PostCapitalism-_Paul-Mason_-_z-library.sk_-1lib.sk_-z-lib.sk_

In fact, the moment of mutation is fundamentally economic. It is the exhaustion of an entire structure – of business models, skill-sets, markets, currencies, technologies – and its rapid replacement by a new one.

It happens – in systems terminology – at the ‘meso’ level, between micro- and macro economics. Its scale locates it somewhere between the credit cycle and the doom of the entire system. Once the mutations are understood as likely and regular events, then any model of capitalism that treats them as accidental or optional is going to be wrong.

There is no form of crisis theory that can contain the whole phenomenon of system mutation, but crisis theory can describe what causes it in each specific case.

Modern crisis theory has to be macro-economic, not abstract. It can use abstractions to locate fundamental market mechanisms, as Marx does, but you cannot ignore the state as an economic force, organized labour, monopolies, currencies or central banks. Nor can you ignore the finance system as an accelerator of crisis, and – in the present context – the effects of financialized consumer behaviour, the instabilities injected by fiat money, which allows credit expansion and speculation on a scale nineteenth-century capitalism could not have withstood.

In this sense Hilferding, Luxemburg and the rest were not ‘bad Marxists when they began to move away from abstractions and towards the concrete facts: they were being good materialists. Their mistake was to assert that monopolized state capitalism is the only pathway to a postcapitalist system. We can be certain today that it is not.

Marxist economists have made perceptive contributions to our understanding of what happened in 2008. The French economist Michel Husson and New School professor Ahmed Shaikh have both demonstrated how neoliberalism restored profit rates from the late 1980s onward. But these show a sharp fall in the final years before the 2008 financial crisis.²⁸ Husson argues, correctly, that neoliberalism ‘solves’ the problem of profitability – for both individual firms (by suppressing labour costs) and for the system as a whole (by massively expanding financial profits). But alongside higher profits, the overall rate of investment after the 1970s is low.

This conundrum of rising profits alongside falling investment should be the real focus for modern crisis theory. But there is a fairly clear explanation: in the neoliberal system, firms use profits to pay dividends rather than to reinvest. And in conditions of financial stress – obvious after the Asian crisis of 1997 – they use profits to build up cash reserves as a buffer against a credit crunch. They also relentlessly pay down debt, and in the good times buy back shares as a kind of windfall profit distribution to their financial owners. They are minimizing their exposure to being financially exploited, and maximizing their own ability to play in the financial markets.

So while Husson and Shaikh successfully demonstrate a ‘falling profit rate’ prior to 2008, the crisis is a result of something bigger and more structural. Its cause (as Larry Summers suggested in his work on secular stagnation) is the sudden disappearance of factors that had compensated for inefficiency and low productivity for decades.²⁹

The determination to trace crises in general to one abstract cause, ignoring the structural mutation that was actually going on, was the original source of confusion in Marxist theory. This time around we have to avoid it. The account must be concrete: it must include the real structures of capitalism: states, corporations, welfare systems, financial markets.

The crisis that broke out in 2008 was not the result of a breakdown of this or that counteracting factor, or due to a short-term fall in the profit rate. It was the breakdown of an entire system of factors supporting the profit rate, called neoliberalism. Neoliberalism was neither a great boom nor, as some claim, a hidden period of stagnation. It was a failed experiment.

THE PERFECT WAVE

In the next chapter I will explain what led to this experiment. I will describe in detail how the fourth Kondratieff Wave unfolded between 1948 and 2008; what disrupted it and what prolonged it. I will propose that the impact of technology, and the sudden availability of a new outside world, created a break in the long-term pattern.

First we must establish – as a mental tool – a model of a normal wave. Kondratieff was right to warn that each wave, building on the next, creates a new version of the pattern. But only by distilling the essence of the first three waves can we see how the fourth diverged.

