Building on Confidence

For the last fortnight or so, I’ve been busy laying slabs, landscaping and building dry stone walls, so I’ve been too busy to proceed much further on putting together my analysis of why this will be the last quarter of negative economic growth. However, the economic data continues to come in showing that the basis thesis is being confirmed. The latest was the US Consumer Confidence Data which came out on Tuesday. It showed the largest increase in 6 years, and went up to the level of September last year prior to the onset of the recession.

The Index rose by nearly 30% from last month rising from 40.8 to 54.9. See: US Consumer Confidence . Other US data showed that although house prices were still falling on an annualised basis, the fall is being reduced. In fact, detailed figures showed on a monthly basis house prices were rising in some parts of the country. In addition, US Existing Home Sales also increased by around 4% compared with the previous month, though housing inventories remain at very high levels. In Britain, Net Mortgage Lending fell. This appears to be due, however, to a reduction in remortgaging as people benefit from the existing low rates. At the same time, the number of new mortgage approvals rose by about 4% compared to the previous month continuing the rising trend from the beginning of the year.

In fact, most economists now agree that the worst of the recession is over, and that the second half of the year, or the beginning of 2010 will see a resumption of growth. The discussion has shifted to the strength of that recovery with all sorts of descriptions using various letters of the alphabet from L to W, and various other symbols such as the Nike Swoosh, and the Square Root to describe the shape of the graph of decline and recovery. Those who refuse to see the end of the recession tend to be those on the Right, the Libertarians, Austrians and their attendants who ideologically are committed to the view that only disaster can result from the kind of “socialistic” state intervention in the economy that the last few months have seen, and those on the Left, who are equally ideologically committed to the view that Capitalism is always on the verge of imminent collapse, which they hold to out of desperation in the hope that it might provoke some kind of working class revolt, thereby removing from them the arduous task of having to actually relate to and work with the existing working class.

In fact, as I will show when I can present my overall analysis, the recovery is likely to be stronger than most people envisage. Part of the reason for that is the fact of the Long Wave boom in which we continue to exist. The other part, and related to that is the nature of the recession and recovery. In short, it is to do with the innovation cycle. I’ve been fascinated to watch a number of programmes about the extent to which the US is beginning to invest in alternative energy – now surpassing Germany to become the lead producer of Wind Energy, for instance. There is an interesting article by Bjorn Lomborg in the NYT, about why such investment offers opportunities for Capital. Lomborg . This emphasis on Research and Development to create new low-carbon technologies not only offers the most efficient means of reducing carbon emissions and climate change, but offers technologically driven economies such as the US a means of dealing with the economic situation they face of being unable to compete with low wage economies. Not surprisingly, we see the US government beginning to provide incentives for such industries, and beginning to talk about the introduction of carbon taxes on the old polluting industries, as well as similar moves in relation to vehicle emissions, and incentives for fuel efficient cars. Even oil men like T. Boone Pickens are investing large sums in this new technology. As Lomborg pointed out in another article, this kind of development is much more efficient to some of the other options like planting forests. See: We Don’t Need Five Planets .

In fact, the nature of this economic crisis, sparked by the Financial Crisis, is basically structural. Exacerbated by the nature of Monopoly Capitalism, which allowed Capital to be locked up for long periods of time in huge monopolistic firms such as General Motors, Capital failed to be efficiently allocated. The nature of crises according to Marx is to bring about in violent form the necessary readjustment and reallocation of Capital. Now huge amounts of Capital that was misallocated in firms like GM – along with the Labour that it kept employed – is being reallocated, and the kind of adjustment that Marx described is taking place – along with the corresponding readjustments on a global scale – See my blog: A Crisis Out of All Disproportion amongst others.

In short, in a global market, and global labour market, countries like the US can no longer compete in the production of many manufactured commodities, which require large amounts of unskilled labour, because US Labour Costs are simply too high compared to those in countries in Asia, Eastern Europe, Latin America, and increasingly even Africa, where these commodities can just as easily be produced. Marxists have to tell the truth to workers in developed economies that in the longer-term, these kinds of industries and jobs will either have to go, or else workers in developed countries will have to accept a huge fall in their living standards, unless Capitalism is overthrown – and even then they might still struggle to compete in these types of production. It is no wonder that we see a rise in Nationalistic sentiment, and of Protectionism such as that of No2EU.

The solution for Capital in the developed economies is to move to those areas where it has an advantage – areas which require large amounts of skilled labour, which require huge expenditure on Research and Development, which require large amounts of innovation. Again this ties into the nature of the present conjuncture. I was looking recently at figures for my own area in North Staffordshire. Although the figures for job losses were higher than the average, the figures for new business start-ups were also higher than the average. In periods of Long Wave downturn there can be lage numbers of start-ups as people made redundant and with little hope of new employment in the immediate future look to become self-employed – especially where they have some kind of skill – and scrape around for work. However, in periods of Long Wave boom such as now the start-ups are different. They tend to be entrepreneurs who see an opening for some new commodity or market.
Look at the number of bio-tech companies that have started up in the last ten years. Look at the number of Science Parks that now adorn every University Campus in the country. Why? Because these kinds of businesses CAN compete on a global scale. The low organic composition of Capital, by which they are characterised means a high rate of profit, and the Universities are happy to welcome and encourage them, because like the old time Landlords, it means that they can charge high rents out of these high profits!!!

It is this nature of the conjuncture, the possibility of large amounts of Capital flowing out of long moribund firms such as GM into vibrant new industries based on base technologies created during the last innovation cycle, industries with high rates of profit that will give, the recovery from the present recession its powerful impetus. In addition, the rapidly developing economies in Asia – now also benefiting from the fact that the investments in new mines etc. of the last decade has begun to bring on stream new raw materials supply, with a consequent fall in primary product prices – continue to grow rapidly. Their domestic markets will soak up not just the increasing production of manufactured goods from the new workshops of the world, as Capitalism does what it has always done and creates its own market within these economies, but will also be markets for these new products from the already developed economies. The downside is that these new industries in the developed economies will not employ vast numbers of people. They will, however, go some way to providing the resources to continue to employ large numbers of lower paid workers in various forms of service industries.

At the same time that on a global scale living standards will tend to come together – because given the above the living standards of many workers in the developed economies will fall relative to those in developing economies – we are likely to see a widening of living standards WITHIN economies, between those very highly skilled, highly educated workers in these new industries, and those employed in unskilled service sectors.