Tag Archive for monopoly capitalism

Monopoly capitalism and the Irish economy

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Two brilliant articles by Kieran Crilly published in this months Socialist Voice, magazine of the Communist Party of Ireland, look at monopoly capitalism in Ireland and expose the myth of competition which underlines much of the media presentation of the economy from establishment sources. Why? Because it is politically motivated by the desire to defend capitalism and increase its reach and strength over our lives. This well worth reading.

Kieran Crilly

Taken from the November Socialist Voice

Introductory orthodox economics is dominated by the concept of what is called “perfect competition.” This is based on four assumptions. (1) The industry or sector has a large number of small firms that cannot affect the price of the goods if they increase or decrease production. (2) All firms produce the exact same product. (3) It is easy to enter or leave the industry. (4) There is full knowledge of the prices and profits of all firms.

The reality is different.

The modern economy is dominated by large firms—monopolies and near-monopolies; and they set the prices for their products.

All goods in a modern economy are different in the eyes of the consumer, because of advertising and promotion.

In nearly all industries nowadays there are barriers to entry, so it is difficult for new firms to enter.

In some instances it is difficult to find out the price being charged: for example the tariffs of gas and electricity companies are so complicated that there are even comparison sites on the internet. The same applies to insurance and to mobile phones. And supermarkets change some of their prices by the day.

Most students study economics for one year and come away with the idea that the consumer has some say in the economy. We get consumers being urged to “shop around,” even though under a monopoly there is only one firm, and with oligopoly (a small number of firms dominating a sector) firms do not compete on price: they either collude (setting an agreed profit-maximising price) or follow the price set by the leading firm. Computers have made the setting of price to maximise profits easier. Firms (shareholders, through the profits they make) are the main beneficiaries of the economic system.

Students are taught that price is determined by supply and demand. But only demand exists while price is set by the monopolists and the firms in oligopoly to maximise profit. So supply is not relevant.

“Perfect competition” is Alice in Wonderland economics, used to hide the real structure of the economy. It is merely pro-capitalism ideology.

In this article we analyse different branches of the Irish economy according to the dominance of one firm or a small number of firms.

Supermarkets

This sector is dominated by five firms: Supervalu, Dunne’s, Tesco, Aldi, and Lidl. They give the impression of competing on price by taking full-page advertisements citing low prices for a small range of products. With these enticements they encourage people to do a full shopping in their stores, leading to increased sales and profits.

Aldi and Lidl (two German companies) have expanded rapidly and have put pressure on the existing firms. Tesco has responded by opening smaller and more expensive “express” branches. Dunne’s has reacted by introducing zero-hour contracts.

There is informal evidence that Tesco charges higher prices in Ireland than they do in Britain, and that Aldi and Lidl charge higher prices than they do in Germany. They all try to maximise profits and so maximise share prices for their shareholders.

Banks

Banking in Ireland is dominated by Allied Irish Bank, Bank of Ireland, Irish Permanent, Ulster Bank, and KBC.

Now, they do not compete on price for deposits or when they are lending. They try to confuse the public by offering a large number of different rates of interest on deposits. They also reduce rates without informing the depositor. They put small advertisements in the daily papers. For mortgages, Irish banks charge about 4 per cent, while their European counterparts charge 2 per cent. This is because they want to build up their capital so that they can be sold back to the private sector. In the case of Bank of Ireland it is to increase profits and share price for its shareholders.

So if you pay 4 per cent you will get a mortgage. It’s a “take it or leave it” proposition. The Central Bank does not regulate the interest rates in the interest of consumers.

Insurance companies

Insurance (motor and home) is dominated by six companies: FBD, Axa, Aviva, Liberty, Royal Sun Alliance (123.ie), and AIG. They have raised their prices on average by 20 per cent in the past year, but there is no way that customers can tell whether the price increase is justified.

As these are mainly subsidiaries of foreign companies, they may be taking advantage of Irish customers so that they can send back more profits to their parent companies. They are licensed by the Central Bank, but it does not regulate their prices. One would expect a regulation of prices with an oligopoly, where a small number of firms dominate, if the Central Bank were interested in consumers.

Mobile phones

There is only a small number of mobile phone manufacturers in the world. Apple, Samsung and Nokia dominate the market. They update their models regularly so that their older models become obsolete. They advertise heavily. They charge high prices for their products to maximise their profits.

There are three mobile network providers in Ireland: Meteor, Vodafone, and 3. Each provides a range of payment methods, and it is very difficult for customers to work out which is the best option for them. By confusing customers they aim to get the largest number of customers and maximise profits. They minimise costs by having a small number of retail outlets and a small head office staff. Once the network of masts is installed, maintenance costs are minimal.

Alcohol

The beer and cider sector is dominated by three companies: Diageo (Guinness), Bulmers, and Heineken. They set prices to maximise profits. They advertise heavily, and they sponsor sports and music events to attract young people into the drinking habit. They portray drink as a beneficial product, when all the medical evidence shows that in fact it is harmful.

The medical profession asked the government to introduce legislation that would ban drinks companies from sponsoring sports events. But the government of Fine Gael and the Labour Party put the profits of the drinks companies before the health of the population and decided not to introduce a ban.

The whiskey industry is dominated by two firms: Irish Distillers (Pernod Ricard) and Diageo. They are free from government regulation to set their prices to maximise profits.

Television satellite and cable companies

Satellite sports television is dominated by three companies: Sky, BT Sport, and Setanta. These companies offer billions for the right to screen live English premiership matches. They charge high monthly rentals to recoup their costs, and they make large profits.

Rupert Murdoch, the owner of Sky, was able to buy Fox News in the United States with the large profits he made in Britain and Ireland after Margaret Thatcher allowed him to set up Sky in the late 1980s.

The cable companies, UPC and now Eircom, are offering packages of phone, broadband and television; Sky is doing the same. You have to take all three services (a “bundle”) at a set price. The three companies are setting a similar price for the bundles. These offers are heavily advertised and are set at a low initial price to get new customers, who enable these firms maximise profits.

Terrestrial stations

RTE (including RTE1, RTE2, and TG4) is the state channel; its main rivals are TV3, BBC, UTV, and Channel 4. But it also has to compete with Sky.

The terrestrial channels are losing out to Sky, because they are buying up the rights to sports events which were available free. Sky has bought up the rights to some international soccer and rugby friendlies and GAA matches; if you haven’t got Sky you have no access to the matches.

Profit is the driving force for Sky in all of this. They gain extra income from new subscribers and from the extra advertising generated by the matches. Rupert Murdoch only wants Sky to grow and expand his empire.

Radio

National radio is dominated by RTE (Radio 1, Radio 2, Lyric, and Raidió na Gaeltachta). It is financed through the licence fee and advertising, and it competes for advertising with stations in the private sector. Getting funds from the licence fee impose an obligation on the television and radio stations to provide high-quality programming.

