[OPE] Marxists on the capitalist crisis 4. Simon Mohun - An era of rampant inequality

From: Gerald Levy (jerry_levy@verizon.net)
Date: Sun Jul 13 2008 - 12:14:10 EDT

Marxists on the capitalist crisis: 4. Simon Mohun - An era of rampant inequality 
Published on Workers' Liberty (http://www.workersliberty.org) 
Marxists on the capitalist crisis: 4. Simon Mohun - An era of rampant inequality
By martin 
Created 21 Apr 2008 - 5:23pm 

Simon Mohun
Simon Mohun has done extensive research on the development of productive and unproductive labour (in the Marxist sense, i.e. labour which does or does not produce surplus value), especially in the USA. He is a professor of economics at Queen Mary University of London.

It’s important to put the present difficulties into some sort of historical context. The early 1970s marked the end of what is often called the "Golden Age" of capitalism, the era of post-World-War-2 expansion. From the end of that expansion (usually dated from 1973) we had a period of five to seven years of class struggle which was a stalemate.
In that sense, there was the possibility of a substantial shift to the left. The rate of profit was collapsing, and matters were getting increasingly difficult for capital; labour was quite well organised, and was resisting moves by capital to resolve the crisis in a direction favourable to capital.

But it didn’t happen - instead there was a substantial shift to the right, from about 1979-80. It was symbolised by Paul Volcker's raising of US interest rates in 1979; the election of Reagan in 1980, and his attack on the air traffic controllers' union; by the election of Thatcher in Britain in 1979 (and her subsequent labour market "reforms"); and by Mitterrand being forced into a policy U-turn in the early 1980s. All round the metropolitan capitalist world, there was a major shift in the balance of forces towards capital and away from labour. Since about 1982, the rate of profit has recovered.

This is still the era we are living in. Symbolised by the terms "globalisation", and "financialisation", it is an era of the dominance of pro-market ideologies on a world scale. Capital is very mobile; trade unions are very weak; and there is a convergence of policies by the major political parties. There have been huge increases in pay at the top of the distribution, while in the US for example for about 83% of employees real wages per hour were stagnant from about 1978 to 1997. The working class has taken a hammering in almost all metropolitan countries in the last 20 or 25 years in terms of labour organisation, income, and so on.

So it’s a bit hard to speak of "crisis". This is a word of course almost devoid of meaning, because of its over-use on the left. But clearly something is currently going on! The issue is how to understand it. It is not a problem of rising wages squeezing profits. It is not a problem of technical progress somehow driving down the rate of profit. It is not a problem to do with the exhaustion of profitable lines of business. It is not a problem of capital running out of exploitable inputs. So in classical Marxist terms, the traditional explanations don’t work. All we are left with is something a bit vague to do with the "anarchy of the market".

There are some interesting parallels between the present situation and the late 1920s, to do with consumer debt, buying on margin [borrowing to buy stocks and bonds and hoping to make money on rises or falls in price], and a credit crisis spreading into the rest of the economy. It’s worth remembering that a cyclical downturn (recession) was transformed into the Great Depression by the three waves of US banking collapses after 1930, and that is just not going to happen today. The current Chair of the Fed. (the US central bank) is Bernanke, who, as an academic economist, made his reputation in the study of the Great Depression. Bernanke, the Fed and the US Treasury are not going to allow those bank failures to happen today, even if they have to (in effect) nationalise all the bad debt. The failure of Bear Stearns in the US was contained, and the markets correctly took that as a signal that no matter what the pain, the financial system will not be allowed to implode. Similarly in the UK: Northern Rock was effectively nationalised, and the Bank of England currently stands ready to allow the banks to swap their unmarketable mortgage debt for marketable government debt (even if not quite at 1 to 1) for up to 3 years. And similarly in Europe.

In sum, the activities of the major central banks are going to ensure that the system does not run out of liquidity. The quid pro quo of course will be a much more interventionist approach by financial authorities in the USA and around the world to regulating finance and investment banks. It is clear that the way in which that housing debt was securitised [bundled into pieces of paper giving titles to income, and traded on financial markets] is going to be much more heavily regulated in future. There will be a lot of pain in financial houses in the City and on Wall Street, but I think most people will say "serve them right"; and the interesting question for the future is the extent to which the financial institutions will be made to bear responsibility for the mayhem they have created.

