Prediction
Back at the end of April I argued that the second quarter of 2009 would be the last quarter of negative growth in the recession The recession Is Over . There was no shortage of people to disagree with such a view. Some of the views of others were summarised in this blog by Charlie McMenamin among a number of other good discussions around the issue he produced at the time.
Given the sharpness of the recession as the world economy dropped off a cliff at the end of 2008, some scepticism is to be understood. But, the fact is that even back at the beginning of 2008 there were organisations on the Left who were already saying that the economy was in recession!!! Even some Left economists like Bill Jefferies over at Permanent Revolution, who had stood out against that trend at the time, began to buckle under pressure of Left Public Opinion at the end of last year revising their former positions about when the recession began. See the discussion here .
Recovery
In fact, having predicted the outbreak of the Financial Meltdown in July last year, the prediction of the end of the recession has been almost as accurate. I say almost, because in fact, the prediction was actually too cautious. In fact, for Germany and France, the last quarter of recession was the first not the second quarter of 2009. Both had growth of 0.3% in the second quarter. As stated in a recent blog, Singapore, which is important because of its role as a trading hub, had stunning growth in the first quarter of 2009. Today, Hong Kong has announced that it had growth of over 3% in the first quarter, massively beating expectations of growth of only around 1%. Even the Eurozone as a whole only had marginally negative growth in the second quarter. Again as detailed in an earlier blog, although Britain on the first reading had negative growth of 0.8%, compared with the more than 3% negative figure for the first quarter, and the likelihood that the second quarter figure will be drastically revised up, this demonstrates a marked recover. Even the US is showing signs of a similar turnround, and unemployment figures have been showing considerable improvement, along with lower level data on hours worked etc.
A few weeks ago, at a local meeting, I said to Brother S. that I thought that the shape of the recession and recovery would be a kinked V. That is a sharp downturn, followed by a sharp rebound, followed by a brief levelling, prior to a long, powerful upward movement. The reason for that is simple. After such a sharp downturn, sparked by fear and loathing, resulting from the financial meltdown, the natural reaction is for inventories to be run down. In part, it is this run down, along with other cost reductions, which has fuelled the outperformance in company earnings over the last two quarters. But, once it became clear that the world was not going to end, those inventories had gone and firms had to at least place orders for some stock, to the extent that they also began to rebuild inventories a mini-accelerator effect would be put in place. As yet, no real rebuilding of inventories has taken place. But, the resumption of orders, the knock on effects of fiscal and monetary stimulus, for example, through the various scrappage schemes put in place by Governments, has created that first short, but sharp snap-back. As that unwinds there is likely to be some levelling off, until such time as the inventory rebuilding takes place, and new investment sets off a real accelerator and multiplier effect, stimulating employment and income growth, which will feed through into increased consumer spending. Already, there are signs of stabilisation on that front both in the US and UK in relation to house prices etc. Given that the world economy remains firmly within the Long Wave boom, and that the driving force of that boom in Asia is already powering ahead, and given the huge monetary and fiscal stimulus pumped into the world economy when that real upturn occurs some time at the end of 2009, beginning of 2010, it is likely to be extremely powerful. In fact, much of the money printing has so far had little effect on the real economy. It has had the effect desired of shoring up the Balance Sheets of the Banks and Finance Houses, but other than in China where the Stalinist State, overseeing a Command economy has been able to direct funds directly from its banks to economic activity, the huge amounts of paper printed have remained sitting on Bank Balance Sheets rather than going out to finance business. That is the phenomenon described by Keynes as “pushing on a string”. In other words you can pump the money out, but unless you then get it circulating it does not have the desired effect. Marx showed that the formula is MxV=QxP. That is the the amount of money in circulation multiplied by the velocity of circulation (the number of transactions any pound coin can actually finance in a year) is equal to the average price of commodities multiplied by the total volume of commodities being circulated. M went up, but V came down. The fiscal stimulus was intended to remedy that situation. In part it has, but in the US, for example, on about ten percent of the stimulus has yet found its way into the economy. When it does later this year its going to have a big effect. Again as stated elsewhere, and simply applying the above formula, once V begins to rise as economic activity is stepped up, then without a huge rise in Q, P is going to rise big time, because it is unlikely that Central Banks can rein in M quickly, or will dare to do so and risk throwing economies into a second dip.
