PoliticalEconomy.ie

Stats taken from a recent Financial Times article that clearly show that as wages have declined profits have went up. In short as capital has increased its exploitation labour, both through stagnating wages and increased productivity, profits have risen.

The confusion of growth economics

Since the crisis of global capitalism burst violently onto the scene with the collapse of Lehman Brothers in September 2008 we have seen various alternative economic strategies proposed by unions and various groups close to the trade union movement, for example the ICTU’s “better, fairer way,” Dublin Trades Council’s “points for a manifesto,” TASC’s “stimulating recovery,” NERI’s “plan B,” Unite’s “seven reasons to march,” and most recently SIPTU’s “towards a new course”—not to mention the annual (sometimes bi-annual) pre-budget submissions.

Usually in the form of a numbered list, some longer than others, the documents have various points in common, which can be summarised as:

• Put an end to pay cuts, tax increases on low-income workers, increased charges for social services, and reductions in budgets for the provision of essential services.

• Stimulate growth and the provision of jobs through large-scale infrastructural investment schemes.

• Use money from pension schemes, pension savings and what remains of the national pension reserve to finance these.

• Provide more jobs and protection of pay to boost local consumption and to protect local jobs.

• Sort out the banks in some way, through a renegotiation and separation of bank debt, coupled with their nationalisation, to provide a degree of planned investment.

• Reform the tax system on a more progressive direct model, taxing the richest most heavily and ending various tax loopholes and state subsidies to private capital.

• Introduce enhanced protection for the most vulnerable people in society to narrow the gap between the richest and the poorest.

While all these are essentially progressive demands that would be welcomed as a vast improvement to the present state of society, they still don’t tackle the root cause of the problem: the system itself.

Fundamental to all of them is a belief in “growth,” in a capitalist sense, and a refusal to deal with the system of capitalism itself. They generally see growth as possible, welcome, and the cure for the employment crisis, pay freezes and debt crisis that exist and present it as if it’s the magical cure to the problems the working class face.

So, if it is the panacea for all our problems, the question has to be asked, Why is it not implemented?

Growth, in a capitalist sense, is the re-creation of capital through commodity production realised in profits. This usually comes about through the production of goods or services or through inflation in asset prices, or other financial innovations.

Profit, and consequently growth, can be increased in a number of ways, most often through the increased exploitation of labour—getting more for less—or the increased use of technology to produce more quickly, capturing a momentary advantage over competitors that will realise more profit for that particular firm.

Under existing conditions, monopoly production, increased profits can also be achieved through the sale of products at a higher than normal market rate: price-fixing. However, given the collapse of consumer demand, companies are mostly resorting to the increased exploitation of labour or increased introduction of technology, displacing labour, to secure profits and growth.

Growth is usually measured in gross domestic product (GDP) on a comparative annual basis, but in Ireland is often interpreted as gross national product (GNP), as this is seen as a more accurate reflection of actual wealth in the economy. But growth can come from various areas, not always positive, for example arms manufacture, gambling, pointless advertising, and environmental destruction.

Thankfully, most of the proposed plans mentioned above look at investment and stimuli in such things as broadband, child care, and other more positive areas. Fundamentally, however, if this includes private capital, whether through state borrowing or direct private investment, it will mean that private capital will get more out of it than labour and consequently will exacerbate inequality in society and the relations of dependence between labour and capital that have been a pathetic hallmark of recent years.

Capital can re-create itself, grow, only through exploitation: that is, not all the value created by labour going to labour, and capital maintaining for itself some of the value labour creates. Seeking growth in the system is essentially saying we want to further increase the exploitation of labour by capital.

Even if this is acknowledged (and it isn’t, mind) by those drafting these ten-point plans, it still raises the question, Is growth in the system possible? Can capital continue to re-create itself, or are there limits to growth, structurally and environmentally?

To suggest that capitalist growth is realistic as a means of providing jobs and a decent standard of living for working people is to go against decades of evidence of declining growth and stagnation. As the graph shows, growth has been struggling since the 1960s. Once the post-war reconstruction boom ended, stagnation set in, and low growth was the norm for the 70s. Then, despite all the privatisation and the wars, growth in the 80s and 90s was only between 0 and 4 per cent. Again, despite all the asset, equity and other bubbles during the 2000s, growth still was usually between 1 and 3 per cent.

