Shopping for growth

July 29, 2016

This week, at its July meeting, the US Federal Reserve Bank decided not to alter its current policy rate of interest – a rate that sets the floor for all interest rates for borrowing in the US and across the major economies.  Last December, the Fed hiked its policy rate from all-time lows because Fed chair Janet Yellen reckoned the US economy was “on a path of sustainable improvement”and she was “confident in the US economy”.

It was expected that the Fed would continue to raise its interest rate towards ‘normal’ levels this year.  However, contrary to Yellen’s prediction, US economic growth slumped in the first quarter, while the Chinese manufacturing powerhouse seemed to be in trouble (with growth slowing, debt rising and the yuan falling).  The world looked in a bad place; so the Fed baulked at further hikes.

After signs of slightly better economic data in the last month; and relief that China had not had a meltdown, the Fed’s July meeting talked of an improving situation that might merit a hike in its policy rate by the year-end.  But if the preliminary figures out today for US real GDP growth are anything to go by, then even that may not materialise.

The US economy grew far less than expected in the second quarter. GDP increased at only a 1.2% yoy rate.  Growth is being driven by consumer spending, which increased at a 4.2% rate – the fastest since the fourth quarter of 2014. That in turn is driven by cheap borrowing and rising house prices.  But business investment continued to plunge, down at a 9.7% annual rate, the third straight quarterly fall.

US investment

Indeed, outside the US, things may have not reached meltdown, but the major economies continue to stagnate.  One the fastest growing economies in Europe in the last year is Spain, but second quarter figures showed a slowdown in real GDP growth to 3.2% from 3.4%.  And Sweden also slipped back from 4.2% yoy in Q1 to 3.1% in Q2, with the slowest quarterly growth rate in three years.  Austria’s growth rate also slowed to 1.2% yoy.  Only the UK has seen a pick-up to 2.2% in Q2 to 2.0% in Q1 (but expect that to be revised down after the investment data comes in) – and the impact of Brexit has yet to be calculated.  France stagnated in Q2.

Three EZ growth

Overall, growth in the Eurozone cooled in Q2.  And the European Commission recently trimmed its growth forecasts for the next two years following the UK referendum. The well-regarded purchasing managers’ index for the eurozone fell to an 18-month low in July.  It’s worse in Japan where industrial production and corporate profits are contracting.  And of course, China’s growth rate has steadily slowed.  Brazil, Russia and South Africa are in recession.

Japan profits

So what is to be done?  Once again desperate measures are being considered – in particular ‘helicopter money’.  I have explained the origins and nature of this flying money before.  The theory behind the concept is to fuse monetary and fiscal policies: cash-strapped governments sell short-term debt straight to their central bank for newly printed money that is then injected straight into the economy via tax cuts or spending programs. The usual intermediaries, like banks, are bypassed.

Helicopter frenzy has reached a new level with the efforts of the Japanese government to get its economy going.  The government has announced a new package of government spending programmes and it wants to finance these from money printed by the Bank of Japan.  This is one step further from Japan’s longstanding aim of restoring economic growth and ending deflation through quantitative easing, then backed up by negative interest rates and now ‘helicopter money’.

This is part of so-called Abenomics, the three-arrowed policy of the Abe government (monetary easing, fiscal expansion and ‘reform’ of the labour market by increasing participation by women and reducing labour rights).  Abenomics has totally failed.  But that has not stopped the likes of Keynesian Paul Krugman dropping in on Abe and calling for more easing.  Krugman spoke to a special meeting including and introduced by Abe to advise the Japanese government on what to do to get the economy going.

After saying that monetary policy of quantitative easing and negative interest rates was not working, Krugman basically said: do not worry about the size of Japan’s public sector debt (currently 230% of GDP) because the short-term aim must be to get demand going. So more government spending.  He did not mention that the Japanese government has been running budget deficits of over 5% of GDP a year for a decade or more with little to show for it in economic recovery. Keynesian policies have already failed in Japan but Krugman was there to advise Abe to do more. Abe responded: “Professor Krugman, the international community must coordinate in the fiscal space and the countries which are able would spend fiscally. This message is very important. I presume that this is going to be essentially your message and I agree with your message. “

More recently, Ben Bernanke, the original promoter of helicopter money and former Fed chair during the global financial crash, was flown into Japan to advise on yet more printing of money.  Bernanke in April published on his Brookings blog that, while there were many challenges behind such a strategy, a “monetary financed fiscal program” shouldn’t be ruled out in the case of an emergency.  “Under certain extreme circumstances — sharply deficient aggregate demand, exhausted monetary policy, and unwillingness of the legislature to use debt-financed fiscal policies — such programs may be the best available alternative. It would be premature to rule them out,” Bernanke wrote.

But helicopter money will fail to kick-start the Japanese economy.  As Richard Koo, the Japanese Keynesian economist, puts it:  “direct financing may increase reserves in the banking system, but those reserves will stay trapped in the banking system since there are unlikely to be any additional private-sector borrowers.   In short, there’s no need for fancy helicopter-money theatricals. What’s needed is a greater allocation of long-term patient capital to government so that it can spend its way out of the private sector’s surplus savings problem productively and responsibly (ideally by committing capital to multi-generationally wealth-inducing projects that the private sector is unlikely to want to fund).”

As I have noted before, back in the depth of the Great Depression, Keynes came to a similar conclusion that quantitative easing would not work in getting economies out of depression.  Low interest rates and extra liquidity cannot get things going again, if the profitability of investment (what Keynes calls the ‘marginal efficiency of capital’) remained too low. Keynes concluded: “I am now somewhat sceptical of the success of a merely monetary policy directed towards influencing the rate of interest. I expect to see the State, which is in a position to calculate the marginal efficiency of capital-goods on long views and on the basis of the general social advantage, taking an ever greater responsibility for directly organising investment; since it seems likely that the fluctuations in the market estimation of the marginal efficiency of different types of capital, calculated on the principles I have described above, will be too great to be offset by any practicable changes in the rate of interest”.  General Theory.  And so Keynes moved on to advocating fiscal spending and state intervention to complement or pump-prime failing business investment.

Nevertheless, the advocates of ‘helicopter money’ are speaking louder.  Now the chief economist at the OECD has lent her support to the sound of rotors in the economic sky.  Catherine Mann commented on Bloomberg TV that “We can’t just stick with this low nominal GDP growth”.  So we need action.  “Helicopter money by itself isn’t going to be any more effective at gaining economic growth than what the central banks have been doing already”.  Why? Because “you’re just going to take the helicopter money and put it in your mattress — where you’ve been keeping the rest of it.”  So, instead, the authorities could opt for helicopter shopping coupons “where you actually have to go spend the money.”  Now shopping coupons are going to get capitalism out of depression.

It seems that all these mainstream economists do not take into account their own research on the efficacy of quantitative easing.  The IMF held a special conference on just that subject last year.  And what did they conclude?  One economist from the LSE commenting on QE found that: “Yet, there is little evidence that the program led to an increase in credit.”  Some Fed economists considered the macroeconomic effect of QE.  They concluded that“ our analysis suggests that the net stimulus to real activity and inflation was limited by the gradual nature of the changes in policy expectations and term premium effects, as well as by a persistent belief on the part of the public that the pace of recovery would be much faster than proved to be the case.”  Then some European economists looked at the impact of the ECB’s QE.  They found that QE“significantly reduced bank risk and allowed banks to access market based financing again. The increase in bank health translated into an increased loan supply to the corporate sector, especially to low-quality borrowers. These firms use the cash inflow from new bank loans to build up cash reserves, but show no significant increase in real activity, that is, no increase in employment or investment”.

money multiplier

So the modern mainstream economists found the same result that Keynes found in the 1930s.  Pumping money and expanding credit does not work in restoring growth because it does not boost investment or employment.  It just fuels a stock market and bond boom. Indeed, while the Japanese government wants to start the rotor blades, the governor of the Bank of Japan, Haruhiko Kuroda, announced at today’s BoJ meeting that helicopter money was ‘illegal’ (as it ‘monetised’ government debt) and things in Japan were fine anyway.  So two fingers to Bernanke.  I’ll return to how fine things are in Japan in a future post.

To add to the evidence against the efficacy on monetary measures to end the depressed level of growth, some economists at the Bank of England looked at the impact of finance on growth“The real question of interest here is if investment is low, is the blockage that is stopping investment taking place due to real economy factors – such as globalisation and secular stagnation – or financial factors – such as a lack of access to finance.”  The BoE economists found what others have also found: that small businesses are starved of credit to invest but large businesses have sufficient internal funds and don’t need to borrow, but still won’t invest.  The reason businesses are not investing at previous levels is because the profitability of invested capital is relatively low at least compared with the late 1990s.

Quantitative easing, negative interest rates and shopping coupons are not going to turn things around if profitability of investment in productive assets is not sufficient.  Public investment is the alternative.  The level of public investment in every major economy has been slashed in the years of austerity since the global financial crash.  The question then becomes; if more public investment is needed, how is it to be paid for and should it complement private investment or replace it altogether?  You know my answer to that.

Globalisation and whose recovery?

July 24, 2016

The finance ministers of the top 20 economies of the world met in Chengdu, China this weekend and they were worried.  Global economic growth continues to slow and monetary policy (central bank easing through cutting interest rates and engaging in ‘quantitative easing’) does not seem to be working in restoring levels of economic growth achieved before the Great Recession.