The private sector is dominated by two groups: Communicorp (Newstalk, Today FM, Dublin 98, Spin 1038, Spin Southwest, and TXFM), in which Denis O’Brien is a major shareholder, and UTV Radio Solutions (Dublin FM 104, Dublin Q102, Cork 96 FM, Limerick Live 95 FM, LMFM, U105, WLRFM, and Galway Bay FM).

The private stations aim to maximise profits, which they do by having wall-to-wall pop music. They have no commitment to high-quality programming. Because they are owned by businessmen it is probable that they have a pro-business and pro-conservative (Fine Gael and Fianna Fáil) bias in their news and their economic and political coverage.

National newspapers

Irish News and Media Group, with six titles, is the largest media group in the country. It comprises the Irish Independent, Herald, Irish Daily Mail, Irish Mail on Sunday, Sunday Independent, Sunday World, and 50 per cent of the Daily Star.

The Irish Times (owned by a trust), the Irish Examiner (owned by the Crosby family of Cork) and the Sunday Business Post (owned by Key Capital and Paul Cooke, Irish businessmen) are the other Irish-owned papers. The Irish Daily Mirror and Irish Sunday Mirror are owned by the British company Trinity Mirror. The Irish Sun, Irish Sun on Sunday and Sunday Times are owned by Murdoch companies.

There are only six owners of newspapers in Ireland, despite the number of titles. Each of these companies tries to maximise its profits. They have a lot of power, as they set the agenda of politics here. The same comment applies to them as was applied to radio stations.

Cement and building materials

Cement Roadstone (CRH Holdings) is the largest company quoted on the Irish Stock Exchange, and the only Irish company to appear among the top 160 companies in Europe by income in 2012. It had a 100 per cent monopoly in the production of cement until recent years, when the Quinn factory was set up in Co. Fermanagh.

There is a significant barrier to entry when cement is produced in an island country. The shipping and delivery costs for cement are high, because its ratio of value to weight is low. A tonne of cement is cheap, but the cost of transporting it from England to Ireland is high. So cement prices were kept high, and large profits flowed in. Using these profits, CRH was able to expand abroad. The company is also dominant in the building materials sector.

Non-alcoholic carbonated drinks (fizzy drinks)

This sector is dominated by the Coca-Cola Group and the Pepsi-Cola Group and to a lesser extent by the Cantrell and Cochrane Group. In recent years Coca-Cola has introduced a smaller bottle (200 ml) instead of the previous larger bottle (330 ml); but hotels, pubs and restaurants are charging the same price as previously, which has the same effect as a whopping 65 per cent increase in price.

These companies are good at fighting their corner when it comes to governments “interfering” in their market. Obesity has become a growing problem, especially among young people, and health experts have called for a sugar tax. Carbonated drinks contribute to obesity because they contain large amounts of sugar. Our pro-business government ignored the pleas of the medical profession and the health needs of our young people and dropped the idea of a sugar tax. The needs of business are more important than the health of the nation.

Motor vehicles

In 2014 a total of 93,361 new cars were sold. Of these, 23,825 (26 per cent) were supplied by the Volkswagen Group, 9,658 (10½ per cent) were Toyota, 9,040 (10 per cent) were Ford, 7,410 (8 per cent) were Hyundai, 6,691 (7 per cent) were Nissan, and 6,156 (6½ per cent) were Opel. Between them these six companies supplied a total of 62,776 cars, or 68 per cent of all cars bought in Ireland. There is competition among the few, but the last thing they want to do is to compete on price.

It is interesting that the Central Statistics Office does not collect information on car prices.

Petrol and diesel

Four companies—BP, Exxon Mobil, Chevron, and Royal Dutch Shell—dominate the petrol, diesel and heating-oil sectors. These were originally seven companies that merged to form three. From the late 1920s these companies shared production zones and transport costs and agreed sales prices. As a cartel, they colluded—and still collude—on price, and smaller operators follow suit.

No government would dare take on these companies, as they have overthrown governments and have pauperised countries, such as Nigeria.

Department stores (Dublin)

Three department stores—Arnott’s, Debenham’s, and Marks and Spenser—serve mainly middle-income people, with Dunne’s and Penney’s mainly serving ordinary people while Brown Thomas caters for the bourgeoisie.

Summary

There is nothing free about the “free market,” except that it is free from government regulation. But because nearly all branches of the economy, including those not listed above, are dominated by one or a small number of firms, the state should regulate these sectors much more in the interest of the majority of the population, who are being exploited by a relatively small number of firms.

politicaleconomy.ie interview with Ernst Herzog and Richard Corell

German-troops-Herero

Both authors are scholars of political economy and members of the World Association for Political Economy (WAPE). As freelance researchers and journalists they publish also in left-wing papers (like KAZ or Junge Welt) in the FRG. In the World Review of Political Economy (Pluto Journals) they have published: “Financial and Currency Crisis Undermines the Euro and National Sovereignty”, Summer 2011; “Where Will the Euro-crisis Take US To: Germany´s Third Attempt?” (Together with Stephan Müller), Spring 2012 and “Subprime Crisis and Marx´s Theory on Ground Rent”, Summer 2014.

Full interview on PDF here Interview with Ernst Herzog and Richard Corell

Q: You quote Lenin on a United States of Europe being impossible or reactionary. Well it exists now so what do you make of the European Union and how do you define it?

A: Today we can say that the more the United States of Europe become a real possibility, the more reactionary they become.

After two world wars, after the foundation of the European Coal and Steel Community, after the foundation of the EEC and finally the European Union (EU), in 1998 there began a currency union between several of the EU member states. The introduction of the euro currency is based on a temporary compromise of the ruling classes of the monopoly bourgeoisies of France and the Federal Republic of Germany (FRG). The intention is:

  • To strengthen their position against the US and Japan
  • To share out together the Eastern parts of Europe after the crush of the USSR (Russia, part of Europe is excluded from the EU by the imperialists)
  • To oppress small capitalist nations in Western Europe
  • To also oppress any resistance by the European peoples and the working-class
  • To make a stand against socialist China

We call this alliance reactionary, backward-looking and hostile to any social and democratic progress. It attempts to preserve, defend and indeed strengthen capitalism, a socio-economic system which is obviously past its time.

Eastern European states, annexed to the EU after 1989 including the German Democratic Republic, as well as smaller capitalist countries affiliated to the EU, are economically dependent on EU imperialist states because of their size and their own national industrial and banking system, as yet not fully developed. While French and German imperialism endeavour to strengthen their dominant position through the EU and to create, for example, an “economic government” of European countries, those states are becoming increasingly dependent politically. Their national sovereignty is increasingly endangered. In this context, to make a clear difference between nations which oppress other nations and those nations which are oppressed is manifestly sensible. Yet the European Union is neither a new nation nor a new state. It is, in fact, the agency of historically notorious imperialist states in Europe—a temporary alliance with developing major internal contradictions.

The obvious contradiction between oppressor and oppressed nations is concretely demonstrated in the manner in which EU member states Greece and Ireland were dealt with after the outbreak of financial and economic crises.

