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Accumulation, Bubbles and Crisis: an ABC for our time. Part 3

dittologica — Sat, 26 Jul 2008 16:44:08 +0000

"When or where it will end, no one can say with certainty. The duration of the turmoil, its scope and the growing evidence of effects on the real economy have come as a great surprise to most commentators, private as well as public."
- Bank for International Settlements, 78th Annual Report [link]

The first two parts of this article [part 1] [part 2] suggested that the drive for ever increasing rates of wealth accumulation fuelled a process which gradually knit the entire world into a single economic system dominated by the industrialized West. Having benefited from a century of dramatic revolutions in production technology, new sources of raw materials and labor, and from geographical expansion of production and consumption, the system settled into a period of saturation and stagnation beginning in the late 1960s. Institutions which earlier in the 20^th century had played a role in saving the accumulation system from the crisis of the 1930s depression by promoting adequate levels of demand— public welfare, regulation of finance, agreements with trade unions—were now considered obstacles constraining private investment. The central objective of the moves made to eliminate these obstacles was to bring down labor costs. In the period characterized by the ideology of neoliberalism entrepreneurs used the ruse of the “free market” to relocate their operations anyplace in the world where wages were lower, while ignoring the damaging effects of these economic displacements on affected communities and the general economy.

The natural outcome of these developments was the decline of purchasing power for the majority of citizens in what had been the most industrialized countries. In order to preserve the system it became imperative to somehow bolster flagging consumption without increasing wages. The answer to this problem came in the shape of the growing arsenal of credit instruments which proliferated from the 1980s onward. While keeping the system from immediate collapse, the credit-based economy became decoupled from the actual production of goods and services and came to be characterized by inflating and deflating financial bubbles.

With the help of financial speculation, lack of government regulation, and the intensive use of public funds to compensate private losses, a general credit bubble has now grown to unprecedented proportions. This presents a lose-lose situation in which deflation of the bubble brings severe economic losses at personal and institutional levels, while actions to prevent the bubble’s deflation only cause further growth of the bubble and increase the level of disruption its deflation will inevitably cause later.

Future prospects

Given the steady decline of wages relative to prices over the past 40 years, the economic policies practiced by the world’s major powers and by transnational institutions like the World Trade Organization and International Monetary Fund are nothing short of lunacy. The more consumption and demand drop the greater are the attempts to beat down the “overhead” of wages via anti-trade union laws anti-welfare legislation, swelling the ranks of the unemployed to increase competition for scarce jobs, contracting public services to private speculators and more offshoring of jobs. And the lower real wages go the more intense are the efforts to bridge the consumption gap using credit (which itself is in peril as a “profitable” business). The bigger the credit bubble grows and the more banks and businesses fail as a result, the shriller the cry from businesses for governments to speed up the money printing presses, further devaluing currency and pumping up inflation. Because, in truth, although inflation is pilloried as the great Satan by neoliberal economists, it is wage inflation that is the true target of their wrath.

In the Western world, the United States and Britain have gone furthest down the road of market liberalization and credit dependency. So it is not surprising that they are the hardest hit of the former industrial nations by the current phase of the crisis, with massive stock market losses, failure of major financial institutions, rising bankruptcy rates and levels of unemployment, and sharply declining consumption.

However, despite recent talk of other economies being “decoupled” from the financial Armageddon in Britain and the US, the integrated nature of the world economy has allowed the contagion from those economies to spread around the world. News from continental Europe, Australasia, India and China attests to similar patterns of downturn in those places.

Crisis is a catalyst for change in the system, and the world economic system will not emerge from the present crisis without some alterations to its landscape. The possibilities range from struggling on with the application of a few patches to deep social unrest and profound structural changes.

As the quote which opens this article says about the current crisis, “When or where it will end, no one can say with certainty.” Below, some of the possible and not so possible responses to the crisis are examined.