And the decision of the British people to vote to leave the European Union is an extra shock to world capital economy. Brexit implies further slowdown in world trade expansion; one way that the G20 financial authorities hoped could get global growth going again.  The prospect (still unlikely) that Donald Trump could win the US presidential election in November also raises the risk that the largest and most important economy in the world could move towards protectionism on trade and finance, as well as imposing and supporting tighter restrictions on the free movement of labour.  The great days of globalisation could be over.

Prior to the meeting, the IMF had to announce yet another reduction in its forecast of global growth.  The reduction was not much, but it was the fifth time in 15 months.  The IMF now expects global GDP to grow at 3.1 percent in 2016 and at 3.4 percent in 2017 — down 0.1 percentage point for each year from estimates issued in April.  And this forecast is still well above the much more pessimistic June forecast of the World Bank, which is expecting only 2.4% growth in 2016 from the 2.9 percent pace projected in January.

The G20 leaders said they were opposed to trade protectionism “in all its forms” and were committed to further monetary and fiscal measures to “strengthen growth”, but there was again no commitment to common action.  US Treasury Secretary Jacob Lew said ahead of the meeting that it was “not the right time for coordinated action similar to that in 2008-09 following the global crisis because economies face different conditions.”  So basically, they are doing nothing and relying on already failing policy methods.

But the strategists of global capital are worried.  First, nothing appears to be working and real GDP and trade growth are slowing.  Look at the latest data on world trade growth by the Dutch research group CPB.  World trade contracted yet again in May and is now up only 0.75% from May 2015 in volume (that’s excluding price effects).  Growth in 2016 is well below the post-Great Recession average of 2.7% a year, which in turn is less than half the rate of world trade growth before the global financial crash (at 5.7%).

world trade volume

And it is not just trade.  World industrial production, the best measure of growth in the productive sectors of the world economy, is hardly moving and is actually falling in advanced capitalist economies, according to CPD.  Again industrial production growth is below even the post-crash average, which in turn is below the pre-crash average.

world IP

But it is not just the economic performance of the global economy that worries the G20 leaders; it is the political effect that this is having on the people of the major economies.  They are losing confidence in mainstream politicians because they cannot deliver on better living standards and any recovery for the majority since the Great Recession.  The leaders talk big about recovery and improving conditions but the majority don’t see it.  This partly explains the Brexit vote in Britain and the rise of so-called populist parties in Europe and Trump in the US.

Three recent reports by mainstream economic experts show that the perception of the majority that they have not seen any ‘recovery’ is based on reality.  McKinsey, the international management consultants, published a report called Poorer than their parents? A new perspective on income inequality, which showed that the real incomes of about two-thirds of households in 25 advanced economies were flat or fell between 2005 and 2014!

McKinsey concludes that “Most people growing up in advanced economies since World War II have been able to assume they will be better off than their parents. For much of the time, that assumption has proved correct: except for a brief hiatus in the 1970s, buoyant global economic and employment growth over the past 70 years saw all households experience rising incomes, both before and after taxes and transfers. As recently as between 1993 and 2005, all but 2 percent of households in 25 advanced economies saw real incomes rise.

Yet this overwhelmingly positive income trend has ended. “between 2005 and 2014, real incomes in those same advanced economies were flat or fell for 65 to 70 percent of households, or more than 540 million people (exhibit). And while government transfers and lower tax rates mitigated some of the impact, up to a quarter of all households still saw disposable income stall or fall in that decade.

McKinsey forecasts that: “If the low economic growth of the past decade continues, the proportion of households in income segments with flat or falling incomes could rise as high as 70 to 80 percent over the next decade. Even if economic growth accelerates, the issue will not go away: the proportion of households affected would decrease, to between about 10 and 20 percent—but that share could double if the growth is accompanied by a rapid uptake of workplace automation.”  Who says this is not A Long Depression!

Last week, Andy Haldane, chief economist at the Bank of England, published a speech of his that he made in Port Talbot, Wales, in June. Port Talbot is the home of the British steel industry, now owned by the Indian steel giant, Tata.  Tata has announced that it wants to sell the business there or close it down, putting thousands of steel workers out of work.

Now Haldane has been a bit of a maverick in central bank circles in the past.  I have already pointed out in previous posts that he considers that the finance sector in capitalism adds ‘no value’ whatsoever and can be even negative for the global economy – that is very ‘off message’ for a bank official!

At Port Talbot, he made a speech called “Whose recovery?”. In it, says that, when he visited a community centre in Nottingham in the middle of England:  “I was stopped in my tracks by a forest of furrowed brows and a phalanx of probing questions, not all of them gentle. “What exactly do you mean by recovery?” one asked. “My charity is dealing with 50% more homeless people than three years ago.” Every other charity in the room had similar stories to tell. Whether it was food banks, mental health problems or drug addiction, all of the numbers were up. The language of “recovery” simply did not fit their facts.”

In the UK’s very weak economic recovery since 2009, it is the rich, those in the south and those who are older than have ‘recovered’. The rest have not at all.  Haldane commented. “At least as measured by GDP, the economy and society as a whole is 5% better off. But is it? The income of the already-rich has risen by just over 10%, while the income of the already-poor as fallen by 50%. Does the former really swamp the latter when it comes to the well-being of society?”

Haldane found that in only two regions – London and the South-East – is GDP per head in 2015 estimated to be above its pre-crisis peak. In other UK regions, GDP per head still lies below its pre-crisis peak, in some cases strikingly so. For example, in Northern Ireland GDP per head remains 11% below its peak, in Yorkshire and Humberside 6% below and here in Wales 2% below.

Since the end of the Great Recession, the largest gains in income have come in regions where income was already high – London (incomes more than 30% above the UK average) and the South-East (14% higher). Contrarily, some of the larger losses have been in regions where income was already-low – Northern Ireland (18% lower than the UK average) and Yorkshire and Humberside (14% lower).  Haldane concluded that “it is clear that recovery has been associated with both the incomes and, more strikingly, the wealth of the least well-off having broadly flat-lined. Recovery has not lifted all boats, especially some of the smaller ones. This pattern may go some further way towards solving the recovery puzzle. Whose recovery? To a significant extent, those already asset-rich.”  And this is the UK, which has supposedly recovered better than the rest of Europe.

Then there is the report by Macquarie, the Australian based investment firm (WhatCaughtMyEye200716e248606). Macquarie reckons that the structure of the labour force is shifting towards the modern equivalent of ‘lumpenproletariat’ (they use the Marxist term). Most people are increasingly employed in more precarious and low-paid occupations.  This applied to “as much as 40%-45% of the labour force”.  The same trend is evident in most other developed economies.  Macquarie have not have got the concept of lumpenproletariat right.  What the investment firm describes is really the normal position of the labour force under capitalism: continual tendency to join the ‘reserve army’ of labour.

This is why the ‘recovery’ has not been felt by the majority as they are locked into insecure jobs with low incomes. Inequality of income and wealth continues to worsen, while the productivity of the labour force languishes across the board.  US labour productivity has stagnated from the 1980s onwards.  “Over subsequent decades, stagnant productivity was pretty much replicated across most economies. Declining productivity growth reflects that an increasing proportion of the labour force and employment is essentially “warehoused” in lower productivity occupations, pending either their final elimination and replacement”, says Macquarie.

The last six years represented essentially a continuation of a trend towards lower-end jobs in the US, which started in the mid-to-late 1980s. “On our estimates, low end/contingent jobs represented ~36% of the total labour force in 1990 and today it is ~42% (or around 52m jobs vs. 33m in similar occupations in 1990) whilst the high end jobs used to be 45%-46% and today the number is closer to 43.5%.”

So the world economy has still not recovered to pre-crisis levels.  More important, the majority of households in the major economies have seen no ‘recovery’ at all.  The great jobs expansion is been mainly in low-paid, low productivity sectors or in self-employment where incomes are relatively lower.

The solution to this depression of incomes, output and productivity from mainstream economics varies from the Keynesians, who yet again advocate more government spending as monetary policy is exhausted (see this latest piece by Summers and Eggertsson) to the Austrian monetarists who reckon the problem is excessive monetary easing by central banks that has created a credit bubble without any impact on the real economy.  The Keynesians want more government spending and the Austrians want less credit expansion.  As I and my co-author G Carchedi showed in a The long roots of the present crisis, neither policy solution will work.

What worries the strategists of capital is that their failure to get capitalism going again or reduce the burden for the majority to pay for it is beginning to end their political control of the majority.  Brexit, the rise of Trump and other ‘populist’ leaders now threaten the end of the neoliberal ‘free trade, cheap labour’ agenda of globalisation.


Getting off the fence on modern imperialism

July 19, 2016

Those of you who have been following the discussion on modern imperialism on my blog will know it was kicked off by two books: one by John Smith called Imperialism in the 21st century and one by Tony Norfield called The City – London and the power of financeThe discussion on my blog was expanded at the recent workshop on Imperialism in London, where the analysis was developed among upwards of 100 participants.

Since then, John Smith has sent in a long comment on my last post on that workshop which merits some decent space and a reply.

So first, here is John’s comment.

“Sorry, I’ve been away and have only just come upon this post. It raises many questions; here I restrict myself to two of them.

