y t h m o f eco n o m i c g r o w t h , p l a n after p l a n , d e c a d e after decade, w i t h o u t the progress o f the past w e i g h i n g o n rhe possibilities o f tin f u t u r e . . . A l l the l a w s o f d e v e l o p m e n t o f the capitalist e c o n o m y w h i c h p r o v o k e a s l o w d o w n in the speed o f e c o n o m i c g r o w t h are e l i m i n a t e d . . . 4 * M a n d e l still argued in the mid-70s, t h a t " w h i l e the recession is hit t i n g all the capitalist e c o n o m i e s , the countries w i t h non-capitalist e c o n o m i e s are escaping the overall effects o f the recession". 4 " Such attitudes received a r u d e s h o c k in the late 1980s w h e n M i k h a i l G o r b a c h e v , recently a p p o i n t e d as general secretary o f the C o m m u n i s t Party o f rhe U S S R , revealei 221*

been suffering f r o m " s t a g n a t i o n " f o r s o m e y e a r s / ' H i s e c o n o m i c advisor, A g a n b e g y a n , s a i d : In the p e r i o d

1981-85 there w a s

practically

no

economic

g r o w t h . U n p r e c e d e n t e d s t a g n a t i o n a n d crisis o c c u r r e d d u r i n g the p e r i o d 1 9 7 9 - 8 2 , w h e n p r o d u c t i o n o f 4 0 percent o f all industrial g o o d s actually fell." I lie official figures for t h e Soviet-type e c o n o m i e s h a d a l r e a d y in the late 1960s s h o w n a long-term t e n d e n c y for their g r o w t h rates to decline, by between a t h i r d a n d t w o t h i r d s . cline

in

growth

rates

was

paralleled

The long-term de-

by—and

dependent

m i — s o m e t h i n g else. T h e o u t p u t / c a p i t a l r a t i o kept f a l l i n g — f r o m 1 4 in 1 9 5 1 -5, t o 1.6 in 1 9 5 6 - 6 0 a n d 1.3 in 1 9 6 1 -65. O r , ro p u t it m o t h e r w a y , t h e a m o u n t o f c o n s t a n t c a p i t a l required t o p r o d u c e a v m a i n a m o u n t o f n e w o u t p u t k e p t rising. The p r o b l e m w a s m a d e w o r s e because g r o w i n g gross o u t p u t in material terms w a s n o t g o o d e n o u g h for the r u l i n g bureaucracies. I heir c o n c e r n w a s w i t h h o w this m a t e r i a l o u t p u t c o m p a r e d w i t h that p r o d u c e d by their i n t e r n a t i o n a l r i v a l s — t h a t is w i t h the v a l u e of the o u t p u t in i n t e r n a t i o n a l terms. T h i s led t o recurrent a t t e m p t s by sections o f the b u r e a u c r a c y t o i m p l e m e n t e c o n o m i c r e f o r m s , i m i d c o m p l a i n t s a b o u t p r o d u c t i v i t y a n d rhe q u a l i t y o f w h a t w a s produced: in the early 1950s after Stalin's d e a t h , in the early 1960s under K h r u s h c h e v

and then

in t h e late

1960s u n d e r

Leonid

Krezhnev a n d his p r i m e minister, K o s y g i n . T h e r e f o r m s h a d o n l y l i m i t e d effects. A rise i n workers 1 l i v i n g Htandards, in c o n t r a s t ro the very s h a r p fall in the 1 9 3 0 s , encouraged

greater

commitment

by

the

workforce

and

a

rise

in

productivity. B u t the pressures o f c o m p e t i t i v e i n t e r n a t i o n a l accum u l a t i o n ( m i l i t a r y in the case o f the U S S R , m a r k e t as well as m i l i t a r y in t h e case o f the East E u r o p e a n states) led t o a repeated tendency o f increased c o n s u m e r g o o d s a n d f o o d o u t p u t t o be sacriliced t o the needs o f i n d u s t r i a l i n v e s t m e n t . As Soviet statisticians » \plained in 1 9 6 9 , " O w i n g t o the i n t e r n a t i o n a l s i t u a t i o n it has n o t been possible t o a l l o c a t e as m a n y resources as i n t e n d e d t o agricultural i n v e s t m e n t " .

1

Such a s w i t c h i n g o f resources f r o m o n e sort o f

p r o d u c t i o n t o a n o t h e r necessarily led t o increasing w a s t e , underned the m o r a l e o f the w o r k f o r c e , a n d led p e o p l e a t every level o f nagerial hierarchies t o h i d e the resources at their disposal so as to e n a b l e t h e m t o c o p e if i n p u t s were s u d d e n l y c u r t a i l e d . 2 I lie End of the Golden Age

203

It is necessary to n o t e in passing t h a t s u c h a p h e n o m e n o n w a . not u n i q u e t o the Soviet-style e c o n o m i e s . Exactly the s a m e prcs sures a p p l y t o those b e l o w rhe t o p m a n a g e r i a l r a n k s i n Western c o r p o r a t i o n s as they are expected

ro be a b l e t o r e s p o n d

in

s u d d e n c h a n g e s in t h e pressures o n r h e m f r o m a b o v e i n response t o c h a n g i n g c o m p e t i t i o n . U n d e r such c o n d i t i o n s , the firms* cosis o f p r o d u c t i o n can d e p a r t very w i d e l y f r o m those w h i c h o u g h t to be achieved. T h e result can be w h a t o n e e c o n o m i s t has called " \ i n e f f i c i e n c y " — a level o f inefficiency in t h e c o m p a n y a m o u n t i n g t o 3 0 o r 4 0 percent o f p r o d u c t i o n c o s t s /

P r o d u c t i o n costs a n d

rhe prices w h i c h w o u l d prevail in a " p e r f e c t m a r k e t " d e p a r t m a s sively f r o m e a c h o t h e r — t o use M a r x i s t t e r m i n o l o g y , there are m a s s i v e short-term i n f r i n g e m e n t s o f rhe l a w o f value. Such things are rarely studied by m a i n s t r e a m e c o n o m i s t s he cause b o t h their micro- a n d m a c r o - e c o n o m i c s deal wirh

whai

h a p p e n s between firms, n o t w i t h i n t h e m . But there are repeated references t o such p r o b l e m s in m a n a g e r i a l studies. Interestingly, s o m e Western studies c o n c l u d e d w h e n it c a m e to relationships be tween enterprises in the U S S R " a l i o c a t i v e efficiency" (that is, for M a r x i s t s , the law o f value) d i d a p p l y : "Inter-firm trade in factors o f p r o d u c t i o n m a y be as efficient as in m a r k e t e c o n o m i e s " / 4 W h a t p r o d u c e d crisis a n d waste inside Western enterprises and Soviet-style e c o n o m i e s alike w a s the drive to a c c u m u l a t e at all costs. Ir m e a n t , as w e saw in C h a p t e r Seven, i n v e s t m e n t e x p a n d ing

repeatedly

at

the

expense

of

consumption,

increased

i m b a l a n c e s in the e c o n o m y , a c o n t i n u a l cyclical pattern to g r o w t h a n d increased a l i e n a t i o n o f the w o r k f o r c e . Figures given by the R u s s i a n e c o n o m i c j o u r n a l i s t Selyunin in 1987 s h o w e d the increas ing s u b o r d i n a t i o n o f c o n s u m p t i o n to a c c u m u l a t i o n over nearly six decades, w i t h o n l y 2 5 percent o f o u t p u t g o i n g t o c o n s u m p t i o n in 1985 as c o m p a r e d ro 3 9 percent in 1940 a n d 6 0 . 5 percent in 1928. H e c o n c l u d e d , " T h e e c o n o m y is w o r k i n g m o r e a n d m o r e for itsell, rarher t h a n for m a n " . ' H i s w o r d s e c h o e d ( p r o b a b l y u n i n t e n t i o n a l l y ) those o f M a r x d e s c r i b i n g the logic o f c a p i t a l i s m as " a c c u m u l a t i o n for a c c u m u lation's sake, p r o d u c t i o n f o r p r o d u c t i o n s s a k e " . ' 6 B u t the drive t o such a c c u m u l a t i o n w a s n o t o n l y a n expression o f the alien a t i o n o f the c a p i t a l i s t system f o r M a r x . It w a s a l s o the force u l t i m a t e l y b e h i n d the o u t b r e a k o f crises. For it m e a n t t h a t accu m u l a t i o n reached a p o i n t at w h i c h it a t t e m p t e d t o proceed faster t h a n rhe e x t r a c t i o n o f the extra s u r p l u s v a l u e necessary t o m a k e 204

Capitalism in the 20th Cent111v

m possible. A t such a p o i n t n e w a c c u m u l a t i o n c o u l d o n l y proceed .u the expense o f existing a c c u m u l a t i o n , as G r o s s m a n spelt o u t in his theory o f " c a p i t a l i s t b r e a k d o w n " . T h e r e w a s "over-aceumulation o f c a p i t a l " . T h e o n l y response o p e n t o capitalists t o this mi n a t i o n w a s t o s h u t d o w n p l a n t , sack s o m e w o r k e r s a n d try t o reMore profits at the expense o f the w a g e s o f the o t h e r s . E a c h o f these m o v e s h a d the effect o f m a k i n g it i m p o s s i b l e for s o m e o f the already p r o d u c e d c o m m o d i t i e s t o be sold (or, in M a r x s w o r d s , for the " r e a l i s a t i o n o f s u r p l u s v a l u e " t o t a k e place), c r e a t i n g a general o v e r p r o d u c t i o n o f g o o d s i n r e l a t i o n t o the m a r k e t . The Soviet U n i o n h a d a l w a y s experienced cyclical d o w n t u r n s as a result o f a t t e m p t s ro a c c u m u l a t e t o o r a p i d l y , as w e s a w in rhe previous chapter. But as w i t h the m a j o r Western c a p i t a l i s m s in the long b o o m , the d o w n t u r n s h a d n o t t u r n e d i n t o e c o n o m i c contraction, a " r e a l recession.*' N o w these b e c a m e m o r e difficult t o a v o i d is the s l o w d o w n in g r o w t h h a d its i m p a c t .

P o l a n d a n d the foretaste o f a dire f u t u r e I w o y o u n g Polish M a r x i s t s , J a c e k K u r o n a n d K a r o l M o d z e l e w s k i , produced a p a t h b r e a k i n g s t u d y o f the e c o n o m i c c o n t r a d i c t i o n s in an Eastern b l o c c o u n t r y in 1964. They p o i n t e d t o the

findings

of

certain East E u r o p e a n e c o n o m i s t s a b o u t the w a y over-accumulation affected the rest o f the e c o n o m y . A c c u m u l a t i o n c a m e

up

against three " b a r r i e r s " . T h e " i n f l a t i o n b a r r i e r " signified t h a t t o o rapid e x p a n s i o n o f investment h a d led either t o n o r m a l i n f l a t i o n (as ihe state p r i n t e d m o n e y to p a y for it, so raising prices a n d c u t t i n g living standards) o r t o " h i d d e n i n f l a t i o n " (as c u t b a c k s in the s u p p l y o f g o o d s t o rhe s h o p s led t o shortages, queues a n d a g r o w i n g black market.) T h e " r a w m a t e r i a l b a r r i e r " signified t h a t there were just not e n o u g h i n p u t s for p r o d u c t i o n t o reach the projected level. T h e " e x p o r t b a r r i e r " m e a n t t h a t a t t e m p t s t o m a k e u p for the shortages of inputs by i m p o r t i n g f r o m a b r o a d led t o foreign e x c h a n g e crises. Kuron a n d Modzelewksi concluded that a point was soon going to be reached in w h i c h the internal reserves w o u l d n o longer exist for accumulation

to continue w i t h o u t creating an immense

social

crisis. T h e y a r g u e d against those w h o l o o k e d t o r e f o r m : W h a t w e have here is n o t a c o n t r a d i c t i o n between the objectives o f the p l a n a n d the anti-stimuli resulting f r o m faulty directives, I lie End of the Golden Age

205

bur a contradiction between the class g o a l o f the r u l i n g bureau cracy ( p r o d u c t i o n for p r o d u c t i o n ) a n d the interests o f basic g r o u p s w h o achieve the p r o d u c t i o n ( m a x i m u m c o n s u m p t i o n ) . In other w o r d s , it is a c o n t r a d i c t i o n between the class goal ol p r o d u c t i o n a n d c o n s u m p t i o n , a n d it results f r o m existing con d i t i o n s , n o t from m i s m a n a g e m e n t . 5 " Their analysis was partially vindicated in 1970 w h e n a t t e m p t s to resolve a crisis caused by over-investment at the expense o f living standards led t o workers o c c u p y i n g rhe country's Baltic shipyards, attacks o n t h e m by the police a n d the enforced resignation o f the country's leader, G o m u l k a . But at first it seemed that the n e w lead ership h a d f o u n d a w a y o u t o f the crisis, w i t h a new b o o m based o n massively e x p a n d i n g t r a d e w i t h the West a n d b o r r o w i n g from Western b a n k s w h i c h p e r m i t t e d i m p o r t s t o rise by 5 0 percent in 1 9 7 2 a n d 8 9 percent in 1 9 7 3 . Polish state capitalism w a s o v e r c o m i n g the limits t o a c c u m u l a tion

created

by

the n a r r o w n e s s

of

its n a t i o n a l

e c o n o m y h\

integration i n t o the w o r l d e c o n o m y t h r o u g h m a r k e t c o m p e t i t i o n . T h e other side o f this, however, w a s t h a t the Polish e c o n o m y was b o u n d ro suffer whenever the w o r l d e c o n o m y w e n t into recession. A n d dependency on the rest o f the w o r l d system for i n p u t s t o p r o duction

and

for export

earnings

prevented

the state

shifting

resources from one sector o f the e c o n o m y t o another so as to w a r d off any incipient internal recession t u r n i n g i n t o a n actual one. F r o m 1980 t o 1982 there developed " a crisis unprecedented in the history o f E u r o p e since the second w o r l d w a r " . 1 8 The " n a t i o n a l net material p r o d u c t " fell by nearly a third; prices increased by 2 4 percent in 1981 a n d 100 percent in 1982; a n d real wages fell by a b o u t a fifth.v T h e regime a t t e m p t e d t o place the b u r d e n o f rhe crisis o n the mass o f w o r k e r s — a n d p r o d u c e d a sudden upsurge o f resistance t h r o u g h the Solidarnosc workers' m o v e m e n t . The events served as a w a r n i n g to the w h o l e o f the R u s s i a n bloc. Soviet-style state capital ism w a s not i m m u n e to a crisis similar i n i m p o r t a n t w a y s t o thai then hitting Western state m o n o p o l y capitalism. Both h a d thenroots in the system o f competitive a c c u m u l a t i o n as a w h o l e . C a t a s t r o p h i c crisis w a s inevitable at some p o i n t in the n o t t o o dis tant future t h r o u g h o u t rhe Soviet b l o c — i n c l u d i n g in the U S S R itself: By 1 9 8 1 , the choice between m a i n t a i n i n g the closed e c o n o m y a n d o p e n i n g u p t o the rest o f the w o r l d w a s indeed the choice 206


berween the fry ing p a n a n d the fire. The first o p t i o n m e a n t deepening s t a g n a t i o n , g r o w i n g waste, an inability t o satisfy the d e m a n d s o f the mass o f the p o p u l a t i o n , a n d the c o n t i n u a l danger of w o r k i n g class rebellion. T h e second o p t i o n m e a n t b i n d i n g oneself i n t o rhe r h y t h m o f a w o r l d e c o n o m y increasingly p r o n e to s t a g n a t i o n a n d recession—and g i v i n g u p the a d m i n i s t r a t i v e m e a n s ro stop recession i n v o l v i n g c o n t r a c t i o n o f the d o m e s t i c economy. T h a t is w h y rhe Polish crisis o f 1980-81 was so trau•

r

m a t i c for all the rulers o f Eastern E u r o p e . Ir proved there w a s n o easy s o l u t i o n t o rhe p r o b l e m s besetting every s t a t e / '

I h e Soviet crash I he Soviet b u r e a u c r a c y w a s n o t long i n discovering this the h a r d way. Its levels o f a c c u m u l a t i o n were reaching the limits o f w h a t could be sustained. It d e p e n d e d m o r e o n foreign trade t h a n previously, u s i n g oil

revenues t o

buy

wheat

abroad

t o feed

the

p o p u l a t i o n in the 1 9 7 0 s a n d early 1980s ( a d d i n g t o w o r l d w i d e inflationary pressures). A fall in the w o r l d price o f oil in rhe course of the m i d - 1 9 8 0 s then t h r e w its d o m e s t i c e c o n o m i c c a l c u l a t i o n s i n t o s o m e disarray. A n d the decision o f the R e a g a n a d m i n i s t r a t i o n lo reassert US h e g e m o n y by raising a r m s s p e n d i n g p u t pressure o n the USSR t o d o likewise. T h e external factors a d d e d to the internal p r o b l e m s caused by trying t o sustain a c c u m u l a t i o n in the face o f declining g r o w t h rates. G o r b a c h e v ' s p r o m o t i o n to h e a d o f the r u l i n g C o m m u n i s t Party was a sign t h a t influential people h a d recognised the urgency o f the s i t u a t i o n — h i s rise o w e d m u c h to A n d r o p o v , w h o h a d witnessed w h a t crisis c o u l d lead t o as a m b a s s a d o r t o H u n g a r y in 1 9 5 6 a n d as general secretary o f C P S U d u r i n g the Polish events o f 1980-81. G o r b a c h e v has been b l a m e d since as a " c o u n t e r - r e v o l u t i o n a r y " by some people o n the left n o s t a l g i c for the Soviet style set-up. But his intention w a s t o try t o save t h a t set-up t h r o u g h t o p - d o w n reforms before e c o n o m i c , social a n d political crisis o n Polish lines c o u l d arise. H i s m i s f o r t u n e w a s t h a t the crisis h a d reached a p o i n t w h e r e it c o u l d n o t be o v e r c o m e by r e f o r m . R e p o r t s f r o m ministerial meetings in the winrer o f 1988-9 provide a picture of increasing e c o n o m i c c h a o s , w i t h rhe regime n o t seeing a n y w a y t o deal w i t h it. There were bitter clashes over " t h e balance (or rather the i m b a l a n c e ) between different sectors o f the I lie End of the Golden Age

207

e c o n o m y " , the " n u m b e r o f enterprises" w h i c h were "significant!\ refusing t o s u p p l y planned o u t p u t " or were "significantly rediu i n g deliveries" a n d the w a y " t h e v o l u m e c o n t i n u e d to g r o w "

62

of n e w

investment

" T h e supply o f g o o d s to the c o n s u m e r

m a r k e t " h a d " s u d d e n l y b e g u n to deteriorate sharply a n d notice a b l y before o u r eyes in the second h a l f o f 1 9 8 " a n d especially in 1 9 8 8 V 3 There w a s an: increasingly strained s i t u a t i o n as regards satisfying the public money-backed d e m a n d for goods a n d services... T h e p r o b l e m o f s u p p l y i n g the p o p u l a t i o n w i t h f o o d has w o r s e n e d . . . T h e m o n e y s u p p l y has reached critical d i m e n s i o n s . . . Hverything in the e c o n o m y is in short s u p p l y / 4 By O c t o b e r 1989 rhere w a s o p e n talk o f " t h e crisis in m a n y parts o f the e c o n o m y , the shortages, the u n b a l a n c e d m a r k e t , the collapse o f old relations before n e w ones are put in place, an atmosphere o f u n c e r t a i n prospects a n d scarcities". 6 5 Prices were rising, since factories a n d s h o p s f o u n d they c o u l d reduce p r o d u c t i o n

and

s i m p l y raise prices, d i s r u p t i n g supplies for the rest o f rhe e c o n o m s T h e e c o n o m i c crisis, as in P o l a n d , turned i n t o a political and social crisis. G o r b a c h e v h a d intended t o permit a limited o p e n i n g ( " g l a s n o s t " ) o f discussion in the ruling party a n d the m e d i a to iso late those in the bureaucracy o p p o s e d to his reforms. But people increasingly t o o k a d v a n t a g e o f this to give expression to o l d griev ances

and

their

discontent

with

rhe

deteriorating

economic

s i t u a t i o n . A n unprecedented series o f mass d e m o n s t r a t i o n s a n d riots t o o k place in the non-Russian n a t i o n a l Soviet republics ol A r m e n i a , K a z a k h s t a n , the Baltic states, G e o r g i a , the U k r a i n e , Byelorussia a n d A z e r b a i j a n , fusing struggles for n a t i o n a l rights w i t h grievances at the social c o n d i t i o n s people experienced. So the protests by the A r m e n i a n m i n o r i t y in rhe K a r a b a k h region ot Azerbaijan " b e g a n as protests against catastrophic mismanagement a n d miserable e c o n o m i c c o n d i t i o n s " / 6 Pravda

said that in 19X*>

(even before the crisis deepened) there was 2 7 . 6 percent unemplo\ m e n t in A z e r b a i j a n a n d 18 percent in A r m e n i a /

In K a z a k h s t a n

" o n l y h a l f the y o u n g people h a d a chance to find a j o b in 198 I 8 5 " / k T h e head o f the state-run u n i o n s said that across the USSR as a w h o l e 4 3 m i l l i o n people were living b e l o w the poverty line. Estimates o f the total n u m b e r o f u n e m p l o y e d varied f r o m 3 percent t o 6.2 percent (8.4 m i l l i o n people). Then miners right across the 208


USSR struck i n the early s u m m e r of 1 9 8 9 a n d soon alter A b a l k i n c o m p l a i n e d , " A w a v e o f strikes h a s e n g u l f e d rhe e c o n o m y " . " 0 T h i s was h a p p e n i n g as huge mass m o v e m e n t s in Eastern E u r o p e — p a r t l y in response t o their e c o n o m i c crises—were b r e a k i n g Soviet c o n t r o l on the region a n d d e e p e n i n g rhe general sense o f political crisis, eni o u r a g i n g further protests in the USSR's n o n - R u s s i a n republics a n d w e a k e n i n g the c a p a c i t y o f the c e n t r a l state t o i m p o s e its w i l l . T h o s e r u n n i n g the enterprises d i d n o t k n o w h o w t o c o p e w i t h the w a v e o f protests f r o m b e l o w a p a r t f r o m m a k i n g concessions w hich raised m o n e y wages, a n d they h a d even less idea a b o u t w h a t d o a b o u t the shortages o f i n p u t s needed t o m a i n t a i n the level o f p r o d u c t i o n . S t a g n a t i o n gave w a y t o e c o n o m i c c o n t r a c t i o n — t h e b e g i n n i n g s o f a s l u m p — i n the second h a l f o f 1989. There were calls f r o m e c o n o m i s t s w h o c l a i m e d t h a t o n l y greater i o m p e t i t i o n between enterprises, a n d eventually direct c o m p e t i t i o n between firms inside Russia a n d those elsewhere in the w o r l d econn m y c o u l d force m a n a g e r s t o be efficient a n d t o p r o d u c e the t h i n g s that were needed. But they h a d n o m o r e idea t h a n the ministries at the centre as h o w t o rind the resources t o c o m p l e t e the investments that were m e a n t t o p r o v i d e the o u t p u t s t h a t w o u l d restore b a l a n c e io the e c o n o m y . T h e e c o n o m i c c o l l a p s e c o n t i n u e d regardless o f w h a t the g o v e r n m e n t d i d , l e a d i n g t o ever greater d i s c o n t e n t a n d political u p h e a v a l . A n a t t e m p t by G o r b a c h e v t o take a h a r d line to i cstore central c o n t r o l in the s p r i n g o f 1991 p r o d u c e d a n e w w a v e of d i s c o n t e n t w h i c h forced h i m t o retreat. A c o u p against h i m by those w h o h a n k e r e d after a r e t u r n t o the past in A u g u s t 1991 fell apart, l a c k i n g s u p p o r t f r o m the m o s t i m p o r t a n t generals.

There

v\ as n o p o p u l a r constituency for trying t o return t o the o l d order. lUit those w h o preached reform d i d n o t have a w a y f o r w a r d either, despite rhe brief p o p u l a r i t y for " 1 0 0 - d a y " o r " 3 0 0 - d a y "

pro-

g r a m m e s p r o m i s i n g m i r a c u l o u s e c o n o m i c recovery. Such p r o g r a m m e s were U t o p i a n i n the extreme. T h e collapse o f central c o n t r o l left the g i a n t Soviet enterprises in a m o n o p o l i s t i c o r semi-monopolistic p o s i t i o n . T h e y were able t o dictate to the m a r k e t and t o p r o d u c e w h a t they w a n t e d rather t h a n w h a t w a s needed by the e c o n o m y as a w h o l e ; they were in a p o s i t i o n t o raise prices a n d to simply i g n o r e c o n t r a c t u a l o b l i g a t i o n s t o o t h e r enterprises. There was n o s t o p p i n g the c o m b i n a t i o n o f d e e p e n i n g recession, inflation and a c u t e shortages o f c o n s u m e r g o o d s a n d f o o d .

Economists,

planners a n d frightened bureaucrats began t o l o o k for any scheme to get t h e m o u t o f the mess, until finally they gave u p a t t e m p t i n g t o I lie End of the Golden Age

209

c o n t r o l w h a t was h a p p e n i n g . W h e n Yeltsin a n d rhe C o m m u n i s ! leaders of rhe other n a t i o n a l republics a n n o u n c e d the dissolution ol the U S S R i n t o its c o m p o n e n t republics at the end of 1991 they weno n l y giving political expression t o the e c o n o m i c f r a g m e n t a t i o n rh.n w a s already under w a y , w i t h the heads o f each industrial sec m i trying t o protect themselves from the general e c o n o m i c crisis by r< lying o n their o w n resources. T h i s w a s turned i n t o a supposed e c o n o m i c strategy t h r o u g h " s h o c k t h e r a p y " policies o f Yeltsin " l i b e r a l " ministers a n d Western advisers like Jeffrey Sachs. T h e a* sumption

w a s that, left to c o m p e t e w i t h each o t h e r

without

restraints f r o m the state, enterprises w o u l d soon be pricing g o o d s rationally in a way t h a t w o u l d lead the efficient ones t o establish links wirh each other, a n d that this w o u l d restore stability. In fact, all it d i d w a s t o provide g o v e r n m e n t a l blessing t o a s l u m p already under w a y w h o s e only precedent a n y w h e r e in the 2 0 t h century was that o f 1929-33 in the US a n d G e r m a n y . T h e failure o f e c o n o m i c reform w a s n o t just a failure o f implt m e n t a t i o n . There w a s a flaw in the very n o t i o n o f r e f o r m irsell The a i m w a s t o restructure the Soviet e c o n o m y so t h a t those set tions o f it c a p a b l e of a d j u s t i n g ro the c u r r e n t i n t e r n a t i o n a l level ot the forces o f p r o d u c t i o n w o u l d e x p a n d w h i l e others closed d o w n . But this w a s b o u n d t o be a n e n o r m o u s l y p a i n f u l u n d e r t a k i n g , not just for those workers w h o suffered in the process b u t for the mass of

the

individual

members

of

the

bureaucracy

as

well.

R e s t r u c t u r i n g the British e c o n o m y between the mid-1970s a n d the mid-1980s h a d involved s h u t t i n g d o w n a b o u t o n e factory in three a n d destroying capital o n such a scale that gross industrial invest m e n t in 1990 w a s still n o higher t h a n in 1972. It is very d o u b t f u l t h a t it c o u l d have proceeded s m o o t h l y if British capitalism h a d not h a d the l u c k y b o n u s o f e n o r m o u s N o r t h Sea oil revenues. The U S S R s e c o n o m y w a s m u c h larger rhan Britain, a n d its enterprises h a d been m u c h m o r e insulated f r o m the rest o f rhe w o r l d for (SO years. T h e p r o p o r t i o n that w a s ro be destroyed by a n i m m e d i a t e o p e n i n g t o i n t e r n a t i o n a l c o m p e t i t i o n w a s c o r r e s p o n d i n g l y greater This, in t u r n , d i d considerable d a m a g e ro the r e m a i n i n g c o m p e t i tive enterprises as they lost suppliers o f materials a n d c o m p o n e n t s o n the o n e h a n d a n d buyers for their o u t p u t o n rhe other. T h e roots o f the crisis lay in rhe pressure t o a c c u m u l a t e for the sake o f a c c u m u l a t i o n t h a t arose f r o m the bureaucracy's position as part o f a c o m p e t i t i v e w o r l d system. T h e Soviet e c o n o m y

hail

reached the p o i n t a t w h i c h the precondition for a further w a v e ot 210


•elf-expansion o f capital w a s a crisis i n v o l v i n g the destruction o f at least some past a c c u m u l a t i o n . T h e o n l y difference between Russia and, say, France or Britain, was that rhe destruction was t o be o n a considerably greater scale. A n d this w a s because the Soviet U n i o n had u n d e r g o n e six decades o f a c c u m u l a t i o n w i t h o u t restructuring through crises a n d b a n k r u p t c i e s , w h i l e for the British a n d French economies it was only four a n d three decades respectively. Few people were prepared ro see t h i n g s in these terms at rhe nine. T h e vast m a j o r i t y o f those w h o h a d struggled for d e m o c r a t i c reform in Russia believed that the turn to m a r k e t c a p i t a l i s m w o u l d open u p a g l o r i o u s future. W h a t they got instead was a devastating s l u m p , the c o r r u p t i o n o f the Yeltsin years a n d the d o m i n a t i o n o f I he e c o n o m y a n d society by f o r m e r m e m b e r s o f the ruling bureaui racy

and

mafiosi

reborn

as

private

capitalist

oligarchs.

M e a n w h i l e , in the rest o f the w o r l d the great m a j o r i t y o f politi11.ms a n d theorists in the social d e m o c r a t i c a n d f o r m e r Stalinist left drew the c o n c l u s i o n t h a t it w a s socialism that h a d failed a n d ihat the future lay w i t h Western style m a r k e t s , failing t o perceive ilie depths o f the crises b r e w i n g there t o o .

j a p a n : the sun that s t o p p e d rising I he w o r l d ' s second e c o n o m i c p o w e r at the b e g i n n i n g o f the 1980s was the U S S R . J a p a n t o o k its place as the Soviet crisis o f the late I v '80s t u r n e d i n t o collapse.

1

J a p a n ' s average g r o w t h rate through-

out the 1980s was 4 . 2 percent as against 2 . 7 percent for the U S uid 1.9 percent for West G e r m a n y . Its a n n u a l investment in manufacturing e q u i p m e n t w a s m o r e t h a n twice t h a t o f the US.~: T h a t ihe f u t u r e lay w i t h J a p a n w a s the n e a r universal c o n c l u s i o n o f media c o m m e n t a t o r s . A c o m m i t t e e o f the US Congress w a r n e d in 1992 that J a p a n c o u l d overtake the U S by the end of the decade. "After

Japan"

became

the

slogan

of

European

and

North

\inerican industrialists t r y i n g t o m o t i v a t e their w o r k f o r c e s t o greater feats o f productivity. T h e " t h r e a t " f r o m the " r i s i n g s u n " became the excuse for the j o b losses experienced by A m e r i c a n a u t o workers. Keynesian c o m m e n t a t o r s like W i l l B u t t o n a n d W i l l i a m Keegan w r o t e b o o k s e x t o l l i n g the Japanese m o d e l o f c a p i t a l i s m . T h e n in the 1992-3 a financial crisis pushed J a p a n i n t o its o w n " p e r i o d o f s t a g n a t i o n " , w i t h a g r o w t h rate averaging just 0 . 9 percent a year between 1990 a n d 2001. 7 3 By 2 0 0 7 its e c o n o m y w a s I lie End of the Golden Age

211

o n l y a third of the size o f rhe US's ( a n d rhe E u r o p e a n Union's)" 1 as against estimates as h i g h as 6 0 percent in 1992." 5 T h e b l a m e for w h a t h a p p e n e d is usually ascribed t o faults in the r u n n i n g o f its financial system—either d u e to financial markets not b e i n g " f r e e " enough in the 1980s, or ro i n a p p r o p r i a t e action by rhe central banks o n c e the crisis h a d started. T h e c o n c l u s i o n from such reasoning is t h a t the J a p a n crisis w a s u n i q u e a n d has little to tell us a b o u t the direction in w h i c h the g l o b a l system is g o i n g . T h e s u d d e n inability o f the w o r l d ' s second biggest e c o n o m y t o grow then becomes the result o f accidents. Yet all the elements o f the M a r x i s t a c c o u n t o f the crisis o f the inter-war years are ro be f o u n d in the Japanese case. J a p a n h a d a rapidly rising ratio o f c a p i t a l t o w o r k e r s f r o m rhe 1950s ro the late 1980s. T h i s grew in the 1980s by 4 . 9 percent a y e a r — m o r e than f o u r times as fast as in the US a n d 7 0 percent faster t h a n in Germany. 7 6 T h e result, as M a r x w o u l d have predicted, w a s d o w n w a r d pressure on the rate o f profit. It fell by a b o u t three quarters between the end o f the 1960s a n d the end o f the 1980s Japanese profit rate' Manufacturing

Non-financial corporate

1960-69

36.2

25.4

1970-79

24.5

20.5

1980-90

24.9

16.7

1991-2000

14.5

10.8

Return on gross nott-residential stock 1 1960

28.3

1970

18.0

1980

7.8

1990

3.9

T h e decline seemed m a n a g e a b l e u n t i l the end o f the 1980s. The state a n d the b a n k s w o r k e d w i t h private industry t o sustain g r o w t h w i t h o u t m u c h attention to profit rates. So l o n g as there w a s a mass o f profit available for further investment, the Japanese system en sured t h a t it w a s used. J a p a n h a d been hit h a r d by the global recession o f the mid-1970s, but w a s able not o n l y t o recover from it before m o s t other counties b u t also to restructure industry in such as w a y as t o keep e x p a n d i n g t h r o u g h o u t the early 1980s w h e n the US a n d E u r o p e were in recession: 212


T h e crisis [of 1973-5] indicated t h a t f u t u r e g r o w t h o n the basis o f h e a v y a n d c h e m i c a l i n d u s t r i a l i s a t i o n w a s u n t e n a b l e . T h e role o f the state in c h a n g i n g the strategic direction o f J a p a n e s e capitalism w a s f u n d a m e n t a l . A d m i n i s t r a t i v e g u i d a n c e by M i l l ( M i n i s t r y o f I n t e r n a t i o n a l Trade a n d I n d u s t r y — C H ) began to n u d g e Japanese capital in the direction o f electronics, a u t o m o biles, c a p i t a l e q u i p m e n t a n d s e m i c o n d u c t o r s . . / 9 I his required high levels o f investment. T h e United States, for example, invested

just 2 1 percent o f its G D P d u r i n g the

1980s

c o m p a r e d w i t h a Japanese figure o f 31 percent. A c c o r d i n g t o o n e estimate, the ratio of capital stock ro G N P in J a p a n w a s nearly 5 0 percent higher t h a n in the US.*' T h e c o n c e n t r a t i o n o f investment into certain industries in this w a y raised their productivity, even though it remained fairly l o w in the rest of the Japanese economy." 1 hut such high investment c o u l d o n l y be sustained by h o l d i n g d o w n the c o n s u m p t i o n o f the mass of people. Partly this w a s d o n e by keeping d o w n real wages; partly it w a s d o n e through p r o v i d i n g minimal state provision for sickness a n d pensions, forcing people to save. As R o d Stevens pointed o u t w h e n the b o o m w a s at its height: Real w a g e s in J a p a n are still at m o s t o n l y a b o u t 6 0 percent o f real wages in the US, a n d J a p a n e s e w o r k e r s have t o save massively t o c o p e w i t h

the h u g e p r o p o r t i o n

o f rheir

lifetime

earnings w h i c h is a b s o r b e d by such t h i n g s as h o u s i n g , educat i o n , o l d age a n d health c a r e . " but this level o f real wages restricted the d o m e s t i c m a r k e r for the new g o o d s J a p a n e s e industry w a s t u r n i n g o u t at an ever increasing speed. T h e o n l y w a y to sell t h e m w a s to rely o n exports. As Stevens also p o i n t e d o u t : Because o f capital's increasingly strict w a g e c o n t r o l a n d authority in the w o r k p l a c e , g r o w i n g

labour

productivity

in

the

c o n s u m e r g o o d s branches o f rhe machinery industries (eg m o t o r cars a n d audio-visual e q u i p m e n t ) h a d t o find outlets in e x p o r t m a r k e t s if the J a p a n e s e w o r k i n g class's l i m i t e d b u y i n g p o w e r i

w a s n o t to i n t e r r u p t a c c u m u l a t i o n / ' I ligh productivity in the select range o f prioritised industry m a d e the required level o f exports possible, w i t h Japanese cars a n d electronics I lie End of the Golden Age

212

increasingly penetrating the US m a r k e t . But it b r o u g h t c o m p l i c a rions in its w a k e . Japanese e c o n o m i c success w a s very dependent on US g o o d will. W h e n the US d e m a n d e d that J a p a n accept an u p w a r d revaluation o f its currency ro m a k e its g o o d s less competitive against A m e r i c a n g o o d s , Japanese capitalism h a d little choice b u t t o comply a n d the v o l u m e of exports suffered (even t h o u g h revaluation meant their value in dollar terms did not). The reaction of rhe state to this w a s ro provide c h e a p funds to keep i n d u s t r i a l investment a n d e x p a n s i o n g o i n g . As Karel van Wolferen has satd,

44

To c o m p e n s a t e the c o r p o r a t e sector for the

squeeze o f rhe exchange rate, rhe M i n i s t r y |of Finance) encouraged the b a n k s vastly ro increase their l e n d i n g " / 4 But there h a d been a w e a k e n i n g o f the old mechanisms w h i c h directed b a n k l e n d i n g into industrial d e v e l o p m e n t — c a u s e d in part by the g r o w i n g integration o f Japanese capitalism i n t o the w o r l d system.' 5 T h e e x p a n d e d bank lending f o u n d its way i n t o speculation o n a massive scale: T h e e x p l o s i o n of l i q u i d i t y h e l p e d set o f f an u p w a r d spiral ot real-estate values, l o n g used as collateral by the big c o m p a n i e s , w h i c h rhen justified inflated stock v a l u e s / 6 In w h a t w a s later called the " b u b b l e e c o n o m y " , p r o p e r t y values soared a n d the stock e x c h a n g e d o u b l e d in v a l u e — u n t i l the net w o r t h of J a p a n e s e c o m p a n i e s w a s said to be greater t h a n t h a t ol the US c o m p a n i e s , a l t h o u g h by a n y real measure rhe US e c o n o m y w a s a b o u t twice the size o f the J a p a n e s e o n e . But w h i l e the b u b b l e lasted the J a p a n e s e e c o n o m y c o n t i n u e d to g r o w — a n d even after the b u b b l e h a d started deflating, b a n k l e n d i n g e n a b l e d the econo m y t o keep e x p a n d i n g t h r o u g h o u t 1991-2 as recession hit the US a n d Western E u r o p e . T h e n it b e c a m e clear t h a t the b a n k s themselves were in t r o u b l e . T h e y h a d m a d e l o a n s for l a n d a n d share purchases t h a t c o u l d n o t be repaid n o w these things h a d collapsed in price. T h e b a n k i n g system w a s hit by recurrent crises right t h r o u g h the 1990s, w r i t i n g o f f a total o f a r o u n d

7

1 trillion yen

(over $ 5 0 0 billion) in b a d loans. T h e total s u m o w e d by businesses in t r o u b l e or actually b a n k r u p t were set at 8 0 t o 100 trillion yen ( $ 6 0 0 ro $ 7 5 0 b i l l i o n ) by the US g o v e r n m e n t , a n d at 1 11 trillion yen (nearly $ 8 4 0 b i l l i o n ) by the IMF." 7 T h e role of the financial system in p r o d u c i n g rhe b u b b l e a n d then the long d r a w n o u r b a n k i n g crisis has led m o s t c o m m e n t a t o r s to locate the origin o f the Japanese crisis in faults w i t h i n t h a t system. 214

Capitalism in the 20thCent111v

I he p r o b l e m , neoliberal c o m m e n t a t o r s c l a i m , w a s that the close ties between those r u n n i n g the state, rhe b a n k i n g system a n d in-

dustry m e a n t t h a t there w a s n o t the scrutiny a b o u t w h a t the b a n k s were u p t o w h i c h a t r u l y c o m p e t i t i v e e c o n o m y w o u l d have pro\ ided. 8 * It w a s this w h i c h enabled such a massive a m o u n t o f d o d g y lending t o take place. As an e x p l a n a t i o n , it fails because very similar b u b b l e s

have

happened

in e c o n o m i e s

like the

US

which

supposedly fulfil all the n o r m s o f " c o m p e t i t i v e n e s s " . It is difficult to see any f u n d a m e n t a l difference between the Japanese b u b b l e o f the late 1980s a n d the US h o u s i n g b u b b l e o f the mid-2000s. T h e neoliberal reasoning t h a t b l a m e s the crisis o n the stare believes there w a s a s o l u t i o n — t h e state s h o u l d s i m p l y have w a l k e d a w a y a n d a l l o w e d s o m e o f the big b a n k s to g o o u t o f business. But this assumes t h a t s o m e b a n k s g o i n g bust w o u l d n o t b r i n g d o w n other b a n k s t o w h i c h they o w e d m o n e y , l e a d i n g to a c u m u l a t i v e collapse o f the w h o l e b a n k i n g sector. N o a d v a n c e d industrial state dare even c o n t e m p l a t e t h a t h a p p e n i n g . W h e n e v e r it has seemed possible, o t h e r states h a v e behaved in general as the J a p a n e s e have. In a n y case, there is n o reason t o believe t h a t the b a n k i n g crisis was the u l t i m a t e cause o f J a p a n e s e s t a g n a t i o n . T h e neoclassical e c o n o m i s t s F u m i o H a y a s h i a n d E d w a r d C Prcscott h a v e argued that firms t h a t w a n t e d t o invest c o u l d still d o so, since " o t h e r sources o f f u n d s replaced b a n k loans to finance the robust investm e n t by n o n f i n a n c i a l c o r p o r a t i o n s in the 1 9 9 0 s V But they have had t o recognise t h a t " t h o s e projects that are f u n d e d are o n average receiving a l o w rate o f r e t u r n " . ' 0 In fact, there w a s a fall in p r o d u c t i v e investment, a l t h o u g h n o t a n y t h i n g like a c o m p l e t e collapse. In such a s i t u a t i o n , restructuring the b a n k i n g

system,

whether t h r o u g h a l l o w i n g the crisis t o deepen, as rhe neoliberals w a n t e d , or g r a d u a l l y as those o f a m o r e Keynesian persuasion suggested, w o u l d nor solve the crisis. O n this Paul K r u g m a n rightly m a d e the p o i n t : T h e s t r i k i n g t h i n g a b o u t discussion o f structural r e f o r m , however, is that w h e n o n e poses the q u e s t i o n , " H o w

will

this

increase d e m a n d ? " the answers are actually q u i t e vague. I at least a m far from sure t h a t rhe k i n d s o f structural reform being urged o n J a p a n will increase d e m a n d at all, a n d see n o reason t o believe that even radical reform w o u l d be e n o u g h to jolt rhe e c o n o m y o u t o f its current t r a p / The Hnd of rhe (iolden Age

21S

T h e reason was t h a t the t r a p lav outside the b a n k i n g system, in rht capitalist system as a whole. T h e rate o f profit h a d fallen to a p o m i in the late 1980s which precluded further substantial increases in w o r k e r s ' living standards. But that in t u r n prevented rhe domestic e c o n o m y f r o m b e i n g able t o a b s o r b all o f the increased o u t p u t . \ n e w massive r o u n d of a c c u m u l a t i o n c o u l d h a v e absorbed it, but for t h a t p r o f i t a b i l i t y w o u l d h a v e h a d to h a v e been m u c h highei t h a n it w a s . R i c h a r d Koo's study o f the crisis, The Holy Macroeconomics,

Grail

of

by stressing the h i d d e n debts o f m a j o r c o r p o r a

t i o n s , hints at w h a t had really g o n e w r o n g , b u t fails to g r o u n d the p r o b l e m o f insolvency in the long-term decline o f profitability.* T h e Japanese state did t u r n ro s o m e Keynesian type s o l u t i o n s , w i t h a big p r o g r a m m e of p u b l i c w o r k s c o n s t r u c t i o n (bridges, ait porrs, roads, etc). G a v a n M c C o r m a c k writes, " W i t h the onset ot c h r o n i c recession after the b u b b l e burst at rhe b e g i n n i n g o f the 1990s, the g o v e r n m e n t turned t o ever l a r g e r — a n d decreasing!y el fcctive—Keynesian

deficits", a n d

that

"Japan's

public

works

sector has g r o w n t o be three times the size o f t h a t o f Britain, the US o r G e r m a n y , e m p l o y i n g 7 m i l l i o n people, o r 10 percent o f rhe w o r k f o r c e , a n d spending between 4 0 a n d 5 0 trillion yen a year a r o u n d $ 3 5 0 b i l l i o n , 8 percent o f G D P or t w o t o three times thai o f other i n d u s t r i a l c o u n t r i e s " . "

A c c o r d i n g t o o n e estimate the

state's share o f o u t p u t increased f r o m an average of 13.7 percent in the 1984-1990 period to 15.2 percent in the 1994-2000 p e r i o d . ' But it w a s not e n o u g h to fill the g a p created by the limited stimulus to investment from the rate o f profit, as the g r a p h b e l o w shows.

(Source: Fumio Hayashi and Edward C. Prescott. "The 1990s in Japan: A l ost Decade")

216


Hie e c o n o m y did n o t collapse in the 1990s in the w a y t h a t the US And G e r m a n e c o n o m i e s did in rhe early 1930s. T h e state still seemed able ro srop that. But it c o u l d n o t lift rhe e c o n o m y back to its o l d g r o w t h p a t h . Sections o f J a p a n e s e c a p i t a l believed they could escape f r o m this t r a p b y investing a b r o a d — a s the g a p between G r o s s I n v e s t m e n t a n d G r o s s D o m e s t i c I n v e s t m e n t s h o w s . But it w a s n o t a n a n s w e r for rhe great b u l k o f J a p a n e s e c a p i t a l which did its u t m o s t to try to raise the rare o f profit t h r o u g h raising the rate o f e x p l o i t a t i o n , even t h o u g h it c o u l d o n l y reduce domestic d e m a n d still further a n d deepen its p r o b l e m s . N o r w a s ir in a n s w e r for the Japanese-working class, w h i c h whether ir liked it hi n o t w o u l d be c o m p e l l e d ro struggle if it w a s ro avoid life getting worse. E c o n o m i c g r o w t h d i d n o t rise f r o m the d o l d r u m s until the m i d - 2 0 0 0 s , w h e n ^ C h i n e s e i m p o r t s o f m a c h i n e r y gave a boost ro h p a n e s e i n d u s t r y — b u t this w a s t o p r o v e t o be very shortlived. J a p a n s crisis w a s n o t as devastating t o the lives o f its people as i hat w h i c h b r o k e o u t a c o u p l e o f years earlier in the U S S R . Yet, unnoticed by nearly all e c o n o m i s t s , m a i n s t r e a m a n d M a r x i s t alike, there w a s a similarity between t h e m . C a p i t a l a c c u m u l a t i o n h a d reached the p o i n t where it c o u l d n o longer extract a surplus f r o m those it exploited o n a sufficiently rising scale t o keep abreast o f the internationally c o m p e t i t i v e level o f a c c u m u l a t i o n it looked to. T h e barrier t o c a p i t a l a c c u m u l a t i o n h a d indeed become c a p i t a l itself. I hose w h o presided over a c c u m u l a t i o n h a d t w o choices. They i ould a l l o w their bit o f rhe system t o restructure itself t h r o u g h blind c o m p e t i t i o n , t a k i n g o n trust ideological claims that it w o u l d produce n e w miracles. O r they c o u l d play safe, k n o w i n g they m i g h t never get o u r of long-term s t a g n a t i o n . T h e rulers o f Russia chose the first p a t h a n d saw their e c o n o m y , already halved w i t h the loss o f the rest o f the U S S R , halve in size a g a i n . J a p a n s rulers t o o k the other p a t h , a n d their e c o n o m y w e n t t h r o u g h a decade a n d a half o f debilitating s t a g n a t i o n w i t h o u t seeming a n y closer t o a solution t o its p r o b l e m s ar rhe end than ir w a s at the beginning. The big question both raised w a s , h o w w o u l d other countries, particularly rhe I IS, react if they fell into the same stagnation trap?

