The If Only Theory of Contemporary Capitalism

 

According to the International Energy Agency (IEA), the closure of the Strait of Hormuz has precipitated “the largest oil supply disruption in history”, eclipsing the oil shocks of the 1970s in severity.

We are like the characters in the film On the Beach (about Australians waiting for the radiation from a nuclear war to reach them), biding our time before the effects seep through. Clearly, not only industries that directly consume oil will be affected. As fertilizers rely on natural gas for their production, decimated crop yields and ensuing food shortages – in addition to flight cancellations and severe inflation – will become the norm.

Bankers JP Morgan predict global oil inventories will hit “Operation Floor” – when oil production stops functioning – in September.

Already faced with 1970s-style stagflation (weak GDP growth and inflation), economies will soon have to deal with slumpflation (falling growth and inflation) says economist Michael Roberts.

This will happen regardless of whether there is a “final agreement” with Iran.

But doom-laden concentration on the inevitable effects of war clouds our judgement. It leads to the feeling that if only these random geopolitical shocks didn’t happen, everything would be fine.

But maybe, rather than being the root cause of crisis, a ‘shock’ like the closure of the Strait of Hormuz is merely exposing fault-lines that were already there.

And maybe there’s a mutually reinforcing dynamic at work. In that the weakness of the economic system generates geopolitical responses which have the effect of further enervating the economy.

Looking again at the oil shock of October 1973 – up until the halting of shipping in the Strait of Hormuz, the worst disruption of the global oil industry in history according to the IEA – is instructive. This older shock involved an oil embargo on countries like the US and UK and a fourfold increase in the price of oil.

Unquestionably this ‘triggered’ a financial crisis and a recession in 1974-75, the first year-on-year fall in output in the West since the Second World War.

But if the problem was merely external (a large increase in the price of oil) once it abated, things should have returned to ‘normal’ i.e. steadily increasing growth and prosperity. But that’s not what happened.

According to historian David Gibbs, the crisis resulted decades’ long flat productivity growth in the US and impaired economic performance in most of the rest of the world

“If you look at long-term rates of GDP,” he says, “it was quite high up until 1973 and in 1973 you see a big drop. And rates of economic performance have never fully recovered from the earlier period.”

It was “a historic break point”.

The same illusion of the primacy of the external cause can be seen in attitudes towards the Global Financial Crisis of 2008. The crisis was caused, so goes the official story, by reckless bank lending leading to a seizing up of credit that the rest of the economy relies on. Now those causes no longer apply, businesses can get credit and the big banks, largely thanks to huge doses of Quantitative Easing, are no longer insolvent.

But if you look at UK economic growth in the pre- and post-crisis period, it is clearly debilitated, less than half as strong. In the 18 years since the 2008 crisis, the economy has grown by 22% compared to 53% growth in the 18 years before it.

Why should this be? Why, once the causes of the crisis are dealt with, should the crisis linger on, not in full-on crisis mode but in enfeebled performance?

Possibly because there was far more to the crisis than revealed by its surface ‘causes’.

To take medical analogy, if a person survives a heart attack but goes on to suffer worsening heart failure – not being able to walk far with running out of breath – the underlying problem should obviously be put down to heart disease, not sought in the particular circumstances that brought on the original heart attack.

But we do precisely this with the economy, continually, as economist Harry Shutt once said, mistaking symptoms for causes.

The former head of Goldman Sachs says he can “smell” a new financial crisis in the offing. This won’t happen, 2008-style, through the banks but in the burgeoning private credit industry where companies, such as private equity firms, lend to other companies.

If it does erupt, what will provoke this crisis will be a rise in interest rates to try and tamp down the inflation caused by the closure of the Strait of Hormuz.

According to chief economist of the World Bank, “the war is hitting the global economy in cumulative waves: first through higher energy prices, then higher food prices, and finally, higher inflation, which will push up interest rates and make debt even more expensive.”

But the external cause won’t explain the crisis. To do that we first need to explain why the global economy in the 21^st century is so much more dependent on trade (i.e. globalised) than it was 50 years ago. Trade now represents about 60% of world GDP compared to 25% in 1970.

Then we need to consider the fact that the economy is much more deregulated than last time, a process which is ongoing. Finally, we need to factor in that the economy runs on huge levels of corporate and personal debt, which makes it so much more susceptible to any increase in the cost of debt (i.e. through higher interest rates).

And these causes are in turn related to the ending, caused by the oil shock of October 1973, of the “thirty glorious years” of strong economic performance after World War Two, and why that turned out to be a “historic break point”.

You cannot understand external shocks like the interruption of the ‘life-blood’ of oil supplies without also understanding how, internally, we are more vulnerable to their effects.

