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It's the Economy, Stoopid!

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William Bowles

It might seem remarkable to many people today but in spite of the thousands of university courses, institutes, the books, newspaper columns and magazines devoted apparently to the study of economics, even your Nobel prize-winning economist couldn’t predict the cost of a barrel oil one month from now or whether the interest rate is going to go up or down. (Most likely) he could hazard a guess but like backing a horse, the odds are he’ll get it wrong.

Even more remarkable is the fact that your ‘average’ economist will be unlikely to admit that he doesn’t know simply because capitalism as a ‘system’ operates almost entirely on an arbitrary basis, or as the saying goes, ‘chaos rules!’ For in spite of all the equations that ‘economists’ invent eg the Schwartz/Black equations, computer simulations and all the other gobbledegook tools of the stock market, at the end of the day, it’s simply gambling with nothing to distinguish your average stock trader from a casino gambler, who also has a ‘system’ that unless he or she cheats, is also no more likely to succeed or fail than relying on the toss of a coin.

Now of course within the nation state, the government attempts to regulate the arbitrary nature of capitalism using a variety of tools; the money supply, interest rates, investment strategies, all essentially rewards and punishments of one kind or another (and we know who generally gets rewarded and who gets punished).

The problem with trying to regulate a national economy is that the capitalist economy is global and has been for the past 150 years or so, so no matter what individual governments do, other factors tend to screw up the best laid ‘plans’ whether it’s competition, over or under-consumption, over or under-production, too much or too little surplus capital, a surfeit or shortage of labour. In other words, it all goes rattling along largely uncontrolled and ultimately unknowable.

Economists in our post-Keynesian world (see below) tend to like to eat their cake and keep it, a fair description of the ‘neo-liberal’ economic agenda, except of course, the capitalist keeps his cake and eats ours. Moreover, when pushed to explain the apparent unknowability of the workings of the economic order, he will tend to resort to metaphysics, for example – let the ‘market’ decide. Of course the market rarely if ever decides anything for the term is based upon a whole set of assumptions about the world that simply aren’t true, never have been nor ever will be.

Firstly, it assumes what they (economists and politicians) call a ‘level playing field’ or ‘all things being equal’ which they never are, this or that will happen. The market we are told is the method whereby the level playing field is achieved as it’s meant to ‘even out’ the inconsistencies of the actions of us mere mortals through the application of the ‘laws’ of the market such as the ‘inexorable law’ of ‘supply and demand’.

Economists get around the unpredictable nature of the real world by figuring out their equations in a fictional one, a world where the playing field is as flat as a billiard table, all other things are equal, governments and business operate rationally and so on. We on the other hand live in the real world, a world of Enrons and mad government policies, a world of greed and utterly irrational behaviour. And above all else a world of addictions – to power, money and control, a world of vested interests and hidden agendas.

However, as long ago as the 1840s, Karl Marx (and others) embarked on a lifelong study of capitalist economics, attempting to get a handle on what powered it and even where it might be headed. Using the emerging industrial system of England as his laboratory, Marx attempted to unravel the underlying rationale of the system and he revealed a number of basic laws including the theory of surplus value or profit to you and me, and the fact that industrial capitalism dispossessed the worker of his tools and his skills and locked them up in machines, so that the worker had no choice but to sell the only thing he had left – his labour – to those who owned the machines and the plants.

Reduced to a commodity, the worker competes with other workers, hence the value of his or her labour power depends on a whole range of factors over which he/she has some limited control and often none at all. The important aspect of this process however, is that the capitalist would have us believe that the system we live in is tantamount to a force of nature and like nature, something over which we have only limited control.

So on the one hand, economists claim to understand how the system works but those who own it claim that it’s beyond our ability to predict the outcome of our actions. Ultimately, it’s ‘ruled’ by ‘human nature’, a force beyond our control.

Historically, capitalist economic expansion and contraction adheres to an approximate 25-year cycle (the so-called Kondriativ wave) or in popular parlance, ‘boom ’n bust’ (and perhaps just as importantly, the cycle also ‘coincides’ with major wars so draw your own conclusions about the causes of major wars).

The post-WWII adoption of Keynesian economics in the UK and across Europe that saw the state directing capitalist investment strategies in an attempt to regulate the chaotic behaviour of capitalism relied upon the state investing in major capital-intensive projects (housing, roads, communications, power, education and so forth). And the reason was simple; capitalists were not prepared to wait 10-15 years for a return on their investments nor to invest in social projects such as housing that offered no financial return at all.

In part this strategy was adopted under pressure from the organised working class starting in the UK with the post-war Labour government, as part of a ‘social contract’ between capital and labour, for not only did it head off the real possibility of a genuine socialist economy, it also recognised that the capitalism of the pre-war period was simply unacceptable. It had after all created two devastating wars, the first of which led to the creation of the world’s first socialist state, the Soviet Union and if anything scared the capitalist class, it was the ‘spectre of communism’ as Churchill put it (always ready with a catchy turn of phrase) that dictated the policies of the Western world.

In America, it was the ‘New Deal’ of the Roosevelt government following the Crash of ‘29 that rescued capitalism from calamity and then the subsequent war that in turn, fuelled America’s post-war boom. For WWII was most fortuitous for US capitalism (if not for those who never returned to a ‘hero’s’ welcome), for not only did the vast economic machine of US industry produce the materiél, it also financed the post-war reconstruction of Europe and Japan’s economies that put them into debt to the US, a debt that the UK for example, is still paying off (which in turn explains the ‘special relationship’ between these two remaining bastions of ‘Anglo-Saxon civilisation’).

