The ebb and flow of nationalism.

Feudal duties were centred on war. Vassals were expected to furnish a fighting force at the demand of their suzerain. At first it consisted of knights and their assistants, travelling light and living off the land. But as society changed so did warfare. Demography, urban revival and roads made possible the long-bow, the cross-bow, the pike, the siege engine and the professional foot-soldier. It was the beginning of the end of battles on horseback, and meant that armies had to be paid. These new warriors were no one’s vassals or slaves. They owned their equipment and demanded remuneration for their expertise. So the princes whose warring ambitions exceeded their private purse were obliged to levy taxes. Taxation for war is probably the original compulsory contribution, and the least popular. To counterbalance the rejection, it became a security tax with law and order (protection?) as services provided. All of this transformed vassalage into centralised kingdoms, absolute hereditary monarchies and administrative supervision of property, income and census. The emerging states of Europe defined themselves from the start by war taxes and the geographical limits of their levies.

The crusades gave Europeans a taste of world dominion and brought them two determining elements, powder and paper. Fire-arms and printed books inaugurated mass production, modified warfare and revolutionised society. They were the starting point of Europe’s future pre-eminence. (In Kurosawa’ films “The 7 Samurai” and “Kagemusha”, guns mark the end of an era. And McLuhan’s “Gutenberg galaxy” describes the effects of writing and printing.) Meanwhile, taxes for “defence” and a uniform legal system required precise borders and a standard language. Cannons and printing presses greatly facilitated the process by creating impassable barriers and transforming neighbours into incomprehensible foreigners and potentially hostile enemies.

Out of the concentration of power and wealth, and the centralised control of contributions and language, came the idea of nation. The rulers of a geographic space and its inhabitants were as one, with a common history and a common destiny, for king and country. Or, to paraphrase Orwell, the story told of days gone past shapes the present and decides what to-morrow will be. The passage to uniformity encountered strong resistance, however, and whole regions went as far as changing their religious beliefs to mark their differences. And printing-presses were everywhere, diffusing different versions of the past. In fact, it was only in the late 19^th century, when education became a matter of state with a standard curriculum and when press-barons began propagating a standard message, that national narratives managed to impose themselves. The result was dismal, as the original causes could have predicted, with xenophobia, cultural and ethnic cleansing, and increasingly devastating international conflicts. But the nation was there, a curiously idealised object whose very existence depends on the opposition between in and out, them and us. Who is and who is not, and who is really? What is the standard model for members of a nation, and how far can they stray from the norm?

The division of the world into nations means that one side of a border is different from the other. Were it not so the divide would be absurd. This geographical jig-saw puzzle separated historic communities (e.g. the Kurds or the Tuareg), and joined historic differences (e.g. Sudan or Sri Lanka), and imposed the centralisation and concentration of sovereignty. As the national territory is uniform, the leader must decide the same for all. The ship of state has only one helmsman who steers a course for all the passengers. In Europe, this navigation produced frequent collisions as successive national leaders claimed their path was the only path. It also encouraged the colonial conquest of poorly armed regions of the planet, whose antiquated weapons demonstrated the error of their ways. Nationalism’s apotheosis came with the Second World War and, over the sacrificial ashes, the victors split humanity in two.

The Cold War was ideological with an either/or choice. With America and capitalism or with Russia and socialism were the alternatives, with non-alignment providing a façade of neutrality. In this confrontation, two narratives largely dominated all the others and hampered their expression. For fifty years – assuming it started in 1941 – the US and the USSR kept their duo going but America, who was much richer and held the world’s finance, was finally left standing alone. At which point, nations no longer had to choose one of two foreign narratives. They could construct their own stories to oppose the American one, and everyone else's. So, after a brief interlude, nationalism is back with a vengeance propagating its unavoidable deviances. And, with the on-going financial crisis building up the pressure, the stage is set for a free-fight.

The deceptive promise of growth.

Domestic product records the value that is produced and sold, and invoiced. The goods and services that are swapped or paid informally are not included (though they are estimated in the grey economy). The value produced is exchanged for money, so that there is proportionality between the amount of value and the quantity of money in circulation. Money (cashor credit) changes hands more or less quickly, but technology and the passage from metal to paper and to digital have greatly accelerated the process, so that financial speculation sees vast sums move back and forth in seconds. Whatever the speed of circulation, however, an increased production of value needs more money as the go-between for the growing number of exchanges.

