Tag: marx

Killing them softly

By Daniel Margrain

The 30 minute documentary film Killing Us Softly (1979) based on a lecture by Jean Kilbourne focuses on the effects of advertising on women’s self-image and the objectification of women’s bodies. Kilbourne argues that the superficial, objectifying and unreal portrayal of women in advertising lowers women’s self-esteem and that sexualized images of women are being used to sell virtually all kinds of goods.

Kilbourne then goes on to posit that these images degrade women, encourage abuse, and reinforce a patriarchal and sexist society. She also makes the connection between advertising and pornography, stating that “the advertisers are America’s real pornographers”.

Below is a video of Jean Kilbourne almost four decades later discussing her ideas as part of a campaign to bring her film to a new audience of young people. Significantly, she says since her film’s initial release in 1979 things have got worse, not better.

Thirty-six years after the release of Killing Us Softly, Channel 4 News reported on the inquest of 21 year old bulimia sufferer Eloise Perry who on the April 12 last year died at the Royal Shrewsbury Hospital one week after having swallowed eight unlicensed fat-burning pills that she purchased from the internet.

The pills, which the Food Standards Agency describe as being illegal to sell for human consumption, contained DNP which is an industrial chemical historically used in the manufacture of explosives and fungicides. Website companies who sell this chemical depict DNP as a fat burning product and some even use the tag line “getting leaner through chemistry” as a marketing tool.

No sooner had the UK authorities made attempts to close down these sites, they reappeared under different names and hence it’s clearly a battle that they are losing. The fact that informed young people like Ms Parry who are aware of the risks, are so desperate to lose weight that they are prepared to go to such extreme lengths raises wider questions about the nature of the kind of society we live in.

The social pressures for young women (and increasingly young men) to conform to certain expectations placed upon them by the media are immense. The upshot is that they are involved in a constant psychological battle between myth and reality. In Britain, for example, the average size of a woman is now 16 but the ‘aspirational’ size is zero – an unobtainable goal.

The contradiction between reality and aspiration is undermining many of the gains that women made in the feminist debates of the 1960s and 1970s. What Ariel Levi terms “raunch culture” is another symptom of the undermining of the gains made.

A tour by High Street Honey’s that involves women employed by lads mags touring the various university campuses throughout the country dressed as porn stars, is yet another social layer as part of the pressure for young women to conform to certain body-image stereotypes placed upon them.

The notion that pole dancing which is sold as exercise classes at some universities and widely regarded as being empowering for women in terms of getting them in touch with their inner sexuality, is in reality, setting back women’s rights decades. Activities like this inhibit the way women (and increasingly men) feel about their bodies and therefore they cannot be disentangled from the tragic case of Ms Parry.

The normalization of sexist imagery in pop videos and television commercials and the sexualization of young girls clothes is another illustration of raunch culture outlined by Levi in which fantasies, desires and ambitions are transformed into commodities to make money.

The growth in cosmetic surgery is another factor that increases expectations on women’s appearances. Ninety-one per cent of cosmetic surgery is undertaken on women of which the most popular is breast enhancement. I was astounded to learn that in the U.S it’s widely considered normal practice for girls to be given a breast enlargement as a graduation present.

It’s a fact that a growing number of girls who suffer low self-esteem perpetuated by a media system that constantly portrays an ‘ideal’ body shape is a tendency that’s less common in the developing world.

This would seem to suggest that mental illness, of which eating disorders are a reflection, is to a large extent symptomatic of the growth of the consumerist capitalist society in which human relations are objectified. In Marxist terms, objectification is the process by which human capacities are transferred to an object and embodied in it.

Young females who read fashion magazines tend to have more bulimic symptoms than those females who do not – further demonstrating the impact the media has on the likelihood of developing the disorder. As J. Kevin Thompson and Eric Stice have shown, individuals first accept and ‘buy into’ the ideals set by fashion magazines, and then attempt to transform themselves in order to reflect the societal ideals of attractiveness.

The thin fashion model ideal is then reinforced by the wider media reflecting unrealistic female body shapes leading to high levels of discomfort among large swaths of the female population and the drive towards thinness that this implies.