Role reversal

Although it is impossible to predict the precise outcome of this crisis, what does seem clear is that the economic hegemony of the United States will continue to wane: it is increasingly unlikely that the US will resume the role it held in the years following the Second World War as driver of the world economy. Some writers suggest that hegemonic roles will be transposed, with China and/or India assuming first place in a newly emerging, Asian-centered, world economy. The de-industrialized countries of the West would, in turn, become low wage zones on the fringe of the Asian powerhouses. This scenario seems doubtful when the nature of the economic activity currently being fuelled by Western demand and capital in the developing world is considered.

While recent economic activity has resulted in the emergence of limited infrastructure improvements in the developing world, these have been focussed on processing for export: goods and money flow through designated processing zones but have very restricted effects on the lives of people not directly tied to the manufacturing and export industries. The workers in these export processing operations are typically unable to purchase the very products they help to manufacture. In most cases, the capacity to produce for local/national consumption has been relatively unaffected. This is evident from the high levels of rural and urban poverty which still prevail in India, Indonesia, Malaysia, and the Caribbean region--all highly integrated into the export processing system of the world economy.

The financial crisis may, therefore, have the two-fold effect of diminishing direct investment in the export dominated economies of the “developing” world, and of curtailing effective demand for imports in the West, which had been propped up by the flawed system of substituting credit for capital. China, with its prior experience in national development, its centralized decision-making structure and its huge internal market, is best placed of any of the developing nations to function autonomously in the face of a global downturn. Yet, with its vast holdings of increasingly worthless US debt and its dependence on imported raw materials, even China may find itself facing a perilous transition.

The old accumulation toolkit

In the past, the global economy has always recovered from its periodic downturns and intensified the process of accumulation and investment. The first part of this article [link] looked at the economic tools which have been used to overcome blockages in the process of accumulation: new technology; development of new markets; cheaper materials; cheaper labor. What are the chances of these tools working in the current situation?

Technology
The capacity of technology to overcome the current phase of the economic crisis seems questionable. Consider the fact that the greatest technological advance of the past century, the rise of the computer, coincides almost exactly with the downturn of Western industry and the decline of real wages. In fact, it is no coincidence that computer-assisted production (and the production of computers) failed to bolster the economy. Computers were mainly used to lower the cost of production by substituting machine for human labor--which is to say that they were used to put people out of jobs (notwithstanding the growth of a new category of workers dedicated to servicing computers). This clearly shows that the power of technology to overcome economic stagnation is contingent on other structural factors in the economy and society. An economy which is predisposed to the reduction of labor costs will apply all innovations towards realizing that goal.

Going green

The current phase of the economic crisis coincides with another crisis which is perhaps even more profound for the future of humanity—the looming threat of climate change. The development of environmentally friendly technologies is essential to address the threat to the natural environment, and perhaps provides one of the best avenues for boosting the economy. Retooling the energy industry to take advantage of renewable energy sources could be a globe-spanning endeavor with attractive prospects for investment. But the task is enormous, and, paradoxically, the prevailing lackluster economic environment may inhibit progress in this sphere. Moreover despite the currently fashionable genuflections towards the institution of private enterprise, the private sector would not be able to coordinate the resources needed to manage a rapid and timely world-wide shift to renewables. And, even if such a project were attempted in the private sphere it would eventually reproduce the social and economic patterns which perpetuate the boom and bust syndrome. To reap ongoing economic benefits, such an enterprise would need to be maintained in the public sphere.

Regardless of which sector manages the project, the fact that green technology is a replacement for existing energy technology means that the greatest economic opportunities would occur at the beginning of the project; later dividends would be in lieu of, rather than in addition to, existing opportunities in the energy field.

Market expansion

The discovery or creation of new markets, a key to economic expansion in the past, is an unlikely source of significant new growth. As argued above, within the last hundred years the world economic system reached the limits of geographical growth, and within the last 50 years consumption reached saturation within the constraints of the current system, given the impossibility of endlessly expanding both consumption and accumulation.

Cheaper raw materials

With the price of raw materials increasing and their availability decreasing, salvation in the form of cheaper raw materials is not likely. New ways of producing and using materials more efficiently are always emerging, but whether this can happen with a force to significantly boost the world economy is questionable.

