Transformation of Global Capitalism, Deflation with Unemployment and Rhetoric Around Intergenerational Conflict
A deep-seated global transformation has come about in the composition of capital: in percentage terms, capital expenditure for setting up mighty large-scale manufacturing industries has increasingly given way to a different type of capital expenditure to build a new service industry with lower fixed capital intensity and lower transaction costs.
This primarily came about due to the advent of the last of Kondratieffâs1 hypothesised wave cycles based on Information Communication Technology (ICT): a different organic capital composition led to a 30-year fall in global interest rates. This greatly benefited the high-risk financial component of modern capitalism, as we saw with the crisis caused by excess risk-taking that hit the globalised world after the deregulations of Clinton and Blair. This deregulation made it possible to mitigate the cyclical overproduction crisis due to low international consumption rates but nevertheless struck the globalised world like a hammer blow.
The financial sector cushioned the immediate effects of the crisis caused by failure to achieve a profit by securitising debts and delaying the fall of corporations, which promptly responded by expanding their financial returns, along with their industrial returns.
On the other hand, the monetary expansion policy advocated by the Federal Reserve persuaded international capitalists not to remove capital sums from investment spending large enough to cause a possibly irreversible collapse of the global capitalist system.
High-risk finance and an expansionist monetary policy allowed the US and the world to overcome the lowest point of the crisis and now allows Europe, plagued by the ordoliberalist austerity policy,2 some breathing space because new financial capital expenditure in the Eurozone gives the financial illusion of new growth.
The problem remains that of worsening social disintegration: increasing inequality with low consumption keeps interest rates low and leads to low capital expenditure: everything interacts and overlaps.
European and German austerity policy is responsible for the rest; in other words, the constraints of balancing budgetsâwhere they exist institutionally (only in Europe and for well-known structural reasons)âare a further incentive for cutting interest rates because they prevent new capital investment that could break the vicious cycle, that is, public spending for investment.
Yet this was the form of investment that was and is prevented in Europe, by pursuing a policy of social exclusion and attacking post-World War II welfare successes with a violence so far unprecedented in the history of capitalism.
The European and German deflationary policy is simply a monetary stamp of approval for the transformationâwith its immense implicationsâimposed by the expanded capitalist accumulation cycle structure and its European institutions.
Public Spending and Social Reproduction: Overturning the Rhetoric
Huge problems will arise with social reproduction, which the entirely ideological debate on public debt, dominated by monetarist and deflationary thinking, prevents from progressing towards policies of full employment.
Only a return to a policy of full employment supported by public investments and measures to encourage private and public capital investment will reverse the trend, but the social impact will be enormous, and a cultural revolution will be required to overthrow nihilism and rampant injustice.
The first step in this cultural revolution is to overturn the prevailing discourse on public debt.
Reference to Michal Kalecki could help us here, particularly his article âPolitical Aspects of Full Employmentâ.3 This is a guiding star after years of wandering in the wilderness, and worth quoting in full here.
The essay states: âWe shall deal first with the reluctance of the âcaptains of industryâ to accept government intervention in the matter of employment. Every widening of state activity is looked upon by business with suspicion, but the creation of employment by government spending has a special aspect which makes the opposition particularly intense.
Under a laissez-faire system, the level of employment depends to a great extent on the so-called state of confidence. If this deteriorates, private investment declines, which results in a fall of output and employment (both directly and through the secondary effect of the fall in incomes upon consumption and investment).
This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis. But once the government learns the trick of increasing employment through its own investments, this powerful controlling device loses its effectiveness. Hence, budget deficits necessary to carry out government intervention must be regarded as perilous. The social function of the doctrine of âsound financeâ is to make the level of employment dependent on the state of confidence.
The dislike of business leaders for a government spending policy grows even more acute when they come to consider the objects on which the money would be spent: public investment and subsidising mass consumption.
The economic principles of government intervention require that public investment should be confined to objects which do not compete with the equipment of private business (e.g. hospitals, schools, highways). Otherwise, the profitability of private investment might be impaired, and the positive effect of public investment upon employment offset, by the negative effect of the decline in private investment.
This conception suits the businessmen very well. But the scope for public investment of this type is rather narrow, and there is a danger that the government, in pursuing this policy, may eventually be tempted to nationalise transport or public utilities to gain a new sphere for investment.4
One might, therefore, expect business leaders and their experts to be more in favour of subsidising mass consumption (by means of family allowances, subsidies to keep down the prices of necessities, etc.) than of public investment; for by subsidising consumption, the government would not be embarking on any sort of enterprise. In practice, however, this is not the case. Indeed, subsidising mass consumption is much more violently opposed by these experts than public investment.
For here, a moral principle of the highest importance is at stake. The fundamentals of capitalist ethics require that âyou shall earn your bread in sweatââunless you happen to have private meansâ.
Transformation of Public Intervention in the Crisis in the US and Japan
Today, the world faces the problem that capital gains in the form of income from very high-risk currency circulation have taken precedence over capitalist profits for approximately 30 years.
Capitalism has thus been âcapitalisedâ, not through inheritance of capital but by shifting huge masses of wealth from profit to financial income with the consequent very high-risk speculative bubbles.
Going back to Kalecki, the striking thing is that capitalist indignation with public intervention miraculously evaporated when the private debt of great universal capitalist banks, dispensers of financial instruments of mass destruction, had to be converted to sovereign debt, that is debt that all states had to shoulderâor securitised (playing for time before the crisis). Banks were even nationalised to prevent panic.
Any objection to public debt disappeared when the geopolitical leaders of global capitalist power came under scrutiny: the US and Japan are shining examples.
We only talk about public debt when the debtor nations are on the semi-periphery of central capital reproduction, such as Southern Europe, the Asian nations of the South China Sea and South-east Asia and South America.
Lack of growth and unemployment stemming from low productivity are conveniently not mentioned.
Legions of economists, some Nobel laureates, are falling over themselves to stress that the danger is not deflation but inflation (with rates below 2% in Europe: the unattainable goal of Mario Draghiâs ruinous plan) and we must do anything to prevent it.
The ideological narrative of an intergenerational divide plays an interesting part in this economic and political debate. This assumes that a struggle is taking place between the generations and old people are beating young people with the stick of public debt. In this case, public debt is the budget deficit in resources accumulated by the state through taxation and savings accrued by the sacrifices of past, present and future generations in special reservoirs. There are as many types of reservoirs as there are different methods of allocating property rights, which the state or organisations determine to preserve savings or allocate them as forms of investment.
It is impossible for any state to constantly balance its budget.
The state, like the shifting economy, is constantly evolving, and budgetary balance is simply an illusion or an ideological tool to destroy public spending and public investments (which, as I said, assumes different forms of ownership), thus essentially destroying public spending in the strict sense and any form of non-community welfare.
This ideology, which lies at the root of ordoliberalist thinking, has become a very powerful and destructive instrument of European policy, as evidenced by the economic and social crisis of the last 20 years.
Instead of intergenerational conflict, we should be stressing the principle of citizenship, hard-won after decades of struggle by workers and the mutually supportive culture of many segments of the international bourgeoisie, aware that there can be no growth without social peace and therefore without social cohesion.
The European Exception to the Generational N...