The trend is clear. The norm is sluggish growth, based on financial speculation and bubbles, increased expenditure on arms, wars over resources and market share, privatisation, and, growing expenditure on pointless advertising and media—all this while monopolies desperately increase their exploitation of labour by making the working week longer, introducing new technologies, replacing workers, and—most commonly—increasing the productivity of labour through a variety of stress-inducing management techniques.

The weakness of these proposed plans is that they do not challenge, in the light of obvious evidence, whether growth in fact is possible, or even desirable. As the excellent editors of Monthly Review put it in the mid-90s,

All this talk about growth as good, and faster growth as better, leaves out the truly important questions: do we need growth? If so, what kind of growth? And how about at least beginning to talk about an economy/society that rejects permanent growth as the oxymoron it obviously is and focuses on the really important issues of human and planetary existence?

And the contradiction between capitalist growth and planetary existence is now a very serious reality. Some climatologists reckon that to avoid a catastrophic warming of global temperatures we need to avoid reaching 750 billion cumulative metric tons of carbon. Based on current rates we are likely to reach this in fifteen years’ time, in 2028. To avoid it we must begin to reduce the creation of carbon by an average of about 5 per cent per year; and to put this in perspective, we are still increasing it—by 6 per cent in 2010—and it has been estimated that even an annual reduction of 1 per cent would be catastrophic for the capitalist economy.

We must also keep in mind that carbon emission and climate change are only one part of a global environmental catastrophe. We must also acknowledge the realities of the acidification of the seas, destruction of the ozone layer, the extinction of species, the disruption of the nitrogen and phosphorus cycles, growing shortages of fresh water, changes in land cover, and chemical pollution.

Those who advocate growth as a solution are advocating the further destruction of the environmental system and threaten the existence of the human species, as well as going against all the evidence of stagnation that exists, which capital will desperately try to avoid through even more suicidal environmental tendencies. They are placing the re-creation of capital as a priority over the re-creation of humanity. It is that perverse.

The hundreds of billions that exist in the system today, held by a tiny fraction of the world’s population, is not a result of a dynamic and innovative system, as the media present capitalism, but in fact a result of asset inflation, reduced taxation of the wealthy, allowing for increased after-tax profits, increased corporate welfare, the socialisation of debt, the use of cheap labour, and the displacement of jobs by technology. The frailty and superficiality of the system today are exposed for all to see.

The fundamental weakness of the “alternative” plans is that they are not actually alternatives. They are wedded to the idea that returning the system to growth, i.e. to profitability, will satisfy the needs of working people.

But what returns the system to profitability but the increased exploitation of labour? That is what creates profit. Surely trade unions are not for the increased exploitation of labour?

These so-called alternatives do not seek to replace capitalism. They suggest that a nicer, more regulated capitalism will solve the problems of capitalism and consequently solve our problems. But they fail to deal with the realities of the system today. They fail to move beyond Keynesian arguments about jobs and their multiplying effect, despite the changed world we live in.

It is worth remembering that Keynesian policies did not lift the world out of the crisis in the 1930s: an arms build-up and ultimately the greatest global destruction of life and property did. Equally, Keynesian economics did not bring unending growth: it failed to stop the systemic trend towards stagnation that is a dominating characteristic of capitalism in its monopoly stage.

Today’s capitalism is highly monopolised, internationalised, and financialised. What this means is that fewer and fewer global entities control the production of goods and services, that these companies are heavily reliant on financial investors and financial products, and that these companies can move production to cheaper areas to produce profit through increased exploitation of labour, moving production further away from their actual market, so exacerbating the crisis of over-production.

This reality creates problems for those seeking to have a nice, well-paying, stable capitalist economy for all. The right are arguably correct when they say that Ireland is not competitive—because who are we in competition with? China, India, Brazil, Argentina, Poland, Bangladesh, etc. In manufacturing, in IT services and in the production of food these are actual global competitors in a capitalist sense. And if we are to concentrate solely on the provision of financial services, we will constantly be subject to the global whims of speculators, with little control and our hands tied from a race to the bottom in corporate taxation—and our competitors will be Bermuda and the Cayman Islands.

