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.

What would a Labour government mean?

There have now been two UK General Election opinion polls which place the Labour party at 40%, with the Conservatives just ahead. Admittedly these are by polling companies which weight more favourably to Labour than others do. It’s quite conceivable that when the election actually occurs in two days’ time, the Conservatives will emerge with a healthy majority. But it’s also possible that by some strange alchemy what was unthinkable a month ago actually comes to pass and the greatest upset in British political history happens.

So it’s worth examining what would be good about an unashamedly social democratic Labour government, where it would likely fail and why, when all is said and done, the mere whiff of a Corbyn-led Labour government is a once in a generation (or maybe once in a lifetime) opportunity that is worth straining every tendon in your body to realise.

What a Labour government would achieve

For more than forty years a seemingly unimpeachable neoliberal dogma has held sway in most corners of the world. That dogma holds that cutting tax rates for corporations and the wealthy will spur investment and economic growth. I call it a dogma for good reason, in that it’s utterly impervious to evidence. Economic growth and rates of investment were far higher the benighted social democratic decades of the 1960s and ‘70s. But the incessant march to cut corporate tax rates has blindly continued. According to the US-based Tax Foundation the worldwide average corporate tax rate declined from 30% in 2003 to 22.5% last year.

There is a flip side to this dogma. Because cutting high end tax rates strangles government revenue and balloons public debt (in the 1980s in America the arch conservative Ronald Reagan doubled public debt), it is usually accompanied by its unloved sibling – austerity. Austerity began in the 1990s under Bill Clinton in the US and was aggressively promoted by international organisations like the OECD and IMF. It was temporarily suspended during the financialised boom years of the early 2000s but returned with avengeance when that all turned to dust after 2008. Austerity was supposed to be a short, sharp shock in Britain but has now become ensconced as a permanent feature of the political landscape.

A Labour government would, for the first time in decades in the West, diverge from this political straitjacket. It would raise corporate tax rates to 26% and hike capital gains tax. It would increase public investment, fund the NHS properly and ditch austerity.

A Corbyn-led Labour government would also abandon the austerity playbook of disciplining those at the bottom of the pile – in the hope that such imposed realism trickles up through the rest of society. A Labour government is committed to ending the work capability assessment and the confetti spraying of benefit sanctions. With one in three workers in Britain suffering precarious employment conditions, it’s possible that a different attitude would take hold – one that doesn’t see workers as mere labour costs, to be treated and disposed of as quarterly profit forecasts dictate.

Where a Labour government might fail

There is however a Keynesian backdrop to Labour’s plans which, in truth, rings hollow. The rise in public investment, funnelled through a National Investment Bank, would substitute for moribund private investment which is at a 50 year low. This kind of public investment would create profit opportunities and lead to increased economic growth, so the thinking goes. Hence tax increases on the wealthy are not simply about fairness and redistribution but would have beneficial and lasting effects on the whole of society.  This is the entrepreneurial state in full bloom.

But if the lure of profit is what drives private investment can the state act as a surrogate when profit-making opportunities are not immediately apparent? Corporate investment is a much larger part of the economy than public investment, and if corporate investment refuses to budge, the state cannot take its place unless the government is willing to countenance a much larger role in the economy. And I don’t see that on Corbyn’s horizon. Hence the question of why private investment is so low needs to be asked.

And timing is crucial. It is nine years since the last recession and many economists warn that another is imminent. According to one non-mainstream economist, Steve Keen, ‘a capitalist economy can no better avoid another financial crisis than a dog can avoid picking up fleas’. If another crash hits, the centrepiece of Labour’s plans – the National Investment Bank – may become swiftly redundant as money is diverted into unemployment benefits and other ‘automatic stabilisers’. Though I would much rather that Corbyn be at the helm in the event of a downturn than the usual suspects. It’s possible, then, that emergency action may be aimed at helping ordinary people, not just banks and major shareholders.