I he i m p a c t o n the G l o b a l S o u t h I he collapse

of

the

two

state-oriented

ideological

models,

eynesianism a n d S t a l i n i s m , h a d a p r o f o u n d effect o n p o l i t i c a l I lie End of the Golden Age

217

forces aspiring after ihe " d e v e l o p m e n t " o f T h i r d W o r l d economies i n t o f u l l a n d e q u a l c o m p o n e n t s o f the w o r l d system. It p u s h e d t h e m t o l o o k for new m o d e l s o f c a p i t a l a c c u m u l a t i o n in place i the state-directed import-substitutionist m o d e l , w h i c h w a s alread\ displaying problems. In Asia the tightly r e g u l a t e d C h i n e s e e c o n o m y a n d t h e less t i g h t l y r e g u l a t e d , but still centrally d i r e c t e d , I n d i a n e c o n o n n b o t h b e g a n t o show w o r r y i n g signs o f s t a g n a t i o n by t h e m i d 1 9 7 0 s / 5 f o r c i n g g o v e r n m e n t s t o l o o k for a l t e r n a t i v e s ; in L a t i n A m e r i c a the i m p o r t - s u b s t i t u t i o n i s t m o d e l w a s f o u n d w a n t i n g in its A r g e n t i n i a n

homeland

as e c o n o m i c

and

political

crises

e r u p t e d ; in A f r i c a the p r o m i s e s m a d e by p r o p o n e n t s o f " A f r i c a n s o c i a l i s m " were n o t fulfilled as i n d u s t r i a l g r o w t h w a s restricted by the n a r r o w n e s s of n a t i o n a l m a r k e t s a n d the m e a g r e resources left after the d e p r e d a t i o n s o f i m p e r i a l i s m . A d d i n g to these p r o b lems w a s a d e c l i n e i n the price o n t h e w o r l d m a r k e t for raw m a t e r i a l s a n d f o o d s t u f f s — r h e m a i n source o f the e x p o r t earnings needed to i m p o r t e q u i p m e n t for n e w industries. Particularly after the onset o f recession i n the a d v a n c e d c o u n t r i e s in 1 9 7 4 , n o n oil p r o d u c i n g T h i r d W o r l d c o u n t r i e s were c a u g h t between increased oil costs a n d a decline in t h e terms o f t r a d e f o r p r i m a r y c o m m o d i t y e x p o r t s o f nearly 5 0 percent. 9 6 T h o s e r u n n i n g industries w h i c h h a d g r o w n u p w i t h i n the p r o tective barriers o f rhe o l d m o d e l began p r a g m a t i c a l l y establishing links w i t h foreign capital. A r g e n t i n a , Brazil a n d M e x i c o were typi cal. Their industrial bases h a d been established in the 1940s, 1950s a n d 1960s by the state intervening t o direct investment in industry, often inro state-owned c o m p a n i e s . But the m o r e farsighted indus t r i a l i s t s — w h e t h e r in the srate or private sectors—saw t h a t the\ c o u l d n o t get rhe resources a n d m o d e r n technologies needed to keep u p w i t h w o r l d w i d e p r o d u c t i v i t y levels unless they f o u n d ways o f b r e a k i n g o u t o f the confines o f the n a t i o n a l e c o n o m y . They began increasingly t o t u r n t o foreign m u l t i n a t i o n a l s for licensing agreements, joint p r o d u c t i o n projects a n d f u n d s — a n d they began themselves t o operate as m u l t i n a t i o n a l s i n other countries. The trend was reinforced by rhe success o f a n u m b e r o f countries which h a d long oriented themselves to the world market in achiev ing very fast g r o w t h rates, i n Asia four bastions o f anti-CommunismSouth Korea, T a i w a n , H o n g K o n g a n d Singapore—registered growth rates easily as large as those in Stalin's U S S R . A n d in E u r o p e coun tries like Spain, Greece a n d Portugal, which Paul Baran h a d included 217


is p a r t o f rhe u n d e r d e v e l o p e d w o r l d , g r e w r a p i d l y e n o u g h

to

join t h a t rich m a n ' s c l u b , the E u r o p e a n C o m m u n i t y . Brazil began lollowing a similar

export-oriented

parh

u n d e r the

military

t e g i m e t h a t h a d seized p o w e r in 1 9 6 4 . Irs still very large state nector a n d p r i v a t e c a p i t a l a l i k e increasingly oriented t o w a r d s rhe i est o f the w o r l d system r a t h e r t h a n t o a protected

national

m a r k e t . T h e Western f i n a n c i a l press rejoiced in this, a s s u r i n g its readers t h a t Brazil w a s t h e great rising T h i r d W o r l d

country

w h o s e i n d u s t r i e s w e r e destined ro c h a l l e n g e those o f t h e West. A n d there c e r t a i n l y w a s g r o w t h . " F o r a l m o s t 15 years (1965-80) the a v e r a g e rate o f g r o w t h w a s 8.5 p e r c e n t , m a k i n g Brazil the fourth fastest g r o w i n g c o u n t r y " . I

O t h e r L a t i n A m e r i c a n states began t o e m u l a t e the Brazilian policy. The m i l i a r y c o u p s in C h i l e (19~3) a n d A r g e n t i n a ( 1 9 7 6 ) were f o l l o w e d by a n o p e n i n g t o external c a p i t a l . A n d a g a i n the o u t c o m e seemed e n c o u r a g i n g at first. U n d e r the Videla regime in Argentina " r h e rate o f inflation w a s lowered, real o u t p u t grew, a n d a current a c c o u n t surplus was generated"V

w h i l e Chile's real G D P

grew 8.5 percent a year between 1 9 7 7 a n d 1980. y y It seemed t h a t a w a y h a d been f o u n d t o achieve n a t i o n a l accumulation

by

breaking

out

of

the

confines

of

rhe

national

m a r k e t — a n d , w h e n the policies were u n d e r t a k e n u n d e r m i l i t a r y regimes, of c r u s h i n g p o p u l a r resistance to rising levels o f exploitation. There w a s a similar s w i n g o f the intellectual p e n d u l u m as in the West a n d rhe f o r m e r C o m m u n i s t states, w i t h the w h o l e s a l e conversion o f " d e p e n d e n c y t h e o r y " e c o n o m i s t s ro the w o n d e r s o f tree markers.

The conversions

continued

even

as the

Latin

American " m i r a c l e " c a m e u n s t u c k . G r o w t h after 1974 h a d c o m e t o d e p e n d o n foreign b o r r o w i n g (as in P o l a n d a n d H u n g a r y in the s a m e p e r i o d ) . M a n y

Latin

A m e r i c a n countries g a m b l e d o n a m b i t i o u s g r o w t h targets by borr o w i n g heavily in i n t e r n a t i o n a l

financial

m a r k e t s . T h e external

debt o f C h i l e a n d A r g e n t i n a a l m o s t trebled over a few years, f r o m 1978 to 1981 . l0 ° But this did n o t seem to matter at the t i m e — e i t h e r ro the n a t i o n a l g o v e r n m e n t s o r the i n t e r n a t i o n a l b a n k i n g system: U p t o the second oil price shock (1979-80) the g a m b l e w a s w o r t h t a k i n g . E x p o r t g r o w t h w a s sustained in w o r l d m a r k e t s at f a v o u r a b l e prices... As a c o n s e q u e n c e the ratio o f d e b t outs t a n d i n g to export proceeds w a s m o r e f a v o u r a b l e for all non-oil d e v e l o p i n g countries in 1979 t h a n in 1970-72. 0 1 I he Fnd of the Golden Age

219

The I M F assured people in 1980, " D u r i n g the 1970s...a gener alised d e b t m a n a g e m e n t p r o b l e m w a s a v o i d e d . . . a n d the o u t l o o k for the i m m e d i a t e future does n o t give cause for a l a r m " . ' " 2 This w a s written just months before rhe second international recession, in rhe early 1980s, caught all these states u n p r e p a r e d . As export markets s h r a n k a n d international interest rates began to rise, the debts they h a d incurred in the 1970s c r i p p l e d their g r o w t h , threw t h e m i n t o recession and blighted their e c o n o m i e s right t h r o u g h the 1980s, w h i c h

became k n o w n

as " t h e

lost d e c a d e v

in

Latin

A m e r i c a , w i t h a fall in G N P per p e r s o n for rhe c o n t i n e n t as a w h o l e o f 10 percent. 101 T h e i m p a c t o n local capitalists a n d m a i n s t r e a m political forces w a s n o t , however, to q u e s t i o n rhe n e w o p e n i n g to the w o r l d m a r k e t . R a t h e r it was t o insist, as in Russia a n d Eastern E u r o p e t h a t rhe o p e n i n g h a d not g o n e far e n o u g h . T h e new doctrine was accepted in o n e f o r m or a n o t h e r by the late 1980s by populist p o l i t i c i a n s a n d even f o r m e r guerrillas in L a t i n A m e r i c a , by the p o l i t b u r o in C h i n a , by the Congress Party leadership i n I n d i a , by those w h o h a d o n c e p r o c l a i m e d their c o m m i t m e n t t o " s o c i a l i s m in A f r i c a a n d by rhe successors t o Nasser in E g y p t . T h e conversions were n o t a l w a y s v o l u n t a r y . T h e International M o n e t a r y F u n d a n d rhe W o r l d Bank intervened w h e r e they c o u l d , m a k i n g offers, mafia style, t o debt-laden countries w h i c h their rulers rarely f o u n d themselves able to refuse, since d o i n g so w o u l d rule o u r a n y sort o f a c c u m u l a t i o n strategy. T h e various d e b t prog r a m m e s were m o r e c o n c e r n e d w i t h protecting the interests ot Western b a n k s t h a n w i t h a m e l i o r a t i n g c o n d i t i o n s in the indebted countries. B u t m o r e was involved t h a n just a surrender to i m p e n alism o n the part o f the g o v e r n m e n t s t h a t accepted t h e m . Those capitals, private a n d state alike, t h a t h a d g r o w n d u r i n g the period o f state-directed " d e v e l o p m e n t " d i d n o t see a n y w a y o f c o n t i n u i n g t o e x p a n d w i r h i n the confines o f l i m i t e d n a t i o n a l markets. They w a n t e d access t o markers a n d ro technological i n n o v a t i o n s o u t s i d e n a t i o n a l borders. They m i g h t a l l o w , even e n c o u r a g e , na rional g o v e r n m e n t s t o haggle over the terms o n w h i c h c a p i t a l in the m e t r o p o l i t a n countries a l l o w e d this t o h a p p e n , b u t they w o n hi n o t reject t h e m o u t r i g h t . A n d in the process s o m e o f t h e m wen. indeed able to d e v e l o p m o r e t h a n a n a t i o n a l profile. S o the A r g e n t i n i a n steel m a k e r T e c h N e t t o o k c o n t r o l of tin M e x i c a n steel tube m a k e r Tamsa in 1 9 9 3 , acquired the Italian steel tube m a k e r D a l m i k n e in 1996, a n d then w e n t o n t o e x p a n d i n t o 220

Capitalism in rhe 20th Cenrun

Brazil,

Venezuela,

Japan

and

Canada,

adopting

the

name

I maris.' 0 4 There is a s i m i l a r pattern for s o m e M e x i c a n c o m p a n i e s , hi rhe late 1980s A l f a , the largest i n d u s t r i a l g r o u p in M e x i c o , w i t h 109 subsidiaries s p a n n i n g a u t o m o t i v e c o m p o n e n t s , f o o d , petrochemicals a n d steel, e m b a r k e d o n a g r o w i n g n u m b e r o f j o i n t operations w i t h foreign firms. T h e glass m a k e r V i t r o , w h i c h h a d b o u g h t t w o A m e r i c a n c o m p a n i e s , became " t h e w o r l d ' s l e a d i n g glass c o n t a i n e r m a n u f a c t u r e r , w i t h its m a r k e t a l m o s t e q u a l l y split between the US a n d M e x i c o " . 1 " 4 T h e logical o u t c o m e o f this in M e x i c o w a s for its r u l i n g class to forget its o l d n a t i o n a l i s m a n d t o |i)in the N o r t h A m e r i c a n Eree Trade Area a n d increasingly t o operate as a s u b o r d i n a t e c o m p o n e n t o f US c a p i t a l i s m . O c c a s i o n a l l y the c o l l a b o r a t i o n p r o d u c e d positive results for wider sections o f local c a p i t a l , p r o v i d e d s o m e j o b o p p o r t u n i t i e s lor the a s p i r a n t m i d d l e classes (in I r e l a n d , S o u t h Korea, M a l a y s i a , Singapore, Taiwan a n d coastal C h i n a ) , a n d even created conditions u n d e r w h i c h w o r k e r s c o u l d b o o s t their living s t a n d a r d s t h r o u g h i n d u s t r i a l a c t i o n . A l l t o o o f t e n , however, it created still further indebtedness t o foreign b a n k s w h i c h the n a t i o n a l states had t o cope w i t h . In such cases a n a r r o w s t r a t u m o f people gained a taste o f the fleshpots o f m u l t i n a t i o n a l c a p i t a l w h i l e the conditions of the mass o f people deteriorated, or a t best r e m a i n e d u n c h a n g e d . A y u p p i e class lived in protected enclaves as if it were in the wealthiest parts o f the industrialised w o r l d (and often w e n t i step further a n d lived part o f the year there), w h i l e m u c h o f the p o p u l a t i o n festered in ever proliferating s l u m s a n d s h a n t y t o w n s . T h e a s s u m p t i o n o f the n e w e c o n o m i c i d e o l o g y — m o s t forcefully addressed

in

the

u

neoliberar

notions

of

the

"Washington

i lonsensus" o f rhe I M F a n d W o r l d B a n k — w a s t h a t if s o m e capital a c c u m u l a t i o n in s o m e countries h a d been able to gain a n e w lease of life by reinsertion i n t o the w o r l d system, it c o u l d d o so anywhere if o n l y the last restrictions o n t r a d e a n d the m o v e m e n t o f capital were removed. But the reality proved to be rather different. A few areas attracted new p r o d u c t i v e investment, b u t o n l y a few. At the end o f the century o n l y a third o f w o r l d w i d e foreign direct investment w e n t t o the " e m e r g i n g m a r k e t s " o f the G l o b a l S o u t h and the f o r m e r C o m m u n i s t countries, a n d o f this m o r e t h a n half went

to

just

four

countries—China/Hong

Kong,

Singapore,

M e x i c o a n d Brazil. A n o t h e r q u a r t e r w e n t t o just seven countries i M a l a y s i a , T h a i l a n d , South K o r e a , B e r m u d a , Venezuela, C h i l e a n d g e n t i n a ) , leaving 1 7 6 countries t o share o u t the r e m a i n i n g 25 I lie End of the Golden Age

221

percent.' * A n d m u c h o f rhe investment w a s n o t n e w investment at a l l , b u t s i m p l y the buying u p of already o p e r a t i n g c o m p a n i e s In m u l t i n a t i o n a l s based in the m e t r o p o l i t a n countries. These p r o b l e m s uere m o s t felt in the poorest regions o f tin w o r l d , especially Africa. H o w e v e r m u c h they d i s m a n t l e d their old, protectionist, import-substitutionist policies, they still r e m a i n e d u n a t t r a c t i v e t o the m u l t i n a t i o n a l s they w a n t e d t o w o o : " S m a l l p o o r countries face increased barriers t o entry in industries most subject t o the g l o b a l forces o f c o m p e t i t i o n " . 1 0 M u c h the s a m e applied to exports. C h i n a a n d a few other coun tries d i d c o n t i n u e to break i n t o w o r l d m a r k e t s . Bur the export o r i e n t a t i o n o f these countries m e a n t t h a t their o w n internal mat kets f o r foreign-produced c o n s u m e r g o o d s d i d n o t g r o w at .1 c o r r e s p o n d i n g speed a n d t h a t their e x p a n s i o n w a s , in p a r t , ar tin expense o f other countries i n rhe G l o b a l S o u t h . So A f r i c a n c o u n tries

which

had

begun

to

enjoy

some

export

growth

in

m a n u f a c t u r e d g o o d s f o u n d themselves losing m a r k e t s t o C h i n a . T h e " c o m b i n e d a n d uneven d e v e l o p m e n t " t h a t h a d characterised the l o n g b o o m c o n t i n u e d i n t o its a f t e r m a t h , wirh the difference t h a t m a n y e c o n o m i e s a c t u a l l y c o n t r a c t e d even as others grew rapidly. Ir w a s as if rhe " T h i r d W o r l d " itself h a d split in t w o , except that i m m e n s e pools o f poverty r e m a i n e d even in the p a n that was growing. T h o s e w h o ran rhe local states c o u l d often feel insecure even w h e n the developmentalist strategy w a s successful i n its o w n cap italist o r state capitalist terms. Their success d e p e n d e d u p o n a high level o f d o m e s t i c a c c u m u l a t i o n — a n d the other side o f t h a t , a high level o f e x p l o i t a t i o n that c o u l d o n l y be achieved by h o l d i n g d o w n w o r k e r s ' a n d peasants' living standards. Bur even w h e n they sui ceeded in getting high levels o f a c c u m u l a t i o n ( w h i c h w a s the exception rather t h a n the rule) they r e m a i n e d w e a k in their bar g a i n i n g p o s i t i o n w i t h the m u l t i n a t i o n a l s . As m u l t i n a t i o n a l s took over local firms, their p r o p o r t i o n o f the local c a p i t a l investment c o u l d rise t o 4 0 o r even 5 0 percent o f rhe t o t a l , increasing tin 11 leverage over local decision m a k i n g . But states in the poorer part o f the w o r l d d i d n o t h a v e a n y t h i n g like the s a m e leverage ovei m u l t i n a t i o n a l s , since rhe small size o f their d o m e s t i c e c o n o m i c s m e a n t they p r o b a b l y a c c o u n t e d for n o m o r e t h a n 1 or 2 percent ol the m u l t i n a t i o n a l s ' w o r l d w i d e investments a n d sales. H u g e g a p s usually o p e n e d u p between w h a t those w h o ran the state h a d p r o m i s e d the mass o f people a n d w h a t they c o u l d delivei 222

Capitalism in the 20th Cent 111 v

I ligh levels o f repression a n d c o r r u p t i o n b e c o m e the n o r m rather than rhe e x c e p t i o n . W h e n the d e v e l o p m e n t a l i s t strategy ran i n t o p r o b l e m s , s o m e t h i n g else a c c o m p a n i e d the repression—rhe holl o w i n g o u t o f the mass o r g a n i s a t i o n s t h a t used t o tie sections o f tlit

m i d d l e class to the state a n d , via t h e m , s o m e o f the w o r k i n g

. lass a n d peasantry. T h e oppressive state b e c a m e a w e a k state a n d looked ro foreign b a c k i n g to reinforce its h o l d . All this h a p p e n e d as p r o b l e m s o f profitability in the a d v a n c e d * ountries d r o v e their capitalists t o l o o k for a n y o p p o r t u n i t y , however l i m i t e d , t o g r a b surplus v a l u e f r o m elsewhere. There w a s n o t m u c h t o be g o t f r o m the ^poorest o f the p o o r a n y w h e r e in the world,

but

what

there

was

they

were

determined

to

get.

Imperialism m e a n t that at the t o p level o f the system rival capitalist powers argued v e h e m e n t l y w i t h each other a b o u t h o w to satisfy iheir different interests. A t a l o w e r level, it m e a n t c o n s t r a i n i n g rhe local r u l i n g classes o f the T h i r d W o r l d t o act as collectors o f debt repayments f o r the Western b a n k s , royalty p a y m e n t s for the multinationals a n d profits for Western investors as well as for their o w n domestic capitalists. D e b t servicing a l o n e transferred $ 3 0 0 billion a year f r o m the " d e v e l o p i n g c o u n t r i e s " t o the w e a l t h y in the advanced world. 1 0 * A website dedicated t o d e f e n d i n g US overseas investment boasted: M o s t n e w overseas investments are p a i d f o r by profits m a d e overseas. Foreign direct investment by US c o m p a n i e s w a s o n l y $ 8 6 b i l l i o n i n 1 9 9 6 . . . If y o u s u b t r a c t o u t the reinvested earnings o f foreign o p e r a t i o n s , the result w a s o n l y $ 2 2 b i l l i o n . . . US c o m p a n i e s ' overseas o p e r a t i o n s also generate i n c o m e t h a t returns t o the U S . . . I n 1 9 9 5 , this f l o w o f i n c o m e — d e f i n e d

as

direct i n v e s t m e n t i n c o m e , r o y a l t y a n d license fees, a n d charges a n d services—back i n t o the US a m o u n t e d t o $1 17 billion. 1 0 * I here c o u l d be n o e n d t o the squeezing. T h e share o f foreign investors in the t r a d i n g o n the Brazilian stock e x c h a n g e rose f r o m 5 percent in 1991 to 2 9 . 4 percent in 1995, 1 , 0 a n d t h e share o f new M e x i c a n g o v e r n m e n t debt held by non-residents grew f r o m 8 percent at the end o f 1 9 9 0 t o 5 5 percent at the e n d o f 1993. 111 U n d e r such circumstances, the instability o f the w o r l d e c o n o m y in the a f t e r m a t h o f the " g o l d e n a g e " f o u n d heightened expression in the countries o f the G l o b a l S o u t h . Even those e x p a n d i n g rapidly and extolled by neoliberal m e d i a c o m m e n t a t o r s c o u l d suddenly be I lie End of the Golden Age

223

faced w i r h near insuperable d e b t p r o b l e m s , d e e p e n i n g s l u m p a n d possibly accelerating i n f l a t i o n — a s h a p p e n e d in M e x i c o i n tinearly 1990s, Indonesia in rhe late 1990s a n d A r g e n t i n a at the Ing i n n i n g o f the 2 0 0 0 s . A n d the fate o f the mass o f people m countries regarded as m a r g i n a l by i n t e r n a t i o n a l c a p i t a l , like most o f sub-Saharan A f r i c a , w a s d e e p e n i n g poverty, repeated famines a n d , all t o o often, recurrent b o u t s o f e t h n i c conflict spilling ovei i n t o civil wars, often financed b y foreign firms interested in con trol o f r a w materials. There m a y never have been a g o l d e n age tin such parts o f the w o r l d . But there w a s certainly a leaden one.

R e s t r u c t u r i n g through crises G l o b a l c a p i t a l i s m in the last q u a r t e r o f the 2 0 t h c e n t u r y was m a r k e d o n c e again by m a n y o f the features M a r x h a d described There were recurrent e c o n o m i c crises, a n d the

restructuring,

t h r o u g h crisis o f c a p i t a l s , big a n d s m a l l , p r i v a t e l y o w n e d a m i state o w n e d . Graph: Economic Growth of Industrial

Countries (—) As Against LV1T

Predictions (~)x

A l l the m a j o r i n d u s t r i a l e c o n o m i e s suffered at least three real n cessions, except for France a n d C a n a d a w h i c h each experienced o n e " g r o w t h recession" a n d t w o real recessions, a n d J a p a n which a v o i d e d a real recession for nearly 2 0 years after rhe crisis of the mid-1970s, o n l y then t o enter a 13-year p e r i o d o f near stagnation after 1992. In the f o r m e r Soviet bloc c o u n t r i e s recessionary tendencies ot the late 1980s n o w t u r n e d i n t o s l u m p s . B u t s o o n different paths 224


emerged. T h e f o r m e r U S S R ( C I S in rhe g r a p h b e l o w ) suffered a n e n o r m o u s e c o n o m i c c o n t r a c t i o n , a n d o u t p u t in 2 0 0 0 , even after i w o years o f recovery, w a s o n l y 70 percent o f the 1990s figure. T h e picture w a s s i m i l a r l y m i s e r a b l e f o r R o m a n i a , B u l g a r i a , A l b a n i a a n d the b u l k

of

former Yugoslavia.

By c o n t r a s t , the

central

I u r o p e a n e c o n o m i e s ( C S B in the g r a p h ) o n l y c o n t r a c t e d ro a little nver 80 percent o f the 1990s figure a n d recovered t o begin ro surpass it i n 1 9 9 8 — a l t h o u g h this figure w a s still h a r d l y greater t h a n that for 1 9 8 0 . " ;

All this m e a n t c o n t i n u e d , recurrent p a i n for those w h o l a b o u r e d lor a n d lived w i t h i n the system. T h e big q u e s t i o n , however, f o r the s\stem itself w a s w h e t h e r the r e s t r u c t u r i n g caused by rhe crises w o u l d o p e n u p a n e w p e r i o d o f e x p a n s i o n . T h i s w e will l o o k at in i he next section o f this w o r k .

I he End of rhe Golden Age

225

Capitalism in the 20th Ccntm

I\trt T h r e e

(THE NEW AGE OF GLOBAL INSTABILITY

...AFTER

NINE

The years of delusion

I he n e w hype "A substantial decline in m a c r o e c o n o m i c v o l a t i l i t y " was " o n e o f the m o s t striking features o f the e c o n o m i c landscape over the past 20 years or s o " , declared Ben B e r n a n k e in 2 0 0 4 . ' Such h a d l o n g been the view o f m o s t m a i n s t r e a m e c o n o m i s t s a n d politicians: N e w P a r a d i g m advocates received c a u t i o u s s u p p o r t f r o m the US Treasury Secretary Larry S u m m e r s a n d c h a i r m a n o f the Federal Reserve, A l a n G r e e n s p a n . . . M r G r e e n s p a n said the recent e c o n o m i c p e r f o r m a n c e w a s " n o t e p h e m e r a l " . 2 I hey spoke o f the longest c o n t i n u o u s period o f A m e r i c a n e c o n o m i c growth for four decades a n d the lowest level o f u n e m p l o y m e n t for three. T h i s w a s supposedly a new, unprecedented period o f non-inllationary capitalist e x p a n s i o n , baptised " t h e great m o d e r a t i o n " or "the n e w e c o n o m i c p a r a d i g m " . S t a g n a t i o n , u n e m p l o y m e n t a n d inllation h a d supposedly been left b e h i n d . For Bernanke, the e x p l a n a t i o n lay in the greater capacity o f the states a n d central b a n k s t o h a n d l e the m o n e y s u p p l y t h a n in the 1970s. For others it lay in rhe new technologies associated w i t h the microprocessor: A n e w e c o n o m y has emerged f r o m a spurt o f i n v e n t i o n a n d inn o v a t i o n , led by the m i c r o p r o c e s s o r . . . o p e n i n g all sectors o f the e c o n o m y to p r o d u c t i v i t y g a i n s . . . The new e c o n o m i c p a r a d i g m has b r o u g h t us the best o f all w o r l d s — i n n o v a t i v e p r o d u c t s , new jobs, high profits, s o a r i n g stocks. A n d l o w inflation. 3 1'he a d v a n c e s o f w h a t w a s called " A n g l o - S a x o n supposedly

based

on

unleashing

"economic

capitalism",

freedom"

and 22 1 *

" e n t r e p r e n e u r s h i p " , were contrasted w i t h the laggardly rates ! g r o w t h in Europe a n d the s t a g n a t i o n in J a p a n . In Britain Nc\\ L a b o u r boasted ir w a s f o l l o w i n g the US e x a m p l e . " N o return to b o o m a n d bust'* was the refrain in every budget speech o f chancel lor o f the exchequer (and future p r i m e minister) G o r d o n B r o w n . T h e e n t h u s i a s m h a d received a t e m p o r a r y setback w h e n tin A s i a n crisis o f 19c>~ spread t o a b o u t 4 0 percent o f the w o r l d . I In Financial and

ki

Times had h e a d l i n e s a b o u t a n " e c o n o m i c m e l t d o w n

a h o u s e o f c a r d s " , w h i l e the B B C ran a special

Newsnight

p r o g r a m m e , " I s C a p i t a l i s m C o l l a p s i n g ? " Bur the p a n i c did noi last for l o n g . W i t h i n m o n t h s the n e w p a r a d i g m w a s rising high again:

both

Patrick

Minford,

former

economic

adviser

i«>

M a r g a r e t Thatcher, a n d M e g h n a d D e s a i , f o r m e r e c o n o m i c ad viser t o G o r d o n B r o w n , insisted in debates late in 1998 t h a t .ill t h a t h a d occurred w a s a passing s t o r m o f n o significance, a n d all problems had

been solved

by q u i c k

intervention

by the I s

Federal Reserve. 4 There w a s brief p a n i c a g a i n in the s u m m e r •»t 2 0 0 1 as the US w e n t i n t o recession. " T h e w o r l d e c o n o m y is starting to look

r e m a r k a b l y , even d a n g e r o u s l y ,

stated the Economist.

vulnerable",

" I n d u s t r i a l i s t s a n d b a n k e r s at their annu.il

get t o g e t h e r o n b a n k s o f L a k e C o m o d i d little t o disguise t h e n over-riding p e s s i m i s m " , 5 reported the Financial

Times.

But again

a m n e s i a s o o n set in a n d f i n a n c i a l c o m m e n t a t o r s were describing the e c o n o m i c p a n i c o f a few m o n t h s earlier as " t h e recession that w a s over before it b e g a n " ' — d e s p i t e , or p e r h a p s because o f , the loss o f o n e in six m a n u f a c t u r i n g j o b s in the U S . R e n e w e d eco nomic growth

in the US led to even greater o p t i m i s m

before. T h e I n t e r n a t i o n a l

than

M o n e t a r y F u n d c o u l d declare yeai

after year t h a t the p i c t u r e f o r the f u t u r e w a s o f fast e c o n o m i c g r o w t h . So in A p r i l 2 0 0 7 a typical I M F press release a b o u t Us m o s t recent w o r l d survey r e a d , " G l o b a l e c o n o m y o n track tin continued

strong

growth".

There

were

a

few

mainstream

d o u b t e r s , but their w o r r i e s were o n l y ever discussed in o r d e r to be d i s m i s s e d . T h e overall

message w a s t h a t c a p i t a l i s m

was going

from

strength to strength w i t h s u p p o s e d l y record w o r l d g r o w t h fig ures. Even those sceptical a b o u t the c l a i m s for the a d v a n c e d c o u n t r i e s o f t e n a c c e p t e d a m o d i f i e d version o f the o p t i m i s m w h e n it c a m e t o t h e system as a w h o l e . H a r d l y a d a y w e n t past w i t h o u t m e d i a references t o the " n e w g i a n t s " , C h i n a a n d I n d i a , a n d s o o n c o m p l i m e n t s were b e i n g p o u r e d o n the o t h e r c o u n t r i e s 230

The New Age of Global In.stahilit\

included w i t h t h e m in t h e n e w " B R I C S " r u b r i c — B r a z i l , Russia uid S o u t h A f r i c a . Even if the o l d i n d u s t r i a l states w e r e t o r u n into p r o b l e m s , these n e w centres o f c a p i t a l i s t g r o w t h

would

a i n t a i n t h e stability o f the w o r l d system. T h e faults t h a t were recognised in the g l o b a l system w e r e regarded rather as Stalin's admirers used to speak o f his " o c c a s i o n a l e r r o r s " , as " s p o t s o n the s u n " .

Hidden problems I or those c o m m e n t a t o r s prepared t o l o o k honestly a n d g o a little deeper t h a n i m m e d i a t e a p p e a r a n c e s , there were d i s t u r b i n g signs. W h i l e the I I ^ F , for instance, w a s e x u b e r a n t a b o u t prospects, research c o m m i s s i o n e d by the W o r l d Bank painted a rather different picture. G r o w t h for the w o r l d as w h o l e w a s well d o w n o n the levels n o t o n l y o f the l o n g b o o m , b u t also o f the first decade a n d a half after its end: Graph three: world GDP growth rate 1961-2006

7-i

0 1965

1970

1975

1980

1985

1990

1995

2000

2005

It w a s o n l y possible t o d r a w a different c o n c l u s i o n , as a n I M F g r a p h in the April 2 0 0 7 W o r l d R e v i e w seemed t o , by starting rhe series in 1 9 7 0 — w i r h the b e g i n n i n g o f the end o f the l o n g b o o m / Parallel w i t h the decline in g r o w t h rates w e n t a long-term slowd o w n in g l o b a l investment, as research for the I M F revealed (see graph b e l o w ) . I lie Years of Delusion

231

World

accumulation

T h e f a l l in a c c u m u l a t i o n a n d the g r o w t h o f o u t p u t t o o k

phut

a l o n g s i d e a c o n t i n u i n g l o w level o f rhe rate o f p r o f i t c o m p a r e d w i t h the " g o l d e n a g e " . T h e r e h a d been s o m e recovery f r o m the l o w p o i n t o f the early 1980s, but o n l y t o reach a b o u t the level i t h e early 1 9 7 0 s — t h e t u r n i n g p o i n t t h a t e n d e d the " g o l d e n a g e " C a l c u l a t i o n s f o r rhe US suggest t h a t recovery o f p r o f i t a b i l i i s f r o m the recession of 2 0 0 1 - 2 t h r o u g h the years i m m e d i a t e l y p r e c e d i n g t h e c r e d i t c r u n c h o f 2 0 0 7 a g a i n failed t o raise it t

international takeovers a n d c o l l a b o r a t i o n agreements t h a t were reported by the Financial

Times every day.

I f the typical capitalist firm o f the 1 9 4 0 s , 1950s o r 1960s w a s nne w h i c h played a d o m i n a n t role in o n e n a t i o n a l e c o n o m y , a t the b e g i n n i n g o f the 2 1 s t c e n t u r y it w a s o n e t h a t operared in a score or m o r e c o u n t r i e s — n o t merely selling o u t s i d e its h o m e c o u n t r y but p r o d u c i n g there as well. T h e biggest d e p l o y e d far m o r e econ o m i c resources t h a n m a n y states. " 2 9 o f the w o r l d ' s 100 largest economic

entities

are

transnational

corporations",

reported

I J N C T A D . T h e process o f n a t i o n a l firms b r a n c h i n g o u t i n t o the rest o f t h e w o r l d w a s n o t c o n f i n e d t o rhe a d v a n c e d

industrial

c o u n t r i e s . It affected the T h i r d W o r l d a n d N e w l y I n d u s t r i a l i s i n g Countries

where

the s t a t i f i c a t i o n

of

industry

had

previously

iended t o g o even f u r t h e r t h a n in the W e s t , as w e s a w in C h a p t e r Seven. It intensified w i t h the r e s t r u c t u r i n g o f i n d u s t r y t h a t t o o k place in each crisis o f these years as firms rationalised p r o d u c t i o n , shut p l a n t s a n d m e r g e d w i t h others.

M v t h s a n d realities #

I his w h o l e process w a s baptised " g l o b a l i s a t i o n " by the 1990s. It was bracketed together w i t h neoliberalism as representing a w h o l e new phase o f c a p i t a l i s m — f o r enthusiasts a phase very different t o any previously. T h e y held n o t o n l y t h a t the w o r l d s h o u l d be organised a c c o r d i n g t o the free flows o f c a p i t a l , w i t h o u t a n y intervention by g o v e r n m e n t s , b u t that this h a d already c o m e a b o u t . W e l i v e d , it w a s s a i d , in the age o f m u l t i n a t i o n a l (or s o m e t i m e s transnational) capital, o f firms m o v i n g p r o d u c t i o n at will

to

wherever it c o u l d be d o n e m o s t c h e a p l y . It w a s , s o m e i n f l u e n t i a l voices insisted, a w o r l d o f " w e i g h t l e s s " p r o d u c t i o n ,

w h e r e com-

puter s o f t w a r e a n d the internet were m u c h m o r e i m p o r r a n r t h a n " o l d f a s h i o n e d m e t a l - b a s h i n g " industries, a n d w h e r e the a b s o l u t e m o b i l i t y o f c a p i t a l h a d c o m p l e t e l y d e t a c h e d it f r o m a n y dependence o n states. T h i s w a s a n integral parr of t h e n e w e c o n o m i c p a r a d i g m s u p p o s e d l y u n l e a s h i n g a n e w d y n a m i s m in t h e afterm a t h o f the failures o f K e y n e s i a n i s m , state d i r e c t i o n a n d Soviet style " s o c i a l i s m " . " N a t i o n a l i t i e s o f c o m p a n i e s " were " b e c o m i n g increasingly

irrelevant",

declared

the

British

Tory

minister

K e n n e t h C l a r k . 1 0 T h i s w r as the age o f " t h e stateless c o r p o r a t i o n " , declared Business

Week.11

Cilobal Capital in the New Age

2.57

M a n y people w h o rejected the politics o f m a i n s t r e a m globalise t i o n theory nevertheless accepted m a n y o f its a s s u m p t i o n s . St. V i v i a n e Forrester w r o t e o f " t h e b r a n d new w o r l d d o m i n a t e d b\ cybernetics, a u t o m a t i o n a n d revolutionary technologies" w i t h

u

im

real links w i t h 'the w o r l d o f w o r k 1 " ; 1 2 N a o m i Klein described 4\i system o f footloose factories e m p l o y i n g footloose w o r k e r s " ; 1 ' a n d J o h n H o l l o w a y told o f capital being able " t o m o v e f r o m o n e side o f the w o r l d to the other w i t h i n seconds". 1 4 T h e vision o f a g l o b a l system in w h i c h states n o longer played .1 central p a r t h a d as its c o r o l l a r y the a r g u m e n t t h a t the w a r s thai h a d plagued most o f the 2 0 t h century were a t h i n g o f the past. Tinw o r l d w a s entering a

ik

new w o r l d o r d e r " , p r o c l a i m e d G e o r g e Bush

senior after the collapse o f the Eastern b l o c a n d US victory in the first w a r against Iraq. 15 Francis F u k u y a m a gave such talk an acad e m i c gloss w i t h his a n n o u n c e m e n t o f " a n e n d to h i s t o r y " . Even thinkers l o n g associated w i t h the left c a m e t o the concln sion that capital in the n e w period n o longer needed the state, and therefore h a d turned its back o n war. Nigel H a r r i s w r o t e of " t i n w e a k e n i n g o f the drive to w a r " , since " a s c a p i t a l a n d

states

become slightly dissociated, the pressures t o w o r l d w a r are slight I v w e a k e n e d " . 1 6 Lash a n d Urry w e n t even further a n d d i d n o t include any m e n t i o n o f military e x p e n d i t u r e in their account o f the "posi m o d e r n " world of "disorganised capitalism".1" L a c k i n g from all these varied assertions a b o u t g l o b a l i s a t i o n was any real grasp of h o w the relations between states a n d capitals were really developing. For capitals were n o m o r e w i l l i n g , or able, t o break their relationships w i t h states t h a n they h a d been at tlu t i m e o f the First W o r l d War. Such relationships m a y have become m o r e c o m p l e x , but they retained their o v e r w h e l m i n g i m p o r t a n c e . T h i s s h o u l d have been m o s t o b v i o u s in the case o f p r o d u c t i v e c a p i t a l . It s i m p l y c o u l d n o t be as m o b i l e as g l o b a l i s a t i o n theory c o n t e n d e d . Factories a n d m a c h i n e r y , m i n e s , d o c k s , offices a n d so o n still t o o k years to b u i l d u p , just as they h a d in the earlier period o f c a p i t a l i s m , a n d c o u l d not be s i m p l y picked u p a n d carted away. S o m e t i m e s a firm can m o v e m a c h i n e r y a n d e q u i p m e n t . But this is usually an a r d u o u s process a n d , before it c a n be o p e r a t e d else w h e r e , the

firm

has t o recruit or train a sufficiently

skilled

w o r k f o r c e . In the i n t e r i m , n o t o n l y does the investment in the old b u i l d i n g s have t o be written off, b u t there is n o return o n the in vestment in the m a c h i n e r y either. A n d , few p r o d u c t i v e processes are ever c o m p l e t e l y self-contained. They are r o o t e d , as we saw in 258

The New Age of Global Inst.ibilit v

I hapter Four, in p r o d u c t i o n c o m p l e x e s , d e p e n d e n t o n inputs f r o m outside a n d links t o d i s t r i b u t i o n n e t w o r k s . If a firm sets u p a car plant, it has to ensure there are secure sources o f nuts a n d bolts, %teel o f the right quality, a l a b o u r force w i t h rhe right level o f training, reliable electricity- a n d w a t e r s u p p l i e s , a t r u s t w o r t h y

financial

system, friendly b a n k e r s , a n d a r o a d a n d rail n e t w o r k c a p a b l e o f •.hitting its finished products. It has ro persuade other people, other firms or g o v e r n m e n t s t o p r o v i d e these t h i n g s , a n d the process o f assembling t h e m c a n take m o n t h s or even years o f b a r g a i n i n g , involving trial a n d error as well as f o r w a r d p l a n n i n g . For this reason, w h e n restructuring firms usually prefer the r o a d o f "gradu a l i s m " — m o v i n g piecemeal from o l d p l a n t t o new, keeping intact old s u p p l y a n d d i s t r i b u t i o n n e t w o r k s , m i n i m i s i n g the d i s l o c a t i o n to the " c o m p l e x " a r o u n d t h e m . So it t o o k Ford nearly t w o years to i m p l e m e n t s decision in 2 0 0 0 t o close d o w n its assembly plant in D a g c n l i a m a n d m o v e p r o d u c t i o n elsewhere in E u r o p e . W h e n ( a d b u r y Schweppes a n n o u n c e d the " r a t i o n a l i s a t i o n " o f its g l o b a l operation i n c l u d i n g closures in J u n e 2 0 0 7 , it said it expected it t o take three years to i m p l e m e n t . Even w i t h m o n e y c a p i t a l there is n o p u r e m o b i l i t y . As S u s a n n e de B r u n h o f f noted: Even t h o u g h huge financial flows o f m o b i l e capital are d a i l y circ u l a t i n g r o u n d the g l o b e , a g l o b a l single m a r k e t o f capital does n o t exist. There is n o single w o r l d rate o f interest a n d there are n o single w o r l d prices for p r o d u c e d g o o d s . . . Financial assets are d e n o m i n a t e d in different currencies w h i c h are n o t "perfect ft substitutes". 1 " Dick Bryan m a d e a s i m i l a r p o i n t : I n t e r n a t i o n a l f i n a n c e provides a clear i l l u s t r a t i o n o f the centrality

of

nationality

within

global

accumulation.

The

c o m b i n a t i o n o f satellite a n d c o m p u t e r t e c h n o l o g y has provided...all

the t e c h n i c a l p r e c o n d i t i o n s for the

neoclassical

"perfect m a r k e t " o f financial flows t o equalise rates o f r e t u r n , t r a n s c e n d i n g n a t i o n a l b o u n d a r i e s . Y e t . . . f i n a n c e m a i n t a i n s national characteristics. It docs n o t m o v e systematically so as t o equalise savings a n d i n v e s t m e n t . . . A g l o b a l f i n a n c i a l system comprised

o f nationally-designated

currencies signals

that

g l o b a l i s a t i o n c a n n o t be devoid o f a n a t i o n a l d i m e n s i o n . ' Cilobal Capital in the New Age

2.57

Every year U N C T A D provides a list o f the t o p 100 multinationals a n d their "transnationality i n d e x " — t h e p r o p o r t i o n o f their sales, assets a n d investments w h i c h are located outside their

"honu

country. These figures are sometimes said to s h o w h o w little multi nationals depend on a national base. But in fact they can be looked at another way. In 2003 the t o p 5 0 multinationals still relied o n then h o m e base for over h a l f their business. A n d the 2 0 w i t h the highest ratios o f foreign sales were mostly from small, o p e n economies sueh as C a n a d a , Australia a n d Switzerland, or are m e m b e r s o f the El such as F i n l a n d , France, the U K , G e r m a n y a n d Sweden w h o s e sales are oriented to close neighbours. N o n e o f the US m u l t i n a t i o n a l s fig ured in the list o f the most international global Average Transnationality

firms.20

of the world's largest transnational

corporations

(TNCs) 2003

Top 100 T N C s

55.8

Top 50 T N C s

47.8

Those based in United States

45.8

United Kingdom

69.2

Japan

42.8

France

59.5

Germany

49.0

Small European countries

72.2

The proliferation o f cross-border mergers did n o t m e a n t h a t they represented the only, or even the d o m i n a n t form o f restructuring. They c o u n t e d for o n l y a quarter o f all mergers 2 1 —and m a n y were unsuccessful.- A n d o n l y a small p o r t i o n o f global investment was across n a t i o n a l borders. T i m K o e c h l i n s h o w e d that a l t h o u g h the stock o f A m e r i c a n F D I h a d " g r o w n quite d r a m a t i c a l l y " , from " $ 3 2 billion in 1 9 6 0 t o $ 2 , 0 6 3 billion in 2 0 0 4 " , this represented " a rel atively small share o f all US i n v e s t m e n t " , w i t h the ratio o f foreign direct investment o u t f l o w s to all investment at o n l y 7.3 percent' . For m a n u f a c t u r i n g , the ratio w a s higher, at 2 0 . 7 p e r c e n t — " b u t was d o w n o n the figure o f 3 5 . 4 percent in 1 9 9 4 " . 2 4 H e concludes, "Although

the

investment

process

has

become

increasingly

' g l o b a l ' . . . capita I a c c u m u l a t i o n remains a n essentially national

phe

n o m e n o n " . 2 5 W h a t is m o r e , foreign direct investment figures gave an exaggerated impression o f the m o b i l i t y o f p r o d u c t i v e capacity. 260

The New Age of Global lnstabili(>

rather t h a n o f the o w n e r s h i p o f it. U N C T A D figures bore o u t a point R i c c a r d o Bellofiore m a d e at the e n d o f the 1990s. Foreign investment m o s t l y i n v o l v e d b u y i n g u p existing enterprises, n o t new ones, so that: F D I flow r s in m a n u f a c t u r i n g are d o m i n a t e d by m e r g e r s a n d a c q u i s i t i o n s . . . r a t h e r t h a n by the c r e a t i o n o f n e w c a p a c i t y : a n d a big s h a r e o f F D I is in n o n - p r o d u c t i v e , s p e c u l a t i v e a n d f i n a n c i a l ventures. 2 6 M o s t m u l t i n a t i o n a l s concentrated their investments in a particular advanced industrial c o u n t r y a n d its n e i g h b o u r s , a n d then relied o n the sheer scale o f investment, research a n d d e v e l o p m e n t , a n d production there to p r o v i d e a n a d v a n t a g e over all c o m p e t i t o r s . T h e foreign investment that did take place w a s n o t necessarily " g l o b a l " in its character. "SLxty-six percent of the o u t p u t o f U S foreign affiliates" w a s " s o l d l o c a l l y " , that is, w i t h i n the b o u n d a r i e s o f the particular c o u n t r y in w h i c h a particular affiliate w a s based. 2 " This w a s a trend w h i c h b r o k e w i t h the p r e d o m i n a n t l y n a t i o n a l basis o f p r o d u c t i o n w i t h o u t , however, t u r n i n g i n t o the g l o b a l production

stereotype.

A

multinational

c o u l d seek t o

overcome

obstacles t o e x p o r t i n g t o a p a r t i c u l a r c o u n t r y by establishing plants inside its b o r d e r s — i n a pattern w h i c h R u i g r o k a n d v a n lulder called glocalisation. 2 8 Even if it started o f f w i t h "screwdriver p l a n t s " devoted s i m p l y to assembling c o m p o n e n t s i m p o r t e d trom the m u l t i n a t i o n a l ' s h o m e c o u n t r y , it often ended u p t u r n i n g to local firms to p r o v i d e c o m p o n e n t s . T h e m u l t i n a t i o n a l g a i n e d because local firms effectively b e c a m e its satellites, s u p p l y i n g it with resources a n d fighting for its interests against its local o r regional c o m p e t i t o r s . It m i g h t even w e l c o m e protectionist measures by the state its subsidiary w a s in, since that w o u l d protect its sales there f r o m i n t e r n a t i o n a l c o m p e t i t o r s . G l o b a l i s a t i o n theorists failed t o recognise such d e v e l o p m e n t s . Vet they o f t e n tried t o bolster their o w n case by referring t o investments like those o f J a p a n e s e m o t o r c o m p a n i e s in the US a n d Britain w h i c h were precisely a l o n g these lines. Similarly, they stressed the "flexible p r o d u c t i o n " characteristic, for instance, o f part o f the Italian k n i t w e a r industry, a n d " j u s t in t i m e " production m e t h o d s pioneered

in J a p a n

as typical o f

globalisation,

a l t h o u g h , as M i c h a e l M a n n quite correctly n o t e d , b o t h i m p l i e d localised o r regional, rather t h a n g l o b a l , p r o d u c t i o n . 2 9 C i l o b a l Capital in the New Age

2.57

T h e " o u t s o u r c i n g " overseas by a d v a n c e d c o u n t r y firms o f pai ticular parts o f their p r o d u c t i o n processes b e c a m e a n i m p o r t a n t p h e n o m e n o n , but it w a s still a m u c h m o r e limited o n e t h a n wa widely believed. At the b e g i n n i n g o f the 2 0 0 0 s , i m p o r t e d " m a t e i ial i n p u t s " (including r a w materials) a c c o u n t e d for 17.3 percent »>i total US o u t p u t . ' 0 K o e c h l i n estimated t h a t " o u t s o u r c i n g " ;k c o u n t e d " f o r s o m e w h a t less t h a n 4.8 percent o f U S gross domesr u purchases a n d s o m e w h a t less t h a n 9 percent o f a p p a r e n t con s u m p t i o n o f m a n u f a c t u r e d g o o d s " . " A n o t h e r study s h o w e d thai the fall in " p a y r o l l e m p l o y m e n t in m a n u f a c t u r i n g " i n the earls 2 0 0 0 s h a d " n o t been caused by a flood o f i m p o r t s o f either goods or services" b u t was: p r i m a r i l y the result o f inadequate g r o w t h o f domestic d e m a n d in the presence of strong productivity g r o w t h . . . To the extent thai trade d i d cause a loss o f m a n u f a c t u r i n g jobs it was the weakness o f US exports after 2 0 0 0 a n d n o t i m p o r t s that w a s responsible.

T h e different configurations of global capital N o t o n l y d i d the p o p u l a r g l o b a l i s a t i o n a c c o u n t s overstate the degree o f m o b i l i t y o f c a p i t a l , they also p r o v i d e d a m u c h distorted view o f w h a t that m o b i l i t y involves. A l a n M R u g m a n p o i n t e d out that o f the big m u l t i n a t i o n a l s : Very few are " g l o b a l " firms, with a " g l o b a l " strategy, defined as the ability t o sell the same products a n d / o r services a r o u n d the w o r l d . Instead, nearly all the t o p 5 0 0 firms are regionally based in their h o m e region o f the " t r i a d " o f N o r t h A m e r i c a , the E l ) , or A s i a . . . " H a l f o f m o s t g l o b a l firms were still o p e r a t i n g m a i n l y in t h e n h o m e region m a r k e t at the b e g i n n i n g o f the 2 0 0 0 s — i n c l u d i n g V i v e n d i , Pernod R i c a r d , T h o m s o n C o r p o r a t i o n , Stora Enso A k z o N o b e l , V o l v o , A B B a n d Philips. O n l y six m u l t i n a t i o n a l s operated in a n y t h i n g like a b a l a n c e d w a y across at least three c o n t i n e n t s Nestle, H o l c i m , R o c h e , Unilever, D i a g e o , a n d British A m e r i c a n Tobacco. 1 4 M o s t

foreign-owned

firms o p e r a t i n g in

European

U n i o n c o u n t r i e s were based in other E U c o u n t r i e s , w h e r e the pre d o m i n a n t f o r m o f m u l t i n a t i o n a l o w n e r s h i p w a s " r e g i o n a l " , not 262


tylobal, w i t h "US-controlled firms responsible for o n l y 4 . 5 percent o! E u r o p e a n v a l u e a d d e d " . 1 ' f

C h o r t a r e a s a n d Pelagidis c o n c l u d e d in 2 0 0 4 : The increase in i n t e r n a t i o n a l trade flows is p r e d o m i n a n t l y confined

w i t h i n the three developed t r a d e blocs o f the g l o b a l

e c o n o m y (the U S A , the E U , A s i a - J a p a n ) . A large p a r t o f the w o r l d c o n t i n u e s to be e x c l u d e d f r o m the t r a d e b o o m . T h e e m e r g i n g reality is m o r e a process o f d e e p e n i n g r e g i o n a l integration (regionalisation) o f p a r t i c u l a r groups/blocs of countries rather t h a n a g l o b a b i n c r e a s e in cross-border t r a d e flows a n d p r o d u c t i o n interdependence.'' I r a d e " , t h e y ^ i r g u e d , " h a s n o t c o m e ro be spread over a w i d e r range o f c o u n t r i e s , even c o m p a r e d w i t h the past. It is e n o u g h to recall that developed countries' i m p o r t s from d e v e l o p i n g countries are still o n l y a b o u t 2 percent o f the c o m b i n e d

GDP

of

the

D l C D " . " 7 T h e i r one exception w a s East A s i a , w h i c h w i l l h a v e g r o w n m o r e i m p o r t a n t after their research at the t u r n o f the cent u r y — b y 2 0 0 5 Chinese exports h a d e x p a n d e d to reach t o over 7 percent o f the g l o b a l total. Investment flows were similarly concentrated w i t h i n the " t r i a d " of N o r t h A m e r i c a , E u r o p e a n d J a p a n . In 2002-4 F D I flows i n t o the E u r o p e a n U n i o n averaged a b o u t $ 3 0 0 billion a year. T h e total lor the rest o f the w o r l d — t h e " d e v e l o p i n g c o u n t r i e s " — w a s o n l y S i 8 0 billion, of which China (including H o n g Kong) took t w o fifths, a n d Brazil a n d M e x i c o a fifth. S o m e 8 9 percent o f the cumulative stock o f F D I w o r l d w i d e in 2 0 0 4 w a s in the developed economies ( r o u g h l y the s a m e p r o p o r t i o n as in 1990), a n d t w o thirds o f t h a t w a s in Europe. 1 " T h e pattern w a s n o t o n e o f c a p i t a l f l o w i n g effortlessly over a h o m o g e n o u s w o r l d w i d e landscape. It w a s " l u m p y " , concentrated in s o m e countries a n d regions, in a w a y t h a t w a s n o t fully grasped by either the c r u d e g l o b a l i s a t i o n view, by interpretations

that

stressed regional blocs, o r by those w h o still spoke solely in terms of n a t i o n a l e c o n o m i e s . T h e e m p i r i c a l m a t e r i a l c o u l d be l o o k e d at in different w a y s — j u s t as a bottle c a n be seen as h a l f full or h a l f empty. B u t the reality o f c a p i t a l i s m w a s t h a t it c o u l d n o t be reduced t o any o n e o f these facets. D i f f e r e n t f i r m s o p e r a t e d at d i f f e r e n t levels. S o m e , rhe majority in s i m p l e n u m e r i c a l t e r m s , still o p e r a t e d w i t h i n Cilobal Capital in the New Age 2.57

national

e c o n o m i e s f r o m w h i c h they p u t o u t tentacles t o see w h a t tin \ c o u l d g a i n by b u y i n g a n d selling t o their n e i g h b o u r s . O t h e r s , s m a l l e r in n u m b e r but e n o r m o u s l y p o w e r f u l , i n c r e a s i n g l y opei ated o n a r e g i o n a l basis a n d reached o u r t o p i c k u p w h a t tin \ c o u l d elsewhere in the w o r l d . A n d a s m a l l m i n o r i t y s a w then f u t u r e in g e n u i n e l y g l o b a l t e r m s . A s c a p i t a l s w i t h each perspe*. tive b o u g h t a n d sold, m a n o e u v r e d to e x p a n d m a r k e t s , searched for c h e a p e r i n p u t s a n d f o r m o r e p r o f i t a b l e places f o r invest m e n t , they b o t h i n f l u e n c e d each o t h e r a n d t r i p p e d over each other. T h e o u t c o m e w a s n o t s o m e n e w m o d e l , b u t an ever shift i n g , k a l e i d o s c o p i c p a t t e r n w h i c h w a s u p s e t every t i m e it seemed a b o u t t o a t t a i n s o m e fixity. " A l l t h a t is s o l i d " d i d " m e l t i n t o a i r " as M a r x h a d put i t — b u t n o t in the w a y the c r u d e g l o b a l i sation

theory held. For c a p i t a l s old c o m p a n i o n ,

the

state,

entered i n t o the process at every p o i n t .