  1. Michael repeats Lucia Pradella’s claim that, “in Volume III, Marx explains that investments in colonies, where the rates of profit were higher, are a factor that counteracts the law of the falling rate of profit.” This is not true. What we get in Volume III is not an explanation, but an extremely fleeting mention. Here is the passage to which Michael and Lucia refer:

“As far as capital invested in colonies, etc. is concerned, the reason why this can yield higher rates of profit is that the profit rate is generally higher there on account of the lower degree of development, and so too is the exploitation of labor, through the use of slaves and coolies, etc.” (Marx, Capital, vol. 3, 345)

In my book (Imperialism in the 21st Century, p244) I comment:
“Close examination of this passage reveals not one but two reasons why capital invested in colonies may return a higher than average rate of profit. Lower degree of development refers to low productivity, capital-intensity, etc., and extends to the colonies the same unequal exchange effect previously identified by Marx in trade between more and less advanced capitalist nations. It is the second part of the sentence that attracts attention. Marx says that “the profit rate is generally higher [in the colonies] … and so too is the exploitation of labor, through the use of slaves and coolies, etc.” The few words in this single sentence are the only place in the whole of Capital’s three volumes and in its fourth volume, Theories of Surplus Value, where Marx mentions the positive effect on the rate of profit in the imperialist nations of higher exploitation in subject nations.”
… to which I added this footnote:

“It is noteworthy that Marx talks about the exploitation of labor, not the rate of exploitation, and labor, not labor-power. That this might be due to the provisional, draft form of the original can be discounted—even in rough drafts, Marx is meticulous in his choice of words. It is more likely that he deliberately chose not to use the developed capitalist form of these categories, because in the colonies, at that time, the commodification of labor-power and the universalisation of the capital/wage labor relation had a way to go. This again underlines the evolutionary distance separating the past three decades from the stage of capitalist development observed and analyzed by Marx.”

  1. Michael says “John argues that imperialist exploitation is now predominantly ‘super-exploitation’… Other forms of exploitation under capitalism: absolute surplus value (namely through maximising the working day); or relative surplus value (namely lowering the cost in hours for maintaining the labour force in a given day); according to John, these have become secondary forms of exploitation under modern imperialism.”

I’m sure that Michael agrees that great care and precision is necessary when dealing with these concepts, and I’m therefore disappointed that Michael repeats this crude mischaracterisation of my argument – I’ve already made two attempts to correct him on this, in a previous blog comment and at the IIPPE workshop itself. I argue that the vast global shift of production to low-wage countries signifies that capitalists in North America, Europe and Japan have become very much more dependent on super-exploited workers in low-wage nations (‘super-exploited’ because their rate of exploitation is higher than in their own countries – precisely why production has shifted), and this is why, during the neoliberal era, capitalism has become more not less imperialist.

I still don’t know whether Michael agrees with this. My book further argues that shifting production to low-wage countries has become an increasingly-favoured alternative way of cutting costs and boosting profits than investing in productivity-expanding technology – which is why accelerated outsourcing coincided with a historic collapse of capital investment in the imperialist countries. I therefore argue that the substitution of relatively high-wage workers in imperialist countries with low-waged, more intensely exploited, workers in oppressed nations has become the predominant means of *increasing* the rate of exploitation. My argument therefore hinges on the *relative* importance of the three means of *increasing* surplus value, and makes no claim that one, in absolute terms, is more important than the other.

To summarise, four propositions:

  1. a) in Capital, Marx identified not two put three ways to increase the rate of surplus value, and that while he repeatedly emphasised the importance of the third (reducing wages below the value of labour power) each time he explained that examination of this was excluded Capital because his ‘general theory’ required the assumption that all commodities sold at their value;
  2. b) it is true, as Lucia argues, that in Capital Marx does not analyse a single national economy, but neither does he analyse the concrete global economy of his day (still less, obviously of our day) – the glancing reference to ‘coolie labour’ alone is proof of this. He analyses an idealised unitary economy in which all factors of production, including labour, are freely mobile (i.e. he excludes all forms of monopoly) – as is reflected in his assumption that labour power has but one value;
  3. c) that replacing labour power of higher value in imperialist countries with labour power of lower value in Bangladesh, China etc is tantamount to, i.e. has the same effect on the rate of exploitation as, the reduction of wages below the value of labour power and therefore corresponds to the third form of surplus value increase;
  4. d) that this is therefore a new fact not contained in the theory of value presented in Capital. This does not mean that Marx was wrong, it means that capitalism itself has evolved, and that the general theory presented in Capital need to be critically developed to take account of this evolution.

This is very far from the last word on this topic, in fact it gets us only to the starting point of the conversation that we need to have. To avoid this debate going around in circles, I request that Michael unequivocally states his opinion on these four propositions, because I’m still not sure where he stands. In fact that I think there is a bit of fence-sitting going on (bold by MR).

And here is my reply:

John, thank you for your very comprehensive comments on the discussion that we have been having about the nature of exploitation under modern imperialism.

You suggest that I have not been clear where I stand on the key points that you raise in your book and in our discussion and I have been ‘fence-sitting’.  Maybe.  But sometimes it is necessary to consider all points and not immediately agree or disagree until you are convinced.  An open mind, at least for a while, is not a bad thing as long as sitting on a fence does not go on too long!

But I think gradually I have formulated my views during our discussions.

John says that Marx did not just say the rate of profit is higher in the colonies due to a lower degree of development (i.e. low productivity and capital intensity) but that there was also a higher exploitation of labour.  John says this means Marx did not use his categories of capital when referring to colonies because the colonies were not part of global capital at the time.

I cannot see that we can draw this conclusion.  To me, Marx is saying that the rate of profit (in value) is higher in the colonies just as it is higher in less efficient, lower capital intensity capitals in a modern economy.  And in the process of equalisation towards an average rate of profit, value is transferred from the inefficient to the more efficient capitals.  “The rates of profit prevailing in the different branches of production are originally very different. These different rates of profit are equalized by competition to a single general rate of profit, which is the average of all these different rates of profit” (Capital III, p.158).

This theory applies to the global economy.  In addition, workers in the colonies can be exploited more when they don’t receive the value of their labour power in wages or are slaves.  That adds to the profitability in the colonies that can be transferred through international trade and capital flows to the imperialist economies.

I agree that capital has shifted investment into the periphery in order to take advantage of much lower wage costs there compared to the advanced economies. Who could deny that? And it is in keeping with Marx’s theoretical analysis.  Also it is another way of counteracting Marx’s law of falling profitability – indeed that is the point.  If that makes capitalism “more imperialist” in the neo-liberal period, fine.

But has ‘super-exploitation’ become a ‘relatively’ more important way of increasing surplus value over absolute and relative surplus value in the neoliberal period?  Well, maybe.  But I’m not sure what revelation or modification in the Marxist theory of imperialism this suggests.

John wants a reply to his four summarised propositions.  So I’ll try and get ‘off the fence’.


  1. a) in Capital, Marx identified not two put three ways to increase the rate of surplus value, and that while he repeatedly emphasised the importance of the third (reducing wages below the value of labour power) each time he explained that examination of this was excluded Capital because his ‘general theory’ required the assumption that all commodities sold at their value;

My reply:

Well, Marx excluded this third category of super-exploitation because the fundamental cause of exploitation is the appropriation of value by capital even when workers get paid their ‘value’.  If it were just ‘super exploitation’, the theory of value would be wrong.

Marx did not say that “all commodities sold at their value”.  On the contrary, commodities do not sell at their value as Smith (Adam) and Ricardo thought, but at their prices of production because of the transformation of individual values into prices of production through an average rate of profit.  Indeed, that is why ‘super exploitation’ is not enough to show why profitability is higher in some capitals than others.


  1. b) it is true, as Lucia argues, that in Capital Marx does not analyse a single national economy, but neither does he analyse the concrete global economy of his day (still less, obviously of our day) – the glancing reference to ‘coolie labour’ alone is proof of this. He analyses an idealised unitary economy in which all factors of production, including labour, are freely mobile (i.e. he excludes all forms of monopoly) – as is reflected in his assumption that labour power has but one value;

My reply:

I disagree that Marx’s analysis is ‘idealised’.  It starts with an abstract analysis taken from the real world with realistic assumptions (like all value comes from labour; capital accumulation leads to increased mechanisation) to which is added all the concrete parts of capitalism: from ‘capital in general’ to ‘many capitals’, from the commodity to money and to credit; from the world to many nations; from competition to monopoly.  Indeed, he does not exclude ‘all forms of monopoly’.  He analyses the concrete global economy of his day, often in much detail.


  1. c) that replacing labour power of higher value in imperialist countries with labour power of lower value in Bangladesh, China etc is tantamount to, i.e. has the same effect on the rate of exploitation as, the reduction of wages below the value of labour power and therefore corresponds to the third form of surplus value increase;

My reply:

No, super exploitation is when wages are below the value of labour power.  But the ‘value of labour power’ is different in different countries depending on the socially accepted level in each.  So capital shifting investment to low wage countries from high wage countries does not prove by itself that ‘super exploitation’ is involved at all.


  1. d) that this is therefore a new fact not contained in the theory of value presented in Capital. This does not mean that Marx was wrong, it means that capitalism itself has evolved, and that the general theory presented in Capital need to be critically developed to take account of this evolution.

My reply:

Super exploitation is not part of the theory of value because, as Marx says, it is temporary and changes and is different in each country etc.  In the process of production, capitalists might force a lower wage. If the value of labour power has remained the same, i.e. if the necessities of life and their production price remain the same, the lower wage can purchase less wage goods and the price of labour power (wages) falls below its value, the production price of those socially determined necessities.  That is super exploitation.

But if this low wage is maintained, workers must eventually accept a lower value of labour power in the goods and services they can buy with it.  In that sense, super exploitation becomes simply a higher level of (“normal”) exploitation because the value of labour power has been lowered in the class struggle.  Yes, more exploitation, but not super-exploitation as a new category of capital.

Super-exploitation is not a category that explains exploitation as such. And it is not a new fact – it’s been around all the time.  Is it decisive now?  Not proven.