Consequently, body dissatisfaction coupled with a drive for thinness is thought to promote dieting and its negative affects, which could eventually lead to bulimic symptoms such as purging or binging. Binges lead to self-disgust which causes purging to prevent weight gain.

Thompson’s and Stice’s research  highlights the extent to which the media affect what they term the “thin ideal internalization”. The researchers used randomized experiments (more specifically programmes) dedicated to teaching young women how to be more critical when it comes to media, in order to reduce thin ideal internalization. The results showed that by creating more awareness of the media’s control of the societal ideal of attractiveness, the thin ideal internalization significantly dropped.

In other words, less thin ideal images portrayed by the media resulted in less thin ideal internalization. Therefore, Thompson and Stice concluded that there is a direct correlation between the media portrayal of women and how they feel about themselves.

Social media also plays a part in how young people feel about themselves. A recent two part study [1] looking at social media sites, such as Facebook, researched influence and risk for eating disorders. In the first part of the study, 960 women completed self-report surveys regarding Facebook use and disordered eating. In the second part of the study, 84 women were randomly assigned to use Facebook or to use an alternate internet site for 20 minutes.

What this cross-sectional survey illustrates is that more frequent Facebook use is associated with greater disordered eating. The survey indicates a close correlation between Facebook use and the maintenance of weight/shape concerns and state anxiety compared to an alternate internet activity [1]. Other research suggests an etiological link between eating disorders and the tendency towards self-harming [now referred to as Non Suicidal Self Injury (NSSI)] [2].

In terms of prevalence, over 1.6 million people in the UK are estimated to be directly affected by eating disorders. However, the Department of Health estimate that the figure is more likely to be 4 million due to the huge level of unmet need in the community [3].

Recent studies suggest that as many as 8 per cent of women have bulimia at some stage in their life. The condition can occur at any age, but mainly affects women aged between 16 and 40 (on average, it starts around the age of 18 or 19). Reports estimate that up to a quarter of Britons struggling with eating disorders may be male [4].

 

References

1.Mabe AG, Forney KJ, Keel PK. Int J Eat Disord. 2014 Jul;47(5):516-23 Do you “like” my photo?  

2.Colleen M. Jacobson and Cynthia C. Luik, Epidemiology and Sociocultural Aspects of Non-suicidal Self-Injury and Eating Disorders 2014

3. Joint Commissioning Panel For Mental Health (www.jcpmh.info/wp-content/uploads/10keymsgs-eatingdisorders.pdf)

4. http://www.nhs.uk/Conditions/Bulimia/Pages/Introduction.aspx

The Economic Crisis: How Did We Get Here?

An investor watches an electronic board showing stock information at a brokerage office in Beijing, China

The roots of the current crisis go some way back. After the 9/11 attack in New York, instability and fear pervaded financial markets. In order to steer the US and world economy out of a tight corner there was a reduction in interest rates and loosening of credit, encouraging people to borrow to sustain demand.

Banks took advantage of this and started to push mortgages. Initially the banks were lending on fairly good terms but then competition set in and those with money found they could expand their wealth by borrowing at low interest rates in order to lend to those prepared to pay higher interest rates. One of the main groups prepared to pay these higher rates were poorer sections of the population desperate to get somewhere to live. As long as house prices continued rising, they seemed a safe group to lend to, since there was always a profit to be made by repossessing their homes if they failed to pay up on time. This lending became known as the “subprime mortgage market”.

Although on the surface this appeared to be a form of secure lending, in reality it was risky. Why? Because by 2006 the US economy began slowing down and profits in the US started to fall. As profits declined, firms got rid of workers and poor American’s could no longer keep up with their rising mortgage payments. Borrowing at one end of the chain could not be repaid. Repossessions led to falling house prices, and the “collateral” that supposedly guaranteed (provided security) against the loans, fell in value as well. An enormous 400 billion US dollars in lending was suddenly not repayable.