By the 1970s however, following the disaster that was Vietnam and the first ‘energy crisis’, it was clear that something ‘had to give’, and it wasn’t going to be the capitalist class. For profits to be maintained there had to be radical redistribution of wealth – upward.

The failure of the socialist economies to attract the working people of the capitalist world – whether through a combination of the vast propaganda machine of the West and the inherent contradictions of ‘actually existing’ Socialism – and let’s face it, the inability of the Left in the developed economies to produce a viable alternative, saw the capitalist class go on the offensive, not only against the developing world where all the raw materials the West needed were located, but also against its own working class. The largest transfer of wealth to the rich the world has ever seen occurred during the late 1970s through to the 1980s with vast swathes of the ‘middle class’ returned from whence they had come – the working class.

Underpinning this process was something that Marx had uncovered during his studies, that over time, the rate of profit tends to fall and to counter this tendency, the shareholder is faced with few options: new markets need to be found, the cost of production lowered either through increased efficiency and/or lower wages, and/or social spending by the state slashed and the state’s revenues redirected toward the capitalist through lower taxes on profits and other methods such as privatisation.

To this heady mix we need to add the revolution in production brought about by information technology, whose principal product was the creation of a global financial network of speculation in currencies and shares, in fact in entire economies! Many, such as Thailand, were brought to their knees by such speculation and their assets bought at ‘bargain basement’ prices by Western corporations thus ‘soaking’ up the surplus capital generated from the super-exploitation of its own working people.

This in a nutshell is the ‘neo-liberal’ agenda. Hence the rise of the ‘market.’ What is important to note is the relationship between this underlying economic reality and the massive propaganda campaign personified by the Thatcher/Reagan years that translated into an intellectual assault on one hundred years of social progress personified by books like ‘The End of History’ that sought to present capitalism as the ultimate economic system, all else was idealism. Socialism had failed because it sought to change ‘human nature’. Capitalism on the other hand, recognised the limitations of ‘human nature’ principally greed and self-interest, conveniently the driving forces of capitalism and downplayed the other equally important aspects of ‘human nature’ such as egalitarianism, sharing, empathy and so on. We have Thatcher’s infamous phrase ‘there’s no such thing as society’ as an example of the ideology of the ‘neo-liberal’ economic agenda.

It is within this context that we need to set the end of the Cold War and the apparent ‘free hand’ the West now had to re-conquer the world. But once more, the real world of economics intervened, for no matter what the propagandists say, there is no escaping the terrible ‘logic’ of capitalism – expand or die. The problem of course is where to expand to? The world of 19th century imperialism dominated a by a handful of developed countries and armed to the teeth, is no more and even with the dissolution of the Soviet Union (one-third of the world’s land surface and much of our primary products), the world of ‘gun-boat’ diplomacy, where the mere display of force was sufficient to subdue any resistance to the force of capital no longer has the effect it once had.

The problem confronting capitalism is many-fold: Vast increases in the efficiency of production again brought about by the information technology revolution, have facilitated the rise of competing economies especially in countries like China; the loss of industrial production and increasingly so-called service economy jobs moving to cheap labour markets like India and South Africa have seen an enormous reduction in the jobs market of the developed economies, and these are jobs that are not being replaced by so-called knowledge economy jobs; the fact that the ‘boom’ times of the 80s and 90s was based on speculative or ‘funny’ money, that is, profits not made in the real world but simply by moving money around the planet at the speed of light and shaving points in the process, the entire process fuelled by the Federal Reserve printing billions of (over-valued) dollars that the world needs in order to buy oil (the petro-dollar). In other words, a gigantic scam that bankrolls the US debt that in turn pays for its military power but landed countries such as Japan and China with vast dollar reserves that should they decide to cash them in, would bankrupt the US economy that in turn would bring chaos the global economy.

In a world of inter-connected and inter-dependent economies, the idea of a single ‘superpower’ is a redundant concept. We have then a complete mismatch between ideology and reality, with the world’s two major economic powers, the US and the UK trapped in a 19th century time warp, attempting to recreate a world long dead and buried - a world dominated by an outdated economic model that nevertheless refuses to die simply because it has the military and economic power to threaten the rest of the world with destruction unless it tows the line.

So what’s an ‘old’ socialist like me to do, for it’s clear that at least in the current climate of fear and repression and the fact that an alternate economic model based upon cooperation and a shared system of humane values is not on the cards, the world is faced with catastrophe. A catastrophe moreover, that is not based upon whether or not Bush gets re-elected but on the very real possibility of global economic and environmental disaster.

Yet a consensus for change does exist as the outpouring of global opposition to the invasion of Iraq showed. An opposition that has no historical precedent that presages an entirely new political phenomenon – the emergence of a global movement for change.

Yet surprisingly, the Left is blind to this process, locked as it is in the politics of the nation state, contending that the problem is just too complex to take on except on a national basis. The traditional Left argues that the differences between nations makes the idea of a global movement of working people simply unrealistic arguing that for example, competition between the national working classes for jobs makes such a movement a non-starter.

Yet the plain fact is that we’re running out of time. Moreover, at the rate at which globalisation and regional economic blocs are removing key differences between nation states, the issue for the Left is not about producing a programme for today but one for tomorrow, a tomorrow that will be here for we realise it’s arrived.


Published Friday, October 1st, 2004 - 10:28am GMT
Article courtesy of William Bowles
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