UNAM 2 – Europe’s single currency

March 8, 2018

My second lecture to the economics faculty of the Autonomous National University of Mexico (UNAM) was on Europe’s single currency zone. Has the euro worked in taking the economies in the Eurozone forward both in improved living standards for the people within the area and also in integrating and converging each national economy into one effective capitalist unit? The euro

It’s a subject that interests Mexicans, as Mexico is part of the only effective free trade area in the Americas, the North American Free Trade Area (Mexico, US, Canada) – NAFTA, which is now under threat from US President Trump’s protectionist program.

In my presentation, I argued that this European project which started after the WWII, had two aims: first, to ensure that there were never any more devastating wars between European nations; and second, to make Europe into an economic and political entity that could rival America and Japan in global capital battle.  This project was led by Franco-German capital, and with the introduction of the euro, the project eventually went further than just a free trade area or even a customs union (with free movement of capital and labour), to a single currency and monetary policy.  The aim was to integrate all European capitalist economies into one unit to compete with the US and Asia in world capitalism with a rival currency to the dollar.

There are three views on the success of the European Union and the single currency.  The mainstream neoclassical view is that an Optimal Currency Area (OCA), where all members benefit from a single currency and monetary policy, is possible as long as economies move through similar business cycles.  If they don’t, then the market must be allowed to adjust wages and prices between national economies to bring about a new balance. Equilibrium can be established if there is wage flexibility and labour mobility in the currency area. And ideally there is also a common fiscal and monetary policy to adjust taxes and interest rates as necessary.

When the EU began, the EU Commission economists optimistically reckoned that, with higher trade integration, there would be increased synchronization of national business cycles. That’s because trade among EU economies is typically intra-industry and so does not lead to higher specialization, which could cause increased possibility of ‘asymmetric shocks’ ie differing business cycles.

But this neoclassical view of mobility of labour and wage flexibility was disputed by Keynesian theory.  In the 1990s, Nobel prize winner Paul Krugman, who specialised in international trade theory, argued that higher trade integration would lead to higher specialisation of industry.  That would lead to a concentration of industrial activity in just a few states. So far from convergence within the trade area between national economies, there was risk of divergence on productivity, wages and investment.

The Marxist view starts from the opposite position of the neoclassical mainstream.  There is no tendency to equilibrium in trade and production cycles under capitalism.  So fiscal, wage or price adjustments by the market (or even government) will not restore equilibrium.  Capitalism is an economic system that combines labour and trade, but unevenly.  The centripetal forces of combined accumulation and trade are countered by centrifugal forces of uneven development.

The idea that ‘free trade’ is beneficial to all countries and to all classes is a ‘sacred tenet’ of mainstream economics.  But it is a fallacious proposition based on the theory of comparative advantage (first proposed by the classical early 19th century economist, David Ricardo) that if each country concentrated on producing goods or services where it has a ‘comparative advantage’ over others, then all would benefit.  Trading between countries would balance and wages and employment would be maximised. But this is empirically 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.

In contrast, the Marxist theory of international trade is based on the law of value.  In the Eurozone, Germany has a higher technology ratio (organic composition of capital) than Italy.  Thus in any trade between the two, value is transferred from Italy to Germany.  But Italy cannot compensate for this by increasing the scale of its production/export to Germany, unlike say China.  So it transfers value to Germany and runs a permanent deficit on total trade with Germany.  In this situation, Germany gains within the Eurozone at the expense of Italy.  As nearly all other member states cannot scale up their production to surpass Germany, unequal exchange is compounded across the EMU.

Balance of trade between Germany and Italy (Euro m)

With a single currency, the value differentials between the weaker states (lower OCC) and the stronger (higher OCC) are exposed with no option to compensate by devaluation of any national currency or protectionist measures.  The weaker capitalist economies (in southern Europe) within the euro area eventually lost ground to the stronger (in the north).

Change in productivity levels since 1999 relative to Eurozone average (%)

The move to a common market and a customs union was a relative success in raising trade for all and in converging productivity levels and growth rates.  This was similar to where NAFTA is today.  But when the EU moved to free movement of labour and capital in 1993, harmonising its trade and employment regulations and setting up political controls, convergence in Europe stopped and the stronger capitalist economies increased their share of the value created at weaker economies’ expense.   This was a key point made by a participant at the UNAM session.

The EU leaders had set criteria for joining the euro, but these criteria were all monetary (interest rates and inflation) and fiscal (budget deficits and debt).  There were no convergence criteria for productivity levels, GDP growth, investment or employment.  That was because those were areas for the free movement of capital (and labour) and capitalist production for the market and not the province of interference or direction by the state.  After all, the EU project is a capitalist one.

This growing divergence in incomes and production per head and in profitability of capital was exposed when the Eurozone economy entered the major slump and debt crisis with the Great Recession of 2008-9. The global financial crash and the Great Recession were the result of Marx’s law of profitability, as I have argued ad nauseam elsewhere.

As Sergio Camara, Marxist economist at the Metropolitan University of Mexico (UAM), said in his commentary on my presentation at the UNAM session, we must distinguish between the underlying trends in capitalism globally and specific features for Europe.  Many Keynesians blame the euro for the euro crisis, but the crisis of the currency was really a crisis of capitalism in general.  The global crisis of capitalism took a particular form in the Eurozone because of the currency union. The debts being built up by the south with the north were exposed in the crash and sparked the ‘euro crisis’, but only after the global financial crash.

The global slump dramatically increased the divergent forces within the euro. The fragmentation of capital flows between the strong and weak Eurozone states exploded. Net capital assets and liabilities within the Eurozone should have been in balance – but they were far from that.

The capitalist sectors of the richer economies like Germany stopped lending directly to the weaker capitalist sectors in Greece and Slovenia, etc. As a result, in order to maintain a single currency for all, the official monetary authority, the ECB, and the national central banks had to provide the loans instead.

Franco-German capital was not prepared to pay for the ‘excesses’ of the weaker capitalist states.  Thus the bailout programmes were combined with ‘austerity’ to make the people of the distressed states pay with cuts in welfare, pensions and real wages, and to repay (virtually in full) their creditors (the banks of France and Germany and the UK).  The debt owed to the Franco-German banks was transferred to the EU state institutions and the IMF – in the case of Greece, probably in perpetuity.

It was the workers of the Baltic states and the distressed Eurozone states of Greece, Ireland, Cyprus, Spain, and Portugal who took the biggest hit. In these countries, real wages fell, unemployment rocketed, and hundreds of thousands have left their homelands to look for work somewhere else. That has enabled companies in those countries to sharply increase the rate of exploitation of their reduced workforce, although so far that has not been enough to restore profitability to levels before the Great Recession and thus sustain sufficiently high new investment for a sustained path of growth.

Keynesians blame the crisis in the Eurozone on the rigidity of the single-currency area and on the strident ‘austerity’ policies of the leaders of the Eurozone, Germany. They reckon that the weaker economies would have been better off leaving the euro and devaluing their currencies to reverse their trade and capital imbalances. But such policies would have been no better for the workers in those countries exiting the euro, possibly worse.

Keynesian policies would still mean a loss of real income through higher prices, a falling currency, and eventually rising interest rates. Take Iceland, a tiny country outside the EU, let alone the Eurozone.  It adopted the Keynesian policy of devaluation of the currency, a policy not available to the member states of the Eurozone.  But it still meant a 40% decline in average real incomes in euro terms and nearly 20% in krona terms since 2007.  Indeed, in 2015 Iceland’s real wages were still below where they were in 2005, ten years earlier, while real wages in the ‘distressed’ EMU states of Ireland and Portugal were more or less flat.

In the last 18 months, the Eurozone economies have made a modest economic recovery, after nearly ten years of depression.  But profitability of capital in most EZ economies remains below where it was in 2007 (see graph below). Progress in raising the rate of exploitation has been considerable.  But progress in devaluing and deleveraging the stock of capital and debt built up before has been slow and even being postponed by easy monetary policy from the European Central Bank. Given the current level of profitability, recovery may take too long before the world economy drops into another slump. Then all bets are off on the survival of the euro.

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UNAM 1 – The profit investment nexus

March 7, 2018

My first lecture to the economics faculty of the Autonomous National University of Mexico (UNAM) was on the relationship between profits and profitability and investment and economic growth in capitalist economies. Do profits and profitability lead investment and GDP into slumps and out of them, or vice versa?  In my view, this is one of the big divisions between the Keynesian and Marxist theory of crises, or booms, slumps and depressions in capitalism. For all the references to research etc made below, see my paper: The profit investment nexus

In my presentation, I first pointed out that both Marxist and Keynesian analysis agree that investment (especially business investment) is the key driver of economic growth and the main swing factor in the capitalist business cycle of boom and slump.  This is contrary to the view of neoclassical theory, where in so far as it has any theory of crises at all, it starts from the premiss that the ‘consumer is king’ and that the ups and downs of consumer demand explain booms and slumps.  At least, the more sophisticated version of Keynesian theory recognises ‘effective demand’ (the Keynesian indicator of crises) under capitalism is primarily investment, not consumption – although many Keynesians seem to slip into the latter as the cause.

If we analyse the changes in investment and consumption prior to each recession or slump in the post-war US economy, we find that consumption demand has played little or no leading role in provoking a slump.  In the six recessions below, personal consumption fell less than GDP or investment on every occasion and does not fall at all in 1980-2.  Investment fell by 8-30% on every occasion.

