Understanding the Conjuncture

I’ve said before that we are in a Kondratiev Long Wave Boom that began in 1999 – See: Kondratiev Long Waves . The main features that characterise and lead to the Long Wave Boom can be summarised as: A wide range of potential new products and techniques deriving from new base technologies developed during the previous Innovation Cycle; the availability of abundant cheap Labour; the availability of abundant Capital manifested in relatively low interest rates; relatively low prices of primary products; and finally a relatively high rate of profit.

A look at every previous Long Wave Boom exhibits these features. Joseph Schumpeter, in his works on the economic cycle focuses on the role of the Innovation cycle. Other economists have pointed to similar features in the industrialisation process, for example, “The Take-off Into Self-Sustained Growth”, W.W. Rostow. A look at the first Long Wave Boom identified by Kondratiev that running from around 1790 to around 1817 is a good example. In the preceding period that had been perhaps 30 years – the kind of time period Rostow settles on – during which there was an accumulation of new inventions. All, of these are brought together as the real period of expansion takes place. But, a look at that time frame also shows that all of those other factors had come together too. The revolution in farming has made available cheap foodstuffs as well as other necessary products such as wool. The supply of Capital was present too as a result of a whole period of Capital Accumulation by Money and merchant Capitalists. As a consequence of the Enclosure Acts, and particularly the 1801 General Enclosure Act, a large supply of cheap labour was also thrown on to the market, as peasant framers were thrown off the land. That together with all the previous features, and a growing market ensured a high rate of profit.

The other feature of the Long Wave boom can also be seen in that example too. Almost every new Long Wave boom brings forward some new economic power to lead the development. Although, in 1790, Britain was by no means some economic backwater it should be remembered that even in the field on which that first part of the Industrial Revolution depended almost exclusively – textiles – Britain was far from being the world leader. In fact, even in 1800 the world leader in textile production was India, which provided 25%, of the world’s production. It was only the imposition of swingeing tariffs on Indian textile imports, the destruction of Indian village economy by British colonialism, and subsequently the introduction of steam power, which enabled Britain to replace India in that role.

Similar developments can be seen in the subsequent Long Wave cycles of the 19th and 20th centuries. The current one is no exception. After the defeat of the working class internationally during the 1980’s Capital steadily raised the Rate of Profit in the following 20 years. In 1999, raw material and food prices had reached historic lows. Not only were vast new reservoirs of cheap exploitable labour opened up in Asia, in Eastern Europe and elsewhere, but even within the developed economies large pools of labour, still suffering from the defeats of the 80’s were available as and when production began to rise. The higher rates of profit achieved during the period, the slow emergence of new economic powers whose economies focussed on saving and accumulation rather than consumption created a large supply of available Capital, and finally the huge and far-reaching developments made in a wide range of sciences had in the Innovation Cycle made available a range of base technologies greater in number, and more revolutionary in their consequences than anything previously seen in human history. The developments in Computer Technology with computing power doubling every 18 months, and the subsequent ability to fuse that computing power into the development of other areas of science, in bio-technology etc. meant that these developments went deeper and faster than anything seen in previous cycles. A look at some of those developments from DVD’s to the Internet, Genetically Modified Food to Gene Therapy, the wide application of mobile technology, the digitisation of the whole of life etc. indicates the revolutionary scope of these developments, not just in a plethora of new consumer goods just aching for Capital to find its way into their production, but, in revolutionary methods of production and distribution that slashes costs at a faster rate, and thereby makes possible the rapid take-up of new consumer goods, unheard of even for consumerism.

If we want to understand the current conjuncture we have to ask what of those conditions for the boom still exist, and how powerful do they remain. The first observable reaction to the new boom comes from the reaction of raw material prices. As production is ramped up, and demand for these commodities rises quickly, so prices rise, because during the preceding downturn no investment in new mines, quarried is undertaken. Supply is unable to respond to demand pushing prices higher. Eventually, these higher prices can act as a drag on further growth, but usually before that happens new supply from feverish investment in new mines and quarries resulting from the high prices and profits kicks in after about 12 years. A look at the current picture shows that as the new boom started in 1999, demand for materials rose sharply setting off a spiral of rising prices. That in turn started a goldrush of new investments in Kazakhstan, Latin America and parts of Africa like Angola and Congo opening up Gold and Copper mines, and quarries for every kind of industrial metal you can think of. But, it takes 7 years to bring a Copper Mine on stream, and so in the intervening period prices continued to rise. Oil followed suit, but with the added factor of Peak Oil.

