Sunday, 29 July 2012

A Reply To Paul Smith - Part 1

This blog post is a reply to Paul Smith's letter in the weekly worker (19th July 2012). This follows a prolonged series of letters between us that started after I took issue with some of the points he made in an article - The Politics Of Fear & Despair.  Unfortunately, that discussion has followed a well worn path. Paul makes a number of statements about the global economy being in crisis, without producing any actual data to back up that claim. Then, when I do provide data, showing that no such decline is occurring, Paul, again without providing any data to back up his claims, merely responds by saying well the facts you have provided might mean something else.

I feel a bit like Richard Dawkins in a discussion with an evangelical. The problem with any such discussion is that it is always more difficult, and more tedious, to prove your case, with resort to the facts, and to present such a complete and indisputable set of facts, than it is for someone, who simply bases their case on dogma, to simply reiterate their articles of faith, and to question the data you have provided without providing any data of their own to demonstrate that it is, in fact wrong!

Replying to Paul's latest letter adequately would have taken up more space than could reasonably have been done in a letter, so I have agreed with the comrades at the WW, instead to provide my response here, with a letter to their paper, referencing it instead. In order to make the whole debate intelligible without recourse to searching out and reading all the preceding correspondence, I have tried here to summarise the main points of the debate. I agree with Paul when he says that it is important to have this debate, because the question of whether Capitalism is in fact in decay, is important. What is also important is the question of what consequences such decay have for socialists and their strategy. I have, therefore, expanded that discussion to look at what Trotsky had to say about the role of the Long Wave, and its consequences for political action. In order that this extended response is in more manageable pieces I have divided it into three parts.

It is important also for what the continual search for such crises, and collapses, says about the mentality of the Left itself. As I have stated before, the psychological roots of this kind of Catastrophism are the same whether it is manifest in the form of religious prophecies, predictions of Environmental Calamity, or Economic Crisis. Psychologically it represents a sort of defeatism and demoralisation. Those predicting, and in reality hoping for some kind of catastrophe are really admitting that they have given up trying to exert control, and have instead come to rely on some external force coming to their rescue. For the religious it is the Second Coming. For Environmentalists it is a combination of a hope that predictions of some calamity will lead to people changing behaviour, or in its worst form, seeing such a catastrophe as the means by which industrial development etc. is brought to a halt. For, the Left its a hope that such a catastrophe will lead to some miraculous process whereby the working-class rise up, having become class conscious, overthrow Capitalism and proceed to Socialism. It is of course, absolute nonsense and nothing to do with Marxism.

The extent that that is the case can be judged by the fact that such a collapse is also looked forward to by those on the Far Right of various stripes. UKIP are making the most of the current European Crisis to argue for a return to Nationalism, and autarchy. The BNP are doing the same, and see any serious collapse as precisely the conditions in which in the past Fascism has prospered. The Anarcho-Capitalists seek such a collapse because they see it as the means of destroying “phoney Capitalism”, and bringing about a return to some kind of 18th Century economy based on a myriad of small, essentially peasant owners. In reality, those on the Right have far more reason to hope for such a collapse than the Left. Any prolonged period of economic weakness will, as it has in the past, act to weaken workers organisations further, weaken workers solidarity and ability to resist, and promote all of the individualist notions of a war of all against all, that such conditions necessarily create, as well as bringing to the fore all of those baser human instincts that go with it, and which are the feeding ground for the Far Right. For all those reasons this debate is important.

Paul Smith says,

Bough’s science conforms to the inductive method. It relies on generalisations from observable facts or data. These consist of growth and trade statistics.”