Cheaper labor

As already described, reducing the cost of labor is a trend already well underway and, far from solving the accumulation problem, is the main factor undermining the world economy.

There are two other possibilities which are not formally part of the old toolkit for stimulating accumulation, but which have played a role throughout economic history nonetheless.

Failure

One of these is the acceptance of circumstances brought about by economic failure. Breakdown of the credit system and concomitant downturn in the world economy would impose greatly lowered quality of life expectations upon people around the world and would be utterly catastrophic for many. Yet, as amply demonstrated by the list of failed states and economies currently in existence, people can adjust to existing for relatively long periods of time under circumstances of deprivation or severely reduced expectations. Absent the political will to construct a successor to a collapsed world economy, this unattractive option could become the reality for millions.

War

Large scale war stimulates production and at the same brings about great destruction of property as well as life, creating a vacuum into which investment is drawn. Reconstruction in the wake of the Second World War gave a tremendous boost to the economies which were still functioning, especially the US. Sadly, there are interests in existence today (the role in Iraq of Haliburton, Blackwater, and the major oil companies come to mind), which would not resist, and might even welcome the outbreak of major wars as a form of economic stimulus.

The culmination of the current and ongoing crisis is not likely to be measured in years but rather in decades. There is a good chance that the existing system will give the appearance of rallying, possibly more than once, before resuming its torpor and decline. Attempts to deploy the old accumulation toolkit will be made with diminishing success. The process will be uneven, affecting various parts of the world economy in different ways and at different times. There will be an increased prospect of war, both of the regional and general variety.

An alternative?

Amidst the crisis of the world economy there is also the prospect that alternative paradigms for more positive economic relations will emerge. These would need to embody principles which moderate, if not reverse, the traditional patterns of domination and ceaseless accumulation. Central to any alternative model to replace the current madness would be the following transformations:

From an economy of concentrated wealth to one of distributed wealth - Historically, the concentration of wealth in few hands has been the goal rather than its distribution across society. The dominant ideology grudgingly acknowledges that wealth distribution should take place, but insists that distribution should be no more than a “trickle”, as in “trickle down”. This must be reversed so that top priority goes to mechanisms to distribute wealth for the general welfare of the population. The “trickle down” should be replaced with a “tide” which flows across society.

From production for accumulation to production for utility - Wealth should be valued for its utility, that is, for its ability to sustain and fulfil human needs, rather than primarily as a tool for driving further accumulation. rather than primarily as a tool for driving further accumulation.

From unrelenting expansion to achievement of sufficiency - The frantic drive for endless change, ever-new ways to turn a buck, and ever-increasing prosperity for some should be replaced by a the quest to build an economy which delivers a level of comfortable and secure sufficiency for all. “Sufficiency” here means high and sustainable standards of health, nutrition, accommodation, sanitation, education, and recreation for all. A shift in attitude is vital not only to creating a society of equal opportunity but also to bringing human activity into balance with the beleaguered natural environment.

From a culture of dominance/subservience to a culture of integration/participation - Democratic institutions have been co-opted time and again in the drive for accumulation. This has resulted in the repetition at every level of society of the pattern of disenfranchised majorities pushed to the margins by small power-wielding elites.

There are no "iron laws of history" which would ensure that these transformations come to pass. However, the sheer destructive illogic of the current configuration of the economy and society gives hope that it will give birth to its antithesis.

Taking Inventory

omwoman — Tue, 08 Jul 2008 22:44:32 +0000

I have too much crap in my life....

Like this stuff from my Grandmother on my Mom's side

Unless you are moving, how many of us really take inventory of our lives on a regular basis? Annual Basis? Every Decade? Only on the Tuesday eve of the blue moon in November, after the first snow has fallen, during a leap year, if your sister/daughter in law is precisely 6 months pregnant and you have won the lottery?