A whole host of new institutions emerged that began specializing in the same manner as the banks. They would obtain cheap credit in the environment of low interest rates after 2001, use it to make loans, and then ‘securitize’ them. Other financial institutions would also use cheap credit to buy the new securities. Other financial institutions would combine several of these securities to create even more complex forms of debt obligations.

In this baroque and opaque world, fueled by cheap credit, it did not take long before just about all the major financial institutions across the world found themselves holding securities that contained bits of subprime mortgages. What was originally a small sickness within the US economy grew enormously because of the way capitalist credit works. In the end, governments’ were forced to intervene by bailing out vast swathes of the capitalist system as a precursor to saving it:

In spring 2008, Bear Sterns became an early high profile casualty of the crisis on Wall Street. Lehman Brothers followed shortly afterwards and the meltdown in Greece shortly after that. These problems emerged on the back of three decades of sustained low profitability.After World War two profit rates held up at about 15 per cent in the US. By the 1980s it was 10 per cent, and today it is just 5 per cent:

This would appear to indicate that the underlying problems of the global economy are systemic.

What is Marx’s explanation?

Marx’s basic line of argument was simple. Individual capitalists can increase their own competitiveness by increasing the productivity of their workforce. The way to do this is by using a greater quantity of the “means of production”—tools, machinery and so on—for each worker. There is a growth in the ratio of the physical extent of the means of production to the amount of labour power employed, a ratio that Marx called the “technical composition of capital”.

But a growth in the physical extent of the means of production will also be a growth in the investment needed to buy them. So this too will grow faster than the investment in the workforce. To use Marx’s terminology, “constant capital” grows faster than “variable capital”. The growth of this ratio, which he calls the “organic composition of capital”, is a logical corollary of capital accumulation.

Yet the only source of value for the system as a whole is labour. If investment grows more rapidly than the labour force, it must also grow more rapidly than the value created by the workers, which is where profit comes from. In short, capital investment grows more rapidly than the source of profit. As a consequence, there will be a downward pressure on the ratio of profit to investment—the rate of profit.

Each capitalist has to push for greater productivity in order to stay ahead of competitors. But what seems beneficial to the individual capitalist is disastrous for the capitalist class as a whole. Each time productivity rises there is a fall in the average amount of labour in the economy as a whole needed to produce a commodity (what Marx called “socially necessary labour”), and it is this which determines what other people will eventually be prepared to pay for that commodity. So today we can see a continual fall in the price of goods such as computers or DVD players produced in industries where new technologies are causing productivity to rise fastest:

As the rate of return on investment declines in its totality, so it is the weakest companies financially – but not necessarily technologically – that go out of business. In turn, this results in an increase in unemployment. Thus workers are able to purchase fewer goods and services. This inevitably leads to a downward spiral of economic slump and crisis within the system as a whole.

But Marx argued that there were counterveiling factors which mitigated against a total collapse of the system. For example, the diversion of investment from the production of goods and services to the production of arms – a process that is governed by states that are in constant competition with one another – provided a very important role in producing the long boom after the Second World War.

Also, Marx argued that profitability could be restored by crisis itself, through what he called “the annihilation of a great part of the capital”. During a recession some companies fail and are bought up by rivals, and others have to sell off parts of their business or dump their stock on the market to meet their obligations. Those companies that survive can take advantage of this, grabbing assets at a fraction of their real value and putting them to highly profitable use in the recovery that follows. Depressed wages and high unemployment also allow capitalists to squeeze more out of workers. A process of “creative destruction” may lead to a boom following a slump.

But this is not some automatic process that pushes the economy back towards some natural equilibrium. The post-war boom followed only after the prolonged horror of the 1930s slump and the destruction of the Second World War, which also forced states to intervene to reorganise whole national economies.

Could we be heading to a repeat of the Great Depression?

