A few weeks ago I wrote in The recession Is Over , that this, the Second Quarter of 2009, would be the last quarter in which GDP fell. That is it would mark the end of the recession. What is the basis of making such a call, especially when for weeks the media has been spelling out all of the doom and gloom, when they have been keen to advertise the remarks of every pundit who has talked about the recession dragging on for months and even years, and when sections of the Left itself talks in terms of some protracted recession of 1930’s proportions? Indeed, given the figures such as those showing that Eurozone economies suffered severe contractions during the First Quarter of 2009, isn’t such a suggestion massively premature, if not way off beam? I don’t think so.
Its true that the GDP figures for the First Quarter of 2009, like those for the Fourth Quarter of 2008, are pretty abysmal. Not only has world trade in the last 6 months fallen off a cliff, but alongside it economic growth in some of the world’s largest economies like the US, UK and EU has fallen by amounts equivalent on an annualised basis to the falls seen during the 1930’s. Even in China, and other Asian economies, that have been the world’s economic powerhouses for the last 20 years, economic growth has fallen back substantially, though from very high levels, and to what, in most economies, would be considered still very high rates. Alongside that has come all the attendant features of an economic crisis, a sharp rise in the number and percentage of unemployed, rises in bankruptcies, house repossessions and so on.
But, all of these statistics, and the human tragedies that lie behind some of them, in terms of workers losing jobs, homes and so on, provide a picture of what has happened, not what is currently happening, and certainly not what is likely to happen in coming months. In 2007 the Credit Crunch began, and sparked the collapse of Northern Rock. For a time the banking and credit system managed to keep going, and alongside it the economic system. Indeed, the economic system, even during that first year of the Credit Crunch, not only kept going, but kept going at a fairly rapid pace. So rapid, in fact, that in the early part of 2008, the concern was over capacity constraints, global food shortages, as rising real incomes in China and other parts of the world sent demand for foodstuffs up to levels that supply could not keep pace with. So rapid that, rather than wanting to ease credit conditions Central Banks began to raise interest rates in order to choke off the rising inflation that they all believed imminently threatened the system.
Even as the Credit Crunch tightened, and as Central Banks raised interest rates, and at a point where a normal business cycle was in any case due to lead to a slow down in growth, economies throughout the world still only experienced a slowing of their previously hectic pace of growth. At the end of 2008, the expert panel in the US, that officially date the beginning and end of recessions, said that the recession there had begun in December 2007. But, in determining that they use a series of metrics besides economic growth. Taken purely on the basis of the technical definition of a recession as two consecutive quarter of negative growth, then the recession in the US did not begin until the Third Quarter of 2008 – even then the decline was very modest at just – 0.5% (See: US Q3 GDP ), just as it did in the UK and the EU. The determining feature of this recession, the reason it has exhibited such severe characteristics arises from two interrelated factors. Firstly, the Credit Crunch, which sparked the worst Financial Crisis in history, and secondly the need for large western economies – in particular the US – to massively restructure. These two factors are interrelated in a number of ways.
Firstly, as I have written on many previous occasions, the Credit Crunch was the inevitable consequence of 20 years of loose monetary policy, and massive injections of liquidity into the economies of, in particular, the US, the UK and Japan. The reason for that policy was nothing to do with feckless Governments or Central Bankers, nor the resultant lending, by Banks and Financial Institutions, to even sub-prime borrowers, due wholly, or even mainly, to greed by those bankers. It was due to a basic need of Capitalism in those economies. As I wrote, 25 years ago – See: Imperialism and the New International Division of Labour - the world underwent a large restructuring of Capital. Whilst, the West, in particular the US and UK, underwent a process of massive de-industrialisation, the other side of that process was a massive industrialisation of the so called Asian Tiger economies, and in a manner that, even 25 years ago, that I had not foreseen, of China, and more latterly India. Again as I stated back then the concomitant of that process would be a shift of Capital and Labour in the developed economies of the West towards Finance, and towards service industries. An analysis, which has been entirely borne out by events.
However, that period remained one in which the Long Wave downturn was still in place. Indeed, it is the downturn that gave one more good reason for Capital to seek out cheaper labour to exploit, and thereby to attempt to hold on to market shares and to maintain its rate of profit. But, that downturn meant that the underlying economic characteristics of domestic economies remained in place in the West. It would have been impossible to have completely de-industrialised – just as when Britain industrialised it did not completely wipe out agricultural production – for a number of reasons economic, political and strategic. In the US, without the kind of welfare systems of Britain and Western Europe, to have dealt with the basic problems of, for example, the US motor industry, which employed millions of people, both directly and in dependent ancillary industries, along with the consequences it would have had for steel suppliers, and the rest of the economy, that depended upon the incomes of all those people, would have risked huge social upheaval, much greater than that which actually did occur. Partly, because it DID have such a welfare system, meant that Britain could de-industrialise more ruthlessly under Thatcher, with a decimation of the car industry, mining industry and so on.
