Stupid regulators and greedy financiers or business as usual? - Chris Wright

The Occupy Wall Street demonstrations which have sprung up around the United States express in their very name the common sense analysis of the economic crisis which began in 2007-8. Wall Street (aka finance capital) is out of control and the regulatory mechanisms in place aren't working. And it is not just in the US. The debt crisis in Greece, Italy, Spain, Portugal and Ireland threatens the stability of the entire eurozone and has engendered its own massive strikes and demonstrations. Speculative and credit instruments are to blame, cut off from the real production of real goods. Bad fictitious capital is undermining good real capital. Swimming against the current is Paul Mattick, Jr.'s book Business as Usual. Couched in a popular style, a bit too much so when he glosses over hotly contested ideas, it nevertheless represents a major improvement over more widely read works like David Harvey's Neoliberalism: A Brief History. If the style is popular, the analysis is not and it provides a necessary rejoinder to both left and right populism.

The book begins with some overview of the inadequate and obfuscatory concepts employed to understand the current crisis through professional economics. His main concern is to show that economic crisis is not caused by external factors, but is built into the functioning of capital. Most specifically, he makes the case, briefly and without sufficient development, that among views which see crisis as endogenous to capitalism, the problem is not one of underconsumption, disproportionality, or overproduction, which all amount to the same complaint about insufficient or imbalanced consumption. Mattick targets the tendency of falling profitability. This is one of those contentious moments, where a citation of relevant discussions in an endnote would have been appropriate, since this is a claim with a long history.

The best part of this argument, however, is not in his popular presentation of a particularly contentious theoretical analysis, but his simple reflection on what drives the economy. Economists of all stripes, left as well as right, seem to operate under the assumption, consciously or unconsciously, that the economy is about the distribution of (scarce) resources to meet needs. However, this is not how capitalism operates. That it distributes resources to meet needs is a side effect of production for the sake of profit. Although this is a somewhat imprecise formulation, it sheds light on many of modern economics’ fallacies. For example, the idea that lower taxes will mean more investment and job growth is simply false if investment in production is not profitable enough. If higher profits can be garnered elsewhere, such as the pilfering of corporate assets by mergers and acquisitions, raiding workers’ retirement funds, reducing benefits, raising fees from workers and consumers, lowering wages, moving production overseas and/or replacing human labour with machines, then no amount of tax decreases will be an incentive to invest in new production and to hire workers.(1)

Mattick also takes up the problem that government spending does not increase profits either. This is because the government uses money from taxes, that is, value which has been produced elsewhere and appropriated by the government without an equivalent amount of value being created. This has not stopped government spending from being an increasingly important part of capitalist prosperity. Since the early 20th century there has been continual growth in government spending and when it has decreased, recession almost inevitably follows. What that spending is on may change. Ronald Reagan tripled the national debt by increasing military spending and decreasing taxes, while cutting transfer payments to the poor, elderly, children, students, etc. George Bush, Bill Clinton and George W. Bush have all effectively done the same thing. Mattick is careful to show that matters were not better when a reverse policy was pursued by Francois Mitterand in the early 1980's. This led to Mitterand being forced to turn to the same neoliberal policies as the other heads of state by the end of 1983.

In this way the book works to address all of the fundamental apologies for the current crisis: it's not a new phenomenon; it's not the outcome of external factors; government spending is integral to the post-WWI economy; government spending or policy is not a means to end the crisis, but at best a means to mitigate crisis and extend spending; the current prosperity enjoyed in the wealthy countries, especially the US, was predicated on a hitherto unimagined expansion of credit and debt at the level of households, corporations and states; capitalism can't avoid paying the debts it has accrued and it can only escape the current crisis of profitability by a wholesale depreciation of existing wealth.

These last two points hit hardest.

Firstly, eventually the piper must be paid. The evaporation in the last two years of the previous 10 years of accumulated wealth is a pretty clear indication that that wealth was largely illusory, or as the popular term has it, fictitious. Even worse, if Mattick is correct a large part of the foundation of ‘Western prosperity’, especially in the US and England where private household debt is well over 100 percent of yearly income, is built on quicksand. The mortgage crisis strikes deeply at the center of that edifice, especially as private home ownership has been the means to the equity which ensured access to loans to cover college for the kids, a high standard of living on cheap credit, low cost loans for a car, etc. The entirety of suburbanism as a development model is exposed to tremendous risk, especially as it always depended on extensive government subsidisation, directly and indirectly.(2)