Stock markets, profits and irrationality

July 17, 2016

In a recent post, Paul Krugman took up the issue of whether movements in the stock market provide a good guide on how the capitalist economy is doing.  The question arises because the US stock market prices have hit a new all-time high in the last couple of weeks with apparently slightly better economic news and with the conviction among investors (i.e. big banks, corporation, managed funds and hedge funds) that the US Federal Reserve was not going to raise its policy interest rate this year or even for the foreseeable future.

Krugman reckons that stock prices generally have a lot less to do with the state of the economy or its future prospects than many people believe. As the economist Paul Samuelson put it, “Wall Street indexes predicted nine out of the last five recessions.”  Indeed, Krugman went further in saying that “in some ways the stock market’s gains reflect economic weaknesses, not strengths. And understanding how that works may help us make sense of the troubling state our economy is in.”

Krugman makes three (good) points to explain why stock prices are of little guidance about the state of the US economy: “First, stock prices reflect profits, not overall incomes. Second, they also reflect the availability of other investment opportunities — or the lack thereof. Finally, the relationship between stock prices and real investment that expands the economy’s capacity has gotten very tenuous.”

And profits in the US have been falling as a share of total output and even in absolute terms just as the stock market has risen.

US corporate profits growth

And the prospects for investment that will deliver higher growth have diminished.  So it would seem that the stock market has got way out of line with the so-called ‘real economy’.

Why? Well, Krugman’s answer is ‘monopoly power’.  The very big companies are making big money, and then sitting on the cash and buying back their own shares.  As a result, stock prices rise even though investment in the real economy stagnates or falls. There is no doubt that this is part of the explanation.  But the other part relates to the very low interest rates that operate across the board in the major economies.  Central banks in many economies have driven interest rates into negative territory, so banks are being paid to borrow money and in turn they must offer very low rates to companies and households, particularly the large companies.  They can virtually borrow for free and then use the cash to buy shares.

interest rates

This is a financial credit ‘bubble’ of similar proportions to the housing credit bubble prior to 2007.  And it is expressed in the fact that global private sector debt has not fallen at all since the onset of the Great Recession.  Instead, debt has been piled up as a cheap way of sustaining capitalist economies.  This successfully ‘saved’ the banks, although it has not restored profitable investment and faster growth in the productive sectors of the major economies.  This is US corporate debt to GDP below.

US corporate debt

This brings me to a recent discussion about the role and relevance of stock markets to the capitalist economy conducted by the two leading mainstream economic exponents of stock market theory from Chicago University: Eugene Fama and Richard Thaler.  Both are Nobel prize winners in economics.  Fama is famous for his so-called Efficient Markets Hypothesis (EMH) and Thaler is a renowned ‘behavioural economist’.  The debate between the two is really about whether the stock market provides a good guide to what is happening in a capitalist economy or whether it is totally volatile and ‘irrational’.

Fama says that EMH explains that capitalist markets, including stock markets, are ‘efficient’ in the sense that the price reflects what buyers and sellers reckon is right given the information before them.  Well, that does not sound very profound.  And is it true?  Fama says “testing the proposition is difficult”!  But, he says, it is a good approximation to what is going on.  So if stock prices are high and rising, it means that investors think the economy is doing better (given the information they have) and they may well be right.

Thaler, on the other hand, reckons that stock market prices are so volatile that there is no rational explanation of their movements; they can reflect ‘bubbles’ based on what another ‘behavioural’ colleague of Thaler’s, Robert Shiller, called ‘irrational exuberance’.  Thaler cites the huge fall in stock prices in the crash of 1987.  There was no basis for the crash in the ‘real economy’ which was doing well.  Fama’s reply is that people thought there was an economic recession coming on, but they were wrong and then the stock market corrected itself.  The crash of 1987, In hindsight, that was a big mistake; but in hindsight, every price is wrong.”  People change their minds.

Thaler argues that there are ‘bubbles’, which he considers are ‘irrational’ movements in prices not related to fundamentals like profits or interest rates.  Fama’s reply is that you cannot tell if there is a ‘bubble’ before it happens, only in hindsight and the bubble in prices may merely express a change in view of investors about prospective investment returns, not ‘irrationality’.  In this sense, Fama is right and Thaler is wrong.

But that is not very helpful to the rest of us to understand what is happening and what stock markets are doing.  Fama is (in)famous for stating after the Great Recession that you cannot predict crashes or slumps and we should not even try (see my The causes of the Great Recession).  Just accept that they happen.  Thaler is telling us that crashes and slumps are caused by ‘irrationality’ and not by any fundamental developments in the wider economy.  Neither mainstream economic theory offers any help, then.

Thaler says the answer is for the monetary authorities to intervene “but very gently” to “lean against the wind a bit.  That’s as far as I would go. We both agree that markets, good or bad, are the best thing we’ve got going. Nobody has devised a way of allocating resources that’s better.”  In contrast, Fama reckons government or central bank intervention to control market prices (that are broadly ‘efficient’) islikely to cause more harm than good.”

So, in effect, both Fama and Thaler accept that markets rule and that market prices broadly allocate resources efficiently and ‘rationally’, except that Thaler wants to understand why people act sometimes differently than Fama’s ‘rational’ model.  Fama summed up their conclusions in the debate: “In general, it would be useful to know to what extent all economic outcomes are due to rational and irrational interplays. We don’t really know that.”  So the great Nobel prize winners don’t know much about why stock prices move up and down, often with no relation to the movement of key economic fundamentals like profits, investment, labour costs etc.

If we consider the movement of stock market prices from the point of view of Marxist analysis, then it is not so mysterious.  In previous posts, I have dealt with this issue.  As I said in one post: “Whatever the fluctuation in stock prices, eventually the value of a company must be judged by investors for its ability to make profits.  A company’s stock price can get way out of line with the accumulated value of its stock of real assets or its earnings, but  eventually the price will be dragged back into line.  Indeed, if we consider stock price indexes (ie an index of an aggregated group of individual stock prices) over the long term, they exhibit clear cycles, with up phases called bull markets and down phases called bear markets. And these bull and bear markets, at least in the US, match nicely the movement in the rate of profit”.

In Robert Shiller’s own measure of stock market prices relative to profits (below), we can see that stock market prices generally move with profitability, but they can get way out of line for period. Right now they are still higher than they were in the last ‘bear’ market.

Shiller CAPE

Marx made the key observation that what drives stock market prices is the difference between interest rates and the overall rate of profit. What has kept stock market prices rising now has been the very low level of long-term interest rates, deliberately engendered by central banks like the Federal Reserve around the world, with zero short-term rates and quantitative easing (buying financial assets with credit injections).  The gap between returns on investing in the stock market and the cost of borrowing to do it is thus maintained.

In his recent opus, Capitalism, Anwar Shaikh looks at the theory of financial prices. (Chapter 10). Of course, every day, investors make ‘irrational’ decisions but, over time and, in the aggregate, investor decisions to buy or to sell stocks or bonds will be based on the return they have received (in interest or dividends) and the prices of bonds and stocks will move accordingly.  And those returns ultimately depend on the difference between the profitability of capital invested in the economy and the costs of providing finance.

So this has less to do with ‘monopoly pricing’ as Krugman thinks and much more to do with the expansion of ‘fictitious capital’ relative to the profitability of capital as a whole.  And less to do with Keynes’s view, which reckons that stock market prices are driven by subjective ‘animal spirits’ and more to do with the objective level of profitability.

If stock prices get way out of line with the profitability of capital in an economy, then eventually they will fall back.  The further out of line they are, the bigger the eventual fall.    That is what we can expect now.

It’s out there now!

July 14, 2016

My long overdue book, The Long Depression, can now be purchased at Haymarket Books

and at Amazon US

and at Amazon UK




Brexit, TTIP and TTP

July 14, 2016

One of the ironies of the Brexit vote by the British people (more exactly, the English and the Welsh as the Scots voted to remain), is that the Transatlantic Trade and Investment Partnership, otherwise known as TTIP, has been crippled, possibly killed.  It looks as though any potential trade agreement with the US will be ‘parked’ by the EU Commission until Britain’s Article 50 (Brexit) negotiations have been completed.  Washington is also being forced to put a hold on TTIP because Britain represents 16% of the EU market. Until Britain’s relationship with the EU is finalised, there is no way to assess the nature and scale of the reduction in the EU’s market, making it impossible to value.

There is now a possibility that the deal will never be concluded.

Anyway, with Article 50 unlikely to be invoked very quickly by the new Conservative government under Theresa May, there would seem to be insufficient time to conclude the negotiations before the end of the year, and many in Brussels now want to focus on obtaining the ‘right Brexit’ terms, pushing TTIP down the list of priorities. And with next year’s elections in France, Germany, and Holland, EU leaders will try to avoid another weapon to be used by ‘populist’ parties who see TTIP as another attempt to impose measures of ‘globalisation’ on nation states..

There has been much coverage about how TTIP, if implemented, will impose serious restrictions on the ability of democratic governments to carry out the wishes of their electorates.  TTIP and its baby sister, CETA, a similar trade deal that the EU has negotiated with Canada, enable corporations to sue governments in secret commercial Investor State Dispute Settlement (ISDS) courts. This right of litigation exposes governments to lawsuits for any policy-induced losses suffered by a corporation.  Governments are exposed to corporate action through ISDS courts for up to 20 years.

But aside from the issue of democratic governments being blocked and sued under these international trade treaties, there is the question of whether international trade agreements, bilateral or multilateral, are beneficial to labour or to capital.  The specifically economic base of such a conception is that has been known since the first sentence of the first chapter of the founding work of scientific economics, Adam Smith’s The Wealth of Nationsthat: ‘The greatest improvement in the productive powers of labour… have been the effects of the division of labour.’

