The G.O.P.’s New Face

July 24, 2016

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Some would say that the nomination of Donald Trump for President puts a brand new face on the Republican Party. But is it really a new face, or just a façade masking some of the same old realities?

A common media narrative describes the Trump ascendancy as a takeover by a political outsider with some distinctly un-Republican ideas. Well, the political outsider part is true enough. Trump has less political experience than anyone else in the race, for better or for worse. As for un-Republican ideas, that applies primarily to his position on international trade. Republicans have generally regarded free global trade as a win-win for the participating countries, encouraging each country to create jobs doing what it can do most efficiently. Trump is deeply skeptical of that Republican orthodoxy, and apparently sympathetic to the American manufacturing workers who have been losing their jobs. Even here, however, it remains to be seen how much he would or could do for such workers. Unlike trade critics on the Democratic side, he has not to my knowledge called for making trade agreements conditional on stronger protections for wages and working conditions, or building a stronger safety net for displaced workers. Instead, he has promised to bring back old industrial jobs that most economists believe are irrevocably lost to global competition and new technologies.

Aside from a critical view of world trade, what is new about Donald Trump’s economic proposals? He seems to accept the fundamental Republican commitment to limited government when he advocates lower taxes and less regulation of business. He makes the familiar claim that lowering taxes and regulation on corporations and the wealthy will generate a new wave of job creation. This sounds like the same “trickle-down economics” that Republicans have been running on for years, without much to show for it in income growth for the majority of Americans. It has become a tough sell. Most people now oppose additional tax cuts for the wealthy, as well as any significant roll-back in the regulations protecting consumers, workers and the environment.

To win elections, Republicans have had to appeal to the electorate with something more popular and populist than a non-egalitarian economic message. For many years, Christian conservativism filled the bill pretty well. The appeal was to traditional religious values: pro-life, pro-family, pro-prayer in schools, etc. More recently, the support for the conservative side in the culture wars seems to be waning. Roe v. Wade remains the law of the land; laws against gay marriage have been struck down; and the younger generation is less interested in injecting religion into politics.

With old appeals losing their traction and the party at a crossroads, what Donald Trump offers is not so much a new economic policy as a new populist rationale for voting Republican. Part of that message is American nativism and strict immigration control. There he is only bringing to the forefront a position that was already a strong undercurrent in Republican thought. Congressional Republicans have been resisting immigration reform for years, despite the efforts of leaders who wanted to reach out to the growing Latino population.  The other message Trump delivered loud and clear at the convention was “law and order.” This isn’t new either, since Richard Nixon used it to great effect in the 1968 election. What he did, and what I think Donald Trump is doing too, is to shift attention away from the real grievances of protesting minorities, and toward the behavior of the protestors themselves, effectively blaming them for the conflicts in the land. “Law and order” then becomes a code word for resistance to the demands of the poor and minorities, a way of expressing one’s solidarity with the white majority. The disturbing attacks on police officers provided a perfect opportunity for Republicans to dissociate themselves from the “Black Lives Matter” movement. Unlike Christian conservatism, nativism and “law and order” appeal less to morality and more to fear. They introduce an uglier, more dangerous and divisive element into the campaign.

Can it work? Can a façade of “American First” trade policy, American nativism and “law and order” convince a large majority of older, white, blue-collar men that the Republican Party suddenly has their best interests at heart? (I say “older, white, blue-collar men” because Donald Trump’s prospects for winning a majority of women, Latinos, African-Americans, young people or the college-educated seem rather dim at this time.) Congressional leaders such as Mitch McConnell and Paul Ryan apparently think it can work. They have been willing to endorse Donald Trump, ugly side and all, for a chance to remain in power and pursue their standard Republican economic agenda, tax cuts for the wealthy and benefit cuts for the rest of us.

But win or lose, the Republican Party has lost something. Gone is the optimism of “morning again in America” (Reagan), “a kinder, gentler America” (Bush 41), or “compassionate conservatism” (Bush 43). What was on full display this week in Cleveland was the pessimism of “vote for Us (or to be more precise, Me), if you want to be saved from Them.” Gone is the pretense of representing all of America, replaced by an appeal to an angry and frustrated slice of America. That appeal seems to be based on an equally dubious premise, that the Republican Party has suddenly transformed itself into the party of the working man, while the Democratic Party has taken its place as the party of Wall Street. Maybe Donald Trump is the perfect candidate to convey this new image of the Party: a casino with a beautiful brand-new façade and a bankruptcy in progress.

 

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Postcapitalism (part 4)

May 18, 2016

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The last part of Paul Mason’s Postcapitalism discusses how the transition out of capitalism might unfold, with special attention to the role of the state in facilitating change.

To review, Mason expects information technology to liberate people from the capitalist market economy. We will be liberated as workers because fewer hours of paid work will be required to produce the necessities of life. We will be liberated as consumers because goods and services will be more abundant and less expensive. We will be able to devote more of our time to voluntary activity and sharing.