But after that comes the difference with Marxist analysis.  The Keynesian macro-identities suggest that investment drives GDP, employment and profits through the mechanism of effective demand.  But Marxist theory says that it is profit that ‘calls the tune’, not investment.  Profit is part of surplus value, or the unpaid labour in production.  It is the result of the exploitation of labour – something ignored or denied by Keynesian theory, where profit is the result of ‘capital’ as a factor of production.

In my presentation, I argued that Keynesian macro-identities are thus ‘back to front’: investment does not ‘cause’ profit; profit ‘causes’ investment.  Moreover there is little empirical evidence that investment drives profits as the Keynesian model would suggest. And there is little evidence that government spending or budget deficits (net borrowing) restore economic growth or end slumps.  These end only when the profitability of business capital is revived.  Thus the Keynesian multiplier is less compelling than the ‘Marxist multiplier’.

For Keynesians, the causal direction is that investment creates profit. For orthodox Keynesians, crises come about because of a collapse in aggregate or ‘effective demand’ in the economy (as expressed in a fall of investment and consumption).  This fall in investment leads to a fall in employment and thus to less income.  Effective demand is the independent variable and incomes and employment are the dependent variables.  There is no mention of profit or profitability in this causal schema.

Keynes understood the central role of profit in the capitalist system. “Unemployment, I must repeat, exists because employers have been deprived of profit. The loss of profit may be due to all sorts of causes. But, short of going over to Communism, there is no possible means of curing unemployment except by restoring to employers a proper margin of profit.” But for him, and Michal Kalecki, the guru of post-Keynesian analysis of crises, investment creates profits not vice versa.  “Nothing obviously, can restore employment which does not first restore business profits. Yet nothing, in my judgement, can restore business profits that does not first restore the volume of investment.”  (Keynes).  To use the pithy phrase of Hyman Minsky, devoted follower of Keynes, “it is investment that calls the tune.”

As Jose Tapia has pointed out that “for the whole Keynesian school, investment is the key variable explaining macroeconomic dynamics and leading the cycle.”  But if investment is the independent variable, according to Keynes, what causes a fall in investment? For Keynes, it is loss of ‘animal spirits’ among entrepreneurs, or a ‘lack of confidence’ in employing funds for investment.  As Minsky said, investment is dependent on “the subjective nature of expectations about the future course of investment, as well as the subjective determination of bankers and their business clients of the appropriate liability structure for the financing of positions in different types of capital assets”

As Paul Mattick Snr retorted about the Keynesian explanation, “what are we to make of an economic theory, which after all claimed to explain some of the fundamental problems of twentieth-century capitalism, which could declare: ‘In estimating the prospects of investment, we must have regard, therefore, to the nerves and hysteria and even the digestions and reactions to the weather of those upon whose spontaneous activity it largely depends’?

In my presentation, I suggested that what if we turn the causal direction the other way.  Marx’s theory of value tells us that all value is created by labour and profit is a product of the exploitation of labour power and its appropriation by capital.  Then we have a theory of profit and investment based on an objective causal analysis within a specific form of class society.  And now, investment in an economy depends on profits.

With Marx, profit is the result of the exploitation of labour (power) and thus is logically prior to investment.  But it is also temporally prior.  If we adopt a theory that profits cause or lead investment, that ‘profits call the tune’, not investment, then we can construct a reasonably plausible cycle of profit, investment and economic activity.

And not only is this the Marxist approach theoretically more realistic and valid, there is a wealth of empirical evidence to support the analysis that profits lead investment, not vice versa.  I gave a long list of studies along these lines, from both mainstream and Marxist analysts, including my own (see my paper above).

My presentation then went on to draw the policy conclusions from the difference between Keynesian and Marxist analysis.  It is the kernel of Keynesian economic policy that the way out of economic recession under capitalism is to boost ‘effective demand’. And in a ‘depression’, it will be necessary to stimulate this demand, either by easing the cost of investment or consumer borrowing (monetary policy) and/or by government spending (fiscal policy).

But if the Marxist analysis is right, then this is a utopian policy. Government spending and tax increases or cuts must be viewed from whether they boost or reduce profitability. If they do not raise profitability or even reduce it, then any short-term boost to GDP from more government spending will only be at the expense of a lengthier period of low growth and an eventual return to recession.

There is no assurance that more spending means more profits – on the contrary.  Government investment in infrastructure may boost profitability for those capitalist sectors getting the contracts, but if it is paid for by higher taxes on profits, there is no gain overall.  And if it is financed by borrowing, profitability will eventually be constrained by a rising cost of capital.

I then outlined a load of empirical evidence to show that the so-called Keynesian ‘multiplier’ of government spending boosting real GDP growth was ineffective, and the ‘Marxist multiplier’, to coin the term from G Carchedi, that investment and growth under capitalism only really responds to changes in profitability and profits, was way more compelling.

I compared average real GDP growth against the average change in government spending and as a ratio of the change in the net return on capital for successive decades since 1960.  Real GDP growth is strongly correlated with changes in the profitability of capital (Marxist multiplier), while the correlation was negative with changes in government spending (Keynesian multiplier).  The Marxist multiplier was considerably higher in three out of the five decades, and particularly in the current post Great Recession period.  And in the other two decades, the Keynesian multiplier was only slightly higher and failed to go above 1.

There was some discussion from the floor about the validity of econometric causal analysis in reaching these results and their statistical significance.  But I think we can safely say that there was stronger evidence that the Marxist multiplier is more relevant to economic recovery under capitalism than the Keynesian multiplier.

In her commentary on my presentation, Professor Gloria Martinez from UNAM, carefully considered my arguments, making the point that it was not a fall in profitability that was the direct cause of slumps, but in particular, the eventual fall in the mass of profit.  And so there is an issue of how crises can take place when the rate of profit is rising, as it was in the neo-liberal period from the 1980s.

Well, there are several responses to that.  First, many studies show that the overall rate of profit in the US and elsewhere stopped rising after the end of the millennium – the neoliberal recovery was over.  Indeed, profitability in the US began to fall from 2006, well before the credit crunch and the Great Recession, as did eventually the mass of profit.  So the Marxist analysis still holds.

Second, as Carchedi has shown, if you strip out the counteracting factor of a rising rate of surplus value from the 1980s, the law of profitability ‘as such’ was still operating.  Indeed, crises occur when total new value (wages and profit) fell or slowed markedly and Marx’s law of profitability then asserted itself.

The other response comes from the issue of fictitious profits and the rise of finance capital in the neo-liberal period, but particularly after 2002.  This was raised by several members of the audience.  After 2002, total profits in the US rose sharply but investment did not follow.  So where was the profits-investment nexus then?  Well, if you strip out the profits from fictitious capital (financial speculation in stocks and bonds with credit), then profitability was falling from 2002 – this is what a study by Peter Jones from Australia has shown (see paper).

Second, if you strip out finance capital profits (not all of which is fictitious because interest income and commissions are revenue for banks and finance houses), profitability in the productive sector of the US economy was weak and falling and has not really recovered since the end of the Great Recession.

The conclusions of my presentation were that:

1) the Keynesian view that effective demand and investment drive profits is logically weak and empirically unproven;

2) the Marxist view is that profitability and profits drive investment in a capitalist economy.  This is theoretically logical and empirically supported;

3) this implies that it is the Marxist multiplier (the changes in real GDP relative to profitability) that is a better guide to any likely recovery in a capitalist economy than the Keynesian multiplier (changes in real GDP relative to government net spending – dissaving) and

4) Keynesian fiscal (and monetary) stimulus policy prescriptions are unlikely to work in restoring investment, growth and employment in a capitalist economy – indeed they could even delay recovery.

Italy’s Ides of March

March 5, 2018

The winners in the Italian general election held on Sunday were the so-called ‘populist’ parties.  The Five Star party founded by ex-TV comedian Beppo Grillo and now led by Luigi Di Maio, took over 30% of the vote and will be the largest single party in the new parliament.  It presented itself as an anti-establishment, anti-corruption party.  Previously it had called for a referendum to leave the EU but recently dropped that and switched to social policies.  In the election, it proposed a Universal Basic Income (UBI) for all, which won it many votes from the young unemployed and poor, particularly in the south.

The other winner was the Northern League, which, as it name implies, used to be a separatist party campaigning for autonomy of the richer northern parts of Italy and calling for an end government transfers to the poor and ‘lazy’ south.  But under its new leader, Matteo Silvini, it has become an anti-immigrant and anti-EU party like the National Front in France or UKIP in Britain.  This led to a sharp increase in its vote share, to around 18%.  Italy now has the highest proportion of anti-EU opinion in the Eurozone (although that’s still a minority view).

The losers in the election were the traditional mainstream centre-left and centre-right parties.  The incumbent centre-left Democrat party was humiliated in the vote.  A product of a merger between the Communists and the Socialists in the 1990s, it had steadily moved to the right to become a pro-capitalist ‘Blairite’ party.  Its vote share under Matteo Renzi, the former prime minister, fell to under 20%, half its share just five years ago.

The centre-right party, Forza Italia, is a creature of media billionaire and former PM, Silvio Berlusconi.  It was expected to do better in the election but eventually it polled just 13%, way less than its electoral coalition partner, the Northern League.

The other winner was the ‘no vote’ party.  The rise in the number of those not voting at all has been a feature of elections in the major capitalist economies in the neoliberal period and in this Long Depression.  Since Italy abolished compulsory voting in 1993, voter turnout has steadily fallen.  In this election it reached a new low.  The no vote ‘party’ polled 28% (if still relatively low by the standards of voter turnout in the US or the UK).

