Predictions For 2024 - Prediction 1 – Global Growth Rises

Prediction 1 – Global Growth Rises

The global economy entered a new long wave upswing in 1999. That upswing resulted in a rising demand for capital, causing interest rates to rise, which led to the global financial crash of 2007/8, as rising interest rates cause falling asset prices via the process of capitalisation. It was not the first such crisis, with previous instalments in 1987, 1990, 1994, 1997. 1998, and 2000. It was the most severe, and far-reaching, precisely because the response to these previous instalments had simply created the conditions for it. They promoted speculation in financial and property assets as against investment in real productive-capital, and so undermined the potential for an expansion of profit (and the revenues derived from it), whilst inflating the asset prices nominally derived from those revenues, creating ever lower yields, and requiring ever lower interest rates. It was also more severe, because the previous instalments occurred during a period of long-wave stagnation, when the supply of money-capital from realised profits, exceeded the demand for it, and so leading to a secular drop in interest rates, that promoted the blowing up of bubbles that subsequently burst.

The response of states to the 2008 crisis, starting from 2010, was to simply continue that process, but now on an even larger scale. It required central banks to introduce QE, and governments to introduce fiscal austerity, both to reduce their own borrowing requirements, and debt issuance, and to slow economic growth, and its consequent demand for labour and capital. This is the consequence of a global capitalist economy (imperialism) in which the global ruling class, consists, now, of a class of parasitic “coupon clippers”, owners of fictitious capital, addicted to guaranteed capital gains on their financial and property assets, underwritten by the state, and whose interests are, however, now, antagonistic to the interests of the dominant form of property itself, large-scale, socialised, industrial capital, which as Marx describes, in Capital III, is the transitional form of property between capitalism and socialism, its chrysalis shell, objectively owned by the workers/associated producers, but still controlled by shareholders.

The fact that the global crisis assumes the form of a financial crisis, of the kind described by Marx in Capital, rather than an economic crisis, i.e. a crisis of overproduction, is a reflection of this fundamental contradiction. Indeed, if there was any economic crisis, it was one of under-production, caused by this diversion of money and capital into speculation, and away from capital accumulation, rather than of overproduction. And, this becomes manifest in other ways.

The owners of fictitious-capital, and their representatives in board rooms, have huge amounts of power, and influence on the economy. But, they are not omnipotent. To the extent they use realised profits to buy back shares, and so on, rather than invest in additional capital, they slow the expansion of the economy. But, the more they use those profits in that way, the more they encourage other privately owned capitals to fill the void they leave behind. They also encourage capitals in developing economies to fill that void, in the global economy. Its no surprise that since the 1980's, there has been a disproportionate increase in the number of small, privately owned businesses, a fact that contradicts the long-term trend of capital concentration and centralisation. Nor is it any surprise that it has been the capitals in newly industrialising economies that have grown faster than those in developed economies, during that period.

Even in the age of imperialism, it is competition that characterises the fundamental driving force of commodity production and exchange, and of capitalism as its developed form. So, as the owners of fictitious-capital sought to strip their own assets, by devouring profits unproductively, and their states sought to hold back capital accumulation, and economic expansion, smaller capitals made hay, as did less developed economies. The laws of capital continue to grind on, and so, economies grew regardless, the demand for labour and capital grew regardless, and all the more as these smaller capitals were less efficient, requiring more capital and labour to achieve any given mass of output.

Since the 1980's, global employment more than doubled, and as the new upswing began in 1999, that pace quickened, with a 30% rise in the first decade of the new century alone. The growth in employment, slowly eroded the relative surplus populations built up over the previous 30 years, and as the productivity benefits of the previous technological revolution, of the 1970's, faded, with capital accumulation becoming more characterised by extensive rather than intensive accumulation, so that became even more notable. In Britain, the number of jobs now exceeds the number of available workers; in the US, job vacancies outnumber job seekers by 2:1. A rising number of workers, and even slowly rising wages means a growing demand for wage goods, and that same competition drives capital to seek to satisfy that demand. If the large oligopolies or developed economies will not, then, smaller capitals, and newly industrialising economies will.

