The ruling class's problem with Corbyn's Labour Party was not that it was socialist, or even radically more progressive than the governments of Attlee, Wilson or Callaghan. It wasn't. The problem was that the conditions existing in 2017, were different to those existing in 1945, 1964, or 1974. In those earlier periods, as described previously, real, socialised capital required an extension of those social-democratic measures, of planning and regulation on a larger scale, of creation of larger single markets, like the EU, and even of similar planning and regulation on a global scale such as with GATT/WTO, IMF, World Bank and so on.
Germany's system of co-determination, in which workers sit on company boards, shows that even that social-democratic agenda is not alien to the interests of large-scale capital. And, because the ruling class obtained its revenues, wealth and power from the interest/dividends paid out of those expanding profits, such development was entirely consistent with its interests. Those developments were required for long-term investment/capital accumulation, and profits were reinvested into that capital accumulation, producing increased profits and revenues in the form of dividends/interest.
The revenue produced by assets, such as shares or bonds, is a function of the profits produced by the companies that issue the shares and bonds. That is why, as described earlier, if those profits can be increased, simply by reducing the costs of businesses, to realise those profits, by reducing trade frictions and so on, or by, in the same way, increasing the turnover of capital, so that any given amount of capital employs more labour, so that the annual rate of surplus value, and annual rate of profit rises, this is nirvana for the ruling class. Without any additional investment of capital, it gets bigger profits, and so the potential for companies to pay out more in dividends or coupon interest. The creation of the EU Single Market, and other similar blocs across the globe, together with the whole process of globalisation, from the 1980's, fed into that.
The increased mass of money profits fed into a greater mass of revenues from interest/dividends, even as the rate of interest fell, because the supply of money-capital resulting from this increased mass of profit, exceeded the demand for that money-capital, to finance capital accumulation, in a period of long-wave stagnation/intensive accumulation.
The lower interest rates created higher asset prices, including higher land and property prices. The latter created the conditions, with falling deposit interest rates, for some of those with savings, looking to retirement, to become buy-to-let landlords, because the total return from rents, plus capital gains, way exceeded the paltry interest on savings deposits they could obtain. More, and more of those revenues – dividends/interest and rents – simply fed back into the demand for existing shares, bonds and property, creating an upward spiral of asset prices, which, as seen on every occasion after 1987, central banks kept inflated, whenever a fall in those prices occurred, by injecting even more liquidity into the system. As I described many years ago, the result of that was also to suck liquidity out of the real economy, as no one wanted to get left behind, and that acted like the sucking of oxygen, in a firestorm, to depress liquidity in the real economy, having a considerable depressing impact on growth.
 |
| Asset price bubbles inflate when money is sucked in from the real economy (red) to the fictitious economy (Green), and stays there, simply forming an ever increasing monetary demand for (mostly) existing assets, i.e. monetary demand or those assets rises continually, but supply of those assets does not, causing their prices to rise. |
But, that too was required, precisely because, having become dependent, not on revenues, but on continued capital gains, the ruling class is now threatened by any significant rise in economic growth. Economic growth causes the demand for capital to rise, at a time when many of those previous cost free sources of higher money profits have gone. The creation of the EU, and other such single markets, is in the past, and for Britain, has been disastrously reversed by Brexit. The process of globalisation has not only run its course, but also been put in reverse by a combination of US trade wars, as part of the growing division of the globe into armed imperialist camps, staring at each other from behind nuclear barricades, but also as a result of the lockdowns, breakdown of global supply chains, and move away from Just In Time, stock control, to Just In Case.
Its not only because bourgeois ideologists like Larry Summers first response is to see a cut in workers wages, as the means to boost profits, and so relieve the pressure on rising prices that they advocate a recession, as the means to reduce inflation. It is the understanding that economic growth also leads to this increased demand for money-capital, at a time when the supply of that money-capital, from rising profits, is limited, in a way it has not been for forty years, for the reasons described above. But, herein lies a further contradiction, because, now, to increase the mass of profits, requires economic growth! It requires real capital accumulation, and the employment of additional labour. For forty years, an increased proportion of profits went into dividends, even as the rising share prices meant the dividend yield fell. As Andy Haldane pointed out, where, in the 1970's, dividends accounted for around 10% of profits, today, the figure is around 70%.
For Summers, and the representatives of the ruling class of speculators, the option of the last 40 years, in which profits could be increased by holding down wages, has also gone. The Bank of England expected a big reduction in real wages, as prices rose faster than wages, but, even in the UK, wages are now rising by 1% point, at least, more than prices, and as employment has expanded, household incomes more than that. In the US too, wages are rising faster than prices, and, there has been an even bigger rise in employment, and so of household incomes. Even as they have tried to hold back economic growth, and successfully, for the last 13 years, as they basically hibernated the long wave cycle, it simply churned away, at a slower pace, in the background, and the relative surplus population was worn away.
Economic growth, now, in a period of extensive accumulation, means higher wages, and increasingly squeezed profits, but, as each company, and each economic bloc, is forced by competition to accumulate – including, now, the need to invest in national infrastructures that are crumbling, or face even greater dislocation and falling productivity – an increasing proportion of profits must go to finance that accumulation, and not to revenues/interest/rents. There is no way out, and those rising interest rates mean falling asset prices, be it property prices, share or bond prices. A huge crash in the paper wealth of the global ruling class, much bigger than even in 2008. Its that they are still trying to avoid, but its not possible to do so.
In these conditions, even a Wilson government would pose a problem for the ruling class, because its desire to ensure a rational accumulation of capital, and economic growth, conflicts with the need of the ruling class to hold back economic growth and accumulation of capital, so as to hold back the demand for money-capital, and crash of asset prices. Its not, even, the rise in wages causing a squeeze on profits that is their real problem at this stage, any more than it was in the early 1960's. There is no crisis of overproduction of capital, at this stage, as there was in the 1970's, and an expansion of employment means also an expansion of the mass of profits. The main problem, for them, of rising household incomes, is that it leads to even higher levels of aggregate demand, and growth, and so demand for capital. It is simply that this increase in profits does not keep pace with the increase in the demand for money-capital, causing interest rates to rise, and asset prices to fall.
Corbyn, represented the same kind of social-democratic agenda as Attlee or Wilson, but, now in conditions where the success of such a strategy, as far as the economy, and real capital is concerned, conflicts with the interests of the ruling class, and its determination to maintain the prices of its assets/fictitious capital. That Corbyn was seen still to hold those economic nationalist views in relation to the EU, made matters worse. And, that applies in relation to Starmer too.
No comments:
Post a Comment