A Momentous Change - Part 1

A work colleague I had a few years ago, who was a pretty smart guy, once said he saw knowledge as being like a series of bits of knowledge that you pick up that appear unrelated, but the more bits you pick up, the more you begin to make links between all those separate bits. Put another way, I'd describe it as being like doing a jig-saw puzzle for which you have no picture. You can get all the straight bits first and the corners, and get an outline, but on their own each bit makes no sense. Slowly you get a few pieces together that make some sense. You end up with clumps of picture, that only as you fit in the other pieces get to go in their right place, and the whole picture makes sense. I feel like I've had one of those moments. I think that we are in for a momentous change.

The change I think is going to be a dramatic rupture and restructuring of Western economies. One of the fundamental levers, which will provoke and facilitate that restructuring, I think is going to be a collapse in the property market. Most of us have never seen a momentous change of the kind I am talking about, which is why it is difficult for us to comprehend it. There's a story about the man who falls from a 100 storey building. At first he is alarmed, but as he sails past several storeys and nothing happens, he becomes complacent. The longer his fall continues the more complacent he becomes, and is most complacent just as he passes the 99th floor! In short, the longer we have a period when pretty much everything continues as normal, the longer we believe that everything will continue to be that way. To use another term having never seen a Black Swan we become confident that they do not exist. Even allowing for the 1980's, we have had a period running from 1945 when for most people things have proceeded as normal.

To understand what is happening, and why its happening its necessary to look back. That will mean covering ground I've gone over before several times, so I'll try to summarise that as much as possible or give links to previous posts, but there are some new things to add to it.

Its necessary to go back to the late 1970's. By that time the Long Wave Boom was well and truly over, and the Keynesian stimulus measures adopted by governments had only succeeded in producing stagflation. According to Marxist theory, one function of a generalised crisis of overproduction is to force a restructuring of Capital. Inefficient Capital is driven out making room for more efficient Capital to expand its market share, and Capital leaves those areas of production where Capital has been overproduced, and where commodities can no longer be produced at a profit, and enters new areas of production where new markets can be established, and new channels of exchange developed. This is often, within the context of the Long Wave, also associated with the development of new geographic areas both within national economies, and within the global economy.

Aspects of that could be seen in the 1980's, with the development of areas such as Silicon Valley, but could also be seen in the development of new economies particularly in Asia. Back in the early 1980's I described how I saw this process developing of a new International Division of Labour. Overall, I'd say the picture described their has proved pretty accurate. However, although it cannot be said, as Martin Thomas supposed, that major new manufacturing industry developed in the advanced economies – in fact, the advance of the service sector, and in particular of the Finance Sector has been probably more than I would have expected – it is also the case that some of the old manufacturing industry, particularly in the US, did not shrink as rapidly as I would have expected. I've given an explanation for that in several posts. That is that some of these industries, such as the US Auto industry, were so large that large sections of the domestic economy were dependent upon them for their existence. If they had been allowed to fail, the knock-on effect would have been dramatic, probably sending the US economy into a worse Depression than the 1930's, with the consequent effects on its global power. At a time when the USSR still appeared to pose as a credible alternative, that would have been a disaster for the US. In fact, one reason that the US adopted the New Deal, in the 1930's, was the fact that a booming USSR gave a practical alternative vision of how economies could be organised. Neo-Liberalism acted to guarantee their continued existence via control of macro-economic policy, through Monetary stimulus, leading to the ballooning of asset prices, and the twin deficits, which resulted in the Crash of '87.

But, there was another factor involved, particularly in the US, and that is down to the actual monopoly position of these companies. Josef Steindl in “Maturity and Stagnation in American Capitalism” (Monthly Review Press 1976), argued that in the 1930's it was the existence of Monopoly and Oligopoly that enabled very large firms to resist the need to restructure. They were able to use their massive size to push the burden on to others, and also to use their huge Balance Sheets to simply sit it out. I would argue that that is also precisely what the US giants like GM, Ford, and GEC did. To the extent that they did restructure, it was not into new areas of production, not into the new dynamic industries of technology, and so on, but into the burgeoning financial sector, which they could simply tack on or grow from their existing activities.

In short, the cleansing function of a generalised crisis was not allowed to do its job thoroughly. That is not to say that there was no restructuring of Capital in western economies during that time. In the late 1970's my father who was an engineer was made redundant. For almost the entire period after the War, when he came out of the Army, he worked in the Maintenance Shop of a large local tile company. In the late 1970's and 1980's, they were not alone in closing down everything other than their core business, and farming out these other functions to small external companies. It meant they could reduce their costs resulting from paying workers without sufficient work. It meant that as large companies they could force prices down for work by utilising the competition between, and lower bargaining power of smaller companies.