Q: You emphasise the role of the State as a key structure in the system and describe it is a ‘state of usurers’.  What do you mean by this?

A: Writing “Imperialism, the Highest Stage of Capitalism,” in 1916, Lenin develops the term “rentier state” or “usurer state.” “Imperialism is an immense accumulation of money capital in a few countries… Hence the extraordinary growth of a class, or rather, of a stratum of rentiers, i.e. people who live by ‘clipping coupons’, who take no part in any enterprise whatever, whose profession is idleness.” Imperialist states become rentier states in which a perpetually growing part of the bourgeoisie lives by lending money, or in other words by investing money, buying and selling bonds and shares, gaining interest and dividends, and the world “has become divided into a handful of usurer states and a vast majority of debtor states.” “The rentier state is a state of parasitic, decaying capitalism.” The cause thereof is:

The surplus value extracted from the working class within the capitalist countries finds lesser fields for being reinvested in productive manner, in industrial and rural production. It exists as money-capital in the hands of the rich eager for interest, after all for fixed income on the highest possible level. They have the banks, their consultants and their governments to guarantee an effortless and riskless life. This development encroaching on those countries makes them living more and more from fixed income, from the tributes or the rents they gain with different forms of credits, loans, bonds, shares and other forms of fictitious capital from outside their countries. The development of a so-called service society based on a tremendous deindustrialisation in the last four decades proves well Lenin’s concept of the usurer state.

The imperialist state, still existing in the form of a national state and not able to overcome this form, has the task to secure the dominant role of the monopoly bourgeoisie internally against the working class and to safeguard the interests of the monopolies externally against the imperialist competitors. After the financial crisis 2008 the rentiers (investment banks, hedge funds, etc. with the rich families behind them) used the governments and the state apparatus to pass on their losses to the working people.

Q: Marx’s theory on ground rent has renewed relevance in the context of the crisis today. What is the connection between the monopoly of land ownership in Marx’s time and the monopoly of land/housing today?

A: Marx was the first economist who developed a general “theory of ground rent”. This theory, reflecting the relationship between the three classes (labourers, capitalists and landowners) of bourgeois society, is valid for all capitalist relations of production, also today. Marx underlines: “With a correct conception of rent, the first point to arise was of course that it does not originate from the land but from the product of agriculture, that is, from labour, from the price of the product of labour, for instance of wheat; in other words, from the value of the agricultural product, from the labour applied to the land, not from the land.”

With his theory of the ground rent Marx has developed a profound theory of monopoly. He shows some consequences of this exclusive power of disposal of parts of the planet.

Since Marx`s times, capitalism has changed into monopoly capitalism.

Besides the monopoly of land ownership, which came into existence with the capitalist system, since the last third of the 19th century, monopolies have developed in the sectors of industry, trade and finance.

Under monopolist-capitalism, superseding capitalism with freedom of competition, monopolies come into existence in industry, bearing features previously subject to private property. They represent obstacles to non-monopolistic capital penetrating their markets. They can realize prices exceeding the value and realize monopolistic profits, above average rate of profit. They impose a tribute on society chargeable to the working class, the petty bourgeoisie and the non-monopolistic bourgeoisie. By their ambition to rule world-markets, monopolies stamp down the autonomic development of bourgeoisies and capitalism in many countries worldwide too. To safeguard their rule, monopolies form an alliance with semi-feudal big landowners in the less developed countries in the same way as they did in imperialist countries before. The monopolists of industry and banks, the financial oligarchy, form an alliance with the big landowners; even so the contradictions between them are not sublated. In dominating the access to land they can decide whether a piece of land is used or not used for building houses or whether wells of crude oil or other sources of raw materials are exploited or not.

Insofar the survival of the monopoly on private property of land is closely related to the survival of the financial capital and both contribute to increasing parasitism and decay of imperialism. At the same time however, contradictions between the factions of monopolists are not overcome, as soon as it concerns the share of the tribute, or the prey, and the transfer of losses resulting of crises.

Since the time of Marx these contradictions have increased, prices for housing in cities grew exorbitant, a growing number of humans are living in slums, land grapping takes place in big dimensions, wars about raw materials are on the increase as well as debt bondage for a growing number of people by mortgage loans, etc. These mortgage loans and their financialisation played a major role in the development of the 2008 crisis as described in our article in WRPE, (World Review of Political Economy; Vol. 5, Nr. 2, Pluto Journals),

Q: You draw interesting connections between finance capital, low interest rates, the price of land and the underdevelopment of peripheral countries today. Can you explain this?

A: Though, unworked land has no value, because it is not a product of human labour, it is the object of buying and selling. The reason for that is the historic transformation of land into private property. Buying and selling of land creates per se not a cent in favour of land fertility, new machinery, or jobs. On the contrary buying and selling deprives resources of productive use.

For the owner of the ground, price for land is principal rent for a certain period of use. The principal amount of rent must at least yield the same rate of return, as the rate of return of savings deposits for the same amount of money would deliver.

“It follows, then, that the price of land may rise or fall inversely as the interest rate rises or falls if we assume ground rent to be a constant magnitude” (Marx). The price of land is all the higher, the higher the rent and the lower the interest rate.

If the interest rate by tendency approaches zero— and the real interest rate (adjusted by the rate of inflation) had this tendency since the nineteen eighties—price for land tends to go to infinite and this is regardless whether ground rent has  the form of rent, lease or other forms. The same principle also explains why Warren Buffet and others were on solid ground at first glance, thus negating the risk of decreasing prices for land as a result.

The tendency of price of land to rise is also supported by other facts. Beside the “growing demand for shelter” Marx states “. . . agriculture becomes relatively less productive in relation to the industrial product the value of the agricultural product rises and so increases ground rent”. Similarly, the like has to be considered for the building industry which, in spite of important technical achievements, is still relatively underdeveloped (low organic composition of capital) and contributes therefore to an increasing rent.

The financial capital penetrates the sphere of landed property and ground rent more and more. The main connecting piece thereby is the institute of mortgage and the instrument of mortgage loans. These allow increasing control of landed property and access to land by the financial capital. After the expropriation of land in the present imperialist countries in former decades; in the period of “globalisation” the banking system and the mortgage loans were used by the financial capital to export capital in underdeveloped countries. This led to expropriation of farmers, small industries and parts of the national bourgeoisies in those countries by the take-over of agricultural land, mines and wells of resources and building sites in Asia, Africa, South America, etc. by multinational companies. In most of these cases the borrowers could not serve their loans after diverse crises broke out (currency, prices for raw material, etc.) triggered by speculations of the financial capital in those countries. Then the financial capital took over to extract more surplus value from those countries.

Q: How does Germany fit into this within the Eurozone?

A: To become a world power again, Germany pursuit mainly three goals. First goal was reached through the annexation of the GDR in 1989/90. Second goal was, to expand its influence to the eastern countries (former part of the Warsaw Pact); this happened by exporting goods and capital to those countries and through their integration into EU. And thirdly it tries to become the leading power within the EU to make a stands against the US and the US$.

