Friday, 27 March 2015

The Long Wave - Part 19

The slump of 1974-5, despite expansionary monetary and fiscal policies, dragged on into the recession of the early 80’s, which itself dragged on into the recession of the early 90’s. The upturn in the 90’s witnessed in the West was based actually on the cut in real wages of US workers, and the attacks on wages and conditions by Thatcher in Britain. Moreover, the upturn in those countries, during the 90’s, was based, largely, not on real economic growth, founded on increasing wealth and rising real incomes, but on the very shaky (and ultimately wealth destroying foundation) of massive amounts of debt, which led to the financial crisis of 2008, debt which was the other side of that reduction in wages.

Copper is often referred to as Dr. Copper, because of its ability
to reflect economic conditions.  Nearly all economic expansions
require an increased consumption of copper, and vice versa.  The
movement of its price tends to reflect changes in the long wave,
because it takes a long period, before the rise in demand, and price
leads to a sufficient rise in investment and production to satisfy it,
and stabilise prices.
The period between 1974-1999, was quite clearly a period of Long Wave downturn, whereas, despite the consequences, for the real economy, of the worst financial crisis in history, after 2008, the period since 1999, has followed the traditional pattern of a period of long wave boom. According to the ILO, the world labour force grew by around a third in the first decade of the century alone. 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%. This incessant demand for labour-power pushed up nominal and real wages significantly. That was manifest in a sharp rise in global food demand, as the higher living standards of these workers was first translated into a better diet.

In 2005, Chinese consumption of Meat was 2.4 times what it was in 1990, Milk 3 times, Fruit 3.5 times, Vegetables 2.9 times, Fish 2.3 times, whilst its consumption of cereals, mostly rice, fell by 20%. The large rise in demand from China and other developing economies, was part of the reason for the spike in global food prices at the end of 2007 and beginning of 2008. Demand for food rose so sharply that shortages began to appear, which, along with the price spikes, caused riots in a number of countries in 2008. Although global food demand is higher, today, no such shortages are likely, as the higher prices have led to an expansion of supply, including the development of large scale, industrialised farming, in a number of parts of Africa, such as Angola. In fact, just as with the increased investment in oil production, a similar process has led to a global milk glut, pushing the price of a litre of milk down below the price of a litre of water!

The increasing production of China, and other rapidly growing economies, also sucked in larger and larger quantities of raw materials as well as food. Global GDP rose from around $41 trillion in 2000, to nearly $72 trillion in 2012, despite the dramatic effects, on the global economy, of the worst ever financial crisis, in 2008. Between 2002 and 2010, Global fixed capital formation rose from $7 trillion to $14 trillion. Of all the goods and services produced in Man's entire history, almost 25% have been produced in the first decade of this century alone! 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 saw 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.

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). The average annual rise in this last period is about 15 times what it was between 1980-1990.

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.

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%. Today, it is newly industrialising economies in Sub-Saharan Africa that are the fastest growing on the planet, with seven of the ten fastest growing economies being based there, and growth rates of around 10% p.a.

However you look at it, this means that the growth, in the rate and mass of surplus value, during this period, is undeniable, because, despite huge amounts of potential money-capital flooding into money markets, to fund speculation, the extent of new capital formation has been huge. For a Marxist, capital is congealed surplus value. In other words, we have here an almost identical situation to that described by Marx and Engels in relation to the Long Wave boom that began around 1843, and led to a similar massive growth of productive capital, and also of speculation in railway shares.

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