Secondly, getting out of the broader, long-term stagnation that began in the 1970’s will require a catastrophic devaluation and destruction of assets, wages, benefits, and the collapse of many, many companies, as well as probably a restructuring of the global political order in the face of the decline of the dollar. In other words, a renewal of productive investment would require a devaluation on a scale that would re-enable investment at a level of profitability exceeding the current pilfering and gambling. The last such devaluation and destruction of assets was called World War II. In suggesting that government spending can't get us out of this crisis, Mattick breaks sharply with writers like David Harvey who have suggested a ‘New New Deal’ is possible. If Mattick is right, there is no ‘New New Deal’. That avenue existed when government spending was a quite small proportion of GDP. Today, in all of the developed countries, government spending varies from 15 percent to over 50 percent, but in the countries where this appears to be lower, the debt to GDP ratio can be enormous, which is recognised uniformly as not good. Japan, with its mere 15 percent of GDP from government spending, has a public debt that is 225.8 percent of GDP.(3) The US public debt to GDP was 62.3 percent, but gross (public and private), it was 92.3 percent, indicating the extremely high private debt load in the US Debt to GDP ratios for all of Western Europe, the United States, Canada, and Japan, that is, the most developed nations accounting for the vast majority of global wealth production and income, is almost uniformly over 60 percent, and that was in 2009. In the last two years, matters have gotten worse. Even if a ‘New New Deal’ were possible, which seems nearly impossible, it overlooks the politically reactionary character of the ‘New Deal’ internationally. The nationalism implicit in such an affair goes hand in hand with a more aggressive global financial stance and the decline of the dollar under conditions where no obvious replacement presents itself and where even if it did, it would entail the collapse of the United States as the dollar ceased to effectively be world money.

This does not mean that Business as Usual is a perfect book. Aside from the defects previously mentioned due to its popular style, the book is limited on several points.

Mattick is mistaken on the question of whether or not state expenditure is simply a redistribution of wealth because he overlooks the fact that the state can own and operate production facilities which produce commodities and which sells them. The distribution of profit may not go to private individuals or investors, but at that point there is no difference between the state as capitalist and a private or corporate capitalist. In fact, there is little difference between the internal accounting between units in a state run capitalist economy and the internal accounting between business units within a modern corporation. The market may not be open, but everything is paid for nonetheless as if it were purchased on an open market. However, distortions of the sort one has come to associate with the former ‘socialist states’ do occur because competition on a more or less open market is a critical regulatory mechanism. That is all, however. The state could take over enterprises and run them as a typical commodity producer where particular capitals refused to invest. In the case of needing to restart capital accumulation, it is certainly not impossible to imagine the state taking over certain industries that could then be operated in a market-priced manner at near zero profit for the benefit of total capital, such as energy production, transportation infrastructure and even most commercial and mass transportation systems, retirement, insurance, and healthcare. These are areas where immediate reduction in cost would improve the profitability of all other businesses across the board by dramatically reducing their direct costs. Whether or not this is possible politically is another matter.

The replacement of living labour with dead labour, with machinery, is pointed to as a progressive tendency of capitalist society and Mattick provides some very interesting data backing this up. Yet this point, which has enormous implications for the problem of restarting a new cycle of accumulation, is underplayed. The progressive displacement of living labour by dead is a key reason that each crisis of valorisation is harder to overcome than the last because the relative surplus value created shrinks relative to the overall investment, and today arguably, the absolute amount, of living labour shrinks. Each crisis of valorisation is also a crisis of devalorisation, of how much devalorisation is required for a new cycle of accumulation to begin and limiting how long it will last.

The same problem of the crisis of the valorisation process also leads to changes in the labour process. The replacement of living by dead labour is also the replacement of an older labour process with a new labour process. Mattick recognises that the old working class identity and the old working class organisations are gone, but he fails to grasp the root of why this is so. The problem resides in the transformation of the labour process. Not merely the replacement of living labour with dead, but the actual transformation of the relation of living labour to living labour, of dead labour to dead labour, and of living labour to dead labour. The handloom weaver who was replaced by an automatic loom saw her own labour process mechanised and she could completely comprehend the operation of the new machine. The farmer who used to use his seed corn for next year's crop knows nothing about and could not reproduce the genetic manipulation of seed corn by a team of agricultural bioengineers. A highly skilled computer programmer or hardware technician could not produce or design a core processing unit, much less the millions of people who rely on a computer everyday for their work. The tendency is for the labour process to be the direct product and application of scientific knowledge and technique, not a mechanical extrapolation of the labourer driven labour process.

The conclusion is tentative about what can be done, if not what needs to be done, and understandably so in a period where the most radical popular idea about the current crisis seems to be held by both left and right wing populism: blame greedy financiers and regulatory mismanagement. The book is a valuable and eminently readable contribution that goes against the stream not only of apologists for capitalism, but against the stream of angry populisms which miss the mark because they lack a fundamental critique of capitalist production.

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Chris Wright is a person living (too little) and working (too much) in Baltimore, MD in the USA

Footnotes
1) On retirement funds see Ellen E. Schultz, Retirement Heist, 2011. Bank of America is currently facing a class action lawsuit over its unethical handling of account debits and credits which was designed to maximise customer penalties and levy the maximum number of overdraft fees.

2) Suburbanism is the term I use to describe the spatial development of capitalism which began to supersede urbanism (c.f. Guy Debord, Society of the Spectacle, chapter 7, New York: Zone Books, 1995) after WWII.

3) CIA Factbook https://www.cia.gov/library/publications/the-world-factbook/geos/ja.html

Source; Mute magazine - http://www.metamute.org/