This is a difficult question to answer. There are significant differences between the situation that led to the current crisis and the one in 1929. First, state expenditure has for nearly 70 years been central to the system in a way in which it was not in 1929. In that year federal government expenditures represented only 2.5 per cent of GNP but they currently stand at around 20 per cent. And unlike in 1929, the government in 2008 moved quickly to intervene in the economy. The Hoover administration (March 1929-February 1933) did make a few moves aimed at bolstering the economy, so that state spending rose slightly in 1930, and federal money was used to bail out some banks and rail companies through the Reconstruction Finance Corporation in 1932. But the moves were very limited in scope—and the state could still act in ways that could only have exacerbated the crisis in 1931 and 1932.

The Fed increased interest rates to banks and the government raised taxes. It was not until after the inauguration of the Roosevelt administration in March 1933 that there was a decisive increase in government expenditure. But even then the high point for total federal government spending in 1936 was only just over 9 percent of national output—and in 1937 began to decline. There is a base level of demand in the economy of the today that provides a floor below which the economy will not sink that didn’t exist in the early 1930s.

In this way, the growth in military expenditure since the Great Depression, clearly plays a particularly important role guaranteeing markets to giant corporations thereby mitigating the impact of the crisis. But there is an important second difference that operates in the opposite direction. The major financial and industrial corporations operate on a much greater scale than in the inter-war years and therefore the strain on governments of bailing them out is disproportionately larger. The banking crises of the early 1930s in the US was a crisis of a mass of small and medium banks.Very big banks did not often become insolvent and fail, even in periods of widespread bank failures:

This time we have seen a crisis of many of the biggest banks in most major economies. Within a day of Lehman Brothers going bust, banks such as HBOS in Britain, Fortis in the Benelux countries, Hypo Real Estate in Germany and the Icelandic banks were all in trouble. From there the crisis spread to affect other major banks and the “shadow banking system” of hedge funds, derivatives and so on. In October 2008, The Guardian reported the losses to be a staggering $2.8 trillion.

Despite this, global industrial production now shows clear signs of recovering. This is a sharp divergence from experience in the Great Depression, when the decline in industrial production continued fully for three years. Paradoxically, staving off a catastrophic slump has meant that problems have lingered on.

The recovery is also uneven. British growth remains sluggish at just 0.3 percent, the lowest growth rate since the last quarter of 2013. The US is growing faster, and is also faring better than Germany and Japan, which are more export-oriented and have suffered more from the decline in world trade than from the initial financial meltdown. China was also hit by falling demand for its exports but despite its long boom due to a massive state-sponsored domestic investment programme, the crisis has impacted their too.

The weakness of the global recovery means that people will continue to suffer. In some countries this takes the form of high unemployment and attacks on wages, as in the US, Spain and Ireland. In others, such as Germany and Japan, where unemployment has not risen as fast, companies have sought to hold on to workers but have cut pay rates, reduced hours or shifted workers onto part-time contracts. Britain lies somewhere between the two extremes.

Unemployment and underemployment is likely to persist well into any recovery. An IMF report argues that employment falls further and takes longer to recover during recessions that have a significant financial component. The report indicates that it could take a year and a half from the end of the recession for any substantial improvement, assuming that the recession ends.

Finally, any recovery is and will remain uncertain. State interventions replaced private borrowing and investment with mountains of public debt, and falling tax revenues made it difficult to recover the money spent. Now governments everywhere face a dilemma. Do they cut back to pay off their debts, risking a deeper recession or do they continue spending and risk a run on their currencies?

The Rich Need To Be Forced To Pay Their Way For The Benefit Of All

Leading American venture capitalist Nick Hanauer has argued that the actions of capitalists’ need to be reined in through a system of planned and coordinated regulation in order for the capitalist system to be sustainable. This is what he said in a BBC TV interview in front of a live audience:

Capitalists have the idea that THEIR things will be bought by everybody else as a result of higher wages paid by OTHER capitalists. But this logic of paying higher wages to staff to help improve business activity more generally, doesn’t seem to apply equally to them since they will insist on paying THEIR OWN workers next to nothing thereby not absorbing the costs themselves resulting in them gaining a competitive advantage over their rivals. The simple truth is, if a higher minimum wage was introduced universally, not only would it be affordable, but something like 40% of American’s would be able to buy more products from everybody thus benefiting all capitalists across the board. Business is challenged today because fewer and fewer people are able to buy things [1].

