(Produced for Bulletin & Record, Zambia)
When the well-known mainstream economist Nourial Roubini, a former adviser to the International Monetary Fund, quoted Karl Marx as perhaps being right about an inherent fault in the economic system, he caused a minor stir, but no real criticism. Because the inherent fault is one that is now generally acknowledged and is at the centre of the present — and ongoing — global economic crisis.
That fault is what Marx referred to in 1848 as “the absurdity of over-production”. It is the logical consequence of a system of intense corporate competition and accumulation, coupled with technical innovation that leads to surplus production and surplus capacity to produce with less and less labour.
One outgrowth of this system — and one that Marx and most economists to the present day did not foresee — was a booming financial sector, extending credit to governments, corporations, companies and individuals. These are the “bankers” who are now the targets of protests around the world.
They are not in the business of primary production or manufacturing; they exist only to lend money in order to accumulate more. One of the ways this was done in recent years, was for a bank to lend large amounts on a long-term basis, often with repayments starting months or even years ahead. Such debts could then be “bundled” into large, apparently lucrative “asset packages” and sold on to other banks. When, as in the case of the sub-prime house mortgages in the United States or the government bonds of Greece, payment was not forthcoming, these asset packages became “toxic”.
All of this has led to frantic attempts to repair the banking and credit system with massive “bailouts” of banks in the United States and Europe, using taxpayers’ funds and, in the case of Greece, a proposed 50% write-off of the government debt. This smacks of desperation and can only be carried out by making citizens bear the burden of austerity measures such as increasing unemployment and cuts in social services. But all of this does not deal with the problem of over capacity and over production mentioned by Roubini and outlined by Marx 163 years ago.
It was also a problem — along with the featherbedding and corruption that has accompanied it —unforeseen by Adam Smith, the 18th Century English economist who is widely regarded as the father of our modern economic system. But then Smith was opposed to the whole idea of shareholder companies that gave managers the right to deal and to gamble, with relative impunity, with the money of others. He saw this as an invitation to corruption and supported the effective ban by the British government — between 1710 and 1815 — of such companies.
However, by 1860, shareholder companies were growing around the world at an increasing rate, largely because of the introduction of limited liability. Before this concept came into play, every shareholder of a company was personally liable for any debts incurred by the company. Not only the money invested, but all personal wealth was liable to be forfeited.
With no risk beyond what had been invested, the inflow of capital soared and contributed to quite explosive growth in productive capacity and innovation. New markets and new sources of raw materials were required to satisfy the demands of factories — and to consume the end products: colonialism came into its own, with the colonies providing both raw materials and larger markets.
At the same time, the competition between various producers intensified, forcing them into more efficient means of production, mainly in terms of machinery. Water wheels gave way to steam that, in turn, gave way to electrical power. Then, in the past 50 years came a revolution that the world has still fully to come to terms with: the development of the integrated circuit, the micro chip.
Never before in human history has the capacity existed to produce more, more efficiently, with so little labour. But, at the same time, labour — men and women paid a wage to produce goods and services — are also consumers. They constitute the market. If they have no work, they have no money and they cannot buy the flood of goods available.
Herein lies the nub of the problem. And while Roubini and others may have acknowledged this, they appear to blame a lack of regulation that led to “irresponsible lending” as the primary cause. Some economists also quote the example of the regulatory regimes introduced in the wake of the 1929 Wall Street crash. These regimes, applying the theories of John Maynard Keynes, are claimed to have brought the world out of the Great Depression. They did not. World War II did, by shattering the infrastructure and productive capacity of Europe, Japan and a lot of the East. So widespread war, the devastation it causes and the horrible losses, mainly to millions of working people, is a possible solution to maintaining the present system, by simply repeating the same cycle over again.
This tinkering with regulation or deregulation will, therefore, change nothing fundamental in a system that is at fault. Calls for nationalisation, also fall into the same category because ownership is not the issue. Whether an enterprise is owned by an individual, a family, a company or a government is irrelevant within the existing system that demands competition and accumulation.
The US academic economist Richard Wolff has come to the conclusion that to have the necessary “harmony” in the global economy, we need to “democratise our economic practice”. In other words to allow workers and communities to have a direct say in the productive process. However, on the margins of this debate there are those who point out that democratic control of the economy would not be possible overall without similar political control; that the political systems by which we live reflect the hierarchical and elitist nature of the economy.
This is where the debate should go. To use that awful cliché, it is time to think out of the box; to challenge notions that have become embedded, especially over the past 200 years. Then, perhaps, we may find a way out of what looks like the worst and potentially the longest economic crisis ever.