None of the parties or electoral coalitions have enough seats to form a governing majority in parliament, so what now? It seems to me that there are three possibilities. The first is that, despite losing the election, the centre-right and centre-left will form a coalition, possibly with the Northern League.  Such coalition has been the solution in Germany where last September’s election led to a similar decline in the two mainstream parties.  It would be what Italian and European capital would prefer.  But such a coalition will be difficult to sustain given that the Northern League has polled better than Forza Italia in their coalition and the Democrats have been crushed.

The second possibility is the worst for Italian capital, namely that Five Star and the Northern League form a government.  That would mean breaking from austerity policies on public finances, possible attacks on big business interests and increased demands for withdrawal from the Eurozone.  But this again is unlikely because the Northern League would not want to be a junior partner in a coalition with a party that gets its main support from the poor south.

The third possibility, assuming that Five Star sticks to its refusal to form any coalition, is that the Italian president appoints a temporary ‘technocratic’ government for say six months and calls another election in September.

It’s a political mess.  But that political mess mirrors the mess that is the Italian economy.  The Eurozone economy has enjoyed a modest revival in the last 18 months and the area as a whole is now growing faster even than the US and the UK.  But Italy is not.  It is still a member of top G7 advanced capitalist economies, but its working population is falling, despite an influx of immigrants in recent years, and the productivity of the workforce is stagnating.

Unemployment remains high compared to other EU economies.

Combine low employment growth with low productivity growth of that labour force and the Italian economy has a low long-term potential growth rate of no more than 1% a year.

Productivity growth is stagnating because Italian capital is not investing productively enough.

And why is that?  Because profitability is low.  The profitability of Italian capital reached an all-time low back in the early 1980s, like most other major capitalist economies.  During the neo-liberal period, profitability rose significantly and with the start of the full European Union, Italian profitability returned to the highs of the 1960s.  But joining the Eurozone saw a sharp turn downwards.

Italian businesses were now exposed directly by Franco-German capital.  Italy has a high proportion of small to medium size companies with particular markets and these were now in trouble.  The Great Recession and the ensuing Long Depression compounded that weakness and many Italian companies ran up huge debts with banks that they increasingly could not pay. Italy’s banks started to go bust and, despite recent government bailouts, Italy’s banks still have more ‘bad debts’ on their books than the rest of the Eurozone put together.

The current upswing in Eurozone economies may help to keep the Italian economy’s head just above the water, but with per capita income is falling and unemployment is still high.

Public debt to GDP is the highest in Europe after Greece and the corporate debt overhang still huge.  So any new global slump is going to put Italian capital back into deep trouble.  The current political paralysis shows that the politicians have as yet no solutions.  With the Ides of March approaching.

Robots: what do they mean for jobs and incomes?

February 26, 2018

The recent opening by Amazon of a new retail store in the basement of its headquarters in Seattle has provoked more talk that human labour is soon to be wiped out by the expansion of robots and AI.

At the store, which is clearly a ‘pilot’, customers walk in, scan their phones, pick what they want off the shelves and walk out again. There are no checkouts or cashiers. Instead, customers first download an app onto their smartphones and then machines in the shop sense which customer is which and what they are picking off the shelves. Within a minute or two of the shopper leaving the store, a receipt pops up on their phone for items they have bought.  This development in ‘automatic’ retailing mirrors other automation: in offices, driverless cars, social care and in decision-making.

So does this mean that humans will soon be totally replaced by intelligent learning machines and algorithms?  In previous posts, I have outlined the forecasts on the number of jobs that will be lost to robots over the next decade or more.  It appears to be huge: and not just in manual work in factories but also in so-called white-collar work like journalism, banking and even economists!

The techno-futurists think robots will soon replace humans.  But I think they are running before they can walk – or to be more exact, so far, robots can hardly run and catch compared to humans.  This is ‘Moravec’s paradox, namely that “it is comparatively easy to make computers exhibit adult-level performance on intelligence tests or playing games, and difficult or impossible to give them the skills of a one-year-old when it comes to perception and mobility” (Moravec).   So algorithms can vote on whether to invest or not for hedge funds or banks, but a robot cannot even hit a tennis ball, let alone beat a club player.  Indeed, robot development is heading  more towards ‘cobots’, which act as an extension of the worker, in factories with the heavy work and in hospitals and social care for diagnosis. This does not directly replace the worker.

The mainstream economic debate is whether ‘technology’ will create more jobs than it destroys.  After all, the argument goes, new technology may get rid of certain jobs (hand loom weavers in the early 19th century) but provide new ones (textile factories).

One thought experiment is that provided by Paul Krugman.  In Krugman’s celebrated example, imagine there are two goods, sausages and bread rolls, which are then combined one for one to make hot dogs.  120 million workers are divided equally between the two industries:  60 million producing sausages, the other 60 million producing rolls, and both taking two days to produce one unit of output.

Now suppose new technology doubles productivity in bakeries.  Fewer workers are required to make rolls, but this increased productivity will mean that consumers get 33% more hot dogs.  Eventually the economy has 40 million workers making rolls and 80 million making sausages.  In the interim, the transition might lead to unemployment, particularly if skills are very specific to the baking industry. But in the long run, a change in relative productivity reallocates rather than destroys employment.

The story of bank tellers vs the cash machine (ATM) is another example of a technological innovation entirely replacing human labour for a particular task.  Did this led to a massive fall in the number of bank tellers?  Between the 1970s (when American’s first ATM was installed) and 2010 the number of bank tellers doubled. Reducing the number of tellers per branch made it cheaper to run a branch, so banks expanded their branch networks.  And the role gradually evolved away from cash handling and more towards relationship banking.

That’s the optimistic view.  But even then, as Marx pointed out with the rise of machines in the 19th century, the loss of jobs in one sector and their recreation in another is no seamless process of change. As Marx put it: The real facts, which are travestied by the optimism of the economists, are these: the workers, when driven out of the workshop by the machinery, are thrown onto the labour-market. Their presence in the labour-market increases the number of labour-powers which are at the disposal of capitalist exploitation…the effect of machinery, which has been represented as a compensation for the working class, is, on the contrary, a most frightful scourge. For the present I will only say this: workers who have been thrown out of work in a given branch of industry can no doubt look for employment in another branch…even if they do find employment, what a miserable prospect they face! Crippled as they are by the division of labour, these poor devils are worth so little outside their old trade that they cannot find admission into any industries except a few inferior and therefore over-supplied and under-paid branches. Furthermore, every branch of industry attracts each year a new stream of men, who furnish a contingent from which to fill up vacancies, and to draw a supply for expansion. As soon as machinery has set free a part of the workers employed in a given branch of industry, the reserve men are also diverted into new channels of employment, and become absorbed in other branches; meanwhile the original victims, during the period transition, for the most part starve and perish.” Grundrisse.

And then there is the profitability of technology.  Robots will not be widely applied unless they can deliver more profit for owners and investors in robotic applications.  But more robots and relatively less human labour will mean relative less value created per unit of capital invested, because from Marx’s law of value, we know that value (as incorporated in the sale of production for profit) is only created by human labour power.  And if that declines relatively to means of production employed, then there is tendency for profitability to fall.  So the expansion of robots and AI increases the likelihood and magnitude of profitability crises.  So it is very likely that slumps in capitalist production will intensify as machines increasingly replace labour.  This is the great contradiction of capitalism: increasing the productivity of labour through more machines reduces the profitability of capital.

Mainstream economics either denies the law of value or ignores it. Back in 1898, neo-Ricardian economist Vladimir Dmitriev, in order to refute Marx’s value theory, presented a hypothetical economy where machines (robots) did all and there was no human labour.  He argued that as there was still a huge surplus produced without labour, so Marx’s value theory was wrong.

But Dmitriev’s thought experiment is irrelevant because he and other mainstream economists do not understand value in the capitalist mode of production.  Value in a commodity for sale is double-sided: there is physical ‘use value’ in the good or service sold, but there is also ‘exchange-value’ in money and profit that must be realised in the sale.  Without the latter, capitalist production does not take place.  And only labour power creates such value.  Machines create no value (profit) without humans turning machines on.  Indeed, Dmitriev’s super abundant robot only economy would no longer be capitalist because there would be no profit for individual capitalists.

And here is the great contradiction of capitalism.  As machines replace human labour power, under capitalism, profitability falls even if the productivity of labour rises (more things and services are produced).  And falling profitability will periodically disrupt production of individual capitalists because they only employ labour and machines to make profits.  So crises are intensified well before we get to Dmitriev’s hypothetical robot world.

But what to do, as jobs are lost to robots?  Some liberal economists talk of a ‘robot tax’.  But all this would do is slow down automation – hardly a progressive move in reducing toil. The idea of universal basic income (UBI) continues to gain traction among economists, both leftist and mainstream.  I have discussed the merits and demerits of UBI before.  UBI is advocated by many neoliberal economic strategists as a way of replacing the ‘welfare state’ of free health, education and decent pensions with a basic income.  And it is being proposed to keep wages down for those in work.  Any decent level of basic income would be just too costly for capitalism to afford.  And even if UBI were won by workers in struggle, it would still not solve the issue of who owns the robots and the means of production in general.