But, for similar reasons those who were thrown out of these old industrial jobs also needed to be found alternative employment. Hence the lax monetary policy, hence the encouragement of consumer spending financed out of borrowing, whilst real wages during almost the entire period from the 1980’s until the late 90’s, for most manual workers remained either flat or slightly falling. That consumer spending financed and facilitated the growth of the retail sector, and the attendant service industries. Meanwhile, the burgeoning production from China and other Asian economies provided a mass of cheap consumer goods to be sold in all of these new malls and stores, leaving the huge retail monopolies like Wal-Mart to do what Merchant Capital has always done – to siphon off a proportion of the Surplus Value produced in China, to form its own large profits!
Monetary policy was the means by which this trick was pulled off, but it was also necessarily going to end up as a Credit Crunch. Either the authorities had, at some point to tighten credit, which they attempted several times only to have to reverse as they caused Stock Markets to fall sharply, and economic activity to slow down markedly, or else there would come a point where some of the loans would start to go bad, as they ultimately did, and the whole edifice would come crashing down.
Most markedly again in the US, it was also that, which enabled some of the industrial dinosaurs to survive too. US consumers, always addicted to large gas guzzling vehicles could be persuaded to buy the next 4x4 or RV, from GM, Ford or Chrysler. Even then for much of the period these producers made little or no profit on such vehicles. On smaller vehicles where they were competing with European or Japanese producers – including those who had established production facilities in the US, but without the legacy costs the US producers faced in terms of the costs of a huge retired workforce to whom it was paying out billions of dollars in pensions, and health care benefits – it usually made significant losses. These US companies seem also to have suffered from particularly bad management – similar to the bad management that hindered the British car industry in the 70’s and 80’s – which repeatedly misread the market, producing vast numbers of cars that did not meet the changing tastes and demands of consumers. They survived because, they had huge Balance Sheets with massive reserves from which they could cover their year after year losses, because as global companies they could divert some of the profits made in their lower cost overseas operations, because in the modern global motor industry many parts such as engines are shared, so for example, Ford could make money selling engines to other car producers, and finally because they engaged themselves in becoming Money Capitalists. In order to sell their cars they offered elaborate deals with money off, and so on with similarly elaborate credit deals. They set up their own Financial divisions such as GMAC, which provided the credit, and what they lost on the price of the car they made up for at least in part from the interest payments from consumers. But, companies like GMAC also engaged in Finance on a much wider scale providing not just consumer credit, but also mortgages and so on. The profits from these operations were so great that they balanced the losses made on car production.
But, in reality, looked at from the cold, objective view of an economist, and particularly the view of a Marxist economist this was highly irrational. The whole point, as Marx points out, of a crisis under Capitalism, is to resolve the various contradictions that inevitably build up from the working of the system. It is the means by which Capitalism suddenly and violently shifts Capital and Labour from producing those things which society has said, we have too much of, to those things it says we have too few of. That crisis was averted in large part during that whole period from the 1980’s onwards. Its resolution now, made necessary by the Credit Crunch, the global financial crisis, and the economic crisis it sparked is the other factor, which now makes this recession look particularly severe.
I may appear in these last few paragraphs to have been digging myself a bigger hole to climb out of, in order to show that the recession is over. In fact, there is a good reason for having done so. In order to understand the situation we are in, to understand, the nature of the current recession and the path out of it, it is necessary to understand the roots of that recession and crisis. In part, also the reason lies in that analysis by Marx, of the function of a crisis as a means of resolving contradictions.
Just, as a fit human being can shake off a dose of the flu, whilst the same virus can kill an old or infirm person, so for Capitalism an economic crisis can have vastly different consequences depending upon the Long Wave conjuncture, or the general conditions under which that crisis occurs. It was precisely the conditions of the Long Wave downturn during the 1980’s that made a wholesale restructuring of Capital impossible, because the underlying economic weakness of the system could not have sustained it without massive dislocation and social upheaval. In different circumstances during the 1930’s when the alternative solutions to the crisis utilised via lax monetary policy in the 80’s and 90’s, were not available – because no huge reservoir of Surplus Value existed such as has existed in Asia, and the OPEC countries – that was exactly what did happen leading to the Great Depression, to Fascism in Germany and Italy and Spain, and to similarly oppressive and authoritarian regimes in much of Europe.
