Populism

The accumulation of capital by a very small minority has reached such a disproportionate level that it is destroying social cohesion. This vast wealth in just a few hands gives them control of government, public institutions, media and production. And nothing is envisaged that does not bring in a profit and make that wealth greater still. But a nation exists because of its shared ethos and because citizens participate in the commonwealth. If these two essential bonds are broken, a nation splits up into its elementary particles. It ceases to be a nation and turns into a hierarchy of oppression. This is when populist politicians come to the fore, often out of the blue. They funnel the mass discontent and invariably aim it at two targets, the Establishment and a minority group. Behind closed doors, however, the Establishment negotiates a deal with the fire-brand and gives him support, which leaves the minority group(s) for whom words are followed by acts. This seems to be the standard procedure when societies fall apart, and the mass of believers and followers are always the cuckolds of history.

The lessons of the past are forgotten and populist leaders are back in favor, as a symptom and product of social decomposition. Unfortunately, demagogues never bring peace and cohesion. They can only thrive in a divided community, where hate of the other can be whipped up with words. Having made a pact with and been coopted by the powers of wealth, the populist turns on his other target, a minority that is culturally and/or ethnically distinguishable. Unfortunately, demagogues do not put right the growing inequalities of wealth. Instead they accentuate the inequality of a designated minority. In the past, populist movements led to Fascism in Italy, the Phalanx in Spain, National Socialism in Germany and numerous similar regimes elsewhere. This cannot be repeated because, since then, technology has transformed the world. But primary symptoms are clearly visible and the outcome with modern tools could be even more devastating.

Since the end of the Second World War there has been much hypothesizing on whether it could have been avoided, and what was the point of no return. The violence had been instituted in the First World War trenches, where generals would order many thousands of men to their deaths with hardly a qualm. By 1918, human life had been devalued to almost nothing, and killing had become the norm. Disband millions of post-traumatic stress disorder victims and anything can happen. Then there was the occupation of Southern Germany (Ruhr) and France’s insistence on reparations, which ruined the German economy and fermented resentment. But this did not concern the Italians who were on the winning side, yet Mussolini marched on Rome in 1922, while Hitler had yet to go to prison and write Mein Kampf (1924). Could one or the other have been stopped at the outset? Most probably so, but they were not and the crisis of 1929 brought fuel to all demagogues. By 1933 Hitler had taken power and soon Mussolini was invading Ethiopia. Then, in 1936, came the Spanish War. Germany and Italy had no trouble supporting the rebellious generals, their legionnaires and auxiliaries from Morocco and their Phalanx allies, whereas France and Britain were unable to support the elected government, because it was a Popular Front comprised of republicans, communists, Trotskyists, anarchists, as well as Basque and Catalan separatists. The war allowed the Germans to test a new weapon over Guernica and other targets, planes built to carry a heavy load of bombs. Thereafter bombing from the sky would be indiscriminate. The war in Spain demonstrated the pusillanimity of French and British governments. And by that time there was no going back, as the Munich accord, which followed the annexation of part of Czechoslovakia, was no more than a respite.

In today’s growing tensions and populist upsurge, the similarities with events eighty years ago are so numerous that the path seems set for a Second Cold War. After being defeated and losing its empire, Russia has rearmed and is back on the world stage with a very centralized government around president Putin. China came out of seclusion and, after a couple of decades, is now on a technological par with Europe and America with a very centralized government around president Xi. In the Syrian war al-Assad and his generals were opposed by a popular front which included al-Nusra and numerous other radical groups, and discouraged support from Europe and America. From the outset, Assad’s best troupes were the Lebanese Hezbollah units, and he soon had additional support from Russia in the air and Iran on the ground. And Turkey, an early member of NATO, seems to be drifting ever closer to Russia, whose annexation of Crimea only raised some symbolic protestations. Even the “red line” over the use of chemical weapons came to nothing.

Euro-American hegemony is being threatened by Russia and its rapprochement with Turkey, while China is anxious to maintain its supplies of Iranian oil. And on all sides populist leaders are beating the drums of nationalism. If one includes the financial crisis of 2008, these last ten years have been a remake of the 1930s, and though quantitative easing saved world finance from collapse, it cannot resolve the problem of ballooning debts. If one adds the new factors of extreme weather conditions induced by climate change, global pollution and mass extinctions, and a tripling of human populations, the situation is even more serious than it was eighty years ago. Charismatic demagogues can conceivably be contained, but runaway meteorology and demography cannot. Trump (whose art lacks an essential component: trust) and his poodles could possibly find a compromise with Xi, Putin, Erdogan and Kim, but no amount of bullying, cunning and deviousness can deal with hurricanes, blizzards, drought, natality and overwhelming debt.