A rough road

If this sounds too rosy and idealistic, readers should take a close look at Chapter 2, “Long Waves, Short Memories,” and Chapter 9, “The Rational Case for Panic.” Mason does not expect a smooth, leisurely and pleasant transition beyond capitalism, but something more tumultuous. As the historical material in the book makes clear, the history of capitalism is not just a story of steady progress through technological innovation and rising productivity. It is a story of periodic crises as the profitability of existing industries wanes and capital has to find new opportunities elsewhere. The transition now underway is especially difficult because it calls into question the viability of capitalism itself. As production becomes more knowledge-based, the means of production become harder to own and maintain as sources of private profit. Since the 1970s, capitalists have been counteracting the tendency for profits to fall by holding wages down in the developed countries and exploiting the cheap labor of poorer countries, but at the cost of increasing inequality and social resistance.

To make matters worse, new environmental and demographic conditions are delivering “external shocks” to the economic system. The prime example is climate change, a problem that Mason does not believe the market can solve on its own. When the price of fossil fuels goes up, energy companies take that as a signal “that it’s a good idea to invest in new and more expensive ways of finding carbon.” When the price goes down, consumers conclude that they can drive more or buy less fuel-efficient vehicles. However the market fluctuates, the price does not factor in the externalities, the true costs of environmental impacts on the global economy.

Another shock is the “demographic timebomb,” the addition of another two billion people to the planet by mid-century, most of them in poorer countries. In the richer countries, falling birth rates and rising longevity are creating rapidly aging populations. With fewer working-age people to support more retirees, workers are under pressure to generate enough wealth to save for their own long retirement as well as contribute to the support of today’s retirees through payroll taxes. Demographic change puts additional stress on the economy in several ways: requiring the financial system to deliver high investment returns for retirement accounts, increasing the demands on public spending for the elderly, and increasing the flow of migrants from rapidly growing poor countries to slower growing but aging rich countries.

The world cannot afford a leisurely transformation to the postcapitalist economy Mason foresees. The world needs a rapid deployment of new technologies to produce as much as we can, but do it in a cleaner, greener way that mitigates environmental damage. The potential benefits are enormous, but the task of getting from here to there is daunting.

“Project Zero”

Because of the urgency of the situation, Mason believes that a spontaneous process of increasing information-based activity is not enough. The process needs to become a conscious project, based on the insight that “a new route beyond capitalism has opened up, based on promoting and nurturing non-market production and exchange, and driven by information technology.” He calls it “Project Zero” because “its aims are a zero-carbon energy system; the production of machines, products and services with zero marginal costs; and the reduction of necessary labour time as close as possible to zero.”

The state has a special role to play in Project Zero because only the state is “centralized, strategic and fast” enough to address the urgent problems. However, Mason rejects the old socialist idea of a centrally planned economy, arguing that a centralized bureaucracy cannot respond to new data fast enough to keep up with the pace of change in the information society. Recall the earlier point that the key agent of change will be the educated and networked individual, which implies a high degree of decentralization.

Limits on private capital

So what can the state do to facilitate the transition to postcapitalism? First, it can curb private economic power in industries where it has become a danger to the public good. The energy industry would be one, as the discussion of the climate issue illustrates. The state should actively discourage fossil fuel production and encourage cleaner sources of energy. Mason also sees a much larger role of government in the financial industry. One proposal sure to provoke controversy is that the state take control of the central bank in order to implement a monetary policy that helps debtors more than creditors. That would be a looser monetary policy that keeps interest rates low but allows the inflation rate to be somewhat higher. Over time, that erodes the real value of debt, in contrast to a strict monetary policy that protects wealthy lenders by placing primary emphasis on fighting inflation. Since government itself is a large debtor, that would help governments recover from the fiscal crisis resulting from demands for both low taxes on capital and high spending on social programs to assist struggling wage-earners.

Mason would also reorganize the banking system to make it less profit-driven, by encouraging non-profit banks, credit unions, peer-to-peer lenders, and “a comprehensive state-owned provider of financial services.” He would regulate the remaining profit-oriented banking to curb wasteful speculation and encourage its proper role of efficiently allocating capital to productive activities.

In the economy as a whole, the state would act to insure that what profits remain would be a reward for entrepreneurship, and not just a “rent” based on ownership. Creators of new knowledge would get the rewards of intellectual property rights, but those rights would be short-lived to encourage the flow of knowledge and the continued incentive for further innovation.

Liberating workers

Another thing the state can do is strengthen the legal rights and protections of workers to give them more bargaining power in their relationship with capital. This will indirectly encourage the fuller application of new technologies that can produce economic abundance. “If we legally empowered the workforces of global corporations with strong employment rights, their owners would be forced to promote high-wage, high-growth, high-technology models, instead of the opposite.” Owners would try to make each worker as productive as possible if they could no longer profit from paying such low wages.