Making large-scale dealings in real estate in the former GDR and former Warsaw Pact countries, taking over the important parts of their banking system and using the well-trained industrial workers from the GDR to dump the wages domestically, German imperialism developed new strength with the consequence that the German business models are becoming more unbalanced and hazardous.

As the US-investment banks had socialised the risks of MBS and CDOs by securitisation, rating and selling this bonds to banks and investors all over the globe; also German banks were involved in this crisis from 2008 on heavily. While Deutsche Bank was part of the party issuing those AAA rated but then defaulting bonds; other German banks – as well as most banks in the EU – were hit massively by those losses and are under the guarantee of the state. The row about sharing the losses was intensive. Neither the German banking system nor that of the EU has properly recovered from this. Still governments and media are forced to tell different versions about the same facts. While Irish people know that their government (by issuing guarantees for the banks and, under the pressure of the Troika, paying back the speculative money to the big US, German, French and British investors) has saved also the German banks; in Germany, people are told Germany had saved the Irish State and banks. Germany is the main power using its influence on the ECB to put on the losses of the crisis to the smaller European countries and to the working people in the EU.

Also, contradictions between the German imperialism and the US imperialism have increased since the outbreak of the crisis.

Q: Is it not overdramatic to suggest this is Germany’s third attempt to become a world power?

A: The question here is, how could German imperialism, after it had missed out during the sharing of the world between the Great Powers in the 19th century and after it had tried 1914 in the First World War to push through a redistribution of the world for its own benefit according to its economic strength and how could it to a day 65 years after its defeat by May 8th 1945 climb in such a position again (being the leading power in “solving” the Euro-crisis). Where does the power, where does the strength of financial sources result from? How did German tycoons succeed after their defeat 1945 not only to survive, under protection of the dominating capitalist power US, but also to soar into a leading imperialist power again?

On the one hand they could use the contradiction between the socialist and the capitalist camp, which developed after 1945 into cold war. On the other hand the crippled German financial oligarchy could profit on the fact that the French imperialists had get under US-hegemony too and wanted to get rid of US supremacy again. Together with the US the German tycoons perused the split of Germany and of Europe by introducing the Marshall-plan, European Steel and Coal Community and the EEC. In coalition with France they transferred the EEC into the EU to dominate Europe und to rival with the US.

The basis for the present position of German imperialists during this period was that its capital accumulation was growing faster as those of their competitors that is to say, they have been forced and they are forced to make higher profits.

Starting from scratch 1948 without government debt, more modern production facilities and lower wage costs German Imperialism became the strongest power in Western Europe from the 1970s on. As mentioned before, the annexation of the GDR and the expansion to the East later strengthened the German position enormously.

Currently, the result is that the US is still the most powerful imperialist state which has the largest economy, based on, by far, the  biggest military potential. However, it has become more difficult to force its will on the other capitalist countries. In the present development the US will continue to lose influence as leading power of the capitalist world.

We want to try to answer your question with another question. Which alternative has an imperialist country like Germany, driven by its big monopolies – which are in need of markets and raw materials to realise profits – as to take this path to become a world power again? What is different to the situation of the first and the second attempt?

Behaving like an imperialist world power can be seen in the handling of the Greek debt crisis, dictating austerity policy for all EU-countries a. s. o. As Germans we know what aspirations for supremacy meant to our people and for other peoples. That is why we try to reveal the truth on this new attempt and to fight against it together with all true patriots.

Debt: A Weapon Against the People

DWAP

This pamphlet follows two recent economic analyses of the crisis and its aftermath published by the Communist Party of Ireland: An Economy for the Common Good (2009) and Repudiate the Debt (2011). In this pamphlet we develop further our analysis of the crisis of capitalism, the role debt plays in the economic system, and, most importantly, the response of the establishment and its attempt to further extend its power and wealth, with devastating consequences for working people’s lives.

When you lend a friend €20, whatever way you put it you are down €20 until they pay you back. Even if they make a commitment to pay you back €30, you are still down €20, and no shop will take your friend’s commitment to pay you back €30 as real money.

However, when a bank lent someone €300,000 for a mortgage, not only did it not deduct €300,000 from its accounts but it actually added the full amount that would be paid back over the lifetime of the mortgage—close to €1½ million—to its assets. It “created” €1.2 million, that doesn’t exist, through the loan.

It is this type of growth—unearned and future—that gave credence to the monetarist belief that there could be unlimited growth and expansion. The lines between asset and liability disappeared on the balance sheets of capitalism. Debt—credit—would make the world go round. Crisis could be overcome.

Or so they told us.

Marx recognised that credit and debt have always played a role in production and consumption within capitalism. But what is different today is the dependence of the system on it, where the rate of profit steadily falls, and the fundamental role it plays in the creation of profit, both as a fund and an avenue for investment. Without debt, capitalism would cease to grow; yet with its systemic reliance on debt capitalism is even more anarchic and volatile, with production and supply even further divorced from demand and consumption. To quote John Maynard Keynes, “when the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.”[3]

This pamphlet outlines the principal points of development in the economic system during the second half of the twentieth century and then looks at the nature and extent of the debt crisis in Europe, particularly here in Ireland, which is exposing the contradictions and vulnerability of European economies and ultimately of monopoly capitalism. The crisis, like any crisis, is an opportunity for some, and the European Union and the Irish establishment have seized on this opportunity to further strengthen their power.

It is a naïve mistake to say, as some do, that austerity is not working. This misunderstands the root causes of the crisis, and the system’s response. “Austerity” is not designed to create jobs. It is not designed to ease the burden being placed on workers’ shoulders. It is not designed to reduce the bankruptcy of states. The purpose of the austerity programmes being imposed throughout Europe, particularly in the periphery but more recently also in core countries, is to free up capital and transfer it to finance houses and institutions so as to shore up the primary source of growth in the system: finance capital.

Get your copy of the pamphlet from Connolly Bookshop, Temple Bar.

Interview with Zoltan Zigedy

Politicaleconomy.ie is delighted to have interviewed US communist and political economy blogger Zoltan Zigedy.

Full text of the interview is available here Interview with Zoltan

Politicaleconomy.ie interview with Zoltan Zigedy

http://zzs-blg.blogspot.ie/

1 – A crisis erupted with the collapse of Lehman Brothers in 2008 but this had been brewing for some time. Can you briefly explain how you view the crisis?

Economists and pundits alike– caught watching an event unfold that simply could not happen– portray the 2007-2008 collapse as a singular event, an accident brought on by an unlikely coincidence of human failings.  Of course that perspective masks the inherent, systemic flaws of the capitalist system.

The seeds of the current crisis were planted many decades earlier. The intense global competition resulting from the post-war revival of the European and Asian economies, replete with new technologies, engaging new principles of industrial organization, and flooding global markets with innovative products, placed enormous pressure on the rate of profit. The implicit Cold War labor contract– support US, NATO, and SEATO policies, maintain labor peace, and receive compensation at least in step with productivity and costs of living– pressured capitalist profits from below.