No doubt Capital did not consciously seek to provoke the current crisis, simply because it now occurs within the context of a Long Wave upswing rather than a downswing. The Capitalist owners of GM, Chrysler and so on, certainly would not have been wanting to lose money by those companies going bankrupt! Nevertheless, the outbreak of the crisis within the present conjuncture, does give Capital as a whole, the opportunity and the incentive to carry through that restructuring of Capital that is long overdue, and now under more conducive conditions. Why, more conducive? Precisely, because of that concept of Marx’s about the function of a crisis. In a situation of the Long Wave downturn the opportunities for Capital become more restricted, psychologically all of the numerous factors that comprise the Long Wave downturn weigh upon the decisions of the Capitalists inclining them to either sit on their money, to invest it in Government Bonds, or some other safe asset. But, in a period of Long Wave rise, the recession appears merely as a temporary setback, all of the features that make the Long Wave boom what it is, continue to exist, and beckon to the Capitalist to invest in all those new areas where potentially big profits lie waiting to be made. Indeed, under such conditions the enterprising Capitalist may be even more attracted to invest, precisely because that temporary setback has made workers available at lower wages, premises are cheaper, raw materials cheaper etc.
I was recently looking at some of the economic data for my local area, and it was interesting to note that whilst the area has been particularly hit by the recession in terms of job losses etc. in terms of new business start-ups it is some way ahead of other areas that have not suffered so badly.
Martin Thomas in an article a few weeks ago Ruinous Competition looked at a number of theories of crisis. He spells out what he thinks is right and wrong within these various theories, but does not himself come up with any overall theory or framework within which to conceptualise the present conjuncture. By looking at this or that feature of crises it will always be possible to point to some feature that is present in order to say, “Yes, this is correct”, or else its absence in order to come to the opposite conclusion. Its true that in order to properly understand any individual crisis we have to return to Lenin’s dictum that “The truth is always concrete”, or in other words we have to analyse that specific crisis in its own terms rather than trying to fit it into some overall scheme. But, for the reasons set out above a complete picture of that crisis can only truly be achieved if we view it within its historical specificity. To do that it is necessary to understand the mechanism by which the Long Wave operates. And again, although that mechanism comprises many moving parts, it is not enough to simply view things in terms of any one or a combination of these parts, but to understand how each relates to the other in order to create the conditions under which the global economy enters or leaves a period of long wave rise or decline.
For example, Martin states,
“According to Ernest Mandel’s thesis, elaborated with many refinements in his book Late Capitalism (Mandel 1975), the essential impulse was a big wave of technical innovation after 1945. But Mandel’s technical-innovation thesis also has problems. In the first place, technical innovation is permanent in capitalism. How do we measure when there is a particular surge of innovations? If by high rates of capital investment, then the argument is circular – a period of rapid capital accumulation (high investment) is by definition a period of innovation-surge. If we resort to the orthodox economic measure of “joint factor productivity” (which is, very roughly, a measure of how new equipment boosts output more than just in proportion to its sheer bulk), then, in the USA, the chief centre of technical innovations, that measure rose in 1950-73 much more slowly in than in 1938-50, and not much faster than in 1913-29 (Maddison 1971, p.71).
If, instead, we look at the history of technology and try to identify the most important moves (railways, electricity, internal combustion engine, etc.), then we face further problems. By such measures, the period since the 1980s has brought a major technical revolution, through microelectronics. Yet it has been one of troubled capitalist development. Technical innovation, by devaluing old capital stock and sharpening competition, brings its own problems for capital. If we maintain that technical innovation must on balance be an autonomous force for dynamising capital, but its effects show themselves only with delay (as the technology spreads, its use is refined and linked with other technologies, and so on), then – so long as we are unable to quantify that delay – we introduce a large measure of arbitrariness into the argument. Any capitalist upswing can be put down to the “delayed” effects of whatever seems to be the most recent big technical innovation.
Finally, the argument about delayed benefits – not without validity in itself – suggests that the dynamic effect of any technical innovation is not an autonomous force, but rather something conditioned by other technical developments and by social and economic conditions. In short, rapid capitalist accumulation promotes dynamic technical innovation, rather than dynamic technical innovation determining rapid accumulation of capital.”
