Monday, 28 December 2015

Predictions For 2016

Last year I set out ten predictions for 2015. Before setting out any predictions for the year ahead, therefore, it is perhaps necessary to see how last year's turned out.

The first prediction was that Syriza would win the Greek elections, and would refuse to compromise. A more than partial hit, I would say. They did win the election, and for some time did refuse to compromise, before being forced to back down faced by the mass of conservative forces ranged against them across Europe. I would say this story is not yet over, and the success of Podemos, and of the left in Portugal are just the opening chapters, rather than the conclusion.

The second prediction was that Labour would win the election in the UK, as part of the same process that led to the rise of Syriza et al. On the face of it, a big miss. However, looking beneath the surface, the reality is that a right-wing Liberal-Tory majority of around 80, was slashed to a Tory majority of just 12. You would not know it from all of the Tory media, and other pundits, but the reality is that, in England and Wales, Labour increased its number of seats by the same amount as the Tories, and increased its share of the vote by twice as much as the Tories. The real story was the collapse of the Liberals, and the rise of the SNP. In other words, the total size of the right got smaller, but within it, it became more right-wing, and more nationalistic.

The other part of the prediction was a rise of the left inside the Labour Party. At the time, and given the potential for Labour to lose, very few people, this time last year, believed that such a change was likely. Indeed, even by the middle of last year, few people would have believed that Jeremy Corbyn would become Labour Leader, on the back of such a huge increase in party membership, driven from the left. So, although the headline prediction was a miss, again, I think that the prediction, taken as a whole, was substantially correct.

The third prediction, that UKIP would fail to win any seats, is again substantially correct. All of the pundits were suggesting that they would win up to 20 seats. In fact, as suggested, the higher turnout of a General Election meant that, even whilst they increased their number of votes, they were unable to turn that into seats. They actually lost the seat of Mark Reckless, which had been gifted to them by his defection from the Tories. Farage failed to win again, and they have only held on to the seat of Douglas Carswell, due to his personal following. Even that is causing UKIP problems, as a party with just one MP looks set to suffer a split!

The fourth prediction, that the Liberals would win only six seats, was the most successful prediction. In fact, they won eight, but, even on election night, Paddy Ashdown was saying that he would eat his hat if they only won the 26 seats that the exit poll was suggesting. As with Prediction 1, it is a confirmation of the general thesis of a collapse of the political centre, and of the conservative ideas that have been dominant for the last thirty years. Ashdown failed to eat any hats, once again demonstrating that Liberal promises are worthless.

Prediction five looked to a split in the Tory Party between these conservative and essentially social democratic forces, around the question of Europe. The fault lines of that split are clear already to see. The prediction has not yet been confirmed, but the months ahead are likely to do so.

The same is true with prediction six. The actual problems facing Europe can only be solved by more Europe rather than less Europe. The decision to beef up the European Border Agency – Frontex – is an indication of that. The ECB has started outright QE to buy up the bonds of various European States, and this is the basis for issuing Eurobonds at some point. Draghi, and other bureaucrats, have indicated that monetary policy can effectively do no more, and that it will be up to fiscal policy to now take the strain in promoting growth. With the French government nominally committed to fiscal stimulus, with the rise of Syriza in Greece, Podemos in Spain, and the left government in Portugal, this prediction is yet to be confirmed, rather than having been falsified.

Prediction 7 has again been partly confirmed. There was a financial markets crash, global interest rates are rising, and even the Federal Reserve has now raised official interest rates, with more to come. The Chinese Stock Market crashed by 30%, and other stock markets fell by more than 20%, taking them into bear market territory, though they recovered some of those losses later. Stock markets are finishing the year down on where they began, due to these earlier crashes. However, the crashes that have happened are not yet even close to the actual crash predicted. That is yet to come, and as global interest rates rise, the closer that crash becomes.

The same is true with Prediction 8. There has not yet been the property market crash in Britain. It appears that house prices in London are falling, but that does not constitute a crash. House prices elsewhere also appear to be falling or stagnant, despite the actions of the Bank of England, and the government in manipulating the market. But, household indebtedness is now back to the kinds of level that preceded the 2008 crash, and with interest rates rising, it is again only a matter of time before this prediction is verified.

Prediction 9 is also on the way to being confirmed. The US has set up the various trade deals, which tie it closer to its main trading partners. The fall in the value of the Rouble, despite massively falling oil prices, did not bring the Russian economy to its knees, but has brought inward investment and further co-operation with China and other regional partners. In fact, Russia has seen its position strengthened strategically.