States a n d capitals in the era o f " g l o b a l i s a t i o n " A l l the a d v a n c e d capitalist states still m a i n t a i n historically very high levels o f state expenditure, only surpassed historically d u r i n g the t i m e o f total war. A n d a l t h o u g h business often c o m p l a i n s a b o u t the level o f t a x a t i o n , it never seriously suggests g o i n g back to the level o f expenditure o f a century a g o . T h e reason is t h a t cap itals today, far f r o m n o t n e e d i n g states, require t h e m as m u c h a s — i f n o t m o r e t h a n — e v e r before. T h e y need them first because the c o n t i n u e d c o n c e n t r a t i o n ol ¥

capitals in particular g e o g r a p h i c a l locations necessitates facilities t h a t are n o t a u t o m a t i c a l l y

provided

by the o p e r a t i o n

o f the

m a r k e t : police; judicial systems; a f r a m e w o r k t o l i m i t the d e f r a u d ing o f s o m e capitals by others; at least m i n i m a l regulation o f the credit system; the p r o v i s i o n o f a m o r e or less stable currency. A l o n g w i t h these they also need s o m e of the f u n c t i o n s fulfilled by the state d u r i n g the period ot the state-directed e c o n o m y : regula rion o f the l a b o u r m a r k e t ; e n s u r i n g the r e p r o d u c t i o n o f the next generation o f l a b o u r p o w e r ; the provision o f a n infrastructure for t r a n s p o r t , c o m m u n i c a t i o n s , water a n d p o w e r ; the s u p p l y o f mill tarv contracts. E v e n the b i g m u l t i n a t i o n a l s , w i t h h a l f o r m o r e of their p r o d u c t i o n a n d sales located a b r o a d , still rely for m u c h ot their basic profitability o n their o p e r a t i o n s in their h o m e base, a n d therefore o n w h a t a state can p r o v i d e for t h e m . 264


A l o n g w i t h these f u n c t i o n s there is c o n t i n u e d m a s s i v e support by a n y state for its c a p i t a l s d o m e s t i c a c c u m u l a t i o n — a n d iIns w a s true l o n g before the m o s t recent t u r n t o K e y n e s i a n i s m . So rhe P e n t a g o n p l a y e d a key role in r e s u s c i t a t i n g the A m e r i c a n m i c r o c h i p i n d u s t r y i n t h e late 1 9 8 0 s by p u t t i n g pressure o n l i n n s t o m e r g e , t o invest a n d t o i n n o v a t e

— a n d received s t r o n g

industrial support: " I n today % s global e c o n o m y s o m e central vision is r e q u i r e d " . H a c k w o r t h o f Cirus Logic explained. " S o m e b o d y has ro have an industrial strategy for this c o u n t r y " , agreed LSI Logic's C o r n g a n . " I he result of t h a t strategy w a s t h a t by the end o f the 1990s the world's

top

(Japanese)

semiconductor

but ^ntel

company

(American),

with

was

no

longer

Motorola

and

NEC Texas

Instruments ( b o t h A m e r i c a n ) in t h i r d a n d fifth p o s i t i o n . T h e US state also m a n a g e d ro bring a b o u t a s i m i l a r r a t i o n a l i s a t i o n o f the US aerospace industry, c u l m i n a t i n g in the merger o f Boeing a n d M c D o n n e l l D o u g l a s i n t o a firm t h a t c o n t r o l l e d 6 0 percent o f global civil aircraft sales, a n d a t u r n o v e r in m i l i t a r y aircraft prod u c t i o n twice as great as the w h o l e o f the E u r o p e a n industry. A s the New tion"

York Times p u t it, " P r e s i d e n t Bill C l i n t o n ' s administra-

had

"largely

succeeded

in

turning

America's

military

contractors i n t o i n s t r u m e n t s o f m a k i n g rhe e c o n o m y m o r e competitive g l o b a l l y " . 4 1 T h e i n t e r n a t i o n a l i s a t i o n o f firms* o p e r a t i o n s , far f r o m l e a d i n g to less d e p e n d e n c e o n stare s u p p o r t , increases it in o n e very imp o r t a n t respect. They need p r o t e c t i o n for their g l o b a l interests. A w h o l e range o f things b e c o m e m o r e i m p o r t a n t t o t h e m t h a n in rhe early post-war decades: trade n e g o t i a t i o n s for access t o n e w markets;

exchange

rates

between

currencies;

the

allocation

of

contracts by foreign g o v e r n m e n t s ; protection a g a i n s t expropriation o f foreign assets; the defence o f intellectual property rights; enforcement o f foreign debt repayments. There is n o w o r l d state to u n d e r t a k e such tasks. A n d so the p o w e r o f a n y n a t i o n a l state t o force others t o respect the interests o f capitals based w i t h i n it has become m o r e i m p o r t a n t , n o t less. Floating exchange rates between m a j o r currencies m e a n that the capacity o f a government to influence rhe value o f its o w n currency can have a n e n o r m o u s effect o n the international competitiveness o f firms operating w i t h i n its boundaries. This was s h o w n , for instance. Cilobal Capital in the New Age

2.57

by the " P l a z a A c c o r d " o f

1985, w h e n the U S persuaded

tin

E u r o p e a n a n d Japanese governments t o cooperate w i t h it i n forcini u p the value of the yen against the dollar. In the aftermath sales «•! US firms internationally " g r e w at their fastest rate d u r i n g the post w a r period, shooting u p at an a n n u a l rate o f 10.6 percent between 1985 a n d 1990". 4 J It was s h o w n again w h e n the political decision of the government

b r o u g h t t o office in the a f t e r m a t h o f tin

Argentinian uprising o f December 2 0 0 1 to devalue the currency > l\ 75 percent gave a considerable boost to the industrial a n d agrarian capitals based in the country. 4 ' A c h a n g e in the e x c h a n g e rate alters the a m o u n t o f g l o b a l value w h i c h a firm o p e r a t i n g w i t h i n a n a t i o n a l e c o n o m y gets in return for the l a b o u r it has used in p r o d u c i n g c o m m o d i t i e s . As Dick Bryan has p u t it: T h e e x c h a n g e rate is a critical d e t e r m i n a n t o f the d i s t r i b u t i o n ol s u r p l u s value a m o n g s t c a p i t a l s . . .

Because nation-states are

deemed responsible for the g l o b a l c o m m e n s u r a b i l i t y o f " t h e i r " currency, g l o b a l i s a t i o n . . . i s n o t a b o u t e r a d i c a t i n g the n a t i o n a l d i m e n s i o n o f a c c u m u l a t i o n . I n d e e d , g l o b a l i s a t i o n is n o t even a b o u t the n a t i o n a l d i m e n s i o n " h a n g i n g o n " in a process o f slow d i s s o l u t i o n . G l o b a l a c c u m u l a t i o n is actually r e p r o d u c i n g tin n a t i o n a l d i m e n s i o n , albeit in w a y s different to past eras. 44 A g a i n the same centralitv o f states is s h o w n in i n t e r n a t i o n a l trade negotiations c o n d u c t e d t h r o u g h the W T O . They gather as the rep resentatives o f the c a p i t a l s clustered together w i t h i n their borders. D i f f e r e n t firms have different interests a n d will l o o k to the indi v i d u a I states over w h i c h they have influence t o achieve these. This is just as true o f firms w h o l o o k to establishing g l o b a l d o m i n a t i o n t h r o u g h free trade as o f those w i t h protectionist inclinations. All are d e p e n d e n t u p o n " t h e i r " state to persuade other states to let t h e m get their way. So the US state is a n essential w e a p o n for firms like M i c r o s o f t , G l a x o S m i t h K l e i n or M o n s a n t o in getting the enorm o u s royalty p a y m e n t s t h a t accrue f r o m w o r l d r e c o g n i t i o n ol their intellectual copyrights. Likewise the financial p o w e r it exer cises t h r o u g h the I M F a n d the W o r l d B a n k has safeguarded the foreign loans m a d e by A m e r i c a n b a n k s — a n d has helped US-based industrial c o r p o r a t i o n s gain f r o m the crises facing smaller states, as w h e n Ford a n d G e n e r a l M o t o r s g a i n e d c o n t r o l o f t w o o f the K o r e a n car c o m p a n i e s at the t i m e o f the A s i a n crisis. 43 266

I he New Age of Global Instability

Neither d o i n t e r n a t i o n a l mergers s h o w t h a t the i m p o r t a n c e o f states is declining. Parr o f their r a t i o n a l e is for a m u l t i n a t i o n a l t o he able t o extend its influence f r o m its h o m e state t o other states. I IS a n d J a p a n e s e firms invest in West E u r o p e a n c o u n t r i e s so as t o be able to " j u m p " n a t i o n a l b o u n d a r i e s a n d so influence the p o l i c y of these states a n d the E u r o p e a n C o m m u n i t y f r o m w i t h i n : hence the spectacle in the early 1990s o f US m u l t i n a t i o n a l s like Ford a n d (icneral M o t o r s l o b b y i n g E u r o p e a n g o v e r n m e n t s for measures t o restrict the i m p o r t o f J a p a n e s e cars; hence also rhe sight

of

lapanese car firms n e g o t i a t i n g for subsidies from t h e British state to set u p c a r assembly-plants. T h e g i a n t c o m p a n y docs n o t end its link w i t h the state, b u t rather multiplies the n u m b e r o f states—and n a t i o n a l capitalist n e t w o r k s — t o w h i c h it is linked. T h e c o n t i n u e d i m p o r t a n c e o f such c o n n e c t i o n s is s h o w n m o s t vividly d u r i n g financial a n d e c o n o m i c crises. For states a l o n e can marshal the resources to stop a g i a n t firm or b a n k g o i n g b u s t — a n d pulling d o w n w i t h it w h o l e industrial or financial complexes. T h e history o f such crises since the earlv 1970s has been a historv o f states b a i l i n g o u t stricken c o r p o r a t i o n s or p u t t i n g pressure o n some firms for " l i f e b o a t o p e r a t i o n s " ro keep others afloat. Because i he p e r i o d o f g l o b a l i s a t i o n has been o n e o f m u c h greater crises t h a n the post-war decades, the reliance o f c o r p o r a t i o n s o n governments for such rescues has been m u c h greater. As w e will see in the next chapter, the t r a n s f o r m a t i o n o f the credit c r u n c h o f 2 0 0 " into the great b a n k i n g crash o f 2 0 0 8 s h o w e d h o w great t h a t reliance h a d become. T h e o v e r a l l c o n c l u s i o n has t o be t h a t c o r p o r a t i o n s , w h e t h e r m u l t i n a t i o n a l o r other, d o n o t regard a state w h i c h w i l l d e f e n d i heir interests as s o m e a f t e r t h o u g h t based o n n o s t a l g i a for the past, bur a n urgent necessity f l o w i n g f r o m their present d a y competitive s i t u a t i o n . T h e successor t o the state c a p i t a l i s m o f the m i d - 2 0 t h century has n o t been s o m e non-state c a p i t a l i s m b u t rather a system in w h i c h c a p i t a l s rely o n " t h e i r " state as m u c h as ever, b u t try t o spread o u t b e y o n d it t o f o r m links w i t h capitals tied t o other states. In the process, the system as a w h o l e has b e c o m e m o r e chaotic. It is n o t as if i n d i v i d u a l firms have s i m p l e d e m a n d s t h a t they merely p u t o n i n d i v i d u a l stares. As a firm operates internationally,

one

of

its d i v i s i o n s

can

establish

relations

with

a

particular state a n d its associated c o m p l e x o f capitals, even w h i l e other divisions o f the s a m e firm can be establishing other relations Cilobal Capital in the New Age

2.57

w i t h other states a n d their c o m p l e x e s o f c a p i t a l . A n d particulai state appararuses can lose a l o t o f c o h e s i o n as their parts tr\ c o p e w i t h the d e m a n d s o f different, c o m p e t i n g capitals. T h e global a g e n d a , the regional a g e n d a , the n a t i o n a l a g e n d a a n d , i n the cases o f the larger states, the sub-national a g e n d a (of particular localised geographical complexes o f capital) clash w i t h each other, p r o d u c i n g f r i c t i o n s — o n occasions deep s c h i s m s — w i t h i n the n a t i o n a l political-economic structure. T h i s w a s w h a t occurred d u r i n g the very l o n g crisis inside Britain's t r a d i t i o n a l r u l i n g class party, tin Tories, t h r o u g h the 1990s a n d early 2 0 0 0 s : its feuds reflected .1 clash between those w h o s a w British capitalism's future as tied to the US a n d those w h o saw it as d e p e n d e n t o n integration i n i o E u r o p e (a clash w h i c h itself reflected British capitalism's position h a v i n g the m a j o r i t y o f its t r a d e w i t h E u r o p e , but h a l f its overseas investment in the US). Those w h o see the n a t i o n a l states as archaic hangovers f r o m tin past often speak of the emergence o f a n " i n t e r n a t i o n a l capitalisi class" w h i c h will have as its correlate an " i n t e r n a t i o n a l capitalist state". 4 * They fail to take seriously M a r x ' s p o i n t t h a t once " i t is n o longer a question o f s h a r i n g profits, b u t o f sharing losses...practi cal b r o t h e r h o o d o f the capitalist c l a s s . . . t r a n s f o r m s itself i n t o a fight o f hostile b r o t h e r s " , the o u t c o m e o f w h i c h is " d e c i d e d by p o w e r a n d craftiness". 4 " A n d w h e n it c o m e s t o the use o f power, the n a t i o n a l state is a n i n s t r u m e n t ready t o h a n d . Interstate con ¥

flict, t o a lesser or greater degree, is a n inevitable o u t c o m e once e c o n o m i c c o m p e t i t i o n becomes a matter o f life a n d death for giant c o r p o r a t i o n s . This is just as true t o d a y as in the t i m e o f Lenin a n d B u k h a r i n , even if the interconnectedness o f n a t i o n a l , regional and g l o b a l circuits o f capital a c c u m u l a t i o n impacts o n h o w the instru m e n t is used. Such a p p l i c a t i o n s o f pressure by states o n other states still re quires the d e p l o y m e n t o f large " b o d i e s o f a r m e d m e n " , backed u p by p r o d i g i o u s e x p e n d i t u r e o n military h a r d w a r e — a l o n g s i d e such " n o n - v i o l e n t " m e t h o d s as e c o n o m i c a i d , trade embargoes, offers ot privileged t r a d i n g relationships a n d c r u d e bribery. M u c h of the time the role can be passive rather t h a n active. T h e force that sus tains a certain level o f influence does n o t need to be used so long as n o o n e dares t o challenge i t — a s w i t h

the M u t u a l l y

Assured

Destruction between the U S S R a n d the LIS w h i c h prevented either m o v i n g i n t o the other's E u r o p e a n spheres o f influence d u r i n g the C o l d War. A g a i n force c a n play an indirect rather t h a n a direct role 268


.is w i t h the implicit US threat t o the W e s t E u r o p e a n p o w e r s a n d lapan not to help them militarily d u r i n g t h e C o l d W a r years unless i hey acceded to US objectives. But the violence o f the state remained a vital b a c k g r o u n d factor in such cases. I n this lies the c o n t i n u i t y w i t h the i m p e r i a l i s m analysed by L e n i n a n d B u k h a r i n . Even t o d a y the rulers o f Russia, C h i n a , I n d i a , Pakistan a n d N o r t h K o r e a — a n d for that m a t t e r Britain, France a n d the U S — s e e possession o f nuclear w e a p o n s as the u l t i m a t e defence against enemies. The interaction between the great p o w e r s is n o t the peaceful concert o f n a t i o n s d r e a m t o f by certain apostles o f neoliberalism and free trade. There are c o n t r a d i c t o r y interests, w j t h m i I i tar)' lorce a w e a p o n o f last resort f o r d e a l i n g w i t h t h e m . But there is still a difference w i t h the first f o u r decades o f rhe 2 0 t h century. I hese c u l m i n a t e d in w a r s w h i c h r a v a g e d the h e a r t l a n d s o f the great p o w e r s . Tensions since 1945 have led to massive a c c u m u l a tions o f a r m s that c o u l d p o t e n t i a l l y be unleashed against the heartlands. But h o t w a r s h a v e been f o u g h t outside t h e m , usually tn the T h i r d W o r l d . O n e reason for this has been the " d e t e r r e n t " effect, the fear that w a g i n g w a r o n a n u c l e a r p o w e r w i l l lead t o d e s t r u c t i o n o f the w h o l e d o m e s t i c e c o n o m y as well as m o s t o f its people. A n o t h e r has been the very i n t e r p e n e t r a t i o n o f the a d v a n c e d

capitalist

economies t h a t puts pressure o n states ro exercise p o w e r outside their o w n b o u n d a r i e s . F e w capitalists w a n t their n a t i o n a l srate t o destroy h u g e c h u n k s o f their property in other stares—and m o s t of it will be in other a d v a n c e d capitalist countries. T h i s does n o t rule o u t w a r completely. T h e capitalist e c o n o m y was h i g h l y i n t e r n a t i o n a l i s e d in 1914, b u t this did n o t prevent allo u t war. A g a i n , in 1 9 4 1 , the presence o f F o r d factories

and

( oca-Cola outlets in G e r m a n y d i d nor s t o p a LIS d e c l a r a t i o n o f w a r after Pearl H a r b o r . But it does p r o v i d e t h e m w i t h a n incentive t o a v o i d such conflicts if they c a n — a n d

t o settle

their

differences in less i n d u s t r i a l i s e d parts o f the w o r l d . H e n c e the years since 1945 h a v e been m a r k e d b y w a r after war, b u t a w a y from Western E u r o p e , N o r t h A m e r i c a a n d J a p a n . A n d o f t e n the wars h a v e been " p r o x y w a r s " i n v o l v i n g local regimes t o a greater or lesser extent b e h o l d e n t o , b u t n o t c o m p l e t e l y d e p e n d e n t o n , particular great p o w e r s . T h i s w a s the logic w h i c h led rhe US in rhe 1980s t o give tacit s u p p o r t t o Iraq in its long w a r against Iran a n d to p r o v i d e m o d e r n w e a p o n r y t o rhe M u j a h a d i n Cilobal Capital in the New Age

fighting

the R u s s i a n o c c u p a t i o n o f 2.57

A f g h a n i s t a n . A similar logic w o r k e d itself o u t in the Balkans in the 1990s, w h e n Austria's a t t e m p t t o gain f r o m S l o v e n i a n indepen dence from Yugoslavia led t o G e r m a n y e n c o u r a g i n g

Croatian

independence and then the US Bosnian independence, even t h o u g h the result w a s b o u n d to be bitter ethnic conflict. T h e w o r s t suffering f r o m p r o x y w a r s has p r o b a b l y been in Africa. D u r i n g the last decade a n d a h a l f o f the C o l d W a r the I l s a n d the U S S R backed rival sides in w a r s a n d civil w a r s as part ol their attempts t o gain a strategic a d v a n t a g e over each other. In the 1990s the US and F r a n c e vied for i n f l u e n c e in C e n t r a l Africa They backed rival sides i n the w a r c u m civil w a r t h a t b r o k e out in the b o r d e r regions o f T a n z a n i a , R w a n d a , B u r u n d i a n d C o n g o Z a i r e . They helped set in m o t i o n a c a t a s t r o p h e resulting overall in 3 or 4 m i l l i o n dead. I n such situations freelance armies emerged w h o s e c o m m a n d e r s e m u l a t e d the great i m p e r i a l p o w e r s o n a small scale by w a g i n g w a r in order to enrich themselves, a n d en r i c h i n g themselves in o r d e r further t o w a g e war.

Imperialism

m e a n t e n c o u r a g e m e n t t o local rulers t o engage in the bloodiest ol w a r s a n d civil w a r s — a n d t h e n o c c a s i o n a l l y the s e n d i n g in ol Western t r o o p s t o enforce " p e a c e k e e p i n g "

w h e n the disordei

reached such a scale as t o threaten t o d a m a g e Western interests. C o n t r a d i c t i o n s w h i c h arise f r o m the inter-imperialist

antago-

n i s m s o f the a d v a n c e d c a p i t a l i s t states in this w a y w r e a k their w o r s t h a v o c in the p o o r e r parts o f the w o r l d .

F r o m the n e w period o f crisis t o the new i m p e r i a l i s m T h e pattern o f the o l d i m p e r i a l i s m w a s o n e o f c o a l i t i o n s o f states w i t h c o m p a r a b l e levels o f e c o n o m i c a n d / o r m i l i t a r y capacity con f r o n t i n g each other. Today there is great unevenness even between the biggest states w h e n it c o m e s t o their c a p a c i t y to a d v a n c e the interests o f their domestically based capitals. A t the t o p o f the hi erarchy is the state w h i c h has the greatest capacity for getting its way, the US. A t the b o t t o m are very w e a k stares, h o p i n g to be able t o beg favours o f f those a b o v e t h e m . T h e states in the m i d d l e a I ternatively s q u a b b l e w i t h each o t h e r over their p o s i t i o n in the global pecking order a n d f o r m a d hoc alliances in the h o p e o f fore i n g concessions f r o m those a b o v e t h e m . This c a n n o t be a stable hierarchy. T h e unevenness in rates of econ o m i c g r o w t h (or sometimes c o n t r a c t i o n ) in a period of recurrent 270


i rises m e a n s t h a t rhe b a l a n c e o f forces bervveen rhe different states is a l w a y s c h a n g i n g , l e a d i n g t o rival d i s p l a y s o t m i g h t between t h o s e w h o w a n t ro a d v a n c e u p the h i e r a r c h y a n d t h o s e w h o w a n t t o keep t h e m in their place. W e a k states get e n t a n g l e d m c o n f l i c t s w i t h n e i g h b o u r s w h i c h d r a w i n p o w e r f u l states t o w h i c h they are a l l i e d , w h i l e p o w e r f u l stares see e x e m p l a r y interventions in w e a k " r o g u e " states as a w a y o f g a i n i n g a d v a n t a g e over o t h e r strong states. The greatest source o f instability has c o m e f r o m the a t t e m p t s o f the US t o p e r m a n e n t l y cement its p o s i t i o n at the f r o n t o f the g l o b a l pecking order. This seemed unassailable ar the e n d o f the Second W o r l d War. But in the decades t h a t f o l l o w e d the US feared successive challenges f r o m other states w h i c h were g r o w i n g m u c h m o r e rapidly t h a n it w a s . Russia w a s seen as an e c o n o m i c (as well as military) t h A a t i n the 1950s, h o w e v e r a b s u r d t h a t m i g h t seem today, J a p a n in the 1980s, a n d m o r e recently C h i n a . T h e determination o f the US state n o t t o risk losing its p o s i t i o n e x p l a i n s its massive levels o f a r m s e x p e n d i t u r e a n d the w a r s it has waged in the G l o b a l S o u t h . T h e scale o f the p r o b l e m s it faced first b e g a n to hit h o m e i n the late 1960s w h e n the US r u l i n g class f o u n d it c o u l d n o t a f f o r d the escalating cost o f trying t o achieve all-out victory in V i e t n a m . I he history o f U S c a p i t a l i s m since has been very m u c h a h i s t o r y of its a t t e m p t s to restore its o l d p o s i t i o n , a m i d a w o r l d m a r k e d by repeated e c o n o m i c crises a n d generally d e c l i n i n g rates o f acc u m u l a t i o n . Irs a t t e m p t s h a v e i n v o l v e d a l t e r n a t i n g phases o f r e d u c i n g a r m s s p e n d i n g as a p r o p o r t i o n o f t o t a l o u t p u t in a n effort t o ease e c o n o m i c d i f f i c u l t i e s ( f r o m the late 1 9 6 0 s t o rhe late 1 9 7 0 s , a n d f r o m the late 1980s t o 2 0 0 0 ) , a n d o f increasing it in the belief t h a t this c o u l d b o o s t U S g l o b a l p o w e r a n d the performance

of

particular

US

corporations

(in

the

early

and

m i d - 1 9 8 0 s a n d 2000-8). In all the phases the US state m a d e s o m e gains f o r the c a p i t a l s based in it. I n n o n e o f t h e m w e r e the g a i n s sufficient fully t o offset its long-term relative decline. T h e collapse o f the m i l i t a r y challenge f r o m the U S S R a n d the e c o n o m i c challenge f r o m J a p a n m i g h t h a v e been expected t o restore the confidence o f the US ruling class in its g l o b a l p o w e r in the 1990s. Bur its strategists h a d worries a b o u t the future. They reasoned t h a t w i t h o u t rhe fear o f the U S S R t o keep them in line, the I u r o p e a n p o w e r s were m o r e likely to resist US d e m a n d s t h a n in the p a s t — a s w a s s h o w n by very h a r d b a r g a i n i n g at W o r l d Trade Cilobal Capital in the New Age

2.57

O r g a n i s a t i o n sessions. A n d in the East, C h i n e s e g r o w t h w a s n p l a c i n g the older challenge f r o m J a p a n . W r i t i n g in 1994, H e m s Kissinger expressed his unease: T h e U S is actually in n o better p o s i t i o n t o dictate the g l o b a l a g e n d a unilaterally t h a n it w a s at the b e g i n n i n g o f the C o l d W a r . . . T h e United States will face e c o n o m i c c o m p e t i t i o n ol .1 k i n d it never experienced d u r i n g the C o l d W a r . . . C h i n a is o n the r o a d to s u p e r p o w e r status... C h i n a s G N P w i l l a p p r o a c h that o f the US by the end o f the second decade o f the 21st cen tury. L o n g before t h a t C h i n a ' s s h a d o w will fall over Asia.4*1 W h a t is more, a quarter o f a century o f g r o w i n g inrernationalisa rion o f

finance, investment,

trade a n d

production

made

I S

capitalism vulnerable to events beyond its borders. Its great mulri n a t i o n a l c o r p o r a t i o n s needed s o m e policy w h i c h w o u l d enable the m i g h t o f the US state to exercise c o n t r o l over such events. Alreadv t o w a r d s the end o f the C l i n t o n A d m i n i s t r a t i o n there were moves t o w a r d s a m o r e aggressive foreign policy designed to achieve this, w i t h the push to e x p a n d N A T O i n t o Eastern E u r o p e , b u t this did n o t g o far e n o u g h for a g r o u p o f R e p u b l i c a n politicians, business men a n d a c a d e m i c s — t h e i n f a m o u s neoconservativc "Project for a N e w A m e r i c a n C e n t u r y " formed in the late 1990s. Their starring p o i n t was the insistence that the w a y to stop " a decline in American p o w e r " w a s a return to a " R e a g a n i t e " policy based o n large in creases in defence s p e n d i n g , the b u i l d i n g o f a missile defence system, a n d action to deal w i t h " t h r e a t s " f r o m " d i c t a t o r s h i p s " in C h i n a , Serbia, Iraq, Iran a n d N o r t h Korea. 4 " " H a v i n g led the West to victory in the C o l d War, A m e r i c a faces a n o p p o r t u n i t y a n d a challenge. W e are in d a n g e r o f s q u a n d e r i n g the o p p o r t u n i t y a n d failing the challenge".'" T h e R e p u b l i c a n electoral victory o f 2 0 0 0 a n d then the n a t i o n a l p a n i c caused by the 9/1 1 destruction o f the W o r l d Trade Centre gave t h e m a chance t o i m p l e m e n t their policy. It a m o u n t e d in practice t o further b u i l d i n g u p the military m i g h t o f the U S — a n d t h e n using it t o assert US g l o b a l d o m i n a n c e against all c o m e r s . Increased a r m s s p e n d i n g a n d massive tax cuts for the rich were m e a n t t o p u l l the US o u t o f recession, just as the "military Keynesianism"

of Reagan

h a d t w o decades before.

Increased a r m s s p e n d i n g w o u l d lead t o recovery f r o m recession, t o f u r t h e r m i l i t a r y h a n d o u t s t o f i n a n c e t e c h n i c a l a d v a n c e s for 272


computer, s o f t w a r e o r a v i a t i o n c o r p o r a t i o n s , a n d ro an increased capacity t o d i c t a t e p o l i c i e s to o t h e r r u l i n g c l a s s e s — a n d all p a i d lor by even bigger investment flows i n t o t h e US as it d e m o n s t r a t e d us o v e r r i d i n g power. T h e a i m w a s for the US to m o r e t h a n compensate for l o s i n g its o l d lead i n m a r k e t c o m p e t i t i o n by u s i n g the one t h i n g it has that the other p o w e r s d o n o t — o v e r w h e l m i n g military m i g h t . It was a n u p d a t e d version o f the logic o f i m p e r i a l i s m as described b y B u k h a r i n in the early J 9 2 0 s , w i t h the difference that the rival capitalist states w e r e n o t g o i n g ro be forced i n t o subservience by w a r s directly a g a i n s t t h e m , b u t by rhe d i s p l a y o f the I 'S's c a p a c i t y t o wield g l o b a l p o w e r t h r o u g h w a r s it a n d its client states w a g e d in rhe G l o b a l S o u t h . H e n c e the attack o n A f g h a n i s t a n a n d t h e n , 18 m o n t h s later, o n Iraq. T h e " n e o c o n s " believed they h a d a perfect o p p o r t u n i t y to d e m o n s t r a t e tfte sheer level o f U S m i l i t a r y p o w e r and t o increase c o n t r o l over the w o r l d s n u m b e r o n e r a w m a t e r i a l , o i l . T h i s w o u l d w e a k e n the b a r g a i n i n g p o w e r o f rhe W e s t E u r o p e a n states, |apan a n d C h i n a , since they w o u l d be at least p a r t i a l l y d e p e n d e n t on the US f o r their supplies. T h e a s s u m p t i o n w a s t h a t the w a r s w o u l d be w o n by little m o r e t h a n a d i s p l a y o f US a i r p o w e r at very little cost. T h i s seemed a viable w a y for a c h i e v i n g shared goals t o those w h o ran US-based c o r p o r a t i o n s , a n d the D e m o c r a t s in Congress voted for war. It w a s a g a m b l e a n d by the s p r i n g o f 2 0 0 4 it w a s clear t h a t the g a m b l e w a s g o i n g seriously w r o n g . T h e U S h a d taken c o n t r o l o f K a b u l a n d B a g h d a d easily e n o u g h . Bur its forces o n the g r o u n d were n o t able t o prevent rhe g r o w t h o f resistance in I r a q — a n d o f g r o w i n g I r a n i a n influence there. W i t h i n a n o t h e r t w o years it also laced serious resistance f r o m a resurgent T a l i b a n in A f g h a n i s t a n . The turn t o military Keynesianism seemed at first t o be successful in e c o n o m i c terms. There was a n unexpectedly quick recovery f r o m the recession o f 2001-2: " O f f i c i a l military expenditures for 20012005

averaged

42

percent

investment'" a n d "official

of

gross

figures...excluded

non-residential

private

m u c h that should be in-

cluded in military s p e n d i n g V 1 All this provided markets, in the short term, for sections o f US industry. But the high levels of military expenditure soon showed the s a m e negative effects they h a d s h o w n at the rime o f the V i e t n a m W a r a n d under the Reagan administrations. They increased e c o n o m i c d e m a n d w i t h o u t increasing overall international competitiveness a n d so caused b a l l o o n i n g trade as well as budget deficits. By 2 0 0 6 the c o m b i n a t i o n o f escalating military Cilobal Capital in the New Age

2.57

costs a n d the risk o f defeat in Iraq w a s w o r r y i n g i m p o r t a n t sections o f the ruling class. A 2 0 0 6 report from the Iraq Study G r o u p , headed

by

Republican

Party

heavyweight

James

Baker

and

D e m o c r a t i c Party heavyweight Lee H a m i l t o n , b e m o a n e d the loss ol " b l o o d a n d treasure" w i t h an estimate o f the costs to US capitalism o f the Iraq venture o f a massive £ 1 , 0 0 0 billion (equal to seven m o n t h s o u t p u t from the British economy). 4 2 Meanwhile

other

states—and

the capitals

operating

from

t h e m — w e r e able t o take a d v a n t a g e o f the US's perceived weakness to

advance

their

own

positions.

The

most

important

West

E u r o p e a n states, France a n d G e r m a n y , h a d refused to back the 2 0 0 3 I r a q War, u n l i k e the first Iraq W a r o f 1991. T h e French stale in p a r t i c u l a r saw a w e a k e n i n g o f US influence in the M i d d l e Fast as an o p p o r t u n i t y t o a d v a n c e the interests o f French capital in w gions where its interests clashed w i t h the US's. C h i n a w a s able to benefit f r o m the US e n t a n g l e m e n t in I r a q a n d A f g h a n i s t a n i«» expand

its o w n

influence,

particularly

in

Africa

and

Latin

A m e r i c a . This went h a n d in h a n d w i t h g r o w i n g trade links, as n looked to mineral imports from Africa and agricultural imports f r o m Brazil, A r g e n t i n a a n d C h i l e . S o o n Russia t o o wras flexing it rather w e a k e r muscles, as increased oil revenue a l l o w e d it t o r< cover f r o m the e c o n o m i c collapse o f the previous decades a n d to exert pressure o n s o m e o f the other f o r m e r Soviet republics; Iran rook a d v a n t a g e o f the US's setbacks t o increase its leverage i n Iraq a n d L e b a n o n ; the B R 1 C S f o r m e d a n a d h o c alliance to a d v a n c e their c o m m o n trade interests in o p p o s i t i o n t o b o t h the US a n d the F U , so p a r a l y s i n g the D o h a r o u n d o f trade n e g o t i a t i o n s f r o m w h i c h US c o r p o r a t i o n s h a d h o p e d to get even easier access to for eign markets. T h e US discovered t h a t w h e n three o f its client states l a u n c h e d wars for objects it s u p p o r t e d — I s r a e l

in L e b a n o n

in

2 0 0 6 , E t h i o p i a in S o m a l i a in 2 0 0 7 , G e o r g i a a g a i n s t Ossetia m 2 0 0 8 — i t w a s n o t in a situation to stop t h e m facing defeat. C o m m e n t a t o r s w h o h a d n o t l o n g before insisted t h e collapse o f the U S S R h a d created a " u n i p o l a r w o r l d " w i t h o n e super p o w e r were b e g i n n i n g t o talk a b o u t " m u l t i p o l a r i t y " , w i t h the U s o n l y a b l e t o get its w a y by m a k i n g concessions t o o t h e r p o w e r s S o m e t h o u g h t this m e a n t a m o r e peaceable w o r l d . But the m u l t i p o l a r i t y is a w o r l d o f states a n d their associated c a p i t a l s w h i c h h a v e d i f f e r e n t interests a n d are o u t t o i m p o s e t h e m o n the others w h e n they get the c h a n c e . It is the m u l t i p o l a r i t y in w h i c h o l d i m perialist i m p e r a t i v e s are s t r e n g t h e n e d just as it b e c o m e s m o r i 273 I

he New Age of Global Instability

ifficult f o r t h e m t o be successful. It is a w o r l d , in s h o r t , beset by .1 m u l t i t u d e o f c o n t r a d i c t o r y pressures a n d c o m p e l l e d , therefore, ro experience o n e c o n v u l s i v e p o l i t i c a l crisis after a n o t h e r . T h i s •came clear w h e n rhe great e c o n o m i c d e l u s i o n gave w a y t o a great e c o n o m i c crisis.

2.57 Cilobal Capital in the New Age

The New Ape of Global Instabilirv

• 11 AFTER ELEVEN

Financialisation and the bubbles that burst

( rcdit c r u n c h e d I he m o o d w a s one o f " e x u b e r a n t optimism*', as the w o r l d business elite gathered in the Swiss resort o f D a v o s in J a n u a r y 2 0 0 7 to "enjoy"

what

the

Financial

Times

called

"the

opportunities

b r o u g h t a b o u t by g l o b a l i s a t i o n , n e w technologies a n d a w o r l d e c o n o m y t h a t is e x p a n d i n g a t its fastest pace for decades". 1 T h e i n o o d w a s rather different at their next gathering i n J a n u a r y 2 0 0 8 . I here w a s " g r i m d e t e r m i n a t i o n " 2 — g r i m because the g l o b a l financial system h a d begun to g r i n d to a halt w i t h a "credit c r u n c h " ; d e t e r m i n a t i o n because the "real e c o n o m y " w a s still e x p a n d i n g ,ind it seemed t h a t a p p r o p r i a t e g o v e r n m e n t a c t i o n w o u l d get the banks l e n d i n g a g a i n . G o v e r n m e n t s t o o k a c t i o n in the m o n t h s t h a t f o l l o w e d . J a n u a r y central b a n k s slashed interest rates. In February British g o v e r n m e n t n a t i o n a l i s e d the m o r t g a g e b a n k

In the

Northern

R o c k ; in M a r c h the US Federal Reserve p r o v i d e d $ 3 0 billion for J V M o r g a n C h a s e t o take over the failing Bear Stearns b a n k ; in April a n d M a y central b a n k s o n b o t h sides o f the A t l a n t i c provided h u n d r e d s o f billions t o the b a n k s t o keep them g o i n g , a n d in J u l y they p r o v i d e d h u n d r e d s o f billions m o r e ; early in September the US g o v e r n m e n t t o o k over the g i a n t m o r t g a g e lenders F a n n i e M a e a n d Freddy M a c in w h a t the f o r m e r g o v e r n m e n t adviser N o u n e l R o u b i n i described as " t h e biggest n a t i o n a l i s a t i o n h u m a n ity has ever k n o w n " . ' It w a s all t o n o avail. T h e collapse o f o n e o f the pillars o f the US's financial system, the investment b a n k L e h m a n Brothers, o n 15 September caused w T hat w a s generally called a

"financial

t s u n a m i " . Bank after b a n k in c o u n t r y after c o u n t r y c a m e close to 277

collapse a n d h a d to he rescued by g o v e r n m e n t bail-outs that cost f u r t h e r hundreds of billions a n d often involved partial n a t i o n a h s a t i o n . T h e credit crunch h a d become the m o s t serious financial crisis rhe g l o b a l system h a d k n o w n since rhe s l u m p o f the 1930s Bv e n d o f the year it w a s clear to everyone that it w a s m o r e than just a financial crisis. Tens o f t h o u s a n d s o f jobs were b e i n g lost every day in all rhe m a j o r e c o n o m i e s ; w o r l d trade w a s falling at an a n n u a l i s e d rate o f 4 0 percent, a n d rhe I M F w a s p r e d i c t i n g "tinsharpest recession since the Second W o r l d W a r for the rich c o u n tries"."' But it w a s not o n l y the rich countries w h i c h were affected S o u t h K o r e a , M a l a y s i a , T h a i l a n d a n d S i n g a p o r e suffered sharp e c o n o m i c c o n t r a c t i o n ; 2 0 m i l l i o n Chinese w o r k e r s lost their jobs as its exports fell a n d its real estate b u b b l e collapsed; Russian m m isters began t o fear a n e w crisis; B r a z i l s industrial o u t p u t started falling; the e c o n o m i c recovery o f Eastern E u r o p e c a m e ro a sudden h a l t as m i l l i o n s of people f o u n d they c o u l d n o t keep u p w i t h then m o r t g a g e p a y m e n t s to West E u r o p e a n b a n k s . A t D a v o s in January 2 0 0 9 there were "ever m o r e d o o m - l a d e n prognoses V

T h e rise o f

finance

T h e crisis f o l l o w e d a q u a r t e r o f a c e n t u r y in w h i c h

finance

had

g r o w n o n a massive scale t o play an u n p r e c e d e n t e d role in the system. T h e stock m a r k e t v a l u a t i o n o f US financial c o m p a n i e s was 2 9 percent of rhe value o f non-financials in 2 0 0 4 , a f o u r f o l d in crease

over

the

previous

25

years; 6

the

ratio

of

financial

c o r p o r a t i o n s ' to non-financial corporations* profits h a d risen from a b o u t 6 percent in the early 1950s t h r o u g h the early 1960s t percent in 1980;* h o u s e h o l d d e b t in the US w a s 127 percent ol total personal i n c o m e in 2 0 0 6 as against o n l y 3 6 percent in 1952. a r o u n d 6 0 percent in the late 1960s a n d 100 percent in 2 0 0 0 . ° T h e g r o w i n g role o f

finance

h a d its i m p a c t t h r o u g h o u t

the

g l o b a l e c o n o m y . Every u p t u r n in the recession-boom cycle afrer the early 1980s w a s a c c o m p a n i e d by financial s p e c u l a t i o n , caus i n g massive rises in the US a n d

British stock m a r k e t s in tin

m i d - 1 9 8 0 s a n d m i d - 1 9 9 0 s , the h u g e u p s u r g e o f J a p a n e s e share a n d real estate prices in the late 1 9 8 0 s , the d o t c o m b o o m o f the late 1990s, a n d the h o u s i n g b o o m s in the US a n d m u c h of E u r o p e 278


111 the early a n d m i d - 2 0 0 0 s . A l o n g w i t h these w e n t successive ^ ives o f takeovers a n d mergers o f g i a n t c o m p a n i e s ,

financed

hv

v iedit, f r o m the b u y o u t s o f firms like R B S N a b i s c o in the late 1980s t h r o u g h to the w a v e o f takeovers o f old-established c o m p a nies by private equity f u n d s in the m i d - 2 0 0 0 s . M e a n w h i l e general levels of indebtedness tended t o g r o w for governments, non-financial c o r p o r a t i o n s a n d c o n s u m e r s alike, as h a n k l e n d i n g rose m u c h m o r e r a p i d l y in m o s t parts o f the w o r l d e c o n o m y t h a n d i d p r o d u c t i v e o u t p u t . It d o u b l e d in the US a n d trebled in J a p a n in the 1980s; the U S b o o m o f the mid-90s w a s a c c o m p a n i e d by a n e x t r a o r d i n a r i l y high level o f b o r r o w i n g by firms a n d c o n s u m e r s ; the h o u s i n g a n d p r o p e r t y b o o m s o f the mid'.000s were similarly sustained by massive b o r r o w i n g in the US, Britain, Spain a n d Ireland. T h e i m p a c t o f ^ n a n c e o n the less industrialised countries w a s already very m a r k e d by the 1980s. T h e loans of the late 19~0s h a d created a never e n d i n g dependence o n further b o r r o w i n g from financial i n s t i t u t i o n s in o r d e r t o keep servicing existing d e b t . By

2003 the total external debt o f sub-Saharan Africa stood at $ 2 1 3 . 4 billion, t h a t o f L a t i n A m e r i c a a n d the C a r i b b e a n at $ 7 7 9 . 6 b i l l i o n , and o f the S o u t h as a w h o l e at $ 2 , 5 0 0 billion. 1 0 O v e r a l l the role played by finance w i t h i n the system w a s m u c h greater t h a n in either the depression years o f the 1930s or the b o o m years o f the early post-war decades. In those decades the hanks h a d certainly n o t played the central role M i l f e r d i n g h a d asi n b e d t o them at the b e g i n n i n g o f the century w i t h his concept o f "finance c a p i t a l i s m " (see C h a p t e r F o u r ) . In the US the big industrial

corporations

relied

on

their

own

internally

generated

revenues for investment f u n d s ; in J a p a n a n d G e r m a n y the b a n k s played a greater parr, b u t it w a s o n e o f a i d i n g the e x p a n s i o n o f favoured sections o f i n d u s t r i a l c a p i t a l . It w a s w i t h the e n d i n g o f the l o n g b o o m that finance seemed t o break the b o n d s t h a t h a d b o u n d a n d s u b o r d i n a t e d it to industrial c a p i t a l . By the

1980s

l u n d s w o r t h b i l l i o n s — a n d later h u n d r e d s o f b i l l i o n s — o f dollars were m o v i n g i n t o a n d o u t o f e c o n o m i c sectors a n d p a r t i c u l a r countries, cherry p i c k i n g the m o s t profitable outlets f o r investment before m o v i n g o n elsewhere, often leaving e c o n o m i c d e v a s t a t i o n in their w a k e . F i n a n c e began to i m p a c t directly o n the lives o f the w o r l d ' s workers in a w a y in w h i c h it h a d n o t previously. M o s t people until the 1980s were p a i d wages in cash every w e e k ; n o w the n o r m was I inancialisation and the Bubbles that Burst

279

p a y m e n t i n t o b a n k a c c o u n t s . T h e spread of h o m e p u r c h a s e m countries like Britain or the US f r o m a third t o t w o thirds o f house h o l d s provided a n e w destination for l e n d i n g — a n d the diversion o f part o f wages a n d salaries i n t o interest r e p a y m e n t s . Insurance a n d private pension schemes likewise spread the tentacles o l h nance i n t o wider sections o f the p o p u l a t i o n t h a n ever before Credit in the f o r m o f mortgages a n d hire purchase agreement was already i m p o r t a n t in the 1930s, b u t it w a s o n l y in the 1980s that indebtedness began t o become central in m a i n t a i n i n g people's rcy, ular l i v i n g standards. For the m a j o r i t y o f w o r k e r s in the US or Britain, the m o r t g a g e a n d the credit card became part o f everydav life, while g o v e r n m e n t s a l m o s t everywhere preached the virtues < il depositing regular savings into financial institutions as the w a y tm the w o r k e r s a n d m i d d l e classes to p r o v i d e themselves w i t h pen sions in their old age. As R o b i n B l a c k b u r n has s h o w n , pension c o n t r i b u t i o n s fed i n t o the m u s h r o o m i n g e x p a n s i o n o f a

financial

system over w h i c h the c o n t r i b u t o r s h a d n o c o n t r o l . " T h i s rise o f finance w a s a c c o m p a n i e d by a great increase in the frequency of financial crises. A s A n d r e w G l v n said in Unleashed,

Capitalism

"Crises i n v o l v i n g b a n k i n g crises, w h i c h h a d almost

died o u t in the G o l d e n Age, reappeared in strength f r o m 1973 on w a r d s a n d became practically as frequent after 1987 as d u r i n g the inter-war period". 1 - M a r t i n W o l f n o t e d " 1 0 0 significant b a n k i n g crises over the past three d e c a d e s " . ' 3 Yet after each crisis the system as a w h o l e seemed to revive a g a i n , so t h a t o n the eve o f lis greatest crisis there w a s talk o f record g r o w t h rates a n d predic rions o f ever faster g r o w t h in future. Finance in fact acted like a d r u g for the system, seeming to give it great energy a n d creating a sense o f e u p h o r i a , w i t h each brief h a n g o v e r being f o l l o w e d by a further dose until the m e t a b o l i s m as a w h o l e s u d d e n l y f o u n d itsell being p o i s o n e d .

T h e debt e c o n o m y a n d the great delusion T h e g r o w t h o f finance w a s never s o m e t h i n g separate f r o m w h a t w a s h a p p e n i n g t o the p r o d u c t i v e core o f the system, b u t w a s a p r o d u c t o n the o n e h a n d o f its i n t e r n a t i o n a l i s a t i o n , o n rhe orhei o f the l o n g d r a w n o u t s l o w d o w n in a c c u m u l a t i o n . T h e first big g r o w t h o f international finance in the 1960s w a s .i result o f the w a y rhe g r o w t h of international trade a n d investment— 280


iMil US overseas military expenditure associated w i t h the V i e t n a m W ar—led t o pools o f finance ( " E u r o m o n e y " ) w h i c h h a d escaped the vnntrol o f national governments. T h e next big g r o w t h came w i t h the recycling o f massively e x p a n d e d M i d d l e East oil revenues t h r o u g h the US b a n k i n g system—revenues that were a p r o d u c t o f the ini teased dependence o f productive capital on M i d d l e East oil. The restructuring of p r o d u c t i v e c a p i t a l t o o k place increasingly, as we have seen, across n a t i o n a l borders, even if m o s t l y it w a s regional, n o t g l o b a l , i n scope a n d did n o t measure u p t o m u c h o f the hype a b o u t g l o b a l i s a t i o n . But industry c o u l d n o t restructure in this vs iy w i t h o u t h a v i n g

financial

c o n n e c t i o n s across borders. I t re-

quired i n t e r n a t i o n a l

financial

n e t w o r k s if it w a s t o repatriate

profits or establish subsidiaries elsewhere i n the w o r l d . A n i m p o r tant source o ^ p r o f i t for s o m e sections o f financial capital lay in the lees t o be g a i n e d b y overseeing a c q u i s i t i o n s a n d mergers o f productive firms, a n d t h a t m e a n t there w a s a gain t o be m a d e in o p e r a t i n g m u l t i n a t i o n a l ^ before they d i d . As in M a r x ' s description o f finance in his day, it led the w a y in e n c o u r a g i n g p r o d u c t i v e capital to reach our b e y o n d its established b o u n d s . M u l t i n a t i o n a l p r o d u c t i v e c a p i t a l , in t u r n , o p e n e d u p n e w vistas for m u l t i n a t i o n a l

financial

transactions.