An obvious objection is that higher wages and productivity would have the downside of less employment. But for Mason, less employment in capitalist workplaces where owners profit by overworking and/or underpaying workers is ultimately a good thing. Ideally, workers would be better paid for the hours they worked, but also have the option of working fewer hours. They could then experience the decline of paid employment as a liberation, not an involuntary displacement.

The other side of the transformation of work is the increasing opportunities for work outside of traditional profit-centered firms, such as in non-profits and co-ops. Mason recommend that the state “reshape the tax system to reward the creation of non-profits and collaborative production.”

Liberating consumers

The replacement of millions of workers by automated systems is unlikely to be experienced as a good thing unless it has benefits for people as consumers, not just as workers. Here the state can facilitate the transition by providing a basic income to all households, to support those who are voluntarily or involuntarily outside the system of paid employment. That can improve the safety net for those who are displaced by new technologies. It also “gives people a chance to build positions in the non-market economy” by subsidizing participation in volunteer work, co-ops and adult learning opportunities. Market work would still be rewarding as long as minimum wages were higher than the basic income.

In the long run, the abundance of things made available by hi-tech production methods would bring the monetary cost of living down and reduce consumers’ dependency on earned income. People could rely more heavily on non-market forms of sharing, since they would have more time for unpaid but socially useful activity. As the income tax base became smaller, government’s ability to pay a basic income would decline, but so would people’s need for one.

Can democracy survive the transition?

Just about every one of Mason’s political suggestions goes against conservative thinking, which sees the free market as the creator of wealth and the limited state as its supporter. In the conservative view, the state should tax and regulate capital as little as possible, protect wealth against inflation with tight monetary policy, and keep people dependent on paid employment by providing only the most meager welfare benefits. Mason ends his book by warning that if the democratic state tries to facilitate a transition beyond capitalism, the economic elite may decide that preserving capitalism is more important than preserving the democratic state!

How long will it take before the culture of the Western elite swings toward emulating Putin and Xi Jinping? On some campuses, you can already hear it: “China shows capitalism works better without democracy” has become a standard talking point. The self-belief of the 1 per cent is in danger of ebbing away, to be replaced by a pure and undisguised oligarchy.”

We can already see the beginnings of an alliance between right-wing autocrats and blue-collar workers fearful of losing their jobs, especially in doomed occupations like coal mining or pipeline construction. If such alliances succeed in taking over the governments of developed countries such as the United States, then things could get pretty ugly in the next few decades.

In the last great transition of capitalism, in the early twentieth century, authoritarian politics had to be defeated before the democratic state could help create a broader-based prosperity. (Third-world peoples and racial minorities remained excluded however.) We should not be surprised if the same turns out to be true of the twenty-first century, as we struggle to create a more inclusive and sustainable prosperity.

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Postcapitalism (part 3)

May 5, 2016

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Profit and Intrinsic Value

Paul Mason’s interpretation of the long cycles of capitalism relies heavily on the idea that profits tend to fall during the latter half of each cycle. “Fifty-year cycles are the long-term rhythm of the profit system.”

In past cycles, profits have recovered when new waves of innovation have begun, so falling profits have not been as fatal to capitalism as Marx predicted. Mason thinks that the latest wave of innovation will be different.

The key to understanding the rise and fall of profits is the relationship between profit and intrinsic value. Market prices fluctuate, but “there has to be a more intrinsic price around which the selling price moves up or down.” A house is too costly and too useful to sell for the price of a paper clip. Well I say “useful” anyway. Mason would just say “costly in human labor,” since he subscribes to a labor theory of value. I will keep returning to that distinction throughout the discussion, although my difference with Mason doesn’t keep me from reaching many of the same conclusions.

Mason’s crisis theory vs. mainstream economics

In Oscar Wilde’s Lady Windermere’s Fan, one of the characters defines a cynic as “a man who knows the price of everything and the value of nothing.” Mason makes a similar accusation against the economic theory of marginal utility, that “there is no intrinsic value to anything, except what a buyer will pay for it at a given moment.” And so economics becomes preoccupied with “capitalism’s inner tendency towards equilibrium” as prices adjust to fluctuations in supply and demand. Economists have trouble explaining periodic crises, which are dramatic departures from equilibrium.

Without being able to distinguish market price from intrinsic value, mainstream economics also has trouble dealing with social issues like injustice, exploitation, discrimination, fraud, or class struggle. To say that workers have been underpaid or consumers overcharged, one has to judge the price of something against some standard of value. An economic theory that treats the market price as the “right” price is implicitly conservative, although it may hide its conservatism behind a veneer of scientific detachment or value neutrality.

Labor as the standard of value

Mason’s theory of value uses labor as the standard of value, in the tradition of David Ricardo and Karl Marx. Human labor is the source of value, and “a commodity’s value is determined by the average amount of labour hours needed to produce it.”

That has the virtue of simplifying the problem, but I think it leaves too much out. The labor theory focuses on the cost of something in terms of human effort, but not the benefit of something in terms of human need or enjoyment. From the buyer’s perspective, two things produced by similar amounts of labor could have very different use values. Two medical researchers could put in the same hours, but only one might come up with a cure for cancer. When the FDA evaluates a drug, it doesn’t ask how many hours of labor it represents; it asks whether it is safe and effective. Both its cost in labor and its benefit to the consumer can reasonably affect its price.