Prediction ten has also been confirmed, but has further to run. Twenty years ago, the Marxist economist Michel Aglietta, predicted that the processes of post-Fordism, seen in manufacturing, would spread to service industries. That is what is being seen. The potential now exists to tailor medical treatment to the specific requirements of the individual, and thereby to prevent illnesses rather than have to cure them, which makes the old Fordist healthcare solutions, which treated all individuals as being homogeneous, so as to offer mass production healthcare, increasingly outmoded and redundant. The last year, has indeed seen a significant increase in the number of such healthcare solutions, based upon the individual genetic make up of the individual. These now offer the best hopes for prevention and cure of cancer, and a range of other diseases.

So now on to the predictions for the year ahead.

  1. In line with the underlying thesis that the material conditions are changing, and are now favouring socialised productive-capital, at the expense of interest-bearing, fictitious capital, and that this favours social-democracy, I see a further move in that direction, in the year ahead. It is likely that we will see the growth of similar social democratic forces, both within the existing social-democratic parties, and also pressurising them from without, where those parties do not shift their position. The likely manifestation of that will be in France, Italy and Germany, it is also being manifest already in the US.

  2. Global growth will be higher than currently predicted. The basis of that is that a new three year cycle began at the end of 2015. That means a tendency to higher growth than in the previous year, and this upward phase will last for two years. Secondly, that the rate of productivity growth achieved in the last 25 years, has started to slow down. That means that investment will tend to be increasingly extensive rather than intensive. The consequence of that is that relatively more labour-power is employed. Higher levels of employment, is already pushing wages higher, and these higher wages begin to support higher levels of workers' consumption, stimulating a need for additional investment in those industries that produce wage goods.

  3. Interest rates will rise more sharply than currently predicted. All of the financial pundits, and representatives of fictitious capital, are in a process of grief. They have been shocked that the Federal Reserve did actually raise official interest rates. Now they want to disbelieve that it is happening, and come out with predictions that it will be forced to reverse those hikes next year. That is because the prices of fictitious capital depend upon low interest rates. The price of any revenue bearing asset is the capitalised value of the revenue, and as interest rates rise, so that capitalised value falls. With very low absolute levels of interest rates, even very small absolute rises of those rates, represent a large percentage rise in the rate, and correspondingly large fall in the capitalised value. Relatively small absolute rises in interest rates, will therefore cause the prices of shares, bonds, and property to fall massively.

  4. The fourth prediction is then that the prices of this fictitious capital will fall dramatically. Interest rates will rise not because the central banks raise official rates, but because the material conditions mean that the demand for capital will rise relative to the supply, whatever the central banks do. The potential for that is exacerbated by the astronomical levels of household debt, and of high risk debt that is likely to default. The rise of official interest rates by central banks is actually a reflection of the rise in market rates, as they try to catch up, not a cause of higher market rates.

  5. Inflation will be much higher than predicted. Over the last few decades, huge amounts of liquidity have manifested themselves as a hyper inflation of asset prices. That has sucked potential money-capital out of the real economy, causing growth to be much lower than it otherwise would have been. At the same time, it has soaked up excess liquidity, and more, so that the hyper inflation of asset prices was combined with stagnant or falling commodity prices. The latter tendency was initially caused by, and has since been exacerbated by the massive rise in productivity from the early 1980's onwards, which was also the basis of the huge moral depreciation of constant capital, rise in the rate of surplus value, and in the rate of turnover of capital, which brought about a massive rise in the annual rate of profit from the late 1980's, through to around 2012.

    That continued so long as speculators believed that they were more than compensated for near zero yields, by huge guaranteed capital gains, as the prices of fictitious capital zoomed. But, rising interest rates, now mean that asset prices will fall significantly, whilst yields remain low, by historical standards. This is the process Marx describes in Capital III, whereby some of the owners of this fictitious capital, unable to obtain sufficient interest on it, convert themselves into productive-capitalists, putting their own money-capital to work directly in production, where they can obtain the average rate of profit. That average rate of profit is much higher than the rate of interest.

    However, this process means that the demand for money-capital rises, relative to its supply, pushing interest rates higher, which acts to crash asset prices further. At the same time, the additional investment in productive-capital causes the demand for labour-power to rise, which pushes wages higher, reducing the rate of surplus value. That reduces the supply of money-capital further, pushing interest rates higher, and so on. Because, money-capital takes the form of money, all of the excess liquidity that fuelled hyper inflation of asset prices, then begins to flow into the real economy, which reverses the process. Asset prices suffer a severe depreciation, whilst commodity prices rise. A similar process to this was seen in the previous Summer phase of the long wave cycle, in 1966, when inflation spiked much higher, within a matter of months, than the authorities, and most economists, had foreseen.