The stagnation of the 1970’s resulted.

Capital found a solution: mount an all-out war on workers and their wages. The slash and burn Thatcher and Reagan axis restored profitability (and the celebration of its rewards) by feverishly jacking up the rate of exploitation.

The collapse of Eastern European socialism added new markets and cheap labor to the favorable conditions for profit-making. Not surprisingly, the loss of a real-world beacon of socialism proved profoundly demoralizing to the labor movement. Many Western Marxists turned to navel-gazing or the “rethinking” of the socialist project.

Without filling in the details, the hyper-accumulation of this triumphalist era stretched the bounds of available productive and safe investment opportunities. Thus, began the explosion of financial exotica (and financial “profits”!) to absorb the glut. On the investment side, this took the form of venture capital and dot.com initial public offerings at the end of the 1990’s; risky speculation inflated an enormous bubble of virtual value and unsecured debt. As we know, that ended badly.

Since 2001, capital has sought to rally and sustain profitability. The collapse of 2007-2008 shows that it is not possible without speculative brinksmanship and courtship of hazard. That seems to me to still be the case.

2 – There is some debate amongst Marxists about the development of capitalism post WW11 and the traditional understanding of the declining rate of profits versus financialisation and super-profit/under-consumptionist theories. Are these theories conflicting or can we reconcile the declining rate of profit with financialisation and monopolisation and concentration of wealth?

A. Post-war Marxists, both in the socialist countries and in the West, fell under the influence of Keynes, locating the principal contradiction of capitalism in the stagnant (or declining) purchasing power of the working class (underconsumptionism).  This was a convenient and appealing explanation for crisis, but, unfortunately, it doesn’t fit the facts, misrepresents the accumulation process, and encourages a turn towards social democracy.

Marxist economists were unjustifiably impressed with the “success” of pump priming in stemming the seemingly unstoppable economic collapse of the Great Depression. While, what came to be called “Keynesian” policy may have slowed, even stopped the bleeding, it didn’t heal the wound. But many Marxists reasoned– mistakenly– that if force-feeding consumption halted further collapse, then the crisis was caused by insufficient consumption.

Neither the Great Depression nor the current crisis were preceded by any consumption shock, an event, if it had occurred, that would have given some credence to an underconsumptionist explanation of crisis. On the other hand, the crises did cause a shock to consumption, a major factor in amplifying and extending the course of crisis. So the facts would seem to suggest that the underconsumptionists actually conflate cause with effect.

The relatively long post-war period without a major systemic crisis (1945-1972) further seduced far too many Marxists into acknowledging the success of Keynesian policy prescriptions. By crediting the perceived stability of the capitalist system to the welfare state support of consumption, they concluded that failing consumption was the demonstrated explanation of capitalist crisis. The severe and lengthy decade of stagflation that followed should have cast some doubt on that too easy conclusion.

B. The 2007-2008 crash spawned a renewed and welcome interest in the tendency-of-the-falling-rate-of-profit explanation of systemic capitalist crisis.  Outside of the Marxist mainstream, Henryk Grossman and Paul Mattick,  were often-isolated voices supporting this explanation which drew largely from Marx’s account in volume III of Capital. While we owe them much for keeping this theory out of the dustbin, they developed it in a mechanical, formalistic way alien to Marx’s method. And the new generation of advocates, largely academic Marxists, have unfortunately followed this road. They fail to understand that tendency laws– like  the tendency of the falling rate of profit– are not logical demonstrations, but descriptions of social and economic forces that shape the course of a social structure’s (in this case, capitalism’s) trajectory.

The great value of the rate-of-profit explanation is that it locates the cause of crisis at the main spring of the capitalist production process: accumulation. It insists that the ultimate cause of malfunction must and will be found in the ultimate element that powers capitalism as an economic system: profit.

In my view, a robust explanation of capitalist systemic crisis can only emerge by beginning with the crucial role of the rate of profit, the determinant that keeps the capitalist class in the reproduction game or, as the system stumbles, out of the game and on to the side lines. I believe that a comprehensive contemporary explanation of the nature of capitalist crisis is yet to appear, though I have offered modest sketches in my writing.

C. “Financialization” is not an explanation of the crisis. Instead, it is too often merely a characterization (like its sibling, “globalization”), a handy descriptor of an aspect of the current crisis. No one would accept “atomization” as a worthy explanation of what happens in an atomic reaction. Nor should we accept “financialization” as more than a neologism useful in indicating that some kind of financial shenanigans played a role in the present crisis. My own view is that “speculation” and “risk taking” better capture the financial dimensions of the ongoing crisis for those needy of a concise handle.

When pressed to unpack financialization to reveal an explanatory theory, its advocates reference familiar developments: deregulation,  the growth of financial institutions, their penetration of non-financial corporations, their development of new and and exotic schemes and instruments, etc. But these developments, in most cases, have been unfolding since Lenin’s time. Moreover, there is no obvious link between these developments and the onset of economic crisis. That link is easily provided by declining profitability, however. One need look no further than Countrywide, Washington Mutual, Merrill Lynch, and Lehmann Brothers to see how speculation and risk-taking eviscerate profits and generate an economic retreat and panic.

Can there be a synthesis of three contestants for a Marxist theory of crisis?

I think not. But there are aspects of each that should inform a Marxist theory of crisis. No adequate Marxist theory can fail to address financial innovation and the peculiar status of financial profit; it must pay particular attention to the amplifying effect of debt. And the one-sided class struggle plays an undeniably important role by generating hyper-exploitation, the consequent super-accumulation, and the resulting abundant capital in search of the elusive return. That said the tendency for capitalism to generate downward pressure on the rate of return remains the centerpiece of any adequate theory of capitalist crisis.

3 – We hear much being made of a US recovery but you describe it as ‘slug-like motion’, what is the real state of the US economy today?

The US economy is in the doldrums. It lacks momentum to escape the doldrums, and it remains precariously afloat. It remains afloat because willingly or unwillingly the rest of the world accepts a part of its burden. The PRChina continues to purchase enormous quantities of US debt, along with Japan. It remains afloat because the rest of the world has yet to challenge the dollar as the global means of exchange, allowing it to weaken or strengthen according to the needs of the US economy. It remains afloat because the US sets the rules of trade, commerce, and exchange to its own benefit. That’s the reward for imperial domination.

Domestically, the US economy is on the life support system that economists call “the wealth effect”. That is, economic activity is founded on the subjective sense of well-being fostered by stock market increases and increases in the value of homes. Both increases today have little or no connection to market realities. Of course, the wealth effect only applies to those owning homes and financial assets.

The rest rely on stagnant wages and benefits and assuming debt (household income is at the same level as 1990). Capital continues to wring every drop of value from US workers. A comrade recently computed that the starting wage of an autoworker at a unionized (UAW) shop, adjusted for inflation, is commensurate with that of a Ford worker in 1914, a moment when Henry Ford “generously” raised the wages of the workers so that they could buy his Model T’s.