My science relies on the same method as Marx, which is to begin with the facts and then try to analyse them honestly. By contrast, Paul's method is to begin with a preconception based on faith, and then trying to use any argument you can to deny the facts, without actually providing any factual evidence yourself, to prove that those facts are invalid! I have not at all relied on generalisations from observable data, but have provided extensive data on both a global and national basis showing that not only is Capital not in decline, but is growing at a very rapid pace. Moreover, that pace measured by global GDP, by the growth of trade, by the growth in the global labour force by around a third in the last decade, by the growth in capital accumulation, and by the extent of new technological developments, has markedly increased in the last ten years, indicating the power of the current Long Wave Boom. Paul does not actually provide any evidence to back up his argument that the massive growth in output is not really an indication of vibrancy, he is content to simply try to find some possible explanation for the facts not fitting his religious belief.

Let us look at the actual economic data I have presented that Paul refuses to accept proves that, not only is Capitalism not in decline, but Global Capitalism is experiencing the most powerful Long Wave Boom in its history.

  1. Of all the goods and services produced in Man's entire history, almost 25% have been produced in the last ten years alone!

  2. From 1999 on, Commodity Markets turned sharply upwards, as demand for all raw materials, and foodstuff increased sharply as the new Long Wave Boom began. It has seen steady increases in the prices of Copper, Oil, Corn and almost every other commodity, as global demand, fuelled by rising economic activity in China, and other BRIC economies, as well as the rising demand of millions of new consumers in those economies rose sharply

  3. The extent of the new Boom starting from 1999 can be seen in the change in the figures for world trade. Between 1980 and 1990 global trade rose from around $4,000 billion to around $6,000 billion, remaining flat until around 1994 (i.e. 50% rise in 14 years). Between 1994 and 2000 it rose from around $6,000 billion to $12,000 billion (i.e. 100% rise in 6 years). But, the sharpest rise has most notably been since 2002 where it rose from around $12,000 billion to around $28,000 billion by 2007 133% rise in just 5 years!). (Source: WTO Thomson Datastream)

  4. In 2007, Bridgewater Associates in its comprehensive survey found that for the first time since 1969, not one single economy in the world was in recession.

  5. It was not just the BRIC economies that were experiencing rapid growth like China's growth of around 10-12%. On the back of its demand for food and raw materials, economies in Latin America were growing rapidly, and for the first time economies in Africa and Central Asia were beginning to grow rapidly too. Azerbaijan grew at around 26% as did Angola, whereas Mauritania grew at around 18%.

  6. Even after the Financial Meltdown of 2008 caused western economies to freeze, the economy in China continued to grow at around 8-10%, and many of the other BRIC economies, as well as the economies in Latin America and Africa, and Central Asia, providing them with foodstuffs and raw materials continued to grow strongly too.

  7. Those economies that adopted Keynesian stimulus measures quickly recovered from the Financial Meltdown, as the Banks were nationalised, and liquidity put into the system. The US at one point was growing at an annualised rate of 5%. It is still growing at around 2% p,a, The UK was growing at around 2.5% p.a. before the Liberal-Tories crashed the economy with their Austerian economic madness. Even with the Eurozone Debt Crisis, the Eurozone, and the EU as a whole has largely not fallen back into recession. Some of its economies have grown rapidly.

  8. Until recently, Germany was growing at around 3% p.a., whilst Sweden was growing even faster.

  9. World GDP has risen from around $41 trillion in 2000, to around $70 trillion in 2011.

  10. According to the ILO, the world labour force has grown by around a third in the last ten years. The number of workers employed in industry has risen by around 30% or about 150 million workers, the number employed in services has risen by 35%.
Despite all of this data, Paul believes that any increase in economic activity is really just a mirage, which can be accounted for by the growth of Financial Services or other unproductive activity!

He then says,

As far as I know, there is no statistical evidence that can distinguish between growth rates and capital accumulation.”

I find that an astonishing comment for anyone who considers themselves an Economist to make. If Paul is so ignorant of basic economic data, its no wonder he relies on his faith, and repeating ideas put forward by Lenin 90 years ago (which were wrong even then). The World Bank amongst others produce lots of such freely available data. Its website provides the data on Fixed Capital Formation, for instance, a standard measure used by economists to gauge capital accumulation. It shows that FCF rose from around $7 Trillion in 2002, to $14 Trillion in 2010. That is, not only did World Output double in the last decade, but Capital Accumulation also doubled.