Inflation
Nor as stated previously will they have an incentive to do so for another reason. In all previous situations like this throughout human history, governments have dealt with massive public debts via inflation. They can’t say that is what they are going to do now, because if they did the trick would not work as everyone adjusted their actions accordingly. But, 20% p.a. inflation for 3 years would go a long way to reducing the UK debt to manageable levels. The burden would fall as usual on workers who couldn’t raise wages fast enough to keep pace, with those on fixed incomes, on small savers, whose savings became devalued. The beneficiaries are the Government whose debt is slashed, others in debt, and companies whose profits rise alongside prices. That is likely to be the course in the US and UK with a consequent big reduction in the value of the two countries currencies. That will mean the stage will be set for the UK to begin discussions about Euro entry – as the real state of the UK economy as a fourth rate power dependent on the EU economy becomes manifest, and will be driven by the interests of Capital over any remaining hostility by the small Capitalists and nationalist petit-bourgeoisie – and for the Euro to assume its role as world reserve currency in place of the dollar.
A country’s Exchange rate is a measure of the standard of living of its people. The declining value of the Dollar and Pound, and the rising value of the Remnimbi and other Asian countries, as well as that of the Euro will simply be a reflection of that new 21st Century economic reality of relative declines in living standards in the former and rises in the latter.
Faith & Objectivity
Of course, people on the left were not the only ones predicting that the End of the World was nigh. Similar predictions existed in the Far Right. And various pundits such as Nouriel Roubini not only predicted a much more serious recession, even Depression, but continue to argue that things will get worse. Why? The actual reason is lack of objectivity. Analysis based instead on ideology. One of the Financial websites I have visited for the last 6 years or so The Daily Reckoning has been arguing for at least that length of time that the world was going to hell in a handcart. They even used Kondratiev’s Long Wave theory to argue that a new downturn had commenced in 2000, despite the fact that the dates simply could not sustain such a conclusion. But, the people at the DR like many whose domain is the world of Finance and speculation rather than the real economy, and who to a large extent also reflect the ideas of the petit-bourgeois, are entrenched in an anarcho-capitalist, Libertarian ideology – the same ideology of Hayek adopted by Thatcher and Joseph in the early eighties, before they dropped it pragmatically in favour of Monetarism.. That basically leads them to the belief that state intervention is the work of the Devil, and such activity would have its comeuppance in economic collapse.
The same is true on the Far Right, where the hope is that economic collapse will open the door to a more intense Nationalism. A similar view, though if anything more naïve, is held by many on the Left, who think that there is some direct correlation between economic crisis, and working class action. In fact, history shows that its only after a long period of prosperity and the consequent build up of workers organisation and confidence that a downturn provokes militant resistance by workers. At other times like the 1930’s and 1980’s, it simply leads to workers being stamped on even harder. For too long the Left has relied on fantasies. It swings from catastrophism one minute – either economic catastrophism or environmental catastrophism – to wild dreams of insurrection totally unrelated to the real world that blow things up out of all proportion.Proletarian politics and tactics cannot be founded merely on Faith of what we want to happen, but only on an objective analysis, and telling the truth.
14 comments:
Do you think this crisis was a purely financial driven one. Is it unprecedented? I.e. not your classic Marxian overproduction problem?
Why wouldn’t the impact of the rise of China have any effect on the long wave?
And speaking of state intervention being the work of the devil, what is your view of the current controversy of the NHS in the USA, especially given your own critical view of it.
To anonymous: can there ever be any such thing as a "purely financial" crisis? Secondly, surely the rise of China is a function of the long wave.
To Arthur, there are a few other factors to consider. While in reality I think you are right, and that we're about to experience an upswing, I still think that we've turned a corner - and that the appearance of the downturn in popular consciousness is an advantage, not a disadvantage.