Going forward, the prognosis is no better than continuing stagnation. A shock, possibly reverberating from the EU, Brazil, China, or Japan, could yet rock this shaky stability. Moreover, there are many signs that pre-collapse financial  practices are again stretching the bounds of rationality.

4 – You have compared the period we are in to the 1930’s and have challenged the notion that the New Deal investment brought about a recovery pointing to the role WW2 played instead. Do you see war is a policy tool being used today and what are you concerns about this?

William Z Foster, a US Communist writing early in the Cold War period, developed the idea of military Keynesianism. The value of his work– minimized and neglected because of intellectual anti-Communism– was to expose the connection between militarism and government economic policy. For the US ruling class, the idea of “pump priming”, fiscal intervention through the public sector, was much more appealing if it were rendered through spending on open ended contracts with military corporations and armaments rather than spending on human welfare. The former gave government revenue to corporations, the latter some alms to the people.

That same ruling class drew important lessons from the thirties and forties: the most complete recovery from the Great Depression was accomplished swiftly by Hitlerite German militarism. And the US economy only began to recover vitality with the military buildup leading to US entry into World War II.

After the fall of the Soviet Union, there was much talk of a “peace dividend” and a radical reduction of military spending in the US.

It didn’t happen– a fact that surely demonstrates that militarism is inextricably embedded in US economic policy since there was no and could be no serious threat to US security in the immediate aftermath of the Cold War.

Nonetheless, the lap dog media machine has been conjuring up new enemies  in order to keep the US public from objecting to militarism. Interestingly, one can observe public opinion shift from skepticism to consent over the course of the constant monopoly media war campaigns.

In part, the bizarre anti-Russian campaign, the demonizing of Putin, is only rational in the framework of an economic explanation of militarism. The US expects to spend over a trillion dollars during the next three decades modernizing its nuclear weapons program. This can solely be justified to the public by inventing threats from a nuclear power. Nuclear weapons are not necessary against men in sandals with AK-47s, rocket propelled grenades, and improvised explosive devices. But Russia has nuclear weapons.

The liberal magazine, The Nation, recently documented the financial ties between retired military leaders and the armaments industry. The same ex-admirals and generals exposed in the article are omnipresent in the US media, posturing as experts on foreign policy while sounding the call for confrontation and aggression.  They serve as the transmission belt of militarism to the public and the governing bodies.

It is no mystery why we live under the constant threat of violence and war.

5 – How do you define the system globally? There is much talk of neo-liberalism and finance capitalism or financialised capitalism but how do you best understand it?

It is easy to fall into the trap of taking a snapshot of the global capitalist system and drawing hasty conclusions, of announcing a new stage, a new trend, a new era… Certainly that makes for a provocative, but quickly outdated, article or book or garners appearances on talk radio shows. Over the last several decades we’ve been treated to new intellectually fashionable buzz words such as “neo-liberalism”, “globalization” or “financialization”, portentous theories like the decline of the nation-state, and sheer nonsense like Hardt and Negri’s Empire. Fortunately, they, and their ilk, only distract; they seldom persist.

Rather than take that tantalizing bait, I will note some important trends. The last three decades have been marked by significant changes in the international division of labor. A veritable revolution in logistics along with political changes in Eastern Europe and the PRChina integrated new armies of workers into the global capitalist system. Together, these developments ushered in a shift of manufacturing to far flung, low wage areas. Accompanying this shift has been the rise of finance, insurance, real estate and services in those countries experiencing a decline in manufacturing. This new division of labor fostered a dramatic growth in the global rate of profit, a level of profitability that has now run its course.

Labor markets in previously low wage areas are now tightening while the crisis and unemployment have slammed workers’ compensation in the formerly high wage countries. Global wage convergence is the ultimate, predictable outcome of labor market competition without restraint or protection.

Those workers from formerly extreme low wage areas (PRC, India, Brazil, etc.) who have had a taste of a better life, now and want more.

Those workers who have been devastated in the vise of international competition and crisis-induced unemployment want to restore and improve their standard of living.

Standing in the way of winning these demands is a still resilient, resourceful capitalist system; and frequently standing in the way of fighting for these demands are complacent institutions and leaders– union leaders, politicians, and political parties– that are ill-serving workers in the twenty-first century.

Fanciful expressions and speculative theories only obscure the fact that the logic of capitalism and imperialism, capital’s international manifestation, still rule in the twenty-first century.

 6 – Globally, the system is objectively in crisis on many fronts , yet in the ‘west’ it’s politically and cultural hegemony remains unchallenged in any serious way. Is it still a case of progress will likely come from the periphery within Imperialism?

Unquestionably, the struggle against imperialism, particularly in the Middle East and in Latin America, has occupied center stage and has posed more of a challenge to ruling elites than has the anti-capitalist struggles in the West. Even more disappointing is the absence in the West of a formidable anti-imperialist movement– an anti-war, anti-interventionist movement– in solidarity with Middle Eastern and Latin American anti-imperialism. This is not a particularly noble chapter in the history of the Western left.

Any thoroughly objective assessment of capitalism today will reveal stark vulnerabilities. It will challenge the sustainability of the shaky global economy, question the viability of the corrupted, undemocratic political system, and abhor the vulgarity and nihilism of bourgeois culture.

Still, the goal of replacing capitalism with a profoundly more just and democratic system appears far off. Some have given up on the task, retreating to incrementalism or accommodation, believing unrealistically that we can gradually or surreptitiously undermine capitalism. Still others have visions of nineteenth century utopias, cooperative communities coexisting with monopoly capital. Free market theocracy has bred a generation disposed to worship the gods of individualism and spontaneity as instantiated on the left by anarchism. In short, left politics in the West churn in a cauldron of wildly idealistic and misguided ideology.

Of course this is frustrating, especially for students of history and the workers’ movement.

Disillusionment and confusion are not new to the socialist project. One-third of the Communist Manifesto is devoted to exposing the dead-end roads and far-fetched ideologies that Marx and Engels contested in their time.

Lenin scathingly recorded the dismal condition of the Russian left after the failed 1905 revolution. Should we be surprised, after the history-altering dismantling of European socialism nearly twenty-five years ago, that much of the Western left has yet to find its bearings?

And yet, as Lenin’s example shows so well, it is precisely when there is widespread political disarray that Marxism (and Leninism) are so desperately needed to bring clarity and unity to the anti-capitalism struggle.

I think we are in such a moment.

Understanding the crisis

Understanding the crisis

A response to the review by NC of The Failure of Capitalist Production by Andrew Kliman in the January issue of Socialist Voice.

Understanding the crisis is the key to addressing the political challenges we are facing today. A clear understanding of the forces behind the crisis and the contradictions that exploded in 2007 will help communists and class-conscious trade unionists to evolve the correct strategies and tactics for building class solidarity and consciousness, for pushing forward our class interests and the interests of humanity and the planet as a whole.

