1 October, 2020

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Two Views Of Capitalism’s Global Wobble

By Kumar David

Prof Kumar David

Prof 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.

The Wobble-U shape (Very long duration; any major economic indicator) ( My conceptual diagram of 2009)

The Wobble-U shape (Very long duration; any major economic indicator)
( My conceptual diagram of 2009)

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.

How the Economist of 8 Feb 2014 portrays the Wobble

How the Economist of 8 Feb 2014 portrays the Wobble

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.

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Latest comments

  • 1
    0

    Comrade,I am so sorry that I cant understand your writings.
    My worry is,how will the workers and peasants understand?
    Do you think that your writings will unite the workers and peasants
    around the world for total revolution?
    By the way,are you anti imperialism or pro imperialism?

    REVOLUTION UNTIL REGIME CHANGE!!!!!!!
    NGO’S,CIVIL SOCIETY AND ELITES AROUND THE WORLD UNITE!!!!

  • 0
    1

    Nice one, tho’ a bit totalizing!
    Its a double narrative – that of the winners and the losers: The Economist represents the winners and KD bats for the losers..

    But hey KD, what about corrupt third world dictators, like Mahinda Jarapassa and his criminal and uneducated brothers in this “capitalism is all bad” analysis?!

  • 0
    0

    In view of the capitalistic world, it is hoped that Sri Lanka is promoting and retaining her rural sustainable lifestyles.

    However, the capitalism that the capital city Colombo is dancing on, together with other newly constructed would be cities like Hambantota, will be the downfall of the whole country, once Sri Lanka soon comes into the global capitalist variable equation that she is aspiring to.

    The only way to quell this capitalistic ambiguity this is for the Regime to take up the sarong and mamatee and start heaving sheaves of grain.

    • 0
      0

      I think Sri Lanka should allow the way it is developing ????. Colombo and Tamil homelands definitely muslim needs too should be money and wealth oriented. Other areas should maintain laid – back rural life style. We can see, in the long term, who will be happier and relaxed than the other.

      Because, every one is looking for happiness.

  • 0
    0

    I am no economist, but as a lay person I agree with most of what is said in the article. Reagan-Thatcher shredded the rights of the worker and the trade unions were emasculated. On the other hand they also let loose the banksters who are the culprits responsible for the woes that have befallen us from 2007. Even 2 years ago Cameron, (yes it’s that same guy so loved in Sri Lanka) was demanding more and more ‘deregulation’ knowing full well that that was responsible for the banksters running riot. They in effect seem to run the government and not the other way round.

    The vulgar sums they pay themselves for ‘services’ that few seem able to comprehend have not been controlled, and what is more the bonuses that are a huge part of their remuneration are still being paid even when the bank seems to be on it’s last legs. Their criminal behaviour is now well known, yet they are on the whole immune from prosecution, and banking is seen as a risk-free job. The days when a banker was seen as a respected member of the community are long gone.

    There are economists and then there are economists, very well paid by all accounts, and who it is alleged NEVER saw that we were digging our own graves. There was an exception, a Nouriel Roubini, a professor in NY of Iranian extraction who was the sole voice in the wilderness, while the others were engaged in the feeding frenzy. Yet, the release of the the minutes from the meetings of the US Fed at the height of the crisis seem to tell a different story.

    Capitalism DID NOT have a wobble. The ‘crisis’ was part and parcel of the intended pattern.

    • 0
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      RAM:

      What you are saying is that Thatcher and Regan approved the Chinese – Capitalism. That is there are no labour unions. Labour unions were created by the west to counter-act the Communist EAST.

      At the level of investment Bankers – Lehman Brothers, there were or rules or DISCIPLINE. They experimented and THEIR country lost AND THE LEHMAN BROTHERS DID NOT LOSE. Believe me, that must be predicted.

      Western world is trying hard. They will face the FATE. Wait and see.

    • 0
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      CAPITALISM IS just ONE VARIABLE.

      In this world you can not maximize just one variable.

  • 0
    0

    Kumar David was writing about Tamil-Racism aka Tamil Tribalism for some time.

    These two articles including the last one had been about the world and the Economy. Very good. He changed the direction.

    Modern way is not the war. Now, the defeat of the modern capitalism both in Japan, Europe, now in the USA show that maximizing only one variable would never work.

    There are three ways that capitalism is working right now in the world. The american way is losing. Chinese way which makes ONLY the the govt is mega-rich popular right now (because of publicity by the media). The other way which is operating in Latin america is not that known to the “masses”.

    Anyway, Kumar David is doing well.

  • 0
    0

    “A wench, who extols gluttony and lust and is a member of the Mongolian CP, brought a story in the Economist to my notice” says Kumar.
    What exactly dose this mean? How does Kumar know about her lustfulness?!

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