The usual feature of new dynamic economies leading the Boom materialised in the form of China and India, and both began to mobilise the vast numbers of new workers needed from a dissolution of their respective peasantries. In the developed economies unemployment fell steadily, and due to Labour Market rigidities all developed economies sucked in large numbers of migrant workers to do the lower paid jobs that domestic workers shunned. In the meantime, to create the kind of workforces that these economies would need for the new types of production that they would be forced into with mass produced manufactured goods increasingly being produced in low-wage economies, the developed economies increased spending and pressure to engage in higher education, or skills training, in the same way that they had previously at the turn of the last century been forced to introduce state education to provide the kind of minimally educated workers that industrial production required.

In both cases low levels of worker organisation and lack of leadership meant that workers demands remained subdued. But, as both Trotsky and Hobsbawm have pointed out, one consequence of the Long Wave boom is that after a period, workers see that instead of regularly firing, employers are hiring.

See: Trotsky – The Curve of Capitalism Development and

Hobsbawm – “Industry and Empire”

They find they can bargain for higher wages, even if only by moving to a higher paying employer at first. Over time they become bolder, rank and file organisation and militancy rises, and eventually new leaders are thrown up. For much of the current decade that has not yet materialised. In the developed economies struggles remained largely defensive, particularly in Britain and the US whose huge debt overhang limited the strength of the upturn. But, in recent years there has been increasing signs of worker confidence and militancy in China and other Asian economies. In Europe too in France and Germany in particular the strikes have become more offensive than defensive in nature. Even in Britain the tanker drivers strike last year that won large pay increases was a first sign of an offensive rather than defensive aspect of workers struggle. But, as yet those struggles have not reached the kind of levels where as in the previous Long Wave Boom of the post war period they begin to constrict the Rate of Profit – for example see Glyn and Sutcliffe’s analysis of that during the 1960’s – “Workers and the Profit’s Squeeze” – Andrew Glyn and Bob Sutcliffe – See also Andrew Glyn

Nor, unfortunately, have we seen the kind of rank and file organisation of workers that emerged during the 1960’s yet – though this could also be due to changes in the structure of employment in developed economies, let alone the bringing forward of new leaders.

Despite rising, raw material prices, unit costs have largely fallen due both to an extension in production and subsequent economies of scale, but inevitably as a result of the rapid take-up of many of the new techniques and inventions referred to earlier. Roboticisation has taken over from automation in many factories and warehouses. In all aspects of life the introduction of computers and of the Internet into almost every home has revolutionised not just consumption, but production and distribution. From online shopping to online banking. You can even now book your doctors appointment and repeat prescriptions online, not to mention get your own diagnoses from a plethora of medical websites. If you have to go to the supermarket the till operators are already being replaced by self-service tills. RF tagging of products helps track inventories, as well as prevents theft. As the prices of food and other basic items have fallen in relative terms to incomes so whole new areas of consumption have open up to replace the income previously spent on them, whether it is the latest mobile phone with camera, games, Internet access and built in tooth brush, or whole new areas of leisure and entertainment, many stemming from the products arising from that Innovation Cycle.

In fact, from what we can see at the moment that process is still in its infancy. If we compare with the post-war boom then we would still only be in 1959, with all of the technological developments of the 1960’s ahead of us, except this time it’s the 1960’s on steroids. All of that means that even as raw materials rise, and wages rise the rate of profit is set to continue at high levels.
And that high rate of profit, together with the profits racked up by primary producers for their higher priced raw materials and foodstuffs has meant that Capital Accumulation has been rapid over the last 10 years. Vast sums of Capital have accumulated in various funds around the globe, some still waiting for an outlet into some new venture, keeping interest rates low, and thereby enhancing profits of enterprise further.

In short all of the factors that lead to and sustain the Long Wave boom not only remain in place, but remain robust.