But, this is to misunderstand the mechanism of the Long Wave in exactly the way I have just outlined. In saying that the Long Wave mechanism comprises a number of factors, of which Technical Innovation is one, the existence of a large pool of cheap exploitable labour, of low priced raw materials and other inputs, of low interest rates, and availability of Capital being others, all of which interact and come together in such a way as to start the process of Long Wave expansion, is not, however, to say that all of these components to that mechanism are themselves unrelated. Were that the case then it would be a highly improbable theory, which suggested that at roughly the same historical intervals all of these components just happened to come into alignment like some astrological event. If we take the Innovation Cycle, it is a good way of demonstrating this.
Martin objects that innovation takes place all the time. That is true, but there is a difference between the innovation of new products, techniques and so on that takes place all the time, and in fact, if anything speeds up during a period of economic boom as Capitalists seek out new products to produce and sell, and what Long Wave theorists describe as the development of “base” technologies. In other words those fundamental innovations upon which are built all of that vast range of new products.
In my post Kondratiev’s Long Waves , I examined an article by George Ray in the January 1980 Lloyds Bank Review (Number 135) “Innovation in the Long Cycle”, which based itself on the ideas of Schumpeter who had, indeed, reduced the Long Wave almost exclusively to the Innovation Cycle. As Ray comments,
“Innovation is indeed a cornerstone of Schumpeterian business cycle theory, according to which its economic impact is immense. Schumpeter’s thesis, in its most simplified form, stated that the upturn in the first Kondratiev cycle (1790-1813) was largely due to the dissemination of steam power, the second (1844-74) to the railway boom, and the third (1895-1914/6) to the joint effects of the motor car and electricity. These all fitted Kuznets’ requirement of an all-pervasive influence on all, or many sectors of the economy.”
Ray goes on to refer to the work of Mensch (G. Mensch “Das technologische Patt” Franfurt 1975 and also in “Stalemate in technology”, Ballinger, Cambridge, Mass. 1979) who in suggesting the need for a “new push of basic innovations” to lift the world out of its depressed state of the time also identified clusters of such basic innovations during the last 200 years, which correlated with Kondratieff’s cycle. These were in or around 1770, 1825, 1885, and 1935 with not much since – remember this was written in 1975. Ray compares these two sets of data and concludes,
“Long cycles do seem to appear, albeit with no great regularity and not simultaneously in both areas….The lags between Mensch’s innovation peaks and Kondrtiev’s are approximately 40 years (more precisely:44,49,41, and 32 years respectively).
Kondratiev’s three troughs followed the innovation-poor periods with an even more uniform lag of about 50 years. Given the difficulties of measurement, this apparent regularity provides food for thought since, if the high ‘technological content’ of each of the long wave theories – most explicitly Schumpeter’s – is considered, this surely must be the most important macro-economic aspect of innovation.”
But, I think Kondratiev’s comment here is particularly important. He says,
“Changes in technique have without doubt a very potent influence on the course of capitalistic development. But nobody has proved them to have an accidental and external origin.
“Changes in the technique of production presume 1) that the relevant scientific-technical discoveries and inventions have been made, and 2) that it is economically possible to use them. It would be an obvious mistake to deny the creative element in scientific-technical discoveries and inventions. But from an objective viewpoint, a still greater error would occur if one believed that the direction and intensity of those discoveries and inventions were entirely accidental; it is much more probable that such direction and intensity are a function of the necessities of real life and of the preceding development of science and technique.”
This is basically stating the idea that “Necessity is the Mother of invention”, which we were all taught in studying Economic History; the basic explanation for the invention of better means of spinning arising from the increased demand brought about by more efficient looms, and so on. Today we see a similar spiral in relation to computer hardware and software.
“Scientific-technical inventions in themselves, however, are insufficient to bring about a real change in the technique of production. They can remain ineffective so long as economic conditions favourable to their application are absent. This is shown by the example of the scientific-technical inventions of the seventeenth and eighteenth centuries which were used on a large scale only during the industrial revolution at the close of the eighteenth century. If this be true, then the assumption that changes in technique are of a random character and do not in fact spring from economic necessities loses much of its weight. We have seen before that the development of technique itself is part of the rhythm of the long waves.”
Which, again we have seen in more recent times. The Laser was developed long before anyone knew what to use it for. Today, it is a central aspect of technology from the CD and DVD, to treatment of cancer, to eyesight correction!
