The Truth about Capitalism

 

 This is a continuation of an earlier post

The economist John Maynard Keynes, hugely influential in the 20^th century, is now seen as a sort of ghostly admonisher, berating us – or rather the elite – for the gross errors that never seem to be corrected by experience. For example, his adage that “you don’t balance a nation’s books by cutting its income” is widely seen as a pithy riposte to the circular austerity logic that we seemed destined to repeat until the end of time.

But it’s seldom noticed how wrong Keynes’ predictions could be. For example, he claimed in 1930 that in a hundred years’ time – i.e. around now – economic progress would mean that we’d all be working 15 hour weeks and three hour days, and our main dilemma would be how to spend our abundant leisure time. In reality, we are busier than ever and the major source of that immersion is the need to work to earn enough to live on, which in many cases still isn’t enough.

Similarly, he thought the major economic problem of the future would stem from the fact that increasing prosperity would lead people to save so much that they wouldn’t spend enough on consumption, thus impeding the ‘circular flow’ of money so vital for economic health. In reality, despite (or perhaps because of) mass consumerism, everyone nowadays – individuals, governments, and corporations alike – is massively in debt. The parent company of the insolvent Thames Water, Kemble, is £18 billion in the red for example. And that’s just one company. Owing money to someone else and having to make regular interest payments to them – rather than saving too much – is the defining characteristic of our age, contrary to what Keynes imagined. Although I suppose you could say that many corporations seem to bring off the counter-intuitive trick of hoarding money and being in debt at the same time.

This leads to the rather disturbing insight that virtually no-one – including followers of esteemed critics like Keynes – really knows what capitalism, as it exists now, really is. If they did, their predictions and remedies wouldn’t be so wide of the mark.

Puff the Magic Dragon

Take for example the explanation of why “capitalism is good” by German theoretical physicist and science explainer Sabine Hossenfelder. She is a world away from the conspiracy dwelling, propagandising populists who justify current economic arrangements while blaming others – usually immigrants and ‘cultural Marxists’ – for why things are going wrong. But her vindication of capitalism seems to emerge from an alternative universe.

Capitalism, she says, is all about people “sitting on a big pile of money” they “don’t know what to do with”. Seeing that other people need finance to make their business idea a reality (she gives the example of someone with thousands of apples who needs a juice press to turn them into apple juice), the capitalist lends them the money, while expecting “something on top” for the risk they are taking.

“The capitalist is a person or institution who provides capital to those who want to launch a new business, someone who’s able and willing to take the risk that this capital will never have a return on investment,” she says.

This system is “pure genius” and is responsible for the huge social progress that has occurred over the past two centuries although it needs to be set up and regulated properly.

Hossenfelder’s apologia has been justly criticised in the American socialist magazine Jacobin for being “a compendium of common arguments people make in defense of capitalism when they haven’t taken the time to actually hear out any of the system’s critics.” The writer, Ben Burgis, says that in reality capitalism is a system of exploitation “disguised by the legal form of a voluntary agreement between equal parties”.

Social Regress

I completely agree, I’ve even written a book about how the voluntariness of capitalism is a mask that shields its essential compulsion. However, I also think that Hossenfelder’s defence of capitalism ignores something else rather important – that modern capitalism is largely nothing to do with providing finance so that people’s business ideas can be transformed into reality. It is simply a system of using money to make more money in ways that are entirely unrelated to improving production or enabling social progress, and are in fact often harmful to these processes.

The economist Michael Hudson, for example, has pointed out that since the mid-eighties in the USA – the archetypal ‘free market’ system – the number of company shares “retired” has exceeded those created. What this means in plainer English is that companies have bought back more shares than they have issued. The purpose of buying back shares is to raise their price while reducing their overall quantity so that dividends increase for the existing shareholders. The point of issuing new shares is to raise capital investment to expand your business. Companies have been pressured by their shareholders to amass huge debts (IBM is the classic example) in order to buy back (or retire) their shares, thus sacrificing the capital investment that capitalism is supposed to be all about.

So in the heartland of the ‘free market’ over the past 30 years there’s actually been a net reduction in capital funding new business ideas or just plain business expansion. The Dragons’ Den image of capitalism that Hossenfelder takes for reality – and most people share – is revealed to be just propaganda. Although it’s a fascinating insight into the nature of propaganda that this fiction has achieved mass penetration just as the reality it hides has definitively effaced the fantasy.

There are many ways in which really existing capitalism – the compulsion to make more money from the investment of money – is actually detrimental to the creation of wealth and social progress. The 2008 Financial Crisis, the after-effects of which we are still experiencing, was based on capital flooding into pooled mortgages and related ‘insurance’ schemes, which exploded after the real-world US housing market nosedived. This resulted in a huge destruction of wealth and productive capacity, exacerbated by an austerity mania that shows no sign of abating.

Twenty-first century capitalism, by virtue of the huge volume of money seeking returns, also creates shortages of the basic necessities of life where they don’t really exist. In the past 15 years there have been two global food crises, based on betting by hedge funds etc. that the amount of wheat and other foodstuffs available in the world would fall when in fact it didn’t. But the effects on prices were all too real, pushing millions into extreme poverty and even famine.

And then we have private equity, which involves taking over companies by borrowing money, dumping that debt on the company, and maximising pay-outs to investors. As shown in part one, private equity is on the march throughout the Western world despite the fact that the indebted companies it creates, such as Thames Water which may well go bankrupt soon, are incredibly vulnerable to rises in interest rates.