Zero points, shit in rivers, and weeping at Margaret's grave

I got an uncanny feeling of déjà vu when watching the recent Channel 4 drama about water company pollution, Dirty Business

A teacher, Reuben, gets an infection when surfing in sewage encrusted waters. Periodic attacks involving writhing on the floor and vomiting mean he has to give up his job. He applies for disability benefits but gets zero points because, as the assessor keeps repeating, when he is not having an attack, he functions normally (3^rd episode, 20.43).

You can see the tired resignation creep across Reuben’s face, as he realises that the fact he does have regular attacks which make him unemployable is completely irrelevant to the assessment.

This is so evocative of the hundreds of thousands of sick and disabled people deemed fit for work points in the roll-out of the Work Capability Assessment under the Con-Lib Dem coalition. They got zero points too because although they couldn’t do any job that existed in the real world, by reaching above their head or into their top pocket once, they revealed that they could do an entirely abstract form of work.

At the time, there were futile calls for a real-world test to take account of what jobs actually demanded people could do repeatedly (as jobs tend to). But these were slammed down by the government in the shape of employment minister Chris Grayling who declared himself “absolutely, unreservedly and implacably” opposed to such a real-world test.

Current Labour DWP enforcer Pat McFadden doesn’t need to signal his opposition to a real-world test – it’s taken as read that it’s a total non-starter. The unbending focus now is on reducing the numbers of people qualifying for Personal Independence Payments (PIP) (which is what the teacher in Dirty Business applies for) despite the fact that 300,000 claims a year are rejected.

Labour did want to make the PIP criteria much tougher, something even Iain Duncan Smith found too much to stomach, but plans were put on hold as a result of an unexpected rebellion of backbench drones. But they will undoubtedly be repackaged as a result of the Timms Review now out for consultation.

Nothing better illustrates the duopoly afflicting the allegedly adversarial British political system than the treatment of sick and disabled people. The default consensus that they are ‘taking the mickey’ and deserve to be punished for having the temerity to have something wrong with them, which is probably half in the mind anyway.

The attitude, as John Pring shows in The Department, can be traced back to the dog days of the Thatcher administration, when health minister and “Mr Privatisation” John Moore wrote to chief secretary to the Treasury John Major, saying rising spending on sickness benefits needed to be tackled, with ‘no choice’ but to make ‘long-term savings’.

In the old system, i.e. invalidity benefit which existed before the testing regime began in the early ’90s, the ‘overriding consideration’ had been one of reasonableness, with the claimants’ ability to work measured against jobs which existed in the real world.  But that is a bygone era in British history. Hence the assessor’s monolithic insistence that when the ex-teacher in Dirty Business was not having a debilitating attack, he was perfectly able to do a job. The fact that vanishingly few employers would want to employ someone who involuntarily squirmed around on the floor every week, being sick everywhere, is not the state’s problem.

Have a nice day.

As of the beginning of this month, new claimants in the Limited Capacity for Work Related Activity Group of the Health element of Universal Credit (formerly Employment and Support Allowance) will have to survive on £50 a week, a nearly 50% cut from the £97 they previously received. This is so the ‘perverse incentive’ to apply for sickness benefit is removed. Actually, there is now a ‘perverse incentive’ to say there is nothing wrong with you even though there is, to ensure against the possibility that you will be judged unfit for work and placed in the LCRWA group.

This, in case you needed any reminder, is being carried through by a ‘Labour’ government. I remember being told in 2020 – by some young careerist working his way up the greasy pole at a meeting to choose the Labour leadership candidate which the CLP I was in would support – to “think of the most vulnerable person” I knew and then cast my vote for Sir Kier Starmer.

What he forgot to say was that if I harboured some sadistic desire to make them suffer even more, I should vote for Starmer.

As Dirty Business makes clear, there is a unity of purpose between the ‘Labour’ party and the Conservatives, which was briefly under threat in the four years before 2020 (which now resemble some strange hallucination). And the wretched consensus is not merely about how to treat the chronically ill.

As the programme recalls, David Cameron promised to tear up 3,000 pieces of needless regulation in order, he claimed, to release the growth potential of the British economy. Over a decade later, Starmer wrote to all 17 regulators in the UK telling them to relax rules for companies. This has resulted in a steep decline in enforcement actions, as they obediently scrabble to fall into line with the government’s so-called growth agenda.

And where has this deregulatory mania got us (aside from turds in rivers that is)? In the 18 years after the Financial Crisis of 2008, the economy has grown by 22% (an average rate of under 1%), while in the 18 years prior to 2008 it grew by 53% – more than twice as fast (and that record was terrible compared to the social democratic post-war years). But do carry on, won’t you.