A more exciting alternative, in my view, is the idea of Universal Basic Services i.e. what are called public goods and services, free at the point of use.  A super-abundant society is by definition one where our needs are met without toil and exploitation ie a socialist society. But the transition to such a society can start with devoting socially necessary labour to the production of basic social needs like education, health, housing, transport and basic foodstuffs and equipment.

Why use resources to give everybody a basic income to buy these social needs; why not make them free at the point of use?  Instead of cutting people who are not working off from those that are working with income handouts, we need to build unity at work through reducing the hours of labour and expanding (free at use) public services and goods for all.

Of course, this would require the many owning and controlling the means of production and planning the application of those resources for social need, not the profit of the few.  Robots and AI would then become part of the technological advance that would make a super-abundant society possible.

The underlying reasons for the Long Depression

February 14, 2018

There are two new mainstream papers out that offer some interesting analysis on the reasons behind the Long Depression that the major economies (or at least, the US) have suffered since the end of the Great Recession in 2009 – in the growth of real GDP, productivity, investment and employment.

First, there is a paper by economists at the San Francisco Federal Reserve.  The Disappointing Recovery in U.S. Output after 2009 by John Fernald, Robert E. Hall, James H. Stock, and Mark W. Watson.  They consider the well-known evidence that US real GDP growth has expanded only slowly since the recession trough in 2009, counter to normal expectations of a rapid cyclical recovery.  In the paper, they remove the “cyclical effects” of the Great Recession and find that there was already a sharply slowing trend in underlying growth before the global financial crash in 2008.  The Fed economists conclude that the slowing trend reflected two factors: slow growth of innovation and declining labour force participation.

Figure 1 shows business-sector output per person in recent decades. The green line shows that output per person fell sharply during the recession and remains below any reasonable linear trend line extending its pre-recession trajectory. The figure shows one such trend line (yellow line), based on a simple linear extrapolation from 2003 to 2007.

Figure 1
Output per capita: Deep recession plus a sharp slowing trend

The blue line in Figure 1 shows the resulting estimate of trend output per capita after removing the cyclical effects associated with the deep recession. As expected, the cyclical adjustment removes the sharp drop in actual output associated with the recession. But since then, the trajectory of the blue line is nowhere close to a straight line projection from the 2007 peak. Rather, cyclically adjusted output per person rose slowly after 2007 and then plateaued in recent years.

The Fed economists reckon that the slow growth has been due to a slowdown in the productivity of labour, which in turn has been caused by a reduction in investment in innovation and new technology.  In mainstream economics, this is measured by the residual of output per person left over after increases in employment (labor input) and means of production (capital input) are accounted for.  The residual is called total factor productivity (TFP), to designate the increased productivity per unit of total input.  TFP supposedly captures the productivity benefits from formal and informal research and development, improvements in management practices, reallocation of production toward high productivity firms, and other efficiency gains.

The Fed economists, using this factor accounting, find that TFP growth slowed significantly even before the Great Recession.  It picked up in the mid-1990s and slowed in the mid-2000s—before the recession—and then was flat or even falling going into the recession.

Figure 2
Pre-recession slowdown in quarterly TFP growth

The economists dismiss the arguments that it was the Great Recession that caused the productivity slowdown or that productivity growth from info tech is being mismeasured: “such mismeasurement has long been present and there’s no evidence it has worsened over time.” They also dismiss the idea common from right-wing neoclassical economists that “increased regulatory burdens have reduced the economy’s dynamism.”  They find no link between regulation changes and TFP growth.

The explanation they fall back on is the one presented by Robert J Gordon in many papers and books: that TFP growth is really just back to normal and what was abnormal was the burst in innovation in the 1990s with the hi-tech and dot.com boom.  That ended in 2000 and won’t be repeated.  “Every story in the late 1990s and early 2000s emphasized the transformative role of IT, often suggesting a sequence of one-off gains—reorganizing retailing, say. Plausibly, businesses plucked the low-hanging fruit; afterward, the exceptional growth rate came to an end.”

The other factor in the slowdown was the decline in employment growth of those of working age.  Yes, there is supposed to be near ‘full employment’ now in the US and the UK etc.  But participation in employment by working age adults has fallen sharply.  That’s because populations are getting older and the ‘baby boomers’ who started worked in the 1960s and 1970s are now retiring and not being replaced.

Figure 3
Sharp declines in labor force participation rate

What the Fed economists want to tell us is that the Long Depression is not just the leftover of the Great Recession but reflects some deep-seated underlying slowdown in the dynamism of the US economy that is not going to correct through the current small economic upturn.   The US economy is just growing more slowly over the long term.

What the Fed economists don’t explain is why the US economy has been slowing in productivity growth and innovation since 2000.  What is missing from the analysis is what drives the adoption of new techniques and labour-saving equipment.  Gordon and others just accept the current slowdown as a ‘return to normal’  from the exceptional 1990s.

What is missing is the driver of investment under capitalism: profitability. Marxian studies that concentrate on this aspect reveal that the profitability of US capital stock and new investment peaked around 1997 and then turned down.  It was this fall in profitability that eventually provoked the collapse in the dot.com bubble in 2000.  The subsequent recovery in profitability did not achieve anything better that 1997 and indeed profits growth was mainly confined to the financial sector and increasingly to a small sector of top companies.  Average profitability remained flat or even down and the growth in profit was mainly fictitious (‘capital gains’ from real estate, bond and stock markets) and fuelled by easy credit and low interest rates.  That house of cards collapsed in the Great Recession.

Profitability peaked in the late 1990s in the US (and elsewhere for that matter) because the counteracting factors to Marx’s law of the tendency of the rate of profit to fall (a rising rate of exploitation in the neoliberal period) and increased employment to boost total new value were no longer sufficient to overcome a rising organic composition of capital from the tech boom of the 1990s.

In contrast to this scenario, the Keynesians/post Keynesians have been pushing a different explanation for the fallback in productive investment since 2000 – it’s the growth of ‘monopoly power’.  There have been several studies arguing this in recent years.  Now a brand new paper by Keynesian economists at Brown University seeks to do the same. Gauti Eggertsson, Ella Getz Wold etc claim that the puzzle of the huge rise in profits for the top US companies alongside slowing investment in productive sectors can be explained by an increase in monopoly power and falling interest rates.

The Brown University economists argue that an increase in firms’ market power leads to an increase in monopoly rents; economic parlance for profits in excess of competitive market conditions-and thus an increase in the market value of stocks (which hold the rights to these rents). This leads to an increase in financial wealth and to what’s known as Tobin’s Q, the ratio of a firm’s financial value (market capitalization) to the value of its assets (book value).

With an increase in market power, the share of income consisting of pure rents increases, while the labour and capital shares both decrease. Finally, the greater monopoly power of firms leads them to restrict output. In restricting their output, firms decrease their investment in productive capital, even in spite of low interest rates.

Now I have dealt previously in detail with this argument that it is increased monopoly power that explains the gap between profits and investment in the US since 2000 or so.  It is really a modification of neoclassical theory.  Neoclassical theory argues that if there is perfect competition and free movement of capital, then there will be no profit at all; just interest on capital advanced and wages on labour’s productivity.  Profit can only be ‘rent’ caused by imperfections in markets.  The Brown professors, in effect, accept this theory.  They just consider that, currently, ‘monopoly power’ is distorting it.  This implies that if there was competition or monopolies were regulated’ all would be well.  That solution ignores the Marxist view that profits are not just ‘rents’ or ‘interest’ but surplus value from the exploitation of labour.

The Brown University professors reckon that average profitability was constant from 1980 onwards, so increased profits must have come from the gap between profitability and the fall in the cost of borrowing (interest rates). But actually, you can see from their graph that average profitability rose from about 10% in 1980 to a peak in the late 1990s of 14% – that’s a 40% rise and is entirely compatible with estimates by me and other Marxist economists.  Average profitability was then flat from 200 or so.

Indeed, average profitability fell in the non-financial productive sectors of the economy, which is probably the reason for the gap that developed between overall profitability including financial profits (which rocketed between 2002 and 2007) and net investment in productive sectors.  The jump in corporate profits (yes, mainly concentrated in the banks and big tech companies) was increasingly fictitious, based on rising stock and bond market prices and low interest rates.  The rise of fictitious capital and profits seems to be the key factor after the end of dot.com boom and bust in 2000.

As I showed in a previous post, these mainstream analyses use Tobin’s Q as the measure of accumulated profit to compare against investment.  But Tobin’s Q is the market value of a firm’s assets (typically measured by its equity price) divided by its accounting value or replacement costs.  This is really a measure of fictitious profits.  Given the credit-fuelled financial explosion of the 2000s, it is no wonder that net investment in productive assets looks lower when compared with Tobin Q profits.  This is not the right comparison.  Where the financial credit and stock market boom was much less, as in the Eurozone, profits and investment movements match.

It may well be right that, in the neo-liberal era, monopoly power of the new technology megalith companies drove up profit margins or markups.  The neo-liberal era saw a driving down of labour’s share through the ending of trade union power, deregulation and privatisation.  Also, labour’s share was held down by increased automation (and manufacturing employment plummeted) and by globalisation as industry and jobs shifted to so-called emerging economies with cheap labour.  And the rise of new technology companies that could dominate their markets and drive out competitors, increasing concentration of capital, is undoubtedly another factor.