There are many great thinkers and activists who bring up to date and develop classic Marxist concepts to explain current events: the journal Monthly Review, the author of the book reviewed in January, Andrew Kliman, Michael Hudson, Samir Amin and researchers at RMF (Research on Money and Finance), to name but a few.

They may differ on some points in emphasis or on others in more fundamental understanding. But the aim should not be to choose one view over another and stick blindly to that view: it should be a concrete analysis of a concrete situation. And this is being achieved by using our collective knowledge and experience, combined with the most developed and coherent analysis of the system, placing it firmly in the historical trajectory of this country.

In short, it is to take the best critiques of the capitalist system today and add our experience to them.

Academics and professional economists (no offence intended) have a tendency to exaggerate differences in order to differentiate themselves from other thinkers. While they may lead the way in developing theories and providing the research that others can use, they cannot be relied on exclusively in explaining events, especially the present crisis. It is not about saying Kliman is right and Monthly Review is wrong but rather, in the best tradition of Marxism, taking the best features of the most advanced scientific thought to explain the world around us, and using this to help us change the world.

 

1. Financialisation of the accumulation process

The review seems to counterpose Kliman’s view of the declining rate of profit and the destruction of capital (or failure to destroy sufficient capital) to financialisation theory (in particular Monthly Review writers) in explaining the crisis and to suggest that it is either one or the other.

The reviewer writes: “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).”

I do not agree that either financialisation or insufficient destruction of capital is the root cause of the crisis. The system itself is the root cause, and both financialisation and insufficient destruction of capital in previous recessions are essential features of monopoly capitalism. Accepting both is not necessarily a contradiction when one understands them as features of monopoly capitalism in its current state.

Kliman’s calculations of the declining rate of profit for the system as a whole, I suggest, do not necessarily contradict the evidence that after-tax profits and wealth have been concentrating and monopolising, leading to an abundance of capital in fewer hands that required investment in financial innovations and that blew up speculative bubbles to avoid global stagnation.

The failure to destroy capital en masse since the Second World War has driven capital to these financial avenues as other, more productive avenues are shut off by over-production and the cheapening of production.

My understanding, for what it is worth, is that the financialisation of the accumulation process (finance as the main avenue for investment of excess capital and source of profit and growth within the system today) is a product of the very crisis Kliman explains so well. It is a result, not a cause, of the generally stagnating economy. It has been a systemic response to divert after-tax profits (and after what capital can be reinvested in the monopolies that finance controls) to financial or (in the case of property bubbles) finance-led investment avenues.

Financialisation was not a misled policy choice but rather a solution to the problem of excess capital in the system, which, without a massive destruction of capital, had no home to go to.

Take GE Capital, Pfizer International Bank or the Volkswagen Bank as examples. These are the banking arms of global manufacturing monopolies. They were not set up as a policy choice by those companies to divert their capital to finance and away from manufacturing: they were set up because even after tax (what little they pay), bonuses and reinvestment, global monopolies still had masses of capital to invest, and financial products offered an avenue.

But financialisation, or the failure to destroy enough capital, do not by themselves explain the crisis; because what drove them as processes?

To try to find this out it might be worth while looking at more of the dominant features and how they connect to financialisation and the declining rate of profit in order to better understand the crisis and the establishment’s response.

 

2. The monopolisation of power

Wealth, income and control are all features of power, and power is being monopolised and concentrated in fewer and fewer hands globally. Power over productive relations that mould the shape of society, human relations and indeed the environment are increasingly centralised in the hands of the big monopolies and their biggest shareholders.

Even during this recession, global wealth increased, from $195 trillion in 2010 to $231 trillion in 2011, with the top 1 per cent—those with more than $712,000—accounting for 44 per cent of that $231 trillion and the top 10 per cent owning 84 per cent, while the bottom 50 per cent have barely 1 per cent.

Recent research found that of 43,060 transnational corporations analysed, a little over 730 entities control 80 per cent of these corporations, and a mere 147 control more than 40 per cent. Of these 147 controlling entities, 75 per cent are financial institutions.

This is how monopolised and uncompetitive production is. The automobile industry is dominated by about six companies, semiconductors by about twelve, music production about four; there are about ten big pharmaceutical companies, three soft drinks companies, and only two major commercial aviation companies.

And, as described above, these are then controlled by a few—often the same—large shareholders. This would suggest that a willing destruction of capital (or devaluation of assets) will be unlikely, given the power possessed by this handful of people who would take the biggest hit.

 

3. The internationalisation of production

Hand in hand with the process of monopolisation, and driven by the same accumulation process, production has become internationalised.

The dominant form of production and exchange is not local: it is truly global. A pair of Nike shoes contains about fifty parts, which are made in dozens of different factories in half a dozen countries. The total cost of a pair of Nike runners is about $1.50; they sell for over $100.

This means that workers are pitted against each other globally in a race to the bottom, with only one winner: profit. The amount of money big monopolies can accumulate through the internationalisation of production is huge. This is what has led to an over-accumulation of capital in the system.

The increasing size of monopolies means they can control the production and distribution networks within their field, and pit one against another. Labour becomes de-skilled as workers merely complete one task rather than completing an entire commodity. And more and more is produced through this cheapening and fragmentation of the production process.

However, the drive to pursue profits and ensure a return for shareholders does not pass on price reductions to consumers, as seen in the Nike example; and as workers in the “West” are cheapened by this process, consumption and demand are weakened, resulting in a continuous state of over-production.

Supply is not driven by demand but by the creation of surplus value through the application of labour in the production process. Capital emphasises the need to get the most out of labour, increase and cheapen production. Demand often suffers as a result and rarely meets supply. The extension of debt, or credit, has been a useful tool in artificially trying to match demand to supply. However, it is like putting a plaster over a gunshot wound and cannot seriously create an equilibrium between contradictory forces.

 

4. The proletarianisation of peoples

One of the great myths is that “globalisation” is destroying the working class and making everyone some kind of middle class. The artificial growth of a middle class has been shown to have been merely superficial and based upon mounting debt and rising asset values. The reality is that, as the internationalisation of production has developed, and in particular the monopolisation of land, this has brought with it the proletarianisation of peoples. More and more peasants and subsistence farmers are driven off their land and forced into cities to work in factories. This also has damaging and negative consequences for the environment, in both rural and urban settings, and has led to the development of horrific slum dwellings around cities.

In addition to this, as the monopolisation of production and retail outlets has progressed, the number of small businesses has also declined globally, being replaced with megastores and transnational companies.

The number of small businesses closing during this crisis is evident. Equally, during a time of crisis, with little real avenue for investment, many companies pursue aggressive take-over strategies to reduce their competition and increase their market share. Often small businesses are absorbed by their larger competitors, again reducing the number of self-employed and increasing the wage class: workers.

 

5. The growing reserve army of labour

As the system expands into almost every corner of the earth, by open warfare at times, and the working class is expanded, so too is the number of global unemployed—the number of potential workers the system has at its disposal. Marx called this group of potential workers the reserve army of labour, and this has truly expanded as monopoly capitalism has grown.

