Industrial dominion and trade.

Henry Ford is said to have remarked that his employees should earn enough to afford the cars they made, which is sensible because mass production is for mass consumption, a mass that included Ford’s factory workers. Other employers did not all agree, however, as high wages necessarily reduce profits. They saw no reason why their workers should own cars, while hoping that Mr. Ford’s well paid workers would buy their products. This is the major problem faced by mass production. When the private property of the means of production demands profit/interest/rent, a maximum return on investments contradicts the wages that allow mass consumption. Low wages mean insufficient consumer demand, and high wages mean insufficient profit.

The simplest and oldest solution to mass production, and insufficient demand because of low wages, is foreign trade. Surplus consumer goods are exchanged abroad for luxury goods or, better still, for raw materials. The classic example is the industrial revolution in England and the cotton trade with India. Raw cotton from India was spun into thread by the new steam machines, and sent back to India. This put the Indian cotton spinners out of work, while the English spinners stayed in rags and the large profits built more and more cotton mills. Only a fraction of the thread was being consumed in England, so only a fraction of its value was paid in wages. However, the redundant Indian spinners were buying fewer clothes, which meant less thread and the closing of mills in England. Later came mechanical weaving, and the American market for raw cotton and consumers. But America had gained independence and soon industrialised itself, whereas India had to wait almost two centuries.

Importing investments and exporting consumption means the added value that is not consumed is invested. The value added by labour is consumed elsewhere and returns as investments. Henry Ford’s remark no longer applies, because workers need not earn enough to consume their products. This has been the model for all industrial nations. But its application cannot be universal and has obvious limits. The model has favoured a few nations with industrialisation and full employment, to the detriment of the many who produce only raw materials and cash crops, and have mass unemployment. Machines are concentrated in a few countries, and the majority world is out of work, as all their traditional craftsmanship has been swept aside by mass produced synthetic equivalents.

Exchanging consumption for investments on the world market means that investments can grow faster than consumption and profit/interest/rent can outstrip wages and taxes. However, as labour in the majority world was made redundant - as had been the Indian cotton spinners before – consumer demand was concentrated in a few hands, those of corrupt governments and their military supporters. Flagging growth was countered by arms sales and constant conflict, and by encouraging the majority world to consume now and pay later. These growing debts led to a crisis in the mid-1990s, when several nations saw their creditworthiness fall very low and were on the verge of bankruptcy (Mexico ’94, Thailand ’97, Russia ’98).

The early 1990s were a turning point, where the end of the Cold War allowed China to adopt the classic model for industrial expansion on a grand scale. (The process started in the 1970s under the Nixon administration. Its “most favoured nation status” was restored in 1980, but China only joined the World Trade Organisation in 2000). For the past three decades, China has been importing investments and exporting consumption, and has accumulated capital at a speed unequalled by any of its predecessors. But, being a late comer, the method of development has evolved. Being the first nation to industrialise, England did so mainly with home-grown technology. When other nations followed suit, they all developed along similar lines, and a new technology was quickly copied by all. By 1940, the major industrial nations – Britain, the USA, Germany, France, Italy, the USSR and Japan – had very similar industrial structures centred around armaments, though none could match America’s productive capacity. After the war, the victors continued the arms race, East against West, whereas the vanquished were banned from the competition. Both Germany and Japan had been severely damaged, their industry and infrastructure were in ruins, and they had no colonies to exploit. They slowly reconstructed themselves from the rubble up. The first phase was all investment and very little consumption. In this they were assisted by the US, where investors were feeling the aftermath of the war boom. When investments began producing consumption, Germany and Japan promptly exported it, to import more investments. But, lacking the neo-colonialists’ privileged access to the majority world, their only possible customers were the industrial nations, first America with whom they already shared financial interests, then Europe and the world. By the 1980s, Japan and Germany had conquered large shares of the global market for cars and cameras, machine-tools and motorcycles, sound and video, et cetera, and had become the second and third largest economies.

Japan and Germany showed the way and China is following in their foot-steps, American investments, then the American consumer market, Japan, Europe and the world. China is drawing in investments and pumping out consumption. And, as with the Indian cotton spinners, people are loosing their employment right across the industrialised world. This should have resulted in a fall in demand. Except that China is trading with the richest nations, where well paid industrial jobs are replaced by services and the difference in incomes is compensated by consumer credit. Or at least was, as this process may be a thing of the past. The credit crunch was the first collapse of the post-Cold War global market. And the huge volume of debts that has piled up and is still growing may take a decade or more to resolve. Meanwhile, other global events are shaping up, climate change, the end of cheap energy, dwindling mineral resources, population growth and urban concentration, food, water, deforestation, biodiversity… China may be developing a model of society that is approaching the end of its historical cycle, which brings the Roman Empire to mind. Then, the cheap source of energy came from slaves. But slaves were the booty of Roman conquest, so that the resource grew, peaked and contracted, as did the limits of Roman dominion. The decline of Rome began with the rising price of slaves. To-day’s Empire is based on the cheap energy that fuels all its machines. These fossil and hydroelectric resources grew, they will peak (may have already) and will inevitably decline.

The credit crunch brought growth in consumption to a standstill. Governments have tried to fill the gap by borrowing more than ever. But there is no reason why subsidising the banks and the car industry should help the millions who have borrowed the income of several years to buy a home, and are struggling to pay their monthly instalments, or those who have overdrafts and revolving credits that equal their monthly earnings. Mass consumption needs a plethora of well paid jobs, which does not seem a likely prospect for the near future, with redundancies everywhere. Shrinking employment in the industrial countries will reduce consumer demand world wide, and China must either close factories to produce less, or develop its own consumer demand, or both. If growth in investments is to continue at the same rate, there can be no redistribution of added value. This means that wage increases would be inflationary, and that consumer demand can only grow with consumer credit. However there is no certainty that the Chinese will take on debt as willingly as have Americans and Europeans.