After 2010, in the developed economies, governments held back growth via austerity, whilst they, and central banks, encouraged households to use any money to speculate in shares, bonds, or property, in search of capital gains, rather than to consume it in the purchase of goods and services. Hence the sluggish nature of growth, as against the renewed inflation of asset price bubbles, after 2010. Yet, the contradictions resulting from that were, thereby, simply intensified further. The price of bonds or shares, for example, depend upon two things, the revenue they produce coupon/dividend, and the rate of interest. But, if economies grow sluggishly, if at all, then absent a significant rise in the rate of surplus value, or fall in the value of constant capital, the mass of profit cannot grow significantly, and so the deductions from it (interest/dividends and rent and taxes) also cannot grow significantly, without further depleting the amount available for real capital accumulation.

By, the early 2000's, the benefits of the previous technological revolution had run out, in terms of raising productivity, and, thereby, the rate of surplus value. The depletion of the relative surplus population was not yet at the stage of causing a rise of relative wages, but it was no longer at a stage of being able to significantly drive down wages, so as to boost profits. So, that means of increasing the mass of profits was cut off. The same thing applied to the value of constant capital, the big falls of which occurred in the 1980's, and early 90's. The possibility of big releases of capital, no longer existed. Share and bond prices could only rise, then, if the proportion of profits going to interest/dividends rose, at the expense of real capital accumulation, and/or, if interest rates fell.

The first had certainly happened. As Andy Haldane noted, in the 1970's, dividends accounted for 10% of profits, and by the 2000's, they accounted for 70%. But, that could not continue, without overt asset stripping. The asset stripping took a different form. Large companies borrowed on bond markets, and used the proceeds, not to invest, but to buy back shares, inflating the share prices. Speculators, then, simply sold a portion of these shares, at these higher prices, realising a paper capital gain. However, a continued supply of bonds would cause a fall in bond prices, and rise in their yields, which, in turn, would cause speculators to switch from shares or property to bonds. Having central banks buy up bonds, prevented that problem, causing bond prices to rise, and yields to fall.

But, we are, now, at a point where it is near impossible to reduce real interest rates. In the last year, the rapid global growth seen in 2022, slowed, as was to be expected. The global trade war undertaken by the US and its allies, slowed global trade, which, in turn, slows growth. The boycotts and sanctions against Russia, China and others, raised costs, most notably for energy and agricultural products, which acts to cause a tie-up of capital, slowing capital accumulation and growth. The most notable effect of that was in Europe, both the EU and UK, whilst the US continued to see growth of over 5% in its GDP. The ending of globalisation, and introduction of colonial era protectionism, further raised costs and slowed growth.

However, that tends to be a one-off effect, and as we move into 2024, that effect will diminish. Any falls in energy and other primary product prices, will now lead to a release of capital and revenue, acting to stimulate consumption, both personal and productive. As new channels for trade bed in, following the introduction of near-shoring, friend-shoring and so on, simply base effects will result in higher levels of trade and economic activity this year compared to last. The growth of employment continues, and now, in absolute terms, means that the simple operation of supply and demand in the labour market makes it difficult to increase either absolute or relative surplus value. Rising employment and wages means rising demand for wage goods, and consequently aggregate demand. To fund this additional capital to meet demand, a higher proportion of profits must be retained, or more borrowing is required, meaning real interest rates will rise.

Because orthodox economics has fixated on inflation as the determinant of interest rates, it thinks that if inflation falls, interest rates will fall, but that is only the case with nominal, not real rates. Nominal rates are made up of two components. The first is basically the equivalent of wear and tear of fixed capital. It simply recompenses the lender for the devaluation of their capital resulting from inflation. A machine leasing company, that leases a machine for a year, must get back the wear and tear of the machine over that year, but if they only received that, there would be no point leasing the machine. They only lease it, if they also obtain interest, i.e. the current price of capital, itself, sold as a commodity – the rate of interest. Marx noted,

“For instance, if we wish to compare the English interest rate with the Indian, we should not take the interest rate of the Bank of England, but rather, e.g., that charged by lenders of small machinery to small producers in domestic industry.”

(Capital III, Chapter 36, p 597)

Whatever happens to inflation, and central bank policy rates, these interest rates are set to rise as the demand for capital rises relative to its supply. That means that asset prices will fall in real terms, and on occasions those falls will take the shape of market crashes. Stock and bond markets have rallied significantly in the past few weeks on expectation of significant falls in central bank rates early in 2024. That expectation is likely to be dashed, but, even if central banks do reduce their policy rates, real market rates of interest will rise. The period of the last 40 years in which speculators could make large capital gains from rises in asset prices is over, and so one cause of money-capital not going into real investment will disappear. Indeed, one reason that money revenues went into such speculation rather than consumption will also be removed. That means that both productive and personal consumption will rise, driving aggregate demand, and economic growth.

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