The proletarianisation of peoples and the defeat of the socialist economies have greatly expanded the number of potential workers, to 2.4 billion today, approximately 65 per cent of the potential global work force.

Supply and demand in influencing the cost of labour (our wages) has an obvious and speedy impact, but the cheaper cost of maintaining a worker in southern parts of the globe is the main driving force behind this process. As production has become so internationalised, the speed at which it can seek out and move to the cheapest parts of the globe has increased. The ever-growing reserve army of cheap labour is part of a race to the bottom and of the assault on trade unions and working conditions in the West.

The retreat of social democracy is less an ideological or policy retreat than a result of the fact that its material base—strong domestic industry in the central economies—has vanished as a result of the monopolisation and internationalisation processes and with it the leverage that workers in those countries could bring to bear on political economy.

 

6. The pauperisation of the working class in monopoly centres

This process of imposed division and competition between workers is leading to the pauperisation of the working class in the centres of monopoly capital and the gross exploitation and abuse of workers in the South.

As major economic activities have moved away from the West, social democracy has withered. These economies have been forced to become more “open” to deal with the new speed and direction of capital in undermining the terms and conditions of employment.

While real wages have largely stagnated, debt has driven consumption. Inflating asset values, such as houses and shares, have provided a false growth in consumption by working people in the West. This has been shattered by the burst of this latest speculative bubble.

The extremely weak foundations that consumption was reliant upon have been exposed, and increasing “austerity,” to shore up finance capital, is only exacerbating the overproduction of real goods.

 

7. The role of debt

Credit, and its negative—debt—have always played a role in the capitalist production process. However, it is fair to say today that the role it plays now is far greater and more global in its effect on production and the usual cyclical functioning of the system.

As capital concentrated, those accumulating it could more easily direct and control production to suit their needs through investment and ownership in companies. Equally, the amassing capital required ever more investment avenues. Monopoly production killed off many “real” investment opportunities, and the processes outlined above closed off avenues in reinvestment.

For every extension of a loan, or every bet on a future price or event, debt within the system is created. Debt-based “products” became a significant source of investment and return, including the purchase of and speculation in government bonds or collateralised mortgage products.

Banks created hundreds of debt-based androids that acted as investment avenues but also as security for further loans. This side of the accumulating process (M—M, in the terms used by Marx in Capital) created capital out of itself, and with it volumes of personal, corporate and government debt in the system as debt became an asset and a source of further investment and growth.

The scale of systemic reliance upon this system of M—M growth can be seen in the unusual length of the investors’ “strike” and the negligible effect of hundreds of billions in quantitative easing. During a recession, investors are afraid, and a hoarding of capital is not unusual. However, it would normally pick up after a number of “corrective measures” and an appropriate avenue is found for it.

Today this fear is still clear to see; and reading the pages of Bloomberg or listening to many of the speeches at Davos one can see that it is not going anywhere in the near future. The scale of debt in the system means that investors don’t know how to hedge their bets, as the likelihood of default is ever present and very real. With “sure things” having totally collapsed, investors don’t know where the next Lehman Brother or Irish economy is.

Equally, any quantitative easing that has taken place has not created new jobs or oiled the wheels of production: instead it has been used by those same corporate hoarders to pay off some of their own debts.

 

8. Speculation and bubbles

While the processes described above have concentrated ever more capital in fewer controlling hands, growth in monopoly centres, such as the United States, Britain, and Europe, would have been negligible over the last couple of decades had it not been for speculation-led financial growth in a series of bubbles.

In the German economy, the driving engine of the economy in the European Union, growth never reached more than 4 per cent but was more often 1 or 2 per cent (and this is including finance-led growth). In Ireland, if one knocks off the 25 per cent or so of GNP attributable to the property bubble each year of the so-called Celtic Tiger, our economic growth was more of a mirage than a miracle. Even recently published reports show that the economy is still stagnant; the only small bit of growth is in foreign monopolies.

Mergers and acquisitions, commodity bubbles and futures speculation, energy and “dot-com” bubbles, sovereign debt and currency speculation, property and mortgage bubbles (and throw in some legal, and illegal, money-laundering)—these have provided the system with its major source of growth, investment, and the creation of new capital through profits.

Speculation is different from investment; it is different from the run-of-the-mill extension of credit to a business or company. In a capitalist sense, investment follows an analysis of the company or product and a belief in its ultimate success. That is to say, the investor has “bought in” to the product. Speculation is less thorough. Little analysis is done, or no thorough analysis can be done, as it may be a blind bet on a future event.

The nature of speculation leads to bubbles, as a spike or inflation of asset prices resulting from the investment of capital attracts more capital, leading to further inflation and consequently to a bubble. While this does provide an avenue for a “quick fix” for capital to invest in and get a return, providing growth in the system, it is quickly flooded with all that other capital seeking an investment opportunity. What may have begun as a spike in valuation grows into a bubble and ends with no soft landing but with an explosive burst.

 

A system in deep and lasting crisis

The phenomena described above are all dominant features of capitalism today, and they cannot be undone. This is the situation from which any capitalist recovery must come, or from which any transformation to socialism will be born.

These features, and the extent to which they have developed, are what make the present crisis distinctly different from previous recessions, in a number of
ways.

1. The crisis is universal. It is not confined to one area of the accumulation process. It is not merely a banking or finance crisis. It is not merely a crisis of under-consumption. It is not merely a crisis of over-production of houses or over-investment in energy.

2. The crisis is global. It is not just in one area or one hemisphere. The United States, the European Union, Japan and the global South are all affected.

3. It appears to be continuous or permanent. Rather than being a two-year or three-year “downturn” with a gradual recovery, this is now the fifth year of the crisis, and there are few signs of a recovery.

This is what makes the crisis truly systemic and structural. This is what makes this crisis different from previous ones. The result of this crisis, and any so-called solutions to this crisis, will deepen the contradictions and accentuate these features even more.

Wealth is already being concentrated even further. Production is monopolised even further, with mergers and acquisitions being used as an investment avenue for the abundance of capital in the system. Production is moving to ever-cheaper parts of the globe, reducing the cost of production to maximise profits out of a contracting customer base. The global number of unemployed is increasing, and the impoverishment of working people in the West will further reduce consumption for goods but also lead to the further indebtedness of both individuals and countries.

Without a massive destruction of capital, the stagnation and contradictions that were only superficially covered up by finance-led growth will lie exposed for some time, wreaking hardship and misery on the vast majority while benefiting only a few.

The structure of monopoly capitalism, and the proliferation of nuclear weapons, with monopoly rivalry and the control of monopolies through shares that are dominated by a few hedge funds and finance companies, may well prevent the global destruction of asset value on the scale that Kliman suggests, leaving us with the understanding that this is not a normal cyclical crisis or recession but one whose features are so accentuated, structural and systemic, and with contradictions so great, that it may well constitute a phase of capitalism in aggressive decay.