The implication, in other words, is that the capitalist system needs to be regulated by governments’ in order to save it from the rapacious actions of competing capitalists driven by their insatiable need for profit maximization. This rationale was long ago grasped by Karl Marx who understood that the essence of the capitalist system is, in his phrase, “accumulation for accumulations sake.”

So why don’t capitalists insist on using free labour and make their workers work all the hours under the sun? After all, wouldn’t that lead to higher profits? And one might also ask why their representatives within the elite political establishment would bother to spend any money at all on welfare? The simple but correct answer is that where they have a choice, they don’t. Where labour supply is low, the state is in effect forced to intervene on behalf of capitalists by introducing welfare as the means of preserving and reproducing labour.

But where labour is plentiful, the state rarely feels compelled to introduce health and safety, minimum wage laws and welfare.The rationale for this is that if a worker dies of malnutrition or has an accident at work, he or she can be easily replaced by another worker. Under such circumstances, the state regards these kinds of misfortunes as a price worth paying. Consider this account of the conditions of child labour in the lace industry in Nottingham in 1861 by a local magistrate:

Children of nine or ten years are dragged from their squalid beds at two, three, four o’clock in the morning and compelled to work for a bare subsistence until ten, eleven or twelve at night, their limbs wearing away, their frames dwindling, their faces whitening, and their humanity absolutely sinking into a stone-like torpor, utterly horrible to contemplate [2].

Compare and contrast that to a recent study of the conditions of life for rural migrants in contemporary China:

The trafficked children] came from faraway Liangshan in Sichuan and most of them are not yet 16. The overseers sought and recruited them from families mired in poverty, promising them high wages; some were even abducted and sent off in batches to Dongguan and from there distributed by the truckload to factories across the Pearl River Delta. On unfamiliar soil these children are often scolded and beaten and have only one proper meal every few days. Some little girls are even raped. Day after day they undertake arduous labour. Some children think about escape, but the road is blocked. The overseers threaten them and warn them that if they try to run away, there will be a price to pay [3].

What the above illustrates, is that the plentiful supply of labour power was as pertinent during the early days of the industrial revolution in Britain as it is to present day China. In both cases the introduction of welfare as the means of preserving and reproducing labour was not a concern for capitalists or the state. Consequently, welfare provision is as scant in China today as it was in 19th century Britain.

Similarly, while the deaths of more than 1,100 garment workers in a factory building collapse in Dhaka,Bangladesh, in April 2013 [4], most of them women on subsistence wages, is an unspeakable tragedy for their families and friends, it is of much less significance, other than concerns about negative publicity, for companies such as Primark for whom they were producing cheap clothes, simply because there are plenty more desperate workers who will take their place [5].

Where, however, the supply of labour is less plentiful or where labour becomes more skilled and consequently more expensive, losing workers through injury or disablement, or through working them to death doesn’t really make economic sense. But that doesn’t mean that capitalists in Britain or America wouldn’t insist that their workers work all the hours under the sun in the short term for peanuts if they thought they could get away with it.

One of the contradictions inherent to capitalism is that the system as a whole needs to spend money to make profits, yet every individual capitalist wants to spend as little as possible. The lengths to which giant companies like Amazon, Google and Starbucks will go in order to avoid paying tax shows how that dilemma is played out.

In the longer term, having workers working 14 or 16 hours a day for peanuts is very wasteful. It’s like over-exploiting the soil. However, given that individual capitalists themselves won’t do anything about it for fear of losing their competitive advantage over their rivals, the state as the representative of the capitalist class as a whole is forced to step in.

This brings me back to the wisdom implicit in the Nick Hanauer quote at the beginning of this article. Hanaeur’s argument about the necessity of the United States government to substantially increase the legal minimum wage across the board in order to save capitalism from itself, is in principle, no different from the minority of capitalists in 19th century Britain who argued in favour of the introduction of the Factory Acts of the 1830s and 1840s which set down a maximum length for the working day.