The

success

of

the

lapanese car industry in penetrating US markets in the late 1970s laid the g r o u n d for the f l o w o f J a p a n e s e finance i n t o b o t h productive investments (car plants) a n d real estate speculation in the US. A n d the flows o f f u n d s a n d c o m m o d i t i e s within

m u l t i n a t i o n a l cor-

porations p r o v i d e d c o n d u i t s by w h i c h financial transactions c o u l d if necessary escape g o v e r n m e n t a l c o n t r o l . As chains o f b u y i n g a n d selling grew longer t h a n ever, so did the chains o f b o r r o w i n g a n d l e n d i n g — a n d w i t h them the o p p o r t u n i t i e s grew ever greater for financial institutions t o m a k e profits t h r o u g h borrowing and lending that had n o immediate connections with processes o f p r o d u c t i o n a n d e x p l o i t a t i o n . T h i s t o o k place in a wider c o n t e x t w h i c h m a d e the search for profit t h r o u g h finance increasingly attractive t o capitalists o f all sorts—the fall in profit rates from their level in the long b o o m (as described in C h a p t e r s Eight and N i n e ) . C a p i t a l i s m i n t e r n a t i o n a l l y w e n t t h r o u g h nearly f o u r decades i n w h i c h profitability w a s substantially lower, even in its period o f recovery, t h a n that w h i c h h a d enabled it to e x p a n d prod u c t i o n a n d a c c u m u l a t e so rapidly previously. Profitability did n o t collapse completely, a n d there w a s a continuous g r o w t h o f a mass o f past surplus value seeking o p p o r t u n i t i e s I inancialisarion and the Bubbles rhar Burst

281

for fresh profitable investment. Bur there were not nearly as many o f these in productive sectors as previously. O n e consequence, as we have seen, was a general s l o w d o w n in the level o f a c c u m u l a t i o n and decline in average g r o w t h rates. Fairly fast g r o w t h of p r o d i u rive sectors w o u l d occur in one p a n o f the w o r l d e c o n o m y or a n o t h e r — i n Brazil a n d the East Asian N I C s in the late 1970s, in J a p a n a n d G e r m a n y in the 1980s, in the US a n d the East Asian N I C s again in the m i d t o late 1990s, in C h i n a a n d t o a lesser extern the other B R I C S in the 2000s. But profitability was n o t sufficient u» raise productive a c c u m u l a t i o n t h r o u g h o u t the system as a w h o l e to its previous levels. There were increased c o m p e t i t i v e pressures o n i n d i v i d u a l firms to undertake large i n d i v i d u a l investments so as keep a h e a d o f ri\ a I firms, b u t there w a s less certainty t h a n before a b o u t being able to m a k e a profit o n those investments. F i r m s , w e a l t h y i n d i v i d u a l s a n d investment f u n d s reacted by being c a u t i o u s a b o u t c o m m i t t i n g themselves to such investments lest it leave t h e m w i t h o u t readv cash ( " l i q u i d i t y " in financial parlance) next time there w a s a crisis T h e result was an inevitable tendency for the average level o f pro ductive investment to fall. Growth of private sector real non-residential capital stock in

industrial

countries] 1

1960-69

5.0 percent

1970-79

4.2 percent

1980-89

percent

1991-2000

3.3 percent

These figures, it s h o u l d be n o t e d , understate the s l o w d o w n i n p r o ductive investment, since a g r o w i n g share o f investment w e n t into the n o n - p r o d u c t i v e financial sphere. A n d it w a s n o t o n l y in the old industrial countries that a falling share o f surplus value w e n t into p r o d u c t i v e i n v e s t m e n t . T h e " t i g e r s " , the N I C s a n d the BRIC S d r e w a sharp lesson f r o m the Asian crisis o f 199"7-8. They were not w i l l i n g ro risk being stuck again w i t h a shortfall o f ready cash the next t i m e i n t e r n a t i o n a l instability hit their m a r k e t s , a n d b u i l t u p surpluses o n foreign trade t h a t they saved rather t h a n invested d o mestically. Even C h i n a ended u p w i t h an excess o f s a v i n g ovet investment e q u a l t o 10 percent of its n a t i o n a l i n c o m e , despite its virtually unprecedented rate o f a c c u m u l a t i o n . 282


G l o b a l l y this m e a n t there w a s a g r o w i n g p o o l o f g r o w t h o f money c a p i t a l — m o n e y in the h a n d s o f p r o d u c t i v e as well as nonproductive c a p i t a l s — s e a r c h i n g for outlets t h a t seemed to p r o m i s e higher levels o f profitability. H e n c e the pressure o n firms t o deliver short-term rather t h a n long-term profits. S o t o o the succession of speculative bubbles a n d the repeated " M i n s k y " shifts f r o m speculation t o Ponzi schemes in w h i c h

financiers

used the

money

entrusted t o them by s o m e investors t o pay o f f other investors a n d line their o w n pockets.' A l l sorts o f speculative, u n p r o d u c t i v e ac11\ ities flourished, f r o m p o u r i n g m o n e y i n t o stock m a r k e t s o r real estate to b u y i n g oil p a i n t i n g s by o l d masters. In each case, the rush i>l speculators i n t o b u y i n g things in the e x p e c t a t i o n o f rising prices was, for a t i m e , a self-fulfilling prophecy. As they o u t b i d each other, prices did indeed rise. In this w a y the ups a n d d o w n s of the productive part o f the system f o u n d a m a g n i f i e d reflection in the ups a n d d o w n s o f various other assets. T h e

financial

system ex-

panded as a c o n s e q u e n c e , since it played a key p a r t in collecting together the f u n d s for s p e c u l a t i o n , a n d c o u l d then use the assets whose value h a d increased because o f speculation as collateral for borrowing more funds. T h e r e developed a mass of capital w a n d e r i n g r o u n d rhe w o r l d l o o k i n g for any o p p o r t u n i t y w h e r e ir seemed there m i g h t be profits ro be m a d e . Already in the e c o n o m i c recovery o f the late 1980s: Financial activity became frenetic, w i t h stock a n d share a n d property values soaring u p w a r d s . . . Property speculation rose to n e w heights, a n d private b o r r o w i n g reached record levels in the US, Britain, a n d J a p a n . . . There was real industrial g r o w t h , but it w a s dwarfed by the expansion o f the property markets a n d by various forms o f speculative activity... General business investment grew considerably faster t h a n m a n u f a c t u r i n g i n v e s t m e n t — i n l

sharp

contrast to the 1960s a n d early 1970s, w h e n m a n u f a c t u r i n g grew at the s a m e speed. T h e g r o w t h o f m a n u f a c t u r i n g investment w a s a b o u t a third lower in the US a n d J a p a n , a n d a b o u t t w o thirds lower in E u r o p e , t h a n in the earlier period. 1 ' Boyer a n d Aglietta h a v e accurately described w h a t

happened

d u r i n g the next US b o o m , in the m i d a n d later 1990s: O v e r a l l d e m a n d a n d s u p p l y are driven by asset price expectations, w h i c h create the possibility o f a self-fulfilling v i r t u o u s I manciahsation and rhe Bubbles that Burst

283

circle. In the g l o b a l e c o n o m y , h i g h e x p e c t a t i o n s o f profits trig ger a n increase in asset prices w h i c h foster a b o o s t in c o n s u m c i d e m a n d , w h i c h in t u r n validates the profir e x p e c t a t i o n s . . . O n e is left w i t h the i m p r e s s i o n t h a t the w e a l t h - i n d u c e d

growth

regime rests u p o n the e x p e c t a t i o n o f a n endless asset-price a p preciarion..." The g r o w t h o f m u l t i n a t i o n a l finance increased the instability of the system, b u t did n o t cause it. E n h a n c e d instability in turn encouraged p r o d u c t i v e firms t o seek speculative profits in a w a y t h a t furthei boosted t h e financial sector a n d a d d e d still m o r e to the instability. •

A p r i m e e x a m p l e o f t h i s w a s t h e rise o f the d e r i v a t i v e s m a r kets. T h e i r o r i g i n a l f u n c t i o n w a s t o p r o v i d e a sort o f i n s u r a n c e a g a i n s t s u d d e n c h a n g e s i n interest o r e x c h a n g e rates. T h i s w a s a n e x t e n s i o n o f the l o n g e s t a b l i s h e d p r a c t i c e o f b u y i n g a n d selling " f o r w a r d " — a g r e e i n g n o w o n a price t o be p a i d a t s o m e specified p o i n t in the f u t u r e for s o m e c o m m o d i t y . N o w d e r i v a t i v e s devel o p e d i n t o e l a b o r a t e systems o f p a y m e n t s f o r o p t i o n s t o b u y a n d sell currencies o r t o lend o r b o r r o w m o n e y at v a r i o u s rates at Jit ferent t i m e s in the f u t u r e . In d o i n g s o , they p r o v i d e d p r o d u c t i v e f i r m s w i t h s o m e p r o t e c t i o n a g a i n s t t h e i r c a l c u l a t i o n s o f future c o m p e t i t i v e n e s s a n d p r o f i t a b i l i t y b e i n g u p s e t by s u d d e n changes in v a r i o u s m a r k e t s — a n d b e c a m e a n integral p a r t o f n o r m a l busi ness f o r m a n y c o m p a n i e s . 1 8 Bur t h a t w a s n o t the e n d o f tin matter. T h e derivatives t h a t p r o v i d e d t h a t p r o t e c t i o n c o u l d t h e m selves be b o u g h t a n d s o l d , a n d it w a s t h e n p o s s i b l e t o g a m b l e on c h a n g e s t h a t w o u l d t a k e p l a c e in t h e i r prices if e x c h a n g e o r in terest rates w e n t u p o r d o w n . H e d g e f u n d s , w o r k i n g w i t h m o n e v p r o v i d e d by rich i n d i v i d u a l s p u t t i n g in a f e w m i l l i o n

dollars

e a c h , f o u n d they c o u l d m a k e very large p r o f i t s by b o r r o w i n g in o r d e r t o m a k e such bets, a s s u m i n g (as every p o o r g a m b l e r does) that they were b o u n d to w i n . T h e reliance o n derivatives w a s n o t rhe only w a y in w h i c h tin boundaries between p r o d u c t i v e capital a n d the financial sector were eroded. M a n y industrial concerns began ro l o o k to finance as a way o f profir m a k i n g . In the 1990s b o t h Ford a n d General M o t o r s turned t o w a r d s financial activities such as "leasing, insurances, car rental 1

so that " d u r i n g the b o o m 1995-98 a third o f the | Ford | g r o u p s prot accrued f r o m services".'

T h e Economist

has t o l d o f the US's cur

rently biggest m a n u f a c t u r i n g firm, General Electric, that its "profits grew w i t h 284

rhe sort o f predictable c o n s i s t e n c y . . . m a d e

possibh


b y . . . m a k i n g good any unexpected shortfall w i t h

last-minute

sales o f assets held by t h e f i r m ' s n o t o r i o u s l y o p a q u e

finance

a r m , G E C a p i t a l , " w h i c h w a s r e s p o n s i b l e for " 4 0 percent o f jGE's revenue".-' 1 I

A s c a p i t a l i s m in a l l its f o r m s t u r n e d t o f i n a n c i a l o p e r a t i o n s t o

c o m p l e m e n t p r o d u c t i v e o p e r a t i o n s f r o m the early 1 9 7 0 s , gove r n m e n t s c a m e u n d e r pressure t o a b a n d o n c o n t r o l s i m p o s e d o n tinancial t r a n s a c t i o n s . F o r a t i m e g o v e r n m e n t s still c o m m i t t e d t o the state c a p i t a l i s t o r K e v n e s i a n n o t i o n s o f the p r e v i o u s p e r i o d a t t e m p t e d t o h o l d the line a g a i n s t the w a y f i n a n c e c o u l d well over n a t i o n a l borders.-But o n e by o n e they gave u p the a t t e m p t , partly because they s a w o l d c o n t r o l s o f c u r r e n c y a n d c a p i t a l m o v e m e n t s as ineffective, p a r t l y because, a c c u s t o m e d t o adjusting their h o r i z o n s t o w h a t c a p i t a l said w a s p o s s i b l e , they w e r e w o n over t o tlie idea t h a t this w a s the o n l y w a y t o achieve a n e w cycle o f c a p i t a l a c c u m u l a t i o n . T h e a p p r o a c h o f those w h o h a d started o f f o n t h e social d e m o c r a t i c left w a s t h a t if y o u c o u l d n o t beat t h e m , then j o i n t h e m . Usually the speculation was in non-productive spheres—repeated stock exchange a n d real estate bubbles. But occasionally it focused on s o m e area where they believed there w a s profit to be m a d e by productive investment. As the Financial

Times told o f the late 1990s:

S p e n d i n g o n telecoms e q u i p m e n t a n d devices in E u r o p e a n d the US a m o u n t e d t o m o r e t h a n $ 4 , 0 0 0 b i l l i o n . Between 1996 a n d 2 0 0 1 b a n k s lent $ 8 9 0 b i l l i o n in s y n d i c a t e d l o a n s . . . A n o t h e r $ 4 1 5 b i l l i o n o f d e b t w a s p r o v i d e d by the b o n d markers a n d $ 5 0 0 b i l l i o n w a s raised f r o m private e q u i t y a n d stock m a r k e t issues. Still m o r e c a m e f r o m profitable blue c h i p s firms t h a t d r o v e themselves t o the b r i n k o f b a n k r u p t c y o r b e y o n d in the belief t h a t an explosive e x p a n s i o n o f internet use w o u l d create a l m o s t infinite d e m a n d for telecoms capacity. T h e global

finan-

cial system became addicted to fuelling this bonfire. N e a r l y h a l f E u r o p e a n b a n k l e n d i n g in 1 9 9 9 w a s t o telecoms c o m p a n i e s . . . a b o u t 8 0 percent o f all the high-yield, or j u n k , b o n d s issued in the US were t o telecoms operators. Five o f the ten largest mergers or a c q u i s i t i o n s in history involved telecoms companies. 2 1 I he fact that there w a s a productive element to this b o o m a d d e d to the great illusion that it c o u l d g o o n forever. But the b o o m w a s based on speculation, ascribing massive exchange value to products Financialisation and the Bubbles rhar Burst

2KS

f o r w h i c h the current use value w a s very limited. So m u c h " b a n d w i d t h " h a d been created, the Financial

Times said, that:

it the w o r l d s 6 b i l l i o n p e o p l e were t o talk solidly o n the tele p h o n e for the next year, their w o r d s c o u l d be transmitted ovei the potential capacity w i t h i n a few h o u r s . . . ( o n l y ) 1 o r 2 percent of the fibre optic cable buried u n d e r E u r o p e a n d N o r t h America has even been turned o n . " I he telecoms b o o m inevitably c o l l a p s e d , c a u s i n g w i d e s p r e a d dis array. By the beginning o f September 2 0 0 1 (before the 9/11 attack w h i c h is usually b l a m e d for t h a t year's recession) the

"stock

m a r k e t value o f all telecom o p e r a t o r s a n d m a n u f a c t u r e r s "

had

" f a l l e n by $ 3 , 8 0 0 b i l l i o n since its peak in M a r c h 2 0 0 0 "

and

" p r o b a b l y $ 1 , 0 0 0 b i l l i o n " h a d g o n e " u p in s m o k e " . " Faced w i t h the collapse o f this b u b b l e i n t o p r o d u c t i v e invest m e n t , it is perhaps n o t surprising t h a t the next b u b b l e w o u l d be around

something

that

seemed t o

be...uas

safe as

houses

D u r i n g the recovery f r o m the 2000-2 recessions those w i t h mone\ (old fashioned b a n k s , newer financial g r o u p s such as hedge funds, a n d rich i n d i v i d u a l s w i t h a few m i l l i o n in ready cash) f o u n d the\ c o u l d e x p a n d their w e a l t h by b o r r o w i n g at l o w interest rates in o r d e r t o lend t o those prepared for, or c o n n e d i n t o , p a y i n g highei interest rates. Bits of v a r i o u s l o a n s were then parcelled togethei i n t o " f i n a n c i a l i n s t r u m e n t s " ro be sold at a profit t o other

finan

cial i n s t i t u t i o n s w h i c h in turn w o u l d sell them a g a i n . Those at one o f e n d o f the c h a i n o f l e n d i n g a n d b o r r o w i n g w o u l d n o t have the remotest idea where interest w a s c o m i n g f r o m at the other end. In fact, m a n y o f those expected t o pay it were p o o r e r sections of the A m e r i c a n p o p u l a t i o n desperate t o get s o m e w h e r e to live but pre viouslv regarded as u n c r e d i t w o r t h y . T h e y were lured i n t o t a k i n g o u t m o r t g a g e s w i t h " t i c k l e r " fixed term l o w rates o f interest w h i c h c o u l d then s u d d e n l y be increased after t w o or three years. R i s i n g house prices were s u p p o s e d t o m a k e l e n d i n g t o t h e m sate, since if they d e f a u l t e d o n their l o a n s their h o m e s c o u l d be rcpos sessed a n d sold at a h a n d s o m e p r o f i t . T h e fact t h a t it was precisely t h e w i l l i n g n e s s o f f i n a n c i a l i n s t i t u t i o n s t o b i d against each o t h e r t o offer l o a n s ro b u y houses t h a t w a s raising the p r i c e s — a n d t h a t prices w o u l d inevitably fall if they all began ri possessing—was

something

that

escaped

the

notice

of

the

geniuses w h o ran these i n s t i t u t i o n s .

286


The m o r e c o r p o r a t i o n s i n f l a t e d their w e a l t h by l o s i n g t o u c h w i t h reality the m o r e t h e y w e r e h o n o u r e d . 9

0

1 he British

bank

N o r t h e r n R o c k w a s " t h e roast o f a glitzy C i t y d i n n e r w h e r e it w a s heaped w i t h praise for its skills in financial i n n o v a t i o n " . 2 4 G o r d o n b r o w n praised the " c o n t r i b u t i o n " o f L e h m a n Brothers " t o the prosperity o f B r i t a i n " . 2 5 R a m a l i n g a

Raju

was named

" Y o u n g E n t r e p r e n e u r o f the Y e a r " a n d a w a r d e d

the

India's Golden

Peacock a w a r d by the W o r l d C o u n c i l for C o r p o r a t e G o v e r n a n c e I list m o n t h s before it w a s revealed t h a t he h a d d e f r a u d e d his o w n c o m p a n y o f one billion dollars. A g a i n it has t o be stressed t h a t the speculative ventures o f these vears did n o t just i n v o l v e financial capitalists. Industrial a n d commercial capitalists rook part. M o r e t h a n half the supposed g r o w t h in the w o r t h o f the w h o l e of the n o n - f a r m , non-financial corporate sector o f the US in 2 0 0 5 h a d been d u e t o i n f l a t i o n in its real estate holdings. 2 6 T h e finance-led b u b b l e s were n o t , however, just i m p o r t a n t as a source o f profits for the s u p p o s e d l y p r o d u c t i v e sector o f the economy. They were also central in ensuring ir h a d markets t h a t neither us o w n i n v e s t m e n t n o r w h a t it p a i d its w o r k e r s c o u l d p r o v i d e . I his w a s true o f the b u b b l e s o f the 1980s a n d 1990s. T h e c o m b i nation o f reduced i n v e s t m e n t a n d a t t e m p t s t o h o l d d o w n wages in i he o l d industrial counrries ( a n d success in c u t t i n g them in the US) m a d e c o n s u m e r debt increasingly i m p o r t a n t in p r o v i d i n g d e m a n d lor o u t p u t . Ir w a s even truer in the early a n d m i d - 2 0 0 0 s . W i t h o u t the " h o u s i n g " a n d " s u b p r i m e m o r t g a g e " b u b b l e there w o u l d have been verv little recoverv f r o m the recession o f 2001-2. #

4

These wTere years in w h i c h the real earnings o f w o r k e r s in the US, G e r m a n y , France a n d s o m e o t h e r countries tended to fall. I hey were also years in w h i c h p r o d u c t i v e i n v e s t m e n t was l o w in .ill the " o l d " capitalisms. " I n v e s t m e n t rates have fallen across virtually all

industrial

country

r e g i o n s " , said o n e

IMF

study. :

Another report, for J P M o r g a n , told in 2 0 0 5 : T h e real driver o f t h i s s a v i n g g l u t has been the c o r p o r a t e sector. Between 2 0 0 0 a n d 2 0 0 4 , the s w i t c h f r o m c o r p o r a t e dis-saving t o net s a v i n g across the ( 1 6 (France, G e r m a n y , the US, J a p a n , B r i t a i n a n d Italy | e c o n o m i e s a m o u n t e d to over $1 t r i l l i o n . . . T h e rise in c o r p o r a t e s a v i n g has been t r u l y g l o b a l , s p a n n i n g the three m a j o r r e g i o n s — N o r t h A m e r i c a , E u r o p e , and Japan.2* I mancialisarion and the Bubbles that Bursr

287

In other w o r d s , "instead o f s p e n d i n g then- past p r o f i t s " , US bust nesses were " n o w a c c u m u l a t i n g t h e m as cash". 2 * A l o w level o f investment c o m b i n e d w i t h falling real wages w o u l d , in n o r m a l circumstances, have resulted in c o n t i n u e d reces sion. W h a t prevented t h a t w a s precisely the upsurge o f l e n d i n g via the financial system to A m e r i c a n c o n s u m e r s , i n c l u d i n g the r e a p i enrs

of

subprime

mortgages.

It

created

a

demand

for

the

c o n s t r u c t i o n a n d c o n s u m e r g o o d s i n d u s t r i e s — a n d via t h e m lor heavy i n d u s t r y a n d raw m a t e r i a l s — t h a t w o u l d n o t otherwise have existed. Recovery from the recession d e p e n d e d o n the b u b b l e , w h a t the Italian M a r x i s t R i c c a r d o Bellofiore has a p t l y called "pri vatised K e y n e s i a n i s n r V 0 T h e p r o d u c t i v e capitalists w h o were the beneficiaries o f the o p eration were n o t just t o be f o u n d in the US a n d E u r o p e , b u t also across the Pacific in East A s i a . J a p a n e s e industry, still suffering f r o m the decline in profitability in the early 1990s, staged some re covery by e x p o r t i n g hi-tech e q u i p m e n t t o C h i n a w h i c h then used it ( a l o n g w i t h c o m p o n e n t s f r o m the other Hast A s i a n states and G e r m a n y ) t o b u i l d u p ever greater exports t o the US. A n d it w is the surpluses o n their t r a d e w i t h the U n i t e d States t h a t J a p a n , C h i n a a n d the o t h e r East A s i a n e c o n o m i e s deposited in the US, w h i c h h e l p e d finance the b u b b l e a n d so p r o v i d e d a b o o s t t o the w h o l e w o r l d e c o n o m y , i n c l u d i n g their o w n part o f it. As M a r t i n W o l f rightly c o m m e n t e d , " S u r p l u s s a v i n g s " created " a need to generate high levels o f offsetting d e m a n d V

an(

J 'tMU'

ing t o p o o r people provided it: " U S h o u s e h o l d s m u s t spend more t h a n their incomes. If they fail to d o so, the e c o n o m y will plunge i n t o recession unless s o m e t h i n g changes e l s e w h e r e " T h e

bed

c o u l d have avoided p u r s u i n g w h a t seemed like excessively expan sionary m o n e t a r y policies o n l y if it h a d been w i l l i n g t o accept a p r o l o n g e d recession, possibly a s l u m p " . 3 1 In other w o r d s , only the financial

b u b b l e stopped recession o c c u r r i n g earlier. T h e implica

rion is that there was an u n d e r l y i n g crisis o f the system as a w h o k which c o u l d not have been resolved simply by regulating

financiers

W o l f a n d others w h o emphasised the i m b a l a n c e s in the global productive e c o n o m y d i d nor locate their roots in p r o b l e m s o f pro! itability. T o have d o n e so w o u l d have required at least h a l f a turn from neoclassical e c o n o m i c s to classical political e c o n o m y , a n d es pecially to M a r x . But l o w profitability w a s , as w e have seen, behind the s l o w d o w n

in p r o d u c t i v e a c c u m u l a t i o n

in N o r t h A m e r k i,

Europe a n d J a p a n , w h i l e the partially successful attempts to sustain 288


profits a t the expense o f wages were responsible for rhe increasing dependence o f c o n s u m p t i o n o n debt. It w a s also the a t t e m p t s t o m a i n t a i n profitability in the face o f an ever greater p i l i n g u p o f lixed c a p i t a l t h a t led t o the h o l d i n g back o f c o n s u m p t i o n

in

( h i n a — a n d , as part o f d o i n g so, efforts t o s t o p any rise in the international value of the y u a n . A n d the m e m o r y o f the crises o f the 1990s t a u g h t the other B R I G S a n d N I C s that their o w n economies' profitability w a s n o t high e n o u g h ro protect them f r o m global instability, leading them t o o t o pile u p surpluses. In general, it can be aid t h a t the different sectors o f w o r l d capitalism w o u l d n o t have become d e p e n d e n t o n the b u b b l e h a d profit rates returned to the levels o f the l o n g b o o m . F i n a n c i a l i s a t i o n p r o v i d e d a s u b s t i t u t e m o t o r , in the f o r m o f debt, f o r the w o r l d e c o n o m y in the decades after the US a r m s e c o n o m y lost a g o o d part o f its effectiveness. T h e p e r m a n e n t a r m s e c o n o m y h a d to be s u p p l e m e n t e d by the d e b t e c o n o m y . But by its very n a t u r e a debr e c o n o m y c o u l d n o t be p e r m a n e n t . The massive profits t h a t b a n k s m a k e d u r i n g a n y b u b b l e represent c l a i m s o n value p r o d u c e d in the p r o d u c t i v e sections o f the e c o n o m y . W h e n there is a s u d d e n decline in the prices o f the assets they have previously

bid

u p (in the h o u s i n g , property, m o r t g a g e a n d

share

markets) they discover those c l a i m s are n o longer valid a n d t h a t they c a n n o t p a y their o w n debts unless they get cash f r o m elsewhere. Bur the very process o f trying t o raise cash involves selling turther assets; as all b a n k s d o so, asset prices decline still m o r e a n d their i n d i v i d u a l b a l a n c e sheets deteriorate further. T h e

bubble

bursts a n d the b o o m turns i n t o a crash. As M a r x p u t it: All this p a p e r a c t u a l l y represents n o t h i n g m o r e t h a n a c c u m u lated c l a i m s , or legal titles, t o f u t u r e p r o d u c t i o n w h o s e m o n e y or c a p i t a l v a l u e represents either n o c a p i t a l at a l l . . . o r is regulated

independently

o f the v a l u e o f

real capital

which

it

represents... A n d by a c c u m u l a t i o n o f money-capital n o t h i n g m o r e , in the m a i n , is c o n n o t e d t h a n an a c c u m u l a t i o n of these claims o n p r o d u c t i o n .

1

W h a t h a p p e n e d t h r o u g h the early a n d m i d - 2 0 0 0 s w a s t h a t rhe banks assumed t h a t these c l a i m s were themselves real value a n d entered t h e m in the positive side o f their b a l a n c e sheets. A chastened A d a i r Turner, f o r m e r head o f the British employers" GB1 a n d I inoncialisation and the Bubbles that Burst

289

f o r m e r vice-chairman o f M e r r i l l Lynch E u r o p e , recognised ahei rhe event, " T h e system in total has b e c o m e significantly m o r e n liant o n rhe a s s u m p t i o n t h a t a very w i d e range of assets c o u l d be c o u n t e d as liquid because they w o u l d alw r ays be sellable in liquid m a r k e t s " . " Profits were measured a c c o r d i n g ro " m a r k t o markci v a l u a t i o n s o f assets—that is, a c c o r d i n g the level to w h i c h c o m p e l itive b i d d i n g h a d raised t h e m . But o n c e there was a decline in the m o r t g a g e a n d property m a r k e t s , financiers h a d to try t o cash then assets in if they were n o t g o i n g to g o b u s t — a n d f o u n d they could not. This is w h a t the process w h i c h goes u n d e r the n a m e ol " d e l e v e r a g i n g " was a b o u t . M a r t i n W o l f again described w h a t w a s h a p p e n i n g accurately: T h e leverage m a c h i n e is o p e r a t i n g in reverse a n d , as it genet ated f i c t i t i o u s p r o f i t s o n the w a y u p , so it takes t h o s e profits a w a y o n the w a y d o w n . A s u n w i n d i n g c o n t i n u e s ,

highly

i n d e b t e d c o n s u m e r s c u t b a c k , c o r p o r a t i o n s retrench a n d un e m p l o y m e n t soars. 3 " H e n c e the first m o m e n t o f truth o f A u g u s t 2 0 0 7 , w h e n s o m e o f the hedge f u n d s controlled by b a n k s discovered they c o u l d n o t pav their debts a n d b a n k s s t o p p e d l e n d i n g t o each other o u t o f feat they w o u l d nor get their m o n e y back. H e n c e the failure o f the b u n dreds o f billions p o u r e d i n t o n a t i o n a l b a n k i n g systems t o prevent the second m o m e n t o f t r u t h in mid-September 2 0 0 8 w h e n the col lapse o f L e h m a n

Brothers w a s f o l l o w e d

within

days by

the

threatened collapse o f b a n k s in nearly all the m a j o r Western states ( A I G in the US, H B O S in Britain, Fortis in B e l g i u m a n d

the

N e t h e r l a n d s , H y p o R e a l Estate in G e r m a n y , the three m a j o r Irish b a n k s , the Icelandic b a n k s ) . H e n c e the w r ay in w h i c h in the t w o m o n t h s that f o l l o w e d even b a n k s w h i c h t h o u g h t they h a d gained f r o m the p r o b l e m s o f their c o m p e t i t o r s were in dire t r o u b l e C i t i b a n k (the w o r l d s biggest) a n d B a n k o f A m e r i c a in the US, L l o y d s in Britain. H e n c e , finally, it w a s clear the crisis w a s n o longer just o n e o f h nance. T h e vast e x p a n s i o n o f finance h a d created the illusion ol .1 n e w " l o n g u p t u r n " in p r o d u c t i v e a c c u m u l a t i o n ; the crisis o f li n a n c e m a d e that illusion d i s a p p e a r w i t h t r a i u n a t i c effects. There w a s " a week o f l i v i n g p e r i l o u s l y " i n N o v e m b e r as " p a n i c seized rhe markets". 3 " In the US Chrysler lost m i l l i o n s by rhe day, General M o t o r s said it needed $ 4 b i l l i o n i m m e d i a t e l y t o a v o i d bankruptcy 290


a n d Ford joined in a s k i n g for a $ 3 4 billion g o v e r n m e n t h a n d o u t . In Britain, W o o i w o r t h s a n d M F 1 w e n t bust. The toll o t sackings in every sector began t o c o m p a r e w i t h the h a e m o r r h a g i n g o f jobs in the crisis o f the early 1980s. A n d the p a i n w a s felt n o t merely o n both sides o f the A t l a n t i c , but o n b o t h sides o f the Pacific t o o . 1

In the spring o f 2 0 0 8 rhe d o m i n a n t theme in m a i n s t r e a m econ o m i c c o m m e n t a r y h a d been that a " d e c o u p l i n g " o f different national economies w o u l d enable Asia to keep e x p a n d i n g at its old speed w h i l e E u r o p e a n d A m e r i c a suffered. By n e w year 2 0 0 9 the recession h a d spread to J a p a n , where car o u t p u t fell at a record rate, t C h i n a , where rherê were t h o u s a n d s o f factory closures in the south east,3* a n d to India, where a business lobby g r o u p w a r n e d that 10 m i l l i o n m a n u f a c t u r i n g jobs c o u l d be lost as exports c o l l a p s e d . " I he victims o f the Asian crisis of 1 9 9 7 — T h a i l a n d , South Korea, Singapore, M a l a y s i a , I n d o n e s i a — w e r e battered once again. So t o o were the victims o f the s l u m p w h i c h swept the former Eastern bloc from the lare 1980s o n w a r d s — t h e Baltic states, Ukraine, H u n g a r y , Kulgaria, R o m a n i a . In Russia the collapse o f the record w o r l d oil prices o f o n l y six m o n t h s before led t o a fall in the value o f the rouble, escalating inflation a n d a renewed spread o f poverty. F i n a n c i a l i s a t i o n a n d the debt e c o n o m y h a d p r o v e d i n c a p a b l e o f m o v i n g w o r l d a c c u m u l a t i o n f o r w a r d at its o l d speed in the 1980s, 1990s a n d mtd-2000s. Ir h a d faltered every few years a n d , at the end, threatened t o fail completely, l e a d i n g t o a crisis o f unpredictable d e p t h . G o v e r n m e n t s w h i c h in w o r d s , if n o t in practice, had insisted t h a t the free m a r k e t c o u l d be left t o cure its o w n faults, were n o w faced w i t h the g r i m reality t h a t left t o itself capitalism c o u l d , as in the 1930s, threaten t o fall i n t o a c a t a s t r o p h i c s l u m p , w i t h the collapse o f each g i a n t firm ricocheting t h r o u g h rhe e c o n o m y a n d leading t o the collapse o f others. Urged o n by s o m e o f the g i a n t c o r p o r a t i o n s , states s a w n o alternative

but

to

intervene

in

the

economy

on

a

scale

unprecedented except u n d e r c i r c u m s t a n c e s o f total war. So it w a s the Bush a d m i n i s t r a t i o n , the m o s t right w i n g in the US for 7 5 years, t h a t effectively n a t i o n a l i s e d the m o r t g a g e

corporations

F a n n y M a e a n d F r e d d y M a c early in September. T h e r e w a s o n e last a t t e m p t t o rely o n the m a r k e t w h e n

it a l l o w e d

Brothers t o g o b u s t — a decision praised by the Financial

Lehman

Times

editorial as a " c o u r a g e o u s " a n d a "risk t h a t m i g h t well pay o f f " . 4 " T h e disastrous o u t c o m e left states w i t h n o choice n o t o n l y to attempt one a n d half trillion dollar I-'inancialisation and the Rubbles that Burst

bail-outs, b u t in effect

to 291

partially, a n d sometimes completely, nationalise n o t just relative^ s m a l l b a n k s like N o r t h e r n

Rock and

Bradford

&

Bingley in

Britain, b u t some o f the giants. As they d i d so, their advisers began t o p o n d e r whether the o n l y s o l u t i o n to the crisis m i g h t be the na t i o n a l i s a t i o n o f w h o l e b a n k i n g systems. State c a p i t a l i s m , a n d its ideological correlate, K e y n e s i a n i s m , w a s m a k i n g a massive c o n n back after being hidden in an ideological closet for a generation

Finance a n d " f i n a n c i a l i s a t i o n " T h e great crisis that erupted in 2 0 0 ~ led those w h o h a d rejoiced at rhe w o n d e r s o f c a p i t a l i s m d u r i n g the great delusion t o try to pin the b l a m e o n s o m e t h i n g other t h a n c a p i t a l i s m as such. T h e easiest w a y t o d o this was t o see the " t h e b a n k s " a n d " f i n a n c e " as de tached f r o m the rest o f the capitalist system. French president N i c o l a s Sarkozy w e n t to a G 7 meeting in J a n u a r y 2 0 0 8 declaring t h a t " s o m e t h i n g seems o u t o f c o n t r o l " w i t h the f i n a n c i a l system a n d c a l l i n g for increased c o n t r o l s over i t / 1 All a c c o u n t s o f tin D a v o s W o r l d E c o n o m i c F o r u m in 2 0 0 9 told o f the deep u n p o p u larity o f the b a n k s w i t h the representatives o f m u l t i n a t i o n a l s a m i g o v e r n m e n t s : " T h e a u d i e n c e cheered in o n e debate w h e n N a s s i m N i c h o l a s Taleb, a u t h o r o f The Black

Swan,

said it w a s t i m e to

p u n i s h bankers by forcing t h e m t o h a n d back bonuses". 4 2 Such a r g u m e n t s led to a s i m p l e c o n c l u s i o n : the w a y t o prevent future financial crises w a s greater regulation o f finance. Such was rhe response o f m a n y m a i n s t r e a m e c o n o m i s t s — f o r m e r

mone

tarists a n d m o d e r a t e Keynesians alike, w i t h repeated discussions in the pages o f rhe Financial

Times over the degree o f regulation

t h a t w a s possible a n d necessary. T h i s w a s also the response ol s o m e analvsts o n the reformist left. R o b e r t W a d e of the LSE c o u l d p r o v i d e riveting a c c o u n t s o f the absurdities o f finances that led to the crisis a n d then c o n c l u d e t h a t greater c o n t r o l s c o u l d

stop

t h e m . 4 ' Larrv Elliot a n d D a n A t k i n s o n in their b o o k The Cods

that

4

Failed

blamed "rhe gods of

finance",

called for increased regula

rion a n d a b r e a k i n g u p o f the g i g a n t i c

financial

institutions, and

then s a w s o m e h o p e in a m e e t i n g o f G 7 p o l i c y m a k e r s early in 2 0 0 8 t h a t c o n t e m p l a t e d " m e a s u r e s to rein in the t u r b o charged fi n a n c i a l interests". 4 4 R a t h e r further t o rhe left the rise o f finance h a d already led to tin re-emergence o f the old n o t i o n s o f H o b s o n , Hilferding a n d Kautsky 292


ol " f i n a n c e " or " f i n a n c e c a p i t a l " as h a v i n g distinct interests f r o m productive capital. T h e French c a m p a i g n i n g organisation ATTAC had started life in the late 1990s c o m m i t t e d to o p p o s i t i o n to finani tal speculation, n o t to capitalism as s u c h / 5 Its central d e m a n d was loi a " T o b i n t a x " o n m o v e m e n t o f financial funds across n a t i o n a l borders. This, it was c l a i m e d , w o u l d c o u n t e r financial crises. Such "finance is t o b l a m e " a r g u m e n t s f o u n d a resonance a m o n g m a n y radical M a r x i s t s . D u m e n i l a n d Levy w r o t e o f " n e o l i b e r a l i s m " as "the ideological expression o f the reasserted p o w e r o f

finance"

which "dictates its forms a n d contents in rhe new stage o f internanonalisation. 4 ' James-Crotty s rone w a s very similar, a r g u i n g t h a t "financial interests have become m u c h m o r e e c o n o m i c a l l y a n d politically p o w e r f u l , a n d . . . t h e s e trends have been c o t e r m i n o u s w i t h a deterioration i n real e c o n o m i c p e r f o r m a n c e " . 4 7 Francois Chesnais wrote of " a globalised regime o f financially d o m i n a t e d accumulation V

in w h i c h " t h e m o v e m e n t o f m o n e y capital has b e c o m e a

lully a u t o n o m o u s force vis-a-vis industrial c a p i t a l " , forcing it either io accept a " d e e p interpenetration with m o n e y capital, or to s u b m i t itself to its exigencies". 1 H e t o o k u p the expression o f M a b l e , Bar re and Boyer, a c c o r d i n g ro w h i c h " b a d c a p i t a l i s m " h a d been able t o c hase o u t " g o o d " . 5 0 C h e s n a i s as a r e v o l u t i o n a r y socialist did n o t himself regard the o l d f o r m of c a p i t a l i s m as " g o o d " (hence his p u t t i n g the w o r d between q u o t e m a r k s ) . But he did argue that finance w a s to b l a m e for the " m e d i o c r e or p o o r d y n a m i c investment..." 5 1 A s i m i l a r e m p h a s i s o n

finance

of

h a v i n g interests

strongly o p p o s e d t o those o f p r o d u c t i v e capital w a s to be f o u n d in Peter G o w a n ' s The Global

Gamble,

a very useful a c c o u n t o f US

capitalism s a t t e m p t t o m a i n t a i n global hegemony. Fie argued that " s o m e o f the sharpest conflicts w i t h i n capitalist societies have occurred... between the financial sector a n d the rest o f society". 5 2 [

T h e a c c o u n t s o f " f i n a n c i a l i s a t i o n " varied considerably in their detail. B u t they all shared a c o n t e n t i o n that the " d o m i n a n c e " o f " f i n a n c e " led to a shift in the d y n a m i c o f the system. Productive capital, it w a s a r g u e d , w a s concerned w i t h p r o d u c t i v e a c c u m u l a tion. In the early post-war years this h a d occurred across rhe industrial w o r l d , even if it was organised differently in the US a n d Britain, w h e r e industrial c o r p o r a t i o n s h a d used internally generated profits in o r d e r t o u n d e r t a k e long-term i n v e s t m e n t s , a n d in J a p a n a n d West G e r m a n y , where c o l l a b o r a t i o n w i t h rhe b a n k s h a d provided such investment. But the rise o f big investment f u n d s a n d the " d o m i n a n c e " o f finance h a d c h a n g e d t h a t . T h e s i t u a t i o n n o w Financialisation and the Rubbles that Burst

291

was t h a t all rhe pressure w a s o n firms to deliver q u i c k returns t«. shareholders ( " s h a r e h o l d e r v a l u e " ) t h r o u g h high d i v i d e n d pa\ ments a n d measures t h a t ensured a high share price (so boosting shareholders' capital g a i n s ) , a n d o n g o v e r n m e n t s a n d

national

b a n k s to keep interest rates h i g h . Versions o f this s t a n d p o i n t had been presented by Keynesian writers like W i l l H u t t o n a n d W i l l i a m Keegan

in rhe

1990s t o c o u n t e r p o s e rhe "short-termism

ol

" A n g l o - S a x o n " capitalism t o s u p p o s e d l y long-term, m o r e invest m e n t oriented approaches o f Japanese a n d G e r m a n capitalisms. N o w it w a s extended t o all the a d v a n c e d industrial c o u n t r i e s w i t h the partial exception o f G e r m a n y . ' ' Crotry, Epstein and J a y a d e v referred to this as a g r o w t h o f ren tier i n c o m e s a n d "rentier p o w e r " . They were h a r k i n g back to Keynes's a p p l i c a t i o n o f the term rentier t o idle " g e n t l e m e n " w h o were receiving interest or dividends p a y m e n t s t h r o u g h the post !»m d o i n g n o t h i n g . But n o w the rentiers were " m u t u a l f u n d s , public a n d p r i v a t e pension f u n d s , insurance c o m p a n i e s a n d other institu rional investors". 5 5 C o s t a s Lapavitsas, w h o p r o v i d e d excellent factual a c c o u n t s ol the d e v e l o p m e n t o f the financial crisis o f 2007-8, nevertheless put the stress in e x p l a i n i n g it o n purely financial a s p e c t s — i n p a r t i a l lar the c h a n g e d b e h a v i o u r o f the b a n k i n g system, w h i c h

had

shifted its l e n d i n g from industry t o l e n d i n g t o i n d i v i d u a l s a n d re liance o n n e w c o m p u t e r i s e d t e c h n o l o g i e s . H e a r g u e d t h a t the " d i r e c t e x p l o i t a t i o n " o f c o n s u m e r s b y the b a n k s h a d b e c o m e a m a j o r n e w source o f s u r p l u s v a l u e a n d influenced the d y n a m i c s ot the s y s t e m . u But this f o r m o f " e x p l o i t a t i o n " , like t h a t caused bv s u p e r m a r k e t s forcing u p prices, 57 is o n l y s i g n i f i c a n t in so far as workers d o n o t fight t o protect the b u y i n g p o w e r o f their wages at rhe p o i n t o f p r o d u c t i o n — s o m e t h i n g u n i o n s in B r i t a i n h a v e usu ally tried to achieve by d e m a n d i n g w a g e increases l i n k e d to a Retail Price Index t h a t includes m o r t g a g e interest p a y m e n t s . Or, as M a r x w o u l d have p u t it, there is o n l y increased e x p l o i t a t i o n in so far as the capitalists w h o e m p l o y w o r k e r s get a w a y

with

b u y i n g l a b o u r p o w e r ar less t h a n its value." 1 It is also w o r t h a d d i n g t h a t o n Lapavitsas's logic it is it n o t o n l y w o r k e r s w h o .ine x p l o i t e d by the b a n k s but also indebted m e m b e r s o f the capital ist class a n d the n e w m i d d l e c l a s s — t h e m e d i a n debt o f households in the US w i t h i n c o m e s o f m o r e t h a n $ 1 0 0 , 0 0 0 in 2 0 0 3 w a s a b o u t f o u r a n d a h a l f times t h a t o f h o u s e h o l d s w i t h i n c o m e s in rhe range o f $ 2 5 , 0 0 0 - $ 5 0 , 0 0 0 / ' 294


The " s h a r e h o l d e r v a l u e " version o f rhe

financialisation

argu

11it-nt h a s o f t e n been t a k e n for g r a n t e d . But it c o n t a i n s b i g gaps.

I >ick B r y a n a n d M i c h a e l R a f f e r t y have pointed o u t that: the s t o c k m a r k e t s h o u l d n o t be so heavily e m p h a s i s e d . It is, after all, a relatively m i n o r f o r u m for raising f u n d s . Even in the so-called

market-based

systems such

as the

US,

UK

and

A u s t r a l i a , retained earnings, loans a n d b o n d issues have been far m o r e i m p o r t a n t . . . I u r t h e r m o r e , pension f u n d s etc: rarely if ever play a n active role in the m a n a g e r i a l decisions o f firms. Institutional shareholder pressure o n c o m p a n y b o a r d s . . . is the exception rather t h a n the n o r m . . . * 0 I he fact that firms h a n d o u t a bigger p o r t i o n o f their profits as dividends need n o t in itself s l o w d o w n the level o f i n v e s t m e n t . T h e " r e n t i e r " shareholders c a n themselves lend a p o r t i o n o f their incomes back for further i n v e s t m e n t — a n d will d o so if they t h i n k it is g o i n g t o be profitable e n o u g h t o d o so. O n e p r o p o n e n t o f the "shareholder valuev

i n t e r p r e t a t i o n , S t o c k h a m m e r , a d m i t s thar

most e c o n o m i s t s h o l d that: Financial

investment

is a t r a n s f e r o f assets, n o t a use o f

i n c o m e . B u y i n g stocks transfers l i q u i d i t y f r o m o n e e c o n o m i c agent to another, possibly from firms with bad

investment

o p p o r t u n i t i e s t o ones w i t h g o o d o p p o r t u n i t i e s . T h u s macroeconomically

financial

investment

cannot

substitute

for

p h y s i c a l investment. 6 1 A n d C r o t t y suggests at o n e p o i n t t h a t " f i n a n c i a l i s a t i o n " , by ineasing c o m p e t i t i o n between firms, brings a b o u t m o r e , " c o e r c e d " , vestment."-1 Certainly, big

financial

i n s t i t u t i o n s have n o t h i n g in

rinciple against productive investment, even if finance d i d c o m e t o bsorb a peak figure o f 2 5 percent o f total investment in the US in 1990 as against o n l y 12 percent in the mid-1970s 61 a n d rose to close ro h a l f in Britain in rhe same period. 6 4 T h i s wras s h o w n in the late 1990s w h e n the d o t c o m / n e w technology b o o m saw industrial investment in the US financed by b o r r o w i n g from the institutions as it ared ahead o f savings. inancialisation and rhe Bubbles that Burst

295

T h e s u p p o s e d d o m i n a n c e o f finance over p r o d u c t i o n is o f u n rraced back to the US Federal Reserve u n d e r Paul Volcker raisin}.' interest rates s h a r p l y i n 1 9 7 9 . Boyer, C r o t t v , Chesnais, D u m e m l a n d Levy all see this "Volcker c o u p " as a decisive p o i n t . D u m e m l a n d Levy regard it as the great victory o f finance, a n d a r g u e this w a s w h y high interest tares w e r e " m a i n t a i n e d t h r o u g h the 19X(K a n d 1990s". 6 5 Implicit in such a r g u m e n t s is the suggestion thai s o m e h o w finance in general a n d shareholders in p a r t i c u l a r had suffered t h r o u g h the decades o f the long b o o m b u t were o n l y able to express their feelings w i t h the " c o u p " o f t h e late 1970s. T h e at g u m e n t s i m p l y does n o t fit the historical facts. The post-war decades were ones of e n o r m o u s self-confidence a m o n g all sections o f c a p i t a l i s m . T h e " g o l d e n a g e " for i n d u s t r i a l capital w a s by no m e a n s a living hell for its shareholders a n d

financiers.

All gained

as the g r o w t h o f profitable p r o d u c t i v e investment translated into secure long-term capital gains. There w a s s o m e c h a n g e w i t h rhe crisis o f the 1970s. T h e US s b a n k e r s a n d m u l t i n a t i o n a l s d i d dislike rhe w a y rhe " m a c r o e c o n o m i c " " K e y n e s i a n " response to the crisis o f the 1970s led to i n f l a t i o n a n d d e v a l u a t i o n ot rhe dollar. B u t , as R o b e r t Brenner p o i n t s o u t , h a d such a p o l i c y solved the p r o b l e m s o f profitabilit\ a n d i n d u s t r i a l o v e r c a p a c i t y f o r the rest o f US c a p i t a l i s m , " i t is q u i t e c o n c e i v a b l e that even the p o w e r f u l c o a l i t i o n o f interna t i o n a l a n d d o m e s t i c interests arrayed

against

it w o u l d

have

failed". 0 " In fact the K e y n e s i a n a p p r o a c h d i d n o t achieve these capitalist goals. L i m i t e d e c o n o m i c recovery f r o m the recession ot 19~4-6 increased the level o f i n f l a t i o n , w h i c h reached 13.3 pet cent. T h i s h a d t w o negative c o n s e q u e n c e s for all sections o f I s c a p i t a l . It w a s likely to e n c o u r a g e w o r k e r s t o struggle over wages, A n d ir w a s u n d e r m i n i n g the capacity o f the US d o l l a r t o act as .i m e a s u r i n g r o d for US capitalists in their t r a n s a c t i o n s w r ith each other. F o r c i n g u p interest rates w a s m e a n t t o solve b o t h p r o b l e m s — b y r e d u c i n g rhe level o f e c o n o m i c activity to scare w o r k e r s i n t o a c c e p t i n g l o w e r w a g e increases ( w h i c h it d i d ) a n d t o reduce inflation ( w h i c h it also d i d ) . T h i s enabled s o m e sections o f

finana

to g a i n a n d i n d u c e d a recession t h a t d a m a g e d s o m e sections ot A m e r i c a n p r o d u c t i v e c a p i t a l . Bur it also served the general inter ests o f all US capitalists. A s M a r x h a d n o t e d , c a p i t a l i s m needs m o n e y t o act as a fairK stable m e a s u r e o f v a l u e , even if d a m a g e is d o n e t o society as a w h o l e in order to achieve it: 296


R a i s i n g interest rates...can be carried m o r e or less to extremes by m i s t a k e , based u p o n false theories of m o n e y a n d enforced o n the n a t i o n bv the interest o f m o n e y lenders... T h e basis, how/

#

ever, is given w i t h the basis o f the m o d e o f p r o d u c t i o n itself. A d e p r e c i a t i o n o f credit m o n e y w o u l d unsettle all existing relations. Therefore the v a l u e o f c o m m o d i t i e s is sacrificed f o r the p u r p o s e o f safeguarding the fantastic a n d i n d e p e n d e n t existence o f this v a l u e in m o n e y . . . For a few m i l l i o n in m o n e y , m a n y millions in c o m m o d i t i e s m u s t be sacrificed. T h i s is inevitable u n d e r capitalist p r o d u c t i o n a n d constitutes o n e o f its beauties. 6 " The suffering o f m a n y h u n d r e d s o f m i l l i o n s as a result o f the Volcker interest rate hike w a s a price w o r t h p a y i n g t o restore a relatively stable measure of value as far as US capitalism in its entirely w a s c o n c e r n e d — a n d helped cement its c o n t r o l elsewhere in the w o r l d . T h e " c o u p " by Volcker (and the t u r n t o m o n e t a r i s m u n d e r Thatcher in Britain) consisted o f t u r n i n g a w a y from o n e policy t h a t was supposed t o help restore the profitability o f productive indust r y — e x p a n d i n g the m o n e y supply so as t o a l l o w prices a n d profits to rise—to a n o t h e r policy, t h a t o f e n c o u r a g i n g interest rates to rise so as t o squeeze o u t u n p r o f i t a b l e firms a n d t o p u t pressure o n workers t h r o u g h u n e m p l o y m e n t to accept lower pay. C a p i t a l — a n d n o t just financial c a p i t a l — w a s recognising that the Keynesian orthodoxies o f the long b o o m c o u l d n o t cope w i t h the new phase in w h i c h capital ( i n c l u d i n g , n o t least, industrial capital) f o u n d itself. W h e n this m a n o e u v r e p r o d u c e d o n l y m i n i m a l results a n d it became clear t h a t the high interest rares were b e g i n n i n g seriously t o h u r t US industry, Volcker cut t h e m — n o t o n l y u n d e r pressure from industrialists, b u t also f r o m sections o f finance.68 T h e trend o f real l o n g term interest rates for the next q u a r t e r century w a s d o w n , n o t u p , a l t h o u g h they remained a b o v e the level o f the l o n g b o o m until the year 2 0 0 0 , after w h i c h they fell t o a r o u n d I percent in 2 0 0 3 . T h e w h o l e c l a i m t h a t there are t w o distinct sections o f c a p i t a l — finance capital a n d industrial c a p i t a l — i s o p e n t o challenge. M a n y i m p o r t a n t financial institutions n o t only lend m o n e y , b u t also b o r r o w it, since thev are involved in " i n t e r m e d i a t i o n " #

between

lenders a n d borrowers. W h a t matters for them is n o t the absolute level o f interest rates but the gaps t h a t o p e n u p between different rates, particularly between long-term a n d short-term rates. A n d industrial concerns lend as well as b o r r o w . Typically they a c c u m u l a t e Financialisation and the Bubbles that Burst

297

surpluses between bouts of n e w investment, w h i c h they lend o u t in return for interest (see Chapter Three). They also advance credit t«» rhe wholesalers w h o take their p r o d u c e o f f their hands. In short, in dustrial capital takes on s o m e o f the attributes o f finance capital As Itoh a n d Lapavitsas p o i n t o u t , " R e v e n u e in the form o f interest tends also to accrue to i n d u s t r i a l a n d c o m m e r c i a l capitalists, and c a n n o t be the exclusive f o u n d a t i o n for a social group". 6 5 ' T h o m a s S a b l o w s k i — w h o accepts part o f the " s h a r e h o l d e r value'* post t i o n — m a k e s the p o i n t :

A t rhe level o f the c o m m o n sense, it seems to be n o p r o b l e m t

i i r e s p o n s i b l e l e n d i n g practices, l a x i t y in t h e m a n d p r o b l e m s of r e g u l a t i o n V ' In this w a y , t h e reality o f 180 years o f p e r i o d i c irises w a s s h o v e d a s i d e , in a desperate a t t e m p t t o c o n t i n u e t o extol the virtues o f c a p i t a l i s m . Those radical e c o n o m i s t s w h o p u t the stress o n

financialisation

in creating the crisis risk o p e n i n g the d o o r t o such a p o l o g i e s for I he system. T h e i r characteristic a r g u m e n t has been t o c l a i m thar profit rates h a d recovered in rhe 1980s a n d 1990s sufficiently to have b r o u g h t a b o u t a revival o f p r o d u c t i v e investment were it n o t lor rhe p o w e r o f financial interests. Such w a s the a r g u m e n t o f the I rench M a r x i s t M i c h e l H u s s o n , w h e n he c l a i m e d in 1 9 9 9 t h a t (here were " h i g h levels of p r o f i t a b i l i t y " , 7 2 a n d S t o c k h a m m e r a n d D u m e n i l w e r e s a y i n g m u c h rhe s a m e t h i n g i n the s u m m e r a n d autumn of 2008.