But the recent fall back in profit share and the modest rise in labour share since 2014 also suggests that it is a fall in the overall profitability of US capital that is driving things rather than any change in monopoly ‘market power’.  Undoubtedly, much of the mega profits of the likes of Apple, Microsoft, Netflix, Amazon, Facebook are due to their control over patents, financial strength (cheap credit) and buying up potential competitors.  But the mainstream explanations go too far.  Technological innovations also explain the success of these big companies.

Moreover, by its very nature, capitalism, based on ‘many capitals’ in competition, cannot tolerate indefinitely any ‘eternal’ monopoly; a ‘permanent’ surplus profit deducted from the sum total of profits which is divided among the capitalist class as a whole.  The battle to increase profit and the share of the market means monopolies are continually under threat from new rivals, new technologies and international competitors.

The history of capitalism is one where the concentration and centralisation of capital increases, but competition continues to bring about the movement of surplus value between capitals (within a national economy and globally). The substitution of new products for old ones will in the long run reduce or eliminate monopoly advantage.  The monopolistic world of GE and the motor manufacturers in post-war US did not last once new technology bred new sectors for capital accumulation.  The world of Apple will not last forever.

‘Market power’ may have delivered ‘rental’ profits to some very large companies in the US over the last decade (and just that short period it seems), but Marx’s law of profitability still holds as the best explanation of the accumulation process.  Rents to the few are a deduction from the profits of the many. Monopolies redistribute profit to themselves in the form of ‘rent’, but do not create profit.

Profits are not the result of the degree of monopoly or rent seeking, as neo-classical and Keynesian/Kalecki theories argue, but the result of the exploitation of labour. The key to understanding the movement in productive investment remains in its underlying profitability, not the extraction of rents by a few market leaders.

The Long Depression is a product of low investment and low productivity growth, which in turn is a product of lower profitability of investment in productive sectors and a switch to unproductive financial speculation (and yes, partly a product of oligopolistic power boosting the big at the expense of the small).

Models of public ownership

February 10, 2018

I have just attended a special conference called by the British Labour Party to discuss models of public ownership.  The aim of the conference was to develop ideas on how a Labour government can build the public sector if it came into office at the next general election.

The centrepiece of the conference was a report commissioned by the Labour leadership and published last autumn called Alternative Models of Ownership (with the word ‘public’ strangely omitted).

Labour’s finance spokesman, John McDonnell (and ‘self-confessed’ Marxist) presented the key ideas in the report which had been compiled by a range of academic experts, including Andrew Cumbers of Glasgow University, who has written extensively on the issue of public ownership.  And Cat Hobbs of Weownit gave a compelling account of  the failures and waste of past privatisations.

In many ways, McDonnell’s speech was inspiring in that the next Labour government under Jeremy Corbyn and McDonnell  is genuinely dedicated to restoring properly-funded and resourced public services and reversing past privatisations of key economic sectors made by previous Conservative and Labour governments in the neoliberal period of the 30 years before the Great Recession.

McDonnell and the report emphasised a range of models for future publicly owned assets and services: from cooperatives, municipal services and the nationalisation of key sectors like health, education and utilities like water, energy and transport – the so-called ‘natural monopolies’.

As the report makes abundantly clear, the privatisations of the last 30 years have clearly failed even in their own professed objectives: more efficiency and higher productivity, more competition and greater equality.  It has been the complete opposite.  UK productivity growth has slumped, and, as many studies have shown (see my recent post), privatised industries have not been more efficient at all.

They have merely been entities designed to make a quick profit for shareholders at the expense of investment, customer services and workers’ conditions (pensions, wages and workload).  Indeed, the theme of privatised water, energy, rail and post in the UK has been ‘short-termism’ ie boost share prices, pay executives big bonuses and pay out huge dividends instead of investing for the long-term in a social plan for all.

State-owned industry is actually a successful economic model even in predominantly capitalist economies.  The Labour report cites the fact that the share of state enterprises in the top 500 international companies has risen from 9% in 2005 to 23% in 2015 (although this is mainly the result of the rise of Chinese state companies).  The history of East Asian economies’ success was partly the result of state-directed and owned sectors that modernised, invested and protected against US multinationals (although it was also the availability of cheap labour, suppressed workers’rights and the adoption of foreign technology).

As many authors, such as Mariana Mazzacuto have shown, state funding and research has been vital to development of major capitalist firms.  State owned industry and economic growth often go together – and Labour’s report cites “the seldom-discussed European success story is Austria, which achieved the second highest level of economic growth (after Japan) between 1945 and 1987 with the highest state-owned share of the economy in the OECD.” (Hu Chang).

The report also makes it clear that there should be no return to old models of nationalisation that were adopted after second world war.  They were state industries designed mainly to modernise the economy and provide basic industries to subsidise the capitalist sector.  There was no democracy and no input from workers or even government in the state enterprises and certainly no integration into any wider plan for investment or social need.  This was so-called ‘Morrisonian model’ named after right-wing Labour leader Herbert Morrison, who oversaw the post-war UK nationalisations.

The report cites alternative examples of democratically accountable state enterprise systems. There is the Norwegian Statoil model where one-third of the board is elected by employees; or even more to the point, the immediate post-war French electricity and gas sector where the boards of the state companies were “made up of four appointees from the state, four from technical and expert groups (including two to represent the consumer interest and four trade union representatives.” (B Bliss).

All this was very positive news and it was clear that the audience of Labour Party activists was enthused and ready to implement an “irreversible change towards worker-run public services.”  (McDonnell).  The aim of the Labour leaders is to reverse previous privatisations, end the iniquities of so-called private-public partnership funding; reverse the out-sourcing of public services to private contractors and take the market out of the National Health Service etc.  That is excellent, as is their willingness to consider, not just the faulty idea of a Universal Basic Income (UBI) as a social alternative to job losses from future automation, but also the much more progressive idea of Universal Basic Services, where public services like health, social care, education, transport and communications are provided free at the point of use – what we economists called ‘public goods’.

However, the issues for me remain the ones that I first raised in considering ‘Corbynomics’ back when Jeremy Corbyn first won the leadership of the Labour Party in 2015.  If public ownership is confined to just the so-called natural monopolies or utilities and is not extended to the banks and financial sector and to key strategic industries (the ‘commanding heights’ of the economy), capitalism will continue to predominate in investment and employment and the law of value and markets will still rule.  Labour’s plan for a state investment bank and state-induced or run investment spending would add about 1-2% to total investment to GDP in the UK.  But the capitalist sector invests nearer 12-15% and would remain dominant through its banks, pharma, aerospace, tech and business service conglomerates.

There was no talk of taking over these sectors at the conference.  That was not even talk of taking over the big five banks – something I have raised before in this blog and helped to write a study, on behalf of the Fire Brigades Union (and which is formally British Trade Union Congress policy).  Without control of finance and the strategic sectors of the British economy, a Labour government will either be frustrated in its attempts to improve the lot of “the many not the few” (Labour’s slogan), or worse, face the impact of another global recession without any protection from the vicissitudes of the market and the law of value.

The wealth of nations

February 9, 2018

How do we measure the wealth of nations, to use the title of classical economist Adam Smith’s famous book?

Using Gross Domestic Product (GDP) to measure the annual value of production for each national economy has been under criticism since it was first invented by Simon Kuznets for a report  to US Congress in the depth of the Great Depression in 1934.  It was the benign view of Kuznets that when capitalist economies ‘take off’ and industrialise, inequality of incomes will rise, but eventually, as economies ‘mature’, income inequality declines.  So GDP as an overall measure of the ‘wealth of nations’ was adequate.

But actually annual production is not a measure of wealth (the stock of assets and accumulated efforts of human labour), but a measure of annual productive power.  And it crucially excludes the inequalities in the distribution of that power.

So just a few years ago, the UN came up with a more comprehensive measure of ‘human development’.  The human development index (HDI) purports to measure the overall well-being of each national population by including health, life expectancy, education and communications in its index.

What the index reveals is that there were substantial gains in world human development from the mid-19th century as the world economy industrialised and urbanised, but especially over the period 1913-1970.  The major advance in human development across the board took place between 1920 and 1950, which resulted from substantial gains in longevity and education.

According to the index, although the gap between the advanced capitalist economies and the ‘Third World’ widened in absolute terms; in relative terms, there was a narrowing.  The Russian revolution from the 1920s and the Chinese one after 1947 led to fast industrialisation and a sharp improvement in health and education for hundreds of millions.  The second world war killed and displaced millions, but it also laid the basis for state intervention and the welfare state that had to be accepted by capital after the war, during the so-called ‘Golden Age’.

But after 1970, the gap in human development widened once again with globalisation, rising inequalities and the capitalist neo-liberal counter-revolution.  Only China closed the gap.  Since 1970, longevity gains have slowed down in most emerging economies, except China, and all the world regions have fallen behind in terms of the longevity index.

Now the World Bank has entered the fray with its own measure of ‘wealth’ per person.  The World Bank economists have measured not GDP levels but wealth i.e. assets such as infrastructure, forests, minerals, and human capital that produce GDP. The World Bank’s Changing Wealth of Nations 2018: Building a Sustainable Future covers national wealth for 141 countries over 20 years (1995–2014) as the sum of produced capital, 19 types of natural capital, net foreign assets, and human capital overall as well as by gender and type of employment.

The results show that that some countries with GDP growth actually saw per capita wealth fall.  Asia had a big increase in per capita wealth in the 20 years, driven mainly by China’s phenomenal rise, but sub-Saharan Africa slipped back, largely as a result of continued high birth rates in many countries that offset a rise in nominal wealth. Indeed, the poorest African countries are “shearing away” from the rest of the world.