What follows is my ‘normative’ restatement of long-cycle theory, merged with what is rational about the Marxist understanding of crisis:

1. The start of a wave is usually preceded by the build-up of capital in the finance system, which stimulates the search for new markets and triggers the rollout of clusters of new technologies. The initial surge sparks wars and revolutions, leading at some point to the stabilization of the world market around a new set of rules or arrangements.

1. Once the new technologies, business models and market structures begin to work in synergy – and the new ‘technological paradigm’ is obvious – capital rushes into the productive sector, fuelling a golden age of above-average growth with few recessions. Since profit is everywhere, the concept of allocating it rationally between players becomes popular, as does the possibility of redistributing wealth downwards. The era feels like one of ‘collaborative competition’ and social peace.

1. Throughout the whole cycle, the tendency to replace labour with machines operates. But in the upswing, any fall in the profit rate is counterbalanced by the expanded scale of production, so overall profits rise. In each of the up cycles, the economy has no trouble absorbing new workers into the workforce even as productivity increases. By the 1910s, for example, the glass-blower displaced by machinery becomes the projectionist in a cinema, or the worker on a car production line.

1. When the golden age stalls, it is often because euphoria has produced sectoral overinvestment, or inflation, or a hubristic war led by the dominant powers. There is usually a traumatic ‘break point’ – where uncertainty over the future of business models, currency arrangements and global stability becomes general.

1. Now the first adaptation begins: there is an attack on wages and an attempt to de-skill the workforce. Redistribution projects, such as the welfare state or the public provision of urban infrastructure, come under pressure. Business models evolve rapidly in order to grab what profit there is; the state is urged to organize more rapid change. Recessions become more frequent.

1. If the initial attempt to adapt fails (as it did in the 1830s, 1870s and 1920s), capital retreats from the productive sector and into the finance system, so that crises assume a more overtly financial form. Prices fall. Panic is followed by depression. A search begins for more radical new technologies, business models and new supplies of money. Global power structures become unstable.

At this point we need to factor in the concept of ‘agents’: social groups pursuing their own interests. A problem with the Schumpeter-inspired version of wave-theory is its tendency to obsess about innovators and technologies, and not see classes. When we look closely at social history, each ‘failed adaptation’ phase happens because of working-class resistance; each successful one is organized by the state.

During the first long wave, roughly between 1790 and 1848 in Britain, you have an industrial economy trapped within an aristocratic state. A prolonged crisis begins in the late 1820s, characterized by the factory owners’ determination to survive by de-skilling the workforce and cutting wages, and also by chaos in the banking system. Working-class resistance – the Chartist movement culminating in the General Strike of 1842 – forces the state to stabilize the economy.

But in the 1840s a successful adaptation takes place: the Bank of England gains a monopoly over the issue of banknotes; factory legislation ends the dream of replacing the skilled male workers with women and children. The Corn Laws – a protective tariff favouring the aristocracy – are abolished. Income tax is levied and the British state finally begins to function as a machine for the ruling industrial capitalists, not as a battleground between them and the old aristocracy.

In the second wave – which starts with Britain, Western Europe and North America but pulls in Russia and Japan – the downswing begins in 1873. The system tries to adapt through the creation of monopolies, with agrarian reform, an attack on skilled wages and by pulling in new migrant workers where possible as cheap labour. Countries move on to the Gold Standard, form currency blocs and impose trade tariff measures. But sporadic instability still plagues growth. The 1880s see the first mass workers’ movements. Though the movements themselves are often defeated, skilled workers succeed spectacularly in resisting automation, while unskilled workers benefit from the beginnings of a social welfare system. Only in the 1890s, as monopolies become fused with banks or backed by a liquid financial market, does a strategic change take place. A cluster of radically new technologies is deployed and – as in the 1840s – there is a step change in the economic role of the state. The state – whether in Berlin, Tokyo or Washington – becomes indispensable to maintaining optimum conditions for big monopoly companies through tariffs, empire expansion and infrastructure building.

Once more, it is working-class resistance that prevents the system adapting on the cheap, without technological innovation.