Mainstream economists are convinced that ‘free trade’ is beneficial to all.  As Keynesian Paul Krugman put it: “The great majority of economists would argue that the gains from reducing trade protection still exceed the losses. However, it has become more important than before to make sure that the gains from international trade are widely spread.”  How the latter is to be done is not explained.  Greg Mankiw, the right of centre mainstream economist who reckons that inequality of income is justified, is more honest: “will trade make everyone better off? Probably not. In practice, compensation for the losers from international trade is rare. Without such compensation, opening up to international trade is a policy that expands the size of the economic pie, while perhaps leaving some participants in the economy with a smaller slice.”

The idea that ‘free trade’ is beneficial to all countries and to all classes is a ‘sacred tenet’ of mainstream economics.  In his new book, Capitalism, Anwar Shaikh (Chapter 11), analyses in detail the fallacious proposition that if each country concentrated on producing goods or services where it has a ‘comparative advantage’ over others (so its ‘comparative costs’ were lower), then all would benefit.  Trading between countries would balance and wages and employment would be maximised.

Shaikh shows that this is not only demonstrably untrue (countries run huge trade deficits and surpluses for long periods; have recurring currency crises; and workers lose jobs from competition from abroad without getting new ones from more competitive sectors).  Shaikh also explains why: namely that it is not comparative advantage or costs that drives trade, but the absolute costs.  If Chinese labour costs are much lower than American companies’ labour costs in any market, then China will gain market share, even if America has some so-called ‘comparative advantage’. What really decides is the productivity level and growth in an economy and the cost of labour: “free trade will lead to persistent trade surpluses for countries whose capitals have lower costs and persistent trade deficits for those whose capital has higher costs”. (Shaikh p 514).

In the US, the big losers from the current wave of globalization have been the working-class, as Branko Milanovic of the City University of New York details in his new book, Global Inequality. Jobs will go as more efficient economies take trade share from the less efficient and with open markets (no tariffs and special restriction or quotas).

And of course, in the TTIP and TTP (Trans Pacific) deals, nothing is done to help those who lose employment as a result. For example, the US Trade Adjustment Assistance (TAA) program has a budget of about $664 million, or roughly 0.004 percent of GDP; military and security spending used to preserve imperialist markets for the US costs 4000 times more!   Instead, just one dollar of every $25,000 in income generated by the United States goes to help people here who have been hurt by globalization.  They don’t receive the cash directly; they just have to hope that the program — which offers retooling, retraining, and relocation, among other services — will aid their transition to new jobs.

In reality, these trade agreements like the TTIP and its pacific twin, TTP (already signed but not confirmed by national governments) are aimed to improve the interest of the multinationals in world markets.  The trade discussions are really a battle between the stronger and the weaker capitalist economies over whose companies get the best deal.  This is the essence of ‘regional’ deals that have replaced the failed and defunct global deals that the World Trade Organisation (WTO) has tried to achieve over the past 20 years..

In the case of the TTP, the agreement is specifically designed by the US and Japan to squeeze the ability of Chinese companies to build market share in Asia.  The real character of the US TPP becomes clear immediately the fundamental economic data for its 12 intended signatory countries is examined. The potential signatories are dominated by the G7 economies of the US, Japan, and Canada. These, together with Australia, constitute 90% of the GDP of potential signatories. Participating developing economies – Mexico, Malaysia, Chile, Vietnam and Peru – make up only 8%.

In effect, the TTIP and TTP are really an attempt by the US to stop the decline in global market share at others expense, and also to counteract weakening economic growth and profitability at home. In 1985 economies in the proposed TPP countries accounted for 54% of world GDP; by 2014 this had dropped to 36%. From 1984-2014 the US share of world GDP fell from 34% to 23%, at current exchange rates. In the same period the US share of world merchandise trade dropped from 15% to 11%. So the TPP is not some great free trade beneficence but really an agreement by a group of advanced economies, with a ‘fringe’ of developing countries, whose share in world GDP has been significantly declining to keep others out.


Indeed, it is very far away from the sacred idea of ‘free trade’.  As US economist Jeffrey Sachs noted of these TPP provisions: ‘Their common denominator is that they enshrine the power of corporate capital above all other parts of society, including… even governments… The most egregious parts of the agreement are the exorbitant investor powers implicit in the Investor-State Dispute Settlement system as well as the unjustified expansion of copyright and patent coverage. We’ve seen this show before. Corporations are already using ISDS provisions in existing trade and investment agreements to harass governments in order to frustrate regulations and judicial decisions that negatively impact the companies’ interests. The system proposed in the TPP is a dangerous and unnecessary… blow to the judicial systems of all the signatory countries.’

The TPP also gives legal protection to software companies, overwhelmingly US, to essentially spy on signatory states. Article 14.17 states: ‘No Party shall require the transfer of, or access to, source code of software owned by a person of another Party, as a condition for the import, distribution, sale or use of such software, or of products containing such software, in its territory.’ While it is stated this does not apply to ‘critical infrastructure’ it does not exclude banks, commercial companies etc.  In short, the conception of the TPP is not to maximise prosperity for the Asia-Pacific Region but to enshrine US supremacy.   The TTIP does the same for the US in the European arena.

These deals are being negotiated in an environment where world trade is stagnating at best.  Since the end of the Great Recession, world trade has grown no faster than the sluggish growth in world output – and that is unprecedented, in the post-war period, trade has always grown faster than output.  It is another indicator that we are in a long depression and not a normal boom and slump.

Global trade

So it would appear that ‘globalisation’ is stuttering and trade is offering no way out for capitalist economies in depression or stagnation.

Trade plateau

And that is not a rosy scenario for the British negotiators of a new trade deals outside the European Union.

America: jobs, profits and the stock market

July 12, 2016

US stock market prices headed back towards all-time highs on Friday after the data on the increase in US jobs were released.  There was a sharp increase in net new jobs of 287,000 in June, much higher than expected.  Financial pundits reckoned that this showed the US economy was not heading into recession after all.  Instead full employment was approaching, wages were rising and things were looking better – contrary to the doom-mongers.

But a closer look at the jobs figures makes that conclusion somewhat suspect.  First, the previous month’s job figure, which showed only a rise of 38,000 in net jobs, was revised down to 11,000.  And taking the average of the last three months reveals that the monthly job growth was only 147,000.  Investment analyst, David Rosenberg, pointed out that job growth has been slowing down fast.  Back in June 2014, the three-month average growth rate in jobs was 2.4% a year.  In June 2015, that had slowed to 2.2% a year.  And now in June 2016, the rate of growth in jobs has dropped to just 1.2%.  The total unemployed (U6) rate, as it is called, is now 9.6% compared to 17% in the depth of the Great Recession and 6.8% at the peak of the last boom.  And now it has virtually stopped falling, some 30% above the last boom level.


Moreover, the job increases were not in areas of higher pay or higher productivity.  For instance, of the 19.6 million jobs in America’s good producing sector, in June there were only 9,000 new jobs, with none in construction, a fall in energy and mining and a tiny gain in manufacturing.  By contrast, there was a gain of 59,000 waiters, bartenders and bus boys in the leisure and hospitality category.

Those working in goods-producing jobs work on average 40 hours per week at $26.90 per hour. So, on an annualized basis, that’s a cash wage of $56,400.  By contrast, leisure and hospitality jobs are part-time, averaging just 26 hours per week at an average wage of $14.89 per hour. That amounts to an annualized cash wage of only $20,100. It’s 35% of a job compared to the goods-producing sector.  And this has been story of the entire ‘recovery’ period since the end of the Great Recession in 2009.

Indeed, in the last seven months, the number of goods-producing jobs reported has declined by 3,000.  What has been gaining has been the 35% jobs in the leisure and hospitality sector among others. That category is up by a whopping 200,000 since last November.  Likewise, the count in the retail sector, where jobs average 31.2 hours per week and $17.85 per hour, is also up by 200,000 since last November. Alas, at $29,000 per year in cash wages, these are ‘51% jobs’.  The US economy has lost 2.3 million goods-producing jobs since the year 2000 and replaced them with 2.6 million ‘35% jobs’ in hospitality and leisure.  So there are still 1.6 million fewer full-time, full-pay “breadwinner” jobs than when Bill Clinton left office in 2000.

Moreover, if tax returns are looked at, and often they are better guide to the state of the labour market and the health of capitalist sector, then it is a much more dismal picture.  Compared to a 5-6% average annual gain late last year, the tax collections trend has now fallen to just 3%. Strip out of that the 2.6% annualized rate of hourly wage and salary inflation reported for June and you get a tiny 0.5% growth in real labour inputs.

During the first nine months of FY 2016 (starting in October) individual income tax collections were $1.171 trillion. That was up just 0.3% from the $1.167 trillion collected in FY2015.  Likewise, corporate tax collections of $224 billion over the last nine months were down $32 billion or 12.5% from prior year.  And corporate tax collections in June dropped from $74.9 billion last year to $62.8 billion this year. That’s a 16.2% drop.  Even sales tax revenues are down by nearly 3% yoy.  So total Federal tax collections came in at $300.6 billion in June compared to $327.5 billion last year, and that’s an 8.2% year-over-year drop.

Yet the US stock market goes on booming, shrugging off all worries, including China, Brexit, collapsing energy and rising debt.  Driven by huge injections of central bank money, interest rates to borrow and speculate have never been lower.  Fictitious capital continues to expand with increasingly less relation to the state of profits generated in the productive sector of the economy.