The supply of goods and services to the market must find a solvent demand. And both must grow together to keep to the narrow path between inflation and deflation, thereby maintaining price stability. Goods and services are produced by bringing together the means of production and labour.Their quantity increases when more means and labour are broughttogether, or when the same means and labour increase theirproductivity. In the first case the increased investment increases demand. This balances the extra supply, and the monetary creation in the form of credit is invested (1). The second case is more complex. Gains in productivity should automatically bring down prices, as these are theoretically founded on production costs. But productivity grows with innovations that are covered by property rights and do not advantage every one. The innovator can cut his prices, expand his share of the market and ruin some of his competitors. Alternatively he can maintain prices and increase his profits. In this case thes ame production with more productivity signifies less labour and means of production brought together, less investment and less demand.
Productivity is the troublesome partner of growth, as it can easily perturbe thedelicate balance between supply and demand. All the more so thatgains in productivity can be obtained artificially by cutting wages,taxes, social levies and environmental obligations, thereby reducing production costs (outsourcing is usually motivated by these possibilities). In general, it seems that improved productivity is spread both ways. It raises profits and brings down prices, but thecost price is still lower than the market price. If this surplus value is invested in increased production, the balance of supply and demand is maintained. But the means of production tend to overcapacity, because the surplus value increases investments and forgets that mass production exists for the consumption of labour. This does not happen if the profits are used to increase consumption (e.g. by retired shareholders). However, if they go abroad, or to speculative investments on the stock, real estate and commodity markets, then the balance of supply and demand will be upset.

Even in a perfectworld, steady constant growth of the value produced is probably impossible. The influence of innovation causes accelerations that arenot foreseen and cannot be controlled. And, anyway, it is becoming obvious that the environmental impact of certain forms of growth is making the planet uninhabitable (e.g. fossil fuel consumption). Nonetheless, the illusion of constant growth is possible because of sleights of hand, and because the periodic upheavals they provoke are blamed on other factors. The classic method is for a nation to export finished and semi-finished goods, and to import raw materials and other means of production. The end product is consumed elsewhere, and surplus value can be invested, without leading to over capacity, for as long as this external consumption is maintained. The English cotton industry in the 19^th century practiced this methodby importing raw cotton and exporting spun cotton, and it generated huge quantities of surplus value thanks to the new technology of steam powered machines. As the consumption was taking place elsewhere – India was le largest market – English labour could be paid starvation wages. All the more so that the ranks were constantly filled by rural exiles pushed out of employment by the mechanization of agriculture and the extension of sheep rearing. The cotton market,however, was subjected to periodic slumps (decennial according to KM). It had trouble absorbing such growth, as Indian hand-spinners became redundant and indebted. While vast fortunes were made and lost in England, numberless Indians were deprived of work and income. The process finally stabilized, but India had lost countless jobs and the value they added, to the benefit of English industrial development.

This exchange between England and India in the mid-19^th century seems strangely familiar because it has been repeated by others several times since, though never with such absolute contempt for the labouring masses. The United States practiced the same trade pattern before and after the Second World War. Then Japan, Germany and the ex-colonial nations adopted the idea, followed by Korea, Taiwan and their fellow Dragons. And, last but not least, the Group of Five --with China taking the lion’s share -- has applied the method to an unprecedented globally unified market. The scale of the enterprise dwarfs all past attempts. And, as an extra benefit, when investments are imported and all the consumption that results is exported then,however small the value added, the trade balance is always positive. More value is sold than is bought.

The unbalanced exchange between investment and consumption allows the accumulationof capital on one side and the destruction of jobs on the other, and it produces a constant trade surplus/deficit. On one side of the equation are an exploited work force and industrial development, on the other are unemployment and debt. And when the debt reaches acertain level, it can no longer grow and the system goes into recession. All that is happening was programmed by the laissez faire open-market deregulated ideology that has imposed its universal dictate since the end of the Cold War. Market forces, free enterprise, tax cuts et cetera were shallow slogans that hid the wider picture. As usual, profit and the unlimited accumulation of wealth were the driving motives, and egocentric hubris was the dominant mode. Now that the house of credit-cards is collapsing, these same megalomaniacs cannot recognise that their model is faulty.Their deafening claim that growth is the only solution shows they are insatiable and prohibits change. Or, as J. Stiglitz put it, the argument that the response to the current crisis has to be a lessening of social protection is really an argument by the 1% to say, “We have to grab a bigger share of the pie”. Clutching their riches, their power and their mind-sets, they are pushing the worldoff the cliff into chaos and mayhem.

1. I have developed the different consequencesof investment credit and consumer credit in a previous piece. http://lelezard.blogspot.fr/2010/08/binary-production-of-wealth.html