Do we have a problem of liquidity, or is it a problem of solvency? [I.e. is it a crisis of people and firms not being able to get hard cash in time to cover the payments they have to make, or of them not having enough assets, liquid or illiquid, to cover their liabilities?] The central banks are determined to make sure a crisis of liquidity is resolved, by just pumping liquidity into the market, but will allow any institution that turns out to be insolvent to go bust. We'll have to see if that works. There are clearly risks, but my guess is that the underlying economy is stronger than a lot of the doom-sayers in the press claim. So there will be some pain, particularly in the financial sector, and all the signs are that there will be a recession in the "real" economy, although probably not a very severe or long-lasting one.

I could be wrong. It's quite possible that the banks are still hiding things, and there are nasty surprises still in store. At present, because the banks are reluctant to lend to each other, the [high] interest rates that the banks are charging have become "decoupled" from [lower] official interest rates. Financial markets will be volatile for some time, until all the bad debt is out in the open. When markets correct, they generally overshoot, so that bubbles and then crashes in the prices of assets are not uncommon. The US housing bubble has been pricked, and the UK’s housing bubble (more severe relatively than in the US) looks like it’s following suit. Obviously as housing prices fall, some will suffer, and undoubtedly pain in consumer credit markets will spread to firms' production and investment plans. Nevertheless, the crisis does not look that dramatically severe to me.

I think there are three things we should be particularly concerned about.

First, the growth in inequality.

In the USA - I haven't explored this for other countries, because the data is much harder to get hold of - the rise in the rate of profit [profits as a rate of return on assets] has not been reflected in an equivalent rise in the profit share [profits as a percentage of total income]. The rate of profit would have risen higher, with a rise in the profit share too, were it not that a lot of what might be called profit income was diverted into the pockets of the already wealthy. The share of productive labour [in the Marxist sense, i.e. of labour producing surplus value] in total labour in the USA remained roughly constant in the last two decades of the 20th century. The share of unproductive wages has dramatically increased, and that is largely driven by increased pay in legal services, finance, insurance and real estate, and business services. This increased pay is not because proportionally more hours have been worked, but because such unproductive labour has been paid a great deal more.

Inequality of income has increased dramatically in the US, and especially at the top end of the income distribution. The same is true of the UK. These inequalities have corrosive effects on society. fortunately, some of this is (ever so slowly) coming to be recognised (witness the fuss Labour backbenchers are currently making over the abolition of the 10p income tax band - the same MPs who cheered the reduction of the standard rate from 22p to 20p at the same time).

Second, there are major changes taking place in the structure of the world economy, consequent upon the rise of China, and to a lesser extent India and Brazil (and perhaps Russia if we confine attention to energy markets). The US economy remains the most powerful economy in the world, and one of the most resilient economies in the world; and it will remain that way for some time to come. But relatively speaking, the US economy is in decline. The dollar is not as powerful as it was in international markets. The euro is looking like a much stronger currency. Increasingly, those who run the treasury departments of central banks, particularly in the Far East, are looking very hard at their dollar portfolios, and asking whether they are a sensible long-run home for their assets. The dollar is significantly weaker as a world currency than it used to be. But this a slow process. A catastrophic slide of the dollar does not seem likely to me. It is always possible, but it would be so disruptive and so much against every individual country's short-term interest, that it is unlikely to happen.

But there are other effects that look more difficult. One is energy and its continuing price rises. The other is food in world markets and its price rises. These prices seem to be being driven by demand (especially in East and South Asia) at the same time as there are supply difficulties. These price rises are potentially calamitous for the world’s poor, and it remains to be seen whether the supply situation will improve. They are also more generally inflationary. In the USA, for the Fed, more inflation might not be such a bad thing; it could bring down real house prices with a smaller fall in nominal prices. That's one reason why the Fed is more relaxed about inflation: it sees it as a way of easing some of the price adjustments that would otherwise be more painful.

Third, Marxists have not done very well in understanding the huge change in the balance of power within capital, which is often summed up in terms like financialisation. Since the early 1980s the resurgence of capital has also been a rise of finance, and that is to do with globalisation and the new facilities to shift large amounts of money around electronically. However, it would not be quite right to talk of this as a successful struggle of finance capital versus industrial capital. They are much more intertwined than that picture would suggest. There's been a celebration of markets, of money-making, of individualism, of greed, and so on, which is associated with a significant change in the way in which capital presents itself.

But the nature of capital has changed, with finance becoming much more preponderant. And the way in which this has happened is not through the extraction of income for financial interests via interest rates. Of course that still exists. But finance capital now mainly works through the extraction of very large fees for providing consultancy advice in mergers and acquisitions. I think theory is behind the game in this regard. And it is for this reason that the theoretical parameters of the current situation (the "crisis") are not well understood, which is where we began.


Source URL: http://www.workersliberty.org/story/2008/04/21/marxists-capitalist-crisis-4-simon-mohun-era-rampant-inequality 

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