The last lap

Over the past century, world wealth as it is currently measured has more or less doubled every twenty years (1). The last doubling – from $33 trillion in 1995 to $77 trillion in 2014 – was due to, or at least coincided with the developed world outsourcing its production of goods and expanding its service sector, financial services in particular. Doubling world wealth again by 2035 would mean two more Chinas and other BRICS, twice as many shops and restaurants, and Wall Street along with other stock exchanges would have to double their output. This is possible. Africa and India are still on the side-line, Wal-Mart and Starbucks are not everywhere, and the financial market is just fiat money. The world may be able to double its wealth once again, but that will surely be the last time. Anyway, it needs a huge effort of the imagination to project both Africa and India as future power-houses of world growth, in the way China has been. So it is a reasonable assumption that the recent slowdown is here to stay. And a zero growth future threatens profit driven capitalism, which cannot exist without perpetual expansion.

Having reached the limits of global growth, capital’s predatory nature obliges it to feed on itself. With no new markets to conquer, capital must prey on other capital to continue growing. Companies buy up their competitors, or put them out of business by taking their market shares in price wars. This goes on all the time, but it accelerates and accentuates when the global market stops growing for lack of new regions to invest. And the free-for-all involves nations, who try to protect their production and their jobs by raising barriers and deploying military might. The yearly average of 4% global growth needed to more than double wealth every twenty years is over. Capital accumulation can only continue by absorbing existing capital. Instead of creating new productive investments, capital is increasingly concentrated. Instead of spawning, the big fish swallow the smaller ones, until only big fish are left in the sea and they have to eat each other.

Capital expands and then concentrates. During the expansion phase, venture capital cuts across the class divide. It appears open to all, with many new fortunes being made on merit and entrepreneurship. When expansion stalls, concentration dominates and egalitarian illusions of trickle down are dissipated in a brutal take-over contest. In the past, concentration has been followed by renewed expansion and growth. That alternation has probably ended, which is just as well because planet Earth would not survive another doubling of output. When the market stops growing, corporations must fight for a larger share of the existing market. Up until now, these periods of tension and conflict announced a new expansion. When that no longer happens, there must be a change of course.

At the beginning of the century a group of researchers put together a computer program and ran a number of scenarios for the next hundred years (2). Almost all of them showed a world collapsing around the 2050s. This was before the acceleration of climate change and the post-2009 financial stress. Add them in, and the collapse could be brought forward to the present decade. The “overshoot” that might have been avoidable twelve years ago is under way, the planet’s mutation has begun. Rising oceans and increasingly violent meteorological events will affect urban dwellers as well as agricultural societies. Both populations will be obliged to move, if their homes are under water and their crops are failing. This flow of migrants/refugees, even stronger than today’s, will cross seas and continents to save themselves. The trouble is that no one seems able to predict how quickly the consequences of greenhouse gases will get out of control. Things could be incremental over a long period, or they could suddenly go mad. And the same can be said for finance, where the overload of debts could go on piling up indefinitely, or it could break the camel’s back. In the graphics mentioned above, the end of growth is often abrupt. Only the more favourable scenarios soften the fall. Pollution and finance have the same best and worst outcomes. However, considering what has happened since the graphs were published, the least catastrophic endings are probably out of reach for both climate change and debts. All the signs seem to show that humanity is about to stumble off the cliff it has mindlessly built for itself.

1. in trillions of US dollars:

2014: 77.8

1995: 33.6

1975: 15

1955: 5.4

1930: 2.2

1900: 1.1

https://en.wikipedia.org/wiki/Gross_world_product

2. Limits to Growth, the 30-year update (2004)

http://www.whole-systems.org/world3.html

And this:

U.S. gasoline consumption, averaged over four weeks, rose 3.9 per cent from a year earlier to 9.39 million barrels a day through April 15, Energy Information Administration data show. Demand this summer will increase 1.4 per cent to a record, the EIA said April 12. Americans drove 232.2 billion vehicle miles in February, up 5.6 per cent from a year earlier, Transportation Department data show.

http://www.bloomberg.com/news/articles/2016-04-24/oil-bulls-plunge-into-market-as-u-s-gasoline-demand-hits-record?cmpid=yhoo.headline

On the usefulness of crime and terror

Organised crime has always plagued society. Its stock in trade is providing the illicit, with robbery and protection as peripheral activities, and with real estate and politics for laundering. Criminal gangs offer anything the law forbids, sex, drugs, gambling and, in some cases, black-market currency, clothes and food. Criminal enterprises depend as much on legislation as do law enforcement agencies. When the US prohibition of alcohol was repealed in 1933, bootleggers and federal investigators were out of work. Fortunately for them, new laws on hemp, poppies and coca came to the rescue. Society creates its criminals by prohibitive legislation and wealth inequality. And yet, society is constantly proclaiming that it will illuminate crime, not by revising its institutions but by hiring more police, lawyers, magistrates and prison guards.