Most importantly, I think there's a case to be made - as I have - that Marxists can successfully channel the shattering of post-Soviet capitalist triumphalism. I think, as you seem to, that this can only be made more effective by an economic upturn IF we can couple such an upturn to improved conditions, increased unionisation etc.
For this reason, I think your language ("its only after a long period of prosperity and the consequent build up of workers organisation and confidence that a downturn provokes militant resistance by workers") is overly economistic. 'Prosperity' does not automatically give rise to workers' organisation. Successfully prosecuted class struggle gives rise to workers' organisation, whether the struggle is implicit (i.e. "spontaneous") or led by the vanguard party.
To borrow your example of the 1930s, that decade was preceded by the 1920s, which bears many hallmarks of the 1990s (superficially of course): particularly for the US, it was a period of prolonged economic expansion. Yet, higher levels of workers' organisation did not necessarily flow from this.
In fact, unionization in the US declined in absolute terms during the Roaring Twenties. The growth of the European economies was retarded in comparison (surely owing something to superior unionization, as evidenced by the struggles of the Miners et al; is this not the inverse of your argument?) and, of course, the higher costs of the war.
My point is that you are right, but be careful in such judicious conclusions you don't provide too wide a generalization.
To Anonymous,
Marx says that all crises have their roots in the realm of production. I have argued that this crisis is a Financial Crisis that has its roots in Production. Large amounts of credit were pumped out in the advanced economies over the period from the late eighties to avoid the effcts of the Long Wave downturn causing the same social consequences as those of the 1930's, whilst at the same time productive Capital moved East. But, the consequecne of that process being uneven and incomplete has been the creation of what Marx calls "Disproportion". All crises are crises of overproduction in one form or another. The question is whether the overproduction becomes generalised or not as it did in previous Depressions such as those of the 19th Century, and that of the 1930's.
A crisis of Disproportion means that some things are overproduced and others underproduced. There is a misallocation of Capital. That I think is what the current crisis is remedying.
I agree with Dave Semple that the rise of China is a part of the Long Wave rise. The history of the Long Wave is one in which every upturn is marked not just by the emergence of new products and techniques, i.e. new dynamic industries, but also by new dynamic centres of production - first Britain, then the US and Germany, then Japan, now China and India and other Asian Tigers, in the next upturn if we see one it will be various African Lion economies.
On US Healthcare and the NHS I've said what is needed elsewhere in relation to Marxists and Statet Capitalist enterprise. I will be saying some specific about Obama's Healthcare proposals in another blog.
Dave,
You may be right that the formulation appeared too economistic, but I think if you take the whole of my writing into consideration I'm clearly not standing on that ground. On the contrary the whole of my thesis about strengthening the economic and social position of workers via the establishemnt of Co-ops as an integrated element of a strategy of class struggle, and the use of that as the foundations upon which is built an adequate Workers Party and class conscioussness speaks to the opposite.
I think the period from around 1890 onwards shows the power of the Long Wave in understanding events. After the Great Depression of the late 19th century, a new Long Wave upturn began at the end of the 18880's/1890. Its during this period we see workers gain confidence and unionisation of unskilled workers begins to take off. But its not an immediate, and certainly not a spontaneous event.
But, I think that this prosperity and growth of workers organisations also explains the rise of a reformist mentality and a syndicalist mentality - the idea that you can simply win more improvements within the system, which appeared to be true as Capital COULD make concessions.
The end of the boom in 1914 leads not just to imperialist war, but also to social conflict throughout Europe. Kondratief argued that the US was out of synch with world development. I'd argue that this is comparable to the period of the late 60's early 70's that saw May '68, the Prague Spring, the Civil Rights Movement in the US, the Miners Strikes and so on of the early 70's. But unless, these are pushed through to victory, ultimately the effects of the economic downswing are felt.