  6. Part of this process will again be manifest in a growth of a range of new technological industries. I predict that the growth of industries based upon genetics, bio-technology and so on will continue and increase in tempo. A recent Channel 4 documentary asked the question “How Do The Rich Live Longer?”, and looked at the ability to purchase tailored solutions for the individual. We already have a growth of not just routine screening, using the latest technologies, but also of constant body monitoring and so on. We know from Marx's concept of “The Civilising Mission of Capital”, that what is first only available to the rich, rapidly becomes available to the rest of society, as increases in productivity reduce values, and increase living standards. Many people already purchase significant elements of healthcare privately, and as the same processes of flexible specialisation that have occurred in manufacturing are applied to service production, this is likely to grow, as the value of these commodities falls significantly.

    In addition to a continuation of the growth of those industries, we already see a similar growth of other new technology industries. It is notable that the new space technology is now being developed by Spacex and other private sector companies. The ability to land a rocket back on the launch pad, was once the dream of science fiction, but has now been turned into reality by these companies. It would not have been possible without the growth of computing power that has occurred, just as the developments in medical technology would have been impossible without that development. The fact that these companies have been created by individuals such as Elon Musk, Richard Branson, and the creators of Google, is an indication of the process referred to previously that, at a certain point, a reliance on non-existent yields on financial assets, only offset by speculative capital gains, gives way to an incentive to invest in real productive-capital.

  7. The start of the end of the car showroom. The majority of new cars sold today are not actually sold, but are leased or bought as part of a car plan. In other words, the buyer leases the car for a monthly payment. The lease runs for three years, during which time the seller covers all maintenance and repairs, as well as the insurance. At the end of the lease, the buyer can take out a lease on another new car, or may have the option of buying the car, as a used car. This has obvious advantages both for the buyer, and for the car companies who, by such means, can ensure a more or less stable level of demand over future years.

    One consequence is that the price of new cars, bought conventionally tends to rise, whilst a constant flood of previously leased, used cars into the market, reduces used car prices. This means the cost of buying, by conventional means, is raised again, because what you get for your own used car falls, increasing the depreciation cost.

    What new technology, flexible specialisation and the Internet means is that the role of the car showroom starts to become redundant. It is now already possible to order your own car directly from the manufacturer, over the Internet, by-passing the dealer. It is possible to customise the car, to suit your individual requirements. That is the revolutionising role of the Internet, both in terms of making such purchases possible, and via Internet payments systems, making the payment for such purchases possible. The ability of the manufacturer to produce a car specific to your individual requirements, is a consequence of production methods based upon flexible specialisation rather than mass production. Both are the consequence of the development of computer and communications technology.

    The only function of car dealers then becomes the selling of used cars.

  8. Labour will do much better in the local elections than currently foreseen, but this will reflect the collapse of the political centre. In other words, Labour will begin to recapture chunks of its core vote that had previously gone to the Liberals, Greens and others, or simply become apathetic. Labour majorities in Labour areas will rise, and in Labour marginals, Labour will gain seats. But, in Tory marginals, Labour's performance may suffer, as the Tories and their support pushes further right. Labour should not worry about the latter, as the Blair-rights will claim they should. A good general understands that it is necessary first to strengthen your own territory, and bridgeheads before thinking of launching an assault on the enemy's territory.

  9. The bloom will start to come off the SNP rose. The SNP faces a contradiction. It is first and foremost a nationalist party, whose roots were in Scottish Conservatism – much as is the case with UKIP in relation to Britain. The SNP was able to portray itself not only as anti-establishment, but also as a radical social-democratic party, because of the collapse of Labour as a social democratic party, and the ability of the SNP to blame all deficiencies on Westminster. But, the SNP in Scotland, is the Establishment; it is, and has been for some time, the governing party. Especially as the warm blanket of North Sea oil is taken away, the limited nature of nationalism is exposed.

  10. Isis will be defeated in Syria, and will shift its base and operations to Libya, and surrounding states. A large part will be played by the Kurds, who will begin to demand their own state more effectively. That will cause fractures within NATO, because of open opposition, and attacks by Turkey on the Kurds. The process of the break-up of Iraq will continue. The Kurds will secure de facto control over Northern Iraq, and Syria. Iran will bolster the Shia areas of Iraq, whilst the West and the gulf states will bolster Sunnis, within the Sunni Triangle, as part of the process of undermining ISIS. This will be a temporary modus vivendi, as Russia secures the existing Syrian regime in power, and the West has to accept it.

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