Tag Archive for Book Review

Das Kapital Mark 2?

By Bernard Murphy

Thomas Piketty, Capital in the Twenty-First Century, Cambridge (Mass.): Belknap Press, 2014; €25.

Thomas Piketty’s Capital In the Twenty-First Century, published in English translation in 2014, made the New York Times best-seller list. In the book Piketty, a professor of political economy at the University of Paris, details the enormous accumulation of capitalist profit and the origins of the state-supported financial oligarchies in advanced capitalist countries over the last thirty years.
He does this without broaching its motive force: the promotion of Milton Friedman’s economic policies by Ronald Reagan in the United States and by Margaret Thatcher in Britain. These policies hegemonised economies on both sides of the Atlantic, that of Ireland included, and led to the unprecedented capital accumulations in capitalist coffers.
Piketty was criticised in the United States by capitalist apologists and media, such as the Wall Street Journal, which defined his tract as “communist.” He put liberal and neo-liberal economists on the defensive, demolishing their idea that neo-liberal taxation policies are necessary for growth and creating wealth. He blames the current socio-economic downturn on precisely those policies, showing that economic growth rates were greater between 1932 and 1980 than between 1980 and 2008, when taxes on capital and high earnings were much lower than in the earlier period.
But Capital in the Twenty-First Century virtually ignores the capitalist exploitation of labour, central to Marxist political economy. Piketty sees capital accumulation and concentration as being largely intrinsic to the nature of capital itself and unrelated to conditions (wages included) in the work-place. Yet conditions in the latter have been undergoing a continuing deterioration since the 1980s.
Growth in salaries in the United States was less during the years 1980–2009 than in 1950–1980, contrasting with spectacular increases in capital’s rate of profit over the former period (Jack Rasmus, Z Communications, 1 May 2014). Income from work, as a proportion of national income, fell from 56 per cent in 1983 to 52 per cent in 2007, when the crisis reached its peak, and has now fallen to a (still falling) 49 per cent.
Average family income fell accordingly, losing 10 per cent of its acquisitive value. Well-paid jobs ($14 per hour) were replaced by low-paid labour ($7.64 per hour). Part-time labour and precariousness became the norm throughout the entire neo-liberal order. Meanwhile, income from capital jumped well ahead of that from labour. Why?
The period following the Second World War, from 1945 to 1980, was marked by a social pact between the owners and managers of capital and the workers, fronted by their political representatives and trade unions. Thence, income from work (as a proportion of total earnings) reached between 70 and 75 per cent of national income on both sides of the Atlantic. The welfare state emerged and expanded, thanks to working-class power. Scandinavia, where working-class clout was strongest, led this tendency.
Reagan and Thatcher, aided by the collapse of the socialist bloc, reversed these advances. They aimed to recuperate the power of capital and weaken labour. Alan Budd, economic adviser to Thatcher, stated clearly that the neo-liberal measures adopted by her government were to increase unemployment in order to reduce the power of the working class, which would permit a reduction in salaries, with a corresponding increase in the profitability of capital. (Observer, 21 June 1992)—a classic example of the capitalist exploitation of Marx’s “reserve army of the unemployed”!
As the oft-quoted American billionaire Warren Buffet put it, “Sure, there is a class war in this country. And my class, the rich, are winning it every day.” (New York Times, 26 November 2006.)
The central question Piketty doesn’t ask: Is the enormous concentration of capital and its profits over the last thirty years—accentuated during the years of recession—directly related to a corresponding collapse in labour earnings? The first can hardly be explained without the second. Marx taught that the continuing accumulation of capitalist wealth is due to the exploitation of continually rising labour productivity. The enormous power of capital—with its corresponding political influence—explains why most of this wealth is captured by the owners and managers of capital and not by those who create it.
The exploitation of labour reaches record levels during the present crisis. During the Clinton presidency, from 1993 to 2000, 45 per cent of the wealth created in the United States was stolen by 1 per cent of the population, rising to 65 per cent during the Bush presidency (2001–2008) and to 95 per cent during the Obama era. Such variation in the distribution of the social product can be understood only in the context of this abusive capital-labour relationship.
The huge salaries that the non-productive, parasitic 1 per cent give the managers of its riches—bankers, higher executives, speculation wizards, casino adepts, etc.—greatly distort national salary averages. They thus hide the substantial salary decreases and impoverishment of the operators of the productive economy, the working class. The inordinate growth in the earnings of the former group is the major cause of current economic instability.
The generating of mega-profits from the productive economy is due neither to sales increases nor to price rises but to the enormous reduction in production costs, above all labour costs—exploitation, in short. For example, productivity per worker in the United States increased by 80 per cent between 1973 and 2011, but the worker’s hourly salary rose by only 4 per cent. But you will search Capital in the Twenty First Century in vain for the word “exploitation.”
Socio-political imperatives mandated by these facts go far beyond the fix proposed by Piketty: a Tobin tax on international financial transactions to augment social spending. But such a highly desirable step would need to be accompanied by major increases in returns on productive work, salary increases, and greatly expanded social expenditure to ensure the health and cultural well-being of working people and guarantee the basic human rights (as defined by the UN Charter on Human Rights) of all citizens.
Strong popular demands for such measures, ignored in capitalism’s decision-making centres, would rock the foundations of the existing neo-liberal order. Rallying around them would bring a popular movement into sharp conflict with the realities of the EU and the capitalist state. But, most importantly, in the context of such struggle the outlines of an alternative and humane social order—socialism—would come gradually into focus. This would be seen by increasing numbers of working people as the only viable alternative to the present toxic social order, which destroys democracy and reduces them to serfs.
Such messy perspectives of popular struggle form no part of the elegant, mathematically configured socio-economic landscape described by Thomas Piketty in his otherwise stimulating Capital in the Twenty-First Century.