However, despite these caveats, I still think that …

A Labour government now could be a major historical turning point

It’s now close to a decade since the financial crisis – the biggest economic downturn since the Great Depression of the ‘30s – hit. There have been two kinds of elitist political reactions since. One has been to oversee massive intervention in the economy in order to bail out those responsible and protect their financial assets through 12 trillion dollars’ worth of money creation. A race to the bottom has ensued to make sure the ‘wealth creators’ don’t feel scorned. For the vast majority, by contrast, this political dispensation has ordained the pain of austerity and laissez-faire capitalism. The other reaction has been to recognise the huge undercurrent of discontent but displace the wrath onto immigrants, other countries and ‘scroungers’.

Should Corbyn deny the Conservatives a majority on June the 8^th, it will be evidence that a palpably different path to those currently on offer has a reservoir of support. The mere fact that 35 or 40% of the public will have knowingly decided they want something different to the prescriptions decreed as inevitable by the mainstream media and governments across the world is something that cannot be erased. 

Corbyn may fail miserably. Or his government may turn out to be a crushing disappointment. Greece happened after all. Few left-wing governments have been successes. But now, of all times, we need to see for ourselves. And once something as disruptive as a Corbyn surge happens to a schlerotic political system such as this one, no matter what transpires subsequently, things never return entirely to the status quo. What happens on Thursday will have ramifications far beyond these shores.

Vote Labour.

The deformities of 21st century capitalism

In part one, I noted the strange anomaly that an ever more munificent corporate tax regime has resulted more and more frugal rates of investment by the private sector. Waving farewell to the relative high points of the 1960s and ‘70s, corporations have chosen to keep hold of a larger and larger proportion of their profits. Governments around the world have played the role of useful idiot, plying multinationals with multiple tax cuts, while pretending not to notice that the money given away almost never goes into production.

Especially in developed countries, says the United Nations Conference on Trade and Development (UNCTAD), corporations are now mainly using profits to pay out dividends or buy back their own shares, rather than investing in new plants or equipment. Or they are simply banking the profits, often in zero percent tax havens. It is estimated that corporations are sitting on $700 trillion worldwide.

This graph, from Chapter 5 of UNCTAD’s 2016 Trade & Development Report, illustrates just how extreme the fall in investment in the major economies has been over the last three decades:

The crucial concept here is the decline in ‘fixed capital formation’ – investment in tangible things like equipment, factories or new products. So-called ‘investment’ in financial instruments – just betting on a rise in the value of these assets – has grown exponentially.

In a remotely rational world, this outcome might have prompted a bit of a rethink on the part of governments. But, in keeping with the era of alternative facts, it has, in fact, inspired the realisation that these efforts to lighten the burden on corporate-land were, in retrospect, paltry and what is called for is a far more muscular approach to taxing cutting. The ‘love fest’ embodied by Donald Trump and Theresa May is leading the charge for a more reasonable levy on the world’s richest people. Where this will end is anyone’s guess. Probably in us sub-humans paying for the privilege of being exploited, except, of course, we’re doing that already.

What is eminently predictable is that if Britain and America set the pace by radically cutting rates of corporate taxation, other countries will feel obliged to follow suit for fear of appearing unattractive to roaming corporations. Ireland, with its corporate tax rate of 12.5%, may well be a harbinger of everybody’s future. Though Ireland will doubtless want to revise that rate downwards in an effort to retain its competitive advantage.

But for those of us keen on keeping our reality principle intact, there is another kind of realisation. That the mantra of austerity, of no money left, of ‘expansionary fiscal contraction’, is nothing more than an excuse for unnecessary suffering. There is plenty of money left, it’s just in the wrong hands, and, most importantly, is not being used. The Tax Justice Network estimates that there is up to $32 trillion lying idle in tax havens, equivalent to 10 to 15% of global wealth. US corporations alone – led by the likes of Google, Apple and Microsoft – have $2.1 trillion stockpiled overseas.

Interestingly, there is a law in America that penalises firms found to be hoarding cash. They have to pay 20% above the normal corporate tax rate. But since 1986, multinational companies have been exempt from this restriction. They can avoid all taxes on profit paid to affiliates, known as ‘passive foreign investment companies’, with no conditions on its (lack of) use. The result has been multi-trillion dollar cash mountain, untouched by the American government and not used for any productive investment.