When countries use their natural resources well, investing primarily in their people to increase labour productivity, then countries leap forward in terms of wealth per capita.  As nations develop, they convert natural capital into other forms — roads, factories, hospitals, schools and universities — so the share of natural capital in their total wealth falls, as other forms rise in importance. In high-income OECD countries, natural capital makes up just 3 per cent of total wealth as human and produced capital become the main drivers of growth. In poor countries, natural capital contributes 47 per cent of total wealth, according to the report.

But the UN’s HDI and the World Bank’s wealth per capita measures still do not account for inequalities of distribution, both between national economies globally and within each national economy, between rich and poor. The annual Credit Suisse wealth report does a great job in showing the huge inequalities globally between the richest 1% of wealth holders who currently own more than 50% of the world’s wealth and the bottom 90% who own no more than 14%.

Remember this is wealth across the whole world and so reflects not just inequality of wealth within a country but also inequality between countries.  Indeed, most of the top 10% live in the top seven (G7) advanced capitalist economies.

Global inequality has been definitively studied by Branco Milanovic, formerly of the World Bank.  I have referred to his work before in numerous posts.  Milanovic regularly refines and updates his research on global inequality.  Recently he presented a comprehensive summary of his results in a lecture to the Annual Research Conference Brussels, in honour of the Anthony Atkinson, recently deceased and a pioneer in inequality studies.

Using the traditional measure of inequality, the gini index, Milanovic found that global income inequality has risen inexorably from the early days of modern industrial capitalism, interrupted only by the impact of the two terrible world wars of the 20th century.  But since 2000, the gini index had fallen back a little, entirely due to the rise in living standards of the mass of the Chinese population.

Milanovic notes that global inequality is much greater than inequality within any individual country.  The global gini is around 70, substantially greater than inequality in Brazil, the highest for a country. And it is almost twice as great as inequality in the US.

Milankovic finds that the 60m or so people who constitute the world’s top 1% of income ‘earners’ have seen their incomes rise by 60% since 1988. About half of these are the richest 12% of Americans. The rest of the top 1% is made up by the top 3-6% of Britons, Japanese, French and German, and the top 1% of several other countries, including Russia, Brazil and South Africa. These people include the world capitalist class – the owners and controllers of the capitalist system and the strategists and policy makers of imperialism.

But Milanovic finds that those who have gained income even more in the last 20 years are the ones in the ‘global middle’.  These people are not capitalists.  These are mainly people in India and China, formerly peasants or rural workers have migrated to the cities to work in the sweat shops and factories of globalisation: their real incomes have jumped from a very low base, even if their conditions and rights have not.

The biggest losers are the very poorest (mainly in African rural farmers) who have gained nothing in 20 years. The other losers appear to be some of the ‘better off’ globally.  But this is in a global context, remember. These ‘better off’ are in fact mainly working class people in the former ‘Communist’ countries of Eastern Europe whose living standards were slashed with the return of capitalism in the 1990s and the broad working class in the advanced capitalist economies whose real wages have stagnated in the past 20 years.

Milanovic reckons that global inequality can be decomposed into two parts. The first part is due to differences in incomes within nations, which means that that part of total inequality is due to income differences between rich and poor Americans, rich and poor Chinese, rich and poor Egyptians and so on for all countries in the world. If one adds up all of these within-national inequalities, you get the aggregate contribution to global inequality. Milanovic calls this the traditional Marxist “class” component of global inequality because it accounts for (the sum) of income inequalities between different “income classes” within countries.

The second component, which he calls the “location” component, refers to the differences between mean incomes of all the countries in the world.  Around 1850, ‘class’ explained nearly half of global inequality.  But around 2011, around 80% was due to where you lived, ‘location’.

When Milanovic first developed this distinction, he concluded that the Marxist class analysis has been proved wrong.  “Karl Marx could indeed eloquently write in 1867 in “Das Kapital”, or earlier in “The Communist Manifesto” about proletarians in different parts of the world—peasants in India, workers in England, France or Germany— sharing the same political interests. They were invariably poor and, what is important, they were all about equally poor, eking out a barely above-subsistence existence, regardless of the country in which they lived. There was not much of a difference in their material positions.”  But not now.

However, his latest data suggest that inequalities within nations have increased so much that, given current trends, by 2050 such inequalities will play just as important role as they did 200 years ago when modern capitalism first rose to dominance as a mode of production.

Indeed, the only reason that ‘location’ has been so important for global inequality is the huge difference in living standards for the working populations of the leading imperialist powers and those living in the ‘global south’.  That gap has been closed partially by the rise of China (and east Asia and India to a lesser extent), although, as the World Bank data show, not anywhere else.  But inequality within China and India has also risen sharply.  That adds back to the global inequality index.

In his lecture Milanovic dealt with a technical issue in measuring inequality in the US that has arisen.  The work of Piketty, Saez and Zucman in recent years has shown that the share of national income going to the top 1% of income earners had increased substantially since 1960.  However, this has recently been disputed by two economists at the US Treasury who argue that the Piketty et al tax return based measures are biased by tax base changes and missing income sources. Accounting for these limitations reduces the increase in top 1% share by two-thirds. Further, accounting for government transfers reduces the increase by over 80%.

So instead of the top 1% taking 20% of national income currently up from around 10% in 1960, the rise is only from 8% to 10% – not much at all.  Well maybe, says Milanovic, but the distortion or gap in the data (strongly denied by Piketty et al by the way) does not seem to apply to any other country, for example, Norway.

As the recently deceased Atkinson had shown, rising inequality of income (and wealth) has been a feature of all major capitalist economies in the neo-liberal period since the 1970s.

What all this empirical work offers up some important political implications.   The UK’s Resolution Foundation found that, while real incomes have risen for lower middle and working classes in the advanced capitalist countries since the 1980s, the bottom 80% labour share of GDP in the UK and US has declined as a proportion of GDP (defined as the labour share of GDP multiplied by the proportion of labour income received by the bottom 80% of the income distribution.

And, as I have pointed out before in previous posts, the management consultants, McKinsey found that in 2014, between 65 and 70 percent of households in 25 advanced economies were in income segments whose real market incomes were flat or below where they had been in 2005 (Poorer Than Their parents? Flat or Falling Incomes in Advanced Economies.  This does not mean that individual households’ wages necessarily went down but that households earned the same as or less than similar households had earned in 2005 on average.

US households in the 10th percentile(those poorer than 90 percent of the population) are still poorer than they were in 1989. Across the entire bottom 60 percent of the distribution, households are taking home a smaller slice of the pie than they did in the 1960s and 1970s.

So let’s sum up; what does all the analysis of global and national inequality tell us?

First, that global inequality has increased since capitalism really got going from the 1850s.  Second, that the partial fall in global inequality is down to the growth of average income in China, and to a lesser extent and more recently, India.  Otherwise, global inequality would have continued to rise.  Third, there has been a rise in average household incomes in the major advanced capitalist economies since the 1980s, but the growth has been much less than in China or India (starting from way further down the income levels) and much less than the top 1-5% have gained.  So inequality within most national economies has risen, particularly from the 1980s.  Fourth, since the beginning of the millennium, most households in the top capitalist economies have seen their incomes from work or interest on savings stagnate.

These outcomes are down partly to globalisation by multinational capital, taking factories and jobs into what used to be called the Third World; and partly due to neo-liberal policies in the advanced economies (i.e. reducing trade union power and labour rights; casualization of labour and holding down wages; privatisation and a reduction in public services, pensions and social benefits).  And it is also down to regular and recurrent collapses or slumps in capitalist production, which lead to a loss of household incomes for the majority that can never be restored completely in any ‘recovery’, particularly since 2009.

Milanovic reckons that the majority of the world’s population are ‘trapped’ in low-income countries while real income growth for those in the OECD has slowed.  At the same time, the top 1% or even 0.1% are (and will) usurp an even greater proportion of global income and wealth.  Thus, Marx’s prediction of a widening chasm between those who own and those who must work for a living has gained even more credence in the 21st century.

Milanovic’s answer is more migration from poor countries to rich ones, faster growth in the emerging economies and reduced inequalities within the advanced capitalist economies.  Such solutions are, of course, impossible while the capitalist mode of production survives.

Stock market crash: 1987, 2007 or 1937?

February 6, 2018

Yesterday, the US stock market fell by the most in one day since mid-2007, just before the credit crunch, the banking crash and the start of the Great Recession.

Is history set to repeat itself?  Well, the old saying goes that history never repeats itself but it rhymes.   In other words, there are echoes of the past in the present.  But what are the echoes this time.  There are three possibilities.

This crash will be similar to that 1987 and be followed by a quick and decisive recovery and the stock market and the US economy will resume its recent march upward.  The crash will be seen as blip in the recovery from the Long Depression of the last ten years.

Or this could be like 2007.  Then the stock market crash heralded the beginning of the mightiest collapse in global capitalist production since the 1930s and biggest collapse in the financial sector ever – to be followed by the weakest economic recovery since 1945.

Or finally it could be like 1937, when the stock market fell back as the US Fed hiked interest rates and the ‘New Deal’ Roosevelt administration stopped spending to boost the economy.  The Great Depression resumed and was only ended with the arms race and the entry of the US into the world war in 1941.

Now I have discussed the relationship between the stock market (fictitious capital as Marx called it) and the ‘real’ economy of productive capital in posts before.