Nothing here involves financing new business ideas or spurring social progress, unless you have a rather strange concept of social progress which entails pumping sewage into rivers or increasing world hunger.

The Wolves of Wall Street (and the City of London and Frankfurt etc.)

The ultimate question is why is this happening? In the past the defenders of capitalism could point to the fact that despite its downsides, the system did increase overall affluence. Today, once you take China out of the equation – which pursues a very different variant of capitalism – that isn’t the case.

Some say that the problem is financialisation. Banks and asset managers, who invariably run private equity funds, aim to devour the lion’s share of society’s income by placing everyone in debt (thus compelling them to pay tribute in the form of interest payments). Their intention is to own, and thus gain a steady income from, assets like corporations, housing or privatised public infrastructure such as water or health services.

The hollowing out of formerly publicly owned health systems, like the National Health Service in Britain, can be directly attributed to the growing and malign influence of private equity ‘investors’. Similarly, the divestment of the major oil companies from fossil fuel extraction is fatally undercut by the fact that these activities are usually sold to PE groups who merrily continue them out of public view.

What these asset managers are not interested in, however, is the longer-term practice of funding capital investment in businesses because it’s too risky and doesn’t produce enough yield in the moment. Hence the term ‘financialisation’ because it involves establishing very profitable, but usually short-term, claims on companies or privatised public assets without stumping up the investment to improve them. The result is astronomic levels of inequality, increased vulnerability to economic crises, unmitigated global warming, and moribund economic growth.

Thus someone like Carolyn Sissoko, who we met in part one, can say that when capital was funnelled into projects like building railways or laying undersea cables (or in today’s world investing in renewable energy we might say), there was a tangible benefit to society. Now, however, when the dominant trend is to place companies in debt and make money from the interest payments and through soaking their customers that mutual benefit has disappeared.

The solution – evinced by people like Michael Hudson – is to radically change public policy. Tax policy needs to be overhauled to, for example, tax interest more than equity investment to return the system to its former purpose of funding growth-enhancing activity. Additionally private banks need to be replaced by publicly-owned ones which can provide basic services at minimum and support capital investment in businesses.

All this is about returning capitalism to its original purpose, much as in its infancy in the 19^th century the system needed to be prised away from the power of predatory, unproductive, landowners.

Speculate to Accumulate

However, there is an alternative explanation for our economic tribulations. This position doesn’t dispute the trends highlighted above but says they are a symptom rather than a cause. The cause is the capitalist system itself which is eternally driven by profit making opportunities and thus, given prior technological progress, is more attracted to speculation than tangible investment in making things. This gold mine has been augmented by the investment of pension funds and state sovereign wealth funds.

Heterodox economist Harry Shutt, for example, argues that there has been a drastic decline in the West in the demand for both capital and labour. This has resulted in a “chronic surplus of capital”. In 2012 private equity firm Bain Capital (co-founded by Mitt Romney) estimated that the volume of “global capital” had tripled over the previous two decades to stand at $600 trillion, nearly ten times the value of all the goods and services in the world.  They projected that by 2020, this “capital superabundance” would grow by another third to $900 trillion.

According to Brett Christophers, author of the private equity exposé Our Lives in Their Portfolios, “the simple reason why [asset managers] are so important today … is that they have so much capital at their disposal. In recent decades, the amount of surplus capital in the world has increased dramatically.” And, it might be added, the amount of surplus capital in the world will go on multiplying.

The figures are stupendous. For instance, leading asset manager Black Rock has over $9 trillion under management. Among its partners in crime, Vanguard boasts nearly $8 trillion, Blackstone around $1 trillion, and Macquarie (the former owner of Thames Water) $590 billion. This unimaginable wealth has been acquired at the same time as what in economics-speak is called  “fixed capital” investment – i.e. investment to expand businesses as opposed to simply making money – has fallen dramatically in Western countries, especially in the US.

The nature of capital, as opposed to mere money you might spend on buying groceries, is that it is on an eternal search for investment opportunities. What this means is that, with fewer outlets in things like new factories or offices, the rapidly growing mass of capital has inevitably migrated into making money from privatised assets, from speculation in bank ‘products’ or from pressuring corporations to buy back their shares rather than expand their businesses.

And this is not a process that is ever satiated. There is no golden mean of capital. As shown by the Bain Capital estimates, the amount of capital in the world is destined to increase exponentially. The one thing that could arrest this process is an economic downturn that is allowed to take its natural course but this has never actually happened since the Great Depression of the 1930s.

Feed me Seymour

Looked at another way, under this economic system, society is forced to accommodate the appetites of the monster of capital. But the more it is fed, the hungrier the monster gets.

According to Shutt, capital is now objectively “redundant”. The conditions which precipitated, and justified, the rise of the system in the 19^th century – innovations demanding “large concentrations of capital which could only be raised under a capitalist economic structure” – no longer exist. However, the compulsion to seek profit, buttressed by legal abetments like limited liability and a eulogisation of wealth creation, is, if anything, stronger than ever. Hence society seems destined to celebrate the very process that undermines its basic habitability without ever realising what the root problem is.

It follows that blaming private equity for the ills of society is like blaming clouds for rainfall. Capital will do what it is born to do. And doubtless it’s possible to interest venture capital groups in funding your nifty new business idea (though I would read the small print carefully first). But to label that process “pure genius” and misconstrue it for what capital-ism is today is just to knit yet more wool to pull over people’s eyes.