I guess that means that no most of us don't have any idea the accumulation of "stuff" we have in our lives until it comes time to move.... downsizing, upsizing, regardless- everything needs to be looked at and the decision made -Do I keep you eighth grade yearbook, holiday present from a co-worker that was shoved into the closet in the same gift bag it was given to you in, favorite stuffed toy from childhood, hefty bag full of favorite stuffed toys from childhood, cool chunk of marble gravestone from unidentifiable grave from one mischievous night during college?

So, yes, I am in the process of taking inventory and sorting all my possessions into one of five categories.

1- Keep and pack. I won't part with it no matter what it is, useful or not, even if it just continues to sit in a box in the closet until the day I die, and then some poor schmuck cleaning up after me has to make a decision and sort it into a pile of their own.

2- Throw away.... this is the obvious garbage, stuff that does not meet the criteria of one person's junk is another person's treasure. This category includes the recycling bin.... abundance of plastic hangers- recycle (I swear they multiply like bunnies in every single closet), chipped kitchen glasses - recycle, stained old tupperware - recycle...... Does anyone know if cast iron pans can be recycled?

3- Put aside and decide with significant other whether we keep mine or his or both. Combining two complete adult households you end up with two of most things, so which coffee pot do you keep, which iron, toaster, etc.... Some of this stuff is obvious and some of it is a territory thing. This process can truly test your ability to compromise with your partner. Word of advice, if "it" does not matter to you put it in the "Donate-give away" pile and if "it" is that important to you put it in the keep no matter what pile and pull it out later on down the road. If either of you are no good at making a decision, or afraid of hurting feelings just flip a coin or pull from a hat. Or you can do it the old fashion american way and "donate" them both and go buy a brand new shiny state of the art new "it" that make you both happy.

4 - Put aside to sell. Stuff worth enough to put time into e-bay, craig's list, resale/antique shop, etc.... Mostly antiques from family or collected over the years to which I have not emotional attachment to. I would rather not give this stuff away, but in this economy who knows if it will sell at a price that would make me happy. It is quite possible that this stuff may end up in a box to be stored and sold at a later date or for when that same poor schmuck......

5- Put aside to donate, give to friends, yard sale, etc. Stuff that someone else might like, will use, and won't go to waste, like that gift from a coworker that was shoved into the closet in the same gift bag it was "graciously" received in.

Thanks to a friend and former boss I have a very healthy attitude when I am cleaning house. This former boss of mine had a friend who was trained in the art of feing shui. She had her friend over the house to check things out, make suggestions, help clear her home of negative energies. This friend asked about a particular piece of furniture in the living room, a coffee table. It was sending off really bad vibes, not because of where it was placed in the room, but just because of it being physically in the house. Ends up the "coffee table" was a bone of contention with her ex-husband. It was his favorite, she hated it, but out of spite when they split she fought over it until she won it and proudly displayed it in home. It brought so much bad energy into the home, every time she stubbed her toe on it she would swear at her ex, she was intentionally holding onto bad memories and her past life by keeping the "damn table". It was then that they walked around the house and purged it of all "former life" stuff, until it was pointed out to her she had no idea how much stuff was sucking her home dry of all good energy. They had a grand old time throwing all the past life out into the yard, and planning together what needed to be replaced and what didn't. Once they did the energy in the house shifted to being more positive, nurturing and healing. Life was finally able, after years, to begin anew because there was nothing dragging her back in time.

I am fortunate that I do not have any desire nor tendency to keep stuff that has bad past life attachments. I have been very very good over the past few years of clearing out the old to make room for the new (that is except for shoes and purses, but alas even they will have their own judgement day sometime very soon). As a matter of fact many friends at work have asked me to come clean out their closets because they are impressed with my ability to purge the unnecessary from my space. Now that is not to say that I live minimally, frankly I do not, but I no longer have "collections" nor do I hold onto stuff that I might need some rainy day. That is except for that hefty bag full of old stuffed toys, it's a girl thing, right ladies?

So that is it, I am really busy cleaning out. I will keep you posted, but if you don't hear from me in a bit it is because I have my hands full sorting out my life.