The International Writers Magazine: Kapital's Last Stand
Capitalism’s Slow Suicide
In my last essay for Hackwriters I claimed that numbers were of secondary importance to process in understanding economics. Since writing that I came across a statement by someone who agrees with what I said.
In his book ‘Buying TIme ’ Wolfgang Streeck says “What is most revealing for social science is not states of affairs but processes – or states of affairs as they are connected with, and within processes.” It is this focus on process rather than numbers or events in isolation that enabled me to see the crash of 2008 coming, although I could not predict the ‘when’ of that event. That same sense now leads me to predict something much more comprehensive than 2008, the suicide of capitalism, although, again, I don’t pretend to know the date.
There are three processes running in parallel that portend a catastrophic collapse of the capitalist economic system on a scale that will make 2008 seem like success. One is the irreversible march of technological advance that destroys more jobs than it creates. The second is the growing inequality of incomes, and the third is the objectification of labour, by which I mean people being seen as no more than a cost.
To understand why these trends threaten the capitalist system we need to strip away some of the features of that system that ‘experts’ concern themselves with, and often use to mystify the rest of us. When that is done, we are left with an essentially simple mechanism in which goods and services are produced, using inputs of capital, labour and enterprise. Although much of this effort is an input to further production stages, capital goods production for instance, or finance, the ultimate purpose is universally the same: consumption. Although finance is sometimes referred to as the lubricant of enterprise, oiling purposeless machinery is pointless. I would argue that the version of capitalism we have adopted is eroding the consumption on which it is founded.
Let us deal with the first process, and least controversial perhaps, that of technological innovation. This process is now advancing so rapidly in some fields that the shelf-life of its products is down to months, if not weeks. Consumption of its output requires ever increasing investment in publicity aimed at convincing consumers that the item they bought only last year is already old hat. Elsewhere, and unpublicised, technological progress in manufacturing techniques is substituting capital for labour, ensuring that one person can now do the work of five or six people in the past. That is five or six people who can no longer consume as much as they once did.
The second process, the growing inequality of income, though not disputable is more controversial in its effects. French economist Thomas Piketty’s hefty volume ‘Capital in the Twenty-First Century’, offers considerable evidence of this process occurring, and other writers support his thesis. One that I have already mentioned, Wolfgang Streeck mentions in his ‘Buying Time’ that in 2010, just two years after the crash in Wall Street, 93% of additional US income created that year had gone to the top 1% of tax payers.
However, though the process is not seriously disputed, drawing attention to it remains controversial. Some defenders of the process advance the ‘trickle-down effect’ argument even though there is little evidence to support that thesis. Others use the cruder device of questioning one’s motives for raising the issue, as if one’s motives altered the facts. ‘Envy’ is the common accusation. I recently saw a senior British politician dismiss mention of growing inequality as ‘the politics of envy’ without the slightest evidence.
Whether or not the growing gap induces envy, it certainly has an effect on consumption. To use a term familiar to economists, the propensity to consume of the wealthy is lower than that of the poor. That is, a smaller proportion of income is devoted to consumption and a higher proportion to saving and the accumulation of capital. Again, this second process exerts downward pressure on the capacity to consume.
The third process, the objectification of labour, has a similar unintended effect. In seeing people as a cost to be avoided or reduced whenever possible, we forget that they are also consumers, and essential to the success of a capitalist economy. I recall many years ago, when capital fled from Europe and America to settle in Asia, mentioning that nobody seemed to realise that the workers unemployed as a result were also consumers, or had been. It is no accident that this process of capital flight coincided with the growth of private debt and the eventual relaxation of banking regulation. Continued consumption, raised consumption indeed, was enabled by use of the credit card and other means of borrowing by millions who had not previously been seriously in debt.
We now have the situation in Britain where many people in work are on extremely low earnings, or are occupied on zero-hours contracts. Though this may cut the cost of labour for the employer it also means that many cannot afford the basic necessities, let alone the odd luxury. The old safeguards have gone and many people are being squeezed ever tighter by their employer, or employers for those trying to cope with more than one job. We are told, by the Business Secretary that a lot of people like the flexibility of not having fixed hours, but that is an example of the obfuscation so typical of career politicians. What nobody mentions in relation to these workers, and those without work, is the negative effect on consumption.
With so much uncertainty, particularly since 2008, the attitude to debt has changed and many people are now wary of borrowing for consumption. Given this new reluctance and the downward pressures I have listed it is possible that consumption would already have fallen to disastrous levels. What has prevented that from happening? The role once played by income from employment and then by private debt is now, since 2008, served by public debt. The state has always been a significant consumer, but it has now extended that function by privatising a wide range of services previously provided by the public sector. In effect, the state has now become the consumer of these services rather than the provider, and in making that change has broadened the opportunities for the profitable investment of private capital.
The importance of the state as a consumer throws into question the wisdom of austerity measures now being pursued by several governments. It also presents a challenge to a private sector that needs the state as a consumer, but is reluctant to pay the taxes necessary to it continuing in that role: an unacknowledged paradox.
What needs to be done if my predicted outcome is to be avoided? In my view, we need to recognise that consumption, not finance, is the lubricant of capitalist enterprise. If consumption continues to fall, as the Chinese economy is discovering, the possession of finance becomes irrelevant, even a burden. Production needs consumption, if it is to grow and continue. That requires a change of attitude towards debt, both at the level of individuals and of nations. Not all individuals can be rich, a relative term, nor can all nations have a surplus balance of payments.
Just as investors in production require others to consume, perhaps going into debt to do so, nations running a surplus budget need deficit nations to be able to buy their exports. We need mechanisms internationally and within individual nations to recycle surplus to those in deficit to enable consumption to grow. When we cut benefits we indirectly cut the capacity to consume. When we enforce austerity on indebted or impoverished states we again limit the market for goods and services. Recognition of this dilemma probably lies behind China’s support for a new Asian investment bank, which Britain has asked to join. China has supplied 60% of the capital to the bank that will invest funds in the productive capacity, and therefore consumption capacity, of other Asian states. It is, hopefully, only the first step in a necessary process. A second step could be a general recognition that the future of capitalism cannot safely be left to the vagaries of blind market forces. That needs strategic oversight with minimal interference at a tactical level.
© Tom Kilcourse March 22nd 2015
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