1

If they were r i g h t , t h e crises w h i c h b r o k e in

2 0 0 1 a n d o n a m u c h bigger scale in 2007-8 w o u l d i n d e e d h a v e had causes very different t o previous ones, i n c l u d i n g the inter-war s l u m p , a n d greater c o n t r o l by the existing state over the behaviour o f rhe financial sector w o u l d in the 21st century be sufficient to s t o p such

crises.

In a c c o r d a n c e

with

such

an

approach,

D u m e n i l a n d Levy described the " K e y n e s i a n v i e w " as "very sensible" a n d l o o k e d t o " s o c i a l a l l i a n c e s " ro " s t o p the n e o l i b e r a l offensive a n d p u t to w o r k alternative p o l i c i e s — a different w a y o f m a n a g i n g the crisis"." 4 Yet, as we have seen f r o m the various profit rate c a l c u l a t i o n s in C hapters E i g h t a n d N i n e , there seems little t o justify c l a i m s t h a t crises t o d a y have different roots t o those in the past. T h e f o r m o f the crisis m i g h t be different each rime t o the last, b u t its i m p a c t will be just as devastating. N o a m o u n t o f regulation o f finance a l o n e will prevent a recurrence o f crisis, a n d rhe cost t o the capitalist srate o f trying t o stop this c a n b e c o m e a l m o s t u n b e a r a b l e . It is true that " f i n a n c i a l i s a t i o n " , h a v i n g risen o u t o f a s i t u a t i o n of l o w rates o f profit a n d a c c u m u l a t i o n , fed back i n t o b o t h . There was e n o r m o u s waste as l a b o u r a n d skills w e n t i n t o m o v i n g m o n e y from o n e pocket ro a n o t h e r ; as potentially p r o d u c t i v e material resources were used t o b u i l d a n d e q u i p ever m o r e g r a n d i o s e office b u i l d i n g s , a n d as the

financial

" M a s t e r s o f the U n i v e r s e " gorged

themselves in c o n s p i c u o u s c o n s u m p t i o n . It m a y also be, as Ben Fine has a r g u e d , thar

financialisation

" w e d g e . . . b e t w e e n real a n d

fictitious

h a d the effect o f d r i v i n g a accumulation","

m a k i n g it

difficult for capitalists to see t h r o u g h the fog o f the m a r k e t s a n d recognise p r o d u c t i v e investment o p p o r t u n i t i e s . But, ultimately, it Financialisation and the Bubbles thar Burst

299

w a s the deeper p r o b l e m s facing the p r o d u c t i v e sectors o f capital that b r o u g h t this situation a b o u t . F i n a n c e is a parasite o n the back o f a parasite, n o t a p r o b l e m t h a t can be dealt w i t h in isolation f r o m capitalism as a w h o l e .

T h e c o n t r a d i c t i o n s of the n e w Kevnesianism m

T h e w a y the crisis was rooted in the e c o n o m i c system as a whole w a s s h o w n by the sheer difficulties g o v e r n m e n t s h a d in reacting to ir. This w a s a crisis that h u r t big capitals a n d n o t just those w h o l a b o u r e d for t h e m . H u m p r y D u r n p t y h a d indeed fallen o f f the w a l l . Yet it seemed that all the king's horses a n d all the king's men c o u l d n o t p u t h i m together a g a i n . T h e response o f virtually all g o v e r n m e n t s t o the crisis that erupted in 2007-8 was t o turn a w a y f r o m the free m a r k e t policies they h a d p r o c l a i m e d for three decades as the o n l y ones t h a t w o u l d w o r k . O v e r n i g h t they ditched H a y e k for Keynes a n d kept only t h a t bit o f F r i e d m a n t h a t urged increasing the m o n e y s u p p l y to ward off deflation.6 But the c o n d i t i o n s f o r a p p l y i n g Keynesian policies w i t h an\ h o p e o f success were w o r s e t h a n they h a d been w h e n they had been tried a n d a b a n d o n e d 3 0 years before. T h e k n o w n scale o f tlu losses m a d e by the b a n k s d w a r f e d those o f the m i d - 1 9 7 0 s — a n d n o o n e k n e w , as each b a n k w e n t bust, w h i c h other b a n k s were o w e d m o n e y by it a n d m i g h t g o bust t o o . T h e p r o m i s e d bail-outs were massively bigger t h a n those at tempted

by

Roosevelt's

New Deal

i n the

1930s. US

federal

e x p e n d i t u r e then peaked at just over 9 percent o f n a t i o n a l o u t p u t in 1936. T h i s time r o u n d it w a s already 2 0 percent before rhe crisis began, a n d the Bush a n d then rhe O b a m a a d m i n i s t r a t i o n s raised it several percentages m o r e . But the levels of debt in the system rhat s o m e h o w h a d to be covered were also m u c h greater if the

financial

system w a s to begin t o f u n c t i o n a g a i n . G e o r g e Soros calculated " t o t a l credit o u t s t a n d i n g " at 160 percent o f gross d o m e s t i c p r o d uct in 1 9 2 9 , rising t o 2 6 0 percent in 1932; in 2 0 0 8 it w a s 365 percent a n d

"bound

t o rise to 5 0 0 p e r c e n t " .

The Bank

ol

E n g l a n d estimated in the a u t u m n o f 2 0 0 8 the g l o b a l losses o f the financial

system t o be as high as $ 2 , 8 0 0 billion. 7 8 N o u r i e l R o u b i n i

estimated rhe losses o f the A m e r i c a n b a n k s a l o n e at $ 1,800 billion early in 2009."* A s g o v e r n m e n t s p o u r e d in the m o n e y , m a i n s t r e a m 300


economists offering advice debated w i t h each other whether it would be e n o u g h to halt the t r a n s f o r m a t i o n o f recession i n t o s l u m p , w hether g o v e r n m e n t s w o u l d be able to raise the m o n e y w i t h o u t lorcing u p the interest rates they were trying t o lower, whether they should t u r n t o " q u a n t i t a t i v e e a s i n g " — t h a t is, printing m o n e y — a n d whether any success w i t h this m i g h t n o t risk bringing a b o u t a new inflationary spiral a n d a n even greater slump. 8 0 T h e p r o b l e m did n o t just lie w i t h the size o f the b a n k s ' losses. It also lay w i t h the massive i n t e r n a t i o n a l i s a t i o n o f the system compared w i t h either the 1930s or even the 1970s. T h e Keynesian remedies w h i c h were supposed t o deal w i t h the crisis were remedies to be a p p l i e d by n a t i o n a l g o v e r n m e n t s , n o n e o f w h i c h h a d the resources t o p a y for all the losses o f the g l o b a l system o f w h i c h they were part. T h e biggest states m i g h t conceivably be able to salvage a g o o d

|?art o f their n a t i o n a l

financial system. But

the

p r o b l e m s even here were vast, a n d m a n y o f the smaller states h a d very little c h a n c e o f c o p i n g .

I h e system in a n o o s e r he crisis h a d revealed o n e o f the great fault lines r u n n i n g t h r o u g h c a p i t a l i s m in the 2 Ist century. T h e c o m p l e x i n t e r a c t i o n o f states a n d capitals w h i c h h a d been simplistically referred ro as globalisation m a k e s it m u c h m o r e difficult for n a t i o n a l states to fulfil their f u n c t i o n o f a i d i n g the g i g a n t i c capitals based w i t h i n them just as the need for that aid becomes greatest. As Paul K r u g m a n puts it, there are " m a j o r policy e x t e r n a l i t i e s " , since " m y fiscal s t i m u l u s helps y o u r e c o n o m y , by increasing y o u r e x p o r t s — b u t y o u d o n ' t share in m y a d d i t i o n t o g o v e r n m e n t d e b t " a n d so " t h e b a n g per buck o n s t i m u l u s for any o n e c o u n t r y is less t h a n it is for the w o r l d as a w h o l e " . " 1 It w a s a c o n t r a d i c t i o n t h a t i n e v i t a b l y led t o deep political fissures w i t h i n n a t i o n a l r u l i n g classes a n d t o bitter divisions between the states w h i c h were s u p p o s e d l y c o o p e r a t i n g t o deal w i t h the crisis. D o m e s t i c a l l y , sections o f capitals c o m p l a i n e d bitterly in 2007-9 at the potential cost o f b a i l i n g o u t other sections o f c a p i t a l , a n d i n t e r n a t i o n a l l y g o v e r n m e n t s quarrelled w i t h each other as the c o n c e n t r a t i o n o f each o n efforts t o prevent rhe collapse o f its n a t i o n a l l y based c a p i t a l s led t o a c c u s a t i o n s o f " f i n a n c i a l protect i o n i s m " . As one observer told the Financial tinancialisation and rhe Bubbles that Burst

Times: 301

There is a very strong l a w o f u n i n t e n d e d consequences taking place after all the b a n k bail-outs. W e will see m o r e a n d m o r e at tivist g o v e r n m e n t policies that distinguish e c o n o m i c activities a c c o r d i n g to the n a t i o n a l i t y o f the actors. It should be a big con cern to everybody.""1 A t the t i m e o f the W o r l d

Economic Forum

in J a n u a r y

200 1 '

G o r d o n B r o w n warned against " f i n a n c i a l p r o t e c t i o n i s m " , a n d he w a s then d e n o u n c e d in t u r n for t h a t very sin as he pressurised British b a n k s t o lend domestically a n d n o t abroad;* 1 the G e r m a n g o v e r n m e n t w a s criticised for n o t b o o s t i n g its d o m e s t i c economy b u t reiving o n exports t o the countries t h a t d i d ; it in t u r n criticised the French a n d British rescue packages as a f o r m o f subsidy t their firms w h i c h w o u l d d a m a g e G e r m a n interests; the new Us g o v e r n m e n t d e n o u n c e d C h i n a s g o v e r n m e n t for " m a n i p u l a t i n g its currency to aid its industries; the Chinese g o v e r n m e n t retorted t h a t US finance had caused the w h o l e mess; 84 a n d "less wealthy •

w

countries fretted" t h a t the US w o u l d " u s e force majeure

t o soak

up capital"/ T h e ideologists o f free trade w a r n e d t h a t p r o t e c t i o n i s m risked d e e p e n i n g the recession as the S m o o t - H a w l e y A c t in the US sup posedly d i d in the s u m m e r o f 1930 by raising tariffs o n certain i m p o r t s . A s Peter T e m i n has n o t e d , " T h e idea t h a t the S m o o t H a w l e y tariff w a s a m a j o r cause o f the Depression is a n e n d u r i n g c o n v i c t i o n . . . a n d has f o u n d its w a y i n t o p o p u l a r discussion a n d general histories"." 6 But he a d d s , " D e s p i t e its p o p u l a r i t y , this ar g u m e n t fails o n b o t h theoretical a n d historical g r o u n d s . " E x p o r t s o n l y fell by 1.5 percent o f US G N P between 1929 a n d 1 9 3 1 , w h i l e "real G N P fell 15 percent in the s a m e y e a r s " / " A n d the first real m o v e m e n t f r o m the depths o f the s l u m p t w o a n d a h a l f years later c a m e after measures by Roosevelt w h i c h included p u t t i n g n a t i o n a l capitalist interests first w i t h a n effective d e v a l u a t i o n o f the dollar. Even m o r e effective, as w e have seen, were those measures taken by the N a z i state in G e r m a n y . For those firms t h a t p r o d u c e d m a i n l y for the n a t i o n a l market (the great m a j o r i t y in early 1930s), it w a s better t o be i n a protectionist state t h a n a non-protectionist o n e . T h a t w a s the rationale for state c a p i t a l i s m a n d its ideological correlates: K e y n e s i a n i s m , d e p e n d e n c y theory a n d S t a l i n i s m . If the state c o u l d get c o n t r o l ol the m o s t i m p o r t a n t investment decisions in the n a t i o n a l e c o n o m y ; it c o u l d assure t h a t the mass o f surplus v a l u e w a s a b s o r b e d i n new 302


a c c u m u l a t i o n even if the rate of profit c o n t i n u e d t o fall. This, however, w a s a p o l i c y t h a t c o u l d o n l y w o r k u p t o the p o i n t at w h i c h ihe d r i v e t o a c c u m u l a t e collided w i t h the restrictions i m p o s e d by the n a r r o w n e s s o f n a t i o n a l b o u n d a r i e s . T h i s l i m i t a t i o n s h o w e d itself i n the drive o f G e r m a n y a n d J a p a n t o e x p a n d their n a t i o n a l b o u n d a r i e s t h r o u g h w a r in the m i d to late 1930s, in the declining effectiveness o f the US a r m s e c o n o m y by the early 1970s a n d in the i risis t h a t tore rhe U S S R a p a r t in 1989-91. T o d a y the sheer scale o f integration o f n a t i o n a l

economies

m e a n s t h a t serious i m p l e m e n t a t i o n o f state capitalist s o l u t i o n s w o u l d cause e n o r m o u s d i s r u p t i o n t o the system as a w h o l e . Yet for n a t i o n a l states simply to sit back a n d leave giant firms t o g o bust in the h o p e o f crises l i q u i d a t i n g themselves, as the H a y e k i a n s preach, w o u l d d o even greater d a m a g e . T h e t w o long-term tendencies p o i n t e d t o b \ * M a r x — f o r the rate o f profit t o fall o n the o n e h a n d and f o r the c o n c e n t r a t i o n a n d centralisation o f c a p i t a l o n the o t h e r — c o m b i n e t o p u t the w h o l e system in a noose. T h e a t t e m p t s o f capitals a n d the states in w h i c h they based t o wriggle o u t o f it can o n l y increase the tensions between t h e m — a n d the p a i n they inflict o n those w h o s e l a b o u r sustains t h e m . i

As states stepped in to intervene in the e c o n o m y t o c o p e w i t h the crisis after O c t o b e r 2 0 0 8 , s o m e sections o f the left believed that the resurrection o f Kevnes m e a n t rhe resurrection o f the wel4

fare policies o f the l o n g b o o m . In Britain, Ken L i v i n g s t o n e , former m a y o r o f L o n d o n , declared t h a t the " e c o n o m i c a s s u m p t i o n s o f N e w L a b o u r s t h i n k i n g . . . h a v e been a b a n d o n e d " . Polly T o y n b e e p r o c l a i m e d , " A t last, the party o f social justice has w o k e n u p . . . The N e w L a b o u r era is over." Derek S i m p s o n , j o i n t general secretary o f the biggest U K trade u n i o n , U n i t e , s a w the pre-budget report as " a w e l c o m e w a r m u p exercise after 3 0 years of inaction and neoliberal e c o n o m i c s " . Yet reality s o o n proved otherwise. T h e g o v e r n m e n t a i m e d t o pay for a short-term e c o n o m i c b o o s t w i t h long-term c u t b a c k s in e x p e n d i t u r e o n e d u c a t i o n , health a n d social services. T h e new Keynesianism for c a p i t a l w a s c o m b i n e d w i t h a c o n t i n u a t i o n of n e o l i b e r a l i s m for those w h o w o r k e d for it. T h i s w a s n o t a p e c u l i a r i t y o f B r i t a i n . In every sector o f the w o r l d system the a t t e m p t to deal w i t h long-term d o w n w a r d pressures o n p r o f i t rates c o n t i n u e d ro m e a n efforts t o p u s h t h r o u g h counter-reforms in w o r k i n g h o u r s , welfare p r o v i s i o n , w a g e rates a n d pensions. The push

w a s intensified

as g l o b a l

economic

g r o w t h fell to z e r o a n d threatened t o fall further. T h e t u r n to Financialisation and the Bubbles that Burst

103

K e y n e s i a n i s m could neither restore the system t o its o l d vigoui n o r serve rhe interests o f the w o r k e r s , the peasants a n d the poor T h e system was o n l y able t o recover f r o m the crisis o f the inter w a r years after a massive destruction o f value t h r o u g h the worst s l u m p c a p i t a l i s m had ever k n o w n f o l l o w e d by the w o r s t war. The* greater size a n d interconnectedness o f capitals t o d a y m e a n s that the destruction of v a l u e w o u l d have t o be p r o p o r t i o n a t e l y greater to return the system t o a new " g o l d e n a g e " . After a l l , even the b a n k r u p t c y o f the w o r l d ' s second biggest e c o n o m y , t h a t o f tin U S S R , t w o decades a g o h a d only m a r g i n a l benefits for rhe rest ot the s y s t e m — a lower g l o b a l price o f oil t h a n w o u l d otherwise have been the case and s o m e c h e a p skilled l a b o u r p o w e r for West European

firms.

It is necessary to repeat that this does n o t a u t o m a t i c a l l y mean endless s l u m p . The limits o n rhe degree to w h i c h s o m e capitals can gain f r o m the destruction o f others d o n o t m e a n that n o gains at all are possible. The w i p i n g o u t o f m a n y s m a l l a n d m e d i u m sized firms c a n p r o v i d e s o m e relief for the g i a n t firms t h a t states p r o p u p . N e w b u b b l e s a n d periods o f rapid g r o w t h in o n e part o f the w o r l d or a n o t h e r are not o n l y possible b u t likely. But they will not involve the w h o l e w o r l d e c o n o m y m o v i n g f o r w a r d u n i f o r m l y a n d will o n l y prepare the w a y for m o r e burst bubbles a n d m o r e crises. A n d the consequences will not only be e c o n o m i c .

304


I'art F o u r

THE RUNAWAY SYSTEM

< IIAPTER TWELVE

The new limits of capital

\ system that u n d e r l i n e s itself ( apitalism became a global system i n the 2 0 t h century in a w a y it had n o t been before. N o t o n l y were there global markets a n d global finance b u t V a p i t a l i s t industry a n d capitalist structures o f cons u m p t i o n arose in every region o f the globe, a l t h o u g h unevenly. As that h a p p e n e d a tendency noted in its e m b r y o n i c f o r m by o n l y the m o s t far sighted thinkers o f the 19th century, i n c l u d i n g M a r x a n d I ngels, developed until by the end o f rhe century it w a s visible to everyone w h o cared to l o o k . This w a s the tendency for the system to u n d e r m i n e the very process o f interaction with nature o n w h i c h it, like every other f o r m o f h u m a n society, d e p e n d e d . T h e m o s t d r a m a t i c expression o f this has been the w a y the acc u m u l a t i o n o f certain gases in the a t m o s p h e r e are raising the global t e m p e r a t u r e a n d p r o d u c i n g c l i m a t e change. C a p i t a l i s t industry a n d its p r o d u c t s a l w a y s h a d devastating env i r o n m e n t a l effects. Observers o f all sorts b e m o a n e d the p o l l u t i o n o f the w a t e r a n d a t m o s p h e r e i n the i n d u s t r i a l areas o f Britain i n I he m i d - 1 9 t h century. C h a r l e s D i c k e n s w r o t e in 1 8 5 4 o f his fictional ( b u t all t o o real) C o k e t o w n , " w h e r e N a t u r e w a s as strongly bricked o u t as k i l l i n g airs a n d gases were bricked in"; 1 Engels told o f h o w , " B r a d f o r d lies u p o n the b a n k s o f a s m a l l , coal b l a c k , foulsmelling s t r e a m . O n w e e k d a y s the t o w n is enveloped in a grey c l o u d o f c o a l s m o k e " . 2 E p i d e m i c s o f cholera a n d t y p h o i d w o u l d sweep t h r o u g h cities; tuberculosis w a s a curse t h a t m o s t w o r k i n g class families were a c q u a i n t e d w i t h . But the disastrous e n v i r o n m e n t a l effects o f c a p i t a l s ' b l i n d selfe x p a n s i o n were local effects. It w a s possible t o escape f r o m the s m o g filled cites, the rivers so polluted that fish c o u l d n o t survive in t h e m , the slag heaps a n d the o p e n sewers. T h e bigger scale o f capitalist p r o d u c t i o n a n d a c c u m u l a t i o n in the 2 0 t h c e n t u r y m e a n t 07

bigger e n v i r o n m e n t a l d e s t r u c t i o n — t h e t r a n s f o r m a t i o n o f agricul rural l a n d i n t o a dust b o w l i n parts o f the US in the 1930s, 11•« h o r r e n d o u s escape of gases that killed t h o u s a n d s in B h o p a l m I n d i a in

1984, the nuclear accidents at Three M i l e Island m

Pennsylvania a n d C h e r n o b y l in U k r a i n e , the d e v a s t a t i o n o f the lives o f the people w h o lived a r o u n d the Aerial Sea as they lost t w o thirds o f their water to c o t t o n p r o d u c t i o n a n d salination set in, ilie collapse o f cities built o n e a r t h q u a k e fault lines. These were, how ever, still local disasters, despite the scale o f the h u m a n S u p p o r t e r s o f c a p i t a l i s m — a n d o f the state c a p i t a l i s m

toll

usuallv

called " s o c i a l i s m " — c o u l d dismiss their relevance as passing acci dents. Critics o f capitalism w o u l d d e n o u n c e their horrors, but not see t h e m as h a v i n g a systemic i m p a c t . It w a s n o t u n t i l the e n d o f rhe 1950s t h a t scientists f o u n d tlir first evidence t h a t m a n - m a d e gases were b e g i n n i n g to create i g l o b a l c a t a s t r o p h e by c a u s i n g average temperatures t o r i s e — a n d n o t until the late 1980s t h a t definite p r o o f emerged o f h o w serious the s i t u a t i o n was becoming. 3 T h e scientific c o n c l u s i o n s are well e n o u g h k n o w n f o r a mere s u m m a r y here t o suffice. T h e m o s t i m p o r t a n t o f these gases, is m o s t p e o p l e n o w k n o w , is c a r b o n d i o x i d e , p r o d u c e d by b u r n i n g c a r b o n based substances such as oil a n d c o a l t o o b t a i n energy a l t h o u g h gases s u c h as m e t h a n e a n d n i t r o u s o x i d e also have t o be taken i n t o c o n s i d e r a t i o n . T h e c o n c e n t r a t i o n o f these gases in the a t m o s p h e r e is m e a s u r e d in terms o f parts o f c a r b o n

dioxide

e q u i v a l e n t per m i l l i o n , or p p m . I n pre-industrial times it w a s 2 8 0 p p m ; it n o w stands at 3 8 5 p p m a n d is rising by a b o u t 2.1 p p m .i year. So far the c h a n g e has been sufficient to raise rhe average t e m p e r a t u r e o f the E a r t h by a b o u t 0.8 degrees Celsius, a n d if emis sions

continue

at

their

present

rate,

there

will

be

further

t e m p e r a t u r e rises o f a b o u t 0 . 2 degrees a decade. T h i s is if other t h i n g s r e m a i n as at present. Bur there are v a r i o u s feedback m c c h anisms produced

by rising t e m p e r a t u r e s

that w o u l d

lead

to

accelerated c h a n g e — t h e m e l t i n g o f ice c a p s , the release o f c a r b o n d i o x i d e in rhe sea o r o f m e t h a n e f r o m arctic t u n d r a , the desertifi c a t i o n o f forests. There is n o f i n a l scientific c o n s e n s u s as t o the t e m p e r a t u r e s (the " t i p p i n g p o i n t s " ) t h a t w o u l d cause these feed back m e c h a n i s m s ro t a k e effect, b u t it w a s w i d e l y accepted in 2 0 0 7 t h a t s o m e w o u l d be likely t o set i n if the t e m p e r a t u r e rose 2 degrees a b o v e the pre-industrial l e v e l — a b o u t 1.2 degrees above that at present (that does n o t p r e c l u d e s o m e o f these m e c h a n i s m s 308

The Runaway System

Miring i n earlier, as, for instance N A S A s J a m e s H a n s o n argued in \pril 2 0 0 8 ) . 4 T o a v o i d t h a t p o i n t being reached, c a r b o n concentrations h a v e t o be kept d o w n — t h e 1PCC argues t o between 4 4 5 and 4 9 0 p p m b u t even 4 0 0 p p m m i g h t push the t e m p e r a t u r e u p to the 2 degrees t h r e s h o l d / O v e r the last t w o decades g o v e r n m e n t s have c o m e t o accept that g l o b a l w a r m i n g is a threat to m u c h o f h u m a n i t y . T h e Stern report f o r the British g o v e r n m e n t , for instance, c o n c l u d e d in 2 0 0 6 : All c o u n t r i e s will be affected b y c l i m a t e c h a n g e , b u t the poorest c o u n t r i e s w i l l suffer earliest a n d m o s t . Average temperatures c o u l d rise by 5 ° C f r o m pre-industrial levels if c l i m a t e c h a n g e goes u n c h e c k e d . W a r m i n g o f 3 or 4 ° C will result in m a n y millions m o r e people being flooded. By the m i d d l e o f the c e n t u r y 2 0 0 m i l l i o n % a y be p e r m a n e n t l y displaced d u e t o rising sea levels, heavier floods a n d d r o u g h t . W a r m i n g o f 4 ° C or m o r e is likely t o seriously affect g l o b a l f o o d p r o d u c t i o n . W a r m i n g o f 2 ° C c o u l d leave 15 to 4 0 percent o f species facing extinction. 6 I here w a s agreement as early as 1992 at the R i o E a r t h S u m m i t o n ihe need t o start n e g o t i a t i o n s o n measures t o reduce emissions, a n d the K y o t o conference five years later p r o d u c e d a general I r a m e w o r k for a c t i o n . By 2 0 0 7 even US president G e o r g e W Bush backtracked a n d accepted rhe principle o f g l o b a l w a r m i n g . T h e significant t h i n g , however, is t h a t such verbal agreement lias n o t been translated i n t o rhe sort o f a c t i o n likely t o prevent the 1 percent l i m i t — o r even higher

figures—being

reached. It t o o k an-

other f o u r years after K y o t o before a conference i n T h e H a g u e agreed o n its i m p l e m e n t a t i o n . The final agreement w a s " w e a k , unenforceable a n d full o f m a r k e t l o o p h o l e s " . the US a n d

Australia had

It w a s n o t o n l y t h a t

refused t o sign u p . T h e

European

powers, w h o w e r e supposedly keen o n the agreement, did n o t keep w i t h i n their targets. There w a s n o reduction in the speed at w h i c h climate c h a n g e gases c o n t i n u e d t o b u i l d u p i n the a t m o s p h e r e . T h e G l o b a l C a r b o n Project reported a record 7.9 b i l l i o n t o n n e s of c a r b o n passing i n t o the a t m o s p h e r e in 2 0 0 5 , c o m p a r e d w i t h 6 . 8 billion t o n n e s in 2 0 0 0 ; the g r o w t h rate o f C O : emissions f r o m 2 0 0 0 t o 2 0 0 5 was m o r e t h a n 2 . 5 percent a y e a r — i n rhe 1990s it was less t h a n 1 percent a year/ T h e G 8 meeting in R o s t o c k in the s u m m e r o f 2 0 0 " w a s p a r a d e d as the occasion w h e n m o r e decisive action w o u l d be f o r t h c o m i n g . 1 he New Limits of Capital

Bur declaring rhere w a s a m a j o r p r o b l e m , rhe w o r l d ' s leaders post p o n e d even beginning ro d o a n y t h i n g a b o u t it for t w o years. A n d all they agreed t o discuss a t that date w a s an a t t e m p t t o halve greenhouse gas emissions by 2 0 5 0 , whereas even an 8 0 percent cut in emissions w o u l d n o t be e n o u g h t o g u a r a n t e e k e e p i n g global w a r m i n g b e l o w 2 degrees/ G o v e r n m e n t s w h i c h have p r o c l a i m e d averting c l i m a t e change ro be at the top o f their a g e n d a s h a v e proceeded t o act as if the a p p e a r a n c e o f d o i n g s o m e t h i n g w a s m o r e i m p o r t a n t t h a n rhe r< ality. T o n y Blair s p o k e of c l i m a t e c h a n g e as the " m o s t serious issue f a c i n g m a n k i n d " . ' 0 H i s g o v e r n m e n t c o m m i t t e d t o a i m at .i g l o b a l figure of 6 6 6 p p m c a r b o n d i o x i d e e q u i v a l e n t (a fitting figure). Yet the Stern r e p o r t c o m m i s s i o n e d by it esrimared that w i t h 6 5 0 p p m there w a s a 6 0 t o 95 percent c h a n c e o f 3 ° (

|

w a r m i n g , a n d an E n v i r o n m e n t D e p a r t m e n t r e p o r t in 2 0 0 3 hail f o u n d thar w i t h " w i t h a n a t m o s p h e r i c C O 2 stabilisation concen t r a t i o n o f 5 5 0 p p m , temperatures are expected t o rise by between 2 ° C a n d 5°C".11 W a t c h i n g such b e h a v i o u r is a bit like w a t c h i n g a car crash in s l o w m o t i o n , w i t h the driver a w a r e o f disaster a h e a d b u t p l o u g h i n g o n regardless.

Competition, accumulation and climate change W h a t explains this b e h a v i o u r ? T h e easy answer f r o m part o f the e n v i r o n m e n t a l m o v e m e n t has been " G r e e n w a s h " , that is, govern m e n t s arc simply p r e t e n d i n g t o care a b o u t the issue f o r reasons ol p o p u l a r i t y . T h a t will be true o f s o m e p o l i t i c i a n s . But it does not e x p l a i n the b e h a v i o u r o f all the m a j o r players in the system. M a n y o f t h e m , perhaps even m o s t , have c o m e to see that c l i m a t e change will w r e a k h a v o c o n the physical a n d biological e n v i r o n m e n t that the system operates in a n d therefore o n rhe system itself. They sec the need t o take a c t i o n , yet are h a l f paralysed w h e n it c o m e s to d o i n g so. N e i t h e r is the paralysis e x p l a i n e d s i m p l y by the pressure o n the p o l i t i c i a n s by l o b b y i n g , bribery a n d b l a c k m a i l by p a r t i c u l a r b i g c o r p o r a t i o n s w h i c h fear a loss o f profits f r o m a n y shift a w a y from carbon-based p r o d u c t i o n a n d t r a n s p o r t a t i o n . These c o r p o r a t i o n s are o f t e n p o w e r f u l l y placed a n d c o u l d , for i n s t a n c e , delay even r e c o g n i t i o n o f c l i m a t e c h a n g e by the US g o v e r n m e n t for several 310

The Runaway System

years. But they h a v e faced s o m e o p p o s i t i o n f r o m o t h e r capitalist nterests w h i c h d o h a v e a direct f i n a n c i a l interest i n t r y i n g to avoid c l i m a t e c h a n g e — t h e i n s u r a n c e c o r p o r a t i o n s , for instance. W h a t has t o be e x p l a i n e d is the relative ineffectiveness o f these counter-pressures. I he issues g o ro the heart of the system as it is currently structured. H i g h levels o f carbon-based energy are central t o virtually every p r o d u c t i v e a n d reproductive process w i t h i n the s y s t e m — n o t Mist t o m a n u f a c t u r i n g industry, b u t t o f o o d p r o d u c t i o n a n d distrib u t i o n , rhe heating a n d f u n c t i o n i n g of office blocks, getting l a b o u r power to a n d from* w o r k p l a c e s , p r o v i d i n g it w i t h w h a t it needs t o replenish itself a n d reproduce. To break w i t h the oil-coal e c o n o m y means a massive t r a n s f o r m a t i o n o f these structures, a p r o f o u n d reshaping o f the forces o f p r o d u c t i o n a n d rhe i m m e d i a t e relations of p r o d u c t i o n t h a t flow o u t o f t h e m . S o m e p e o p l e a r g u e t h a t such r e s t r u c t u r i n g takes place all the t i m e u n d e r c a p i t a l i s m , a n d t h a t ir is s i m p l y a q u e s t i o n o f gove r n m e n t s e n c o u r a g i n g it t o g o in o n e d i r e c t i o n rarher

than

another. T h i s essentially w a s the case p u t by C l i v e H a m i l t o n , del e n d i n g the m a r k e t a p p r o a c h o f the Stern r e p o r t in a p o l e m i c with George M o n b i o t : Stern is c o n f i d e n t that o n c e a p o w e r f u l signal is sent to the m a r k e t , then the m a r k e r w i l l find a w a y t o carry o u t rhe restructuring o f the energy e c o n o m y . There are reasons t o believe t h a t Stern is correct. I n fifty years t i m e the w o r l d will be dramatically different: if a strong signal can be sent n o w , there are g r o u n d s for o p t i m i s m . W h i l e w e currently have the technologies t o reduce the w o r l d ' s emissions s h a r p l y over rhe next decade or t w o , by 2 0 5 0 the m a r k e t — s u i t a b l y g u i d e d — w i l l present a set o f possibilities w e c a n n o t foresee. 12 W h a t is ignored by such a r g u m e n t s is that even if g o v e r n m e n t s d o develop effective price m e c h a n i s m s as signals t o e n c o u r a g e investment a n d p r o d u c t i o n in o n e direction rather t h a n another, they are signals t h a t h a v e t o c o m p e t e w i t h other s i g n a l s — t h o s e that c o m e Irom the pressure t o m a i n t a i n profitability f r o m existing carbonenergy intensive investment. A n oil c o m p a n y m a y begin t o establish d i v i s i o n s a i m e d at dev e l o p i n g c a r b o n free o r l o w c a r b o n energy. But it will also seek ro f i n d p r o f i t a b l e uses f o r its e x i s t i n g massive i n v e s t m e n t 1 he New Limits of Capital

in

c a r b o n intensive m e t h o d s (pipelines, refineries, crackers, drilling e q u i p m e n t ) . T h e s a m e goes for m a n u f a c t u r i n g a n d transport a t i o n c o m p a n i e s . T hey w i l l stick w i t h their existing h e a v y energy u s i n g e q u i p m e n t a n d b u i l d i n g s at last u n t i l they h a v e m o r e t h a n covered rhe cost o f their i n v e s t m e n t in t h e m — a n d w i l l invest m m o r e o f the same, unless the counter-signals f r o m the govern m e n t s are very p o w e r f u l . T h e b e h a v i o u r o f c o n s u m e r s c a n n o t be c h a n g e d b y a mete w a v e o f a price w a n d either. Price s i g n a l s a l o n e are n o t g o i n g to deal w i t h the 10 p e r c e n t o f c a r b o n d i o x i d e p r o d u c e d by cai j o u r n e y s , or the 18 p e r c e n t used in h e a t i n g a n d l i g h t i n g b u i l d ings1,—except

possibly

until

temperatures

have

risen

miu h

a b o v e the 2 degree level. People are s t u c k w i t h t h e i r e x i s t i n g , p o o r l y i n s u l a t e d h o m e s a n d p a t t e r n s o f d w e l l i n g a n d w o r k that m a k e t h e m d e p e n d e n t u p o n c a r travel unless g o v e r n m e n t s d o much more than provide "signals". There is a n even m o r e assertive version o f the a r g u m e n t about the capacity o f c a p i t a l i s m to successfully reshape itself t h a n rli.it p u t by H a m i l t o n . It h o l d s that the c o m p l e t e restructuring o f m dustry t o counter climate c h a n g e w o u l d be beneficial t o capitalism, since it w o u l d "create i n v e s t m e n t " . T h e e c o n o m i c p r o b l e m for c a p i t a l i s m in the 21st century is n o t , however, t h a t there is sonu shortage o f possible ways o f investment. It ts that such investments are n o t profitable e n o u g h . T h e system today, as w e have seen in the previous chapters, is d o m i n a t e d by giant firms based in p a r t i c u l a r states b u t operating across several states a n d s o m e t i m e s the system as a w h o l e . Each firm is c a u g h t between the need t o u n d e r t a k e big a n d expensive in vestments in order t o remain c o m p e t i t i v e a n d uncertainties about the p r o f i t a b i l i t y o f such investments. Investing in n e w f o r m s ol energy or m o r e energy efficient e q u i p m e n t a n d p r o d u c t s is not g o i n g t o o v e r c o m e that c o n t r a d i c t i o n . I n d e e d , d o i n g so w o u l d m a k e it worse for m a n y firms, p r o b a b l y m o s t . They c a n be relied o n t o pressurise s t a t e s — a n d to threaten t o relocate if necessar\ ro

minimise

price

signals

that

clash

with

profitability

G o v e r n m e n t s themselves, i d e n t i f y i n g w i t h n a t i o n a l l y based accu mulation,

will

resist

anything

that

interferes

with

national

competitiveness a n d g o a fair bit o f the w a y w i t h the d e m a n d s m a d e by firms. T h i s is w h y the " s i g n a l s " are so w e a k , a n d w h y those w h o rely o n i n f l u e n c i n g g o v e r n m e n t s , like Stern, e n d u p w a tering d o w n targets in order t o m a k e them seem " r e a l i s t i c " . 312

The Runaway Systeri

As G e o r g e M o n b i o t says, " S i r N i c h o l a s Stern spells o u t rhe • lire consequences o f t w o degrees o f w a r m i n g " b u t " t h e n recommends a target for a t m o s p h e r i c c o n c e n t r a t i o n s o f g r e e n h o u s e gases o f 5 5 0 parts per m i l l i o n " w h i c h w o u l d p r o d u c e " a t least a 77 percent c h a n c e — a n d p e r h a p s u p t o a 9 9 percent c h a n c e , depending

on

the

climate

model

used—of

a

global

average

t e m p e r a t u r e rise exceeding 2 ° C " a n d " a 2 4 percent c h a n c e t h a t temperatures w i l l exceed 4 ° C " . M Stern w a s u n w i l l i n g t o advise cuts o n rhe scale necessitated by Ins o w n c a l c u l a t i o n s because " p a t h s r e q u i r i n g very r a p i d emissions c u t s " were " u n l i k e l y t o be e c o n o m i c a l l y v i a b l e " , as w a s any target l o w e r t h a n 5 5 0 p p m . 1 ' T h e O b a m a election c a m p a i g n in 2 0 0 8 m a d e m a n y promises about

dealing

with

climate change.

Mainstream

economists

argued the recession itself p r o v i d e d a n o p p o r t u n i t y for d o i n g so t h r o u g h the s t i m u l u s packages. Bur w h e n the packages were pro, the picture w a s rather different: T h e packages o f t a x curs, credits a n d extra s p e n d i n g have been t r u m p e t e d for their e n v i r o n m e n t a l credentials by the governm e n t s p r o p o s i n g t h e m , bur a closer l o o k s h o w s t h a t green s p e n d i n g accounts for o n l y a small part o f rhe bigger initiatives. M u c h o f the s p e n d i n g will g o t o projects that w i l l , in fact, increase emissions, such

as n e w

r o a d s o r fossil

fuel

power

stations, w h i l e t o o little m o n e4v will be devoted t o low-carbon /

projects to m a k e a real difference, experts believe. For instance, Barack O b a m a , the US president, w a n t s § 2 7 b i l l i o n ( € 2 1 bill i o n , £ 1 9 b i l l i o n ) t o be spent o n n e w r o a d s , w h i c h w i l l raise traffic emissions. A l t h o u g h s o m e f u n d s will be spent o n develo p i n g low-carbon vehicles such as electric o r h y d r o g e n cars, the benefits gained will be o u t w e i g h e d by the emissions generated by the extra petrol-driven cars. 16 I'odd Stern, the US president's n e w chief c l i m a t e

negotiator,

claimed t h a t it w a s " n o t possible" for the US t o a i m for 25 t o 4 0 percent cuts by 2 0 2 0 , despite the I n t e r g o v e r n m e n t a l Panel o n C limate

Change

(IPCC)

calculating

that

"developed

nations

should a i m for 2 5 ro 4 0 percent cuts by then t o a v o i d d a n g e r o u s climate c h a n g e " . 1 In B r i t a i n " G r e e n c o m p a n i e s " w e r e " i n retreat, w i t h a w a v e of staff layoffs a n d p r o d u c t i o n c u t s " with " S i e m e n s , C l i p p e r t he New Limits of Capital 312

W i n d p o w e r a n d e v e n BP a m o n g the b i g n a m e s . . . r e a c t i n g to .1 s l o w d o w n in the c l e a n energy s e c t o r " . The " c r e d i t c r u n c h " w as "starving

wind

and

solar d e v e l o p m e n t s o f u r g e n t l y

needed

c a s h " a n d the s i t u a t i o n w a s " b e i n g exacerbated by prices crash i n g t o record l o w s i n the c a r b o n t r a d i n g m a r k e t " . " 1 N o n e o f this m e a n s that g o v e r n m e n t " s i g n a l s " have n o effect .11 all. They arc e n c o u r a g i n g n e w areas o f investment in things likewind

and

photoelectric

power

( b u t also in

energy-absorbing

biodiesel). N e w c a p i t a l s — o r i n n o v a t i v e old c a p i t a l s — a r e emerg i n g thar will fight f o r m o r e space a n d m o r e resources for their wares. Emissions w i l l p r o b a b l y rise less rapidly t h a n otherwise, al t h o u g h it is u n l i k e l y they will decline in the s h o r t t e r m . But the e q u i v o c a t i o n will persist w i t h g o v e r n m e n t s a n d industrialists p r o c l a i m i n g their c o m m i t m e n t t o resist climate c h a n g e o n e day a m i their d e t e r m i n a t i o n t o extract the m a x i m u m a m o u n t o f oil or coal f r o m the earth the next.

T h e needs of capital a n d the needs o f capitals T h e e x p a n s i o n o f c a p i t a l s in c o m p e t i t i o n w i t h each o t h e r — o r as M a r x p u t it, the self-expansion o f c a p i t a l — l e a d s t h e m t o a n orgs o f c a r b o n energy use just as they recognise it as self-destructive. T h e p h e n o m e n o n o f capitalism d a m a g i n g its o w n e n v i r o n m c n tal basis is n o t c o m p l e t e l y new, even if it has never occurred o n the scale it is today. In early 19th c e n t u r y c o m p e t i t i v e a c c u m u l a t i o n in Britain led to a lack o f concern a b o u t the physical h e a l t h , even the physical survival, o f c a p i t a l i s m s w o r k e r s . It w a s a neglect that w o u l d inevitably be d a m a g i n g t o y o u t h f u l industrial capitalism as well as to rhe w o r k i n g class, since it threatened t o e x h a u s t the s u p p l y o f fit a n d able l a b o u r p o w e r for e x p l o i t a t i o n . M a r x summed up what was happening: T h e capitalistic m o d e o f p r o d u c t i o n (essentially the p r o d u c t i o n o f surplus v a l u e , the a b s o r p t i o n o f s u r p l u s - l a b o u r ) , p r o d u c e s thus, w i t h the extension o f the working-day, n o t o n l y rhe dete r i o r a t i o n o f h u m a n l a b o u r p o w e r by r o b b i n g it o f its n o r m a l , m o r a l a n d physical, c o n d i t i o n s o f d e v e l o p m e n t a n d f u n c t i o n . Ii p r o d u c e s also the p r e m a t u r e e x h a u s t i o n

a n d death o f this

l a b o u r p o w e r itself. It extends the labourer's t i m e o f p r o d u c t i o n d u r i n g a given period by s h o r t e n i n g his actual lifetime. 314

The Runaway Systeri

hnt in d o i n g so, c a p i t a l i s m shortens the " d u r a t i o n " o f the " l a b o u r p o w e r " o f the i n d i v i d u a l worker, so m a k i n g it necessary t o replace ihis m o r e q u i c k l y t h a n otherwise, so that: the s u m o f the expenses for the r e p r o d u c t i o n o f l a b o u r p o w e r will be greater; just as in a m a c h i n e the part o f its value t o be rep r o d u c e d every day is greater the m o r e r a p i d l y the m a c h i n e is w o r n o u t . It w o u l d seem therefore t h a t the interest [of] capital itself p o i n t s in the direction o f a n o r m a l w o r k i n g day. 1 D i d this m e a n ^ h a t capitalists flocked to c a m p a i g n for shorter w o r k i n g h o u r s a n d m o r e h u m a n e c o n d i t i o n s in the factories a n d w o r k i n g class localities? A few, m o r e farsighted a b o u t the l o n g term needs o f c a p i t a l as w h o l e , d i d . M o s t , however, c a m p a i g n e d against a n y restrictions o n hours, even for children w h o w o u l d o n e il.iy b e c o m e m o r e p r o d u c t i v e , a d u l t , l a b o u r power. A g a i n M a r x s u m m e d u p the capitalist logic at w o r k : In every s t o c k j o b b i n g s w i n d l e everyone k n o w s that s o m e t i m e or other the crash m u s t c o m e , b u t everyone hopes that it m a y fall o n the head o f his n e i g h b o u r , after he himself has c a u g h t the s h o w e r o f g o l d a n d placed it in safety. Apres

mot

le

deluge!

[After m e , the flood] is the w a t c h w o r d o f every capitalist a n d o f every capitalist n a t i o n . H e n c e C a p i t a l is reckless o f the health o r length o f life o f rhe labourer, unless u n d e r c o m p u l s i o n f r o m society. To rhe o u t c r y as t o the physical a n d mental d e g r a d a t i o n , the p r e m a t u r e d e a t h , the torture o f o v e r w o r k , it answers: O u g h t these t o t r o u b l e us since they increase o u r profits? 2 ' It t o o k concerted pressure o n c a p i t a l f r o m the outside, by successive acts o f legislation enacted by the s t a t e — i n part in response t o workers' a g i t a t i o n — f o r the r e p r o d u c t i o n o f l a b o u r p o w e r to be protected f r o m the ravages o f those w h o exploited it. It t o o k s o m e SO years before a n y t h i n g like fully a d e q u a t e protection of such reproduction

w a s in p l a c e — a n d

as we saw in C h a p t e r Five it

required the difficulties in m i l i t a r y recruitment t o b r i n g h o m e t o the state the h a r m w h i c h c a p i t a l h a d d o n e t o its c a n n o n fodder by its lack o f concern w i t h supplies o f l a b o u r power. Exactly the same logic as that described by M a r x is f o u n d in the a t t i t u d e o f c a p i t a l t o the p u m p i n g o u t o f c l i m a t e c h a n g e gases today. C a p i t a l i s t politicians m a k e beautiful speeches a b o u t the t he New Limits of Capital 314

need t o d o s o m e t h i n g , set u p c o m m i s s i o n s a n d intergovernmeui.il meetings, p r o m i s e t o reshape their o w n b e h a v i o u r — a n d then bow d o w n before interests w h i c h say rhat this or t h a t measure t o deal w i t h climate c h a n g e will be t o o costly for the e c o n o m y t o bear. H o w e v e r , there is o n e big difference between t h e tendency in and Walter Eltis, Britain's Econonm Problem: Too Few Producers (Ne\s York, St Martin's, 1976). 34 Marx's term in Capital, Volume One, p349. 35 If they are counted as part of constant capital, this is a peculiar form of constant capital that can walk away from the firm and work elsewhere, and in some interpretations this leads to the view of skilled workers as in some way possessors of their own " h u m a n capital" and a part of their wages is viewed as a "return" on this capital. Ir should be added, however, that disputes over this question can be in danger of turning into pure scholasticism, since in any case the costs of training add to the investment costs of a firm. At the same time, insofar as training is generalised across the system as a whole, it increases average labour productivity and so serves to reduce the value in terms of socially necessary labour of each unit of output—and in doing so reduces rhe gains accruing to rhe individual capitalist from undertaking rhe training. 36 The "tree rider" problem: see, for Note**

instance, Mary G ' M a h o n y , "Employment, Education and H u m a n Capital", in R Floud and P Johnson, The Cambridge Economic History of Modern Britain, Volume Three (Cambridge, 2004). 37 Assuming the labour they train is going to end up as productive labour. 38 See Richard Johnson, "Notes on the Schooling ot rhe Fnglish Working Class 1780-1850", in Roger Dale and others (eds). Schooling and Capitalism (London. Routledge & Kegan-Paul, 1976), pp44-54. See also Seven Shapin and Barry Barnes, "Science, Education and Control", in rhe same volume, pp55-66 % 39 For a hill account of developments in the major industrial countries of the time, see Chris McGuffic, Working in Metal (London, Merlin. 1985). Chapter Six: The Great Slump 1 Charles Kindleberger, The World in Depression 1929-39 (London, Allen Lane, 1973), p i 17. Sec also Albrecht Ritschl and Ulrich Woitek. " W h a t Did Cause the Great Depression?", Institute for Empirical Research in Economics, University of Zurich Working Paper 50, 2000, p i 3 . 2 See the estimates for G N P in Angus Maddison, "I Iistorical Statistics for rhe World Economy: 1-2003 A D " , available at: http://www.ggdc.net/ maddison/Hisrorical_Statistics/ horizontal-file_03-2007.xls 3 For a much more detailed account of the spread of the crisis, with sources, see my Explaining the Crisis, pp55-62. 4 See figures given in Fritz Sternberg, The Coming Crisis (London, Victor Gollancz. 1947), p23; Lewis Corey, The Decline of American Capitalism (London, Bodley Head, 1935), p27. Available at http://www.marxists.org/archive/ corey/1934/decline/ch05.html 5

Quoted in R Skidelsky,yo/»i

Chapters Five to Six

Maynard Keynes, Volume 2 ( London, Macmillan, 1994), p34 I 6 Quoted in W Smaldone. Rudolf Htlferding, p i 05. ~~ See, for instance, Randall E Parker, Economics of the Great Depression, pi4. 8 Sec the summary of rhe Austrian view by Randall E Parker, Economics of the Great Depression, pp 9-10. See also F A Hayek, Pure Theory of Capital I London, Routledge and Keeg3n Paul, 1941), p408, and Profit, Interest and Investment (London, Routledge, 1939) pp33, 47-49, and 173. For a very good conrcmporarv exposition of Hayek's position sec John Strachey, The Nature of Capitalist Crisis (London, Victor Gollancz, 1935), pp56-82. 9 Figures given by Corey in t he Decline of American Capitalism. Robert Brenner and Mark Click, "The Regulation Approach: Theory and History", New Left Review, 1:188 (1991K argue that wages rose sharply in the years before the Crash, bur the graph they provide from S Lebergort, Manpower in Economic Growth (New York, McGraw-Hill, 1964) only suggests a rise of abour the same level as Corey's figures. 10 Michael A Bernstein, The Great Depression (Cambridge, 1987), p i 8 7 . He adds that for rhe population as a whole it rose 13 percent, and for top 1 percent of the non-farm population the figure was 63 percent. 1 1 Robert J Gordon, "The 1920s and rhe 1990s in Mutual Reflection", Paper Presented to Economic History Conference, Duke University, 26-27 March, 2004. 12 Alvin Hansen, Full Recovery or Stagnation (London. Adam and Charles Black, 1938), pp290-29l. Hansen's figures were for 1924-29. 13 Simon Kuznets, Capital m the American Economy ( O l IP.