Bosses are forced to resist more, and workers are in a weaker economic and social position to fight. Hence in the mid 1920's workers struggles are on the back foot in Europe, in China and so on. The US out of synch grows in the 20's, and although unionisation may not reflect greater workers power objectively the position of workers is strengthened. That is why come the 1930's workers are routed in Europe by either Fascism, the threat of Fascism, or by a powerful Capitalist State, in the US the turn of the conjuncture after 1929 leads instead to the kind of conflicts seen in Europe at the corresponding point in 1917-20.
The corresponding period is the defeats that workers suffered in the 1980's as the struggles of the late 60's/early 70's failed to be pushed through to victory.
The question Marxists have to address is how to develop the economic and social power of workers during those periods of upswing, how to create the necessary structures of workers power in society, so that come the turn in the conjuncture workers are best placed to defend themselves, and advance their own interests. A fighter spends a great deal of time training and exercising, learning tactics and studying their opponent before entering the ring. The working class has to do the same, and Marxists have to be the trainer and coach. Having said that if you are out in the street and a fight breaks out you have to defend yourself best you can, which is why although I wouldn't have chosen the route the Bolsheviks did, I'd have been on their side when the fight broke out.
No I don’t think there can be such a thing as a purely financial crisis, this is why I asked the question. I wasn’t sure if Boffy was explaining the current crisis as a blip in the long wave curve caused by new financial products and was subsequently a historically unprecedented crisis.
Well maybe the rise of China is a function of the long wave and maybe not!
Maybe it has its roots in the long march and the subsequent decision of the victorious ‘communist’ party to ‘liberalise’ the economy to catch up with western development.
The point is that if it is the long wave curve then would a new economic powerhouse not affect the trend of the curve or is this magical curve immune to global eruptions, new technology, famine, floods etc etc?
so you think that this is a crisis of overproduction but only in the west? That the financial explosion we experienced last year was because of the enormous growth of the financial sector in the west during a crisis of over production. That it was a deliberate policy from the governments to provoke debt induced growth so to fend of an economic catastrophy like the one during the thirties? Or that the financialization was a policy on behalf of the states that played a major role to increase the rate of profit, discipline and defeat the workers and indivindual capitals, adavance the mobility of capital (globalization) etc as Panitch and Gindin have shown?
To Anonymouus,
The point is had it not been China it would have been some otehr new powerhouse e.g. India. Indeed, part of my point is that it is not just China that constitutes this powerhouse, but Asia in general. Remember, that Lenin wanted to encourage a similar influx of Western Capital to Russia in 1920, to that which has occurred in China, and for the same reasons. Other than for outright reactionaries such as the Feudalists of the Khmer Rouge, most politicaal forces want to encourage economic development, and in a world capitalist economy the means of doing that involve encouraging the investment of Capital to exploit relatively cheap labour.
On the Long Wave, I suggest you read my blog Kondatiev's Long Wave , which explains that many of the things you see here as being exogenous shocks, are in fact merely aspects of that Long Wave cycle. Clearly, natural disasters do not come into that category, but in the context of a 50 year cycel such events have only minimal economic effect.
To Jim,
The former. In the 70's Capital invoked Keynesian policies, which failed for the reasons I have set out elsewhere. The economic downturn undermines workers position, and faced with a falling rate of profit Capital responds. Labour is weak compared to its position in the 1930's, because the revolutionary traditions and conscioussness that existed in that earlier period were never rebuilt, due to the domination of the workers movement by Stalinism and Reformism.
As a result Workers in the developed economies could be defeated without the resort to Fascism that characterised the response of Capital in the 1930's. But, the NF and otherr fascist groups did grow in that period, sections of Capital HAD considered a coup even against Wilson, and many (mis)characterised Thatcher's Government as fascist, reflecting the fact that compared with the recent past it was a hardline, rightist strong state government.
In this period Thatcher, Joseph and Hoskins as their strategist were directly in contact with Hayek and his school. That shaped their economic policy, of tight money, etc. But, once he working class was defeated and cowed after the Miners Strike, Thatcher embraced Monetarism instead. In contrast to the tiht money policies of the "Austrian" school of Hayek, Friedman argued the need for increasing Money Supply to counteract reduced economic activity. A similar pattern can be seen in this period in the US.