Donald Trump is planning a ‘repatriation holiday’ for these multinationals – a discount tax rate of 10% if they bring it all back home. The narrative – as ever with Trump – is that this will create jobs. But the last time it was tried – in 2004 – it actually eliminated nearly 21,000 jobs, despite its proponents claiming it would create 660,000. The money was repatriated but was mainly used for mergers and acquisitions, the perfect rationale for streamlining workforces.

The alternative to Trump’s plan is obvious. Reinstate the pre-1986 penalty and properly tax the trillions of dollars siphoned overseas and doing precisely nothing. Apple alone has over $200 billion. The money could be used for …  just to pluck a few ideas out of the air, creating a single payer health care system, rebuilding infrastructure or instituting a basic income.

Other countries could follow the American lead, triggering a healthy race to the top, rather than the bottom, which is whether global tax competition has led us over the past 40 years. The adoption of such a policy would also have the attractive side effect of stealing the nationalist right’s thunder. Trump is, aside from the misogyny and immigration bans, relentlessly focusing on creating jobs and cajoling corporations into not moving to China. Apart from pointing out the glaring flaws in his plans (see above), the answer cannot be a centrist blank.

The Investment Dilemma

But this policy is, at best, half a solution – because it does not address why private sector investment is so feeble in the first place. If corporations could smell profit on the horizon, they wouldn’t need any encouragement to invest. They wouldn’t need the meaningless inducements of tax cuts or a regulatory cull.

We are, as some economists have noted, in the middle of depression. Global GDP rates are a pale shadow of what they were pre-2008, interest rates remain at rock bottom, companies shun investment and hoard money and global trade is running at less than a quarter of its pre-crisis rate. None of the 20 largest shipping container companies in the world are forecasting a profit.

An economy in such a parlous state clearly has effects. One of the most apparent is that businesses become obsessed with cost-cutting and reducing their overheads. They look to shore up their profit margins, rather than expand production. Part-time, zero hours and other flexible contracts have mushroomed in this environment. Good, stable jobs and adequate pensions rapidly become a memory of the capitalist golden age. Economic insecurity consciously becomes the order of the day.

There are also dire geo-political consequences. The word antisemitism dates back to 1879, not coincidentally in the midst of the long depression of the late 19^th century. The Great Depression of the 1930s ushered in Nazism and consolidated totalitarian rule in the Soviet Union. In our time, Trump is threatening trade war with China, which could easily escalate into actual war. Humanity, it was nice knowing you.

So to say that ending the capitalist depression is important is the understatement of the 21^st century. But, ignoring the legions of apologists for the system, there is no consensus as to the cause and therefore the way out.

The 21^st Century Depression

The most moderate of the critics – in the sense that they often (but not universally) believe that capitalism can be successfully reformed in the public interest – are the Left Keynesians. This is where you’ll find left-wing politicians like Jeremy Corbyn and Bernie Sanders.

Left Keynesians hone in on capitalism’s effective demand problem. Through perpetual competition, businesses are compelled to clamp down on costs, including wages – a process eased by the vanquishing of organised labour across the Western world in the 1980s and ‘90s. But, of course, workers, in their other incarnation, are also consumers.  So this is akin to cutting off your nose to spite your face. In economic terms, the gap between supply and demand grows dangerously wide. According to a report last summer, the real incomes of around 2/3rds of households in 25 advanced economies were flat or fell between 2005 and 2014.

“The roof might cave in,” American thinker David Schweickart wrote presciently in 2002. “A deep and enduring global depression is a real possibility.”

The obverse is also true. Well paying, stable jobs and pensions that allow consumption not just subsistence living to happen, ensure the equilibrium of the system.

But the difficulty in accepting waning demand as the ultimate cause of global depression is that consumerism – the motor of the economy in industrialised countries for many decades – has not really abated. Still, nine years after the 2008 crash and a ‘lost decade’ of wage (non) growth, consumer spending is the dominant force behind UK economic growth, responsible for 70% of economic activity. The endurance of consumer spending has been called ‘privatised Keynesianism’.