The system is truly global, and to pretend that we can create a highly paid, equitable society within the structures of capitalism is ludicrous. It denies the very basic feature of the system—the exploitation of labour by capital—and when capital is struggling to re-create itself, there is only one way that exploitation is going.

That is why we must cease trying to reform the system but instead try to transform it, transform it to socialism—a system where our needs are first, where the re-creation of labour and the environmental conditions necessary for this are the pre-eminent aim, not the re-creation of capital; where we are not blackmailed by mysterious markets and the confidence of speculators; one where we own production and consequently the wealth we create.

To deal with the root cause of the crisis, with the misery of the vast majority of people on this planet and with the environmental catastrophe we are heading for we need to present a challenge to the system itself and to mobilise around demands that transform rather than reform the system. This requires a politically conscious mobilisation, militant defensive actions, and a vision for a society for working people: socialism.

Socialism will be achieved only when people stop demanding a nicer capitalism and begin the difficult but necessary struggle to build people’s consciousness and their understanding of the nature of the system and then open up the road to socialism. The demands we make today must challenge the system itself, must expose the contradictions of the system, and must highlight the exploitative and undemocratic nature of the system to working people.

These are the demands that people committed to building socialism must make; and surely the trade union movement must play a central role in this, or else it will consign itself to the dustbin of history.

Rather than putting forward another ten-point plan, I wish to put forward a few demands that could be considered strategic, in the sense that they challenge the very basis of the system by exposing its contradictions and thereby make the cry for socialism realistic, and that also begin to remove Ireland from the global capitalist race to the bottom and to find our own independence.

Connolly was right when he suggested that the failure to build socialism would leave an independent Ireland still controlled by British finance capital. This was evident in the first half of the last century. This dependence or subjection was then transferred from more or less solely British domination to a combination of British, American and Franco-German. Ireland remained insufficiently financially independent to really be a sovereign state.

So, an essential component of any transformative alternative must be the simultaneous creation and use of our own indigenous capital and resources, and withdrawal from dependence on international finance capital. What demands would support this?

1. Repudiation of the socialised corporate debt.

2. The establishment of a state bank.

3. Establishing controls on capital.

4. Abandoning the euro.

5. Increasing the tax on capital, business, and wealth.

6. The planning of economic development and reduction of the role of the market as a determining force.

7. The nationalisation of oil, gas, and our seas.

8. The development of renewable energy sources and reducing dependence on non-renewable energy.

These demands challenge the very basis of the system’s domination of Ireland and present an opportunity for the country to achieve a degree of sovereignty to develop according to our own needs that we have never had. In that sense they are not for reforming capitalism but for transforming the social and political system in Ireland towards socialism.

[NL]

taken from editorial of Monthly Review February 2013

For a long time now orthodox economics has been hindered by its extreme irrealism—a refusal even to attempt a realistic theoretical understanding of how modern capitalism functions. The shift to using fanciful assumptions to explore largely minor issues, following a brief Keynesian moment in the post-Second World War era, has been in many ways self-reinforcing. Once fundamental characteristics of the capitalist economy such as labor exploitation, accumulation, built-in inequality, monopoly power, rent-seeking behavior, technological change, and the tendency to stagnation were removed from the analysis—as a result of an ideological process of system-rationalization—there was little recourse but to fall back in successive stages on more and more abstract models based on increasingly purified notions of individual rationality. This is particularly evident in rational expectations theory, which assumes that all economic actors have not only perfect information but also perfect economic analysis. Thus, while the technical skills of economists improved, their underlying historical understanding was more and more clouded.

Nevertheless, the deepening crisis of today’s monopoly-finance capital has given rise to a new era of questioning within the economics profession, and some top-tier neoclassical economists are now struggling—though hindered at every step by their own training and inclinations—to recapture knowledge long abandoned (at least outside of the left and some of the more realistic sectors of business and finance). Hence, it is not unusual today to find mainstream economists raising issues of stagnation and endemic financial-crisis tendencies that they had long ago dismissed as left-wing fantasies.

The most recent dramatic development along these lines is the rediscovery of: (1) the conflict between labor and capital (underlying and shaping the accumulation process and giving it its class bias), and (2) the growth of monopoly power. Thus in attempting to understand why the U.S. economy “is still by most measures, deeply depressed” while “corporate profits are at a record high,” Paul Krugman has recently argued, most notably in a December 9, 2012 New York Times column entitled “Robots and Robber Barons,” that this might have to do with these two factors.