I have written extensively elsewhere what the consequences of that were, so I won't repeat it.
In short, the concept of "sociaally necessary labour" is relevant here. If you take the US car makers they have produced tens of thousands of cars that embody far more labour than was socially necessary.
Another point that became clear today was that in the US another consequence was a profusion of retailers and retail outlets. This is another aspect of the disproportion I was speaking about.
So I see no gernalised overproduction, which is what characterises an economic crisis such as that of the 1930's even in the West. I see a crisis of disproprtion, in which Capital is misallocated as a result of the increase in credit and Money supply over that previous period, which is manifest in Capital in the US and UK, in particular, being tied up in "unproductive" areas, car production, retailing etc., leading to a consequent lack of Capital moving to new more "productive" areas such as alternative energy etc.
That is why growth in the US and UK has been dragged down in the period of the upswing over the last decade i.e. it was stuck in areas where teh rate of profit was low, or where it was actually making losses, and causing a consequent reduction in the potential rate of accummulation.
The current crisis is resolving that situation.
"I see a crisis of disproprtion, in which Capital is misallocated as a result of the increase in credit and Money supply over that previous period, which is manifest in Capital in the US and UK, in particular, being tied up in "unproductive" areas, car production, retailing etc"
I think financialization had the opposite effect from the one you describe. It pushed the individual capitals to restructure and increase the rate of exploitation so to increase the rate of profit. Those that could not keep up were penalized. Finacialization facilitated the movement of capital to areas that can exploit more effectively the workers etc. If we had such a disproportion in the rates of profits between different branches, finance would have facilitate the flow of capital from the branches with the lower profit to the ones with the higher. Apart from the auto industry in the US where else is there overproduction?
I think your analysis imply a world average rate of profit, but that is not true, even during the globalization years, because of the function of the different currencies that prevent this from happening for long periods of time. Second your analysis is tilted towards the profit squeeze theory (profits are falling because of the relatively rising wages) and not an increase in the rising organic composition of capital.
Yesterday saw a further piece of the jigsaw slotted in as figures showed that the world's second largest economy - Japan - joined France and Germany in having postive growth of 0.9% for the second quarter.
Today's figures on UK inflation also point in the same direction.
Jim,
I don't deny that Capital attempted to increase the rate of exploitation. Indeed the move to invest in low wage economies was a central aspect of that drive.
However, as I have argued previously in an economy like the US, it was not possible to simply demolish all large scale manufacturing industry, and ship it abroad. The UK did that far more drastically udner Thatcher, but it is a much smaller economy less reliant on the internal trade that would be decimated as a result of such a destruction of Capital.
The very fact, of the position of companies like GM and Ford as world dominating monopolies enabled them to keep prpducing even though they did so at increasing levels of losses. In fact, financialisation did play a part here, because what companies like GM, Ford and GE did was to use some of their massive hoards of Capital, and enter the world of Money Capital.
GM for years only made money from GMAC, which it used to cover its losses on car production. This enabled other manufacturing companies like Delphi who supplied these companies to continue production, and that effect rippled throughout US manufacturing Capital. Indeed, it was the outbreak of the financial crisis, which brought that reality into alignment with appearance.
I think that there is "overproduction" in a wide range of US manufacturing asa result of this. That is credit allowed the US consumer to keep consuming, and allowed US comapnies, which otherwise would have gone bust or moved overseas to keep going. Similarly, that credit that enabled the US consumer to keep consuming at high levels, meant that retailers could continue to expand, but selling Chinese and other foreign made products. Wal-Mart sourced 70% of its products from China. As a Merchant Capitalist it scooped up some of the Surplus Value created in the Chinese production. The retail jobs etc. created also then kept the US economy afloat.