Ray in looking at the inventions thought to have accompanied each upswing gives support to Kondratieff’s idea that these innovations are not exogenous to the system. The ‘basic’ innovation may actually be made some considerable time before its application affects economic development. What is important is not the innovation but its application, and its application depends upon a certain level of economic development having occurred, a certain level of technical development having taken place such that the innovation can be implemented. For example, had Leonardo actually produced his flying machine, it is unlikely that it would have been a viable commodity to produce, or even if it had it is unlikely to have been a product which had great economic effects. Only at the point where the economy has developed, trade has reached a certain level, and the potential for producing aeroplanes on a scale for use in passenger and freight transport, warfare etc. exists could such an innovation have any significant consequences for the economy in general. As Kondratieff says, the innovations are introduced to meet requirements of the time, they are endogenous effects not exogenous causes of the upswing. But having been introduced the cause and effect nexus reverses, once introduced the invention does play a crucial role in stimulating economic development.
As Ray puts it,
“Only the widely-based rapid diffusion of some major innovations can be assumed to play any part in triggering off the Kondratiev – or any other - long-term upswing.”
Bearing in mind that Ray was writing in 1980, the year Micrososft started, and probably five years before PC’s even began to be widely used in business let alone in the home, he sets out the possibilities for the innovations that might become widely diffused in the next Kondratieff upswing.
“There are many who believe that the next great innovation, following in significance the motors of earlier Kondratiev cycles and comparable to them in width and depth of impact on the economy, will be the microprocessor. The importance of micro-electronics can be seen already in many areas and it is not surprising that the ‘microprocessor revolution’ has begun to merit serious discussion. It has been emphasized that the microprocessor is a chameleon and that it takes on the character of whatever program has been fed into it; it can detect a guided missile, operate a coffee dispenser, regulate the use of petrol in a car or control an industrial process. If properly programmed it can be used almost anywhere, in communications, in metal machining, and in widely varying applications, from libraries’ bibliographies to medical diagnosis. It is conceivable that it could be a candidate to lead a technological upheaval, giving the necessary push for a swing up out of Mensch’s ‘technological stalemate’.”
Ray looks at this in terms of past cycles.
“Mensch’s innovation peaks followed each other with a lag of 50-60 years; the most recent one was in 1935 – the next on that basis, should follow some time after 1985. Kondratiev’s cycles required about 25 years from trough to peak; if we consider 1975 as the trough, the peak will only be reached by 2000, but in the meantime should come the upswing. On past experience, if the indications in Table 1 are accepted, this is too soon after the innovation peak in 1985, since earlier there used to be 40 years between the peaks of the two series – but then the time lag between the innovation peak (1935 and the economic trough (1975) was also shorter than the 50 years observed earlier.”
Ray is wrong here. The Post War Long Wave Boom is accepted as beginning in 1949. Given the 25 year period of the upswing this gives us 1974 or thereabouts as its peak, and the beginning not the trough of the downswing! That does indeed come 40 years after the 1935 Innovation Peak! Similarly, the trough on that basis would arise in 1999 or thereabouts, and as I argue in the above blog that is in fact, what we have seen. The point then is that there are sound reasons why the innovation peak takes place not during the boom, but during the downswing. At the height of the Boom, Capital is facing cost pressures. In addition, the heightened demand means that there is considerable incentive to produce new machines and techniques that can increase production of inputs at lower prices. But, just as it takes a considerable time to explore for, and then develop new mines etc., so scientific discovery does not take place according to order. It takes time for the individual inventor or the R&D Department to come up with new ideas to resolve a particular problem, yet further time to test, and develop those ideas. By the time working models are available, the cycle has turned. Now, Capital is looking to use up the equipment it already has, not expand and invest in new untested equipment and techniques. For similar reasons during this period there is less pressure to direct attention to resolving particular problems, and so scientific research can be more wide reaching, thereby coming up with new base technologies, whose application only becomes apparent as the new boom begins, and dynamic entrepreneurs see the potential for using these base technologies in new products and processes.
I would argue that that is precisely what we have seen. As Ray suggested, the Microprocessor has been at the root of the development. Although ROM chips began to make their appearance in various video games during the 1980’s, it is only from around the mid 90’s that we began to see microprocessors and DRAM chips main use in Personal Computers begin to take off, and even then it is only really from the late 90’s with the development of the Internet that even PC’s became commonplace in the home, and that only represents a fraction of the applications that flow from it. Moreover, the other developments that could be seen to have arisen as base technologies during the Innovation Cycle of the 1980’s, such as in biotechnology have themselves depended heavily on the microchip, because without the computing power that it has made available, much of the developments in biotechnology would have been impossible.