Capitalism versus the end of the world

“Our choice comes down to this,” George Monbiot concluded in the Guardian newspaper last month. “Do we stop life to allow capitalism to continue, or stop capitalism to allow life to continue?” Notwithstanding the strong suspicion that if a politician arose promising to stop capitalism he or she would be instantly denounced by the same newspaper as a far left anti-Semitic, misogynist demagogue, it’s an urgent question.

However, despite its urgency, I would suggest no satisfactory answer will be found until two further questions are also addressed. Firstly, what exactly is capitalism? Secondly, what role does capitalism – through its inevitable companion economic growth – play in material progress and poverty reduction?

Capital-ism involves the advancing of money to make more money, the generation (hopefully from the point of view of the capitalist) of a financial return that is invested again, barring some deductions for luxury consumption. That’s the semantic difference between capital and mere money. Thus, the system is inherently expansionary. This accumulation – capital advanced to make more money which is then invested again and so on ad infinitum – drives the process and is the beating heart of the capitalist system. John Maynard Keynes in his now famous 1930 essay The Economic Possibilities for our Grandchildren explained the transformations in the “standard of life” since the 16^th century as the result of a joint process – technological improvements allied to the accumulation of capital.

The accumulation of capital occurs in spite of other strongly held desires that contradict its purposes – it has an imperative and logic of its own, to which other social needs, such as the preservation of a liveable climate or the wish to pursue, in Keynes’ phrase, life’s “non-economic purposes”, are sacrificed. This is not to suggest that many activities related to this accumulative process simply occur without anyone wanting them – the slave trade and slavery, colonialism, the seizure of common lands from the European peasantry will were all consciously willed and carried out. Nor does it mean that everyone benefits from capitalist accumulation or such benefits are evenly spread, geographically or socially. But imperialism, subjection, slavery and exploitation have existed throughout history and the last 400 years have been qualitatively unique in terms of the development of technology and the exploitation of material resources. The reason, I would suggest, is not just due to the thirst for profit but the pressure of accumulated funds.

What this constant build-up of capital does – one contemporary economist has described it as a ‘wall of money’ – is to create an incessant pressure for new outlets for investment. Such outlets might take the form of the extraction of raw materials, privatisation or debt-fuelled financial instruments. It is the hope of enlightened defenders of the system that this glut of capital can be directed towards socially , beneficial, low carbon forms, such as renewable energy or retrofitting the economy. But, as Monbiot notes, this seems a forlorn hope.

It is true that in recent decades investment has increasingly taken ‘fictional’, non-physical forms – financial instruments or property speculation – but, besides the fact that this leaves the system increasing crisis-prone, capital cannot migrate entirely to making money from rents, interests and royalties. It cannot become completely immaterial.

Keynes – erroneously – believed that this accumulative process could, in essence, be called to a halt once it had achieved its social purposes – once the technological developments it spurred had enabled a comfortable life for everyone and we were free to “value ends over means”. He imagined that by 2030 everyone would be working 3 hour days and 15 hour weeks. Monbiot appears to slip into the same delusion. “Like coal,” he writes, “capitalism has brought many benefits. But, like coal, it now causes more harm than good. Just as we have found means of generating useful energy that are better and less damaging than coal, so we need to find means of generating human wellbeing that are better and less damaging than capitalism.”

However, no such voluntary euthanasia on the part of the capitalist system is going to happen. Accumulation and expansion will go on inexorably and will increase hugely in scope thanks to the growth in funds requiring investment which themselves will generate profit demanding a financial return.

Thus if we are serious about finding a “means of generating human wellbeing that are better and less damaging than capitalism”, this accumulative process must be consciously snuffed out. And to do so requires confronting the immensely wealthy and powerful interests that have developed around this accumulative process and wish, whatever else they wish, that it continues and they remain wealthy and powerful. Moreover, we can’t comfort ourselves with the notion that it is just the 0.1% versus the rest of us. Hundreds of millions of people who aren’t fabulously wealthy also have a stake in the system’s perpetuation through stock market invested pensions funds. The capitalist system, we can be certain, will not go quietly into the night. It won’t depart with its hands aloft because our most sensitive minds have thought of something better.

The paradox of economic growth

The second problem we face relates to the fact that attempts to challenge capitalism often seem to make it stronger. This hinges on the role of economic growth. “Capitalism collapses without growth” says Monbiot, “yet perpetual growth on a finite planet leads inexorably to environmental calamity.” This is inescapable but at the same time partial. Economic growth, through being transmuted into social spending, money transfers and public provision, has resulted in huge reductions in poverty since the middle of the 20^th century. This is not to defend capitalism itself as some miraculous engine of prosperity. It has dispossessed as many people as it lifted out of poverty. But given strong social movements and/or sympathetic governments economic growth can, through taxation, be directed towards socially beneficial ends. The most glaring example is China. The Chinese economy has quadrupled in size since 1978 and per capita income grew fivefold between 1990 and 2010. Coincidentally, poverty has been slashed and the country is thought to be responsible for more than three quarters of world poverty reduction. This has all happened in the context of chronic and lethal air pollution and a major contribution towards global warming.

You might regard China as, until recently, peculiarly benighted as regards the environmental catastrophe we are heading towards. But a similar dilemma afflicts far more enlightened countries. In 2009 Bolivian president Evo Morales said climate change was driven by a western, capitalist “culture of death”. His government contrasted ‘living well’ (vivir bien) with a capitalist insistence on ‘living better’ (vivir mejor) and, in 2012 through the ‘Law of Mother Earth’, became the first state in history to grant rights to nature.