The greater the human cost of making something, the greater the scarcity and the lower the supply. But the greater the human benefit from making something, the greater the desire to have it and therefore the greater the demand. Considering both sides might seem to bring us back to the conventional free-market view that the only measure of value is the actual price that buyers and sellers negotiate, that is, the equilibrium price where supply and demand meet. However, one can save the idea of intrinsic value by regarding it as the value that buyers and sellers can recognize when the interests of both parties (costs to sellers and benefits to buyers) are fairly represented. To the extent that they are not, then prices will deviate from underlying value.

Why wouldn’t the interests of both parties be fairly represented in a free-market economy? In reality, the free market is a somewhat ideological notion, and participants are not as free as the ideology likes to pretend they are. To understand why, some notions of power and control need to be incorporated into the theory. While mainstream economists have tended either to ignore power or to regard as benign, sociologists have certainly appreciated its darker side. Power can be used cooperatively, on behalf of an entire group or organization, as when a responsible adult exercises economic power on behalf of a child. But where consensus is lacking and collective norms are weak, power is likely to be employed to have one’s way without regard to the interest of others. It is naïve to think that in an unregulated market, concentrated economic power won’t be used to take advantage of the less powerful, by tricking consumers into paying more than a product is worth, or by paying workers less than their labor is worth.

But that brings us to the question, what is the value of labor itself? Here again, the answer depends on whether both sides of a transaction are considered (costs to the sellers of labor and benefits to the buyers of labor), or only the cost side. In Mason’s labor theory of value, the value of a commodity is the labor needed to produce it. So the value of a worker’s labor would be the labor needed to produce that labor, which is the labor performed by other workers to provide whatever the worker in question needs to live and to work. That would be the labor value of labor. This definition of value leads to one conception of a just wage or living wage, the wage needed by the worker to buy not only the means of sheer survival, but the education and other inputs needed to do the work of a modern society.

Again, I find this incomplete because I would want to take into account the use value of labor as well as the labor value of labor. A simple example shows how the failure to do so can lead to illogical valuations. My first job was a summer job doing clerical work in a government office. At first I was slow to complete certain tasks, and I remember one particular occasion when a more experienced worker made a suggestion that allowed me to speed up my work considerably. The use value of my labor certainly clearly increased, but the labor theory would miss that since the labor value of my labor as defined in the previous paragraph wouldn’t have changed.

The use value of labor is its value to the buyer of labor, the consumer or employer. Two workers who require the same support in order to live and to work may differ greatly in their value to the employer. One may be put to work more productively than the other. Employers can add to the use value of labor by innovations in work organization or technology. This has implications for the discussion of profit and the cycles of rising and falling profits.

Where does profit come from?

The labor theory of value takes a rather critical view of profits from the start. Including use value as well as labor value in the discussion changes the picture a bit, although it does not place profits entirely above criticism.

Mason adopts the classic Marxian position that businesses generate profits by extracting surplus value from labor.

If we forget money and measure everything in ‘hours of necessary work’, we can see how profit is generated. If the cost of putting Nazma at the factory gate six days a week is thirty hours work by other people spread across the whole of society (to produce her food, clothing, energy, childcare, housing and so on), and she then works sixty hours a week, her work is providing double the amount of output for the inputs. All the upside goes to the employer. Out of an entirely fair transaction comes an unfair result. This is what Marx calls ‘surplus value’, and is the ultimate source of profit.

Although Mason states the problem in terms of hours, it could also be expressed in terms of wages. The pay required for the worker to purchase the necessary labor of others could be considered a living wage, and profit would come from paying workers less than that wage. Workers put up with this because they are in too weak a bargaining position to be truly free to say no.

Does that mean that workers should receive all the revenue produced by their labor, leaving nothing for capitalist owners and investors? Many socialists have arrived at that conclusion, seeing value only in the labor of an owner-manager, but not in the contribution of capital as such. If capital makes no distinct contribution to value, that makes it rather easy to look forward to the demise of capitalism!

Suppose, however, the owner uses some capital to buy the workers new and improved tools, enabling them to turn out products faster. As in the example where I worked faster in my clerical job, the labor value of the labor hasn’t changed. (The labor value of each unit of product has actually declined, but that’s another matter.) What has changed is the use value of labor, since capital has added value to that. The labor theory of value is blind to this added value, insisting that only labor generates surplus value.

Who should get the profit resulting from this added value? I think that ideally it should be a win-win. The provider of the capital should get a return on capital. But since working with the new tools requires the cooperation of labor, labor should share the rewards as well. This yields a somewhat different conception of a just wage, one that requires giving workers a share of the benefits of their own increasing productivity.