When the S&P 500 stock index first hit 2130 back in May 2015, corporate earnings were $99.25 per share.  During the four quarters since then, reported earnings have slumped by 12.3% to $87 per share.  So the ratio of stock prices to earning has risen to 24 times, some 60% above the long-term average as corporate earnings fell 18% in the last year and a half.  Many investment houses have cut back their forecasts for future earnings growth among even the large US companies.

Bank of America Merrill Lynch (BAML) analysts have actually cut their S&P 500 earnings forecasts to reflect no growth on 2016.  JP Morgan notes that there is historical precedent for this: “Over the last ten years, the consensus growth estimate for the following year was typically revised down by ~5%… The downwards revision is expected to be even more pronounced for 2017 due to “unrealistic assumptions,” such as “7% sales growth and +50bp margin expansion.”

In a special report, JP Morgan economists warned that the US and global economy was heading for a fall.  The reason?  Falling profits and profitability!  JPM said: profits—alongside equity prices — have declined over the past four quarters, and global investment spending has moved in lock step with the disappointing pace of profit growth this cycle. There is a significant risk that a substantial drag on corporate spending remains in the pipeline.”

The report then referred to the global situation. “Perhaps the most telling sign of the global nature of the profit growth slump is the fact that the concentration of earnings growth around the world has reached its highest level in at least two decades, surpassing even the large concentrated hit to earnings during the global financial crisis.” In other words, what profits are being made are concentrated in just a few countries and a small number of companies.

JPM summed up the dilemma “The key question is whether the latest downshift in profit growth marks the beginning of a recession dynamic or simply reflects a temporary soft patch amplified by the commodity price plunge that has hit related earnings… Without a recovery in business confidence, it is hard to imagine a turn up in capital spending, and it is increasingly likely that the next leg down will be from a pullback in G-3 hiring.”

So unless profits pick up, investment will decline and, with it, employment, in the US and elsewhere, engendering a new global recession.  At the moment, profits are static globally, along with global investment.  The June jobs figures in America may be the last hurrah for this weak economic recovery.

Global profits growth

John Bellamy Foster and permanent stagnation

July 5, 2016

Part of the Marxism conference in London that finished last weekend was a panel on: “Are we heading for another slump?”  The speakers were myself, Joseph Choonara, author of Unravelling Capitalism and John Bellamy Foster (JBF), the editor of the US Monthly Review a longstanding journal of Marxist thought founded by Marxist economists Paul Sweezy and Paul Baran.

The answer to the question for the panel was obvious.  There is going to be another slump or recession.  That is nearly as certain as death.  For the capitalist mode of production, once it became the dominant mode of social organisation in the early part of the 19th century, has since experienced regular and recurring recessions in a cycle of booms and slumps.

Marxist economics argues that this is an inevitable feature of the capitalist accumulation process because the drive to increase the productivity of labour and boost profit among competing capitalists faces the contradiction of the tendency of the profitability of overall capital to fall.  So production for people’s needs comes into conflict with production for profit at regular and recurring intervals.  Indeed, according to the US Bureau of National Research, since 1857, the US economy has suffered 33 such recessions or slumps where national output has fallen for at least six months.  Other capitalist economies have experienced more or less the same.

While the speakers all agreed that capitalism is heading for another slump, the question is when, what will cause it to happen and how deep would it be?  I won’t go into my explanation of why and when there will be another slump here.  I have done so ad nauseam in this blog.  Instead, I want to consider the explanation offered by JBF.

JBF is now the main driver of the Monthly Review ‘school’ of Marxism and Marxist economics.  If you want a very good in-depth account of the history of the Monthly Review school and its proponents, read this.

As I understand it, the Monthly Review school reckons that ‘competitive’ capitalism in the 19th century eventually morphed into ‘monopoly capitalism’.  According to Sweezy and Baran, this meant that capitalism also entered into a state of ‘permanent stagnation’ where economic growth was much lower than in the 19th century, along with employment and investment.

As JBH put it at the conference, the issue was no longer to explain recurring slumps in capitalism but to show why there are booms at all.  The answer, as I understood it, was that, were it not for regular monetary injections by central banks and speculative credit bubbles engineered by the financial sector, along with public spending stimulus by governments, then capitalism would be in permanent stagnation.  At this point, the question might be asked that, given there have been nearly 20 booms and slumps since 1945, how has capitalism has found so many ways of avoiding stagnation at regular intervals?

The MR perspective is very similar to that of the ‘secular stagnation’ thesis first promoted by Keynesian economist, Alvin Hansen, just after the end of the second world war, when he forecast that the major economies would stagnate due to weak population growth and too much saving rather than spending.

The secular stagnation argument was revived recently by Keynesian economist, Larry Summers and also promoted by Martin Wolf, the Financial Times columnist.  Summers reckons that economies are caught in a sort of a ‘liquidity trap’ (see Keynes), where real interest rates (after inflation) are too high so that companies and households hoard cash and won’t spend.  So the only way an economy grows now is by a series of credit bubbles that will keep bursting.  Wolf argues that savings are too high globally and a ‘global savings glut’ means weak global demand and thus permanently low growth.  Again, I have dealt with these arguments in other blog posts.

JBF’s explanation for capitalist ‘stagnation’ is that monopoly firms now make the bulk of investment and glean the bulk of profits.  As a result, they have too much capacity and too much profit which they cannot find profitable outlets for or enough demand from households. So there is too much surplus (or savings in Keynesian terms), the very opposite of what Marx argued under the ‘competitive capitalism’ of the 19th century.  The problem of monopoly capitalism is ‘too much profit’ that has to be ‘absorbed’ by speculation in financial markets, arms spending and other wasteful activities to keep up demand.

As far as I could understand, JBF dismisses Marx’s law of profitability as relevant to crises under capitalism, partly because capitalism is in ‘permanent crisis’ so the law of profitability does not apply.  Also as JBF put it at the meeting, “it is a chicken and egg issue”.  How can we know if low profitability is caused by low investment and low income rather than vice versa?  Presumably JBF and the Monthly Review School think that it is the former:  namely, investment falls and profits then fall.

This view is entirely in line with the schema proposed by post-Keynesian economist Michal Kalecki, and JBF referred to Kalecki approvingly.  I have dealt with the argument of Kalecki before.  The post-Keynesian approach starts with the Keynesian identity: total savings equals total investment.  But this is an identity – what is the causal direction? Is it from savings to investment or vice versa? The Keynesians reckon it is from investment to savings.  The Marxists reckon it is from profits (the ‘savings of the capitalist sector’) to investment.

I think both theory and empirical evidence are with the Marxist view and not that of Kalecki and the Monthly Review.  Above all, capitalism is a money-making economy, not a production economy.  So we must start with the generation of profit to judge how a capitalist economy is doing.   Yes, there will be no growth without investment, but there will be no investment without profit.  And that is the main contradiction of the capitalist mode of production revealed by Marx.  Over time, as capital accumulates, there is a tendency for the rate of profit to fall and thus create the conditions for a collapse in investment and recurrent crises. Profits call the tune.

Yet JBF went on to argue that it was not.  First, he said that the rate of profit in the major economies had not been falling since the early 1980s, it mainly fell in the 1960s and 1970s.  That suggested that the recent Great Recession could not have falling profitability as the cause (instead, we should look at financial speculation amid ‘financialisation’).  At best, we could talk about low profitability rather than falling profitability.

the profit contradiction

Well, this blog, over the years, and many other Marxist economists too, have presented evidence that stands against JBF’s conclusions.  Actually, after the neoliberal revival in profitability (weak as it was) from the early 1980s, profitability in the major economies began to fall again in the late 1990s and the credit boom of the 2000s provided only a small respite.  Indeed, from 2006, total profits began to fall in the US well before the financial crash, or investment dived and the Great Recession began.

“Data from 251 quarters of the US economy show that recessions are preceded by declines in profits. Profits stop growing and start falling four or five quarters before a recession. They strongly recover immediately after the recession. Since investment is to a large extent determined by profitability and investment is a major component of demand, the fall in profits leading to a fall in investment, in turn leading to a fall in demand, seems to be a basic mechanism in the causation of recessions.” (Jose Tapia “Does Investment Call the Tune?).

In the same way as Professor David Harvey has done recently, JBF suggested that there could be other causes of low profitability rather than Marx’s law – only to dismiss them.  Could it be a profits squeeze caused by rising wages?  Clearly not, as the wage share has fallen.  Could it be rising costs of production from rising raw material prices?  No, he correctly dismissed that too. 

But it could not be the Marxist explanation of the costs of investment in fixed capital rising faster than the rate of exploitation of the workforce, because hi-tech equipment prices have been plummeting.  It’s true that the relative price of equipment has been falling, but it is still the case that the organic composition of capital has risen in the post-war period and especially since 2000.  The difference between the organic composition and the ‘value composition’ of capital is not recognised by JBF.

The MR thesis denies that there are booms and slumps inherent in the modern capitalist mode of production, because, under monopoly capital, there is only permanent stagnation interspersed with periods of speculative boom from credit bubbles.  The Keynesians with a similar view reckon the answer is public spending and investment to restore demand and investment.  I am not sure if JBF agrees with that.  At the meeting, he was vehement in saying that there was no way out for capitalism (“Revolt or ruin”).

In a way, JBF is too pessimistic about capitalism.  There is no permanent crisis.  Another slump will help to destroy capital values and liquidate inefficient (zombie) firms in order to restore profitability.  That will be at the expense of millions of jobs and livelihoods.  In the late 19th century depression, it took six slumps to do that between 1873 and 1897.  But eventually, capitalism did revive and globalised further.