But at the same time, Bolivia’s great strides in poverty reduction – the country is the poorest in South America – have been achieved through redistributing the proceeds from, primarily, gas and oil extraction. Morales nationalised the hyrdocarbons firm YPFB, hiking royalties and taxes and increasing revenues from gas to over $2 billion from a mere $332 million. Over the past 13 years the Bolivian economy has tripled in size and now boasts the highest growth rate in the region – 4.7 per cent.

This is the background to a tripling of the minimum wage, conditional cash transfers to poor families and the creation of a free health service aiming to bring coverage to the 70% of the population who don’t have any. Poverty has been cut in half and the middle class has grown by a million people.

This is far from a painless process, however. As one one sympathetic assessment of the Morales years concludes:

The result is that Bolivia, with the world’s seventh largest tropical forests, now suffers the highest rate of deforestation in South America. In 2015, the MAS government promulgated a law permitting hydrocarbons and mining companies to explore up to 20 million hectares, much of it in protected areas. Large-scale hydro-electric projects, now in the planning stages, would further the goal of turning Bolivia into a regional energy hub. Soy production has roughly doubled since Morales took office ten years ago.

However, it would be the height of arrogance to, from a safe distance, condemn the Morales government for making the wrong choices and maximising the proceeds from economic growth, given its constricted options. Not least because it bears an uncanny resemblance to the way European countries attacked poverty and transformed the life chances of millions of their citizens in the decades after the Second World War.

And that is the nub of the problem. There will, in all likelihood, be many more Chinas and Bolivias in the coming years. Unless zero or minimal economic growth can deliver the same poverty-reducing benefits as taxing high economic growth, the temptation will always be to go for the latter, despite the fatal consequences.

The only way this can happen, I would surmise, is by systematically reducing the cost of basic goods and services – such as housing – to something approaching zero, so that poverty is abolished from the opposite direction so to speak. The pressing need of the vast majority of people to earn a livelihood from selling the labour – the foundation of economic growth – can be ameliorated through a generous basic income which would sever the link between work and existence. However, that basic income would still need funded somehow.

There is not an ‘off the shelf’ answer to this question. But we can’t pretend that it doesn’t exist. Though nothing is painless, if we are to ‘stop capitalism to allow life to exist’ indulging it to cream off the proceeds for the benefit of the poor must cease to be the only practical option.

The blinkers of liberalism: why collaboration is not cause

“I don’t think it helps anyone to see the current imbroglio as simply a function of late capitalism in its most aggressive aspect,” wrote Will Self a couple of months ago in an essay about the success of big pharma in enlisting the cooperation of the psychiatric profession in its demonic bid to sell billions of anti-depressant pills around the world. “I’m afraid,” he went on, “I have to mouth the old lily-livered liberal shibboleth at this point and observe that, yes, we are all to blame.”

Pardon me, but I’m going to be unhelpful. I’m returning to Will Self’s article, not only because I've got OCD and will devote the next 28 posts to it (including his use of the phrase ‘late capitalism’ which really gets my goat) but because it illustrates a ubiquitous misconception in understanding how the problems of our society arise.

Self, who essentially defines himself as a liberal, makes a mistake emblematic of that world-view, in confusing collaboration and cause.

Broadly speaking, reactions to the flaws or problems produced by contemporary society that become impossible to ignore (the financial and economic crisis is a prime example), fall into three camps:

1. Conservative. The economic system, said the free market think tank, The Institute of Economic Affairs, at the dawn of the neo-liberal era in 1978, has no impulses of its own aside from the desires of the people that comprise it. Conservatives emphasise personal responsibility and believe that our economic system merely mirrors our own desires, so any malfunctioning or perverse outcome, is ultimately our own fault. The UK Conservative Defence minister, Philip Hammond blames the economic crisis on “consenting adults” who went on an unsustainable debt binge. Another English conservative, Tim Montgomerie, responds to calls for more regulation by asking ‘how do we put limits on ourselves?’ However, this diffusion of responsibility is only invoked when things go wrong. Success, by contrast, is attributed to the efforts of a talented few. “You have the courage to tell the masses what no politician told them,” wrote the post-war free market economist Ludwig Von Mises in a letter to Ayn Rand. “You are inferior and all the improvements in your conditions which you simply take for granted you owe to the efforts of men who are better than you.”

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2. Liberal. It is here that we first encounter the idea that corporations may have a share, even quite a large share, of responsibility for society’s ills. “If you aren't familiar with the fact that almost all drug trials are funded by those who stand to profit from their success,” says Self in his essay, “… well then you jolly well should be.” But corporations are not alone when it comes to apportioning responsibility. They have a willing accomplice – people. “Although it’s nice to reserve the blame for banks which made lending too easy,” asserts John Lanchester in Whoops!, a book about the credit crunch, “the great British public is just as much to blame.” The insatiability of wants and power relationships, say Robert and Edward Skidelsky in their book How much is enough?  combine to produce “an ethic of acquisitiveness, which dooms societies to continuous, objectless, wealth creation.”

3. Leftist. The problems are systemic. To blame individuals, be they consumers, men or bankers, for disastrous outcomes is just finger pointing and a way of distracting attention from what is actually happening. Employees and consumers, rationally following the paths set out for them by this economic system, will inevitably generate booms and busts and seemingly intractable social problems. As an example, consider how consumer borrowing leapt up in Britain after 2000 just as earnings growth slowed to a trickle. The cause of the financial crisis of 2007/8 was not “reckless banks” or irresponsible borrowers but too little money at the base of society, leading to the implosion of derivatives such as mortgage backed securities, and too much money at the summit, destined for speculation. “Few recognise the system as the problem,” says Marxian economist, Richard Wolff, “rather than this or that group reacting to the system’s demands and pressures.”  According to this systemic approach, consumerism is not a regrettable quirk of human nature, but the glue holding the system together, and a glue that has lost much of its adhesiveness.