We are in the grip of necrophile Thatcherism and it’s killing us. Some more than others, admittedly.

George Orwell, Communism and the Danger of Seeing the World Through Fiction

 

Despite being one of the greatest essayists in the history of the English language, George Orwell’s fame rests largely on two novels written near the end of this life – Animal Farm and Nineteen Eighty-Four.

Superficially they are about the same subject – the degeneration of Communism from something promising freedom and equality into its opposite. But because of when they were written, they are very different.

The time-gap between their creation, a mere three or four years, is so small as to appear irrelevant. But despite that, they inhabit separate epochs.

The first, Animal Farm, was written at the height of the Second World War alliance between Stalin and the West, between 1943 and 1944, and is about how Communism morphs into something as exploitative as capitalism. The book ends with the pig dictator, Napoleon, (an obvious portrayal of Joseph Stalin) changing the name of Animal Farm back to what it was under the ‘old regime’ when humans were in charge.

Nineteen Eighty-Four, meanwhile, was written as the Cold War began (between 1946 and 1948), and is about how communism vanquishes capitalism – “unquestionably the capitalists had been expropriated” — with the result that inequality and oligarchy become permanent.

Ingsoc – originally “English socialism” – is the ideology of Oceania, which incorporates Britain, and is one of the three huge blocs into which the world is divided. In the neighbouring bloc – Eurasia – the philosophy is called Neo-Bolshevism, which comes into being after Europe is absorbed by Russia. The three philosophies in control of the world are, according to Orwell, “barely distinguishable” and “the social systems which they support are not distinguishable at all”.

With his bushy moustache, Big Brother even looks like Stalin. The fact that ostensibly totally loyal party members are regularly purged in Oceania is also redolent of Stalinism. One notable feature of Stalin’s rule in Soviet Union, later adopted by other ‘Stalinoid’ countries like Czechoslovakia and North Korea, is that being a devoted Stalinist didn’t save you. The vast majority of delegates to the 17^th Communist party “Victors’ Congress” in Moscow, so-called because the ‘Stalinists’ used it to celebrate their victory over inner party opposition, were subsequently arrested and executed.

Orwell’s sporadic attempts to liken the ideology of Oceania to Fascism as much as to Communism were quite feeble.

For example, as he is torturing the hero Winston Smith, inner party bigwig O’Brien reflects on the Party’s place in history:

The German Nazis and Russian Communists came very close to use in their methods but they never had the courage to recognize their own motives. They pretended, perhaps they even believed, they have seized power unwillingly and for a limited time, and that just round the corner there lay a paradise where humans beings would be free and equal. We are not like that.

But the Nazis never claimed, or even pretended, to have taken power temporarily. They wanted, as they repeatedly said, to usher in a “thousand-year Reich”. Nor did they profess any belief in freedom and equality. On the contrary, they fervently believed in profound racial and social inequality, and acted out those beliefs with devastating consequences. Orwell feels like he should make some cursory reference to Nazism, which after all had just ravaged Europe, killed tens of millions of people and carried out a genocide, but he really just wants to expose Stalinism.

Some works of fiction, and this specially applies to Animal Farm and Nineteen Eighty-Four have an influence far beyond any literary merits they may have (and Orwell was a great writer). They enable people, often far better than works of non-fiction, to make sense of the world. And this is the problem with both novels. Though they impart great insights, they are partial. And in the world we are now entering, that of corporate Fascism, this partiality is only becoming more glaring.

Animal Farm gives hints of this, which become more flagrant in Nineteen Eighty-Four. In the former, the West (then Britain and France basically) is represented by Pilkington* of Foxwood Farm – “a large, neglected, old-fashioned farm”. Napoleon (Stalin), the leader of Animal Farm, vacillates between making deals with Pilkington or the other neighbouring farmer Frederick, who is a cypher for Hitler.

Napoleon finally puts his lot in with Frederick, only to be double-crossed and attacked (the Battle of the Windmill which represents the 1941 Nazi invasion of the Soviet Union). This is how Orwell portrays the episode:

Wistful glances were sent in the direction of Foxwood. If Pilkington and his men would help them, the day might yet be won. But at that moment, the four pigeons, who had been sent out the day before, returned, one of them bearing a scrap of paper from Pilkington. On it was pencilled the words: ‘Serves you right’.

But this doesn’t bear any relation to what actually happened historically, misrepresenting both the two-timing character of Stalin and the rightful moral effrontery of the West. In reality, Stalin (Napoleon) resorted to the deal with the Nazis (Frederick) – the Nazi-Soviet Pact, which was ended by the surprise German attack on the Soviet Union – only after years of fruitlessly trying to interest the West (Pilkington) in a military alliance against Germany (Frederick), even formally requesting an alliance in April 1939 and then offering to invade Germany with a million troops on eve of the outbreak of the Second World War.