On the day of the crash, a new Fed Chair Jerome Powell was sworn in to replace Janet Yellen.  Powell now faces some new dilemmas.

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 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 has been huge.

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.  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.

So there are two factors that are key to judging whether this stock crash is a 1987, 2007 or 1937 situation: the profitability of productive capital (is it going up or down?); and the level of debt held by industry (will it become too expensive to service?).

In 1987, the profitability of capital was on the rise.  It was right in the middle of the neo-liberal period of rising exploitation of labour, globalisation and new tech developments, all of which were counteracting factors at play against the tendency of the rate of profit to fall.  Profitability continued to rise right up to 1997.  And interest rates, far being hiked by the Fed, were being reduced as inflation fell.

In 2007, profitability was falling (it had been declining since the end of 2005), the housing market was beginning to dive and inflation was expected to rise and along with it, the Fed planned to raise its policy rate, as it is planning now in 2018.  But there are differences from 2007 now.  The banking system is not so stretched and engaged in risky financial derivatives.  And while profitability in most major economies is still below the peak of 2007, total profits are currently rising.  It may be that wages are beginning to pick up and this could squeeze profits down the road.  Also, the Fed plans to raise interest rates and thus also squeeze profits as debt servicing costs rise.

Perhaps 1937 is much closer to where US capitalism is now.  I have written on the parallels with 1937 before.  Profitability in 1937 had recovered from the depths of 1932 but was still well below the peak of 1926.

And more worrying now is that corporate debt since the end of the Great Recession in 2009 has not been reduced.  On the contrary, it has never been higher.  Based on a global sample of 13,000 entities, the S&P agency estimates that the proportion of highly leveraged corporates — those whose debt-to-earnings exceed 5x — stood at 37 percent in 2017, compared to 32 percent in 2007 before the global financial crisis. Over 2011-2017, global non-financial corporate debt grew by 15 percentage points to 96 percent of GDP.

The stock market crash tells me two things.  First, that it is the US economy, still the largest and most important capitalist economy, leads.  It’s not Europe, not Japan, not China that will trigger a new global slump, but the US.  Second, this time any slump will not be triggered by a housing bust or a banking crash, but by a crunch in the non-financial corporate sector.  Bankruptcies and defaults will appear as weaker capitalist companies find it difficult to meet their debt burdens and produce a chain reaction.

But history does not repeat but rhymes.  The mass of profits in the major economies is still rising and interest rates, inflation and wage rises are still low relative to history.  That should ameliorate the collapse in the prices of fictitious capital (and they are still high).  But the direction of profits, interest rates and inflation could soon change.

Trading economics the Chinese way

February 2, 2018

In my view, the Chinese economy remains at a structural crossroads.  The state and state enterprises continue to dominate the economy in investment, employment and production.  That means that foreign capital, domestic private capital and market forces do not hold sway, even though they have been increasing in weight and power over the last 30 years.

My view is controversial in Marxist circles. The vast majority of Marxist economists and ‘experts’ on Marx’s ‘theory of the state’ reckon that China is capitalist or ‘state capitalist’.  But for me, the class nature of the Chinese state remains open.

All I would add at this point is to remind readers of the data that I published in a past post on the sheer weight of the public sector and public assets in the Chinese economy.

The IMF has published a full data series on the size of public sector investment and its growth going back 50 years for every country in the world.  It shows that China has a stock of public sector assets worth 150% of annual GDP.  Only Japan has anything like that amount at 130%.  Every other major capitalist economy has less than 50% of GDP in public assets.  Every year, China’s public investment to GDP is around 16% compared to 3-4% in the US and the UK.

There is nearly three times as much stock of public productive assets to private capitalist sector assets in China.  In the US and the UK, public assets are less than 50% of private assets.  Even in ‘mixed economy’ India or Japan, the ratio of public to private assets is no more than 75%.  This shows that in China public ownership in the means of production is dominant – unlike any other major economy.

But the IMF data also show that, while public sector assets in China are still nearly twice the size of capitalist sector assets, the gap is closing.  Private (capitalist) sector investment stock is growing faster than state sector assets.

In this post, I want to show that, because the Chinese economy is balanced between the power of the state and the market, this is increasingly reflected in the ideology and economic thinking of Chinese officials and academics.  There are still many academics in Chinese universities that hold to what they think is Marxist economy theory and categories.  But there are many more, particularly officials in government and state enterprises that have been educated in ‘Western’ universities, who have long abandoned a Marxist view and opted for mainstream neoclassical or Keynesian theory.

A recent striking example is Wang Zhenying, director-general of the research and statistics department at the PBoC’s Shanghai head office and vice chairman of the Shanghai Financial Studies Association.  This leading Chinese state banker recently summarised his economic views from his Chinese language textbook on economics (for Chinese students) in the Financial Times of all places.

Wang tells us that “Crises destroy, but crises also create.”  He means that “the outbreak of each crisis gives rise to new economic theories. Marx’s theory of Surplus Value was created amidst frequent economic crises in the late 19th century and Keynes’s revolutionary theory was put forward during the Great Depression in the 1930s. Today, with a worldwide financial tsunami only now receding, people are expecting a new economic theory in response to the failure of the pre-crisis mainstream.”

So for Wang, Marx has had his day in the theoretical limelight (ie 19th century) and for that matter so has Keynes (2oth century).  The recent global financial crisis needs a new theory for the 21st century.  Marx and Keynes apparently have nothing more to offer.

And what is this new exciting theory that Wang is proposing to his students to explain the world economic crisis?  He calls it ‘Trading Economics’.

What’s this?  Wang: “Trading economics” is one new theory emerging against this backdrop. Mainstream economics deduces the macro whole by extrapolating from the behavior of individual “representative agents”. Trading economics replaces this with a systematic and comprehensive analysis approach. It stresses that in an interconnected world, the interaction between trading subjects is the fundamental driving force behind the operation, development, and evolution of economic systems.”

Well, I am still no wiser.  Wang explains that mainstream neoclassical theory is stuck with ‘representative agents’ who have ‘rational expectations’ who maximise utility and profits, while market prices move up and down to achieve equilibrium.  As Wang says, this bears no relation to the reality of modern economies and never did.  In contrast…

“Trading economics chooses a different path. Everyone participating in economic activities is put in a specific organisational structure. As a result, their behaviour becomes affected by culture, morality, property, and system. There is no “economic person” like Robinson Crusoe in trading economics. Trading economics only has organizations with specific internal structures: households and enterprises. This is the first step to bring economic theory back to the reality”.

This all sounds promising.  Wang is going to ‘rethink’ economics and return it to reality.  And what does he come up with – behavioural economics.  “Behavioural economics experiments have demonstrated that choices are characterised by variety — there is no single answer to all situations.”

Now this is not so promising.  Economics is reduced to considering each situation or problem as having a different answer.  That would suggest we cannot find any generalised laws about the world economy and its crises.

According to Wang; “Trading economics differs by recognising that different people have different information, in part because they have different experiences. So while each trading subject seeks maximum profits, the “maximum” differs from one subject to another, even when trading and constraints are the same. Therefore, if the behaviour model in neoclassical economics is the absolute maximum, then it is the relative maximum in trading economics. This is where the difference lies.”

Hmm. I am still none the wiser.

What Wang really seems to be arguing for is free trade and international integration. “From the study of the development rules of economic system, it is found that global economic integration is neither the innovation of a single politician, nor a strategy implemented by a certain country to pursue its own interests. Instead, it is the only option following the development rules of social economic system. Today’s world has shifted from an isolated island, through small-world development, to a network without marks. To achieve comprehensive progress and development, the world economy must promote the integration of trading network among countries. We need to listen to the warning of trading economics in a world awash with anti-globalisation thoughts.”

This is shades of the very line presented by President Xi at Davos 2017, where he claimed that China is the leading globaliser. Now the economic theorist of People’s Bank of China is offering ‘trading economics’ to support Xi.

A key feature of Wang’s ‘trading economics’ is that it rejects the idea of looking for causal relationships between economic variables.  He refers to the ‘masterpiece’ work of right-wing monetarist Milton Friedman’s analysis of the cause of the Great Depression of the 1930s.  Friedman argued that the failure of the Federal Reserve Bank to control the money supply properly was the cause.  The banks collapsed because of an unnecessary monetary squeeze.  But others argued that the economy collapsed because a change in ‘expectations’.

Wang concludes that “It is impossible to find a single factor among various events to explain the great contraction”. You see it’s just too complex for ordinary mainstream theory.  So Wang says we must “give up on simple causal relationships”.  Instead, using ‘trading economics’ we can get “a concrete structure through the trading network.” Then, apparently, “various possibilities of economic operation can be predicted, including the fluctuation of economic cycles, the probability of crisis, assessment of policy effects, etc.”

Wang provides no evidence in his FT article for his claim of the power of prediction enabled by trading economics.  And here is the nub of his theory, namely its close “connection between macroeconomics and behavioural economics.  According to Wang, “The behaviour of each trading subject and the ways in which they react to external disturbances can be informed by the research of behavioural economists and psychologists. The economic operation simulated in this way is better targeted and the analysis has more solid experimental foundation.”

There we have it.  Far from carrying out empirical research for cause and effect, all we need is to go back into the laboratory of behaviour and do ‘experimental research’.  Wang claims that this “is a great leap in methods of economic theory research because it represents the unity of economic research and natural science in methodology.”