Consuming ants

The criticism of this perspective is that it robs people of a sense of their own volition. “Even if consumer preferences can diverge from real needs, they cannot be entirely independent of those needs; they cannot be simply “instilled” in us by the “productive apparatus” or some other such monster,” say the Skidelskys in How much is enough?  “To assert this is to deny individuals all agency, to reduce them to ants or drones”

At a common sense level, the liberal perspective conforms to what we intuitively know. “It might seem as if it is the average citizen, you and I, who are the main problem,” says a writer for social ecologist magazine, New Compass. “Who else is driving polluting cars, buying plastic toys or eating food grown on the other side of the planet?"

We can blame advertising, but advertising cannot shape desires out of nothing, protest the Skidelskys. It cannot, they point out, persuade us to buy dog turd. Advertising has to have something to latch on to in the first place and that something is “intrinsic” human wants.

But the liberal perspective is, in my opinion, a gigantic red herring, a major stumbling block that needs to be overcome to understand the society in which we live. Of course, humans are to blame - our intrinsic desires make this economy function. But you can say the same of any social system; potential human desires are not just consumerist. Nazism rested on human desires, just as this neoliberal capitalist society does, just different desires – the desire to belong, to merge into a larger whole, not to think,  and to blame others for things that are not their fault (a facet of “human nature” which never went away and is returning with avengance). The question that needs answering is not why human nature is always so corruptible, so weak, so easily directed, but why certain “intrinsic” human desires are encouraged endlessly, in particular societies, but others are left to rot. In short, what drives this society, the one we inhabit and are so loath to seriously interrogate?

A cracked mirror

 Will Self embodies the liberal capacity to see and yet not see. In his Guardian essay, he refers approvingly of James Davies’ book, Cracked: Why Psychiatry does more harm than good. “The sections of his book,” he writes, “that deal in particular with the way big pharma has moved into markets outside the English-speaking world and effected a wholesale cultural change in their perception of sadness (rebranding it, if you will, as chemically treatable "depression"), simply in order to flog their dubious little blue pills, make for chilling reading.”

Yet, at the same time, Self insists, “we” are to blame, even though we find it hard to acknowledge this uncomfortable responsibility – we go to the doctor feeling awful and we acquiesce in whatever they suggest (in this case swallowing SSRIs) will make us feel better. To add weight to what Self is saying, consider the opinion of Dr Ramin Mojtabi, a professor in public health in the US. “It’s not only that physicians are prescribing more [anti-depressants], the population is demanding more,” he says. “Feelings of sadness, the stresses of daily life and relationship problems can all cause feelings of upset or sadness that may be passing and not last long. But Americans have become more and more willing to use medication to address them.” This is the perfect encapsulation of the liberal case; pharma companies may be pushing the anti-depressants on to us with machine-like eagerness but we are only too happy to oblige. In fact we are biting their hands off to get them.

On closer inspection, though, the liberal case does not add up. There would be no need for pharma companies to effect a cultural change in non-English speaking countries if the demand were already present. They have to first create the demand, effect the cultural change and then watch the profits roll in. Secondly, there is an obvious reason why anti-depressants are the current drugs de jour.  They are eminently suited to our neo-liberal, capitalist societies because they have a reputation (merited or no) for enabling people to go on functioning through mental illness. And to function, to hold down a job, is exactly what people must do. They can’t afford to take time off to be ill. In this way, anti-depressants are remarkably similar to the very popular flu “remedies” which ameliorate flu symptoms. But the only cure for flu is rest. The concept of rest now has unmistakable air of decadent forbiddenness.

But the cart before horse logic of liberalism is irresistible to some. “Americans’ appetite for cheap clothes is one of the strongest of the economic forces that led to a boom in Bangladesh,” says an article in the Wall Street Journal, referring obliquely to the building collapse in Dakar which killed 1,129 garment workers “with the resulting race to add manufacturing capacity,” the article continues, “setting the stage for a series of horrific accidents.” The problems are demand-led, in others words. Western consumers’ apparently insatiable demand for cheap designer clothes means that people on the other side of the world are paid peanuts and work in terribly unsafe, sweatshop conditions and are sometimes left buried under tons of rubble. Corporations are merely the middle-men that reflect this insatiability.

But this has it precisely backwards. Consumer demand in the West didn’t inspire corporations to relocate production in China, Bangladesh or Vietnam. The prospect of a massive hike in profits, based on dirt poor wages, did. The technical term is global labour arbitrage, defined by the neo-liberal Economist magazine as “taking advantage of lower wages abroad, especially in poor countries.” According to economist, Charles Whalen, “The prime motivation behind offshoring is the desire to reduce labor costs … a US-based factory worker hired for $21 an hour can be replaced by a Chinese factory worker who is paid 64 cents an hour [and Bangladesh is even cheaper] … The main reason offshoring is happening now is because it can.” (it should be pointed out, in passing, that the transfer of enormous profits back to the US, Europe and Japan, enabled by global labour arbitrage is a prime cause of the financialisation and speculation that lie at the roots of economic crisis).

 Fake plastic flowers

I am not denying for a second that many consumers in Britain and American are hooked on cheap designer clothes. Or that, in the words of George Monbiot, we have entered a state of “pathological consumption” that successfully hawks silver plated ice cream tub holders or talking Darth Vader piggy banks. Or that many people unhappily munch anti-depressants at their own behest. I am not reducing people to ants or drones. But consumerism, not matter how enthusiastically or mindlessly it is practised, is an outcome, not a cause. To try to understand the world without taking into account the seminal role of institutionally selfish entities called corporations, dedicated to maximizing profit and sales, growing and achieving, if possible, monopoly status, is not to understand it at all.