In short, Innovation does not cause the Long Wave boom, but is a function of it, but understood dialectically the two things interact such that the consequences of that innovation in turn create some of the necessary conditions for the dynamism of the new upturn. There is a difference then between the Innovation Peak as being that point when these new base technologies are developed, and the investment peak in all of the new technologies and products that are based on them. A look at the explosion of new products developed on the base technology of the microprocessor in the last 10 years from the inception of the new Long Wave Boom demonstrates that graphically from the robotization of production to the introduction of the microchip into even basic household appliances such as toasters! And a look at any magazine that is related to this area shows that even now we are only just entering the phase of such products! And this base technology makes many other products based on other technology possible. The introduction of RF tagging of products is only possible, because the microprocessor enables the computing power to pick up the RF signals and instantaneously translate them into digital information that can be compared with a database. The ability to decode someone’s genome and compare it with others, to search for possible illnesses linked to certain genes is only possible because of massive and cheap computing power and so on.
It is inconceivable given this huge range of potential new products, the vast potential for a massive transformation of the production process that these new technologies make available, and for the huge increase in the profitable employment of labour that goes along with it that the world is not on the verge of an explosion in growth that will make the Industrial Revolution look like the Stone Age. One of the main reasons that the growth of the last decade has not been substantially greater than it has been is that the economies where such developments are most likely – the developed technological economies of the US, Britain, Japan and Western Europe – have been dragged down as a result of the locking up of huge amounts of Capital and Labour in those old monopolistic industries referred to previously, and dragged down by the huge amount of debt built up during the Long Wave downturn – certainly in respect of the US, and UK. The conditions are now in place for those constraints to be removed.
What makes that inevitable is the extent to which this is the case, the breadth of new technologies, products and techniques. Eric Hobsbawm in his “Industry and Empire”, says that the Industrial Revolution, and with it the introduction of Industrial Capitalism could have faltered in Britain at the beginning of the 19th Century because the whole thing was effectively based on one thing – textile production. What actually prevented that from happening was that with the introduction of steam for the powering of the power looms, a whole array of new technologies, products and techniques arose. Instead of the Industrial Revolution being about just one industry, now coal had to be mined, steel had to be produced, transport had to be developed, and each new industry created meant jobs, which meant demand for commodities.
By comparison, the motor car, although developed at the end of the 19th century did not begin to be bought as a consumer product, and was not even widely used as a piece of Capital equipment until well into the first decade of the last century. As the end of the 1890-1914 boom came along the motor car could not perform the same function that Textile production had played. A single product or technology can never fulfil that role under such conditions, though its interesting that the one economy whose development was out of synch with the Long Wave in the rest of the world, the one economy where the motor car DID take off as a consumer product on a larger scale – the US – did not suffer the protracted economic malaise of the 1920’s that affected Europe, but rather experienced the “Roaring Twenties”. All of the unemployed Capital and Labour in the 1920’s and 30’s could not be employed producing cars – any more than in the 19th century they could all have been employed producing textiles – without a range of new industries, for Labour and Capital to have been employed in, it was impossible for a sufficiently large market to develop for cars. Only, the development of such other industries – electrical goods, petro-chemicals and so on – after WWII created those conditions. But, that is precisely the kind of conditions that exist today. Large amounts of Money Capital, a wide range of new technologies and products, and as the current Capital restructuring proceeds the availability of educated and skilled labour together with entrepreneurs able to mobilise Labour and Capital for the profitable production of those commodities in conditions of a rapidly growing world market.
In the last ten years University campuses in the UK and in other developed economies have become cluttered with Science Parks. They are a symptom of that process described above. Highly educated, highly skilled workers, taken from the Universities, staff these high tech, small scale start-up companies. They are characterised by their low organic composition of Capital; that is they require little in the way of Constant Capital – Machinery and raw materials – compared to Variable Capital – the highly skilled, highly paid complex labour they employ. As Marx showed under such conditions the Rate of Profit is very high. Although, this would normally result in a large influx of Capital to such areas, the nature of the production makes this impossible, or at least very difficult. Not only is the skill-set limited, but the intellectual property that results is highly protected by patents and other restrictions. Consequently, the Capital involved does not participate in the process of the averaging of the rate of profit. The Universities on whose campuses such parks reside, act like old time Landlords able to extract high rents out of this higher than average Surplus Value.