1961)p92. 367

14 Joseph Gillman, The Vailing Rate of Profit i London, Dennis Dobson. 1956), p27. 15 Joseph Steindl, Maturity and Stagnation in the American Economy < London, Blackwell, 1953), p i55 and following. 16 Alvin Hansen, Full Recovery or Stagnation, p296. 17 As above, pp296 and 298. 18 See rhe calculations in Lewis Corey, The Decline of American Capitalism, Chapter 5. 19 As above, p i 7 0 . 20 Barry Eichengreen and Kris Mitchener, "The Great Depression as a Credit Boom Gone Wrong". Bank of International Settlements, Working Papers N o l 37, September 2003. Available at http://www.bis. org/publ/work 137.pdf?no£rames= 1 21 Corey, The Decline of American Capitalism p i 72. Compare also Gillman, ppl29-130. 22 Barry Eichengreen and Kris Mitchener, "The Great Depression as a Credit Boom Gone Wrong". 23 See, for instance, rhe account given by E A Preobrazhcnskv in The Decline of Capitalism (M E Sharp, 1985), p l 3 7 . 24 See, for instance. Robert J Gordon, "The 1920s and the 1990s in Mutual Reflection". 25 Kmdelberger, The World in Depression 1929-39, p i 17. 26 Marx, Capital, Volume Three, p473. 2 7 Alvin Hansen, Economic Stabilization in an Unbalanced World (Fairfield, NJ, A M Kelley, 1971 |19321), p81. 28 Charles Kindleberger, The World in Depression 7929-39, p i 17. 29 Milton Friedman and Anna Schwartz, The Great Contraction 1929-33 (Princeton University Press, 1965), p21. 30 John Strachey s 1935 account of these contradictory arguments still makes powerful reading today. See Strachey, The Nature of the Capitalist Crisis. pp39-l 19. For m

368

31

32 33 34 35 36 37

interviews with past and presenT mainstream economists purring forward different interpretations, see the rwo volumes by Randall E Parker, Reflections on the Great Depression (Edward Elgar, 2002) and The Economics Of The Great Depression. J M Keynes. General Theory of E mployment, Interest and Money, p i 6 4 . As above, p59. As above, pp 161-162. As above, pp 135-136 and 214. As above, p2L9. As above, p316. As above. p221. For Keynes's account of the "marginal efficient of capital" and its tendency to "diminish", see p p l 35-136, 214, and especially, 314-324. For a comparison of Keyness position with Marx's, see Lcfteris Tsoulfidis, " M a r x and Keynes on Profitability, Capital Accumulation and Economic Crisis", available at http://iss.gsnu. ac.kr/upfilcs/haksu«»' % 5B02-2005 % 5 D Lcfteris % 2 0 Tsoulfidis.pdf

•

38 Hayek's recognition of the physical as well as the value character of producnon distinguishes his writings from those of most of the rest of the marginalist neoclassical school. He admits the importance ol Marx in developing such ideas. See F A Hayek, Prices and Production, pl03.This provides him with certain insights missing in Keynes, despite rhe much more reactionary conclusions Hayek draws. He was too honest for many of his disciples, who can't accept rhe implication that crises are inevitable. 39 F A Hayek, Prices and Production, quoted in Strachey, The Nature of the Capitalist Crisis, p i 0 8 . 40 See the calculations in Joseph Gillman, The hailing Rate of Profit; Shane Mage, "The Law of the Falling Rate of Profit: Its Place in the Marxian Theoretical System «

Nores

and its Relevance for the US Economy" (PhD thesis, Columbia University 1963, released through University Microfilms, Ann Arbor, Michigan); Gerard Dumenil and Dominique Levy, The Economics of the Profit Rate (Edward Elgar, 1993), p254; Lewis Corey, The Decline of American Capitalism gives figures for the 1920s only. 41 For profitability before 1914, see Tony Arnold 3nd Sean McCartney, "National Income Accounting and Sectoral Rates of Return on UK Risk-Bearing Capital, 1855-1914", Essex University Working paper, November 2003, available at http://ww^.essex.ac.uk/AFM/Resea rch/ working_papers/WP03-10.pdf. For profitability before and after the First World War, see Ernest Henry Phelps Brown and Margaret H Browne, A Century of Pay (London, Macmillan, 1968), pp412 and 414; tables 137 and 138. 42 Theo Balderston, "The Beginning of the Depression in Germany 1927-30", Economic History Review, 36:3 (1985), p406. 43 Calculations from Joseph Gillman, The Falling Rate of Profit, p58; Shane Mage, "The Law of the Falling Rate of Profit", p208; and Gerard Dumenil and Dominique Levy, The Economics of the Profit Rate, p248 (figure 14.2). 44 These arc ro be found in Marx, Capital, Volume 3, parr V. 45 This is interpreting Grossman's account as showing how capitalism is driven to extreme crises, not ro a breakdown from which it has no escape. See Rick Kuhn, "Economic Crisis and Social Revolution", School of Social Science. Australian Narional University, February 2004, pi 7. 46 E A Preobrazhensky, The Decline of Capitalism, pp33 and 29. Preobrazhensky was, however, vague as to how this impeded recovery from the crisis. Like many Chapter Six

Marxist economists of the first decades of rhe 20th century he did not pay much attention to the passages in Marx on the tendency of the rate of profit to fall. 47 Michael Bleaney, The Rise and Fall of Keynesian Economics (London: Macmillan, 1985) p47. 48 Charles Kindleberger, The World in Depression 7929-39, p272. 49 Figures given in Fritz Sternberg. Capitalism and Socialism on Trial (London, Victor Gollanz 195 1), p353; Arthur Schweitzer, Big Business in the Third Reich (Bloomington, US, Indiana University Press, 1964), p336. 50 Arthur Schweitzer, Big Business in the Third Reich, p335. 5 I See Chapter Four. 52 C Harrnan, Explaining the Crisis, p71. 53 Fritz Sternberg, Capitalism and Socialism on Trial, pp494-495. 54 A D H Kaplan, The Liquidation of War Production (New York, McGraw-Hill. 1944), p91. 55 As above, p3. 56 John Kenneth Galbraith, American Capitalism (Transaction, 1993), p65. The view that the depression only really ended with the war is accepted by most of the mainstream economists interviewed in Parkers two volumes. 57 The view of Paul Sweezy and Paul Baran in the LIS, of the editorial ream of New Left Review in Britain, rhe left wing of European social democracy, and of the great majority of academic Marxists. 58 Trotsky had developed this notion in rhe 1930s, and it continued to be accepted by supposedly "orthodox" Trotskyists until the collapse of the USSR in 1991—and in a few cases even afterwards. 59 M Reiman, The Birth of Stalinism (London, Taurus, 1987), pp37-38, provides an account of rhe crisis based on internal documents. 60 As above, p89.

169

61 Stalin. Problems of Leninism, quoted in Isaac Deutscher, Stalin (London, Oxford, I % I), p328. 62 Stalin, quoted in F H Carr and R W Da vies. Foundations of a Planned Economy, Volume One (London, Macmillan, 1969), p327. 63 L A Preobrazhensky, The Decline of Capitalism, pi 66. 64 Lewis Corey, The Decline of American Capitalism, p484. His concept of decline did not rule out short periods of growth, but with "shorter upswings" and longer "depressions". 65 John Strachey, The Nature of Capitalist Crisis, pp375-376. 66 H A Preobrazhensky, The Decline of Capitalism, p i 5 9 . 67 I .eon Trotsky, The Death Agony of Capitalism and the Tasks of the Fourth International (1938), available at http://www.marxists.org/ archive/trotsky/1938/rp/indev.htm Chapter Seven: The Long Boom 1 I use rhe term "Western" as shorr for "Western style", in contrast to the "Eastern bloc" countries. 2 Albert Fishlow, "Review of Handbook of Development Economics", Journal of Economic Literature, Volume X X I X (1991), p l 7 3 0 . 3 Monetary measures were included in the conventional Kevnesian tool kit, although Keynes had been sceptical about rheir efficacy. 4 J M Keynes, General Theory of Employment. Interest and Money. pp 135-136, 214, 219 and 376. 5 As above, p376. 6 As above, p378. Robert Skidelsky,yo/?» Maynard Keynes, Volume 2, p60. 8 Generally called "orthodox Keynesianism" or "rhe post-war synthesis" 9 J Robinson, Further Contributions to Economics. 10 J Strachey, Contemporary Capitalism (London, Gollanz, 0

370

1956), p235. 1 I As above, p239. 12 The most recent is Dan Atkinson anil Larry Ellior. The Gods that Failed (Bodley Head. 2008). 13 See, for instance. W i l l 1 Iutton. The State We're In (Jonathan Cape, 1995). 14 Graham Turner, The Credit Crunch (Pluto, 2008). Turner looks to a mixture of rhe ideas of Keynes and the pre-war monetarist Irving Fishei 15 Gerard Dumenil and Dominique Levy, Capital Resurgent: Roots of the Neoliberal Revolution ( H a n .ml University Press, 2004), p i 86. 16 David, Harvey, A Brief History of Neoliberal ism, p i 0. 17 R C O Matthews, " W h y has Britain had Full Employment Since the War?", Economic Joumat, September 1968, p556. 18 Meghnad Desai, Testing Monetarism (London, Frances Pinter, 1981), p76. See also Robert Brenner, The Economics of Global Turbulence, p94. 19 Ton Notermans, "Social Democracy and External Constraints", in K K Cox (ed), Spaces of Globalisation (Guildford Press, 1997), p 2 0 6 . 20 Michael Bleaney. The Rise and Fall of Keynesian Economics (Macmillan. 1985), p l O l . 21 P Aglietta, Theory of Capitalist Regulation (London, New I .eft Books, 1979), p i 6 5 . 22 Robert Brenner and M a r k Glick. "The Regulation Approach: Theory and History'", New Left Review 1:188 (1991). For m\ own. earlier, criticism of the Regulation School, see Explaining the Crisis. pp 143-146. »

23 See Gerard Dumenil and Dominique Levy, The Economics of the Profit Rate, Figure 14.2, p248. For various interpretations of the rate of profit in these decades, see Shane Mage, "The Law of the Falling Tendency ot the Kate of Profit"; Joseph Gillman, The Falling Rate of Profit; William Nores

Nordhaus, Brookings Papers on Economic Activity 5:1 (1974); Victor Perlo, "The New Propaganda of Declining Profit Shares and Inadequate Investment", Review of Radical Political Economics, 8:3 (1976); Martin Feldstein and l-awrence Summers, ~Is the Rate of Profit Falling?", Brookings Papers 1:1977, p216; Robert Brenner. The Economics of Global Turbulence; Fred Moseley, The Falling Rate of Profit in the Post War United States Economy; Anwar-Shaikh and E A Tonak, Measuring the Wealth of Nations. Different ways of measuring arc used, and the figures differ ^jmewhat from each other, with some showing a long-term decline and some a dip in the mid 1950s. But none of them show a fall to the level of rhe first three decades of the 20th century, or to the level of the late 1970s. 24 Shane Mage, "The 'Law of the Falling Rate of Profit'", P 228. 25 Michael Kidron, "A Permanent Arms Economy", International Socialism, 28 (first series, 1967), available at http://www.marxists.org/ archive/kidron/works/1967/xx/ permarms.htm 26 For a longer discussion on rhe analyses of Baran, Sweezy and Steindl, see the Appendix, "Other Theories of the Crisis", in my Explaining the Crisis. 27 Michael Bleaney, The Rise and Fall of Keynesian Economics, p i 04. 28 Mage argues that it rose 45 percent 1946-60. See "The Law of rhe Falling Tendency of the Rate of Profit", p229; Gillman argues that the ratio of the stock of fixed capital to labour employed more than doubled between 1880 and 1900, but grew by only 8 percent between 194" and 1952; Dumenil and Levy show the capital-output ratio for the US nearly doubling between 1945 and 1970, but quadrupling for West Germany, France and Britain Chapter Seven

combined (Dumenil and Levy, Capital Resurgent, Figure 5.1, p40). They also show (pi44) output per unir of capital invested (the "productivity of capital") as falling by about a third in the last two decades of the 19th century• for the LIS, but remaining more or less fixed from 1950 to 1970—this ratio tends to move in the inverse direction to the organic composition. 29 See Michael Kidron, Western Capitalism Since the War (London, Weidenfeld and Nicolson, 1968). For earlier versions of a "permanent war economy" theory, see the article by T N Vance (also known as Walter Oakes) in Hal Draper (edi The Permanent Arms Economy

(Berkeley, 1970). 30 John Kenneth Galbraith. The New Industrial State (Princeton,

2007), p284. 31 As above, pp33-34. 32 As above, p2. 33 E Alvater and others, " O n the Analysis of Imperialism in rhe Metropolitan Countries", Bulletin of the Conference of Socialist Economists (Spring 1974). }4 K Hartani. The Japanese Economic System (Lexington, 1976), p i 35. 35 Miyohai Shonoharu, Structural Changes in Japan's Economic Development (Tokyo, Kinokuniya

Bookstore Co, 1970), p22. 36 Robert Brenner, The Economics of Global Turbulence, p94. 37 The phrase used by Tony Cliff. 38 Kidron estimated that this resulted in a total transfer of value to the developed countries in 1971 of over $14 billion dollars—Michael Kidron, Capitalism and Theory, p 106. 39 See Anwar Shaikh, " W h o Pays tor the 'Welfare' in the Welfare State?", Social Research, volume 70, number 2,2003, http://hornepagc.ncwschool. edu/-AShaikh/welfare_ state, pdt 40 For Britain, see, for instance, Social Trends (1970), which showed that the vasr bulk of increasing

371

41

42

43

44

educational expenditure was concentrated in these areas, while primary education expenditures hardly grew at all. James O'Connor, The Fiscal Crisis of the State (Transaction Publishers, 2001), p i 3 8 . Figures from Alex Nove, An Economic History of the USSR (London, Allen Lane, 1970), p387. See the figures in V Cao-Pinna and S S Shatalin, Consumption Patterns in Eastern an J Western Europe (Oxford. Pergamon, 1979), p62. Figures from Alex Nove, An Economic History of the USSR. p387. Angus Maddisoifs more recent calculations suggest the output of the USSR grew about three-fold between 1945 and 1965. slightly faster than the 19 states he includes in Western F.urope and more than SO percent faster than the US. http://www.ggdc.net/ maddison/Historical_Statistics/ horizontal-file_03-2007.xls

45 Pravday 24 April 1970. 46 This was a key insight of Tony Cliff in The Nature of Stalinist Russia (1948], reprinted in Marxist Theory A fter Trotsky, pp80-92. 47 D W Conlkin, "Barriers to Technological Change in the USSR", Soviet Studies (1969), p359. 48 Josef Goldman and Karel Korba, Economic Growth in Czechoslovakia (White Plains, N Y , International Arts and Sciences Press, 1969). 49 Branko Horvat, "Business Cycles in Yugoslavia", Eastern European Economics, Volume X , 3-4 (1971). 50 Raymond Ilutchings, "Periodic Fluctuation in Soviet Industrial Growth Rates", Soviet Studies, 20:3(1969), pp331-352. The unevenness from vcar to vear is shown clearly in Madison's figures for GDP, sec http://www.ggdc.net/ maddison/Historical_Statistics/ horizontal-file JJ3-2007.xls 9

9

51 F Sternberg, Capitalism and 372

Socialism on Trial, p538. 52 For details, see C H a r m a n , Class Struggles in Eastern Europe 1945 H3 (London, Bookmarks, 1988), pp42-49. 53 New York Times, 5 July 1950, quoted in T N Vance. "The Permanent War Economy", New International, JanuaryFebruarv 1951. 54 M Kidron, "Imperialism: The Highest Stage but O n e " , in Capitalism and Theory, p 131. 0

55 J Stopford and S Strange, Rival States, Rival Firms (Cambridge, 1991), p ! 6 . 56 For a succincr account of rhe role played by Israel as an tool for imperialism see John Rose, Israel. I he Hijack State ( London, Bookmarks, 1986), available at http://www.marxists.de/ middlea st/rose/ 57 See the fascinating account of how M a lav nanonalists used ethnic riots against the country's Chinese minority to stage a "coup" committed ro the path of "state capitalist" development of Industrie under their own control—Kua Kia Soong, "Racial Conflict in Malaysia Against rhe Official History". Race & Class 49 (2008), pp33-53. 58 World Bank, World Development Report, l 9 9 I . p p 3 3 - 3 4 59 For summaries of these arguments, see I Roxborough, Theories of Underdevelopment (London. Macmillan, 1979), Chapter 3; Nigel Harris, The End of the Third World (Harmondsworth, Penguin, 1987) and R Prebisch, "Power Relations and Marker Forces", in K S Kim and D F Ruccio, Debt and Development in Latin America (Indiana, Notre Dame, 1985), pp9-31. 9

60 I Roxborough, Theories of Underdevelopment, pp27-32. 61 A Gunder Frank, "The Development of Underdevelopment", Monthly Revieiu, September 1966. 62 As Roxborough points out, Gunder Note**

63

64 65

66

67

68 69

70 71

Frank "never claimed ro be a Marxist"—Theories of Underdevelopment, p49. P Baran, The Political Economy of Growth (Harmondsworth, Penguin, 1973), p399. P Baran, The Political Economy of Growth, p416. A Gunder Frank, Capitalism and Underdevelopment in Latin America (Harmondsworth. Penguin, 1971), pp35-36. Despite Baran's preparedness to criticise certain features of Stalin's rule, he quoted Stalin favourably himself and accepted Stalinist claims about the USSR's agricultural performance and living standards that were completely false. See, for example, P Baran, The Political Economy of Growth, p441. Nigel Harris, "The Asian Boom Economies", International Socialism 3 (1978-9), p3. Lenin, Imperialism, Chapter 4. "The Export of Capital". Leon Trotsky, The Third International After Lenin (New York, Pioneer, 1957), p i 8 . Leon Trotsky, The Third International After Lenin, p209. See the comparison of Italian and Argentinian growth rates in M A Garcia, "Argentina: El Veintenio Desarrollista", in Debate, 4 (1978), p20.

72 "Argentina", Citta Future Anno V;, 1 (Rome, nd), p3. 73 Figures Given in Geisa Maria Rocha, "Neo-Dependency in Brazil", New Left Reiriew, 2:16(2002). 74 Economist, 29 March 1986. 75 Press release summarising a report for the World Bank by Benno Ndulu, Facing the Challenges of African Growth, available at http://web.worldbank.org/WBSni-7 E X T E R N AIVCOUNTRIES/ A FRIC A E XT/0„con tent M D K: 21121869~menuPK:258658-page PK:2865106~piPK:2865128-rhc SitePK:258644,00.html Chapters Seven to Eight

7

6 Bill Warren, "Imperialism and Capitalist Industrialization", New Left Review. 1:81 (1973). 77 As above. 78 As above. 7 9 As above. 80 Leon Trotsky, The Third International After Lenin, p209. Chapier Eight: The End of the Golden Age 1 For details see, for instance, Robert Brenner, The Economics of Global turbulence, p p l 3 9 and 146. For a contemporary attempt to analyse rhe inflation of 1970, see "Survey: The Economy", in International Socialism, 46 (first scries, 1971). 2 Guardian, 26 September 1983. 3 Joan Robinson, Further Contributions to Economics, p36. 4 Quoted in the Guardian, 15 September 1994. 5 Frederic Lee, "The Research Assessment Exercise, the State and the Dominance of Mainstream Economics in British Universities", CCambridge Journal of Economics, Volume 31: 2 (2007). 6 William Keegan. Mrs Thatcher's Economic Experiment (Harmondsworth, Penguin, 1984), p l 2 6 . 7 William Keegan, Mr Maudhng's Gamble (I ondon, Hodder and Stoughton, 1989), p i 4 4 . 8 As above, p p l 0 3 and 127. 9 As above, p i 7 3 . 10 See R W Garrison, "Is Milton Friedman a Keynesian?" in M Skousen (ed), Dissent on Keynes (New York, Praeger, 1992), p i 31. 11 H H Happe, in M Skousen (ed). Dissent on Keynes, p209. 12 J R Schumpeter, Capitalism, Socialism and Democracy, p i 0 3 . 13 Schumpeter had tried to explain why expansion rook place at different speeds ar different points in rhe history of capitalism by reference to "long waves", based upon the differing tempos ol 373

innovation. But since innovation depends on rhe wider dynamics of the system, it is hardly an explanation of the latter. For a long discussion on these matters see Harman, Explaining the Crisis, ppl32-l 36. 14 Ton Notermans, "Social Democracv and External Constraints", in Kevin R Cox, Spaces of Globalisation. 15 Companies will often do their best to understate their profits to governments, for tax reasons, and to workers, in order to justify low wages; rhey also often overstate their profits to shareholders, in order to boost their stock exchange ratings and their capacity to borrow. 9

16 Thomas Michl, " W h y is the Rate of Profit still Falling?", Jerome Levy Economics Institute, Working Paper 7, September 1.988. 17 Anwar Shaikh and E Ahmet Tonak, Measuring the Wealth of Nations. 18 Ufuk Tutan and A1 Campbell, "The Post 1960 Rate of Profit in Germany", Working Paper 05/01, Izmir LJniversity of Economics, Turkey 19 Edwin R Wolf. "What's Behind the Rise in Profitability in the US in the 1980s and 1990s", Cambridge Journal of Economics 27 (2003), pp479-499 20 Piruz Alemi and Duncan K Foley, "The Circuit of Capital, US Manufacturing and Non-financial Corporate Business Sectors, 19471993", September 1997, available at http://homepage.newschool.edu/ -foleyd/circap.pdf 21 Gerard Dumenil and Dominique Levy, "The Real and Financial Components of Profitability", 2005, p i 1, available at http^/www. jourdan.ens.fr/levy/ dle2004g.pdf 22 Robert Brenner, The Economics of Global Turbulence, p7. 23 Fred Moseley, "The Rate of Profit and the Future of Capitalism", Review of Radical Political 374

Economics (May 1997), available at http://www.mtholyoke.edu/ -fmoseley/RRPE.html 24 Gerard Dumeml and Dominique Levy, "The Real and Financial Components of Profitability". 25 Andrew Glyn and Bob Sutcliffe, British Capitalism, Workers and the Profits Squeeze (Harmondsworth, Penguin, 1972> 26 Bob Rowthorne, "Late Capitalism", New Left Review,

1:98 (1976), p67. 7

2' Ernest Mandel, Late Capitalism (London, New Left Books, 1975), p i 7 9 . 28 Martin Wolf, Fixing Global Finance (Yale, 2009) pxii. 29 For a summary of the evidence, se< Chris Flarman, Explaining the Crtsts, ppl23-124. 30 Victor Perlo, "The New Propaganda of Declining Profit Shares and Inadequate Investment", pp53-64. For a damning recent refutation of the view that increased wages were the cause of falling profit rates see Robert Brenner, The Economics of Global Turbulence, p i 39. 31 M N Baily, "Productivity and the Services of Capital and Labour". Brookings Papers on Economic Activity, 1981:1 32 Bank of England Quarterly Bulletin, 1978. p517. 33 Financial Times, 3 March 1977. 34 Thomas Michl, " W h y Is rhe Rare ot Profit Still Falling?" 35 Edwin Wolff, "What's Behind the Rise in Profitability in the US in the 1980s and 1990s?" 36 Figures for non-residential business capital given in H Patrick and H Rosowski (cds), Asia's New Giant (Washington, Brooking Institution, 1976), p i 12. 37 As above, ppl 1-12 and 55. 38 As above, p8. 39 David Halbersram, The Best and the Brightest (London, 1970), p78 40 US Department of Commerce Nores

figures are given in Joseph Stemdl, "Stagnation Theory and Policy", Cambridge Journal of Economics, Volume 3 (March 1973). 41 For a longer discussion on this, see Harman, Explaining the Crisis, pp 137-140. 42 Robert Brenner points repeatedly in The Economics of Global Turbulence to the way i n which German and Japanese industry was able to be profitable at the expense of US industry—although, as we have seen earlier, he-does nor relate this to Marx's account of falling profit rates. 43 M N Baily, "Productivity and the Services^ f Capital and Labour". 44 The argument is Baily\—though he does not, of course, present it in Marxist terms as referring to the way concrete labour inside the US has to be evaluated in terms of abstract labour on a world scale. 4.5 For exceptions, see Tony Cliff, Russia: a Marxist Analysis (London, International Socialism, 1964); and Chris Harman, "Prospects for the Seventies: Hie Stalinist States", International Socialism 42 (first series, 1970). 46 E Germain (Ernest Mandel) Quatrieme International. 14 (1956), 1-3 (my translation). 47 Ernest Mandel, "The Generalised Recession of the International Capitalist Economy", Inprecor, 1617(1975). 48 See the Report on Draft Guidelines for Economic and Social Development, given by the then Soviet prime minister, N Ryzhkov, to 27th Congress of the CPSU, March 1986. 49 Abel Aganbegyan, Pravda, 5 April 1988. 50 J Knapp, Lloyds Bank Review, October 1968, p9. Quoted in Chris Harman, "Prospects for the Seventies: the Stalinist Stares". "I hese figures were based on official Eastern bloc sources at the rime; 0

Chapter Eight

American estimates showed growth rates in rhe USSR as being between two thirds and three quarters of the Soviet estimates, but with the same downward trend. For other estimates and a discussion on the different figures, see B Kostinsky and M Belkindas, "Official Soviet Gross National Product Accounting", in CIA Directorate of Intelligence, Measuring Soviet GNP, Problems and Solutions, Washington 1990. 51 Finansy SSSR. 28/69. 52 Sol/henitsyns short story For the Good of the Cause provides a graphic sense of the frustration and bitterness this caused to those involved m producing. 53 Fl Liebcnstein, "Allocative Inefficiency v. ^-Inefficiency*", American Economic Review, June 1960. 54 Robert S Whitesell, " W h y Does the USSR Appear to be Allocarively Efficient", Soviet Studies, 42:2 (1990), p259. 55 V Selyunin, Sotsialistischeksaya Industrial 5 January 1988, translated in Current Digest of the Soviet Press, 24 February 1988. See also A Zaichenko, " H o w to Divide the Pie", Moscow News 24, 1989. See also the figures from Narodnoe khoziiaistvo SSR. in Mike I layncs. Russia: Class and Power I 9 17-2000 (London, Bookmarks, 2002). 56 Marx, Capital, Volume One, pp648-652. 57 " A n Open Letter to the Party", published in English as Jacek Kuron and Karol Modzelewski. A Revolutionary Socialist Manifesto (London, International Socialists, nd ), p34. 58 Batara Simarupang, Forward to The Polish Economic Crisis (London, Rourledge. 1994). 59 Barang Simatupang, The Polish Economic Crisis, p3. 60 As 1 wrote in 1977, bringing together the analyses of Tony Cliff and Kuron and Modzelewski, "The 375

Polish crisis is an expression of something much greater. The era in which the state could protect national capitalism from the direct impact of world crisis is drawing to an end. Discussion on 'state capitalism needs to give way to discussion of the world system of state capitalism... Each national state capitalism is more and more sucked into a chaotic, disorganised, world system where the only order is that which is provided by the crises and destructiveness of rhe world market itself"—Chris H a r m a n , "Poland: Crisis of State Capitalism " , International Socialism, 94 (first series, 1977). 61 Chris H a r m a n , Class Struggles m Eastern Europe, p332. 62 Report of meeting of USSR Council of Ministers by D Valavoy, Pravda, 19 September 1988. All reports from the Soviet press are from the monitoring service unless indicated otherwise. 63 Pravda, 6 February 1989. 64 Soviet TV report of 17 January of a Council of Ministers meeting, BBC Monitoring Reports« February 1989. 65 Moscow News, 25 October i989. 66 hvestui, 22 October 1988. 67 Pravda, 31 October 1989. 68 I Adirim, " A Note on the Current Level, Partem and Trends of Unemployment in the LJSSR", Soviet Studies, 41: 3 (1989). 69 Trudy 12 January 1989. 70 Tass, 25 October 1989. 71 Maddison's figures show Japanese G N P overtaking that of the USSR in 1987, see http://www.ggdc.net/ maddison/Historical_Sratistics/ horizontal-file_03-2007.xls 72 Figures given by Costas Kossis in "Miracle W i t h o u t E n d " , International Socialism 54 (1992), p i 19. 73 Figures from Angus Maddison. given in Takeshi Nakatani and Peter Skort, "Japanese Growth and Stagnation: A Keynesian 376

Perspective", University of Massachusetts Working Paper 2006-4, February 2006, available h http://www.umass.edu/economits/ publications/2006-04.pdf 74 World Development Indicators database. World Bank, 1 July 200 75 Costas Kossis, "Miracle Without E n d " . Maddison's figures suggest t was just over 40 percent of the I S size in 1992. 76 Stefano Scarpctta, Andrea Bassanini, Dirk Pilat and Paul Schreyer, Economic Growth In Thi O E C D Area: Recent Trends At The Aggregate And Sectoral Level. Economics Department Working Papers N o 248, O E C D / 2 0 0 0 . 77 Figures given by Robert Brenner, The Economics of Global Turbulence, p8. 78 Figures given by Arthur Alexander, Japan in the context of Asia (Johns Hopkins University, 1998). 79 Costas Kossis, "Miracle Without E n d " , p i 18. 80 Arthur Alexander, Japan in the Context of Asia, figure 2. 81 Productivity in manufacturing, judged to be rhe most efficient sector of the economy, was variously estimated at 75 percent to 80 percent of the US figure. 82 Rod Stevens, "The High Yen Crisis in J a p a n " , Capital and Class, 34 (1988), p77. 83 As above, pp76-77. 84 Karel van Wolferen, "Japan in rhe Age of Uncertainty", New Left Review 1:200 (2003). 85 Costas Lapavitsas, "Transition and Crisis in the Japanese Financial System: An Analytical Overview , Capital & Class, 62 (1997). 86 karel van Wolferen, "Japan in the Age of Uncertainty". 87 Figures given by Gavan M c C o r m a c k , "Breaking Japan's Iron Triangle", New Left Review, 2:13(2002). 88 Regrettably, some left wing commentators with a quite justified Note**

89

90 91

92 93 94

95

distaste for the Japanese ruling class also imply that if it had been more "Western" in its approach to competitiveness, things would have turned our differently . Sec, for example, R Taggart Murphy, "Japan's Economic Crisis", New Left Review. 2:1 {2000). Fumio Hayashi and Edward C Prescott, "The 1990s in Japan: A Lost Decade", September 2001, available at: hrrp://www. minneapolisfed.org/research/ prescott/papers/JapanTpdf As above. Paul Krugman, "Japans Trap", May 1998. available at h rtp:// web ^ n t .ed u/k r ugma n/ww w / japtrap.html Richard Koo, The Holy Grail of Macroeconomics (Wiley, 2008). Gavan McCormack, "Breaking the Iron Triangle". Fumio Hayashi and Edward C Prescott, "The 1990s in Japan: A Lost Decade". For India, see. for instance, Vivek Chibber. Locked in Place (Tulika Books and Princeton University Press, 2004), p252; for China, the official figures show a halving of the growth rate for 1976-8 compared with rhe early 1950s and rhe mid-1960s—see Justin Yifu Lin, Fang Cai and Zhou Li, "PreReform Economic Development in C h i n a " , in Ross Garnaur and Yiping Huang, Growth Without Miracles (Oxford, 2001), p61.

96 See graph in World Bank, World Development Report 1991. 97 A de Janvry, "Social Disarticulation in Latin American History", in K S Kim and D F Ruccio, Debt and Development in luitm America, p49. 98 D F Ruccio, "When Failure becomes Success: Class and the Debate over Stabilisation and Adjustment", World Development, 19:10 (1991), p 1320. 99 A de Janvry, "Social Disarticulation in Latin American History", p67. Chapters Eight to Nine

100 K S Kim and D F Ruccio, Debt and Development in Latin America, p I 101 A Fishlow, "Revisiting rhe Great Debt Crisis of 1982", Working Paper 37, Kellogg Institute. University of Notre Dame, May 1984, p 106. 102 IMF. quoted in A Fishlow, -Revisiting the Great Debt Crisis of 1982", p l 0 8 . 103 Figures given in A A Hoffman. Capital Accumulation in Latin America (1992). 104 Report by the Techint group of companies, June 2001—see www.techintgroup.com 105 Financial Times, 13 July 1990. 106 U N C T A D Handbook of Statistics, 2002. 107 J Stopford and S Strange, Rival States, Rival Firms, p8. 108 Figure given in Romilly Greenhill and Ann Pettifor, HI PC: How the Poor are Financing the Rich, a report from Jubilee Research at the New Economics Foundation (April 2002), available ar www.jubilee2000uk.org 109 "Trade Makes US Strong", www.usrrade.org I 10 M C Penido and D Magalhaes Prates, "Financial Openness: The Experience of Argentina, Brazil and Mexico'", CEPAL Review 70 (2000), p61. 111 As above, p60. 112 I M F World Economic Outlook 1996. See http://www.imf.org/ external/pu bs/ft/fandd/1996/12/ pdf/demasi.pdf 113 World Bank figures, see http://lnweb90.worldbank.org/ ECA/eca.nsf/General/l F68871C 993E5A548S256CDB0058A048? OpenDocument Chapter Nine: The Years of Delusion 1 Ben Bernanke, Speech to the Eastern Economic Association, Washington D C , February 20, 2004, available at http://www. federa lreserve.gov/ BOARDDOCS/SPEECFTES/2004/ 377

20040220/default.htm 2 Philip Thornton, Independent, 1 November 1999. } Precis in the US government publication, M o n t h I) Labor Review Online, of an article by W Michael Cox and Richard Aim in the 1999 Annual Report of the Federal Reserve Bank of Dallas, available at http://www.bls.gov/ opub/mlr/2000/06/precis.hrm 4 This is based on my personal recollection of debating with Desai at LSF and Minford at Cardiff University at rhe rime. 5 6

Financial Times, 11 September 2001. See, for instance, "US Recession May Have Ended Before It Began", Financial Times, I March 2002. World Bank, World Development Indicators. 8 For further discussion on this, see the my response, "Misreadings and Misconceptions" to Jim Kincaid, "The World Economy—A Critical C o m m e n t " , in International Socialism 119(2008). 9 Marco Terrones and Roberto Cardarelli, "Global Balances, A Savings and Investment Account", World Economic Outlook. International Monetary Fund, 2005,Chapter Two (Fig. 2.1) available at http://www.imf.org/ exte rn a l/p u bs/fr/wco/2005/02/pd f/ chaprer2.pdf 10 David Kotz, "Contradictions of Economic Growth in the Neoliberal Era ", Review of Radical Political Economy, 40:2 (2008). 1 I Fred Moselcy, "Is The US Economy Headed For A Hard Landing?", available at hrtp://www.mtholyoke. edu/~fmoseley/#working 12 Kerry A Mastroianni (ed). The 2006 Bankruptcy Yearbook and Almanac, Chapter 11, available from www. ban k ru prey data .com/ C h i lHisrory.htm 13 Joseph Stiglitz, The Roaring Nineties: Why We're Paying the Price for the Greediest Decade in 378

History iHarmondsworth, Penguin, 2004). 14 Gareth Dale, Between State Capitalism and Globalisation (Peter Lang, 2004), p327. 15 R Honohan and D Klingebiel, quoted in Charles Goodhart and Dirk Schoenmaker, "Burden Sharing in a Banking Crisis in Europe", available at http:// w w w. riks ban k .com/page folde rs/ 26592/2006__2a rtikel3_sv.pdf 16 See the O E C D report on these questions, "Government Policies Towards Financial Markets", Paris 1996, available at http://www.olis. oecd.org/olis/1996doc.nsf/3dcc6dS2 b533cf6ecl25685d005300b4/a3cdi 538b08dc983cl2563a20050fa59/S FII. E/ATTKJ Y Q H / 0 9 E60677. doc 1~ l-red Magdoff, "The Explosion of Debt and Speculation", Monthly Review, 58:6 (2006), p5. 18 Stefano Scarpetta, Andrea Bassanini, Dirk Pilat and Paul Schrever. "Economic Growth in the O E C D Area: Recent Trends at the Aggregate and Sectoral Level", O E C D Economics Department Working Papers 248 (2000), p26. 19 Figures supplied by Robert Brenner at rhe Historical Materialism Conference, London 2007. 20 Table from Stefano Scarpetta, Andrea Bassanini, Dirk Pilat and Paul Schrevet, "Economic Growth in the O E C D Area: Recent Trends at the Aggregate and Sectoral Level". 21 As above, p30. 22 For mainstream economic discussions on the increased rare ot depreciation due to computerisation, see Stacey Tevlin and Karl Whelan, "Explaining the Investment Boom of the 1990s", Journal of Money, Credit and Banking, 35 (2003); for an earlier discussion on rhe shortening of the lifetime of fixed capital and thus ot increasing depreciation rates, see Martin S Fcldstem and Michael Rothschild, "Towards an Economic m

*

Note**

Theory of Replacement Investment". Econometrics, 42:3 (1974). pp393-424. They suggest M a significant change in the average expected age of new non-farm investment ...from 19.8 years in 1929 to 15.3 years in 1963." 23 Total labour compensation, including employers' social security and pension contributions and imputed labour income for selfemployed persons. For figures, see http://ocde.p4.siteinternet.com/ publications/doifilesT

24

812007131 G25.xls .There would seem to be problem with using these figures to compare labourshares fr«%|i country to country, as opposed to over time, since other data indicate a much higher share of capital accumulation in Japan than in rhe US and Western Europe. Chuck Collins. Chris Harrman and Holly Sklar. "Divided Decade: Economic Disparity at the Ccnturv's Turn". United for a Fair Economy, 15 December, 1999. See rhe graph in G Dumenil and D Levy, Capital Resurgent, p46. International Labour Organisation figures, available from www.ilo. org/public/english/bureau/inf/pr/ 1999/29.htm The figures given by various sources varv considerably, depending on how they count partrime working and whether they take into account unpaid overtime measurements. Other figures, based on reports from firms, show a bigger rise than do the I L O figures. BBC report, 5 September 2005. Anwar Shaikh. " W h o Pays for the 'Welfare' in the Welfare State?" Table from Duane Swank and Cathie Jo Martin, "Employers and rhc Welfare State", Comparative Political Studies, 34:8 (2001), pp917-918. 0

25 26

27 28 29

30 Figures from US Department of Labor, Organization for Economic Cooperation and Development. There are discrepancies with the Chapter Nine

II O figures for individual countries, bur rhc same overall partem between countries. 31 Productivity per worker in France was only 7 0 percent of rhar in rhe US, but productivity per hour worked is 5 percent higher—figures for the year 2000 from EU, Ameco data base, given in Olivier Blanchard. "European Growth over the Coming Decade". September 2003, http://www.mit.edu/files/1779 32 Details from Stefan Bornost, in "Germany: The Rise of the Left", International Socialism, 108 (2005). 33 Stephen Broadberry. "The Performance of Manufacturing*", in Roderick Floud and Paul Johnson, The Cambridge Economic History of Modern Britain (Cambridge, 2004), P 59; Office of National Statistics, Monthly Digest of Statistics, July 2007. Table 7.1. 34 For greater detail, see Chris Harman, "Where is Capitalism Going: Part Two", International Socialism, 60 (1993), pp9$-101. 35 Chen Z h a n , ediror of The China Analyst, June 1997. 36 Ching Kwan Lee. " ' M a d e in China': Labor as a Political Force?", University of Montana, 2004, available on htrp://www.umt.edu/ Mansfield/pdfs/2004LeePaper.pdl 37 For the full story see rhe issues of rhe China Daily (Beijing) for the second week of August 2005. 38 C Guidi and W Chuntao, Survey of Chinese Peasants, quoted in Yang Lian, "Dark Side of rhe Chinese M o o n " , New Left Review, 2:32 (2005), available at http://www. newleftreview.net/NLR26606.shtml 39 South China Post, quoted in M Hart Landsberg and P Burkett, "China and the Dynamics of Tra nsnati onal Accu m u la tion ", paper given at conference on "The Korean Economy: Marxist Perspectives". Gycongsang National University, |in|u. South *79

Korea, 20 M a y 2005, p24. 40 Figure given by Martin W o l f , in Fixing Global Finance (Yale, 2008), p l 6 5 . 41 Steven Barnettand Ray Brooks. "What's Driving Investment in China?", IMF Working Paper 265 (2006), available at http://ideas.re pec.org/p/imf/ imfwpa/06-265.html 42 As above. 43 Jahangir Aziz and Li Cui, "Explaining China's Low Consumption: The Neglected Role of Household Income", IMF Working Paper 181 (2007), available at http://www.iinf.org/external/ pubs/ft/wp/2007/ wp07181 .pdf 44 As above. 45 From Jahangir Aziz and Steven Dunaway, "China's Rebalancing Act", Finance and Development (IMF), 44:3 (2007) available at http://wwwMmf.org/external/pubs/ ft/fandd/2007/09/aziz.htm 46 Figure quoted in M H a n Landsbcrg and P Burkett. "China and the Dynamics of Transnational Accumulation", p5. 47 Quoted by J Kynge, Financial Times, 23 September 2003. 48 Financial Times, 4 February 2003. 49 Quoted in Financial Times, 18 November 2003. 50 Jonathan Anderson, "Solving China's Rebalancing Puzzle", Finance and Development, (IMF), 44:3 (2007), available at http://www.imf.org/exrernal/pubs/ ft/fandd/2007/09/anderson.htm. 51 Ray Brooks, "Labour Market Performances", in Eswar Prasad (ed), China's Growth and Integration in the World Economy (IMF, 2004). 52 The "secondary sector" includes construction, water, electricity generation, etc, as well as manufacturing. 53 Steven Barnetrand Ray Brooks, "What's Driving Investment in C h i n a ? " p5. 54 Phillip Anthony O'Hara, "A Chinese 380

Social Structure ol Accumulation for Capitalist Long-Wave Upswing?' , Review of Radical Political Economics, 38 (2006 , pp397-4(M But as with all calculanons of prohi rates, there can be doubts as to the accuracv» of the statistics he bases his calculations on—particularly sinct his figures indicate a decline in the rate of exploitation, which hardly his ui with the declining proportion ol wages and consumption in G N P shown in Jahangir Aziz and Li C m "Explaining China's Low Consumption: The Neglected Roll of Household Income". 55 Figures given in Jesus Felipe, Editha Lavina and Emma Xiaoqin Fan, "Diverging Patterns of Profitability, Investment and Growth in China and India during 1980-2003", World Development. 36:5 (2008), P 7 4 8 . 56 Z h a n g Yu and Z h a o Feng, "The Rate of Surplus Value, rhe Composition of Capital, and the Rate of Profit in the Chinese Manufacturing Industry: 19782005" , paper presented at the Second Annual Conference of the International Forum on rhe Comparative Political Economy of Globalization, 1-3 September 2006, Renmin University of China, Beijing, China. 57 Quoted in J Kynge, Financial Times, 23 September 2003. See also Steven Barnert, "Banking Sector Developments", in Eswar Prasad (cd), Chinas Growth and Integration in the World Economy. 58 Steven Barnett and Ray Brooks, "What's Driving Investment in China?, p i 7 . 59 Sebastian F Bruck, "China Risks Caution Overkill After Bear Prudence", Asia Times, 26 March 2008. 60 Quoted in Jahangir Aziz and Steven Dunaway, "China's Rebalancing Act". 61 Thomas Lum and Dick K Nanto, Note**

"China's Trade with rhe United States and rhe World", C R S report to Congress, January' 200 7 , available at hnp://digi talcommons.ilr.cornelJ.edu/ cgi/vicwcontent.cgi?artic!e= 101 7 &Ccontext=key_workplace 62 China's share of global output was estimated at 10.9 percent, the US's at 21.4 percent. See Selim Elekdag and Subir Lall, " G l o b a l Growth Estimates Trimmed After PPP Revisions". IMF Survey Magazine, 8 January 2008. 63 See Financial Express, 3 0 A p r i l 2004, available at www.fin a nc i a le x p ress .com 64 Petia Topalova, "India: Is the Rising Tide L i n i n g All Boats?". I M F Working Paper. WP/08/54. M a r c h 2008, available at www.imf.org/external/pubs/ft/wp/ 2008Avp0854.pdf

Call Centre G r o w t h " , UNI 2006, http://www.unidocindia.org/images/ Labour%20shortage%20threat%20 to%201ndian%20call%20centre% 20growth.pdf Chapter Ten: Global Capital in the New Age 1 W T O Annual Reports 1998 and 2008. 2 3

4

65 A Banerjee and T Pikettv, " lop Indian Incomes, 1922-2000", World Bank Economic Review, 19:1, ppl20, quoted in Pctia Topalova, "India: Is rhe Rising Tide Lifting All Boars?" 66 Abhijit Sen and Himanshu, "Poverty and Inequality in India: Getting Closer to rhe Truth", Ideas, 5 December 2003. available ar http://www.nerworkideas.org/ themcs/inequality/may2004/ie05_ Povertv• •W C . h t m . There has been a very long discussion on how to interpret the official figures in various articles in the Economic and Political Weekly. 67 Figure for 1992 from Abhiiit Sen, Force, 20 April 2004. 68 Abhijit Sen, Force, 20 April 2004. 69 Sukti Dasgupta and Ajit Singh, "Manufacturing, Services And Premature De-Industrialisation In Developing Countries," Centre for Business Research, University O f Cambridge Working Paper N o 327. 70 Figures given in Ministry of Labour and Employment, "India, Informal Sector In India , Approaches for Social Security". 71 "Labour Shortage Threat to Indian Chapters Nine to Ten

U N C T A D Investment Brief, N u m b e r 1 (2007). U N C T A D World Investment Report 200S and International Monetary Fund, World Economic Outlook, October 2008, Database: Countries. Multinational firms (eg 111, Ford, Coca Cola) had existed in rhe prewar period. But they were nor generally based upon integrared international research and production. So the British subsidiar\ of a US car firm would 4

generally develop and market its own models independently of what happened in Detroit. Insofar as there was international organisation of production, it was by firms based in the metropolitan countries controlling the output of foodstuffs and raw materials in the T hird World, as for instance Unilever or R i o Tinto Zinc did. 5 6

7 8

9

Financial Times, Survey: World Banking, 22 M a y 1986. A Calderon and R Casilda, "The Spanish Banks Strategy in Latin America", CEPAL Review 70 (2000), pp78-79. As above, p79. LrNCTAD press release, available at http://www.unctad.org/Tcmplatesy' webflyer.asp?docid=2426&:intltcm ID=20798clang=l See, for a prime example how such nonsense could become a fashionable commodity )usr before the last world recession, Charles Leadbctter s much hyped book of the late 1990s, Living on Thin Air (Harmondsworth, Penguin, 2000).