And it is this deficit of understanding that means there is something missing in liberalism, no matter how perceptive it is in other ways. The book mentioned above, How much is enough?, is an extremely interesting, historically nuanced, thought-provoking book about how rich societies have not actualized John Maynard Keynes’ prediction that they would slow down, and enable people to enjoy the good life, and not spend their days solely dedicated to producing and shopping and competing with others. It is co-written by renowned Keynesian economist, Robert Skidelsky. Yet it contains the following assertion: “Experience has taught us that material wants know no natural bounds, that they will expand without end unless we consciously restrain them. Capitalism rests precisely on this endless expansion of wants.” I can’t be the first to notice that this logically makes no sense. Wants will naturally multiply unless some outside agency representing wisdom or the good life (the state?) doesn’t suppress them. But capitalism exists to expand these want ad infinitum for its own benefit. So why should wants expand exponentially of their accord without capitalism? (and I mean capitalism, not the misleading pseudonym, “market economy”) What evidence is there that they will?

This is not to minimize the immense difficulty of changing this society, the fact that, in the words of one commentator, “capitalism has buried itself deep into our psyche by the consumerisation of our lives”. But the task is rendered impossible by misunderstanding the problem in the first place.

To misquote the anarchist Emma Goldman: “capitalism gets the human nature it deserves”.

In praise of idleness, part 3. Democracy and the question of time

In July a college lecturers’ union in Britain released a survey of so-called ‘NEETS’- young people, aged 16 to 24 who are not in employment, education or training. There are estimated to be 900,000 NEETS in the UK. One third of the 1,000-strong sample said they had suffered from depression, 37% said they rarely left their home and 39% were beset by stress. One jobless 23 year old told the BBC: “I rarely go out and feel so down about myself. I’ve tried so hard to find a job but I feel no-one wants me.”

According to David Stuckler, co-author of The Body Economic: Why Austerity Kills, Britain is “one of the clearest expressions of how austerity kills”. Suicides were falling before the recession, Stuckler relates in an interview. Then they spiked in 2008 and 2009 as unemployment shot up, only to fall again when jobless levels declined.

Unemployment, it is clear, is terrible for your mental health; provoking feelings of isolation, unwantedness and a corrosive sense of not contributing to society. But unemployment – and underemployment - is a perennial blight in virtually all advanced capitalist countries. With onset of the ‘Global Financial Crisis’, the blight of joblessness has become chronic, reaching an eye-watering rate of 27% in Spain and Greece.

Sinister consensus

So a consensus has formed, in Britain, as elsewhere, that sees joblessness as the enemy and employment as salvation. Trade unions in the UK want stable and rewarding jobs, the British Labour party now brands itself as “the party of work” while the ruling Conservative party, in a move of cynical callousness, justifies the withdrawal of state benefits from the disabled on the grounds of offering “tough love” to people stranded at home, doing nothing, in order to “help them into work”.

There is something inherently wrong, indeed sinister, with this myopic consensus, as I hope parts one and two made apparent. Yet it derives its potency from a pervasive and genuine fear, that of the destructive effects of non-activity. This fear becomes all-consuming so that it is immaterial what work is for or what it entails, only that it exists. Zero-hour contracts – where an employee does not know how many hours they will be contracted to work in a given week – are mushrooming in Britain, while close to 80% of new jobs pay below £7.95 an hour (the minimum wage rate is £6.19). The overwhelming need is to be wanted by an employer, to avoid the predations of unemployment, to not be excluded from mainstream society. This consensus is both conservative and desperate.

Alternatives to exhaustion

There are innumerable advantages to the “organised diminution of work”, that Bertrand Russell advocated in In Praise of Idleness. Genuine choices would arise if your life was not dominated by the need to serve the interests of another. More time to spend on caring, child-rearing, studying or artistic endeavours, for example. It is not hard to compile such a list. A healthier, more relaxed and more interesting society would result. Russell himself estimated that at least one percent of the population – if not distracted by the requirement to spend most of their useful hours on activities designated by an employer – would produce works of public importance and “since”, he argued, “they will not depend on these pursuits for their livelihood, their originality will be unhampered”. It is, I feel, partly to block the emergence of such original thinking, a bubbling and multi-pronged challenge to mainstream explanations in economics and politics, that the boot remains firmly planted on the neck, as far as working hours are concerned.

But there is one activity which is both enabled by a radical reduction in working hours and also has the potential to substitute for the cohesive side effects of paid employment. I am speaking of democratic self-management. The English economist, Harry Shutt, has said that “in the absence of productive work opportunities … potentially the human race could rediscover the opportunity to practise direct democracy somewhat in the manner of the ancient Athenians – but without their need to depend on slaves to do all the menial work.”

Time for democracy

There are many modern forms of direct democracy – participatory budgeting, worker self-directed enterprises, citizen assemblies, random selection. They are all based on the idea that ordinary citizens have the competence to run their own affairs and that an outsourcing of power to representatives is not necessary for good governance. But what they require to thrive is an abundance of time. Genuine democracy is not possible in a time-pressed, hurried society. Democracy, to work, has to be learnt by experience, by practising it.