Organised murder has a long history. Claudius Pulcher ruled Rome for a while with his hooligan gangs. The Zealots determined the fate of Judea and the siege of Jerusalem. And Ismaili assassins were active in both Moslem and Crusader states. India had its Thugs and China its Boxers. All these organisations were prone to killing their opponents, but they were usually isolated acts with knives (Sicarii, latin plural form of Sicarius "dagger-man" from sica, knife). Gunpowder brought new possibilities. Guy Fawkes’ failed attempt is still celebrated, but it was just one of many plots on both sides of the Protestant/Catholic divide. Pistols and bombs became the tools of religious assassinations. Then, as Europe’s religious wars abated to leave room for class wars, murder was politicised and was the favoured strategy of the nihilistic fringe of anarchism, with Colt’s revolvers and Nobel’s dynamite.

Government by fear is the method of all tyrannies. But government by terror was first proclaimed and legislated by the French parliament in 1792. It would end two years and some forty thousand victims later with the execution of Robespierre and his terrorist colleagues. The idea of terrorising a population into submission comes with the absolute power of armed force. It lies behind all forms of government, and even the more consensual have its potentiality. However, the French Jacobin regime was the first and last to vindicate terrorism (totalitarian states only practice it). Since then, designated terrorists have always been in opposition to the power structures in place. At the beginning of the 20^th century terrorism was associated with anarchist and nationalist movements, and a .38 semi-automatic pistol fired in Sarajevo sparked off WW1. After 1945, national liberation fronts were labelled as terrorists. During America’s war in South-East Asia, left wing radical groups were treated as terrorists, whether they had recourse to violence or not. And for the past two decades, Moslems have been the terror bogeyman. As for the continuous state terror, both at home and abroad, it has been constantly legitimated by mass propaganda.

Many crimes could be eliminated by legislative changes, theft could be reduced by a more egalitarian distribution of incomes, and violence is best treated by psychiatry. “The underlying causes of crime” that are so rarely mentioned. Terror – shooting people or blowing them up, or making them disappear – is predominantly used by governments to impose their will on their own and foreign societies. The violence exerted by police and military armed forces exceeds by far the violence that opposes them. But unofficial acts of terror, targeted or haphazard are used to justify and accentuate official terror tactics. Police depend on the law, the more it prohibits the more power they have. And governments welcome international violence and will even provoke it to mask the tensions of class confrontation. The nuclear Cold War was a paradigm, with plenty of peripheral fighting and a permanent threat of total destruction. Both sides used it to vindicate the atrocities they committed. There was a period of unease after the USSR’s economic crash and the perspective of universal peace, but the ten year Soviet occupation of Afghanistan had created new possibilities. It was the cradle of a militant revival that spread to Moslem communities everywhere.

The end of state communism in Eastern Europe and Russia left an ideological void. After WW2 the world had split into two antagonistic entities, as irreconcilable as light and darkness. Both sides had structured themselves in opposition to the other, their difference became their raison d’être. Among other things, the Soviets reviled monarchy and religion, which meant that Americans supported them. This played out in Afghanistan, where Moscow was behind a secular and centralised military regime, while Washington, through its Saudi branch, financed and armed tribal rebels and an international Islamic brigade. These were reactionary forces based on ethnicity and religious orthodoxy. They ended up by driving out the Russian troops and their allies, and taking Kabul, largely due to their safe-havens in Pakistan and to the Soviet Union falling apart. However, the outcome of this latter proxy war brought to power a very retrograde form of society. In its total opposition to the communist block the West nurtured a contagious medieval regression.

Events in Afghanistan were a prelude to the chaos in Iraq, Syria, Yemen, Somalia, Egypt and across Northern Africa to the Atlantic. Tribal traditions and religious fundamentalism are a regressive mix, an attempt at reviving the past that can only be desperate, violent and doomed. Meanwhile, governments everywhere have found a new enemy, so the threats of peace and of confronting their citizens’ demands are deferred indefinitely. Just as the police industry needs criminals, the military industry needs a foreign enemy. Both are profit driven and are intimately linked to government policy. The destruction of the remaining tribal societies and their “terrorist” offshoots has given a new lease of life to the masters of war and repression, with a fast expanding demand for their products. Where it not for the looming financial and climatic disasters, and the significance of an arc of alliances that joins up Beirut, Damascus, Baghdad, Tehran and Moscow, all would be for the best.

Profit driven capitalism is failing again

Production occurs when past and present labour are brought together, when present human activity adds value to the means of production that result from past human activity. This supposes that a part of production is for future use, that some is for investment and some is for consumption. This division of production is inherent and it is behind the contradictions of profit driven capitalism. Just about anything can be an investment, on a movie set for example, but most products and services are predestined to either transmit their value by going back into the production process, or lose it by being consumed. With some overlapping there are two departments of production, one is selling investments and the other is selling consumption. This is not a problem for society as a whole, but it is a major obstacle for the private accumulation of capital.