Over and over again Krugman has indicated surprise at where his analysis is leading him. “Are we really,” he writes, “back to talking about capital versus labor? Isn’t that an old-fashioned, almost Marxist sort of discussion, out of date in our modern information economy? Well, that’s what many people thought; for the past generation discussions of inequality [within orthodox economics] have focused overwhelmingly not on capital versus labor but on distributional issues between workers…. But that may be yesterday’s story.” In a related blog entry on December 11, entitled “Human Versus Physical Capital,” he wrote: “If you want to understand what’s happening to income distribution in the 21st century economy, you need to stop talking so much about skills, and start talking much more about profits and who owns the capital. Mea culpa: I myself didn’t grasp this until recently. But it’s really crucial.”

Krugman is concerned in particular with the issue of the dramatic drop in the labor share of GDP. He attributes this in part to a labor-saving bias in technology, which he refers to somewhat metaphorically as the rise of “robots.” Reaching back into the past he observes in “Robots or Robber Barons” that “serious economists have been aware of this possibility for almost two centuries. The early-19th-century economist David Ricardo,” he tells us, pointed to just such a tendency in his 1817 Principles of Political Economy and Taxation, which “included a chapter on how the new, capital-intensive technologies of the Industrial Revolution could actually make workers worse off, at least for a while.” Krugman, however, stops short of referring to that other “serious economist” who famously expanded upon Ricardo’s thesis: Karl Marx. Still, Krugman recognizes the significance of his own recent awakening in this respect: “I think it’s fair to say that the shift of income from labor to capital has not yet made it into our national discourse. Yet that shift is happening—and it has major implications” (“Robots and Robber Barons”). Moreover, he is alert to the dangers this spells for the system. “If income inequality continues to soar,” he writes, we are looking at a “class-warfare future” (Krugman, “Is Growth Over?” New York Times, December 27, 2012).

The other factor to which Krugman has turned in his attempt to explain today’s economic stagnation is the growth of monopoly power. Thus, referring to an account of the growing monopolization tendency by Barry Lynn and Phillip Longman of the New American Foundation (Lynn is best known for his book, Cornered: The New Monopoly Capitalism and the Economics of Destruction), Krugman writes in “Robots and Robber Barons”: “Increasing business concentration could be an important factor in stagnating demand for labor, as corporations use their growing monopoly power to raise prices without passing the gains on to employees.” In his December 9, 2012 blog post “Technology or Monopoly Power?” he explains that such monopoly power “could simultaneously raise the average rents to capital and reduce the return on investment as perceived by corporations, which would now take into account the negative effects of capital growth on their markups. So a rising-monopoly-power story would be one way to resolve the seeming paradox” of stagnation coupled with “rapidly rising profits and low interest rates.” This could have come straight out of Michał Kalecki’s Selected Essays in the Dynamics of the Capitalist Economy (parts of which at least, judging from his latest book, End This Depression Now!, Krugman has been reading)—or even from the 2012 Monthly Review Press book by John Bellamy Foster and Robert W. McChesney, The Endless Crisis: How Monopoly-Finance Capital Produces Stagnation and Upheaval from the USA to China, which includes statistical evidence on the monopolization tendency.

Krugman is not alone among leading mainstream economists in turning suddenly to growing inequality and monopoly power in order to explain today’s economic stagnation. Joseph Stiglitz’s 2012 book, The Price of Inequality, presents similar arguments. As he makes clear, the problem is that in the crisis “the share of wages” in the economy “has actually fallen,” while “many firms are making good profits” (29). Stiglitz devotes a whole chapter of his book to the “increased monopoly power in the United States.” He argues that this creates a “negative-sum game” whereby the giant, concentrated firms gain, while the economy as a whole loses (33, 45). Likewise Izabella Kaminska, an exceptionally astute reporter for the Financial Times blog, FT Alphaville, observed on December 27 in “In an Economy Not So Far, Far Away,” that “As Paul Krugman, the economist, argued, too much market power can easily end up raising average rents to capital while reducing the return on investment perceived by corporations. This notion resonates well with today’s crisis because it is consistent with the paradox of rapidly rising profits amid low real interest rates, stagnant real wages and persistent unemployment. It also explains rising inequality.”