If businesses can add to the use value of labor by innovations in work organization or technology, then the return on capital can be a fair reward for adding value, and not all profit derives from the exploitation of labor. Nevertheless, where workers are weak and unorganized, and social norms governing economic behavior are weak or poorly enforced, capital can derive excess profit from paying workers less than they are worth. That remains true whichever way worth is considered: from the cost side as the labor value of labor, or from the benefit side as the use value of labor. And the theory can also relate power and profit in a vicious circle. The greater the power of capital over labor, the greater the potential for excess profits. Those profits in turn contribute to the accumulation of still more power. The process would continue until the social costs become too great to bear, generating movements for social reform.

Productivity and profits

Hopefully, this theoretical discussion will shed additional light on capitalist cycles and the future of capitalism. Bearing in mind that the cycles are “the long-term rhythm of the profit system,” what happens to profits when capital flows into new industries employing new technologies?

According to the labor theory of value, businesses can profit from new technologies and rising productivity only in the short run. Once a labor-saving technology is fully implemented across an industry, the reduction of labor in that industry will cause profits to fall. That rather strange conclusion follows from the assumption that labor is the sole source of value, and that surplus labor value is the only source of profit. Mason explains:

To increase productivity, we increase the proportion of ‘machine value’ to the living human labour employed. We drive human beings out of the production process and in the short term – at the level of the firm or sector – profits rise. But since labour is the only source of extra value, once an innovation has been rolled out across the whole sector, and a new, lower social average set, there’s less labour and more machine; the part of the operation producing the added value has got smaller; and if unchecked that would place downward pressure on the profit rate of the sector.

If, on the other hand, commodities have a use value as well as a labor value, and profit does not derive solely from exploiting labor, then the explanation for falling profits is less straightforward. In fact, why profits have to fall at all may not be immediately obvious. Consumers who value a particular product may willingly pay just as much for it, whether it’s produced by human labor or by machinery. True, less labor means fewer workers to overwork and underpay; but it also means fewer workers with whom to share the revenues from mechanized production. Productivity gains could translate into corporate profits for a long time.

That means that I have a somewhat more positive view of capitalism, at least during the upswings of long cycles. Capital investments and productivity gains can produce win-win solutions for capital and labor, with both profits and wages rising for many years. That would explain why long-cycle upswings such as the postwar prosperity are periods of relative domestic tranquility and capital-labor accommodation.

Although I do not regard labor-saving technology as inherently unprofitable, as Marxians do, I can see two reasons from a more Keynesian point of view why profits would eventually fall in a mature, more automated industry:

  1. Overproduction: The industry becomes so good at producing goods in high quantity but low cost that it cannot find a big enough market for them.
  2. Under-consumption: The industry reduces its demand for labor to the point that employment and wages fall, leaving too many workers too poor to afford the products being marketed.

Even without Mason’s pure labor theory of value, I can see how mature industries could eventually become victims of their own success in raising productivity and lowering labor costs. Then the rest of Mason’s theory of cycles applies: Profits are threatened, capital tries to compensate by squeezing labor, cooperation breaks down, and eventually social unrest forces the system to adapt. Then in order for capitalism to continue, profits have to be found primarily in new industries.

Profits in a service economy

Today, there is some question of what those new industries would be, since the manufacturing sector is becoming so automated that it can no longer create jobs for the millions of workers entering the global labor force. Last week’s New York Times had a good article by Eduardo Porter, “The Mirage of a Return to Manufacturing Greatness,” questioning Donald Trump’s promise to bring back manufacturing jobs. Porter quotes Joseph Stiglitz, who says, “Global employment in manufacturing is going down because productivity increases are exceeding increases in demand for manufactured products by a significant amount.” Porter draws the logical conclusion that “strategies to restore manufacturing jobs in one country will amount to destroying them in another, in a worldwide zero-sum game.” Putting stiff tariffs on foreign goods, as Donald Trump proposes, is a formula for global conflict, but not global progress.

If there is to be another capitalist upswing in profits and prosperity, it would have to be centered in the service sector of the economy. Mason is pessimistic about turning enough services into paid work to compensate for the decline in manufacturing work.

At a certain level, human life and interaction resist commercialization. An economy in which large numbers of people perform micro-services for each other can exist, but as a form of capitalism it would be highly inefficient and intrinsically low-value. You could pay wages for housework, turn all sexual relationships into paid work, mums with their toddlers in the park could charge each other a penny each time they took turns to push the swings.

As I’ve said before, I expect people with specialized skills to continue to offer their services on the market for the foreseeable future. The more we invest in education and other forms of human capital development, the greater the number of people who will have something valuable to market. But since services by their very nature are labor intensive, there may not be much that financial capital can do to add value and justify a profit. What profits exist in service industries may depend too much on holding down wages, at least until low-wage services are automated too. In this area, the labor theory of surplus value may work very well.