Capitalist accumulation transforms surplus value (unpaid added value or profit) into investments. Members of the department that sells investments can do this by swapping their various surplus values. Members of the department that sells consumption, whose surplus value is consumption, only have consumption to offer and are left out of investment swaps (1). This surplus consumption may be traded for investments abroad or it can be sold for credit at home. The domain of foreign trade is very competitive and subject to tariff barriers, and if some nations exchange consumption for investments, others must accept the reverse exchange to their disadvantage. The consumption department’s capital accumulation and growth are hindered by the consumer form of its surplus value, which the investment department does not need. Transforming it into money with consumer credit is a solution because money can buy investments. The trouble is that consumer credit grows faster than consumption and wanders into subprime territory.

Surplus value is value added by labour that has not been paid for. So labour cannot buy surplus consumption, except with credit, and capital neither wants nor needs it. Consumer debt and credit, for governments and households, expand into a gigantic financial structure built on countless promises to pay with future incomes. When wages and taxes are rising, nominally because of inflation or really because of productivity gains and trickle down, the accumulation of debts compared to GDP is fairly constant. When wages and taxes are stable or regressing, credit needs to stimulate demand all the more, so the accumulation of debt accelerates and grows faster than GDP. Capitalism is not just production and surplus value. It includes land and rent, finance and usury, though it all depends ultimately on the value added by labour and the way it is divided up. Agriculture, mining, industry, services, commerce, utilities, transport, communications, etc. share the value obtained on the market in proportion to their contribution to the value added. The surplus value extracted varies from one sector to another and from one stage of production to the next. For example branding a product does not add value, but it extracts a lot of surplus value. Rent is also a part of added value that labour cannot spend on consumption. The banking sector grants consumer credit to compensate rent, balance the capitalisation of surplus value and maintain consumer demand. And the credit obtains interest that must be compensated by more credit.

Capitalist accumulation has to transform consumption into investments. It does this by foreign trade (e.g. guns for oil) and by getting more money out of the market than it puts in, thanks to consumer credit. But the accumulation of capital is not just about the means of production. Capital also accumulates as interest paying debts. Instead of being invested in developing production, disposable capital is lent to local and central administrations to sustain their growing consumption. They borrow instead of taxing, allowing surplus value to be invested in government consumption. Investment in production is subject to cyclical growth. New technology, new markets and expanding credit result in growth cycles, but once they are in place productive investments stop growing, while surplus value keeps coming in and must be accumulated. This is when the financial sector takes over from the industrial sector, when paper investments replace bricks and mortar. It is also when employment moves from industry to services, from jobs that need a lot of capital to jobs that need very little capital, with consequent productivity and wage losses. Credit and debt become the only factors of growth and the only expanding investments. But the whole structure is based on consumer credit and has been paid for with future incomes, so that settling accounts puts everyone in the red and provokes a general default.

Contrary to invested debts, whose value is returned with a profit, consumed debts can neither be paid back nor pay interest without a reduction in demand. Supposing someone who spends 100 a year borrows 10 to be paid back in five end-of-year instalments. The first year he spends 108, and for the next four years he spends 98. And, if interest is added, his spending over the five year period will be less than if he had not borrowed. Constantly increasing consumer demand with credit needs a constantly growing number of borrowers. These expanding circles of debt end up including borrowers whose creditworthiness is doubtful, with a predictable result of multiple defaults. One way or the other, credit fuelled growth in consumption reaches a limit that is the prelude to recession. Profit driven capitalism must plunder foreign markets for investments in exchange for consumption, or it must force its homeland into cyclical indebtedness, or both for industrial nations. It leads to war and debt bondage, which may not be humanity’s natural destiny. The alternatives of communal property and investment credit are conceivable, where added value belongs to labour, not to the owners of property, where the accumulation of past labour is present labour’s heritage. In tribal societies territory has a common ownership, with rotating allotments or traditional family usages. It was the universal practice of hunter-gathers, herdsmen and sedentary farming communities (2). The passage to private property has always been violent, and it is still going on with the same savagery in the few remaining tribal regions of the world. Reintroducing a common property of the means of production, in an industrial and financial context with huge concentrations of transnational wealth and power, is not worth considering. But, because of the frailty of its credit foundations, the present capitalist structure is on the verge of being ruined. Reconstruction could be transformation.

1. It seems that investment department swaps can only exclude consumption for a time, though including it is a difficult transition, see Soviet Russia.

2. Rosa Luxemburg has described this process in America, India and Algeria:

[…] the accumulation of capital, seen as an historical process, employs force as a permanent weapon, not only at its genesis, but further on down to the present day. From the point of view of the primitive societies involved, it is a matter of life or death; for them there can be no other attitude than opposition and fight to the finish – complete exhaustion and extinction. Hence permanent occupation of the colonies by the military, native risings and punitive expeditions are the order of the day for any colonial regime.

‘The bill submitted for your consideration’, said Deputy Humbert on June 30, 1873, in the Session of the National Assembly as spokesman for the Commission for Regulating Agrarian Conditions in Algeria, ‘is but the crowning touch to an edifice well-founded on a whole series of ordinances, edicts, laws and decrees of the Senate which together and severally have as the same object: the establishment of private property among the Arabs.’

https://www.marxists.org/archive/luxemburg/1913/accumulation-capital/ch27.htm

This book should be on the curriculum.