Paul has tried to claim that the growth in output has been all down to the growth of Financial Services, though, of course, he has provided not one single piece of actual data to back up this assertion. The data on FCF shows this to be false. The data on growth in goods and services shows it to be false, and what is more the growth in the number of additional industrial workers (up 30% or around 150 million workers) shows it to be false. The only figure in this respect that Paul has given is the growth in the value of derivatives. But, these do not figure in the calculation of trade or GDP figures. The only aspect of this that would so figure, is the earnings of Financial Institutions involved in the trade.

He says,

I contend that growth rates do not distinguish between prices and value.”

But, according to Marx from the perspective of Capital in General, prices equate to values! He continues that the data “show nothing of growth in productivity or in job creation.” But, I have provided the data showing that the global working class grew by around a third in the last decade, or around 500 million workers, a fact he seems to have completely ignored. The majority of that growth has been in developing economies, precisely where the majority of industrial production has been concentrated, whereas it is in developed economies like the UK and US, where Financial Services are located. And, of course, during that period we have also seen a considerable growth in productivity as a consequence of the introduction of computers, robots etc. The combination of rapidly rising productivity, and of rapid growth of the labour force, is itself a powerful indication of the extent of growth, and of Capital Accumulation.

Paul continues,

He seems to be unaware that rapid growth can be an expression of decline.”

Ask those tens of millions of workers in China, or India who have been “rescued from the idiocy of rural life”, and have seen their living standards rise dramatically whether this rapid growth looks like decline to them! Of course, other than referring to a rather tenuous link with the expansion of a star before it goes into supernova, he provides no explanation of what he means by this claim. The only basis of it in Marx, is his statements about how a crisis of overproduction arises. But, there is no indication that there is any such crisis of overproduction. As Engels recognised towards the end of his life, the establishment of large Trusts and Monopolies had removed the element of planlessness within Capitalism. The linking of those Trusts and Monopolies to a large interventionist Capitalist State, has further removed the element of planlessness. Crises of overproduction today manifest themselves not in the way they did in Marx's time, but by Capital running up against the limits of consumption. That is, Monopolistic Competition drives large firms to seek to win market share by continually improving quality, and reducing costs of production through innovation. Continual reductions in costs, bring about continual reduction in Exchange Value. Meanwhile, workers consumption needs are increasingly satisfied for the range of available Use Values. That is particularly true of the period of Fordism that accompanies the last Long Wave Boom, whereby large firms operated on a basis of “mutuality agreements” with Trades Unions, providing annual rises in real wages linked to even larger rises in productivity.

In order to sell these Use Values, firms are forced to reduce prices to levels that do not ensure the reproduction of the Capital consumed in their production. Monopolies, slow down, and then cease large scale investment, and during periods of more serious downturn, actually reduce their Capital, sacking workers and so on, which acts to further reduce Aggregate Demand, adding a further downward twist to the spiral. Only when a new Long Wave Boom starts to form, and new types of Use Values are developed to be sold, at a profit, which provide an outlet for capital investment, does it become possible to begin increasing Capital Accumulation at a rate that creates the conditions for sustained growth. Given that what we see at the moment is vast new ranges of Use Values being produced, and even more on the horizon to be produced (3D TV's, whole new ranges of medicines, biotechnology etc.); given that we see rates of profit, both at a global, and enterprise level continuing to rise, from already high levels; given that we see Capital with no shortage of profitable productive outlets either at an industry or at a geographical level; given that we see technological developments on such a scale as to ensure that not only is there an increasing number of new products to be produced, but also the potential for massively increasing productivity; given that Capital Accumulation in fixed capital formation is increasing; given that Global GDP is growing; and given that global trade flows are increasing it is clear that there is no such problem of production exceeding potential consumption.

In fact, a look at the rapidly growing levels of consumption in China and elsewhere indicates how far from the truth that is.

No comments: