torsdag den 25. december 2008

Is the World Slump Over Yet?

In 1994, David Perrin reviewed a book which argued that the worst had yet to come in the then present world economic crisis. 14 years later, "ring of truth" comes to mind. - Gray

The Great Reckoning by James Dale Davidson and William Rees-Mogg (Pan, London, 1994 £7.99), subtitled "How the World Will Change Before 2000", aims to be prophetic. It forsees rocketing taxes, worldwide stock market crashes, a further fall in the property market, a collapse of the welfare state, social disintegration writ large, petty nationalist squabbles and terrorism.

The odd thing is that its authors are both gung-ho supporters of the very system - capitalism - that is capable of unleashing such horror, and find no contradiction in their position. They view the economic basis of capitalism as being fundamentally unstable, yet their advice is only to those already wealthy enough to be able to use their capital to their own advantage in the coming economic crunch. No talk of revolution here.

Nevertheless, The Great Reckoning is a fairly sophisticated book, which is unusual for one that prophecies a Doomsday scenario. Central to its analysis is its prediction of a 1930s-style economic crisis from which other dangers will follow. Davidson and Rees-Mogg claim that there are two main reasons why the world capitalist economy is in for a major period of slump. One is taken from the Austrian Physicist Cesare Marchetti who has spent time analysing the penetration of innovations and products in the capitalist economy. Marchetti dispenses with price-analysis and deals only in physical quantities, claiming that the penetration of commodities into markets can be equated with the spread of living species. He has, for instance, argued that the growth and spread of motor-cars into Western Europe can be explained by the same logistic equation that describes the penetration of, say, rabbits into Australia. Ten years ago Marchetti claimed that most of the markets that provided the spur for the post-war economic boom, like motor-cars, had become saturated. This, he reasoned, would mean economic slowdown.

Economic Slowdown

Marchetti'a argument doesn't fully take into account that technological innovation is itself a spur to capitalist growth and that the "old" industries are forever being replaced by new ones - and continue to be so. If capitalism is true to its development so far, the industries supposedly at the point of market saturation today will be heard of only in history books in the future. It should also be noted that devices exist - from proverbially "reinventing the wheel" to built-in obsolescence - which ensure that the long-term growth in cars, televisions and many other lines of production continue apace. There used to be near-physical market saturation for black-and-white TVs, but did that stop growth in the market for television? - Hitachi, Sony and Ferguson are testament to the fact that it did not. The manufacturers replaced black-and-white with colour, then brought out VCRs, then replaced colour mono with colour stereo, then stereo with surround-sound. Market saturation disappeared in a flurry of pound notes and dollar bills.

In truth Davidson and Rees-Mogg have a far better argument than Marchetti's to justify their view of the major world economic slowdown. Their second, more plausible view, is that capitalism is currently drowning in an ocean of debt:

Debt cannot go on compounding faster than output forever. At the rate it expanded in the United States in the 1980s, interest payments would consume 100 per cent of GNP by the year 2015. No such thing will happen. Long before debt reaches that extreme, it will be wiped away...One way or other we expect a great reckoning. A settling of accounts. We expect the long economic boom and credit expansion that began with World War II to come to an end. The end, when it comes, will not only reveal the insolvency of many individuals and corporations, it may also bring bankruptcy to the welfare state and breakdown of authority within political economies.

There is more than a grain of truth in this. In many world economies, debt is compunding at a faster rate than income and total world indebtedness, by every yardstick that can be named, was heavier at the start of the present slump than at the beginning of any other. In the United States alone the rate of debt to national GNP is now 195 percent, compared with 120 percent before the 1929 crash.

History has demonstarted that sustainable recoveries only begin when a considerable portion of debt built-up during the boom has been liquidated. If debt liquidation is insufficient, growth will remain sluggish even when "recovery" has supposedly begun, such as at present. Davidson and Rees-Mogg estimate that the amount of debt still to be liquidated during this slump in the US is three to four trillion dollars-worth.

The extension of credit effectively delays the onset of capitalism's periodic economic crises only to make them worse when they finally occur. In all economic booms some industries over-extend their operations in the pursuit of further profits and find that they have overproduced for their particular markets. A case in point in the present slump was the commercial property sector.

Perilous Situation

While some industries get into difficultie, other sections of the owning class find that their profits are increasing. The banks, acting as intermediaries between the buyers and sellers of money capital, lend out their accumulated capital to the enterprises in difficulty to keep them going. But this cannot generally correct the fundamental disproportion in growth between the industries and uneven expansion in relation to market demand. Through knock-on effects in industry overproduction spreads and the demand for money capital rises, pushing interest rates up. In this way, the mechanisms of credit extension in the capitalist economy papers over the underlying weaknesses in the productive sphere and buys firms some breathing space before the crisis comes - and this usually comes when the demand for credit is highest and interest rates are at their peak. However, the ultimate outstanding debt increases through this process, requiring a much greater "correction" in the slump as capital assets are devalued to bring productive capacity back into line. The result is not merely an industrial slump, but a financial, banking and property crash as well, as in the 1930s.

Davidson and Rees-Mogg see this as the present outlook for world capitalism. Mounting corporate, government and personal debt has placed the world economy into its most parlous situation for decades. They are all too aware that the only way out for capitalism, sooner or later, is a financial reckoning which will bring about a growth in poverty, a reduction in social welfare programmes and possibly more armed conflict between nation states.

Their analysis of the situation ends there. There is no prescription for how the slump can be avoided - e must just let it wash over us. The authors are completely blind to how the world might be organised to avoid financial slumps, without the market mechanisms which causes them in the first place. They dismiss the Soviet Union's model of capitalist planning out of hand, as well they might, but in doing so claim that this proves socialism to be an impossible dream. Particularly crass is a chapter on the fall of the Eastern Bloc - which socialists predicted - containing the assertion that this demonstartes the failure of Marxism. Indeed, some of the cooments in this chapter, like the assertion on page 188 that workers exploit capitalists rather than the other way around, defy rational analysis and are completely at variance with the otherwise coherent account presented. But, of course, the likes of Davidson and Rees-Mogg want workers to think that there really is no alternative to capitalism, however bad it may be, and that, despite everything, workers still get a good deal out of the system. Unluckily for them some of us know different.

Dave Perrin. Socialist Standard, August 1994.

onsdag den 24. december 2008

An Alternative Queen's Speech

(A text to be read before the real thing on Christmas Day.)

I'm speaking to you today from Sandringham - or is it Balmoral? No matter, it is one of the big houses or palaces I own and every Christmas Day I intrude on whatever enjoyment you might be having to foist a boring speech on you which is supposed to strike a thoughtful, humane note among the celebrations. I'm sitting in a sort of study and behind me is a window which opens onto the lush estate where my house stands.

I own these places because I'm a very rich woman - in fact about the sixth wealthiest person in the world and I'm worth about £3,340 million. Although I was born into this wealth and have never known what it is like to be poor, I shall be talking to you as if I was the sort of ordinary, everyday mum you're likely to have a chat with in the bus queue or in the doctor's waiting room or at the supermarket check-out. Except that I am the mother of the nation (for my recent ancestors it was the Empire) unless Margaret Thatcher manages to take that bit over as well.So for this broadcast I compose my face into the maternal expression - calm, caring, perceptive, wise.

A lot of people seem to believe it is my speech, all thought up by me. Well I do have a say in it but it's really what the people I work for tell me to say. I'm what is called a constitutional monarch - I do what the government tell me - and if I kick over the traces I will end up like my Uncle Edward.

Whatever is in my speech the media will report it as if it's really profound, earth-shattering, historical. They'll dredge through the frigid platitudes in the hope of finding some small nugget of humour, or controversy or intelligence. Then they'll blow it up into a big headline - "Queen Says War's A Killer", that sort of thing. I don't blame them; media people are like everyone else - except those like me - they have to work for a living.

In case my speech comes over as too boring and trivial I try to touch on some real problems which you might be experiencing. Like being homeless or struggling with life in a slum or in a high rise or battling to keep up with the mortgage on a regimented semi somewhere. This is a bit of a cheek, coming from someone who owns these big houses but I can't let on about the real housing problem - like shopping at the supermarket or having to queue for the doctor it's part of the wider poverty of all who work for their living.

This being Christmas I have to say something about children, to fit in with all that schmaltz about liitle faces aglow around the tree and so on. I drop hints that childhood is not like that - about violent, broken families, drugs, crime, dead-end years in comprehensive schools. It wasn't like that for my children; they had the best of everything, their schools carefully chosen and their whole lives based on the confidence that they would never want for anything. Perhaps that's why I get so upset at all those news items about Koo Stark and so on.

I often refer to problems abroad which, I say sadly, are casting such a blight across the joys of this great Christmas festival. Like war, famine, epidemics - always easy to talk about because they are going on somewhere all the time, wiping out millions every year. I pretend they're like social quirks which would go away if the Christmas spirit- peace on earth, goodwill to all, and so on - were allowed to last all year. Some people might be awkward and ask about these problems being knit into the fabric of the social system which awards these great privileges to me and forces degradation onto you. But they're obviously suffering from a lack of Christmas spirit.

And that brings me to Christmas itself. All those singing cash registers. All that rubbish being sold. All that nonsense spouted from pulpits and in programmes like this one. I try to forget that Christmas is only a short break in the routine, year-in year-out, exploitation, poverty, conflict and insecurity which you endure and the wealth and capital accumulation which keeps me so cosy. That's what destroys people's hopes, distorts their lives, represses them, kills them. And I'm one of its most prominent figureheads.

But I mustn't go on like this. My job is to encourage the most massive diversion of your attention from reality into a circus world of noise and colour. Remember my wedding? My coronation? The jubilee? The weddings of my children? You loved them all, they made you forget where you stand in the social order, what your lives are really like. And that is what I'm supposed to do, in this Christmas Day broadcast for example.

Well it's been nice getting this off my chest - a change from the usual twaddle. Oh, there's something else... Merry Christmas Suckers.

Socialist Standard editorial, December 1988.