A famous ancient Athenian, Aristotle, remarked that excellence was a habit, not an act. You become good at something, he said, by doing it repeatedly. Democracy, in its classical sense, is not a habit for people in modern societies. When it does appear, sporadically, its practices have to be learnt all over again and fitted in with all the other demands of life. Work, by contrast, is a habit and one we are loath to shake off. Management is a habit, careers are a habit, consumption is a habit. The modern capitalist economy has been described as a “gigantic school” doting on and encouraging some skills and allowing others to atrophy.

Contrasting the practices of Athenian democracy with modern notions of politics, the social ecologist Murray Bookchin, wrote: “The ‘political process’, to use a modern cliché, was not strictly institutional and administrative; it was intensely processual in the sense that politics was an inexhaustible, everyday ‘curriculum’ for intellectual, ethical and personal growth – paidea that fostered the ability of citizens to creatively participate in public affairs.”

The promise of idleness

Some people may find the word “curriculum” vaguely threatening but I think it is very apt. If work is to fade in significance, as it is doing and will surely continue to do, then its associated blessings – a sense of belonging, validation and of making a contribution to society – will have to be replaced by something. The fear of a void of non-activity needs to be assuaged. We need a society attuned to post-scarcity, in contrast to this one which is in flagrant denial. John Maynard Keynes, writing in 1930, said the abiding problem for people once the economic problem had been solved, would be what to do with their freedom, how exactly to occupy their abundant leisure. Keynes, who was irredeemably elitist, could not answer his own question.

We, however, can. Democratic self-management, in my opinion, is both enabled by a post-scarcity society and vital to such a future society’s inner strength. The UK government, backed by the opposition Labour party, wants to create a “nation of entrepreneurs”. A genuine Left movement should have the opposite endeavour, to create a “nation of self-managers”, even if the phrase sounds horribly clunky. Once that commitment is made, through forms such as participating budgeting, citizen assemblies, participatory commissioning or worker co-ops, then the process, as Bookchin recognised, becomes as important as the end point. Skills such as public speaking, formulating positions, dissensus, disagreeing with the opinions of others whilst respecting them, need to be learnt and, as objectively as possible, taught. What passes for the Left nowadays seems only to know what it is against and cannot encapsulate what it is for. Economic stagnation and austerity has only further exposed this deficiency. The promise of idleness should be recognised as an opportunity to fill the vacuum.

Re-post: How capitalism has become too successful for its own good

Given that the Guardian newspaper has belatedly cottoned on to the idea that stagnating wages, rather than reckless banks, are the ultimate cause of our never- ending economic troubles (and started quoting David Schweickart), I thought I'd repost an article from January 2012.

I think it encapsulates an integral part of the impasse we are now facing. Good that other people are now catching up, albeit two years late ....

"There are many kinds of capitalism. Free market capitalism, which easily morphs into the dominance of corporations. Or social market capitalism, in which there is a larger role for the state and workers are represented on company boards. There is even state capitalism, in which everybody works for state enterprises, which pass themselves off as socialist, but exploit people just the same.

But now perhaps there are only two kinds of capitalism which count. Successful capitalism and capitalism which is too successful for its own good. The consequences of each are different but equally horrible in their own way.

Back in the roaring nineties successful capitalism was thought to be the only game in town. In Britain, Tony Blair’s New Labour exemplified the social democratic acceptance of capitalism. The “market” would hum along unmolested in the background and the government would skim off the tax revenue. Labour spokespeople waxed lyrical about the wealth-creating genius of the private sector and spent the proceeds on tax credits for the working poor, the National Health Service – health spending went up by 30 per cent – and relieving child poverty. It was, in essence, a deal.

But, said Left and green critics of capitalism, this was a myopic accommodation, trading short-term advantages for long-term disaster. Growth – the social ecologist Murray Bookchin said expecting capitalism not to grow was like expecting a lion to become vegetarian – might support enlarged public spending but would eventually make the planet unliveable.

In 2007, a British professor of engineering worked out that, based on an economy growing at three per cent a year, we would consume resources equivalent to all those we have consumed since humanity began as a species by 2040. In 33 years. I think the word you are grasping for is unsustainable.

As the writer Mark Fisher has said, successful capitalism was based on a fantasy: “A presupposition that resources are infinite, that the earth itself is merely a husk which capital can at a certain point slough off like a used skin, and that any problem can be solved by the market”.

To believe in successful capitalism you had to stick your index fingers in your ears and sing “la, la, la” very loudly. But both celebrators and critics agreed that capitalism worked.

Oh shit

But just as capitalism was swaggering around the globe, assured in its invincibility, disaster struck.

The global economic meltdown happened, the worst economic contraction since the Great Depression. $14.5 trillion of value was wiped from global companies.

The former masters of the universe, who meet at Davos, now speak of a “dystopian future” destroying the gains of globalization.“For the first time in generations, many people no longer believe that their children will grow up to enjoy a higher standard of living than theirs,” they warn.

Something had gone badly wrong.

The conventional explanation was that investment banks were too reckless, financial speculation overreached itself and the economy became dangerously skewed. But, in truth, capitalism had become too successful for its own good.

In the US, where the crisis was hatched, wages had stagnated since the mid-70s, while productivity – worker ouput that the employer benefits from – raced ahead. The result was not only spiralling inequality (the US was actually more equal than many western European countries in early ‘70s) and burgeoning corporate profits, but an orgy of personal borrowing so that consumption could be maintained despite the fact that earnings weren’t going up.