An advanced low wage and minimal welfare provision capitalist state like Britain is the modern equivalent of its counterpart during the industrial revolution prior to the introduction of the Factory Acts. What is required is a radical re-think with regards to our current direction of travel.away from the failed neoliberal economic model of austerity which economist Paul Krugman describes as:

A con that does nothing but harm to the wealth of this nation. It has been discredited everywhere else: only in Britain do we cling to the myth.[6].

It’s in Britain where the redistribution of wealth from the bottom to the top continues at apace, much of it as a result of huge subsidies paid to the richest landowners [7]. As inequality continues to rise so does the potential for public disorder. At present, the richest tenth pay 35% of their income in tax, while the poorest tenth pay 43% [8]. Is it too much to ask that those with the deepest pockets pay their way, thus creating the potential for the kind of equitable society in which everybody wins?

This is not pie in the sky stuff but a pragmatic solution to the problems we face. Individuals as politically and ideologically as far apart like Jeremy Corbyn, Caroline Lucas, Nick Hanauer, Joseph Stiglitz, and other top economists and capitalists, understand what’s required to get us out of the mess we’re in. It’s a pity that people like Duncan Smith, Cameron and Osborne prefer to put ideology before pragmatism.

The Economic Crisis: What’s Going On?

Following the recent election result in Britain, the people of that country decided they did not want any one of the traditional three main political parties to rule over them. Throughout the election campaign, the public were fed an almost constant stream of propaganda from a big business perspective.

The mainstream corporate media acted as a kind of echo chamber for this propaganda by reporting ad-nauseum the politicians’ belief that the failure of the people to assign an overall majority to any one particular party would effectively undermine “the national interest”. But when politician after politician speaks about “the national interest”, they mean the interests of those who own and control industry and those who move trillions around the money markets.

What the British people have been witnessing since the election, in the full glare of publicity, is the three main parties jostling and manoeuvring over how this notion of the national interest can be best accommodated in the interests of corporate power.

Sir Martin Sorell, chief executive of the advertising empire WPP, voiced the view of the major capitalists when he said that a hung parliament was the “worst possible” result:

http://blogs.news.sky.com/kleinman/Post:40de91a6-b227-432e-90c5-fe5869ab1a1d

Alan Clarke of BNP Paribas commented that “the UK could lose its top triple A credit status because of its failure to deliver a majority government with the authority to tackle the country’s public finances with immediete effect.”:

http://www.thisismoney.co.uk/news/article.html?in_article_id=495612&in_page_id=2

This is code for the insistence that ordinary people bear the brunt for the economic crisis by way of a series of austerity programmes and savage cuts to public services, while the rich get off scot free.

Sub-prime and the credit crunch

Let’s remind ourselves how we got here. The roots of the current crisis go some way back. After the 9/11 attack in New York, instability and fear pervaded financial markets. In order to steer the US and world economy out of a tight corner there was a reduction in interest rates and loosening of credit, encouraging people to borrow to sustain demand.

Banks took advantage of this and started to push mortgages. Initially the banks were lending on fairly good terms but then competition set in and those with money found they could expand their wealth by borrowing at low interest rates in order to lend to those prepared to pay higher interest rates. One of the main groups prepared to pay these higher rates were poorer sections of the population desperate to get somewhere to live and those who were previously regarded as uncreditworthy. As long as house prices continued rising, they seemed a safe group to lend to, since there was always a profit to be made by repossessing their homes if they failed to pay up on time. This lending became known as the “subprime mortgage market”.

Although on the surface this appeared to be a form of secure lending, in reality it was risky. Why? Because by 2006 the US economy began slowing down and profits in the US started to fall. As profits declined, firms got rid of workers and poor American’s could no longer keep up with their rising mortgage payments. Borrowing at one end of the chain could not be repaid. Repossessions led to falling house prices, and the “collateral” that supposedly guaranteed (provided security) against the loans, fell in value as well. An enormous 400 billion US dollars in lending was suddenly not repayable. 

