With a bit of delay, here is the second instalment of my analysis
of the current crisis from the point of view of ‘the ethical economy’
I. First Idea Our crisis is a crisis of transition.
The present financial crisis is not the first to hit us. Rather, the period of relative financial calm that marked the persistence of the Bretton Woods accord (1947-1971) has been succeeded by a series of financial boom and bust cycles, the stock market in the 1980s, the dot.com boom in the 1990s and now the sub-prime/real estate bubble. The reasons behind this recent volatility are many ad interconnected in complex ways. First, the collapse of the Bretton Woods system itself created higher levels of volatility (in particular in currency markets) and greater scope for speculation. Second, the computerization, networking and technological refinement of financial markets have vastly increased their speed and scope. Third, deregulation and other policy decisions has further accelerated the process (like Margaret Thatcher’s decision to systematically transform the British economy from one centred on industry to one centred on finance and corporate services).
However, at the heart of the expansion of financial markets and, as a consequence, of financial speculation, there has been a constant and growing over-supply of capital, driven by a persistent decline in the rates of profit of virtually all non-financial sectors of the US economy. This tendency has accelerated in the 1990s . Tendencies are the same for Western Europe and, not least, China. The result is that capital finds declining opportunities for profitable investments in the productive economy, and tends to migrate to financial markets where gains can be much higher, at least in the short run. Again this has been particularly true for China where industrial profits and private savings have been massively channelled into the US economy (partly for geopolitical reasons), where they have fuelled the recent waves of debt-driven private and public consumer bonanza. The flight of capital away from the productive economy and into the financial economy is a manifestation of the inability of the present economic regime to put the wealth it produces to productive use. This is an important point. It is not that there are no more needs to be met in the world. It is simply that the prevailing techno-political paradigm is unable to open up the markets by means of which capital could be productively deployed in meeting such needs. Although there are a number of attempts in this direction, like venture capital investing in alternative energy systems, or companies cultivating the ‘bottom of the pyramid’, the market of the global poor, these are the isolated results of mostly private enterprise, and not the coordinated outcome of systemic initiatives. Such a co-existence of unmet needs and excess capital, and the financial expansion that results from this combination is a classic symptom of the immanent transition form one system to another. Similar things have happened before, for example in the financial boom of the 1920s that marked the transition from a 19th century English-style industrial capitalism to an American-style consumer capitalism. Then the resolution of the crisis consisted in a series of systemic measures- the New Deal and resulting welfare systems- that not only managed to realize a more democratic mass consumer society thus opening up a range of new markets where capital could be deployed to meet hitherto unmet needs and desires, but de facto institutionalized a new, Fordist, paradigm of capitalist development. Indeed in his masterful history of the ‘long twentieth century’ Giovanni Arrighi argues that periods of financialization of the economy, like ours, usually constitute the last phase of a ‘systemic cycle of accumulation’ and signal the emergence of another one.
The reason behind the declining profitability of investment in the productive economy is the growing productivity of labour across most sectors of the economy (excluding some kinds of personal services). In part, this growing productivity depends on what Marxists call the rising ‘organic composition of capital’, that is, the rate of machines and other ‘stuff’ to workers. In particular robots and information technology has rendered workers in factories and offices immensely more productive, drastically reducing the time needed to produce stuff or do things. The result is a supply of ‘more stuff’ and declining prices, which reduces levels of profits. However, the rising organic composition of capital is per se not the only factor behind the recent profit squeeze (after all this has been going on for a long time). Rather, the rising ‘organic composition of capital’ has also caused the emergence of a new mode of production within the capitalist economy itself. This new mode of production has a shadowy presence on the balance sheets of companies, where it figures as what is known as ‘intangible assets’.
full text, as always, here