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Neoliberalism as a failed response to the declining advantages of scale

photo of Michel Bauwens

Michel Bauwens
20th May 2012


With the perspective of the current crisis, we can understand the set of neoliberal policies that have left their mark on the world since the Eighties as a Big Capital’s conscious reaction to, and an involuntary accelerator of, the reduction of the optimum scale of production, and therefore, to the transition towards a P2P production method.

Las Indias, our very close brothers and sisters in the global p2p movement, have done an extraordnary service to the movement (and all of us interested in deep thinking on the current transformation) by translating their more than excellent blog (thanks to interpreters.coop!). I can only say: put this in your feedreaders, it is an absolute must.

Here is a sample discussion on how neoliberalism is related to issues of scale of production, and why its failed strategy of the ‘financialization of everything’ leads to p2p production methods. The original article has tons of interesting links.

David de Ugarte writes:

“With the perspective of the current crisis, we can understand the set of neoliberal policies that have left their mark on the world since the Eighties as a Big Capital’s conscious reaction to, and an involuntary accelerator of, the reduction of the optimum scale of production, and therefore, to the transition towards a P2P production method.

The question of the scale of production and the growing inefficiencies linked to it are common and daily topics. The large products and services of scale are seen negatively by society, both because of the social irresponsibility they let management get away with and because of the loss of quality and diversity they impose, which consumers know are unnecessary. As Kevin Carson writes:

The larger the scale of production, the more it must be divorced from demand, which means that the ostensible “economies” of large batch production are offset, and then more than offset, by the increasing costs of finding new ways of making people buy stuff that was produced without regard to preexisting orders.

However, the criticism of large scales we have undertaken at las Indias goes further, pointing out how the origin of the crisis is in the financial inadequacy of financial capital for the new (and ever-smaller) optimal scales of production. These optimal scales are closer and closer to the P2P production method.

The “great bubble machine” has it origins in the difficulties the system has making massive amounts of capital profitable in a setting where the efficient scale of production is smaller and smaller, and so a smaller volume of investment is needed.

For example, it’s a known fact in the circles of seed capital and venture capital that what reduces the profitability of these funds is the need to assume greater risks to be able to offer an outlet to larger investment packages. As Jose Ignacio Gorigolzarri commented in an interview with the economic newspaper Cinco Días:

If there’s a lack of entrepreneurs, I don’t think it’s because because there’s no financing (…) I wish there was financial scarcity, not scarcity of novel projects.

And the world of start-ups no is no exception. Ultimately, while the system has focused on them, it has done so as part of a wider movement characterized by a series of financial innovations whose objective was to reduce non-systemic risk levels to find new outlets for capital.

This movement should be considered the engine of hegemonic structural policies since the Eighties, which David Harvey describes in “A Brief History of Neoliberalism“: financialization, opening of markets, and the radicalization and extension of legislation on intellectual property.

They are all policies of pursuit of scale, whose objective is to provide an outlet and meaning to a growing mass of idle capital, and is from this angle (more than ideology or even the distribution of profit) that we should consider neoliberalism as a political-economic movement from 1979 to today.

The big business superstars of the Eighties and Nineties argued clearly about the need to orient economic policies to make larger scales of production possible and necessary, reinforcing and even creating new sources of financialable profits.

The decline of the optimal scale was implicit in the whole argument of the times: the Microsoft of Bill Gates was not General Motors, either in its impact on employment nor its need for capital… and yet, it became the biggest company in the world. Warren Buffet made his fortune chopping up businesses, reselling some parts, and making others produce. David Bowie issued bonds on future profits from his music pointing the way towards the financialization of the new audiovisual industry, and and even of the new genetically modified agriculture, or of medical research. To continue down this path, they needed not only another turn of the screw with legislation on “intellectual property,” but its extension to all other countries to have an impact on the the balance of payments of the central States, and especially of the U.S. This extension was carried out — not coincidentally — in connection with the signing of the the new wave of free-trade treaties, whose ultimate objective was to justify an increase in the capital of the big banks, telecoms and privatized basic-service businesses.

Paradoxically, this last policy, globalization, would open the spigot of what has been called “breaking the value chain.” Its ultimate consequence, fed by the impact of distributed communication, is the rise of a new industrial and technological sector with a wide scope, but a medium or small scale, in the peripheral countries, especially in Asia… which, in turn, would further radicalize the tendency toward small optimal scales in the central countries.

With the perspective of the current crisis, we can understand the set of neoliberal policies that have left their mark on the world since the Eighties as a Big Capital’s conscious reaction to, and an involuntary accelerator of, the reduction of the optimum scale of production, and therefore, to the transition towards a P2P production method.”

(Translated by Steve Herrick of intepreters.coop)

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One Response to “Neoliberalism as a failed response to the declining advantages of scale”

  1. David de Ugarte Says:

    Thanks a lot Michel!! It is an honor to be quoted here!

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