That could happen again if the working classes in the major economies fail to replace the capitalist mode of production in political struggle.  Capitalism could then begin a new lease of life, exploiting yet more millions in ‘emerging economies’ as cheap labour and introducing new technologies that shed labour.  And, as JBF said, that will mean even more destruction of the natural world, its ecology and possibly its very existence, as the world heats up.

Modern imperialism and the working class

June 29, 2016

The IIPPE workshop in London on modern imperialism, organised this week by Simon Mohun, Emeritus professor of political economy at QMC London University, was highly appropriate for two reasons.

First, it brought together those scholars with the latest works on modern imperialism.  Both John Smith’s new book and that of Tony Norfield have been reviewed on my blog.  Smith’s book has won the prize from the Monthly Review and Tony’s has been included on the short list for the Isaac Deutscher prize for the best Marxist book of the year, previously won by many eminent leftists and Marxists.  And Lucia Pradella had a book  Globalization and the Critique of Political Economy: New Insights from Marx’s Writings, Routledge, 2014 that was also shortlisted for Isaac Deutscher in 2015.

The other reason, of course, was Brexit.  The decision of the British people to vote in a referendum to leave the EU brings into focus the history of British imperialism and its impact on the consciousness of the British people.  And the workshop spent some time considering the importance of British imperialism in the 21st century.  It may be only the 5th largest economy by GDP, but as Tony Norfield has shown, it is still second only to the US as an imperialist power, when finance and military might are considered.  The split in the British ruling class between its past imperialist ambitions and its recent need to integrate with Europe has come to a head with Brexit.

So the workshop brought together a perfect trio to develop the latest idea on the nature of modern imperialism.  Lucia Pradella linked Marx’s own thoughts at the birth of ‘globalisation’ from the 1870s; John Smith analysed the nature of exploitation that imperialist economies impose on the ‘periphery’; and Tony Norfield revealed the forms of economic and political hegemony from which the top imperialist economies increasingly reap the majority of their profits.

Lucia showed that Marx developed a theory of imperialism that anticipated in many ways later debates on imperialism including this one (Imperialism_and_capitalist_development_i). Marx took a step further with respect to Lenin and contemporary theorists of imperialism. On the one side, Marx grounded his analysis of imperialism in his value theory, and on the other side, he saw processes of imperialist expansion as being subordinated to the overall tendencies of capital accumulation.  His approach is still relevant for understanding the interrelationship between global and national processes of impoverishment under neoliberalism and after the outbreak of the recent global economic crisis.

Lucia argued that Marx did not analyse a national economy but assumed a world system.  So that which was later defined as ‘imperialism’ is the concrete form of the process of ‘globalisation’ of the capital of the dominant states.  Marx recognised that the capital of the leading states leads towards dominance on the one hand; but on the other, as competition is capital’s very essence, accumulation revives inter-capitalist and inter-state rivalries.

In the age of mechanical industry, the external market prevails on the internal, impelling the annexation of new countries and increased rivalries among the industrial powers.  This means exactly what Rosa Luxemburg said: that “capital needs the means of production and the labour power of the whole globe for untrammelled accumulation; it cannot manage without the natural resources and the labour power of all territories”. So whereas, at the beginning of the 20th century the vast majority of the world population was peasant or lived in rural areas, the world today has become overwhelmingly urban. This is one of the most fundamental and dramatic changes in human history.

Marx already recognised that this globalisation process would be driven by centralisation and concentration of capital and the backing of the state.  In his 1879 letter to Danielson, Marx claims that railway companies had been the first historical example of joint stock companies and the starting point of all other forms, starting with banking companies. Their formation took place with or without state support: only in England was it possible without it, thanks also to the reinvestment of huge colonial profits. In other countries, like the US, this process was supported by the state with subsidies, concessions and tariffs.

However, the long-run combined effect of concentration and centralisation is an increase in capital’s organic composition and a relative reduction in the demand for labour, which coexists with an absolute increase of the number of proletarians. As living labour is the only source of value, this provokes the tendency of the rate of profit to fall and increases exploitation globally.

For me, this shows the connection between imperialism and crises.  For how does the bourgeoisie get over crises? On the one hand, by enforced destruction of a mass of productive forces; and on the other, by the conquest of new markets and by the more thorough exploitation of the old ones.

Indeed, in Volume III, Marx explains that investments in colonies, where the rates of profit were higher, are a factor that counteracts the law of the falling rate of profit.  Over-accumulation and the resulting decline in profit rates and economic crises explain increasingly attempts by corporations and states to secure additional sources of profits, by means of monopolies (especially over raw materials), new outlets for foreign investment, currency manipulations, speculation, and, ultimately arms spending .

Readers of my blog will be well aware of John Smith’s compelling contribution to the analysis of modern imperialism with his book.  John has presented a powerful set of arguments that expose the ‘myth of economic convergence’ claimed by mainstream economics and the apologists of capital.  There is significant and widening global labour arbitrage with the shift of global production to low-wage countries.  And this is the most important global transformation of the neoliberal era.

Blog readers will know that John argues that imperialist exploitation is now predominantly ‘super-exploitation’.  Super exploitation in Marx’s definition was where wages were held down below the prevailing value of labour power.  John argues that this is revealed in the periphery (the South) in that rates of exploitation are higher there than in the North, contrary to the ‘Euro Marxist’ schema that higher productivity levels in the North should deliver higher exploitation rates. Other forms of exploitation under capitalism: absolute surplus value (namely through maximising the working day); or relative surplus value (namely lowering the cost in hours for maintaining the labour force in a given day); according to John, these have become secondary forms of exploitation under modern imperialism.

In previous posts, I have outlined where I differ with John’s analysis. So I won’t repeat my doubts here, although I did at the workshop.  What came out of that discussion is that there is a difference between those who see imperialism as a world economy divided between oppressor and oppressed nations (or peoples, said John) and those who have a more ‘articulated’ analysis like myself; and between those who reckon the working class of the North do in some way gain value from the super-exploitation of the South and those who do not, like myself.

Tony brought some key insights into understanding the nature of modern financial systems and what role they play in the working (or non-working) of capitalism.  Again, I have dealt with Tony’s analysis in my review of his book.  But Tony’s address again emphasised the important role of British imperialism.  British capitalism lost its hegemonic status a hundred years ago but in the post-war period its financial sector has maintained its global status while its manufacturing base diminished.  I have described Britain in the past as the world’s largest ‘rentier’ economy.  That’s an old-fashioned French word for an economy based on sucking up ‘rents’ through the monopoly ownership of capital (or land) from the profits of the productive sectors.  Both the sectors exploit labour but the rentier economy relies on its financial and legal monopoly to take a share of the surplus value appropriated from labour.

One of the consequences of Britain’s rentier economy is its ambiguous relationship with European capital, in particular Franco-German capital and the European Union.  British imperialist strategists have looked across the Atlantic to the US for partnership in financial power but also to Europe for trade and investment.  The UK is the piggy in the middle between the US and Franco-German Europe.  That has now come to a head as British capital considers whether it wants to break with the EU or not, as Europe stutters along in its long depression.

At the workshop, I was asked to provide commentary on the speakers.  The words above cover that.  But I also offered my own two cents.  In my view, imperialism is an historical necessity because it follows from the requirements and conditions of capital accumulation. This was the fundamental premise of Luxemburg’s book on Imperialism.  Unfortunately, her own theory did not explain why the export of capital takes place from one capitalist land to another capitalist land, which today is one of the key features of modern imperialism.

Lenin, in his famous book on Imperialism, also does not explain this, apart from saying that: “The need to export capital arises from the fact that in a few countries capitalism has become ‘overripe’ and (owing to the backward state of agriculture and the poverty of the masses)” and “capital cannot find a field for ‘profitable’ investment.”  But iIt is not enough to account for capital export in terms of the lack of profitable investment opportunities at home, as the liberal economist and pioneering critic of imperialism, John Hobson put it.  As Henryk Grossman retorted: “[W]hy,” then, “are profitable investments not to be found at home?…..The fact of capital export is as old as modern capitalism itself. The scientific task consists in explaining this fact, hence in demonstrating the role it plays in the mechanism of capitalist production.”

It is the race for higher rates of profit that is the motive power of world capitalism.  Foreign trade can yield a surplus profit for the advanced country.   From about the 1980s onwards, the rate of profit in the major economies reached new lows, so the leading capitalist states again looked to counteract Marx’s law through renewed capital flows into countries that had massive potential reserves of labour that would be submissive and accept ‘super-exploiting’ wages. World trade barriers were lowered, restrictions on cross-border capital flows were reduced and multi-national corporations moved capital at will within their corporate accounts.  This explains the policies of the major imperialist states at home (an intensified attack on the working class) and abroad (a drive to transform foreign nations into tributaries).

It was a similar story in the previous period of ‘globalisation’ in the late 19th century. The UK was the leading imperialist power of the 19th century. The great economist J Arthur Lewis summed up the driver behind Britain’s imperialist ambitions in the late 19th century.  “In the low level of profits in the last quarter of the century we have an explanation which is powerful enough to explain the retardation of industrial growth in the 1880s and 1890s… we have here also, in low domestic profits, the solution to the great mystery of British foreign investment, namely why Britain poured so much capital overseas…  home industry was so unprofitable in the 1880s through the squeeze on profits between wages and prices.”  Lewis, Deceleration of British Growth, p28.