For the third wave, if we take 1917–21 as the start of the downswing, the system adapts by tightening state control of industry, and by trying to revive the Gold Standard. In most countries there is an attack on wages during the 1920s but they do not fall fast enough to solve the crisis. Then, once the Depression begins, fear of social unrest pushes each major country to pursue a competitive exit route: destroying the Gold Standard, creating closed trading blocs, using state spending to boost growth and reduce unemployment.

In emphasizing this, I am making what I consider a crucial addition to wave-theory: in each long cycle, the attack on wages and working conditions at the start of the downswing is one of the clearest features of the pattern. It sparks the class warfare of the 1830s, the unionization drives of the 1880s and 90s, the social strife of the 1920s. The outcome is critical: if the working class resists the attack, the system is forced into a more fundamental mutation, allowing a new paradigm to emerge. But in the fourth wave we found out what happens if the workers do not successfully resist.

The role of the state in creating the new paradigm is equally clear. The 1840s see the triumph of the Currency School economists, who impose sound money on British capitalism by insisting the Bank of England has a monopoly on issuing notes. In the 1880s and 90s, there is the rise of state intervention. In the 1930s, it is outright state capitalism and fascism.

The history of long cycles shows that only when capital fails to drive down wages and when new business models are swamped by poor conditions is the state forced to act: to formalize new systems, reward new technologies, provide capital and protection for innovators.

The role of the state in major transformations has been well understood. By contrast, the importance of class has been underplayed. Carlota Perez’s work on long cycles deals with workers’ resistance as a sub-set of the more general problem of ‘resistance to change’. For me workers’ resistance plays a crucial role in shaping the next long wave.

If the working class is able to resist wage cuts and attacks on the welfare system, the innovators are forced to search for new technologies and business models that can restore dynamism on the basis of higher wages – through innovation and higher productivity, not exploitation. In general, for the first three long cycles, working-class resistance did force capitalism to reinvent itself on the basis of existing or higher consumption levels (although the flipside was that imperial powers then sought ever more brutal ways to extract profits from the periphery).

In Perez’s account of long waves, resistance to the death of the old system is cast as futile. A line is drawn ‘between those who look back with nostalgia, trying to hold on to past practices, and those who embrace the new paradigm’.³⁰

However, once you factor in class, wages and welfare states, workingclass resistance can be technologically progressive; it forces the new paradigm to emerge on a higher plane of productivity and consumption. It forces the ‘new men and women’ of the next era to promise and find ways of delivering a form of capitalism that is more productive and which can raise real wages.

Long cycles are not produced by just technology plus economics, the third critical driver is class struggle. And it is in this context that Marx’s original theory of crisis provides a better understanding than Kondratieff’s ‘exhausted investment’ theory.

WHAT CREATES THE WAVE?

Marx’s theory effectively describes where the energy that creates the fiftyyear wave comes from. If we strip away the false additions made by his followers, we can understand what was right about Marx, and where it fits with the fifty-year mutations we’ve described.

The falling profit rate and its counteracting tendencies can be assumed to operate throughout the fifty-year cycle. Breakdowns happen when the counter-tendencies become exhausted. In the immature capitalism of the nineteenth century, they were frequent – but always more frequent in the decline phase. Marx, for example, underestimated the possibility that working-class resistance to wage cuts could be a factor in triggering profit crises. However, the falling profit rate – fundamental as it is – now operates beneath layer upon layer of social practice designed to counteract it.

Kondratieff’s account – which said that the fifty-year cycles were driven by the need to renew major infrastructure – was far too simplistic. Better to say each wave generates a specific and concrete solution to falling profit rates during the upswing – a set of business models, skills and technologies – and that the downswing starts when this solution becomes exhausted or disrupted. The most effective forms of the solution during the upswing are the ones Marxist theory describes at a deep level within the production process: increased productivity, cheaper inputs, a rising mass of profits. Once the wave inverts and the solution’s downturn begins, it is the more contingent surface factors that tend to kick in. Can new markets be found outside the system? Will investors take a reduced portion of profit in the form of dividends?