For skilled workers, added value will come primarily from human capital, which will depend on inputs from the community (“It takes a village…”). In order to make those workers dependent on financial capital, capitalists would have to find ways to own the new informational means of production. “Capital has to extend its ownership rights into new areas; it has to own our selfies, our playlists, not just our published academic papers but the research we did to write them. Yet the technology itself gives us the means to resist this, and makes it long-term impossible.” Knowledge is sharable at such low cost that owning it for long is very difficult.

And so we remain poised between an old world of dwindling manufacturing jobs and low-wage service jobs, and a new world of self-capitalized skilled work. There might not be enough such work to keep people as employed as they used to be, but goods and services might be so cheap and abundant that not so much paid work would be necessary anyway. I don’t know whether to call such a system “postcapitalism” or “selfcapitalism” (the spell checker doesn’t like either term), but it certainly will be different.

Continued

 

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Postcapitalism (part 2)

May 4, 2016

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Paul Mason’s perspective on the current plight of capitalism develops from his understanding of the crises that have occurred periodically in the history of capitalism. The current crisis resembles past crises in many respects, but differs from them in ways that are crucial to his central argument. The current crisis has taken shape more slowly and been resisted more successfully for a time, but will ultimately result in a more profound transformation.

Long cycles of capitalism

The historical part of the book focuses on the “long cycles” of capitalism first described by Nikolai Kondratieff. He discovered a roughly fifty-year cycle of economic activity, divided about evenly between an upswing and a downswing. He described the upswing as a period of technological innovation and high investment, followed by a period of slower growth or contraction, usually ending with a depression. Mason uses these dates for the first four long cycles:

  1. 1790 to 1848
  2. 1848 to mid-1890s
  3. 1890s to 1945
  4. Late 1940s to 2008

Each cycle has its key industries where innovation and growth are centered, such as the steam-powered factory in cycle 1, railroads and machine-made machinery in cycle 2, mass production and electrical engineering in cycle 3, and mass consumer goods like automobiles in cycle 4.

In the late 1990s, a fifth cycle began, “driven by network technology, mobile communications, a truly global marketplace and information goods.” But instead of transforming production, it has stalled out, while the previous cycle has hung on longer than normally expected. Mason’s theory of cycles tries to explain why.

A theory of cycles

In very brief form, Mason’s theory says this: During the upswing of a long cycle, capital that has built up in the financial system flows into new technologies and markets, “fueling a golden age of above-average growth with few recessions.” Because the economic pie is expanding so rapidly, achieving social peace by giving everyone a piece of it is easier. Workers who are displaced by labor-saving improvements can usually find employment in expanding industries.

At some point, the upswing peaks out. “When the golden age stalls, it is often because euphoria has produced sectoral over-investment, or inflation, or a hubristic war led by the dominant powers.” There are limits to how much capital can be invested productively in the same technologies and industries. As for “hubristic wars” I assume he means that nations foolishly squander their wealth trying to grab too large a share of the world’s markets and raw materials. I will add that although military spending can stimulate the economy in times of recession, wars have had devastating effects on many healthy economies, with the impact of World War I on Europe the prime example. “War is good for the economy” is not a very safe bet.

When  dominant industries stop expanding and profits stop rising, employers become more resistant to wage demands, and they may also try to reorganize production to replace skilled workers with lower-skilled workers and machines. Worker resistance increases as displaced workers have fewer alternatives. If profits continue to fall, “capital retreats from the productive sector and into the finance system, so that crises assume a more overtly financial form.” I take that to mean that capital that is not invested productively can only finance debt and inflate the value of stocks and other assets beyond their earnings value. Financial panics and depressions occur when the debtors default and the asset bubbles burst.

Mason thinks that traditional descriptions of long cycles focus too exclusively on waves of technological innovation (not to say those are not important), and not enough on falling profits, class conflict, and the intervention of the state. In the first three historic cycles, businesses tried but ultimately failed to maintain profits by squeezing the workers. When economic conditions and social unrest got out of hand, the state acted to facilitate the transition to the next cycle.

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….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 issue of falling profits deserves additional attention, but I’ll save that for when I discuss Mason’s theory of value in the next post.

The prolonged fourth cycle

Something different happened during the downswing of the fourth cycle, beginning in the 1970s. As in previous cycles, the growth in productivity slowed. The initial responses were inflationary rather than deflationary. Businesses kept giving in to the wage demands of highly organized workers, and government social spending also increased, although both wages and benefits were eroded by rising consumer prices. As wages went up faster than productivity, profits were squeezed. Business then launched a very successful attack on workers and government, blaming both of them for inflation. Globalization enabled corporations to eliminate high-wage, unionized manufacturing jobs in the developed countries, while finding new sources of revenue in the developing countries.

All this meant that profits could be maintained without transitioning beyond fourth-cycle capitalism. There was a twenty-five-year surge of productivity in the developing world, between 1981 and 2006. But in the developed countries, productivity growth continued to fall, and yet profits remained high because of stagnating wages. Inequality rose to Gilded Age levels, but until recently popular resistance has not been strong enough to force serious systemic change.