At the workshop, there were the beginnings of discussion about the role of the working class in the major imperial powers.  Some speakers were extremely pessimistic about the consciousness of the British or American working class to want to change society.  The view was that they were embedded into the imperialist nexus, with a substantial ‘labour aristocracy’ basically living off the surplus value extracted from the South and transferred to the North.  So the only hope for change would come from the growing proletariat of the South, as Cuba in the 1950s showed and presumably Latin America or other parts of the South would do now.

In a way, this is a revival of the so-called ‘dependency theory’, where it is argued the rich imperialist powers are rich only because of the poor oppressed nations and economies. To this is added the argument that the working class of the North are better off only because of the super-exploitation of the South and so are no longer a progressive force in the struggle to end capitalism.

Well, I argued against that view.  First, Marx’s theory shows that there will be a tendency to equalise the rate of profit between capitals (even under monopoly capital) – indeed this is how the higher rates of exploitation in the South end up in the profit rates of the North.  But this process does not touch the sides of the wages of the workers of the North – it is a redistribution of surplus value between capitalists (and capitalist states).

And empirically, this is also true.  The organiser of the workshop, Simon Mohun, published a paper a few years ago that showed only 1% of working people in the US got income from capital (profit, interest and rents) as their main source of income.  The rest of Americans had to work to make a living.  Sure, their higher wages and their social benefits may indirectly come from the super-profits of the multi-national companies they work for – but that is the result of the class struggle over the share of value going to wages, not directly as a result of imperialist exploitation.

Imperialism has two Achilles heels.  The first is the tendency of the rate of profit to fall as capitalism accumulates.  Indeed, imperialism is a major counteracting factor to that most important contradiction of capitalist accumulation. The second is the proletariat – the gravediggers of capitalism – who are still growing in size across the world.  John Smith showed that global proletariat has never been larger in the history of capitalism.  In that sense, Marx’s prophecy in the Communist Manifesto 160 years ago is confirmed.  Sure, the majority of the proletariat is now in the South and not the North.  But, in my view, that does not mean the workers of the North will play no role in ending capitalism.  On the contrary, they are the key to ending imperialism in its centre.

Spain: further stalemate

June 27, 2016

I flew back from Spain (where I was at a conference) just as the results of the second Spanish general election of the year came out.  The incumbent conservative People’s Party improved its number of seats, while the opposition Socialists managed to finish second ahead of the Podemos-UL leftist coalition.  The turnout was just under 70%, one of the lowest in the post-democratic period.  It was expected that Podemos would move into second place, but it appears that the rush to the left had faded at the last minute.  Nevertheless, the PP cannot form a majority government unless both the pro-market, pro-EU Citizens party (which lost ground) and the Socialists back PM Rajoy.  Last time, they refused to do so.


But last time, the Socialists also refused to join with Podemos to form a leftist government, because that would mean confrontation with the EU over public spending and budget deficits, would encourage separatism in Catalonia and the Basque country (where Podemos finished first) and also might mean they could be swallowed up by Podemos.  So it is political stalemate again.  The most likely outcome is that PM Rajoy will form a minority government with the tacit backing of the Citizens and the Socialists for a fixed period and on certain terms.  The uncertainty in Spanish politics may not match that of Britain after the Brexit vote, but it is still there big time.

Despite its well-documented corruption (party kickbacks for government contracts both national and local), enough people have been prepared to vote for the PP, partly because the rich know that they are the party of big business and the banks and will protect their interests and partly because they were expected to revive the economy after the miserable failure of the previous Socialist government.

But although there have been some signs of economic recovery under Rajoy, it has been mixed at best and, at worst, has offered no relief to the majority.  The Long Depression since the end of the global crash in 2009 has exerted its icy grip over the Spanish economy as well, at least for most people.

Despite a decline in 2015, the youth unemployment rate remains among the highest in the EU. Total unemployment is now 21% but still almost one out of two of active people aged between 15 and 24 remain unemployed. And long-term unemployment remains double that of 2008.  The unemployment rate would be even higher except that Spaniards have left the country to look for work elsewhere in Europe (the UK and Germany) or even Latin America. The rate of net emigration has reached 250,000 a year, draining the economy of some of the most educated and productive young citizens.

Indicators measuring poverty and social exclusion are very high compared to the EU average, and deteriorated further in 2014. The IMF reported that “the improved labour market conditions during 2013 and 2014 did not translate into an improvement in social indicators in those years. The crisis led to a sharp increase in the share of the population at-risk-of-poverty and at-risk-of poverty or social exclusion). These poverty indicators deteriorated even further in 2013 and 2014 despite the amelioration in labour market conditions. The rise in the proportion of workers in part-time (from 14.5 % in 2012 to 15.6 % in 2015) and temporary jobs (from 23.4% in 2012 to 25.7 % in 2015) in recent years went hand in hand with an increasing risk of poverty among part-time workers (from 18.7 % in 2013 to 22.9 % in 2014) and temporary workers (from 17.5 % in 2013 to 22.9 % in 2014). Together with moderate wage developments, this contributed to the overall increase in in-work poverty observed between these two years.”

And as the EU Commission put it: still high unemployment and the risk of labour market exclusion, affecting in particular young and low skilled people, hampers adjustment and implies high social costs. Furthermore, low productivity growth makes competitiveness gains hinge upon cost advantages, also affecting working conditions and social cohesion. If protracted, it hampers the transition of the economy to a more knowledge-intensive growth model.”  In other words, the only way things have improved for Spanish capital is by keeping wages down and employing cheap labour rather than making investments for new technology and higher productivity.

The EU Commission added that “Spain’s R&D intensity and innovation performance keeps declining, against the backdrop of a relatively low number of innovative firms…The average low skills’ level of the labour force hampers the transition of the Spanish economy towards higher-value activities. This in turn limits the capacity of the labour market to provide opportunities for the high number of tertiary education graduates in knowledge-intensive sectors.” That means no jobs even for those with degrees.

The IMF admits that economic growth in Spain during the last 15 years has been largely due to investment in property – fictitious capital, as Marx called it. Spain’s much-heralded economic boom saw 3.5 percent real growth a year during the 1990s; it stopped being based on productive investment for industry and exports in the 2000s and turned into a housing and real estate credit bubble, just like Ireland’s Celtic Tiger boom did. House prices to income peaked at 150 percent, nearly as high as in Ireland. It has fallen back to 120 percent, but Ireland has dropped to 85 percent. Housing construction doubled from 1995 to 2007, reaching 22 percent of GDP in 2007.

During the property boom, credit grew at 20 percent a year, much faster than nominal GDP at about 7 percent a year.  Household debt reached 90 percent of GDP. Nonfinancial corporate debt, including that of the developers, reached 200 percent of GDP, the highest in the OECD.

The financial crash exposed that big time.  Productive investment in technology was below the euro area average before the crisis and is still below the EU-28 average. The fall in investment between 2007 and 2015 entailed a drop in potential growth of nearly 1.5 pp. a year of GDP for Spain. The total stock of private sector debt amounted to around 175 % of GDP in non-consolidated terms in the third quarter of 2015 (68.6 % of GDP as household debt and 107.2 % of GDP as non-financial corporation debt).

While this remains above the euro area average, it is about some 40% of GDP lower than the peak observed in the second quarter of 2010. Most of the reduction is due to the fall in debt of non-financial corporations since the peak. However, this ‘deleveraging’ by both households and corporations has weighed on investment.  “In particular, high private and public debt, reflected in the very high level of net external liabilities, exposes the country to risks stemming from shifts in market sentiment and is a burden for the economy. While the still negative inflation environment supports households’ real disposable incomes and domestic demand, it also hinders faster deleveraging.” (IMF).

The Achilles heel of Spanish capitalism is the long-term decline in its profitability. Spanish capitalism was not a great success under the military rule of General Franco in the post-1945 period. Profitability fell from the great heights of the golden age of postwar capitalism, as it did for all other capitalist economies from 1963 onward, in a classic manner, with the organic composition of capital rising nearly 30 percent while the rate of surplus value fell by about same.

Spain ROP

After the death of Franco, Spanish capitalism temporarily reversed the decline as foreign investment flooded in to set up new industries, relying on a sharp rise in the rate of exploitation brought about by plentiful surplus labor and a system of temporary employment contracts (while freezing permanent employment), the so-called dual labor policy.

Spain ROP change

The rate of exploitation rose over 50 percent to 1996, accompanied by the foreign-led investment boom in the 1990s. This drove up the ratio of capital to labor (by 19 percent), as German and other capitalist companies relocated to Spain in search of cheaper labor and higher profits. That eventually put renewed pressure on the rate of profit. From 1996, profitability dropped sharply as wages squeezed profits in the boom of the 2000s. Spanish capitalists switched to investing in property and riding on the cheap credit boom that disguised weakening profitability in the productive sector.

As the IMF summed it up: “The pre-crisis period was characterized by decreasing productivity of capital, measured as output per units of capital stock, both in absolute terms and relative to the euro area average. This is because capital flew to nontradable sectors, in particular construction and real estate, characterised by higher profitability but lower marginal returns. By contrast, investment in information and communication technologies or intellectual property remained below that of other euro area countries.”

This long depression is also beginning to break up the Spanish state. Regional governments are deeply in debt and are being asked to make huge cuts. Richer regional areas with their own nationalist interests, as in Catalonia and the Basque Country, are making noises about separation from Madrid.  The Spanish depression is a result of the collapse in capitalist investment. To reverse that requires a sharp rise in profitability. Until investment recovers, the depression will not end.  And there is the probability of a new economic recession in Europe ahead, while the political leadership of Spanish capital is still uncertain.


Get every new post delivered to your Inbox.

Join 5,664 other followers