No tomorrows

Investment and consumption are the two extremities of production. Investment starts off the process and consumption ends it. But production is a repetitive cycle in which the price paid for consumption renews the investment, which in turn pays consumption, and so on. Productive investments are primarily labour, past labour in the form of means of production and present labour to transform those means of production. Investments are labour’s income, which is consumed to renew the investments. However, the value consumed is greater than the value invested, because of the profit margin. Profit that allows the accumulation of more investments, more profits and more consumption in continual expansion, and the gap between investment and consumption gets ever bigger. Filling that gap seems to have only two solutions. One is to export the profit part of consumption and transform it into investments abroad. A classic example was muzzle-loaders exchanged for slaves, and a present-day one is missiles for crude oil. Consumption is traded for investments. But the widening gap reaches a point where overseas trading is no longer enough and consumer credit is introduced. The profit part of consumption is paid for with debt.

Profit, or in Marxian terms surplus value, is sometimes seen as added on, as when something is bought and sold for a profit, without being transformed in any way and occasionally being mover from A to B, or as Marx explained, it is the value produced by unpaid labour. In both cases – and both exist, think of the value added by patents and copyrights – more value must come out of the market than has been put in. The value to be consumed exceeds the value that has been invested to produce it.

Trading consumption for investments abroad is a very ancient practice, possibly as old as foreign trade itself. It consists in exporting goods for which there is no demand and importing goods for which there is a demand. This can easily become exporting goods the poor cannot afford and importing goods the rich can afford. However the general intention is to transform consumption into investments or currency that can be invested. But this form of foreign trade is unbalanced because one nation accumulates investments while the other consumes without investing, one has employment and wealth creation, while the other has neither. It is the trade that exists between developed and developing nations. It is where industrial giants compete and confront one another, and its capacity to absorb surplus consumption is limited.

Borrowing to consume also has a long history. For ages it was reserved to those who offered the guarantee of property, and to kings for war consumption. But the advent of mass production, the growing gap between value invested and value to be consumed, and the limits of foreign trade, finally led to the extension of consumer borrowing to the propertyless. But borrowing to consume more today means consuming less tomorrow when the debt is paid back, not only less than today, but less than yesterday unless income has risen. If incomes are stable, consumer borrowing grows faster than consumer spending (1). This means that larger and larger sums must be borrowed to maintain the growth in consumption. The result is a debt bubble, with defaults, bank failures and bail outs.

Borrowing to invest goes back far in time too. Remember Shakespeare’s Merchant of Venice and Shylock’s pound of flesh. Some investments go wrong (a shipwreck), but the general expectation is that they return their value with a profit. This means that invested debts grow at the same rate as their investments. But these investments are added to those that proceed from the accumulation of profits, interest or rent. The total grows until it exceeds the growth capacity of productive investments and their consecutive consumption. From this point the effect of increasing investments on production is more and more marginal. The main effect is to push up the price of existing investments, in stocks, commodities or real estate. These markets become increasingly speculative, form bubbles and crash more or less severely.

The best case for employment and wealth creation is the trade of consumption for investments (see above). This is how industrial nations have accumulated capital, though it began as colonialist consumption and plunder. But the most spectacular example is China. The Chinese imported investments and exported consumption so fast and so massively that they became the world’s second richest nation in 2010, up from 11^th in 1990, though their per capita income is still way behind (74^th). China has dutifully followed the path of capitalist accumulation, having recourse to trade instead of colonial plunder. The process was very successful, but having reached its limits China proceeded to the second stage of consumer credit. So capital has the whole planet in its grip, and future incomes are being spent as though there were no tomorrows. At the present rate of things, there cannot be that many anyway.

1. Neglecting interest.

Consumption: Credit Demand

                        1          1

                        3          2

                        6          3

                       10         4

                       15         5

                           Etc.

Investments: Credit Demand

                       1          1

                       2          2

                       3          3

                       4          4

                       5          5

                          Etc.

In the wake of the financial crisis, Chinese authorities unleashed a lending spree that more than quadrupled total debt to $28tn at the end of 2016. The IMF issued a warning that China’s “credit efficiency” had deteriorated sharply over the past decade, with ever larger amounts of money needed to generate the same amount of growth. “In 2008, new credit of about Rmb6.5tn (approx $1 trillion) was needed to raise nominal GDP by Rmb5tn,” the fund said. “In 2016 it took Rmb20tn in new credit.”

https://www.counterpunch.org/2017/08/25/china-rising-or-leveling-off/

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According to figures from the Institute of International Finance (IIF), global levels of debt held by households, governments, financials and non-financial corporates jumped by over $US70 trillion in the past decade to a record high of $US215 trillion, equating to 325% of global GDP

http://www.businessinsider.com/global-debt-staggering-trillions-2017-4?IR=T