Of course mainstream economists are a long way from seeing these problems in their full historical dimensions, or from recognizing that both the capital-labor problem and monopoly power are endemic to capitalist development. For Stiglitz, as he explains at the end of his book, the issue is simply one of the revival of antitrust, government regulation of the economy, and progressive income redistribution. There seems to be no real inkling that the conflict between labor and capital extends to the class bias of the capitalist state. Barring the sharpest kind of class struggle, what Stiglitz suggests in the way of reform is unimaginable. And even with it, we cannot be certain much would change within the system. We no longer live in that special period of the post-Second World War U.S. welfare state and European social democracy, in which the existence of the Soviet Union and attempted alternatives in the third world, coupled with an exceptional prosperity, pushed the West toward meaningful reform. Instead we live in an era of neoliberal globalization and financialization, which have pushed the world in a regressive direction. Such structural problems as growing class inequality and rising monopoly power are, moreover, inherent tendencies of capitalism as a system. They will end only with the end of capitalism itself.

Following Ray Kinsella’s piece on exiting the euro, a position many republicans and socialists have espoused for some time, here is a more detailed look at how this might be done in the context of the current economic system, capitalism.

Roger Bootle – Exiting the euro

taken from http://www.irishexaminer.com/ireland/troikanomics-is-a-form-of-self-harm-231729.html

Prof Ray Kinsella

The German finance minister, under whom the euro was launched, Oskar Lafontaine, earlier this month called for its break-up. He asserted “the current policy is leading to disaster”.

He was referring, in particular, to the impact of eurozone polices on peripheral countries. But much closer to the centre, France — whose credit rating was downgraded late last year — is now deeply mired in a second recession, with no obvious way forward. The Economist has called France “the time-bomb at the heart of Europe”.

In the late summer of 2010, I argued in these pages and elsewhere that if Ireland did not change course, matters would be taken out of the government’s hands. They were. The “inconceivable” happened. The “inconceivable” may be happening again.

The austerity doctrine imposed the burden of adjustment to the post-2008 economic collapse on the labour market. It is an indefensible misuse of economics that the eurozone “authorities” should seek stability on the back of tens of millions of unemployed — this month’s eurozone unemployment figures reached yet another record.

It is equally indefensible that, within an economic epoch characterised by intellectual capital and innovation, youth unemployment should now stand at an average of 25% — and more than double this in some of the peripheral countries which are most in need of their intellectual capital and capabilities.

At this stage in the present recessionary cycle, there is no sense in what is being done to the economy — and what is being planned for forthcoming budgets. After five austerity budgets the deficit has been reduced, at a terrible cost, and with much further to go. The country has been brought to the brink just to impose further cuts of €300m — of which half is slated to come from health including disability services that are already bleeding.

“Adjustment” to an economic shock is never painless. Adjustment to the post-2008 crisis required deleveraging the banking system, restructuring the economy and restoring competitiveness. However, the larger point is that the whole Irish political system proved incapable of delivering a consensus around how we could ourselves undertake these “adjustments”. Instead, it ceded responsibility to our “partners” — and it has used the power of strangers to enforce regressive and counterproductive policies. The policies reflect the self-interests of other and larger powers.

The economies of a still growing number of countries are being impoverished while countries at the centre — Italy and France — are caught in the headlights of a still lengthening recession across the eurozone. The only response has been “we need more integration”, or, to put it another way, more and more power and control to the centre. But it is the policies dictated from the centre that are the cause of the problem, and which are now subverting what the wider European project was originally all about.

Ireland is caught up in this nihilism. We have learned the hard way that no one at the centre is much interested in Ireland, except as a nuisance in terms of its corporation tax (which is now under very real threat). Also, as a “poster child” for policies that have failed and whose failure has, as the IMF have repeatedly pointed out, jeopardised global economic stability.

So, to return to the three primary reasons for a managed exit by Ireland from the eurozone.

The first arises from the fact that, facing into an unprecedented economic crisis, the eurozone “authorities” required countries with very different economies and burdens to conform to the stability and growth criteria — a maximum 3% budget deficit and a 60% debt/GDP. These were originally “indicative”. And yet, in the face of a seismic and accelerating economic crisis, these indicative criteria were transformed into articles of faith, to which all had to conform. It made no sense.