What is true is that this consumerism – founded on personal borrowing – is much more precarious than in the past. A rise in interest rates, as happened in the US in 2007, or a blip in unemployment could cause the roof to cave in once again. But ebbing demand is not, in itself, the problem. You could safely argue that demand would be stronger had wage growth kept pace with previous decades. But in no sense has consumer demand collapsed.

The other solution often proposed by Left Keynesians is that public investment should substitute for moribund private investment. In the UK, Corbyn is proposing £500 billion government spending over 10 years through a National Investment Bank. Former Greek finance minister Yanis Varoufakis wants a revitalised European Investment Bank to spearhead economic recovery and an end to austerity.

The argument is that when, in Keynes’ words, the ‘animal spirits’ of the private sector are depressed, government should fill the gap. In any case, as interest rates are so low, government borrowing is begging to happen and, most importantly, will ultimately pay for itself through higher economic growth and increased tax receipts.

The flaw is that no convincing reason is given as to why increased public investment will stimulate a revival of private investment. Japan, the world’s third largest economy, has stubbornly resisted the siren song of austerity and invested hugely in infrastructure – planning, in 2013, to outlay over $2 trillion over ten years, with the explicit aim of spurring growth. Yet Japan has not emerged from nearly three decades of anaemic economic performance and its economy actually shrank in the last quarter of 2015.

Interestingly, Japan illustrates how a country can combine huge private and public debt and masses of unused corporate profits. “Japan’s corporate savings glut is unique in scale,” says Martin Wolf of the FT. In common with their counterparts in other countries, Japanese corporations are making high profits and not investing. The country also has the highest debt levels in the world.

So, in order to understand why private investment refuses to budge in response to financial inducement, government investment or Trump-style cajoling, I believe you have to look elsewhere – into the realms of anti-capitalist economics:

The Marxist Dissidents

Karl Marx called the tendency of the rate of profit to fall “the most fundamental law of capitalism’. According to this theory, all profit derives from human labour but as mechanization inevitably spreads through the economy, replacing workers with machines, the overall rate of profit declines. Various counter-tendencies – such as paying workers more, finding new markets or using dirt cheap labour – continually operate and can for a long time eclipse the tendency of profit to fall. But, in the end, this law will reassert itself.

The relevance for my argument is that the decline in the rate of profit first makes itself felt through a slump in investment.  Expectation of profit is the motivation for all private sector investment, and if this expectation is dampened or vanishes, investment won’t happen, or will happen on a much smaller scale. A decline in investment is a sign that a recession or depression is impending.

There is disagreement among Marxists of this kind as to when the decline in the rate of profit started to kick in. Some, such as Andrew Kliman, trace it back to the first recession of the post-war period in 1973. Others, such as Michael Roberts, claim it was postponed until 1997. But all agree it is a fact of life now.

One way of temporarily offsetting the decline in the rate of profit is financial speculation, or a rise in ‘fictitious capital’, as Marx called it. “If the capitalists cannot make enough profit producing commodities, they will try making money betting on the stock exchange or buying various other forms of financial instruments,” says Roberts.

It is a conviction of Marxists of this ilk that capitalism can only be restored to health – rates of investment will rise to support a growing economy – if there is a mass destruction of ‘capital value’.  This means a spiral of bankruptcies and a huge rise in unemployment. The crash of 2008 didn’t involve such destruction; it was arrested and bailed-out. Andrew Kliman thinks we are thus doomed to experience a state of ‘not quite recession’. Another Marxian economist – Roberts – says we are in the midst of an ‘economic winter’, awaiting another crash which will finish the job of 2008.

Under this variant of Marxism (most Marxists reside in the Left Keynesian camp), there is no final apocalypse, no final and irrevocable crisis. The decline of profit is cyclical – if is allowed to play out, levels of profit are restored and the whole process (or ‘crap’ in Marx’s description) can begin afresh. However, given the geo-political events that would be triggered by another crash of capitalism, and one much deeper than 2008, one can assume that the apocalypse will be general, not economic, involving world war and mass physical, human destruction. Kliman thinks that the warlordism afflicting parts of Africa and Asia is likely to become the norm if capitalism persists. The only way to avoid such a scenario is to transcend a profit-driven economy.