So we have been living in a strange time, suspended between an old system that no longer works for enough people and a new one that can’t quite get going. “Alongside higher profits, the overall rate of investment after the 1970s is low.” There is something odd about an economy in which capitalists make so much money while investing so little in the economic progress of their own countries. But another major transition cannot be put off forever.

A fifth cycle?

Twenty-five years ago, I taught a course on Social Change using Daniel Chirot’s Social Change in the Modern Era as a text. Chirot used long-cycle theory as a framework, and he said this about the fifth cycle he saw emerging at the time:

We can expect that the present fifth industrial cycle will gain ground, transform economies and societies, make life ever more materially comfortable, and then come to some sort of end in a half-century or so. Then, a new crisis will come, and a sixth as yet quite unknowable, industrial cycle will begin.

I gave a lecture which began, according to my notes, “Chirot may be right, but I want to raise the possibility that we are coming to the end of an era, not just a transition between cycles.” I based that suggestion on several far-sighted books of the 1980s, such as Christopher Chase-Dunn’s Global Formation: Structures of the World Economy, and James Robertson’s Future Work: Jobs, Self-Employment and Leisure after the Industrial Age.

Mason’s position is basically the same. The new cycle that has begun without yet coming to fruition represents a more fundamental threat to capitalism. That would explain why resistance is so strong, and why capitalists would prefer to export existing forms of production to other countries rather than improve upon them at home.

Continued

 

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Postcapitalism

May 3, 2016

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Paul Mason. Postcapitalism: A Guide to Our Future. New York: Farrar, Straus and Giroux, 2016.

Paul Mason is a British freelance journalist and economics writer. He is a bold, creative thinker who challenges a lot of mainstream economic thinking. Here he has written an especially insightful and thought-provoking book, one that deserves serious attention and debate.

Mason’s title may make his book sound like a speculative, utopian work, but the future he envisions doesn’t drop out of the sky. It emerges naturally from his understanding of both the recent and earlier history of capitalism. For those who think that something as pervasive and entrenched as capitalism cannot possibly wind down, he offers this observation: “It is absurd that we are capable of witnessing a 40,000-year-old system of gender oppression begin to dissolve before our eyes, and yet still seeing the abolition of a 200-year-old economic system as an unrealistic utopia.”

Another stumbling block for readers may be Mason’s frankly Marxian perspective, although his is a revised version with no “dictatorship of the proletariat.” (Today he sees the educated and networked individual as the key agent of change.) I have some reservations about a few of his arguments, especially concerning the labor theory of value, but that hasn’t stopped me from agreeing with many of his conclusions about the future.

Capitalism’s bleak prospects

Mason begins his book by saying that “the long-term prospects for capitalism are bleak. According to the OECD, growth in the developed world will be ‘weak’ for the next fifty years. Inequality will rise by 40 per cent.”

If we keep going as we have been, we face two alternative futures, neither very pleasant:

  1. Economic globalization continues, but only the wealthy in the developed countries get much benefit from it; or
  2. Popular opposition to globalization grows, global cooperation breaks down, and more nationalist and authoritarian governments emerge, as in the 1930s. Each country tries to save itself at the expense of others, such as by putting up trade barriers to other country’s manufactured goods [See Trump, Donald].

And either way, things get worse in mid-century when the full effects of climate change and demographic change (the challenge of supporting larger and older populations) are felt.

New technologies yes, capitalism maybe not

Mason believes that a better alternative is to take advantage of the potential for new technologies to end capitalism as we know it. Economic problems such as over-reliance on fossil fuels and stagnating wages result from trying to perpetuate a system that no longer works very well. “Capitalism is a complex, adaptive system which has reached the limits of its capacity to adapt.” Although capitalism has a long history of generating technological change, it can no longer adapt to such change because it is now creating technologies that are ultimately incompatible with capitalism itself.

“Information is different from every previous technology,” Mason declares. “Its spontaneous tendency is to dissolve markets, destroy ownership and break down the relationship between work and wages.” Information is different because, unlike other means of production, it can be reproduced at near-zero cost. If I were to give you my car I would lose a car, but what have I lost if I give you an idea? It costs me nearly nothing to share these thoughts with you, so why should I expect you to pay for them? Why would people buy an encyclopedia when Wikipedia is free, or buy a newspaper when so much news is available online?

In addition to widely disseminating “information goods,” the information revolution also “adds a high information content to physical goods, sucking them into the same zero-price vortex….” In a fully automated production system, the key resource is the set of instructions for turning raw materials into finished products. “The knowledge content of products is becoming more valuable than the physical elements used to produce them.” Once the knowledge exists, many users can apply it with little additional cost.

A world of abundant information should also be a world of abundant things produced by automated, information-driven processes. That undermines capitalist markets, since “markets are based on scarcity while information is abundant.” As industrial robots proliferate, the need for paid human labor should diminish. Earlier technological innovations like the assembly line already shortened the work week while simultaneously raising living standards for workers. The more radical change Mason envisions now will free vast amounts of labor from paid employment. Much of that labor can go into voluntary but socially useful activity, whether it is caring for a loved one or making music. Consumers too should experience some liberation from capitalist markets, as more goods and services become available at little or no cost. “We are seeing the rise of non-market production: horizontally distributed peer-production networks that are not centrally managed, producing goods that are either completely free, or which…have very limited commercial value.”

