Well if you really want to know... In Marx's model of capital accumulation (contrary to the Marxist model), accumulation can occur in two basic ways: simply put, either "I accumulate assets at your expense" (a redistribution of assets), or "we create more additional assets so that the total stock of assets available for distribution increases". All the mysteries surrounding economic growth concern the duality of this process.
Both of course occur at the same time, in varying proportions. A long industrial boom generates an enormous stock of additional assets and savings, so there is more that can be redistributed. If however the growth of the total stock slows, stagnates or even falls, then the pattern of accumulation changes, in accordance with bargaining power, so that one part of the population enriches itself much more at the expense of another, in which case you get much more socio-economic inequality, the gains become much more unequal, or you get a zero-sum game where the gains of some are only at the expense of others.
The financial position of US banks and corporations is on the whole not so bad, in fact their equity and reserves are, proportionally, generally more than they are legally required to have. It's just that if you have a lot of assets and liabilities on your balance sheet, accumulated using borrowed capital, then if sales slow, you do get cashflow problems. You might control a lot of funds, you might be very rich, but if you don't get enough revenue coming in you cannot pay off your creditors, and you cannot maintain that control. Ultimately, there are capitalistically six main sorts of ways to get out of the problems:
(1) mergers between different financial institutions so they command a larger capital sufficient to keep all the financial claims going.
(2) the state intervenes in the market by manipulating interest rates, stimulating demand, making capital investments and adjusting currency exchange rates etc.
(3) the state offers "capital injections" on favourable terms or buys you out, on the basis that the state is one of the largest business units in town, commanding very large capital resources
(4) business and the state change the nature of the trading agreements, and the terms of the contracts.
(5) you stop lending and borrowing so much, you do it less, and more cautiously.
(6) changes in property relations (legal property rights) so that business operations which weren't viable become viable.
That is exactly what they are doing, but the general effect under current conditions tends to be recessionary, i.e. it favours a further redistribution of assets, rather than the creation of new assets, and that tends to make the problems worse, not better since the whole system ultimately still relies on the expansion of the real economy. The way out of that, capitalistically, is not less globalisation but more globalisation, i.e. levering your own property wealth against the productivity of other countries. It's not that protectionism is impossible, but just that it doesn't really solve the problems for capitalism, given that multinationals dominate world trade.
Hence, when Mr Stiglitz and the Left jubilantly declare the end of the neoliberal era, you have to take that with a pinch of salt. There is no real evidence for that, except for the rediscovery of the state as a source of capital insurance, and guilt trips about capitalists who were too greedy. Substantively the policies remain the same - also, if you look e.g. at the terms of IMF bail-outs, they are conditional on implementing the same sorts of "structural adjustments" as were typical in the past, aiming to reorganise activities along market principles and private enterprise. Workers have to have more individual financial responsibility while the state bails out corporate excesses.
Previously, privatisation was often a sort of "happy robbery" of public assets, but if the fiscal position of the state worsens, then in the end the state is going to HAVE to sell off assets to make up the difference, and restructure its operations, it is not optional, and the state is more dependent on joint ventures with the large private conglomerates, not less. The Left jubilantly proclaims state intervention, but they forget that the more debts the state takes on, the more it weakens the state's position, in particular if the amount of taxable income and the tax base grows at a slower rate or shrinks, while claims on the state's resources increase, as they do in an economic downturn. Just how quickly that process will occur is difficult to say, some states are vastly wealthier than others, their fiscal position is much stronger than others (the US federal government happens to be very "rich" even with a relatively low level of total taxation). But anyway that is the general historical tendency I think. The state is not a viable business longterm, and the less the working population gets out of the state, the more they are going to question what justifies the state claiming the surplus value they produce, for nothing.
I used to live in New Zealand, where you had the most radical neoliberal reforms of any OECD country, and that gives me an interesting insight into these issues. It all began twenty-four years ago with David Lange "opening the books" on the "fiscal mess" left by Sir Robert Muldoon's government. Lange argued that the debt problems were "critical", and indeed he toyed rhetorically with the idea of placing the country in IMF receivership, appointing international financial overseers. I do not recall the exact figure now but we were supposed to owe at least tens of thousands of dollars per resident, every resident received a pamphlet on this in their letterbox. It was splendid emotional propaganda (Lange himself had no economic knowledge), justifying belt-tightening and radical reform, with the promise that things would get better "in the medium term". A few post-Keynesian economists pointed out at the time that in reality the debt problems, although quite large, were not really so serious, if you unpacked what it all meant, and could easily be resolved through judicious financial management - for a simple example, at the time you could borrow money on much better terms than they had done. But they were drowned out by the propaganda mania - the debt scare was just a prop for a gigantic financial reorganisation process favouring the large corporations. The financial result of that was just that private sector debt replaced public sector debt, and in much larger amounts, and that financially New Zealand has become the seventh state of Australia, it no longer has an autonomous banking system, although it still retains the kiwi dollar. For the rest, life just carries on. An IMF advisor on a visit said that, although the total debt volume had admittedly grown, this was a better system - why? Because debt holdings were (paraphrase) now "more dispersed among the population, rather than concentrated with the state". Wonderful stuff, but actually it's not even true, since the largest debts are concentrated among corporations and wealthy individuals who have the asset holdings enabling them to incur those debts. All this is just to say that in the modern world, debt is the biggest business in town, much bigger than actually producing anything.
J.
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Received on Sat Nov 29 08:19:32 2008
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