10 Quoted in the Financial

limes, 20 381

June 1988. I I Business Week, 14 M a y 1990. 12 V Forrester, The Economic Horror (L ondon, Polity, 1999). ppl8-19. 13 N a o m i Klein, N o Logo (London, Flamingo, 2000), p223. 14 John Holloway, "Global Capital and die National State1*, in Werner Bonefeld and John Holloway, Global Capital, National State and the Politics of Money (St Maxim's Press. 1995), p l 2 5 . Holloway does at one point recognise that productive capital is less mobile than money capital, but then goes on to ignore the effect of this distinction on the relations between capitals and states. 15 Speech to Congress, 6 March 1991 16 N Harris, The End of the Third World (Harmondsworth, Penguin, 1987), p 2 0 2 . 17 Scott Lash and John Urry, The End of Organised Capitalism (London, Polity Press, 1987). 18 Susanne de Brunhoff, "Which Furope D o We Need N o w ? Which Can We Get?" in Riccardo BelloHore (ed), Global Money, Capital Restructuring, and the Changing Patterns of labour (Cheltenham, Edward F.lgar, 1999), p 5 0 . 19 1) Bryan, " G l o b a l Accumulation and Accounting for National Economic Identity", Review of Radical Political Economy 33

(2001), pp57-77. 20 Alan M Rugman and Alain Verbeke, "Regional Multinationals and Triad Strategy**, 2002. http://www.aueb.gr/ deos/ELB A2002.Hlcs/PAPERS/C 164. pdf. For an important analysis of the "core firms" which have most influence in national economies, see Douglas van den Berghe, Alan Muller and Rob van Tulder, Erasmus (S)coreboard of Core Companies (Rotterdam, Erasmus, 2001). 21 G o r d o n Piatt, "Cross-Border Mergers Show Rising Trend As Global Economy Expands". Global Finance, December 2004. 22 Sydney Finkelsrein, "Cross Border 382

Mergers and Acquisitions", Dartmouth College, available at http://mba.tuck.dartmouth.edu/ pages/faculty/syd.Hnkelstein/arrul( /Cross. Border.pdf 23 Tim Koechlin. "US Multinational Corporations and the Mobility ot Productive Capital, A Sceptical View", Review of Radical Political Economy, 38:3 (2006), p375. 24 As above, p376. 25 As above, p374. 26 Riccardo Bellofiore, "After Fordism. What? Capitalism ar the End ot tin Century: Beyond the M y t h s " , p i 6 . 27 Tim Koechlin, "US Multinational Corporations and the Mobility ot Productive Capital, A Sceptical View", p374. 28 W Ruigrok and R van Tuldec. The Logic of International Restructuring (London, Routledge, 1995). 29 M M a i m , "As the Twentieth Century Ages", New Left Review. 2 1 4 ( 1 9 9 5 ) , p i 17. 50 Mary Amiri and Shang-Jin Wei, "Service Offshoring, Productivity and Employment: Evidence from the United States", I M F Working Paper WP/05/238, p20. 31 Tim Koechlin, "US Multinational Corporations and rhe Mobility of Productive Capital, A Skeptical View", p378. 32 Martin Neil Bailv4 and Robert Z Lawrence, " W h a t I lappened to the Great US Job Machine? The Role of Trade and Offshoring", paper prepared for the Brookings Panel on Economic Activity, 9-10 September, 2004, p3. 33 Alan M R u g m a n , The Regional Multinationals (Cambridge, 2005). 34 Alan M R u g m a n and Alain Verbeke, "Regional Multinationals and Triad Strategy". 35 Michaela Grell, "The Impact of Foreign-Controlled Enterprises in the EU". Eurostat 2007, http://epp.euro stat.ec.europa.eu/cache/ITY_OFF PUB/KS-SF-07-067/ EN/KS-SF-07067-EN. PDF Note**

36 Georgios E Chortareas and Theodore Pelagidis, " Trade Flows: A Facet of Regionalism or Globalisation?** in Cambridge Journal of Economics, 28 (2004),

pp253-271. 37 As above. 38 Figures from U N C T A D , World Investment Report 2005, Annex, Table B3. 39 See "Pentagon Takes Initiative In War Against Chip Imports", Financial Times, 27 January 1987. 40 f inancial Times, 12 September 1990. 41 Article reprinted in International Herald Tribune, 17 December 1996. 42 Robert Brenner, The Economics of Global Turbulence, pp206-207. 43 For an excellent account of the Argentinian economy in this period, see Claudio Katz, "El Giro de la Economia Argentina". Part One, available at http://www. aporrea.org/ imprime/a30832.html 44 Dick Bryan, "The Internationalisation of Capital", Cambridge lountal of Economics, 19 (1995), pp421-440. 45 Mark E Many in. South Korea-U.S. Economic Relations: Co-operation, Friction. and Future Prospects. CRS Report for Congress. July 2004, http^/www.fas.org/maii/crs/RL >05 66.pdf which contains a fascinating list of the clashes between rhe US and South Korean governments as each seeks to advance rhe economic interests of the firms operating from its national territories. 46 This, essentially, is the argument of William Robinson in The Theor\' of Global Capitalism. ( John Hopkins, 2004). 47 Marx, Capital. Volume Three, p248. 48 H Kissinger, Diplomacy (New York, Simon &c Schuster, 1994), pp809 and 816. 49 Weekly Standard, 7 September 1997. 50 Project for the New American Century, Statement of Principle, 7 June 1997. 51 Fred Magdoff, "The Explosion of «

Chapters Ten to Eleven

Debt and Speculation", p5. Net physical investment by non-farm, non-financial corporate business in the US in 2006 amounted to $299 billion, the US military budget to $440 billion. 52 Iraq Study Group Report, 2006. available at http://www.usip.org/ isg/iraq_studv_grou p_rep< >rt/ report/1206/index.html Chapter Eleven: Financialisation and the Bubbles that Burst 1 Gideon Rachman, Financial Times, 29 January 2007. 2 Chris Giles, Financial limes, 5 February 2008. I Nouriel Roubini's Global FconoMonitor, 7 September 2008, available at hrtp://www.rgemonitor. com/blog/roubini/ 4 Financial Times, 29 January 2009. 5 Chris Giles, Financial limes, 29 January 2009. 6 Andrew Glyn, Capitalism Unleashed (OUP, 2007), P 52. 7 These figures are based on Robert Brenner's calculations. Other estimates, for instance by Martin Wolf in the Financial Times (28 January 2009), arrive at a figure of 40 percent for the mid-2000s. 8 Michael Mah-hui Urn, contribution at conference on Minsky and the crisis. Levy Institute Report, 18:3 (2008), p6. 9 Sebastian Barnes and Garry Young, "The Rise in US Household Debt: Assessing its Causes and Susrainability". Bank of England Working Paper 206 (2003), Chart Four, p i 3 , available at http://www.dcmographia.com/ db-usdebtratio-history.pdf 10 World Bank, Global Development Finance (2005). I I Robin Blackburn, Banking On Death. Or Investing In Life (Verso, 2002); Age Shock : How Finance Is Failing Us (Verso, 2007). 12 Andrew Glyn, Capitalism

Unleashed, p69. 13 Martin Wolf, Financial Times, 15 January 2008. 14 Figures as given in Robert Brenner, The Economics of Global Turbulence, p282. 15 Ponzi was an Italian immigrant who plied such a scheme in the US after World War One, but Charles Dickens described such a scheme long before in Martin Chuzzlewit. As I was writing this Bernard Madoff in the US admitted to amassing $40 billion in such a scheme and Sir Allen Stanford was accused of a similar scam. 16 Chris Harman, "Where is Capitalism Going?", International Socialism SH (1993). 1 7 Michel Aglietta, " A Comment and Some Tricky Questions". Economy and Society 39 (2000), p 156. The ' discussion between Aglictta and Bover was indicative of a situation where the Regulation School's effort to explain the long-term trajectory of capitalism comes adrift. For a comment on it, see John Grahl and Paul Teague, "The Regulation School", Economy and Society 39 (2000), ppl69-170. 18 For a full explanation see Dick Bryan and Michael Rafferrv, Capitalism with Derivatives (Pa I grave, 2006), p9. 19 Thomas Sablowski, "Rethinking the Relation of Industrial and Financial Capital", paper given to Historical Materialism conference, December 2006. 20 " I m m e l t d o w n " , Economist, 17 April 2008. 21 Financial Times, 6 September 2001. 22 As above. 23 As above. 24 Financuil Times, 15 September 2007. 25 Speech opening the London H Q in Canary Wharf in 2004 26 "Flow of Funds Accounts of the United States, Second Quarter 2007", Federal Reserve statistical release, p i 0 6 , table R102, »

384

http:/Avww.federalreserve.govv RFLEASES/z 1/20070917/ 27 Marco Terrones, and Roberto Cardarelli, "Global Balances, a Savings and Investment Account' World Economic Outlook, International Monetary Fund (2005), p92. 28 "Corporates are Driving the Global Saving G l u t " , JP Morgan Securities. 24 June 2005. 29 Dnnitri Papadimitriou, Anwar Shaikh, Claudio Dos Santos and Gcnnaro Zezza, " H o w Fragile is the US Economy?", Strategic Analysis, February 2005, The l.evv Economics Institute of Bard College SO Speech at the Historical Materialism conference, London, November 2007. 31 Financial Times, 22 January 2008. 32 Martin Wolf, Financial Times, 2 I August 2007. 33 Martin Wolf, Financial Times, 21 January 2008. 34 Marx, Capital, Volume Three, p45N 35 Adair Turner, "The Financial Crisis and the Future of Financial Regulation", The Economist's Inaugural City Lecture, 21 Januarv 2009, available at http:// www. fsa .gov. uk/pages/Li brary/ Communication/Speeches/ 2009/012 l_at.shtml 36 Martin Wolf, "A Week O f Living Perilously", Financial Times, 22 November 2008. 37 Martin Wolf, Financial Times, 23 November 2008. 38 Financial Times, 3 February 2009. '

j

39 Quoted in Financial Times, 7 January 2009. 40 Financial Times editorial, 16 September 2008. 41 Quoted on Financial Times website, 29 January 2008. 42 John Gapper, "Davos and the Spirit of Mutual Misunderstanding", Financial Times, 30 January 2009. 43 I heard him speak at in London University's SOAS in late in January 2008. Note**

44 Larry Ellior and Dan Atkinson, The Gods that hailed (Bodley Head, 2008) 45 I shared a platform at a fringe meeting at the Narional Union of Students conference in 2000 with one of its leading figures who criticised mc for talking of "anticapitalism" on the grounds that neither of us had "an alternative to capitalism". 46 Gerard Dumcml and Dominique Levy, "Costs and Benefits of Ncoliberalism: A Class,Analysis", in Gerald A Epstein, Financialisation and the World Economy (Kdward Elgar, 2005), p i 7 . 7 4 James Crottv, "The Neoliberal Paradox: Tne Impact of Destructive Product Market Competition and 'Modern' Financial Markets on Nonfinancial Corporation Performance in the Neoliberal Era", in Gerald A Epstein, Financialisation and the World Economy, p86. 48 Francois Chesnais, Ia ,\fondialisation du Capital (Syros,

1997), p289. 49 As above, p 7 4 . The passages from Chesnais are translated by me. 50 As above, p297. 51 As above, p304. 52 Peter G o w a n , The Global Gamble (Verso, 1999), ppl3-14. 53 Will 1 lutton, The State We're In (Jonathan Cape, 1995); William keegan, The Spectre of Capitalism (Radius, 1992). 54 Sec, for example, Engelbert Stockhammer, "Financialisation and the Slowdown of Accumulation", Cambridge Journal of Economics, 28:5, pp719-774; Thomas Sablowski, "Rethinking the Relation of Industrial and Financial Capital "; Till van Treeck, Reconsidering the Investment-Profit Nexus in FittanceI ed Economies: an ARDL-Based Approach, http://idcas.repec.org/ p/imk/wpa per/01 -2007.html; Andrew Glyn, Capitalism Chapter Eleven

Unleashed, pp55-65. 55 James Crotty, "The Neoliberal Paradox: The Impact of Destructive Product Market Competition' and "Modern Financial Markets on Nonfinancial Corporation Performance in rhe Neolibcral Era", in Gerald A Kpstein, Financialtsation and the World Economy, p91. 56 Fie put the argument at a conference on Finance and Financialisation at London University's SOAS in May 2008 and at the Marxism event in London in July 2008. See the paper available at http://www.soas.ac.uk/ economics/events/crisis/43939.pdf 57 The one reference by Marx to "secondary exploitation" is when he writes that "the working class is swindled" by the moneylender and also by the "retail dealer who sells the means of subsistence of the worker"—Marx, Capital, Volume Three, p596. 58 Sam Ashman made this point forcefully at Lapavitsas's presentation of his paper at the SOAS Financialisation conference. He had. she pointed out, confused the different levels of abstraction with which Marx had analysed capitalism. It should be added that, carried to its logical conclusion, Lapavitsas's argument would undermine the central stress in Marxist political economy on exploitation at rhe point of production, since there are all sorts of consumer payments that could be designated as "direct exploitation"—tax payments. rent> for domestic accommodation, rhe elements in shopping bills that go to retailers' and wholesalers profits, the payments made to privately owned public utilities. 59 Sebastian Barnes and Garry Young. "The Rise in US Household Debt: Assessing its Causes and Sustainability", Bank of England 385

Working Paper 206, 2003. 60 Dick Bryan and Michael Rafferty, Capitalism with Derivatives, pp32-33. 61 Engelbert Stoekharnmcr, "Financialisation and the Slowdown

the Relation of Industrial and Financial Capital"". 71 Interview on Today Programme, BBC Radio Four, 23 January 2009 http://news.bbc.co.uk' today/hi/to dav/newsid 7846000/ 7846519 .stm

•

of Accumulation pp719-741. 62 James Crony, "The Neoliberal Paradox: The Impact of Destructive Product Marker Competition and 'Modern' Financial Markets on Nonfinancial Corporation Performance in the Neoliberal Era", in Gerald A Epstein, Financialisation and the World Economy, p82. 63 Figure given in Robert Brenner, The Economics of Global Turbulence, p21 S. The figure for Britain was much larger. 64 Robert Mil ward, "The Service Economy", in Roderick Floud and Paul Johnson, The Cambridge Modern Economic History of Britain, Volume Three, p249. 65 Gerard Dumenil and Dominique Levy, "The Neoliberal C o u n t e r r e v o l u t i o n i n Alfredo Saad Filho and Deborah Johnston (cds), Neoliberalism, A Critical Reader (Pluto. 2005), p i 3 . 66 Robert Brenner, The Economics of Global Turbulence, p i 86. 67 Marx, Capital, Volume Three, p504.

72 Michel Husson, "Surfing the Long W a v e " , Historical Materialism > (1999), available at http://hussonet.free.fr/surfing.pdf 73 This was the position of Engclbert Stockhammer, in "Financialisation and the Slowdown of Accumulation"; reiterated in "Some Stylized Facts on the Finance-Dominated Accumulation Regime'', in Competition & Change, 12:2 (2008), ppl84-202; Dumenil denied the relevance ol profitability in conversation at the SOAS conference on Financialisation in May 2008 and in his presentation at the Historical Materialism conference in November 2008. 74 Gerard Dumenil and Dominique Levy, (Capital Resurgent, p201. 75 Ben Fine, "Debating the New Imperialism", Historical Materialism, 14:4 (2006), p i 4 5 . ^6 Friedman's initial academic fame rested on research that claimed to show that too low a money supply had caused the crisis of the earlv4

68 The case for this interpretation of the shift is well made by Robert NX' Parenreau, "The I ate 1990sT US Bubble: Financialisanon in the Extreme**, in Gerald A Epstein. hnanciahsation and the World Economy, p 134. 69 M a k a t o Itoh and Costas Lapavitsas, Political Economy of Money and Finance (Macmillan, 1999), p60. They also point out that this is clear from Marx's treatment of the issue in Volume Two of Capital, although at points in Volume Three he ascribed these functions to different groups of capitalists. 7 0 Thomas Sablowski, "Rethinking 386

1930s. He turned his conclusions upside down when it came to the crises of the 1970s and 1980s, blaming them on too great a money supply. The crisis of SeptemberOctober 2008 led some of his followers to hark back to his original research. George Soros, Financial Times, 29 January 2009. See also Martin Wolf, Financial Times, 27 January 2009. T

8 Bank of England Stability Report. October 2008. quoted in the Guardian, 28 October 2008. The January 2009 estimate of losses originating in the US was $2.2 billion (Financial Times, 29 January 2009). 79 See charts accompanying Martin Note**

80

81

82

83

84

85 86

87

Wolf, "To Nationalise or Not to Nationalise", Financial Times, 4 March 2009. See, for example rhe articles in the Financial Times by Wolfgang Muenchau, 24 November 2008; Jeffrey Sachs, January 27 2009; Samuel Brittan, 30 January 2009. Paul Krugman, "Protectionism and Stimulus", available at http://krugman.blogs.nytrnies.com/ 2009/02/01 /protectionism-andstimulus-wonkish/ Nicolas Veron of rhe Btuge think tank quoted in Financial Times, 5 February 2009. See Gillian Tert and Peter Thai Larsen, "W;jry Lenders Add to Introspection", Financial Times, 30 January 2009. Gideon Rachman, "Economics Upstages Diplomatic D r a m a " , Financial Times, 30 January 2009. John Gappcr, "Davos and rhe Spirit of Mutual Misunderstanding". Peter Temin, "The Great Depression", in S L Engerman R E Galltnan, The Cambridge Economic History of the United States, Volume Three, The Twentieth Ccnniry (Cambridge, 2001), p305. As above, p306.

Chapter Twelve: The New Limits of Capital 1 Charles Dickens, Hard Times (Harmondsworth, Penguin, 1969). 2 F Engels, The Condition of the Working Class in England, in Marx and Engels, Collected Works, Volume 4, p343. 3 For brief histories of rhe science, see John W Farley, "T he Scientific Case for Modern Anthropogenic Global Warming", Monthly Review, JulyAugust 2008; Jonathan Neale, Stop Global Wanning. Change the World {London, Bookmarks, 2008), p i 7 ; Spencer Weart, "Timeline: The Discover)' of Global Wa rming", hrtp://www.aip.org/ Insrory/climare/rimeline.htm Chapters Eleven to Twelve

4

5

6 7 8 9 10 11 12 13 14

15

16

17 18 19

James Hansen and others, " I irgei Atmospheric C 0 2 " , quoted in Minqi Li, "Climate Change, Limits to Growth, and the Imperative for Socialism", Monthly Review 60:3 (2008), p52. George Monbiot, "Environmental Feedback: A Reply to Chve H a m i l t o n " , New Left Review, 2: 45 (1997); See also Jonathan Neale, Stop Global Warming, p24. Summary of conclusions, in Guardian, 30 October 2006. Jonathan Neale, Stop Global Warming, p i 7 9 . John Vidal, Guardian, 20 December 2006. See George Monbior, Guardian, 1 December 2008. Quoted by John Vidal, Guardian, 20 December 2006. George M o n b i o t , Guardian, 8 M a y 2007. Clive Hamilton, "Building on Kyoto". Figures from Jonathan Ncale, Stop Global Warming, p71. George Monbiot, "Environmental Feedback: A Reply to G i v e H a m i l t o n " , (1997). Stern quoted by John Bellamy Foster, Brett Clark and Richard York in "Ecology: The Moment of Truth", Monthly Review, 60:3 (2008), p5. Fiona Harvey, "Eco-Groups Fear an Opportunity Lost", Financial Times, 14 March 2009. Guardian, 11 March 2009. Observer, 15 February 2009. Marx, Capital, Volume One. Chapter 10, "The Working D a y " . Part 5, "The Struggle for rhe Working D a y " , available at http://www.marxists.org/archive/ marx/works/1867-c 1 /ch 10.htm* S1

20 As above. 21 All figures from Jonathan Neale. Stop Global Warming, pp28-29 and 157. 22 David Adam. "Climate Change Causing Birds ro Lay Eggs Early , *87

23

24 25 26

27

28 29

Guardian, 15 August 2008. For a summary of the various calculations about peak oil, see Energy Watch G r o u p , "Crude Oil Supply O u t l o o k " , October 2007, EWG-Series N o 3/2007. As above, p44. As above, p i 8 . John Bellamy Foster, "Peak Oil and Energy Imperialism", Monthly Review, 60:3 (2008). Report of the National Energy Policy Group, M a y 2001. p 181, available at hrrp-7/ www.whitehouse.gov/energ> / NationaI-Energy-Policy.pdf John Bellamy Foster, " Peak Oil and Energy Imperialism". The extent to which rhe price rise was a result of the approach of peak oil is open to debate—some ascribe the rise to this, others to speculation that big oil producing nations were keeping oil in the ground so as to raise its price. For an argument that ir was due to war, political instability, currency rates and speculation, see Ismael Hossein-Zadch, "Is There an Oil Shortage?", available at http:// www.stateofnature.org/isThere AnOil Shortage.html

30 See, for example, Robert Bailey, "Time to Put the Brakes on Biofuels", Guardian, 4 July 2008; Jonarhan Neale, Stop Global Warming, pp 101-103. 31 See, for instance. Javier Bias, "The End of Abundance: Food Panic Brings Calls for a Second "Green Revolution'", Firumcial Times, 1 June 2008; for an apocalyptic view of what is happening, see Dale Allen Pfeiffer, "Eating Fossil Fuels", From the Wilderness, 2004, available at www.fromdie wilderness.com/free/ ww3/l 00303_earing_oil.html 32 Their arguments on this point were reliant on the findings of the pioneering organic chemist l iebig, whose writings both Marx and Fngels studied. See John Bellamy Foster, Marx's Ecology (Monthly 388

Review Press, 2000), p p l 4 7 . n o . 33 Shelley Feldman, Dcv Nathan, Rajeswan Raina and Flong Yang, "International Assessment of Agricultural Knowledge, Science and Technology for Development. East and Sourh Asia and Pacific: Summary for Decision Makers'", IAASTD (2008), available at http://www?.aga ssessment.org/docs/ ESAP_SDM_220408_Final.pdf 34 World Bank, "World Development Report 2008: Agriculture for Development" (2007), p 7 , available at hrtp^/go. world bank. org/ZJIAOSUFUO 35 The term is thar of the Harriet Friedman—see, for instance, "The Polirical Economy of Food", New Left Review, 2:197 (1993), pp29-5"\ 36 Javier Bias, "The End of Abundance: Food Panic Brings Call> for a Second 'Green Revolution'." 37 World Bank, 2007, "World Development Report 2008: Agriculture for Development", p"\ available at http://go. world bank. org/ZJIAOSUFUO 38 Javier Bias, "The End of Abundance: Food Panic Brings Calls for a Second 'Green Revolution'." ^9 For a longer analysis of the crisis and its possible implications, sec Carlo Morelli, "Behind the World Food Crisis", International Socialism 1 19 (2008), 40 Javier Bias, "Warning of 'Food Crunch* with Prices to Rise", Financial Times, 26 January 2009. 41 Report produced by Chatham House, quoted in Financial Times, 26 January 2009. 42 See, for instance, Aditya Chakraborrty, "Secret Report: Biofuel Caused Food Crisis", Guardian. 4 June 2008. Chapter Thirteen: The Runaway System and the Future for Humanitv •

1

By Alex Callinicos in the column he writes for Socialist Worker. Note**

2

Derails of rhe report first appeared in the Observer, 22 February 2004. The full report is available on http://www.sropesso.com/campaign /Pentagon.doc

Chapter Fourteen: W h o Can Overcome? 1 John H Goldthorpe, David Lockwood, Frank Bechhofer and Jennifer Plart, The Affluent Worker in the Class Structure (Cambridge, 1971), p6. 2 C Wright Mills, The Causes of World War Three (New York, Simon and Schuster; 1958). 3 Herbert M a reuse. One Dimensj^nal Man (London, Routledge & Kegan Paul, 1964). hrtp://www. marxists.org/refercnce/ archive/marcuse/wOrks/onedimensional-man/index.htm 4 Ernesto Laclau and Chantal Mouffe, Hegemony and Socialist Strategy: Towards a Radical Democratic Politics (London, Verso, 1985), p82. 5 6

7

8

9

M Hardt and A Negri, Empire (Harvard, 2001), p53. D Filmer, "Estimating the World at W o r k " , Background Report for World Bank, World Development Report 1995 (Washington D C , 1995), available at http://www. monarch.worldbank.org Sec. for example, my calculation for the size of rhe new middle class in Britain, in C Harman, "The Working Class After the Recession", International Socialism 33 (1986). U N D P World Development Report 2009, Table 21. Similar figures to those of the U N D P are provided in the CIA Year Books. The figures provide a similar geographic distribution of industrial work to Filmer, with over 300 million industrial workers in rhc old industrial economies and a similar total in the BRIC countries. "Introduction", in R Baldoz and others, The Critical Study of Work:

Chapters Thirteen to Fourteen

Labor; Technology and Global Production (Philadelphia, 2001), p " 10 US Federal Reserve figures, available at http://www.federal reserve.gov/releases/G 17/Revisions/ 20061211/table la_rev.htm 11 US Department of Labour provides UN figures tor 2006 available at http://www.dol .gov/asp/media/ reports/chart book/2008-01/ chart3_7.htm. According to World Bank figures the United States accounted for 23.8 percent of the world's manufacturing output in 2004, and over two decades the US share had barely dipped. The annual average since 1982 was 24.6 percent, while China's share for 2004 was 9 percent and South Korea's 4 percent. Quoted in International Herald Tribune, 6 September 2005. 12 The CIA Year Book provides a figure nearly twice that for the old industrial countries alone, no doubt because of a wider definition of what constitutes the industrial sector. 13 Figures given by C H Fcinstein, "Structural Change in the Developed Countries in the 20th Century", Oxford Review of Economic Policy, 15:4(1999), table A I. 14 R E Rowthorn, "Where are the Advanced Economies Going?", in G M Hodgson and others, Capitalism in Evolution (Cheltenham, 2001), P 127. 15 As above, pl2~\ 16 As above, p i 2 7 . 17 Guardian, 5 June 2002. 18 Officefor National Statistics, Living in Britain2000,Table3.14,available at http://www.statistics.gov.uk 19 All rhe figures are from "Employed Persons by Occupation, Sex and Age", available at ftp://ftp.bls.gov/ pu b/spccia 1. requests/1 f/aa t9 .t xr 20 Manuel Castells, "The Network Society: From Knowledge to Policy", in Manuel Castclls and Gustavo Cardoso (eds), The Network Society (Center for Transatlantic Relations, 2006), p9.

*89

21 Bill Dunn, Global Restructuring and the Power of Labour (Palgrave Macmillan, 2004), p ! 18. 22 Kate Bronfenbrenner, "Uneasy Terrain: The Impact of Capital Mobility on Workers. Wages, and Union Organising", The ILR Collection, (2001), available at http://digitalcommons.ilr.cornell. edu/cgi/viewcontcnt.cgi?arncle= 10016Ccontext=reports 23 Raymond-Pierre Bod in. Wideranging Forms of Work and Employment in Europe, International Labour Office report (2001). 24 As above. 25 Robert Taylor "Britain's World of Work: Myths and Realities", ESRC Future of Work Programme Seminar Series, 2002, available at http^/www. esrc.ac.uk/ESRClnfoCentre/lmages/ fow_publication_3_tcra6-6057.pdf 26 These figures are from the Office for National Statistics' Social Trends 2001, p88. Kevin Doogan, New Capitalism? The Transformation of Work (Polity, 2008) provides a similar picture to these figures. 27 These are very rough calculations, given the problems of counting the number of workers in rhe often massive sectors of national economies. But Filmer's figures, those of U N D P and those of the CIA all suggest a pattern similar to this. 28 All figures are for 2005, from UNDP, Human Development Report 2009, Table 5. 29 A failure to sec this leads some to vastly exaggerate the growth of the working class that has resulted from globalisation and urbanisation. So in a much quoted paper, Richard Freeman has written of an "effective doubling of the global labour force (that is workers producing for international markets) over the past decade and a half, through the entry of Chinese, Indian, Russian and other workers into the global economy". This has supposedly

390

changed the "global capital/labour ratio by just 55 perccnt to 60 percent of what it otherwise would have been". There is a triple error here. It assumes that those labouring in the former USSR, China and India were not doing so as p a n of the world system until the early 1990s. and that their whole workforces art now workers employed by capital. There is, however, a big difference between rhe workforce in its totalit\ and those who are wage workers. In 2001 the non-agricultural workforce of rhe developing and transition economies was 1,135 million (figures from Summary of hood and Agricultural Statisticsy Food and Agriculture Organisation of the United Nations. Rome 2003, pi2). But bv no means all rhe w

non-agricultural workforce are workers. Self-employment as a proportion of the non-agricultural workforce is 32 percent in Asia, 44 percent in Latin America and 48 percent in Africa (Women and Men in the Informal Economy, ILO, 2002). A n d only a proportion of those who seek work as wage workers succeed in getting employed in the formal sector in modern uidustrv. Most are in verv low •

4

productivity jobs, often working for firms with only a couple of workers. 30 International Labour Office, African Employment Report / 990 (Addis Ababa, 1991), p3. 31 International Labour Office, Women and Men in the Informal Economy, 2002. 32 See Chapter Nine for details; see also Ray Brooks, "Labour Market Performance and Prospects", in Eswar Prasad (ed) China s Growth and Integration in the World Economy (IMF, 2004), p58. Table 8.5. 33 A mistake made, for instance, by Mike Davis in Planet of Slums (Verso, 2006). 34 Figures from P R E L A C Newsletter Note**

(Santiago, Chile.), April 1992, diagram 3. 35 Paolo Singer, Social Exclusion in Brazil (International Labour Office, 1997), Chapter 2, Table 7, available at http://www.ilo.org 36 Figures in J Unni, "Gender and Informality in Labour Markets in South Asia", Economic and Political Weekly (Bombay). 30 June 2001, p2367. 37 Ray Brooks, " L a b o u r Market Performance and Prospects", Eswar Prasad (ed), China's Growth and Integration into the World Economy; for further analysis of the Chinese urban workforce, see Martin I lart^J andsberg and Paul Burkett, " C h i n a , Capitalist Accumulation, and Labor", Monthly Rerieu\ 59:1 (2007). 38 UNDP, World Development Report 2009y Tabic 21. 39 M a r x , Capital, Volume O n e , p628. 40 As above, p643. 41 P Singer,"Social Exclusion in Brazil", International l a b o u r Office, 1997, Chapter 2, p l 4 . 42 See, for instance, the figures given in | Unni, u Gender and Informality in Labour Markets in South Asia". Economic and Political Weekly (Bombay), 3 0 J u n e 2001. Tables 19, 20 and 22, pp2375-2376. There arc, of course, situations in which a sudden demand for labour can only be met from the informal sector, leading to wage rates temporarily above those in the formal sector. I he same phenomenon occurs, for instance, with " l u m p " labour in the building industry in Britain. 43 For an account by employers of why they employ permanent workers, see H Steefkerk. "Thirt\ Years of Industrial Labour in South Gujarat: Trends and Significance", Economic and Political Weekly (Bombay), 30 June 2001, p2402. 44 Paulo Singer, Social Exclusion in Brazil. Chapter 2, table 10. 0

Chapter Fourteen

45 As above, p 1 7 . 46 International Labour Organisation, African Employment Report 1990, p34 4 " Rajar Majumder, "Wages and Employment in the Liberalised Regime: A Study of Indian Manufacturing Sector". 2006. available at http://mpra.ub.unimuenchen.de/4851/ 48 As above. 49 F Engels, "Letter to Bernstein, 22 August 1889", in K M a r x and F Engcls. Collected Works, Volume 48 (London, 2001). 50 M i k e Davis, Planet of Slums, p36. 51 Leo Zeilig and Claire Ceruti, "Slums, Resistance and the African Working Class", International Socialism 117 (2008). available at http://www.isj.org.uk/index.php4? id=398&issue=l 17 52 "Informo de Desarrollo H u m a n o in la Region del Altiplano, La Paz y O r u r o w , P N U D Bolvia, 2003, quoted in Roberto Saenz. "Boliva: Critica del Romanncismo AntiCapita lista", in Socialismo o Barbarie, 16 (2004). M y translation. 53 As above. 54 Leo Zeilig and Claire Ceruti, "Slums, Resistance and the African Working Class". 55 From a pamphlet on the strike by two Egyptian activists, Mustafa Bassiouny and O m a r Said, translated bv Anne Alexander in 9

International Socialism 118 (2008). 56 Robin Cohen, Peter G u t k i n d and Phyllis Brazier, Peasants and Proletarians (Monthlv Review Press, 1979). 7 5 H van Wersch, The Bombay Textile Strike 1982-1983 (OUP, 1992), pp45-46; Meena M c n o n and Neera Adarkar. One Hundred Years One Hundred Voices (Kolcata, Seagull. 2004). 58 F Fngels, The Peasant Question in Prance and Germany 118941, in K Marx and F Engels Collected Works, Volume 2 " pp486 and 496.

59 Adam David M o r i o n , "Global Capitalism and the Peasantry in Mexico". Review of Peasant Studies, 34:3-4 (2007), pp441-473. 60 For criticism of "neo-populism" see, for instance, Terence J Byres, "Neo-Classical Neo-Populism 25 Years O n : Deja Vu and Deja Passe. Towards a Critique," Journal of Agrarian Change, 4:1-2 (2004). 61 See, lor instance, Keith Griffin. Azizur Rahman Khan and Amy Ickowitz, "Poverty and the Distribution of Land," Journal of Agrarian Change, 2:3 (July 2002). 62 Hamza Alavi and Teodor Shanin, Introduction to Karl Kaursky, The Agrarian Question, Volume 1 ( Z w a n , 1988), ppxxxi-xxxii. 63 Danyu Wang, "Stepping on Two Boats: Urban Strategies of Chinese Peasants and Their Children", in International Review of Social History 4 5 (2000), p i 7 0 .

392

64 As above, p 170. 65 S Rod wan and F Lee, Agrarian Change in Egypt (Beckenham, 1986). 66 For an account of recent research on these questions, see Pauline E Peters, "Inequality and Social Conflict Over Land in Africa", journal of Agrarian Change 4:3 (2004). 67 Flamza Alavi, "Peasants and Revolution", Socialist Register 1965, pp241 -277, available at http://socialistregister.com/ socialistregister.com/files/SR_ 1965_Alavi. pdf 68 Although even then a degree of consent from quite wide layers of the population was obtained as a result of economic growth. 69 For an account of the insurgency and an explanation for its failure, see Chris Harman, The Fire Last Time (London, Bookmarks, 1998).

Note**

Glossary

Abstract labour W h a t all particular acts of labour have in common under capitalism; is measured in terms of the proportion each constitutes of the total socially necessary labour time expended in the economy as a whole. Absolute surplus value The increase in surplusûlue that occurs when working hours are increased without a parallel increase in pay. Austrian School Version of bourgeois economics which tends to see economic crises as inevitable, bur necessary for continued economic growth. Best known figures Friedrich von Hayek and Joseph Schum peter Autarchy Attempt to cut an economy off from trade links with the rest of the world. Baran, Paul Marxist theorist who argued that development was only possible in Global South through a break with capitalism. Collaborator of Paul Sweezv. «

Bauer, Otto Austrian Marxist of first third of 20rh century who followed a policy of trying to reform capitalism. Bernstein, Edward u Revisionist" critic of revolutionary Marxism within German socialist movement at beginning of 20th century. Bohm-Bawerk One of founders of marginalist economics, wrote best known critique of Marx's work/ Bills Documents issued bv banks and other capitalist firms that act as IOUs as they grant each other credit. Bortkiewicz, Ladislaus von Polish 4

Glossary

economist at beginning of 20rh cenrury who carried through a serious examination of Marx's work but rejected some of its crucial findings. Bretton Woods Venue of the conference that set up the post World War Two financial system based on gold and dollars. Name given to that system until its collapse in 1971. Brics Initials standing for Brazil, Russia, India, China and South Africa. Bukharin, Nicolai Bolshevik leader and economist theorist; executed by Stalin 1938. Capitals Term often used to describe economically competing units of capitalist system (whether individual owners, firms or stares). Centralisation of capital Tendency for capital to pass into fewer and fewer hands, through takeovers, mergers, etc, so that whole capitalist system is under direct control of fewer competing capitals. Chicago School Followers of Milton Friedman and monetarism. Circulating capital see Fixed capital. Cliff, Tony Palestinian born Marxist resident in Britain through second half of 20rh century; developed theory of state capitalism and, in 3 rudimentary form, of the permanent arms economy. Commercial capital Investment aimed at making a profit from the buying and selling of goods as distinct from their production. Sometimes

391

called merchant s capital. Commodity Something bought and sold on the market. Commodities are commonly called "goods" in English. Concentration of capital Growth in size of the individual competing capitals that make up the capitalist system. Concrete labour Refers to the specific characteristics of any act of labour—what distinguishes, for example, die labour of a carpenter from that of a bus driver. Constant capital Marx's term for a capitalist's investment in plant, machinery, raw material and components (in other words, the means of production), denoted bye. Corey, Lewis Also known as Louis Eraina, an early member of the American Communist Party who later wrote an important Marxist analysis of the slump of the 1930s. CPSU Ruling parry within USSR. Its general secretaries—Stalin, Khrushchev, Brezhnev. Andropov, Chernenko and finallv Gorbachev—ran the state. Credit crunch When buying and lending seizes up in the banking system .ind the wider economy. Cultural Revolution Political turmoil in China in the late 1960s and early 1970s. •

Davos Swiss ski resort where World Economic Forum of leading industrialists, financiers, government ministers and economists takes place each year. Deflation A fall in prices, normally associated with impact of economic crisis. Derivatives Financial contracts designed to allow investors to insure themselves against future changes in prices. Derivatives trading developed as a means of speculating on interest or exchange rates, and then into a form of financial gambling on changes in markets in general. 394

Dead labour Term used by M a r x to describe commodities made in the past bur used in production in the present. Deficit financing The method by which a government pays for the excess ol expenditure over receipts from taxation by borrowing. Department One Section of econorm which is involved in turning out equipment and materials for further production (called by mainstream economists "capital goods"). Department Two Section of economy concerned with turning out goods which will be consumed by workers (sometimes called "wage goods"). Department Three Section of economy which turns out goods which will not be used as means and materials of production, and which will not be consumed by workers either—in other words the section that turns out "luxury goods" for consumption by the ruling class, armaments and so on. Sometimes referred to as Department 2a. Dependency theory Theory very widespread in 1950s and 1960s which held that dependence of Third World economies on advanced economies prevented economic development. Depreciation of capital Reduction in the price of plant, machinery and so on during their period of operation. This can be due to wear and rear, or to the "devaluation" of capital (see below). Devaluation of capital Reduction in the value of plant, equipment and so on as technical advance allows a greater amount to be produced with a given quantity of labour time. Euromoncy (Eurodollars) Vast pool of finance, denominated in dollars but held outside the US, which grew up in late 1960s and 1970s, beyond the control of national governments. Eurozone Currency union of 16 European Union states which have •

Glossary

adopted the euro as their sole legal render. It currently consists ot Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, rhe Netherlands, Portugal, Slovakia, Slovenia and Spain. Exchange value Term used by Smirh, Kicardo and Marx tor worth of commodities in terms of other commodities. See Value and Use-value. Expenses of production Spending which capitals hav&to undertake to stay in business, but which docs nor materially expand the output of commodities (for instance, spending on marketing goods, advertising, protecting plant and machinery). Fiat monev Form ot money that has no intrinsic value apart from a guarantee from a government, eg tokens such as notes and coins made of cheap metal. Stands in contrast to monetary medium made of or exchangeable tor material with value in its own right, such as gold or silver. Fictitious capital T hings like shares and real estare investments that are not part of the process of production but which provide rhe owners with ail income out of surplus value. FDI, Foreign Direct Investment Investment by a firm in one country which gives it more than 10 per cent of ownership of a firm in another country. Investment thar does not give that level of ownership or control is called portfolio investment. Finance capital Capital in the financial as opposed to productive and sales sectors of the economy. Often used to imply thar financiers are rhe real power in the economy as a whole. Financialisation Growth of rhe financial section of rhe economy and its influence. Often the term implies this is detrimental ro capital 0

0

4

Glossarym

in other sectors. Fiscal measures Tax and spending undertaken by governments. Fischer, Irving Leading neoclassical economist in US in first third of 20th century. Fixed capital Capital invested in plant and equipment which last for several cycles of production. Contrasts with circulating capital, which is invested in things rhat are used up in each cycle of production and have to be replaced for the next c»ne, ie raw materials, components and labour power. Fordism Term sometimes used to describe capitalism from 1920 to m i d - ^ ^ O s . Implies supposed cooperation between firms in mass production industries with unions to keep up wage rates. Formal sector Jobs in which workers have legal employment rights. Friedman, Milton Conservative free market economists who believed state could stop crises by correct control of money supply. Inspired "monetarist" policies of Margaret Thatcher in early 1980s. 0

Galbraith, John Kenneth American economist of the post-war decades critical of unrestrained free markers. G D P Gross Domestic Product, measure of the market value of all final goods and services made within the borders of a nation over a year. G N P Gross National Product, as G D P but also includes rhe net income from overseas investment. Gold standard System under which states tied rhe value of their national currencies to quantities of gold and paid off debts to each other with it. States broke with it during World War One and from rhe early 1930s to the end of World War Two. Operated in modified form under post-1945 Bretton Woods system rhar collapsed in 19~ I. Golden Age Term sometimes used lor long boom in the decades following 395

the Second World WarGreat Depression Term used for period of crises in the 1870s and 1880s, and again for slump of the 1930s. Grossman, Henryk Polish-Austrian Marxist activist and economist of first half of twentieth century. Hansen, Alvin One of leading mainstream US economists of middle third of 20th century, converted to Keynesianism by crisis of 1930s. Hayek, Friedrich von Conservative economist who opposed attempts of state ro mitigate impact of economic crises, claiming this could only make things worse. Admired by Margaret Thatcher. Hilferding, Rudolf Published pioneering work on impact of finance and monopoly on capitalism, but later served as finance minister in Weimar Republic and opposed revolutionary socialism. Hobson, J A British liberal economist of beginning of 20th century, argued that imperialism suited finance but not the rest of capitalism. H u m a n capital Term used by mainstream economists to describe the skills employees gain from education and training. Import substitutionism Attempt to speed up industrialisation by blocking imports and providing protected market for local capitalists. Informal sector Jobs where workers do not have formal employment nghrs. 1LO International Labour Organisation, a United Nations agency dealing with labour issues. IMF International Monetary Fund, international body dominated by old industrial countries (particularly the US) which, along with the World Bank, lends money to countries in economic difficulties in return for them accepting tight

396

controls over rheir policies. Jcvons, William British economist of 1860s-70s, a founder of neoclassical economics. Kautsky, Karl Most prominent Marxist at beginning of 20th century, later opposed revolutionary approach. Kevncsianism Economic doctrine • based upon ideas of the British economist of the inter-war years, J M Keynes. Holds that governments can prevent recessions and slumps by spending which is greater than their income from taxation (socalled "deficit financing"). Kidron, Mike Marxist economist resident in Britain in second half ol 20th century who further developed theory of permanent arms economy out of ideas of T N Vance and Tony Cliff. Labour power Capacity to work, which is bought by capitalists by the hour, day, week or month when rhey employ workers. Labour theory of value View developed by Marx (on basis of ideas of previous thinkers such as Smith and Ricardo) that there is an objective measurement of rhe value of goods, which is ultimately responsible for determining their prices. This is the "socially necessary" labour time needed ro produce them—in other words, that across the system as a whole, using the prevailing level ol Technique, skill and effort. For Marx's own accounts of the theory, see Wage Labour and Capital, The Critique of Political Economy and chapter one of Capital, Volume one. Leverage Borrowing to magnify the buying power of small cash payments for shares, property and other assets. Liquidity Having cash in hand (or assets that can be easily turned into cash) ro meet claims that fall due or. Glossarym

in the case of a bank, meet withdrawal requests. Luxemburg, Rosa Polish-German Marxist, leader of revolutionary opposition in Germany to First World War, murdered by counterrevolutionaries in January 1919. Macroeconomic Referring to economy as whole, as opposed to "microeconomic" relations between individual elements within it. "Macroeconomics" is branch of mainstream economics concerned with trying to guide national economies. Marginalism Another name for neoclassical economics. Marshall, Alfred British economist of late 19th and early 20th centuries and a key figure in neoclassical economics. Mercantile or merchant capital Investment aimed at making a profit without engaging in production, for instance in the buying and selling of goods. Mercosur A regional trade agreement between some Southern American stares (Argentina, Brazil, Paraguay and Uruguay). Microcconomic see macroeconomic. "Military Kcyncsianism" Term used for economic impact of rising military expenditure paid for out of government debt during Ronald Reagan presidency in 1980s LIS. #

Minsky, Hyman Non-orthodox mainstream economist of mid-20th century who recognised inevitability of speculative booms and busts for capitalism. MTT1 Powerful Japanese ministry of trade and industry. Monetarism Doctrine which holds crises cannot be solved by governments mcreasing their spending to more than their rax income. Increasing rhe supply of money, this holds, will simply lead to higher prices. Under the name the quantity theory of money, this Glossary

was the orthodoxy in bourgeois economics before the rise of Keynesianism in the 1930s, and became fashionable again in the mid-1970s. "Monetary measures" Attempt to regulate economy, preventing inflation and countering recessions by government contraction or expansion of amount of money that is circulating. Money capital Money held with the intention of increasing its value, either as part of the process of productive investment, or through lending to others. Moral depreciation of capital Loss of value of plant and capitals as it becomes obsolescent in the face of rapid technological advance. N A I R U Non-Accelerating Inflation Rate of Unemployment, see Natural Rate of Unemployment. Natural Rate of Lfncmployment Level which free market economists decided was necessary for capitalism to avoid accelerating inflation. Also called N A I R U — Non-Accelerating Rate of Unemployment. Neoclassical economics Dominant school in bourgeois economics since rhe end of the 19th. Believes value depends on the "marginal" satisfaction people get from goods, and justifies profit as a result of the "marginal productivity of capital". Also known as "marginalism". Neoliberal "Liberal" is term used in continental Europe meaning "free market", so neoliberal means a return to free market economic measures. Used by some people on left to refer to attacks on workers' conditions and welfare benefits. Also sometimes used to describe period from mid-1970s to present. " N e w Classical" School School of free market economics which developed in 1980s; holds that a market economy will stay in equilibrium

391

unless subject to external forces or interference by state, monopolies or trade union action. NICs Newly Industrialising Countries of 1960 to 1980s. like South Korea, Brazil. Taiwan. Nomenklaturists Those holding high up privileged positions in state and industry in old Eastern Bloc countries before 1989-91. Non-productive consumption The use of goods in ways which serve neither ro produce new plant, machinery, raw materials and so on ("means of production") nor to provide for the consumption needs of workers. The use of goods for the consumption of the ruling class, for advertising and marketing, or for arms, all fall into this category. Non-productive expenditures Expenditures undertaken by capitalists or the state over and above what is necessary for the production of commodities (includes spending on consumpnon of the ruling class, on its personal servants, on rhe '"expenses of production" and so on). W

|(

O E C D Organisation of Economic Cooperation and Development. Organisation of rhe established industrialised countries with an important research arm. Oil shock Sudden increase in price of oil. especially as a result of rhe Arab-Israel war of October 19^}. Okoshio's theorem Theory which claims to disprove Marx's tendency of the rate of profit to fall. O P E C Organization of the Petroleum Exporting Countries, a carrel currently made up of twelve countries: Algeria. Angola. Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. Organic composition of capital Ratio of the value of investment in plant, machinery, raw materials and so on ("means of production") to rhe 9

398

value of expenditure on employing productive labour. Using Marxist terminology, this is the ratio of constant capital to variable capital, or c/v. See also Technical composition of capital. Organised sector Term used in India for formal sector, ie where workers have legal working rights. Pareto, Vilfredo Italian neoclassical economist at turn of rhe 20th century, who supported Mussolini's rise to power. Plaza Accord 1985 Agreement byJapan and Germany to allow rhe value of their currencies to rise so as make it easier for rhe US to export. Ponzi scheme A fraudulent scheme which pays profirs to old investors out of monev collected from new investors. Preobrazhensky, Evgeny Russian Bolshevik acrivist and economist, executed by Stalin in 1937. Private Equity Funds Investment vehicle where rich individuals come together to buy shares in companies in order to make a profit. Productive expenditures Spending which is necessary if commodities are to be produced and surplus value created (spending on the means and materials of production on rhe one hand, and on workers' wages on the other). Productive labour Labour which contributes to the creation of surplus value. Profits, mass of Total profits of a particular capitalist. Measured in pounds, dollars and orher currency. Profit, rate of Ratio of surplus value ro capiral invested. Measured as a perccnrage. Denoted as s/(c+v). Profit share Proportion of total output of a firm or country rhat goes in profits, as opposed to wages. Rate of exploitation Ratio of surplus value to wages (strictly speaking only the wages of workers who produce commodities should be counted). It 0

Glossary

can be expressed another way, as the ratio of the time the worker spends producing surplus value for the capitalist, compared to the time he or she spends on producing goods equivalent to his or her living standard. Also called rate of surplus value, that is, the ratio of surplus value to variable capital, and depicted as s/v. Realisation Term used by M a r x to describe the successful sale of produced commodities so as to achieve a profit. " R e g u l a t i o n " theorists French school of economists influenced by Marxism w h o periodise 20th century capitalism into Fordist and post-Fordist phases. Relative surplus value Increase in surplus value obtained when time it takes for workers to produce the equivalent of their own wage is reduced, so causing a greater portion of their working rime to go to the capitalist. Rentier O l d fashioned term describing someone who lives off unearned income such as rent or dividends. Reserve army of labour Pool of unemployed workers used by capital to keep down the wages of those with jobs and who able to be drawn into industry with the periodic expansion of production. Ricardo, David Political economist of first decades of 19rh century, developed labour theory of value and an important influence on Marx's ideas. Robinson, Joan Radical kevnesian economist of middle third of 20th century, broke with neoclassical school but rejected Marx's theory of value. Samuelson, Paul Major populariscr of the mainstream svnthesis of neoclassical and Kevnesian ideas r through his economic textbook in post-war decades, and adviser to the Kennedy government in rhe US. #

Glossary 391

Say's law Supposed law that holds there cannot be any general overproduction of goods because each time someone sells something someone else buvs it. Schumpeter, Joseph Austrian economist of first half of 20th century. Supported capitalism but rejected idea that it developed smoothly, coined phrase "creative destruction". Smith, Adam Most important political economist of latter part of 18rh century. Distorted presentations ot his ideas now constitute apologies tor capitalism, bur a critical use ot many of his concepts was important to Marx. «

Social I v-necessarv labour time Labour rime needed to produce a certain good, using average techniques prevailing throughout economy and working at average intensity of effort. Determines the amount of abstract labour—and therefore value—embodied in a commodity. Social wage Term used to describe welfare, health and other benefits supplied through the state which improve workers' living standards. Solvency Ability of firms or individuals to pay off all debts providing they have time to turn their own assets into cash. Sraffa, Piero Cambridge economist who refuted basic contentions of orthodox bourgeois economics, the "neoclassical" marginalist school. 1 lis followers tend to base themselves on Ricardo rather than Marx and reject the Marxist theory of rhe falling rate of profit, and usually see crisis as arising when wages cut into profits. They are often known as "neo-Ricardians", although Sraffa regarded Himself as in the Marxist tradition. 9

Strachey, John Best known purveyor of Marxist interpretations of slump ot 1930s in Britain, Labour Party minister in the late 1940s and Keynesian apologist for right wing w

Labour ideas in 1950s. Surplus value Marx's term for excess value produced by rhe exploitation of workers. Ir forms rhe basis for rhe profit of the individual capitalist plus what he pays out to others in rhe form of rent, interest payments and taxation (plus what he spends on "non-productive activities"). Denoted by s. Sweezy, Paul American economist who wrote a parhbreaking account of development of Marxist ideas in 1940s (The Theory of Capitalist Development) and, with Baran, an account of mid 20rh century capitalism in 1960s ( M o n o p o l y Capital). Tariffs Taxes on imports, designed to raise their price and so make ir easier for local producers to dominate markets. Taylorism Technique of so-called "scientific management", based upon time and motion studies of every act of labour. Spread through industry in rhe earlv 20rh centurv. Technical composition of capital Physical ratio of plant, machinery, raw materials and so on ("means and materials of production") to total labour employed. When rhis ratio is measured in value terms rather than physical terms, it becomes the "organic composition of capital". Terms of trade The relative prices ot a country's exports to imports. An improvement the rerms of trade means a country has to pay less for rhe products it imports. T igers Term used for East and South East Asian industrialising economies. Transformation problem Problem which arises when rhe attempt is made to move from Marx's account of capitalism in terms of value to the prices at which goods are actually bought and sold. Many economists have claimed it is impossible to solve the problem, 4

400

4

4

and that therefore Marxist economics must be abandoned. Triad The three major parts of the industrialised capitalist world, ie North America, Europe and Japan Trusts Associations of industrial concerns which collaborate to carve up markets and force up selling prices. Turnover time of capital Time taken from beginning of production process ro final sale of goods. U N C T A D United Nations development agency and important source of economic statistics. Under-consumptionism Theory which blames capitalist crisis nor on rhe law of rhe falling rate of profit, bur on rhe alleged inability of capitalism to provide a market for all goods produced within it. The first versions of the theory were put forward by early 19th century economists such as Sismondi, bur it has been developed since borh byMarxists (from Rosa Luxemburg ro Baran and Sweezy) and by Kevnesians. Use value Immediate useful qualities of a commodity. Valorisation Term used in some translations of Marx's capital for the self-expansion of capital, based on the French translation of the German word Verwertung. Value Amount of abstract labour contained in a commodity; determines its exchange value and. after some redistribution of surplus value berween capitalists, its price. Value composition of capital Ratio of constant to variable capital, differs from organic composition bv taking into account changes due ro other factors as well as change in technical composition. Variable capital Capital invested in employing wage labour. Denoted bv v. Vance, T N American economist who m

Glossary4

developed theory of "permanent war economy" in 1940s and 1950s. Volcker, Paul Head of US Federal Reserve in the late 1970s and 1980s. Volcker shock or Coup Sudden increase in US interest rates in 1979. Walras, Leon French economist of latter p a n of 19th century; a founder of neoclassical economics.