Capitalists can impede this transition, but only by monopolizing information in order to restrict its free flow and maintain its artificial scarcity. Intellectual property rights will be a key issue. Society will have to balance the need to grant such rights in order to reward the producers of new knowledge, against the need to limit such rights in order to facilitate the free spread of information. In the end, Mason doesn’t think that capitalists will be able to own or control the intellectual means of production the way they have owned and controlled other means of production. “The main contradiction today is between the possibility of free, abundant goods and information and a system of monopolies, banks and governments trying to keep things private, scarce and commercial.”

Dramatic changes, conflicts and crises have been common in the history of capitalism. As profit-making opportunities have declined in old industries, capital has repeatedly sought out new markets and new technologies. Always, however, the assumption of industrial capitalism was that people would depend on the owners of centralized means of production for both employment and products. What makes the current crisis different is that knowledge is so easily decentralized, and networked individuals can create so much of value on their own. Global corporations continue to make their profits for now, but they do so increasingly by squeezing the workers and damaging the environment. New technologies that could produce more freedom and abundance for all while better protecting the planet are not yet allowed to do so.

Mason’s argument that abundance will reduce market activity and expand non-market activity makes a lot of sense to me, but I’m not sure how far to take it. The most obvious example is the displacement of human labor from manufacturing production as automation takes control. Many low-skill service jobs could also be automated, although the availability of cheap labor reduces the incentive to make the transition. But I would expect there to be a continuing market for skilled services because not everyone will be willing or able to provide them. A lot of free legal information is available online, but that doesn’t mean that everyone is comfortable being their own lawyer. And although an abundance of goods and services may make them cheaper, only if they become entirely free will the need for money and marketplace exchanges disappear entirely. While some people, especially the more educated, may experience a reduction in paid work hours as a blessing, others may experience it as the curse of unemployment or poverty. Mason’s postcapitalist world will require massive investments in human capital and a stronger safety net for the economically displaced.

The limits of neoliberalism

Standing against Mason’s vision of the future is the set of ideas and policies known as neoliberalism. That is the most recent incarnation of the free-market economics that was considered liberal in the eighteenth and nineteenth centuries, but is associated with conservatism today. Mason defines it as a commitment to uncontrolled markets, the pursuit of self-interest through the market, the small state, and a high tolerance for financial speculation and inequality. On the one hand, he credits neoliberalism for unleashing the information revolution and promoting economic development, especially in poorer countries. On the other hand, he blames the uncontrolled pursuit of profit for aggravating economic inequality and endangering the global environment.

Although neoliberal policies have brought capitalism to a crisis point, neoliberal theory is poorly equipped to understand crisis or radical transformation. Neoliberals believe that markets are essentially rational and self-correcting. If left to their own devices, they tend toward equilibrium, not crisis. For neoliberals, capitalism is just the normal state of affairs, a “continuous present.” Writing with more than a little sarcasm, Mason says that neoliberal economics has a “brilliant model for understanding forms of capitalism that do not change, mutate or die. Unfortunately these do not exist.”

Neoliberal policy and practice has kept capitalism as we know it limping along by relying on loose monetary policy, dramatic growth of the financial sector, and global imbalances between creditor and debtor nations. Specifically:

  1. “Fiat money,” which is money that a state can create freely as long as people have confidence in it, has allowed central banks to counteract stock market drops by pumping cheap money into the economy. When this money inflates the prices of stocks and other assets beyond realistic earnings prospects, boom becomes bust.
  2. As real wages have stagnated, consumer spending has been sustained more by credit and borrowing. By the time of the 2008 financial crisis, 40 percent of corporate profits were coming from the financial sector. Profits must eventually fall if they depend too much on the accumulation of debt.
  3. Neoliberal policies have created debtor countries as well as indebted consumers. “For countries that smashed organized labor, offshored large parts of their productive industries and fueled consumption with rising credit, the outcome was always going to be trade deficits, high government debts and instability in the financial sector.” Debtor nations like the United States require other countries, such as China, Germany and Japan, to be creditor countries. When the burden of debt becomes too great to sustain, countries resist and the system breaks down.

Since the recent financial crisis, neoliberal policy has turned toward imposing austerity on the debtors, while not addressing the reasons for the expansion of debt in the first place. Mason regards the economic recovery as only a temporary fix, since the underlying weaknesses have not been corrected. The real existential crisis of capitalism itself is only beginning.

The most important limit on the neoliberal system is information technology, which is put to the service of the existing capitalist system in the short run, but undermines it in the long run.

And that’s just the introduction and Chapter 1! My next post will look at the historical part of Mason’s argument, his interpretation of the “long cycles” in capitalist history.

Continued

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