Furthermore, the intellectual underpinning of austerity which the eurozone “authorities” adopted was the Roghoff/Reinhart theorem — that is, above a debt/GDP ratio of 90%, countries enter a kind of “black hole” from which they cannot escape. This has been discredited. Nobel Prize-winning economist Paul Krugman and others have argued that the line of causation probably does not run from “high” debt to low growth but rather from low growth to rising debt. Common sense would indicate that this was surely the case in the post-2008 eurozone.

These fundamental errors were reinforced by the destructive time-table initially required for adjustment. In the case of Ireland, being compelled to even attempt to meet the “stability” criteria by 2014 was deeply damaging — it further exacerbated the underlying problems of adjustment. The eurozone authorities were wrong in their myopic fixation on reducing debt and effectively ignoring what is key to the whole ratio, namely, growing GDP, while simultaneously pushing ahead with, and incentivising, structural reforms.

Instead, there has been a succession of crisis summits involving people with big jobs talking about people with no jobs being “more flexible”.

In recent months, the eurozone authorities have started backtracking: Grudgingly accepting the evidence that their short- term austerity doctrine has been enormously damaging to the eurozone and to global stability. It is a bit late for them to be making speeches on “rebalancing austerity”.

It is little comfort to Ireland or its economy to have “good” school reports from a troika comprised of European institutions whose policies were deeply flawed and an IMF that has no business lending its credibility to an ideologically driven agenda.

It defies common sense that an Irish government should still feel obligated to defend such policies and attempt to impose two more years of “fiscal consolidation”.

Talk of “exiting the bailout” is wide of the mark. The burden of ‘troikanomics’, including onerous debt-servicing costs, stretch into a future that is dominated by those who preached the austerity doctrine in the first place.

Ireland’s growth capacity has been compromised; the best and brightest — our engineers and architects, doctors and nurses, teachers, entrepreneurs — have left and the morale of those remaining is being destroyed. This is not “adjustment”; it is tantamount to self-harm.

The second reason for a managed exit by Ireland is that these same policies are doing enormous damage to two of the most fundamental pillars of a stable and functioning democratic economy. Healthcare and education are the foundations for sustainable growth, innovation and social solidarity. The cuts being imposed arising from the doctrine of austerity are not evidence-based. At the micro-level, in schools and local health provision, they are doing damage that will take years to reverse. The only force that is driving these cuts is short-term book-keeping to appease the troika.

The third reason relates to the damage that is being done to the wider EU project. Ireland is, by its history and conviction, empathetic with Europe and with European solidarity. Austerity has, however, reinforced German hegemony within the eurozone and there is little evidence of the solidarity that was once at the heart of the European project. The UK’s disenchantment with Europe has become significantly more marked. Recent survey evidence demonstrates a deep-seated and widening gulf between the peoples of France and Germany. Expectations of recovery are no longer taken seriously by people in the eurozone.

Recovery cannot be built on a lack of confidence or disillusionment. Ireland has become dependent on the powerful and the peddlers of myths. It does not have to be dependent. It can contribute far more to the European ideal and the single market, outside of the eurozone. Denmark is a case in point.

There is no longer any appetite for the argument that only further integration will solve this crisis. This is a self-serving argument and finds no resonance among national populations. There is always a danger to democracy when the elite — the ‘authorities’ — become semi-detached from the beliefs of the people from whom they get their legitimacy. Riot control is a poor and an obdurate response to the reality that the ‘authorities’ have lost the argument.

In a world a little braver, a bit more far-seeing and one which was capable of learning — and moving on — Ireland would host a meeting of the peripheral countries. They would hammer out the basis for a managed exit from the eurozone for all or some. Those who aspire to national leadership would come out from behind the barricades of “There is no alternative” and would take up again the freedoms and responsibilities of which they are trustees.

Paper by Paul Cockshott on socialist economic calculation and the Soviet Nobel Prize winning mathematician Leonid Kantorovich.

Socialist economic calculation

An  important but rarely analysed aspect of the Soviet Union is both its planning and calculation system especially in the context of the increasing popularity of market socialist mechanisms.