But, this process is not restricted to this. In North Staffordshire as in other areas, Keele University, is linked directly to the University College Hospital of North Staffs., for instance. And its not just in these areas. In the past there has been some disdain of Media Studies as a University course, but, in fact, its in such areas that a lot of new development is taking place. Newspapers are being replaced with online editions, the Interweb continues to develop, and the presentation of information via use of video etc. becomes vital. Nor should industries such as Computer Games, which require Media production as much as Computer programming skills, not to mention the multi-billion dollar Porn industry be ignored. Indeed, it is again the Microprocessor revolution, which makes all of these products saleable on vast global markets, some of which are only just beginning to develop in China and Asia, and Latin America and Africa.
Like everything else that the microprocessor has touched, the scale and speed of these changes are literally light-speed compared with everything that has gone before. That is another basic reason that this recession, despite its severity, was so short, and why the recovery and further growth will be so dramatic.
I had intended to flesh out this argument with a range of statistics demonstrating the incipient growth that was apparent to me back in April when I declared that the Recession was over. However, I started writing this more detailed analysis a month ago, its completion delayed by a couple of bouts of Depression which prevented me from doing anything for a few days, and the need to spend time on more mundane household and other chores. In the meantime, the need to produce that array of data has largely been eradicated. Some of it, I have listed in individual blogs such as Now Its Official . But, in fact, most economists now accept that the worst of the recession if not the recession itself is over. The argument now is about the shape of the recovery, will it be a V, W, U, L or some other variant. For the reasons set out above I clearly believe that a V is the most likely, with a W the next most likely outcome i.e. a small secondary slow down, prior to a strong upward trend.
In fact, in the last few days, the NIESR, has come out with a report, which now says that Britain saw a 0.2% growth in April, and 0.1% in May. It now believes that the UK economy might then show some growth for the second quarter, or at least not show any decline, which would mean that the recession ended a quarter sooner than even I had anticipated! See: NIESR May GDP Estimate .
Since I began writing this analysis some of its arguments have already been vindicated. The motor industry is undergoing a considerable restructuring. Chrysler has been sent into bankruptcy in order to facilitate its take-over by Fiat. GM is undergoing the same process. Even in Britain LDV is going bankrupt before probably being bought up as scrap by a Malaysian company, just as a few years ago a Chinese Company picked up – literally by physically transporting the plant and equipment – MG Rover, and Tata picked up Jaguar/Land Rover. At the same time, the US has begun to promote a green agenda based on pumping lots of money into development of technology and products aimed at reducing US dependence on fossil fuels. Whatever, the problems and malaise of US Capital over the last 30 years, and the likelihood of its relative decline on the world stage, no one should doubt the capacity either of the US state, or of US entrepreneurs to make huge strides and developments in that direction when they set their mind, and more importantly their Capital and Labour towards it. But, as stated earlier it is the vast array of products that enable a wide range of industries to develop, each producing a market for each other that make this development so inevitable and so powerful. I was watching the TV this morning and saw one of the new robotic vacuum cleaners silently and automatically going about its business. Its products like that, which few people currently have, but which in the next few years will become commonplace, the fridges, which automatically keep an inventory of what food you have, draw up your shopping list, and send it to the supermarket, who then deliver your goods – again freeing up Capital and Labour currently tied up in those stores, which will become redundant and available for other purposes, and a vast array of other such products that we haven’t thought about, but which will become everyday items that provide the base for the strength of the economy.
The questions have turned more to how is the massive amount of borrowing, and expansion of expenditure to be paid for? As I have said in my blog Paying For The Crisis I think much of the Left has this wrong again. It assumes – and the bourgeois media lead us all to believe – that the massive levels of expenditure resorted to as part of the fiscal stimulus will have to mean swingeing cuts in that spending in the next few years. Already, I have heard right-wing pundits on CNBC decrying Public Service workers pensions, railing against the Tube strike etc., and arguing for a restriction on the right to strike for Public Sector workers, along with renewed attacks on Public Sector Pensions and so on, as a simple way to reduce Public Spending. But, its precisely the Tube Strikes, which show the flaw in this argument. Prior to the recession militancy was clearly rising, not just in Britain but across Europe. The tanker drivers in Britain had won a big pay rise, members of IG-Metall had won large rises in Germany, French workers were facing down the newly elected Sarkozy Government. That is typical of this stage of the Long Wave. The Tube strikes, and the refinery strikes, show that this militancy is still there. Once the recession is over, and growth clearly resumes – even if unemployment doesn’t immediately fall in response – workers will feel their confidence and strength increasing once again. That militancy will increase. Under those conditions its unlikely that the Government – Labour or Tory – will go all out to defeat them, when a simpler alternative exists. That alternative is simply to inflate away the debt. Nor does that inflation mean that the higher prices of those Public Services then necessarily become a burden requiring real term cuts. When people bought houses in the 1960’s and racked up what seemed like large amounts of debt at the time, the fact that this debt was inflated away did not make the other areas of their current expenditure – food, clothing, etc. – less affordable because that inflation had raised their prices. On the contrary, the inflating away of the debt – the Capital sum of their mortgage – made those other things MORE affordable, despite their now higher prices, precisely because the inflating away of that debt, left them with a much greater proportion of disposable income to spend on those other items!