The tendency of the rate of profit to fall, interacting constantly with the counter-tendencies, is a much better explanation of what drives the fiftyyear cycle than the one Kondratieff gave. And once you meld the two, longcycle theory becomes a much more powerful tool than the orthodox Marxist left suspected.

Put simply: fifty-year cycles are the long-term rhythm of the profit system.

An arrangement that allows for the rapid replacement of labour by machinery works for a while, generating expanded profits, and then breaks down. This is my alternative to Kondratieff’s ‘exhaustion of investment’ thesis.

As to financial crisis, it is always possible during the up phase of the long cycle (for example in the US panic of 1907) – but virtually certain during

the down phase. As capital flows out of the troubled productive sector and into finance, it destabilizes the latter, leading to speculative boom-bust cycles. And across the first three long cycles capital became more financially sophisticated and complex overall.

A final observation concerns the need for capitalism to interact with a world outside to search for new markets for goods and a new labour supply. This is a crucial consideration in systems theory but is underplayed by Marxist crisis theory with its focus on closed and abstract models.

During the nineteenth century there was a ready internal market waiting to be developed within most capitalist countries provided that the agrarian economy could survive the shock of disruption. Likewise, an ample labour supply was on hand. But after 1848, adaptation also involved the search for external markets.

By the start of the twentieth century, the internal supply of labour was constrained – in part by the working-class resistance to child and female labour, in part by the birth-rate. As for new markets, by the 1930s virtually the whole world was cordoned off into closed trading blocs.

With the fourth wave, a substantial part of the world outside is initially closed off. Once the Cold War starts, about 20 per cent of the world’s GDP is being produced outside the market.³¹ After 1989 the sudden availability of new markets and a new labour force plays an important part in prolonging the wave; so does the West’s new freedom of action to shape markets in neutral countries that were formerly off-limits.

In other words, between 1917 and 1989 capitalism’s full potential for complex adaptive behaviour was suppressed. After 1989 it experienced a sugar-rush: labour, markets, entrepreneurial freedom and new economies of scale. On this basis, 1989 must – on its own – account for some of the phase-distortion story I am about to tell. But it cannot account for all of it.

The long-wave pattern has been disrupted. The fourth long cycle was prolonged, distorted and ultimately broken by factors that have not occurred before in the history of capitalism: the defeat and moral surrender of organized labour, the rise of information technology and the discovery that once an unchallenged superpower exists, it can create money out of nothing for a long time.

The Long, Disrupted Wave

In 1948 the Marshall Plan kicked in, the Cold War began and Bell Laboratories invented the transistor. Each of these events would shape the fourth long cycle that was about to unfold.

The Marshall Plan, a \$12 billion US aid package to Europe, ensured the post-war economic boom would take place under American leadership. The Cold War would distort the unfolding wave, first by taking 20 per cent of world production out of the reach of capital and then fuelling a new surge of growth when it ended in 1989. As for the transistor, it would become the core technology of the post-war era, enabling the use of information on an industrial scale.

Those who lived through the post-war boom were amazed, mystified and constantly worried that it would end. Even Harold Macmillan, who told Britons in 1957 that they’d ‘never had it so good’, added: ‘What is beginning to worry some of us is, is it too good to be true?’¹ In Germany, Japan and Italy the popular press – quite separately in each country – dubbed the nation’s growth a ‘miracle’.

The numbers were startling. The Marshall Plan, combined with domestic rebuilding efforts, allowed most European economies to grow at well above 10 per cent per year until they reached their pre-war highpoint, which for most was achieved by 1951.² Regular growth took off spectacularly – and didn’t stop. The US economy more than doubled in size between 1948 and 1973.³ The economies of the UK, West Germany and Italy each grew fourfold in the same period. Japan’s economy, meanwhile, grew tenfold – and this was against a baseline figure close to pre-war normality, not some catch-up effect due to the scale of nuclear destruction. For the entire period, Western Europe’s average annual growth rate was 4.6 per cent – close to double that of the 1900-1913 upswing.⁴