The failure of capitalist production – Book Review

Andrew Kliman, The Failure of Capitalist Production: Underlying Causes of the Great Recession, London: Pluto Press, 2011 (ISBN 978-0-745-33240-6; €78; paperback: ISBN 978-0-745-33239-0; £18).

The causes of the global financial crisis and the Great Recession have been the subject of much debate. This book, written by a leading American Marxist economist, Andrew Kliman, is the first to conclude, on the basis of detailed analyses of official US data, that Marx’s crisis theory can explain these events.

The core thesis of Kliman’s book is that the rate of profit has a continual tendency to fall. However, this tendency is reversed by what Marx, and other scholars, refer to as the “destruction of capital.” This is essentially the losses generated by declining values of financial and physical capital assets or, in extreme instances, the obliteration of physical assets themselves. This dynamic re-establishes profitability, setting the conditions for a new growth.

Kliman argues that during the global slumps of the mid-1970s and early 80s far less capital value was destroyed than during the Depression and the following world war. The extent of capital value destroyed during the Depression was much more than laissez-faire economists had expected, while the persistence of extreme depression in the 1930s led to the radicalisation of the working people, the strike wave throughout the Detroit car industry being an exemplar.

The lessons of this were not lost on policy-makers, who have obviously sought to avoid a repeat of such crisis. This leads them now to intervene with monetary and fiscal policies in order to avoid full-scale destruction of capital value. This is why subsequent downturns in the economy have avoided the severity of the Great Depression.

Historically, however, much less capital value was being destroyed during the crisis of the 1970s and early 80s in comparison with the Great Depression. As a result, the declining rate of profit was not entirely reversed. And because it was not reversed, profitability was too low to sustain a new boom. Not unpredictably, the lack of profit led to a progressive decline in the rate of capital accumulation.      The decline in the rate of profit, together with reductions in corporate income tax rates that served to prop up corporations’ after-tax rate of profit, led to greatly reduced tax revenue and mounting government budget deficits and debt. Governments attempted to manage the relative stagnation of the economy by pursuing policies that encourage an excessive expansion of debt. These policies artificially boosted profitability and economic growth, but in an unsustainable manner that has led to burst bubbles and debt crises.

Kliman outlines how an immense wave of business and personal bankruptcies, bank failures and write-downs of losses might solve the debt overhang. New owners could take over businesses without assuming their debts and purchase them at fire-sale prices. This would raise the potential rate of profit, and it would therefore set the stage for a new boom. If this does not happen, however, the economy will continue to be relatively stagnant and prone to crisis.

The thesis presented in the book stands out in a number of ways from many contemporary radical interpretations (notably the financialised-underconsumptionist thesis advanced by the influential Monthly Review, which melds together a particular Marxian/post-Keynesian viewpoint and that of the Marxist political geographer David Harvey). A dominant interpretation at present is that, in the light of the stagflationary crisis of the 1970s and early 80s, economic policy became “neo-liberal,” leading to the increased exploitation of workers. Consequently, American workers are not being paid more, in real terms, than they were paid in the 1950s and 60s, leading to a declining share of income.

The increase in exploitation led to a rebound in the rate of profit. Normally this would have caused the rate of accumulation to rise as well, but this time it did not. The contemporary account blames the “financialisation” of the economy for the failure of the rate of accumulation and holds that financialisation, another component of neo-liberalism, has induced companies to invest a larger share of their profits in financial instruments and a smaller share in the productive capital assets that make the “real” economy grow.

As a result, economic growth has been weaker during the last several decades than it was in the first few decades that followed the Second World War; and this factor, along with additional borrowing, which enabled working people to maintain their standard of living despite the drop in their share of income, has led to long-term debt problems. These debt problems, and other phenomena that also stem from financialisation, are said to be the underlying causes of the latest economic crisis and slump.      In contrast to this account, Kliman provides far more compelling empirical evidence that American corporations’ rate of profit did not recover in a sustained manner after the early 1980s. Their before-tax rate of profit has been trendless since the early 1980s, and a broader measure of the rate of profit appears to suggest a continued decline.

A crucial finding undermining the financialisation thesis is that Kliman demonstrates how American corporations have not, as is often claimed, invested a smaller share of their profit in production. Between 1981 and 2001 American capital devoted a larger share of its profit to productive investment than it did between 1947 and 1980 (and the post-2001 drop in this share is a statistical fluke).

What accounts for the decline in the rate of accumulation is instead the decline in the rate of profit. Further, American workers are not being paid less in real terms than they were paid decades ago: rather, real pay has risen. And their share of the country’s income has not fallen: it is higher now than it was in 1960, and it has been stable since 1970.

Kliman’s conclusion to this important book is simple: short of socialist transformation, the only way to escape the “new normal” of a stagnant, crisis-prone economy is to restore profitability through full-scale destruction of the value of existing capital assets, something not seen since the Depression of the 1930s. [NC]