Meanwhile the West (Pilkington) continually rebuffed Stalin’s (Napoleon’s) overtures, hoping, unsuccessfully, to convince the Nazis to leave the West alone and be satisfied with devouring the Soviet Union. Negotiations with ‘moderate’ Nazis (i.e. not Hitler) who would agree to ‘limit’ their ambitions in this fashion even continued after the Second World War had begun. They only ended after Churchill became Prime Minister.

In short, Orwell’s representation of events is almost the exact opposite of what actually happened.

Orwell’s rose-tinted view of the British elite can be seen in the war-time pamphlet the Lion and the Unicorn (sub-titled Socialism and the English Genius and written just before Animal Farm). There Orwell was trying to drum up support for the war by emphasising its patriotic underpinnings – ironically precisely what Stalin was doing in the Soviet Union.

In that book, the English are presented as a “rather stuffy Victorian family” which thwarts the young and cedes all the power to “irresponsible uncles and bedridden aunts”.

But in truth, as I think Orwell recognised deep down, the British elite was more malign than old-fashioned and thoughtless. They were, in more modern language, ‘Fascism enablers’.

The appeasement Prime Minister Neville Chamberlain, for example, not only tried to do a with deal with Hitler so that he would exclusively turn his guns to the East but also previously pushed – unsuccessfully he was only the Chancellor of the Exchequer at the time – for the British government negotiate a non-aggression pact with Fascist Japan. This was after Japan had invaded the Chinese region of Manchuria in 1931 (it is a fact still barely recognised in the West that the Second World War in Asia began far earlier than the one in Europe).

But Orwell’s attitude, intimated in Animal Farm, of concentrating on the dangers posed by the official enemy while downplaying the sins of one’s own ‘side’, pervades Nineteen Eighty-Four. Indeed, with the coming of the Cold War, it became all-consuming. In the fictional Oceania the doctrine of Ingsoc grows out of “English socialism” while the Russians have absorbed continental Europe, imposing something called “Neo-Bolshevism”. Fascism, resting on slave labour, war and genocide, though clearly a recent memory, is nowhere in sight.

This is despite the fact that Fascism, or at least extreme right authoritarianism that routinely kills and tortures political opponents, became the norm after the Second World War in the part of the world – which was most of it – controlled by the West. Think of Suharto in Indonesia, the Shah in Iran, Mobutu in the Congo, the succession of genocidal generals ruling Guatemala, or Pinochet in Chile. Europe wasn’t immune either. Right-wing dictators presided over Spain, Portugal, and Greece in the late 1960s, all of which were, by the way, loyal members of Nato.

 As the writer Michael Parenti put it in 1969, “our fear that communism might someday take over most of the world blinds us to the fact that anti-communism already has”.

And the one thing that really defines Fascism is obsessive anti-communism. In 1936 Nazi Germany and Fascist Japan signed an alliance called the Anti-Comintern Pact (Comintern being an abbreviation of the Soviet Communist International). Later Mussolini’s Italy and Fascist regimes in Spain and Hungary joined.

Despite the fact that Communism, with the exception of isolated hold-outs, is no more, the influence of Nineteen Eighty-Four is so great that we are still trapped within its mental architecture. European leaders delude themselves that the real threat to Greenland comes from China and Russia, even though the corporate fascist in the White House openly threatens to invade it.

Our politicians obsess over the phantom of Russia attacking Europe – clearly a vestige of Cold War propaganda about the Soviet threat – but happily pave the way for the quasi-Fascist Reform ‘party’ (appropriately enough it’s actually a limited company) to become the next government.

And Reform looks to Dubai as a model for the society it wishes to create. Dubai is part of the United Arab Emirates, a country “owned” by the Royal Family that rules over it. Dissent is not allowed. In Dubai, 92% of the population (all immigrants without rights) serve (and that is an appropriate word) a wealthy elite that regards the city as a sun-filled playground. Corporate Fascism is an accurate description.

Like imperialism, Fascism is one of those things we can only see in inverted commas, as archaic accusations coming from fevered, extreme leftists. But both are real, and in the First World, becoming realer by the month. That we suffer from such intellectual blindness owes a lot to the aura of the undoubtedly great work of fiction, Nineteen Eighty-Four.

* The fact that in the new Andy Serkis version of Animal Farm the billionaire who plots to take over Animal Farm is called Frieda Pilkington is possibly an indication that it’s not as dumb as people make out.