By Kumar David –
A wench, who extols gluttony and lust and is a member of the Mongolian CP, brought a story in the Economist to my notice. The magazine is revered by the establishment as gospel, is read with reverence and quoted with awe, so I was curious that it used terminology and an illustration reminiscent of a thesis and a diagram I had developed in October 2009 in my essay “Mid stream in a Wobble-U shaped Recession”. This if it still exists, it is buried somewhere in achieves of the Sunday Island of 11 October 2009, but fortunately was included in the booklet “Essays in the Global Economic Crisis” published by the Institute of Ecumenical Development in December 2010. The concept was refined in South Asia Analysis Group (Paper 4574 of 29 June 2011).
There are substantial paradigm differences between my analyses and the Economist. Mine was a theory of why global capitalism entered a period of prolonged crisis and argued that it would be unable to pull out of this hole for a long time. Indeed, a sustained recovery has still to emerge though five years have elapsed since the September 2008 debacle. Brief upturns in America and Europe are followed by disappointing lapses; it’s a wobble at the bottom like a drunkard in a ditch. Recovery, by definition a sustained process, is nowhere in sight.
The Economist, on the other hand, takes a sanguine view of the global economy in its leader of 8 February, “Global economy: World wide wobble” and a longer piece: “The world economy will have a bumpy 2014; but the recovery is not, yet, at risk”. I have reproduced my conceptual diagram of 2009 and the Economists cover page for comparison. Notwithstanding the use of ‘Wobble’ terminology the gap is striking. I will summarise my theory in a moment. The Economist has no paradigm; both pieces are exercises in empiricism; look at data, note trends and make projections. Methodologically they are pencil and eraser exercises; keep a straight-edge on a data-set and draw trend-lines. It is whistling in the dark, hoping for a recovery albeit with fluctuations.
Why a Wobble?
There are two root causes for the prolonged crisis – one, the internal dynamics of capitalism, and two, globalisation. First, as the economy grew through a post-war boom, 1945 to 1972 it also transformed and accumulated internal features natural to the life cycle of capitalism. It became richer and accumulated vast stocks of capital; eventually too much to invest profitably. There was overproduction and a tendency for the rate of profit to decline. The good times, the Golden Age, ended in the early 1970s.
After that capitalism went through structural changes in the last two decades that are qualitatively different from the familiar ups and downs of the business cycle and there was a secular decline in the rate of profit. Manufacturing packed its bags in America, Europe and to an extent Japan, and decamped to China, other Asian destinations and to South and Central America where the rate of profit can be held up by lower wages. If successful businesses amass great reserves, in time available capital exceeds opportunities for profitable investment. Competition and excess capital soon force down profits unless something outside the box happens. The system is trapped. This is a brief and sketchy summary of a well worked out thesis among Marxists.
One way to restore profitability is to change the sharing of the value between labour and capital. This is what neoliberalism did quite successfully in the Regan-Thatcher assault on workers and the mass of the population. Cut welfare, cut government service expenditure (education, health pensions), cut effective wages by smashing trade unions, and exercise tighter control. In far away places like Chile, coups were fomented and resistance drowned in blood. Periodic crises follow all expansionary phases of capitalism, in the post-war example this came to a head in the class conflicts of the 1970s and 1980s.
A systemic collapse was temporarily averted precisely by the aforesaid neoliberal assault. The boom had been cemented by a social contract between the peoples of America and Western Europe and capitalism. In exchange for improving education and social services and rising incomes, capitalism won industrial peace, political stability, enthusiasm for ideology of the day (liberal democracy), and support in the Cold War. This contract wore thin when the boom petered out; as profits fell and debts rose, the social democratic (Europe) and liberal democratic (America) became too expensive to sustain. This is inevitable and to be expected in the lifecycle of capitalism. Then extraneous events intervened and expedited the crisis; the oil shocks of 1973 and 1978, but they were secondary, the root was structural.
The second root cause of the global recession was globalisation. Globalisation on the gigantic scale of the late Twentieth Century is something the world has never seen before. It affected the development of capitalism and state-capitalism everywhere. At first it was a way out; if profit is not attractive in America, move investments to China, Taiwan and so on. Simultaneously the dollar became the reserve currency of the world because of America’s unique place in global markets and power. This postponed social and political crisis at home by allowing it to print little green pieces of paper (or do it electronically or as bonds) and exchange this scrap for mountains of consumer goods and services. In time Western indebtedness to China, the Petro-World and Japan exploded like there was no tomorrow, but the giddy dance of death went on; there was nothing else to do. The escape route became a curse; jobs were lost, and social decay was visible in the West. The mountain of debt became unsustainable.
The structural difficulties surfaced as empirical manifestations; the subprime mortgage racket and the construction of deceptive financial instruments, collectively known as derivatives, flow from the increase of capital beyond profitably investable proportions. The crazy stock-market price bubble, the repeal of Glass-Segal, and financial market irresponsibility, was late capitalisms Minsky-moment (Hyman Minsky derived the Financial Instability Hypothesis). A rash on the skin is empirical manifestation of a physiological malaise. There are deep and systemic drivers underlying this recession which has persisted for five years. That’s why it won’t go away; that’s why it is a Wobble-U shuddering on by fits and starts at the bottom of a ditch like Andy Capp. That’s why it would take a transformation of the global system to get capitalism out of the ditch. This is how I assess the scene but not how the Economist sees the world.