Glossary4

World Bank see International Monetary Fund. W T O World Trade Organisation, international agency that aims to promote free trade and ncolibcral agenda.

401

Index

1834 Poor Law 134 1968, role of migrant workers in 173; 1968-7S wave of industrial struggles 331 Abaikin, on fcwiet strikes 209 Absolute surplus value 33, 73 Abstract labour 26 Abstraction in three volumes of Capital 87 Accumulation and competition 35-6, 58, 85, 99, 116; and exploitation 37; and crisis 5 8 , 6 0 , 6 2 , 101,204, 217; and rate of profit 37-39, 6972, 77-78; for the sake of accumulation 36, 84; never ending 52: and class 107, 113-115; and logic of state 112-117; and USSR 158: and crisis in USSR 204; in China in early 2000s 245-6; and consumption in China in early 2000s, 246 {graph 247); and crises of Eastern bloc 179; and corruption and repression 222: structures of and energy use 316 see also Capital accumulation Advertising, as unproductive 121; expenditure, US in 1920s 147 Afghanistan, US occupation of 273, 327 Africa, loss of markets to China 222: growing Chinese influence in 274; rivalry between French and US interests 270; fall in real wages 340-1 "African socialism", disappointment with 218 "After J a p a n " 211 Aganbegyan, on stagnation in Soviet economy 203

Agenda 2010 Programme in Germanv 240 Aglietta see Hoyer Agribusiness and agricultural technological advance 321 Agricultural accumulation, structure of 321 Agricultural capitalists 347 Agriculture, movement of workforce to towns, during long boom 173; investment, 322: declining growth of output 321 Alan Greenspan, before US Congress 8: on "permanence" of economic expansion in 1990s 229 Alavi, 1 Iam/.3, role played by middle peasants in peasant movements >48; with Teodor Shanin, on ways peasantry are integrated into capitalism 3 4 "

M a 221 Algeria 185 Alienated labour, system of 328 Alienation 13, 1 4 , 2 8 , 8 3 Alvater, Elmer, on German state and economy in long boom 170 American Free Trade Area 221 Amnesia of mainstream economic commentators 253 Andropov, Yuri, experience of East European crises and role in appointing Gorbachev 207 Angell, Norman, on capitalism's drive for peace 92 "Anglo-Saxon capitalism* 229, 294 Angola 185 Arab-Israeli War of 1967 184; of October 1973 184, 191 Argentina 188, 351; industrial development before First World, 403

187; industrial growth in 1950s and 1960s; compared with Italy 188; economic and political crises of 1970s 218; crisis of 2001 -2 224 Arms expenditure. US during long boom 198; variations between states during long boom 198; in 1990s and early 2000s 234; China 2009 327; Russia 2009 327; US 2009 327; US 2009 327; and dynamic of system 131; effect on organic composition of capital 234 Arrow, Kenneth, on limits of mathematical model of market 43 Asian crisis of 1997-8 9, 242; panic among commentators 230; role of IMF in helping Ford and G M acquire Korean firms 266 Asian Tigers, growth as fast as Stalins USSR 218 see also Asian crisis Atkinson, Dan 163 see also Elliot, Larry August 2007 credit crunch 8 Austrian school 194; and slump 145; and restructuring through crises 232 see also Hayek, Fricdrich von; Schumpeter, Joseph Autonomy of state 110-112 Bail outs, in 1980s and 1990s 233; Chrysler 1979 23}; 2008-9 291, 300* Baker, James 274 Baldoz, Koeber and Kralt, quoted 332 Balkan Wars of 1990s, role of different imperialist interests in 270 Banks, role in capitalist production 634, 87; failures in US 1931 149; nationalisations in Japan, Scandinavia, in 1990s 234; Spanish and French in I .a tin America 240; crash of September-October 2008 27"r-8 290; estimates of losses in 2008 300 Bank of International Settlements 7; on failure of economic forecasts 9 Banking capital 63 Banking crises, before 2003, costs to governments of bail outs 234; see also Credit crunch Banking mergers, international 255 Bankruptcies and crises 6 \ 76 404

Bankruptcy Year Book, quoted on increased frequency of bankruptcies 233 Baran, Paul 165, 190, 218; version of dependency theory, quoted 186-7; misinterprets Lenin on economic development 187 Bauer, O t t o 77; claimed refutation of Rosa Luxemburg 100 Bear Stearns bank, taken over by Morgan Chase 277 Bellofiore, Riccardo, on Foreign Direct Investment 261; on "privatised Kevnesianism" 288 Bermuda 221 Bernanke, Ben, on lack of an explanation for Great Depression 9,145; on decline in economic volatility 229 Bernstein, Edward, revisionist arguments of 89 Bernstein, Michael, quoted 146 Bevan, Aneurin 135 Bhopal disaster 308 Biofuels and food shortages 322 Bismarck, Otto von, provides pension 88; nationalisation of railways 115 Blackburn. Robin, on pension funds 280 #

Blair, Tony, and climate change 310 Bleancy, Michael 165, on Keynesianism and long boom 164 Blind Shaft, Chinese film about miners 245 Boeing/McDonnell Douglas merger, role of state in facilitating 265 Boer War, and panic over fitness of working class 134 Bohm-Bawerk 41, 50, 51, 67; critique of Marx on value and price 48 Boom, of 1920s, and contradictions within 144, 146; short-lived of mid to late 1980s 194; of 1980s 283; of 1990s283 see also I .ong boom Boyer 296; quoted (with Aglietta) on asset bubbles and US boom of 1990s283 Braunmuhl, Claudia von 104-5; on the state and world market 104 Brazil 2 1 8 , 2 2 1 ; growth in 1970s 188: in period 1965-80 219; "miracle" Index

of the 1960s and 1970s 253; export-oriented development 219 Brenner. Neil, on role of states in accumulation 108 Brenner, Robert 71, 105; on Volker and failure of Keynesianism 296; on Japanese and German economies 170-1; critique of "Fordism" notion 64; rejects Marx's theory falling rate of profit 69, 360; figures for rate of profit, 195, 196, 235 Bretton Woods 198 Brezhnev, Leonid, on competitive pressures on Soviet economy 203 BRICS 231, 327; as a disparate collection of very different economics ^ 3 ; after Asian crisis 282; and W T O trade negotiations 274, 327 Britain, leaves gold standard 1931, 149; during long boom 170. 198; unemployment in 1950s 172; inflation early 1980s 193; restructuring in 1980s 210-11; industrial output 1984 193; manufacturing output 1970s-2000s 241; proportion of manual workers 334; share of new investment in financial industry 295 Brittan, Samuel, from Keynesianism to monetarism and back again 194; on future of capitalism lying in Fast Asia 241; on falling capital-output ratio in 1960s and 1970s 197 Bronfenbrenner, Kate, on threats to move production used to demoralise workers 336 Brown, Gordon 230; on "contribution" of Lehman Brothers 287; blames irresponsible financial practices for crisis 298-9 Bryan, Dick, national dimension ro global accumulation 266; on exchange rate and distribution of surplus value 266; quoted on national dimension to finance 259; (with Michael Rafferty) critique of share holder value theories, 295 Bubble economy, Japanese of 1980s, 214,215 Bubbles of 1970s, 1980s, 1990s and Index

early 2000s 278-9 Budget deficits 200, 216; with end of long boom 191 Buiter, Willem 16 Bukharin, Nicolai 77, 89,165; critique of neoclassical economics 44; refutation of Rosa Luxemburg 100101; theory of imperialism 95-96; compared with Lenin's theory 9899; lack of explanation of why imperialism could end first Great Depression 101; relevance to understanding Cold War 182 Bundesbank 240 Bureaucracy, class goal of 206 Business cycle 56 see also Crises Business Cycles in Yugoslavia 178 Business Week, on "stateless corporation" 257 Cadbury-Schweppes rationalisation of global operations 259 Call centre employment, in India 252 Callaghan, James, turns against Keynesian methods 193 Cambridge critique of neoclassical economics 10, 44 Cambridge Economic Policy Review 192 Capitalist agriculture, and peasant farmers 321, 348; and soil nutrients 320; and Green Revolution 321 Capital accumulation, "essentially national" 260; and climate change 308-314; global, kaleidoscopic pattern in 21st century 264; new centres of capital accumulation 186 Capital (Marx), different levels of abstraction in three volumes 14, 8 7 ; first chapter 21; Volume Two on interrelation between consumption and accumulation 99 Capital exports, and imperialism 98; and economic development, Lenin's view 187; low level during long boom 183; see also Foreign Direct Investment Capital growth, greater in Japan and Germany than in US during long boom 198 Capital intensive forms of production 405

see Organic composition of capital Capital, as a relation not just a thing 32; constant 38; variable 38; self expansion of 37; different forms 61-2, 107 Capitalism, preconditions for 40; as a totalising system 85; global dynamic of 84; becomes global system 30 Capitalists, as embodiment of the self expansion of value 113; alliances between 109; as "hostile brothers"

268 Capitalist state, origins 105-107 Capital-output ratio, Britain 18751901 102; in 1970s 197; for US in post war decades 371 Capitals and states 102-110, 325 Capitals in 2 Isr century, different accumulation strategies 263-4 Carchedi, Guglielmo 121; on transformation of values into prices 50; on skilled and unskilled labour and value 52-3; on productive and unproductive labour 127 Carnegie, Andrew quoted on Great Depression 88 Cartels 89 Castells, Manuel, on supposed "structural instability" of labour markets 335 Casualisation 342; casual employment. not new to capitalism 341 Cheney, Dick 319 Chernobyl 308 Chesnais, Francois 293. 296 Chicago School of economists 192; see also Monetarism Children, chronic malnutrition in India 252 Chile 221; growth 1977-80 219 China, as semi-colony before First World War 185; under M a o 115, 1 18; economic growth 188; peasants 188; primitive accumulation 243; state capitalism 243; Cultural revolution 243; stagnation in 1970s 218; new model of accumulation after 1970s 243-5; economic growth 19782008 242; foreign trade growth 1979-2007 242; overseas capitalist 406

interests 244; growth in 1980s 244; fall in manufacturing employment from late 1990s 248; informal employment 339; rural workforce 243, 245; apparent fall in peasant incomes 245; poverty in early 2000s 245; excess of saving over investment 246, 282; imports from Japan and East Asia 217, 247; share of consumption in output (graph) 246; level of investment early 2000s 245; real estate bubble 249; unemployment 7; and global inflation of 2007-8 247; growing influence in Africa and Latin America 250, 274; share of global output of manufacturing goods 242-3; multinationals and exports 247; proportion of global buying power 250; interdependence with US 246-7, 250; and US debt 250, 281; challenge to US hegemony 271 Chortareas and Pelagidis, on regional, not global, economic integration 263 Christian Democrats, ideology 164 Chrysler, bankruptcy 290 Circuits of capital 62 Clark, Kenneth, on "irrelevance" of nationality of companies 257 Class Marx's definition of 112-1 13; in itself and for itself 332, 349; character of the state bureaucracy 112 Class compromise theories of long boom 163, 172 Clearances 39 Climate change 308-314; and coal 320; weakness of international agreements 316; and food security 322; destabilising effect on system 317; food security, peak oil and economic crises 327 Coca-cola, outlets in Germany during Second World War 269 Cohen, Gutkind and Brazier 344 Cold War 271; as struggle ro divide and redivide world 180; economics of 180-181 Collective worker 135 Collectivisation in USSR, comparison with enclosures 158 Index

Colonialism, before First World War. 94-5 Combined and uneven development

222 Commercial labour 123; non productive for Marx 125 Commodities. Marx's analysis of 2128, 35 Commodity capital 62; mobility of 107 Communist countries, and competitive accumulation 178; during long boom. 175-9; economic fluctuations in 177-8 Communist Manifesto (Marx and Engels) on revolutionising of forces of production 36; and global dynamics o f ^ p i t a l i s m 84 Competition, and exploitation 37; and accumulation 85; military, and accumulation 117; and organic composition of capital 70-71; blind among East Asian Tigers 242 Competitive accumulation 116, 176, 325; and crisis of USSR 210; and relations between states 326-7; and carbon energy use 314 Computerisation in 1990s 235 Computers, depreciation of 236 Concentration of capital, under modern capitalism 28-29, 78-80, 303; and slump of 1930s 153; during long boom 169; and workings of law of value 79-80 Concentration geographical of capitals 264 Concrete labour 26 Congo-Zaire 185; civil war, and capitalist interests 270 Congress Party India, accepts liberalisation of economy 220 Conservative Party, economic policies in 1950s and 1960s 162 Contemporary Capitalism (John Strachey) 163 Continental Illinois bail out 233 Corey, Lewis 158; on unproductive expenditure and boom of 1920s 146-7, 367 Counter-cyclical measures 164 Crash of 2007-9 277-304, 325 Creative destruction 67,195, 233 Index

Credit crunch of 2007-8 8, 16, 277, 290; Marx on credit crunches 6f> Credit money 27, 66 Credit 27, 8 7 , 61-67; expansion of by banks 64; during business cycle 65; in US in 1920s 147; and trust 109 Creditanstalt 149 Cripps, Francis, on inability to understand how economy works 192 Crises 8, 55; inevitability of 58-60; and capital accumulation 217; 3nd the falling rate of profit 75; role of credit in 64; bankruptcies during 61, 76; and restructuring of capitals 81; role in imposing law of value on enterprise 81; recovery from 61, 303; and mainstream economictheory 55-56, 67; underconsumptions theories of 58; of 1937 in US 154; absence of during early post-war decades 68; after long boom 195-201, 325; in Eastern Europe 179; Poland 1970s 206; and internationalisation of system 301; and US hegemony 327 Crotty, James 185, 294; on financial interests and economic deterioration 293; on finance and real investment 295 Cultivation and climate change 3 17 Cycle of production 62 Dalits 348 Davis, Mike, quoted 342-3, 344-5 Davos, World Economic Forums, mood at, 2007-9 277 Dawes plan 147,149 de Brunhoff, Susanne, on national dimension to finance 259 Dead labour 1 3 , 3 8 , 4 1 , 7 1 , 8 4 Debreu, Gerard 43 Debt economy 280-292, 326 Debt 2 6 3 , 2 7 8 , 2 9 1 , 3 0 0 , 326, 341,372, 3 7 7 , 3 7 8 , 383; Third World 223, 279; and US boom of 1990s 279; US household 1952 and 2006 2^8; for income groups, 294; US banks in 2008, 301; 1929 and 2008 300 Decolonisation 182-3 "Decoupling" 291 407

"Deindustrialisation" 332 "Deleveraging" 290 Delusion, years of 229-31,253,281 -92 Dependency Theories 186-8, weakness of 187; conversions of many supporters to free markets 219 Depreciation 37; and rate of profit 75, and organic composition of capital 76 Derivatives markets, origins and subsequent expansion 284 Desai, Meghnad. quoted 163-4, 230 Developmentalist ideology 186-188 Dickens, Charles, quoted 307 Different configurations of global capitals 262-3 Dimensions of competition 200 Diminishing returns 69 "Direct Exploitation", a critique of concept 294 Disciplinary labour 128 Dispropornonally, and development of crises 60 "Disutility" 26 Dumenil and l evy 296; on profit rates, 196-7; on neoliberahsm and finance capital 293 Dumenil, Gerard 7 1 , 2 9 9 Dunn, Bill, quoted 335-6 EADS, competition with Boeing 239 Eastern Europe, and German investment 241 East German, sell off ol enterprises 233 Eastern bloc 1945-89 118; subordinated to military-industrial goals of USSR 180-1; during long boom 175-9; in 1990s 225 Ecological destructiveness of capitalism, recognised by Marx and Engels 83-84 Economic cycle, and long boom 178; under state capitalism 178 Economic growth, inadequacy of normal measurements 17 Economic orthodoxy, during long boom 162 Education 334; labour 135; growth of state spending on 1 7 4 Effective demand 164 Egypt, under Nasser, nor neo-colony 408

185; nationalisation 189; economic growth 189; Nassers heirs embrace market 220; strikes of 2006 344 El Alto, workforce 343; uprisings 344 Electronics industry, pattern of employment internationally 335-6 Elliot, Larry 163; call for greater regulation 292 "Emerging markets", share of global investment 221 -2; see also Global South, Third World Empire (Hardt and Negri) 93 Empire State Building 147 Empires. European before First World War 97 Employment, industrial, in old industrial countries 333; cause of decline in US manufacturing early 2000s 262 Enclosures 39 End o/ Empire (John Strachey) 184 Energy security 319 Fngels, Frederick 35; in Manchester 12; seeming permanent economic depression 88; on rise of capitalist state 105; on casual employment and dixk strike of 1889 341-2; foresees disappearance of peasantry 346; on Bismarck's nationalisanon 115; on pollution in Bradford 307 Enron, bankruptcy 233 Epstein 294 Equatorial Guinea 185 Ethiopian invasion of Somalia, US backing for 274 Furomoney, and expansion of finance after 1960s 281 European capitalism, pressures on 239-40 European Community 219 European Union, combined manufacturing output 333 Exchange rates, and role of stare 265; and distribution of surplus value between capitalist classes 266 Exchange value 23. 25; in Adam Smith

22 Expenditures that do not contribute to accumulation 128-9 see also Waste. Leaks Explaining the Crisis (Harman) 14, 16 Exploitation 28-35; and accumulation Index

37; rate of 38; and impact on rate of profit 72-73 Export barrier 204 Export of capital see Capital exports Export oriented development 219; and growing debt 219 Exports, role in German and Japanese economics 1^1 Family wage 132 Famine. Irish 40 Farmers, small, number in 21st century 322 Federal Reserve 8, 149 -see also Volcker. Paul; Greenspan, Alan; Bernanke, Ben Fertilisers in USSR 177; and global food output 321 Fetishism of commodities 33, 6.5; and alienation 28 Feuerbach, Ludwig, on alienation and religion 13 Fiat money 27 Fictitious accumulation 299 Fictitious capital 65; and intensification of boom-slump cycle

66 Filmer, Deon, study of world workforce 331-2 Finance and "financialisation* theories, 292-298 Finance capital 90-92; Hilferding on 89-92: Lenin on 98; Bukharin on 98; and interests of productive capital 293-4, 297, 298; during years of slump and long boom 2~^9 Finance in recovery of 1980s 283; blamed for deterioration of system

293-5 Ft fiance Capital (I Iilferding) 90-91 Finance, speculation and the crisis, 6567; impact on workers budgets 279-80 Financial bubbles, and demand for output of real economy 287; in Japan late 1980s, reason for 214 Financial assets, global, and global output 1980-2005 278 Financial capital, national dimension

to 259 Financial corporations, US, growth in valuation of 278 Index

Financial crisis, of 1907 92; increased frequency of 280; of 2007-8 I I Financial flows, international Hows ot in 1980s, 1990s and early 2000s 279 Financial industry, investment as share of total investment, US and Britain 295 Financial institutions 63; and the expansion of credit 64 Financial instruments 286 Financial labour 123 Financial protectionism 301-2 Financial system, origin of 63 Financial Times, praise for letting Lehman Brothers go bust 291 Financialisation 277-292, as temporary motor to world economy 289 Financialisation theory 292-8. 299, 385,386 Fine, Ben, on academicisation of Marxism 48; on fog of markets caused by financialisation 299 First World War 89 Fiscal measures 149. 162 see also Kevnesianism Fischer, Irving, on problem with word "utility'* 43; optimism after Wall Street Crash 144; monetarist explanation for slump 145 "Flexible production" 261 Food, and capitalism 320-322; crunch, threat of 322; price rises of 2007-8 320; security 322; production and population growth in 20th century 320-21 4

Ford 284; River Rouge plant 152; factories in Germany during Second World War 269; closure of Dagenham Assembly plant 259 Ford, Henry 35 "Fordism", theory of 164; critique of 164 Foreign Direct Investment, destinations 183; stocks, concentrated in developed countries 263; shares of different state 263; flows 1982-2006. growth of stock 1950-2007 255; not mainly on new productive capacity 261; low proportion of total US 409

investment in recent decades 260 Formal employment 339 Former USSR, growth in 1990s 225 Forrester, Viviane quoted 258 Foster. John Bellamy 81; on peak oil 318 Fragmentation among slum dwellers 344-5 France, fall in industrial production in slump 143; economic output 1940s to 1970s 161; during long boom 170; cuts in public expenditure 240; imperialism in Africa after decolonisation 185; conflicting interests with US in Africa and Middle East 274 Frankenstein's monster 85 Free labour, partial negation of 175 "Freeing" of labour 40 Freeman, Alan, on unproductive labour 127 Freeman, Richard, figures on global workforce, critique of $90 Friedman, Milton 300; popularity of ideas after crisis of mid 1970s 192; denounced as Keynesian 194 Fukuyama. Francis, and "end to history" 258 4

G 8 Rostock 2007 309 Galbrairh, John Kenneth 202; on planning during long boom 168-9 Garcia, Miguel Angel 49 General Electric, reliance of finance for profits 284-5 General Motors, and financial profits 284; in crisis in 2009 290 General Theory of Employment, Interest and Money (Keynes) 149 George Bush senior, on New World Order 258 Georgian attack on Ossetia. 2008, 319; role of US 274 German capitalism, economic growth and profits in 1990s and early 2000s 240 German Ideology (Marx and Engels) quoted 81 German unification, economic effects 239 Germany, industrial output in 1920s 144; beginning of crisis in 1928 148; 410

fall in industrial production 192933 143; economic recover)' of mid and late 1930s 155; seizure of western Poland 156; state planning during two world wars 1 15; West Germany during long boom 164, 170; economic output 1947-70 161; increase in share of global ourpur 198; unemployment 1957, 1960 172; East Germany, crisis of 1953 1 7 9; unification, economic effects 239, and Croatian Independence 2 7 0 ; Social Democrat-Green government 240; fall in real W3ges 240; world biggest exporter 239 Ghana 185 Giddens, Anthony 325 Gillman, Joseph 146 Global character of capitals destructiveness in 21st century 316 Global crisis, national solutions to in 1930s and today 302-3 Global South 18, 91; in long boom 182-201; state capitalism and economic growth 190; economic growth, unevenness 189; and end of long boom 217-225; impact of collapse of Keynesian and Stalinist economic models 217-8; terms of trade 218; negotiations with multinationals 222; debt 223; inability of poor countries to artract investment 222 see also Third World, Emerging markers "Globalisation" 258, 260, 261, 264, 266. 267, 277, 281, 298, 301, 325, 351. 378, 382; realities and myths. 257-262 Glyn, Andrew 71; (with Sutcliffe) on wages 3S cause of declining profits 197; on financial crises 280 G M crops, no solution to global food problem 322 "Golden Age of capitalism" 161, 172, 182,191, 195, 224. 232, 290, 296, 304; see also Long boom Goldman and Korba, quoted 177 Gorbachev, Mikhail, 209; on stagnation in Soviet economy 202-3 Government controls on monetary flows across borders, abandoned 285 Index

Government expenditure, and class struggle 175 Gowan, Peter, on clashes between finance and productive capital 293 Gramsci, Antonio, on stare as "centaur" 111 Great Depression of l«S70s and 1880s 88: and imperialism 97 Great Depression of the 1930s 9; see also Slump of 1930s Great Leap Forward 188 Greece 218 Green revolution, and increased food output 321; benefits becoming exhausted 321-2 Greenhouse gases 308 Greenspan. Alan, and new paradigm 2 2 9

%

« .

Greenwash, not sufficient explanation for slow action over climate change 310 Grossman, Henryk, 204; and theory of breakdown based on rate ot profit 77-78; criticism of Rosa Luxemburg, Bauer and Bukharin 101; theory connecting imperialism and rate of profit 101-2; destruction of values through war 131; interpretation of Marx's theory 152 Grundrisse (Marx) 129 Guano 82 Gulf states 183 Gunder Frank, Andre 190; denies being a Marxist 186; version of dependency theory 187 Haber-Bosch process 82 Hamilton, Clivc, debate with George Monbiot 311 Hamilton, Lee 2~~4 1 landloom weavers, livelihoods destroyed by advance of capitalism 40 Hansen, Alvin 144, 146 Hanson, James 309 Hardt, Michael 331, 333; on capitalism not needing imperialism 93 see also Negri, Toni Harris, Nigel, I 10; on capitalism and peace 92; misinterpretation of Bolshevik position 187; Index

"weakening of the drive to war" 258 Harvey, David 112; on '"class compromise" during long boom 163 Hayashi, Fumio 215 Hayek, Friedrich von, 149, 300; explanation for slump of 1930s 145, 151; "roundabout processes" and declining profit margins 151: guarded praise for Marx on crises 67; on inadequacies of BdhmBawerk's theory of capital 67 Health and education workers, in US 334 Health provision 334; and variable capital 135 Hedge funds, massive growth 284 Hegel, George Wilhelm Friedrich 13 Hierarchy of states, cannot be stable 270-71 Hilferding, Rudolf, 165, 279, 298; critique of neoclassical economics 44; analysis of early 20th century capitalism 89-91; and tendency of rate of profit to fall 77; ambiguities in Finance Capital 90; on finance capital and war 90; on division of functions within capitalist class 114; minister under Weimar Republic 91 see also Organised capitalism Hitnmelweit, Susan Hindu rate of growth 189 Hobsbawm, trie, on falling profit rates in 19th cenrury 69 Hobson, J A 292; finance capital and imperialism 92; his alternative to imperialism 184 Hodgson, Geoff 48 Holloway, John, on instant mobility of capital 258 1 Ioly Grail of economics 9, 145 Hong Kong 242 Hong Kong and Shanghai Banking Corporation 255 Hoover, Herbert 144 Horvat, Branko, quoted P 8 Howe, Geoffrey, budget of 1979 193 H u m a n capital 128 Hungary, revolution of 1956 20"7 Husson Michel 299

411

Hutton, Will 163; and short-termism 294; <m superiority of Japanese model 211 International capitalist class, theory of

268 I M F 230, 231; austerity packages and Asian crisis 242; quoted in favour of growth of Third World debt, 1980 220; IMF/World Bank debt relief programmes 220 Immigration controls, reasons for 173 Imperialism, and end of first Great Depression 97; and export of capital 98; and rate of profit 102; classical theory of 93-99; common criticisms of 96; defence of 96-97; weaknesses in Lenin's theory 97-98; Rosa Luxemburg's theory 99; Imperialism and World Economy {Bukharin) 95; and economic development, Lenin's position 187; without formal empires 184-5 Imperialism, the highest stage of capitalism (Lenin) 93 Imports, of developed countries from developing countries 263 Import-subsritutionist model of development, 218; see also D e v e l o p m e n t a l ideology. Dependency theories Incomes, in late 1920s US 146 India I*7; under Nehru, not neocolony 185; economic growth 1950-81 189; per capita growth in 1960s 189; economic stagnation in 1970s 218; economy in 1990s and early 2000s 251-2; rate of accumulation since reforms 251; employment in industrial sector 252; informal employment 339; fall in real wages in organised sector in 1990s 340; pay in organised and unorganised sectors 340; inequality today 251; pavement dwellers and working class 342-3; agricultural output 189; much less important to world system than China today 251 Indonesia 185, 242; crisis of 1997-8 224, 351; anti-Chinese riots in 345 412

Industrial countries economic growth in 1980s and 1990; against I M F forecasts 224 Industrial capital, relative immobility of 241 Industrial complexes 109, 259 Industrial concentration across national borders 256 Industrial firms turn to finance in 1990s, 284 Inflation, in mid 1970s 191; inflation barrier 204; hidden inflation 1 7 9, 204 Informal employment, in Latin America, India, China 339 Innovation, technical, and long boom 165 Instability, global 325 Intellectual property rights, and role of state 265 Interdependence between states and capitals 112 Interest rates, raised by Volcker 296: cut by Volcker 297; real in 1990s and early 2000s 29"*; and interests of finance 287-8; slashed to deal with credit crunch 27^ Inter-imperialism rivalries, and Cold War 180,181,182 International Energy Agency, and "immanent oil crunch" 318 International Socialism 16 International trade, growth 1950-2007 255 Internanonalisanon of system and crisis of 2008-9 301 International mergers, acquisition and alliances in 1980s and 1990s 256 Investment flows, concentrated in Triad 263 Industrial countries' investment from 1960s to early 2000 (table) 282 Investment, in US in 1920s 146; global 1960-2000s 232; uneven and spasmodic growth of productive in 1980s, 1990s and early 2000s 282; productive at low level in industrial countries in 2000s 2 8 7 ; inflows into US and military power 2^*3; to stop climate change "not possible" 313; resistance to lowr energy investments 312 Index

Iran 183; economy under Shah 185; in 1979 351 Iran-Iraq War, role of US in 269 Iraq Srudy Group 274 Iraq War of 2003 319; rationale for 273; cost of to US 274; refusal of France and Germany to back 274 Iraq 185 Ireland, under Fianna Fail, nor neocolony 185 Iron law of wages, rejected bv Marx 31 Iron rice bowl 244, 340 Israel, last example of old style colonialism 184; attack on Lebanon, 2006 274; and US imperialism 274, 184 Italian kr^rwear industry 261 Itoh and Lapavitsas, finance and productive capitalists not two separate groups 298 Japan, during long boom 170-1; industrial output 1940s to 1970s 161; fixed investment 1946-61 171; increase in share of global output durmg long boom 198; growth through 1980s 21 1; crisis of 1990s 9, 211 -217, 325; explanations for crisis of 212; rate of profit 212; investment 216; crisis compared with USSR crisis of late 1980s 217; recover)' ' n m ' d 2000s based on exports of equipment to China; car firms in the US 256, 2 6 1 , 2 8 1 ; growth of working class 1951 -98 333 Javadev 294 Jevons, William Stanley 41; on sunspors and economic crises 56 "Just in time" production methods 261 Kahn, Richard 162 Karabakh 208 Karachi, Sunni-Shia and inter-ethnic clashes 345 Kautsky, Karl 82, 292; rejects revisionist argument 89; finance capital, industrial capital and war 91-92; ultra-imperialism 92, 185; on colonialism and control of agrarian parts of world 95; on Index

capitalist nationalisation 11 S Keegan, William. 149; criticises Marx 68; and short-termism 294; on superiority of Japanese model 21 I Keynes, John Maynard 10; and underconsumptionist theories of crisis 59; causes of slump 145; crisis of 1930s 150; cautious 162; on rentiers 294; liking for version of labour theory of value 44-5; tt Animal spirits" 150; declining marginal efficiency of capital 162; socialisation of investment 162 Keynesian measures, seen as reason for long boom 161; rarely used in long boom 163-4; failure of in late 1970s 200-201, 297; in Japan in 1990s 215, 216; limited effect of 217; as national solutions 301 Keynesianism 11; as explanation for long boom, 163-5; problems with 195; marginalised after 1970s 193; crisis of 191-3; revival during crisis of 2007-9 300; left wing illusions in 303; and neoliberalism today 303: bastard 162; radical 11 Kidron, Mike, on a world of state capitalisms 104; on Marx and productive and unproductive labour 127; on waste and organic composition of capital 130; on Marx's model and rate of profit 130-131; on impact of arms spending 165; non underconsumptionist theory of effect of arms spending in long boom 165-6; on British capital exports in long boom 183; on subsidv to advanced countries from Third World through immigration 173 Kissinger, Henry, on challenges to US hegemony 272 Klein, N a o m i on "footloose factories" 258 Koechlin, Tim, on US foreign investment 260; on proportion of outsourcing in US 262 Koo, Richard 216 Korean War 198; reasons for 180, US spokesman on 181 Kosygin, Alexey 203 »

413

Kotz, David, calculations of profit rates for mid 2000s 232 Krugman, Paul, on Japanese crisis o f 1990s 2 J 5: on difficulties of national states dealing with global crisis 301 Kuron, Jacek and Modzelewski, Karol, on economic crises in Soviet type economies 205-6 Kuznets, Simon 146 Kwangvang steel complex 242 Kyoto conference 309 Labour, socially necessary 41 Labour costs, socialisation of 174 Labour power 32, 36, 47; value of 85; moral element 31; labour used in reproducing 52; supply and management of 132; reproduction of 132-137; in the long boom 1725; cost of reproduction passed on to working class family 174; overintensive exploitation of 315 Labour productivity, in US, stagnation in 1970s 202 Labour theory of value 44-5, 47, imposed on capitalists by competitive accumulation 45-6; see also Law of value Labour time, socially necessary 25, 45, 47, 51 L a b o u r abstract 26 Labour, concrete 26 Labour, dequalification of, 52-53 Labour, skilled, unskilled and value 50-53 Laclau and Mouffe 331 Landless labourers 347 l.apavitsas, Costas, on role of central banks in financial systems 109; on changes in banking system and "direct exploitation" 294 Latin America, populist regimes not neo-colonial 185; the lost decade of 1980s 220; fall in real industrial wages in 1980s 340; exports of food and raw materials to China 250; French a n d Spanish banks 240, 255; peasant struggles 346 see also individual countries Law of value 26, 45; operates through pressure of capitals on each other

414

46; and planning within enterprise 80; operates on individual capitals through time 53: with imperialist competition between state capitalist trusts 99; and state controlled economies 118-119; and giant corporations in long b o o m , 169-70; on a world scale 201; under state capitalism 201; in USSR 204; and welfare and educational expenditures 137 Lawson, Nigel, recognises inevitability of crises 67 Leaks of surplus value from circuit of accumulation 130 see also Waste Left internationally, attitude to USSR 157 Lehman Brothers, collapse 277 Lenin, Vladimir 77, 89,109, 165, 190; theory of imperialism 93-95; critique of Kautsky on colonialism 95; quoted parrot fashion on imperialism 184; on connection state and capital 106; on semicolonies 185; conditions for a "prercvolutionary crisis" 350 see also Imperialism Less eligibility 135 1 iberal government (Britain), and social reforms 88 Liberation movements 182 Lifeboat operations and economic crises 267 see also Bail outs Lifetime of fixed capital, and rate of profit 236 Lisbon Declaration 2002 239 Living in Britain 2000 334 Living labour 84; and objectified labour 33 Livingstone, Ken, praise for Gordon Brown 303 Logic of capital and greenhouse gases 315 Logic of states, counterposed to logic of capital 107 Long boom 161-192; c o m m o n mistaken explanations 163,165 Long Term Capital Management, lifeboat operation 234 Losses due to telecoms bubble 286 I ucas, Robert, on failure to understand cause of slump of 1930s 9

Index

Luxemburg, Rosa 7 7 , 89,132; theory of imperialism 99-101; luxuryconsumption of capitalist class 126; Anti Critique reply to O t t o Bauer 101 Macmillan, Harold 349 Mage, Shane, quoted 164-5 Mahalla al-Kubra 344 Maksakovsky, Pavel V, on Marx's theorv of crisis 59-61 t

Malaysia 221. 242; turn to state capitalism 185; anti Chinese riots 345 Mandcl, Ernest 19?; on absence of crises in Soviet economy 202 M a n n , Michael, on limits of globalisation 261 M a n u a l occupations in service sector 334 Manufacturing, centrality in modern society 333 M a o Zedung, death 243; see also China Marcuse, Herbert 331 Marginal efficiency of investment, and rate of profit I 50 Marginal output 41; contradiction in measuring it for neoclassical theory 44 " M a r g i n a l utility" 23, 43 Marginal value of capital 44 Margmalisr school of economics 9, 23, 41, 162; see also neoclassical school Marketisation 240 Marshall, Alfred 41: on failure of neoclassical theorvf when it comes to real world 10; time as a problem to be ignored 42; merits in a labour theory of value 44 M a r x and Engels, reject Malthusianism 320: on capitalism s destructive effect on human interaction with nature 307; on productive forces 81 M a r x , Karl, ideas 21-40, 55; on waste and organic composition of capital 129-30; financial profits as paper claim on real production 289; on role of finance 281; on role of credit system and fraud 64;

Index

discussion on finance in Volume Three of Capital 298; on accumulation for the sake of accumulation 204; on anarchy of market and despotism of factory 80; on capital accumulation and growth of "surplus" population 340; on capitalists as hostile brothers 268; on crises of 1846 and 1857 in Britain 152; on damage to agriculture by capitalism 82; on division of functions within capitalist class 114; on interest rate rises to protect value of money 2867; on labour and natural world 8 1 82; on organisation of production within enterprise 7 9 ; on stare machine in 19th century' France 111; on sudden outbreak of crisis 148; on the state and unproductive expenditures 129; refines distinction between productive and unproductive labour in Capital 122-12; on vampire-like character of capitalism 84; skilled and unskilled labour 50; refutation of Say's law 57 Marx's, theorv of value, criticisms ol 41 Marxist economic theory, tendency to look inwards 15; explanation of interwar slump 152-2; failures ro integrate arms spending into analyses 165 Mass of surplus value, and accumulation 118; seeking investment in 1980s, 1990s and 2000s 281 Matthews, R C O 163, 164 Maxwell Empire 233 M c C o r m a c k , Gavan, on Keynesian measures in Japan in 1990s 216 Mengcr 41 Merchants'capital 107 Mergers, international as proportion of total 260; and jumping national stare barriers 267 Mexico 218, 221; crisis of early 1990 s 224 Michl, Thomas 195, 197 Middle classes, aspirant in poorer countries 221 415

Migration, state encouraged during long boom 172-3 181: reduces cost of reproducing labour power 173 Military competition, in Bukharin's theory 96; and economic competition 200 Military expenditure, and long boom 164; level during boom 165-6; by US in 2000s 273; and productive/unproductive distinction 127-8 Military hardware, continual role of

268 Military Keynesianism under Reagan 272; in 2000s 273 Military state capitalism 156 Military-industrial complexes 168 Mill, John Stuart, 67; denies possibility of general crisis of overproduction 56 Minford, Patrick 230 Mining disaster in Guangdong, China, in 2005 245 Minsky, moment 64, shifts 283 Minsky, Hvman 64 M I T I 171 Mobutu 185 Modzelewski, Karol 204 M o h u n , Simon 126 Monbiot, George, on Stern Report 313 Monetarism, and slump 145; takes over from Keynesianism 192-3,297; and inflation in Britain 1980s 193; failure of in early 1980s 193,201 "Monetary measures" 149, 162; Keynes's scepticism over 370 Money capital 61,107; mobility of 107; growth of pools of 283 Money supply, growth in Britain 1980s 194 Money, Marx's account of 27; as universal equivalent 27 Monopolies 90-91; growth of 15; and crises, according to Hilferding 91 Monopoly profits 90 Monopoly stage of capitalism, m Lenin's theory 93-5 Morales, Evo 346 Mortgage bubble of early 2000s 286 Moseley, Fred 126, 195-6, 197; calculations of profit rates for mid 2000s232 416

Mouffe and Laclau 349 MST landless workers' movement in Brazil 346 Multinationals, weight in global economy 257; dependence on home base for much profitability 260, 264; dependence on states for trade negotiations 265; and role of states in aiding accumulation 265; US, affiliate sales mainly local 261 see also Transnationalitv index Multinational capitals, conflicting agenda 268 Multiplier effect 162 Multipolarity 274 M u m b a i , textile strike of 1982-3 345; Anti-Muslim riots of 1992-3 345 Mutual Assured Destruction 268 4

Nasser, Abdul 185 see also Egypt Nation states and global crises 301 National Bureau of Economic Research 191 National Energy Policy, report of 2001 319 Nationalisation by former colonies 185 N A T O 180; expansion into Eastern Europe 272 Nature, and capitalism 3 0 " Nazi Germany, state planning 116; new investment 155 Needs of capitals and the needs of capitalism 314 Negri, Toni 9 3, 331, 333; see also llardt, Michael Nehru 185 Nehruvian "socialism" 251 Neoclassical economists 14, 51; and value 2 6 , 4 1 ; arguments against Marx 41; theory of market clearing 42 Neoclassical school of economics, 10, 14, 2 2 , 2 3 , 2 6 , 4 7 , 53, 144,369; critique of M a r x , 41 -46; contradictions in, 42. 44; failure to explain crises 9, 56; Keynes and, 44-45, 162; theory of value 43; see also Marginalist school of economics Ncoliberal ideology in Global South

221 Index

"NeoliberaP policies 240 Neo-populism 347 Net social wage in 1970s and 1980s 237-238 (graph) 237 New classical school 194 New Deal 154 New era of 1920s 144; and "new paradigm" of 1990s 236 New imperialism, similarities and differences with old imperialism 270-72, 253 New Paradigm 229 New York Times on military contracts and global competifiveness 265 N G O s 342 N i x o n , Richard, cuts US arms spending, ends Bretton Woods 198 Non-produ§(ive expenditures, in capitalist competition 169; and slump of 1930s 155 Northern Rock, toast of City dinner 287; nationalised 277 Notermans, Ton 164; quoted on Keynesianism not explaining long boom 195 Nove, Alex, quoted on Soviet growth 175 Nuclear weapons 269 O'Connor, James, on role of welfare benefits for capital 174 O ' H a r a , Phillip 248 O b a m a , Barack, election campaign and climate change 3 13; first budget 327 Offe, Claus I 10 Off-shoring, real role 336 Oil 183; crisis of 1973-4 184, 191; price and Soviet economy 2 0 " Okishio theorem 71, 73, theoretical refutation of 74-5; empirical refutation of 197 Old Boy networks 109 Olympia & York 233 Ophelimity 43 Organic composition of capital, in Marx, 38; and technical advance 70; at end of 19th century 102; during long boom 168; in 1990s 234; in China in early 2000s 248 Organised capitalism, Hilferding's rheory of 91 Index

"Outsourcing" overseas, limits ro scale of 262 Over-accumulation, under state capitalism 179; in USSR 177; over investment in China mid-2000s 248 Overproduction 6 1 , 1 7 8 ; of tclecoms bandwidth in 1990s 286; endemicaccording to Rosa Luxemburg 100 Overseas investment, during Cold War 181 Panic of November 2008 290 Pareto, Vilfredo 42, 43 Peak oil 318-20; implication over decades 319; does not counter climate change 320 Pearl Harbour 156 Peasantry 346-9; persistence of in Asia and Africa 346; differentiation within 347, 348; doing nonagricultural labour 332; Chinese 243 Peasants and Proletarians 344 Pensions, Germany under Bismarck 88; during long boom 174 Pentagon, report on global insecurity resulting from climate change 328 Permanent arms economy, as explanation for long boom 165168; contradictions in 198-9 Pigou, Arthur Cecil 145 Plaza Accord of 1985 214, 266 Poland, crises of 1970s and 1980s 206-7; 1980-81, 351; significance for whole Eastern bloc 206-7 Polarisation of classes 87 "Political capitalists" 115 Pollution, in 19rh century 307 Ponzi schemes 64, 283 Portugal 218 Posco 242 Post industrial society, theories of 33 I, 332 Poverty, in China m early 2000s 245; in India in 1990s and early 2000s 252; in USSR in late 1980s 208 Pravda on unemployment in USSR 208 Prebisch, Raoul 186 Precarious jobs, real levels in Western Europe, 336-7 Preobrazhensky, Evgeny 159; on slump of 1930s 153; impact of world 417

crisis on USSR 158 Prescott, Edward C, on failure to understand causc of slump of 1930s 9; on Japanese crisis of 1990s215 Price signals and climate change 311 Price and values 46: deviations from values 87 Primitive accumulation 39-40, 132, 258-9; and slavery 40; in USSR 176; China 245 Primitive communism 21 Private equity funds 279 Privatised Keynesianism 288 Productive and unproductive labour, 121-126; distinction does not depend on physical form of output 121; and accumulation 125; and commerce 125; Kidron on 127; Carchedi on 127 Productive capital 18. 107; two fold character of 108; and state 108; relative immobility of 107-8. 335; source of funds for banks 65; multinational, and rise of finance 281 Productive capitalists and credit 62-64 Productive forces, can become destructive 81 Productive labour, and dynamic of system as whole 125 Productivity of labour, and rate of profit 73; Europe stops catching up with US in 1990s 239 Profit margins, China mid 2000s 248 Profit rate, theory ot tendency to fall, Marx on centraliry of theory 69; and crisis 75-78; countervailing tendencies 72; some Marxists critical of theory 69: Marxist theory after Marx 77; and state capiralism 201 Profit rates, equalisation of 87; falling in mid 19th century 88; recovery in Britain in 1890s 88; before and after First World War 151; from 1970s to early 2000s 232; fall in, and attractiveness of financial investment 281; claims that they recovered sufficiently in 1990s 299 and investment, in Japan 171 Profitability, in China, and low

418

international value of Yuan 289; and investment in low energy production 311-12 Project for a New American Century and US hegemony 272 Proletarianisation of public sector employees 138 Protectionism 145, 302; Hilferding's account of rise of 90 Proxy wars, typical of present period 269 Public expenditures and class struggle 138 Public works 216 " P u m p priming" and slump of 1930s 155 Purchasing Power Parity 250 Quantitative easing 301 Raju, Ramalinga, India's "Young Entrepreneur of the Year" 287 Rate of profit, and productivity of labour 73 and imperialism 102; and investment 76; effect of arms expenditure on 131; and turnover rime of capital 235; under state capitalism 117-119: in long boom and after 164, 195-7; and end of long boom 200; and japanese crisis of 1990s 216; and restructuring through crisis 232; in China in 1990s and early 2000s, estimates 248; and wages and crisis 76 Rational expectations theory 194 Raw material barrier 204 Raw material, and empire beforeWorld War One 97; cheapening during long boom 165 RBS Nabisco takeover of late 1980s 279 Reagan, Ronald, economic policy 194 Real business cvclc theories 56 Real wages, rise at end of 19th century 88; see also Wages, United States, Germany, long Boom Realist school of international m

relations 103 Recessions, growth, during long boom 165; of mid 1970s, explanations for, 191-2; of 1980s and 1990s 224; of 2001-2, 287; panic among Index

commentators 230; loss of manufacturing jobs 332; of 2008-9 spread to China and India 291; of 2008-9 and cutbacks in green investments 3 I 3-4 Recycling of oil funds, and growth of finance 281 Reform, economic, in Communist countries 176 Regional character of many multinationals 262-3 Regulation School 164 Reificarion 28 Relative surplus value 34 Rentiers 92. 98, 114; "power v 294: "euthanasia of" 162 Reproduction of labour power and productive labour 135-7 Reserve army of labour 137-8 Restructuring of capital, in slump, war and long boom 164; in 1980s, 1990s and early 2000s 224.234-5; limited economic effects o f 2 3 5 ; and working class 335; across national borders, and growth of finance 281 Revisionist controversy 89 Ricardo, David 12, 24, 25, 43, 46: development of ideas of Adam Smith 22; theory of value 30; gap in his theory of value 47; theory of falling rate of profit 69; followers of 23 Rio Earth Summit 1992 309 Robinson, Joan, on support for economic orthodoxy by those with power 11; on persistence of neoclassical theories that have been refuted 44; on "Bastard Keynesianisrn" 162; on changed message from apologists for capitalism 192 Roosevelt. Franklin D 154 Roubini, Nouriel 300; quoted 277 Rows between governments in crisis of 2008-9 302 Rowthorn, Bob, quoted 333; on wages as cause ol declining profits 197 Royalties, and role of state 266; on seeds 322 Ruginan, Alan M , on non global nature of big multinationals 262 Index

Russia 32 7 ; Tsarist, industrial development 187; slump ol 1990s, scale of 210; in 1989-91 3*1 5 4; bureaucracy substitutes itself for capitalist class 157; slavelabour 176; and law of value 176, 204; economic growth 1950-1970s 1 7 5; seen as model lor Third World development 186; imperialism in Eastern Europe 181; Competition with West. Brezhnev on 20*; causes of waste 177; consumer goods appear by 1960s 175; as world second economic power 211; productivity and competition with US 180; agricultural problems 176; cyclical fluctuations in growth I ^8, 204: from Stalin to Gorbachev 115; growth rates long term decline 203; growing dependence on foreign trade 207; stagnation of 1980s, 202-3; crisis of late 1980s, causes and scale of 181, 207-8; compared with Japanese crisis of 1990 217; why market reforms were not answer 210-12; inflation of late 1989 and early 1991 208; revolts of national minorities 208; collapse of 234 Valorisation 37 Value added in schools 135 Value 25, 32, 33; substance of 26; and prices 46-50; during crises 60-61; Marx on productivity and 27; and technical advance 2 " Vampire-like character of capitalism 84 Index

Variable capital 38, 70 Venezuela 221, 351; and US oil 319 Vietnam 184. 185; French withdrawal

182 Vietnam War 32"7: and cost to US 271,198 Village industries 243 Vitro 221 Volcker " c o u p " 296 Volckcr, Paul, raises mtercst rates 1979 296 von Bortkiewicz, on transformation of values into prices 48-9 Wade. Robert, calls for greater regulation 292 Wage controls 178 Wage labour in USSR 158 Waged employment, fall in several African countries 339 Wages, and development of crises 60; rises in US in 1920s 145; not cause of low profits in 1970s 197; of US workers in 1970s 197; Japan in 1980s 213; real fall in Germany in early 2000s 237 Wall Street Crash 143 Walras 42; ignores problem of rime 42; economic crises 56 War and surplus value 156 War on terror and arms spending 234: failures in 327 Warren, Bill, theory imperialism as advancing economic development I 89-90 Wars, waged by US in Global South 271, 273; hot, waged in Third World 268 Washmgron Consensus 221 Waste expenditure 234; in US, I9~0 12 7 ; and accumulation, 129-30; a contradictory role I 32; Waste production 126 "Weightless economv" 332; myth of 257 Welfare expenditure, productive and unproductive 1 >7; as proportion of G D P in different countries 1975 9S (table) 238 Welfare provision, early development in Britain 134; development in 20th century 135; during long boom 423

164; cosrs in Western Europe and US 174: cuts 137 Welfare state and needs of capital 135 Wen Jiabao, quoted on instability of Chinese economy 249 Wolf, Martin 1V7; on Thai crisis of 1997 as a " b l i p " 2 4 2 ; quoted on financial crises 280; quoted on "delever aging" 290; on role of US household borrowing in keeping global economy going 288 Wolff, Edwin 195-6, 195, 197 Women, married, entry into employed workforce during long boom 173 Wood, Ellen 112: on imperialism as caused by politics, not capitalist economics 93; state not instrument of appropriation under capitalism 104 Woolworths in UK goes bust 291 Work measurement and payment m

schemes 137 Workers, number in world according to Dcon study 331; as proportion of workforce in US 334 Working class, in classical Marxism 329-30; theories of decline 330-31; global size 331; global distribution 33"7; unevenness within 330; relation of the formal and informal

424

sectors 338-344 Working day, legal limits on 33, shortening in 20th century 33; lengthening of 33 Working hours, decline in first part of 20th century 89 Working year, different countries, 2004 239; United States, 1973-1998 236 Workplace and community 343 World accumulation, 1970-2004 232 World Bank, endorsement of state planning in 1950s and 1960s 186 World growth 1961-2003 231 World Trade Organisation, negotiations, states and corporate interests 266 World Trade Organisation I 7 WorldCom, bankruptcy 233 Wright Mills, C 331 /

X-efficiency 169, in West and in USSR 204 Yeltsin, Boris, and dissolution of USSR

210 Zapatistas 346, 348 Zeilig, Leo and Ceruti, Claire, on South African township 343 Zombie banks 11

Index

Chapter Title

Zombie Capitalism

Zombie

Zombie

Zombie

Zombie

Zombie

Zombie

Zombie

ZOMBIE

Zombie