As I have written elsewhere in the modern world the averaging of the Rate of Profit (there is no actual average rate of profit other than as a statiscal mean, it is merely a continually moving target resulting from Capital always seeking to move to where it can gain higher returns) happens through global Stock and Capital Markets.
Cont'd
To Jim cont'd
For many years the share price of GM reflected the udnerlying truth as Capital moved away from it, and its share price continually fell. But, that didn't change the physical Capital that GM continued to own tied up in its production facilities, and cash on its Balance Sheet. In a world of monster Monopoly Capitalism it takes much longer to make those kinds of adjustments.
Actually, my argument revolves little around the Rate of Profit, over which Marxists have tended to be far too hung up. In fact, if you read what I have written previously you will see that I recognise that during the period of the downturn the Rate of Profit rose - as it usually does during such periods. I also think that during this Spring Phase of the upturn the Rate of Profit is likely to be rising too - along with an absolute icnrease in the volume of Surplus Value - because, not only does Capital benefit from a pool of relatively cheap available Labour, but it also benefits from the invnetions introduced from the previous Innovation Cycle - such as IT, the Internet etc, - which also raise the productivity of Labour, and increase Relative Surplus Value.
Moreover, as I wrote in my blogs on the "Tendency of the Rate of Profit to RISE", and demonstarted in my reply to Dr. Paul Cockshott, it is precisely the nature of the new types of production that developed economies can most profitably udnertake i.e. those in which they have a Comparative Advantage - advanced technology, media production, high-end services and so on - in which a much LOWER organic composition of Capital exists, and where the emphasis is on the employment of relatively high levels of Complex Labour, that a high rate of profit, and the tendency for that rate to rise will be witnessed. That is another reason I argue that Capital is misallocated, and that not enough has yet been sucked into these areas.
As Capital is destroyed in US manufacturing and retailing, as the potential for making quick profits from speculation disappear, Capital will be icnreasingly drawn to these areas, and the actions of the US Government to provide grants for alternative energy etc. will strengthen thatd drive. The money now being pumped into developing electric vehicles, new types of batteries etc. shows the path of development
Boffy, you commented in your Kondratiev piece,
"The whole history of mankind, with or without capitalism, has been one of steadily rising productive capacity, not in some linear fashion, but nevertheless on a secular upward curve."
Is this really true? Didn't capitalism bring forth huge leaps in productivity, unknown in previous epochs? And does the statement apply to all mankind, to every corner of the earth?
Perhaps I have misunderstood but this reminds me of the debate among evolutionary biologists, those that believe evolution is a pretty much steady linear procession and those who believe it is marked by periods of revolution that then change the whole development of evolution.
Your argument seems to belong to the former.
I don't have a probelm with cycle theory, it is obvious that capitalism is periodically prone to crises due to its inherent nature and I recognise that there really are no exogenous or accidental factors but I am less convinced that FUTURE long term patterns can be confidently established.
I mean isn't it possible that these crises will increase in regularity, due to energy and environmental constraints for example?
The simple answer is the quote from me you began with where I say,
"not in some linear fashion"
That's precisely the idea that there is an overall upward trend, which is also characterised by sharp upward leaps as well as occasional dips.
If you read some of my other posts you will see I make that explicit as well as taking on board the idea of combined and uneven development.
See:
world Economy .
Where we've Been Pt1
As for future trends I agree you cannot extrapolate indefintely into the future. I'm not. I'm trying to explain past and present events within a conceptual framework, and suggesting what that implies for the immediate future. At my age the next 20 years seems pretty immediate.
I do not place too much emphasis on various catastrophist theories because even in my lifetime I've seen more than a few come and go. I'm sure that the first humans had people telling them on the basis of available information that food was running out. They had more reason for such fears than we do. On a reasonable estimate there is enough capacity to feed around 35 billion people adequately. I see even Capitalism addressing the question of energy as it has done in the past repalcing wood with coal, coal with gas, oil, electricity and so on.
In fact K's Long Wave theory explains how all of these things are tied together, and how what appears to be a constraint only turns out to be an incentive for innovation, which then fuels the new boom.
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