A whole host of new institutions emerged that began specialising in the same manner as the banks. They would obtain cheap credit in the environment of low interest rates after 2001, use it to make loans, and then ‘securitise’ them. Other financial institutions would also use cheap credit to buy the new securities. Still other financial institutions would combine several of these securities to create even more complex, “synthetic” Collateralised Debt Obligations, which give their holders the right to interest accruing on the earlier securities, and so on.

In this baroque and opaque world, fuelled by cheap credit, it did not take long before just about all the major financial institutions across the world found themselves holding securities that contained bits of subprime mortgages. What was originally a small sickness within the US economy grew enormously because of the way capitalist credit works. In the end, governments’ were forced to intervene by bailing out vast swathes of the capitalist system as a precursor to saving it:

http://www.isj.org.uk/?id=395

In spring 2008, Bear Sterns became an early high profile casualty of the crisis on Wall Street which was followed by the next big Wall Street bank to collapse – Lehman Brothers. The meltdown in Greece followed shortly after. Speculators are already looking for the next domino set to topple after Greece. It might be one of the other weak eurozone countries, with Portugal tipped as the most likely, but it might well be Ireland, Britain or even the US, all of whom in 2010 have a higher projected budget deficit than Greece:

http://www.infiniteunknown.net/2010/05/05/uk-budget-deficit-to-surpass-greeces-as-worst-in-eu/

All this is happening despite the fact that the major economies are technically out of recession. The recovery can be characterised in three words: “weak”, “fragile” and “uncertain”. The recovery is weak because the crisis, in spite of its severity, has not resolved the underlying problems the global economy faces. These problems were created by three decades of sustained low profitability. A recent column in the UK’s Financial Times pointed out that after the Second World War profit rates held up at about 15 per cent in the US. By the 19080s it was 10 per cent, and today it is just 5 per cent:

http://www.permanentrevolution.net/entry/2976

This would appear to indicate that the underlying problems of the global economy are systemic.

Marx’s explanation

Marx’s basic line of argument was simple. Individual capitalists can increase their own competitiveness by increasing the productivity of their workforce. The way to do this is by using a greater quantity of the “means of production”—tools, machinery and so on—for each worker. There is a growth in the ratio of the physical extent of the means of production to the amount of labour power employed, a ratio that Marx called the “technical composition of capital”.

But a growth in the physical extent of the means of production will also be a growth in the investment needed to buy them. So this too will grow faster than the investment in the workforce. To use Marx’s terminology, “constant capital” grows faster than “variable capital”. The growth of this ratio, which he calls the “organic composition of capital”, is a logical corollary of capital accumulation.

Yet the only source of value for the system as a whole is labour. If investment grows more rapidly than the labour force, it must also grow more rapidly than the value created by the workers, which is where profit comes from. In short, capital investment grows more rapidly than the source of profit. As a consequence, there will be a downward pressure on the ratio of profit to investment—the rate of profit.

Each capitalist has to push for greater productivity in order to stay ahead of competitors. But what seems beneficial to the individual capitalist is disastrous for the capitalist class as a whole. Each time productivity rises there is a fall in the average amount of labour in the economy as a whole needed to produce a commodity (what Marx called “socially necessary labour”), and it is this which determines what other people will eventually be prepared to pay for that commodity. So today we can see a continual fall in the price of goods such as computers or DVD players produced in industries where new technologies are causing productivity to rise fastest:

http://www.isj.org.uk/?id=340

As the rate of return on investment declines in its totality, so it is the weakest companies financially – but not necessarily technologically – that go out of business. In turn, this results in an increase in unemployment. Thus workers are able to purchase fewer goods and services. This inevitably leads to a downward spiral of economic slump and crisis within the system as a whole.

But Marx argued that there were countervailing factors which mitigated against a total collapse of the system. For example, the diversion of investment from the production of goods and services to the production of arms – a process that is governed by states that are in constant competition with one another – provided a very important role in producing the long boom after the Second World War.