Actually, behaviourist approach is an economics cul ­de ­sac.  Before the global financial collapse, this micro motivation approach to economics was popular with young economists who had turned away from questions like poverty, inequality or unemployment to study behaviour on television game shows.  Looking at the ‘irrational’ behaviour of people’s brains and thinking was substituted for the aggregate trends and changes in modern economies.

The irony of Wang’s view is that, since the global financial crash, empirical studies have come back into favour in looking for the causes of the Great Recession, because mainstream and behaviourial theory had failed. Despite that, Wang wants us to ditch Marxist macro theory for Keynes’ psychological  ‘animal spirits’ or the micro ‘nudge’ theories of behaviourists like Richard Thaler.

Is the way forward really through behaviourists developing computer models where the idea is to populate virtual markets with artificially intelligent agents who trade and interact and compete with each other much like real people? Sure, every situation is different but anyone who makes a living out of data analysis knows that ‘heterogeneity’ is limited enough so that the well ­understood past can be informative about the future.

In my view, if economists want to understand the causes of financial and economic crises, they need to look away from individual behaviour models and instead look to the aggregate: from the particular to the general. And they need to turn back from deductive a priori reasoning alone towards history, the evidence of the past. History may not be a guide to the future, but speculation without history is even less based in reality. Economists need theories that can be tested by evidence, but the evidence of the aggregate and history not the laboratory.

Yes, Wang recognises that mainstream economic is no good at explaining developments in modern capitalism, but does ‘trading economics’ take us any further? It seems more like an ideologically acceptable theory as an alternative to Marxism in the country of ‘socialism with Chinese characteristics’.

Davos and the Donald

January 26, 2018

Today, US President Donald Trump delivered his keynote speech to the meeting of the global elite, World Economic Forum at Davos, Switzerland.  It was eagerly awaited by the corporate chiefs, finance and hi-tech social media moguls, as well as other government leaders.  Last year at Davos, the star of the show was Chinese President Xi who told his glittering audience that China was ready to take over the leadership in the fight for ‘globalisation’ and free trade as the US under trump stepped back and went down the protectionist road.

So Xi, autocratic leader of a one party state directed and controlled economy, became the darling of Davos.  Would the Donald take the prize this year.  After a tumultuous and often debasing year in office, Trump has managed to get through his Congress huge cuts in corporate and personal taxation that will benefit the profits of US multinationals and the incomes of top 1%.  But he failed to reverse Obamacare, that limited measure of subsidised private health insurance; he has yet to build ‘the wall’ to keep out illegal Mexican immigrants; and he has very little to stop Chinese manufacturing imports flooding into the US.

Sure, he took the US out of the Trans-Pacific Partnership (TPP) trade deal – a deal that ironically was designed to isolate China from trade and investment in the region.  And only last week he announced tariffs on imported solar energy equipment from China.  But that’s it.  He wants to renegotiate the terms of the longstanding North American Free Trade Association (NAFTA) with Canada and Mexico.  But little has happened.  In the meantime, TPP has been revived by the other participants, Canada signed a free trade deal with the EU and Japan is looking to do one with Europe too.

So it appears that globalisation (free trade and investment) is not being blocked much by Trump’s America First policy so far.  Nevertheless, globalisation and world trade has slowed sharply since the end of the Great Recession.  Global trade growth in the era of globalisation from the mid-1980s onwards grew faster than global GDP by an average ratio of around 2 to 1.  But since the Great Recession, it has barely matched a low world GDP growth rate.

It’s the same story with global capital flows, a major feature of the globalisation era.

Overall flows (direct investment, portfolio investment and loans) have flattened as a share of global GDP since 2007.

The United Nations Investment Trends Monitor, released Monday, showed a 16% decline in foreign direct investment worldwide between 2016 and 2017. FDI (foreign direct investment) flows dropped by more than a quarter in what the UN terms “developed economies,” with the US and the UK responsible for a large portion of that decline.

Cross-border mergers and acquisitions and “greenfield” projects — businesses building factories and other facilities in foreign countries — both suffered in 2017. The value of cross-border M&As declined by 23%, despite a 44% increase in value of cross-border M&As in developing economies. Greenfield-project value declined 32% to $573 billion, the lowest point since 2003.

The potential end of globalisation and the rise of populists and other nationalist leaders like Trump in many countries is really worrying the global elite meeting in Davos.  FT columnist Martin Wolf, who once wrote a book called Why Globalisation works back in 2004 before the global financial crash, reversed his view back in 2016.  He now feared that globalisation would be reversed to detriment of all.  And just before Davos, he told his readers that ‘democracy’ itself was threatened by protectionism and autocratic nationalist rulers, but admitting that globalisation itself failed to sustain prosperity and improve equality. On the contrary, the wild effusion of speculative capital eventually triggered the biggest financial crash since 1929 and inequality of income and wealth in the major economies had reached levels not seen in 150 years.

Just before Davos, Oxfam updated its estimate of global wealth inequality and found Last year saw the biggest increase in the number of billionaires in history, with one more billionaire every two days. This huge increase could have ended global extreme poverty seven times over. 82% of all wealth created in the last year went to the top 1%, and nothing went to the bottom 50%.

There are now 2,043 dollar billionaires worldwide. Nine out of 10 are men. Billionaires also saw a huge increase in their wealth. This increase was enough to end extreme poverty seven times over. 82% of all of the growth in global wealth in the last year went to the top 1%, whereas the bottom 50% saw no increase at all.  New data from Credit Suisse means 42 people now own the same wealth as the bottom 3.7 billion people.

Talk about the uneven and combined development of global capitalism!

There is currently huge optimism among the Davos elite that in 2018 world capitalism is finally recovering from the Great Recession of 2008-9 and ensuing Long Depression.  For the first time since the early 2000s, all the major economies are growing simultaneously.  Capitalism has never been more globally synchronised. But that has another side.  Capitalism has never more prone to international simultaneous crises.

The risk remains that if the US turns down, then so will all the rest.  And that could well be triggered over the next year or so by the rising cost of international debt as the US Fed and other central banks carry out their planned interest rate hikes (in the graph – when the blue line of Fed policy rate rises above the black line of US treasury yields, a recession usually follows.

Davos is the debating hub of the leaders and supporters of global capital and globalisation (free movement of multinational capital and trade without national restrictions).  Globalisation is part of the neoliberal project to maximise profits, although this aim is cloaked in the respectable mainstream economics view that it will bring growth and incomes to all.  The Davos elite see that this propaganda has been exposed by the evidence of global poverty and inequality.  But even worse, the leader of the largest capitalist power stands for protectionism and nationalism – at least in words.

Thus speaker after speaker, from Indian President Modi to French President Macron, mouthed support for maintaining free trade, while ‘recognising’ the need to ‘do something’ about inequality (and climate change – another Trump bugbear). “If we commit ourselves to make our current globalisation more fair..  we can converge and build a new globalisation.” Macron.  Thus the theme of Davos 2018 was to stop ‘fragmentation’ and sustain ‘fair’ globalisation.

So what did ‘the Donald’ tell the assembled Davos elite?  Well, he wants to “put America first, but not America alone”.  In other words, he aims to put the US in ascendancy in trade, investment and military power and for everybody else to get in line.  That’s the classic position of the leading imperialist power – so no change there.

The Trump administration aims to get a ‘better deal ‘ on trade with Asia (China) and Europe. And also it aims to weaken the dollar so that US export are more competitive.  US Treasury Secretary Steven Mnuchin has been going round Davos saying that “a softer dollar will juice US economic growth… because “obviously a weaker dollar is good for us as it relates to trade and opportunities.”   That did not go down well with ECB president Mario Draghi at his press conference yesterday, who pointed out that there was an international understanding that countries should “not target our exchange rates for competitive purposes”.

“We don’t even like to use the word ‘protectionism’ . . . We don’t use that word,” said Mnuchin. “This is not about protectionism. This is about free and fair reciprocal trade. Anybody who wants to do trade with us on reciprocal terms is welcome to do so.”  And in the same breath, Wilbur Ross, US trade secretary, has been talking about closing down the World Trade Organization and/or kicking China out. “It’s an old system, decades old. The world has changed, the economies have changed. The pecking order of countries has changed (ie meaning the US does not get its way any more – MR). Everything has changed. The WTO has not really modified its role. It needs to be updated, at best (ie the US needs to be in charge – MR).”

Protectionist trade policies and competitive devaluation are nationalist medicines for economic weakness and domestic slump.  But they only work (even then for just a limited time) as long as nobody reciprocates.  In the Asian crisis of 1998, Malaysia did not obey the IMF and opted for nationalist policies and it worked because all other Asian economies did what they were told.  But in the 1930s, when the US imposed tariffs, other countries followed suit and so aggravated the slump.

The point is that it is not ‘unfair competition’ in world trade that has caused the decimation of US manufacturing jobs since the 1970 but the decision of US capital to invest in technology to replace labour and to send their factories and units abroad to use cheaper labour.  Globalisation was the a reaction of the global crisis in profitability in the 1970s (as the previous wave of globalisation in the late 19th century was).  It was part of the neoliberal agenda to drive up the rate of exploitation and thus profitability.  But it did not last.

The global elite gathering in Davos fret that Trump and other nationalists will spoil the party and even end democracy.  But the Donald emerged because of the failure of global capital, as represented by Davos.  The Donald’s appearance shows that, as trade and finance stagnate, imperialist rivalry will grow.  And it will be labour that will pay for this once again.