However, there are other post-capitalist thinkers who don’t regard capitalism’s travails as cyclical. By contrast, they think its troubles stem from having reached the limits of its technological capacity. And having over-stayed its welcome, the defects of capitalism are now grossly outweighing its benefits.

The Capital Glut

Capitalism epitomises a strange combination of abundance and scarcity. Corporations hoard money, landowners and developers hoard land. But there is also, says economist Harry Shutt, an over-abundance of capital at the summit of society, perpetually seeking financial returns.

This ‘wall of money’ does not merely comprise the profits of corporations. It is also made up of pension funds (a vast number of occupational pensions have been invested on the stock market since the 1980s), insurance companies and other ‘investment’ firms seeking returns for their clients.

And it is in the nature of capital-ism, money used as capital, that the profit made is immediately recycled as new capital seeking fresh returns. “The inevitable consequence of maintaining a high return on the capital stock as a whole,” writes Shutt, “is that yet more investible funds will be generated for which outlets must be found.”

Others, such as the geographer David Harvey, have noted the same expansive logic. “To keep to a satisfactory growth rate right now would mean finding profitable opportunities for an extra $2 trillion compared to the ‘mere’ $6 billion that was needed in 1970,” he writes in Seventeen Contradictions and the End of Capitalism. “By the time 2030 rolls around, when estimates suggest the global economy should be worth more than $96 trillion, profitable investment opportunities of close to $3 trillion will be needed.”

But, to my knowledge, Shutt is unique in adding another dimension. The pressure to find new investment opportunities to satisfy the perpetually expanding horde of capital has been intensified by a steady decline, since the 1970s, in outlets for fixed investment – investment in physical things such as plants or equipment. Technological change means that capital-intensive industries are becoming rarer (as are labour-intensive factories but that is another story).

Last year’s UNCTAD report hinted at this process (see graph above).  In the leading developed economies (France, the USA, UK, Japan and Germany), the report reveals, fixed capital investment rates fell from over 20% GDP in 1990 to ‘historically low levels’ of less than 16 per cent in 2015.

In 2016, Bank of England Governor, Mark Carney, lamented ‘more savings chasing fewer investment opportunities’ – an acknowledgement that there is now ‘too much capital for capitalism to function’.

This pincer movement of declining fixed investment opportunities and an ever-growing mass of money clamouring to be used, means an incessant pressure for financial deregulation and privatisation. This money becomes, in Marx’s description, ‘fictitious capital’. The original rationale for privatisation – loss making state industries requiring the bracing discipline of private investment – has been quietly abandoned.  Profit-making state enterprises – particularly profit-making state enterprises – are now considered the most succulent fruit, as a means of supplying safe outlets for private investment.  In the language of international government bodies like the IMF, the OECD and the Bank of International Settlements, deregulation and privatisation are urgent ‘structural reforms.’

Privatised utilities are one essential source for private investment. Prices and investment strategies, such as London’s ‘Super Sewer’- are now set at a level guaranteeing a high return for private investors. Over-investment is mandatory and set, in Shutt’s words, “on the basis of a hypothetical market rate which effectively guarantees a stream of profit on whatever investment is allowed”.

“For decades,” says one Guardian economics commentator, “they [savers] have bullied governments to release assets for sale that can then be leased back at high returns. In the UK, this is why we have privatised utilities and a swath of other safe, previously state-owned, assets in private hands.”

Opening up public, taxpayer funded assets, such as the NHS, to private sector investment – whether at home or from countries like the US, is now an integral component of government policy. This wall of capital at the summit of society is the main reason why neoliberalism did not die in 2008, despite disparate predictions of its imminent demise.

So under this understanding of the present state of capitalism, its travails are not cyclical. Mass destruction of capital value will naturally abate the pressure on public assets for a while, but the intractable problems of technological advancement, which does not demand huge capital investment as it did in the past, will reassert themselves. Capitalism, as a system, has outlived its usefulness. Its deformities are now front and centre.