The UK and US Governments face the prospect not only of being able to pull off the same trick via inflation, but also given that a huge proportion of that debt has gone into investments in the Banks to prop them up, of making large Capital Gains! Already, the UK Government is looking at selling Northern Rock, which will almost certainly now bring in more than they paid for it, whilst the new owners still owing the government for the loans outstanding to it. In the US, the main banks are already paying back billions of dollars in TARP funds.
But, having said that I have mostly looked here at the UK, which is emerging from the recession sooner than most other developed economies – despite the dire warnings to the contrary from the IMF only a few months ago. Looked at on a global scale the picture is not so clear. In Asia, China has continued to grow, but at a reduced pace. The massive stimulus package by the Chinese Stalinists has had a marked effect, however, and fits with two of the other goals of the latest Five Year Plan. On the one hand, the need to stimulate a much larger domestic market in order to reduce dependence on the world market, and secondly the development of infrastructure geared to enabling the development of Western China, thereby enabling Eastern China to concentrate on higher valued output, with Western and Central China taking over the production of low valued output, and as a transmission belt for materials from Central Asia to China, and manufactured products from China to Central Asia – i.e. the development of essentially internal ‘colonies’ such as those developed by Russia in Siberia, and the US in the Southern States in the 19th century.
The curtailment of Chinese economic activity and its consequences in the rest of developing Asia, has had a severe effect on Japan, whose economy had not recovered from the long depression of the 1990’s, and which suffers many of the same problems as the US in terms of the consequences of huge amounts of liquidity pumped into its economy, and the significance in its economy of large monopoly businesses like Toyota, but without the advantages of the cheap labour it has during the 1950’s and 60’s. Even so, Japanese manufacturing remains significantly more efficient than US manufacturing, and although it printed lots of money, it has continued to have a high savings rate, and positive trade balance. Unlike the US it is not dependent upon foreign lenders. But, it is dependent on foreign markets, and exports. The resumption of growth in China and Asia appears to be having the consequent effect on the Japanese economy.
Europe too, is behind the curve, partly due to the more limited monetary and fiscal response compared to that of the UK, and US. But, in Europe too, it is clear that the worst is over, if it might take longer for actual growth to resume. But, with less debt, and fewer of the problems that plague the UK and US economy, it is likely that once that growth does resume, Europe will quickly overtake both in real economic growth. It now seems inevitable that within the next year or so, htough probably not as a single event, but as a process, the Euro will replace the Dollar as world reserve currency.
But, this is only to state what I said in my blog The World Economy , which is that the economy on a global scale is marked by a combine and uneven development. It does not move at the same pace, or even in the same direction everywhere at the same time, but all aspects of that economy are nevertheless interrelated. Indeed, one of the reasons that the Left has to reject nationalistic manifestations within the Labour Movement, one of the reasons why the Nationalists and Protectionists are more reactionary than ever is precisely because of that fact. And importantly, because of that it is necessary to tell the truth to the workers even more clearly, even socialism cannot suspend the laws of economics!!! In a world where a global labour market exists, it is no use whatsoever, offering to workers in an industry in the developed world a solution based on nationalisation by the bourgeois state, when the real reason for its uncompetitiveness has nothing to do with its private ownership! Even a Workers State could not survive long if it insisted on paying its workers high wages to produce goods that Capitalism was producing on the world market much more cheaply using much cheaper labour!!! Only if it shifted its production to other areas where it could be competitive could it survive for long, only if it attempted to link up with workers in Co-operative and socialistic enterprises in other countries, and thereby began to develop an alternative to Capitalism on a global scale could it hope to survive in the longer term. The same is true, in terms of the solutions that Marxists offer to workers now in those conditions.
The resumption of growth on a powerful basis will create the best conditions for that perspective to be developed, but it has to be a different perspective to that, which the Left has had in the past, a perspective that was based on statism and reformism, or a maximalist dreaming of revolution essentially from out of nowhere.