A cursory look at recent US economic history shows a series of bubbles. A massive stock market crash struck in 2000. The price of shares is dependent on the expectation of future corporate profits so crashes occur when there is a realisation of total over-optimism about profits. The crash was stopped from turning into a recession by reducing interest rates to below the rate of inflation for three years. Borrowing doubled – the house price and house building bubble ensued – but when that burst so spectacularly in 2007 there were no more bubbles left. Reality – the reality of stagnating earnings – could be evaded no longer.

A dusty old critique of capitalism suddenly became remarkably persuasive. That held that capitalism was inherently self-destructive. Each employer tries to keep wages, which are just another cost, as low as possible. But if they are too successful in that endeavour, the same workers with the low wages won’t be able to play their other vital role in capitalism, that of consumers of goods. Economic health depends upon the employer impulse to keep wages down being frustrated by another countervailing power. Capitalism can be too successful for its own good.

Flatliners

Worryingly for economic health, the US capacity for stagnating earnings has proved a very effective export. In the UK, earnings grew strongly throughout the ’80s and ‘90s but have flat-lined since 2003, four years before the onset of the ‘great recession’. Worker productivity, meanwhile, has kept on steaming ahead. Post-downturn wages rises in Britain are currently half the rate of inflation. Average wages are forecast to be no higher in 2015 than they were in 2001. France and Germany have followed a similar trajectory. Researchers describe an acute “decoupling”of earnings from growth.

The UK Resolution Foundation, which has produced a series of reports on living standards, worries that a return to growth won’t necessarily mean rising wages. Stagnating earnings also ensure burgeoning inequality (yes, it can get worse).

But there is another larger, elephant in the room, problem. The US experience demonstrates that you can’t, to use the economists’ elegant term, “decouple” growth from earnings forever, without eventually destroying growth as well (in industrialised, western countries at least, the experience of developing, exporting countries like India seems to be different). Earnings are purchasing power, in economics-speak ‘demand’, and growth cannot survive indefinitely without purchasing power.

The economic vista in front of us is that of a tsunami of bank debt inexorably making its way to shore. At the same time, earnings power which could lift countries out of recession, is exhausted. The level of personal borrowing is huge and, as we have seen, earnings stagnated or declined even before the recession.

That last factor cannot be wished away, or undone by governments even if they were inclined to. The reasons for stagnating earnings are analysed by a Resolution Foundation report. Technological change has obviated the need for low-skilled workers, firms have given precedence to share dividends over the pay of ordinary workers, outsourcing has increased, and the bargaining position of workers has been diluted. None of these factors will be reversed given current trends and the balance of power politically and economically.

The globe stops warming

It doesn’t have to be this way, you cry. And you’d be right. The Resolution Foundation report, Painful Separation, finds that in some European countries, namely Finland, Sweden and Denmark, there has been only mild divergence between economic growth and median pay. It is no accident that in Scandinavian countries, they say, “Recession? What recession?”

They haven’t killed the goose that lays the golden egg. They, if it isn’t stretching the metaphor too far, nurture their goose. They have effective countervailing powers like strong trade unions. They haven’t left successful capitalism behind. But there is a catch.

Amid all the deleterious social effects of the great recession – the homelessness, the riots, the suicides, the divorces – there was one undoubtedly progressive, though unintended, result. The sudden drop in economic activity achieved something international protocols and protesters invading airport runways had failed to. The rate of global warming was arrested. For only the fourth time in 50 years, carbon emissions fell.

It is clear that the kind of capitalism that Anglo-Saxon societies have been living through for the past 30 years is an ineffective form of capitalism. Growth rates have been unimpressive, financial crises have become more frequent and earnings have been held down. Too much power has been given to or taken by corporations and the rich. Capitalism has become too successful for its own good.

The South Korean economist, Ha-Joon Chang, in his book 23 Things They Don’t Tell You About Capitalism, argues convincingly that what we call “free market economics” has been shown to fail spectacularly. He puts the case for more assertive government control, different forms of ownership, the outlawing of financial products like derivatives, and the rebalancing of the economy away from finance and into the long-term production of manufactured goods. Capitalism can work if the harnesses are placed back on and it is guided in the public interest.

In other words, a return to successful capitalism, a capitalism that is in rude health. Chang eulogises the “miraculous” performance of South Korea in the ‘80s and ‘90s, which grew at an average of six per cent year. China today, he says, illustrates what can be done if free market prescriptions aren’t followed.

The problem isn’t the economic reasoning. The problem is that the world, ecologically, cannot cope with the replication of the Chinese or South Korean economic success stories. If earnings in the US had continued to track GDP growth, as they had done from 1945 to 1973, the average household would have earned $80,000 a year, not $50,000 as they in fact do. Even accounting for the spike in borrowing, consumption has been suppressed in US as capitalism has become too successful for its own good. It is revealing that Chang mentions the word “environment” just once in his entire book.

Chang, like John Maynard Keynes seventy years ago, wants to save capitalism from itself. 

Post-capitalism

But the truth is that neither successful capitalism, nor capitalism that is too successful for its own good, presents a remotely desirable prospect.

The latter leads, in Ann Pettifor’s words, to “dramatically higher levels of unemployment, the loss of savings, home foreclosures, bankruptcies, emigration, suicides, divorce, social unrest and political upheaval – to name but a few of the consequences.”  The former provides a swifter route to the dystopian future of global warming.

Awareness of the awful consequences of both alternatives leads to the realisation that the only rational option left is some form of post-capitalism. It doesn’t mean, in the caricature of one British government minister, everyone running around in Maoist boiler suits, but it does entail an end to the growth fetish and ensuring a secure standard of living for everyone. What “post-capitalism” is like in detail is what we should be concentrating on now.