In an article in Capital & Class 19, in Spring 1983, entitled, “The Decentralisation of Production – The Decline of The Mass-Collective Worker?”, Fergus Murray set out the various means by which this kind of restructuring was taking place. Its clear from this that globalisation, the relocation of production, or the sourcing of components, fits into this process, as just another physical location. The fact that this process of globalisation took on its own dynamic, and some of these locations became central hubs for Capitalist development is itself nothing new. In the 19th Century, a large part of the development of industry in both the US and Germany occurred as a result of the export of existing British Capital. At another level, the decision of IBM, then the world's largest IT Company by far, to farm out the work of producing an operating system to a small company proved to be its undoing. That small company of a few college boys working from a garage turned into Microsoft!

In effect the old Taylorist continuous flow methods, which required a high degree of measuring and control were replaced with what could be described as a modular structure of production. That was true inside the workplace too. The various lessons learned in what came to be called “After Japan”, where western analysts and managers visited Japanese factories to see how they obtained such high levels of quality and productivity, led to the establishment of work groups and quality circles. That meant devolving a large measure of autonomy over the work process to these small groups of workers. They decided how best to meet their production targets. Rivalry and competition between work groups, spurred by financial incentives led to productivity increases of up to 100%. But, once learned, benchmarking and best practice could be spread to raise productivity levels elsewhere. This was an extension inside the factory of the competition between external suppliers that large companies were able to employ to push down costs. The extent to which that was a powerful weapon was demonstrated a few years ago when the two large US Corporations Colgate-Palmolive and Gillette merged, because it was said they were finding it difficult to obtain high enough prices for their shaving and male toiletries products from Wal-Mart, which dominates US retailing. Only combining their resources was enough to provide the kind of counter-bargaining power.

That modularisation of production can be seen in other areas, particularly in auto production. Long gone rae the days when a car was the product overwhelmingly of one car company. Today's cars are essentially made up of modules, which are assembled. The engine is one module, gearboxes another and so on. The same engine that sits in the engine compartment of an Audi or Volkswagen or Skoda, also often sits in that of a Ford. This modularisation again not only reduces costs, because manufacturers can join forces to develop new engines, for instance, but it means that production of each module can be located anywhere in the world.

But, IBM is probably a good example from another angle. In the end it disposed of much of its traditional business in the production of computer hardware, much of which could be produced significantly cheaper in Asia, and instead refocussed its business on where it could have a comparative advantage. Having spent decades building a business not just selling computers to large companies and organisations, but selling them an overall package of Systems Analysis, Business Analysis etc. it was in a good position to utilise those links, to develop its human resources of highly qualified and skilled workers able to offer a wide range of business solutions. That it should do so is not surprising. In the 19th Century, the growth of railways drove a restructuring of Capital, as goods and materials could be moved, in bulk, quickly and cheaply over large internal distances without concern for where existing roads or canals existed. It changed where markets and production centres could develop. In the Twentieth Century, the development of steam shipping on a large scale brought about a similar restructuring on a global scale. The introduction of intercontinental telecommunications facilitated that transformation, but, as Murray points out, the development of truly decentralised production could only occur with the development of decentralised computing. It is the development of such computer networks which enable things like Just In Time stock control to work, for example. Once again the value of Marx's historical materialist method can be seen in practice. Just as much as the invention of the Spinning Jenny and other pieces of technology shaped the productive forces, and with it productive relations, so we see again the development of the productive forces in the shape of the microchip, and the Internet shaping productive relations on a global scale. And with it social relations within Imperialism are being reshaped and restructured too, as the recent G20 began to show.

But, the shape of Imperialism has also been determined by that preceding period running from the late 1970's. On the one hand, the very large firms like GM were able to spread out across the globe without completely dismantling their home production. Smaller companies decentralised and restructured, but as globalisation intensified, many of them, unless they were in specific niche markets, either had to relocate to Asia or other cheap production centres, or else went bust. My wife has just bought some new mugs. Despite the fact of living in the Potteries, which once supplied much of the globe with its crockery, a look at the details showed that they were designed in England and made in China. That is an application of that same approach of IBM – forget about competing in the provision of cheap unskilled labour-power, and instead focus on a comparative advantage of skilled, educated labour-power. That is the restructuring of Capital that should have occurred during the intervening period, providing the breathing space for a levelling out of living standards between West and East as wages rose sharply in Asia. In part it did, that is why there was a huge increase in employment in Financial Services, for instance. But, the experience of economic development over the last 250 years is that it is only when a range of new industries develop significantly that the conditions for exchange between them is created, and, therefore, that the basis for a new dynamic expansion exists. The base technologies for the development of a wide range of these industries exists, and it is clear what the outline of these new industries is – an expansion of various forms of ICT, businesses based on the Internet, (the Computer Games Industry already amounts to billions of dollars per year, and is surpassing Cinema), the development of bio-technology, nano-technology etc., the use of such development, and growth of Green Energy Technology, etc.

Forward To Part 2