Also, Marx argued that profitability could be restored by crisis itself, through what he called “the annihilation of a great part of the capital”. During a recession some companies fail and are bought up by rivals, and others have to sell off parts of their business or dump their stock on the market to meet their obligations. Those companies that survive can take advantage of this, grabbing assets at a fraction of their real value and putting them to highly profitable use in the recovery that follows. Depressed wages and high unemployment also allow capitalists to squeeze more out of workers. A process of “creative destruction” may lead to a boom following a slump:

http://www.socialistreview.org.uk/article.php?articlenumber=11255

But this is not some automatic process that pushes the economy back towards some natural equilibrium. The post-war boom followed only after the prolonged horror of the 1930s slump and the destruction of the Second World War, which also forced states to intervene to reorganise whole national economies.

Comparing the present with the Great Depression

There are significant differences between the situation at the beginning of the present crisis and that in 1929.

First, state expenditure has for nearly 70 years been central to the system in a way in which it was not in 1929. In that year federal government expenditures represented only 2.5 per cent of GNP. In 2007 federal expenditure was around 20 percent of GNP:

http://www.usgovernmentspending.com/

And the speed and vigour with which the government has moved to intervene in the economy has been much greater this time. The Hoover administration (March 1929-February 1933) did make a few moves aimed at bolstering the economy, so that state spending rose slightly in 1930, and federal money was used to bail out some banks and rail companies through the Reconstruction Finance Corporation in 1932. But the moves were very limited in scope—and the state could still act in ways that could only have exacerbated the crisis in 1931 and 1932.

The Fed increased interest rates to banks and the government raised taxes. It was not until after the inauguration of the Roosevelt administration in March 1933 that there was a decisive increase in government expenditure. But even then the high point for total federal government spending in 1936 was only just over 9 percent of national output—and in 1937 began to decline.

By contrast, the cost of bailouts pushed through by the Bush government in its dying days, just as the credit crunch began to turn into a recession, could amount to an extra 10 percent of GNP:

http://www.isj.org.uk/index.php4?id=506&issue=121#121harman_65

Figure 1: Net federal expenditure as a percentage of GDP
Source: Éric Tymoigne, “Minsky and Economic Policy: ‘Keynesianism’ All Over Again?”, Levy Economics Institute, working paper

Figure 1

Figure 2: Composition of federal expenditure
Source: Éric Tymoigne, “Minsky and Economic Policy: ‘Keynesianism’ All Over Again?”, Levy Economics Institute, working paper

Figure 2

The increased importance of state expenditures—and the willingness of central banks and government to spend rapidly in trying to cope with the crisis—means there is a base level of demand in the economy which provides a floor below which the economy will not sink, which was not the case in the early 1930s. In this way, military expenditure, at $800 billion twice the level in current dollars of 2001, plays a particularly important role guaranteeing markets to a core group of very important corporations. Such spending can clearly serve to mitigate the impact of the crisis.

But there is an important second difference that operates in the opposite direction. The major financial and industrial corporations operate on a much greater scale than in the inter-war years and therefore the strain on governments of bailing them out is disproportionately larger. The banking crises of the early 1930s in the US was a crisis of a mass of small and medium banks—”Very big banks did not often become insolvent and fail, even in periods of widespread bank failures:

http://www.questia.com/library/book/too-big-to-fail-policies-and-practices-in-government-bailouts-by-benton-e-gup.jsp

This time we have seen a crisis of many of the biggest banks in most major economies. Within a day of Lehman Brothers going bust, banks such as HBOS in Britain, Fortis in the Benelux countries, Hypo Real Estate in Germany and the Icelandic banks were all in trouble. From there the crisis spread to affect other major banks and the “shadow banking system” of hedge funds, derivatives and so on. The most recent estimate of the total losses so far, from the Bank of England, amounts to a staggering $2,800 billion:

http://www.guardian.co.uk/business/2008/oct/28/economics-credit-crunch-bank-england

Despite this, global industrial production now shows clear signs of recovering. This is a sharp divergence from experience in the Great Depression, when the decline in industrial production continued fully for three years. Paradoxically, staving off a catastrophic slump may have simply guaranteed that problems linger on, ensuring that recovery remains weak.

The recovery is also uneven. Initial estimates suggested that British growth slowed to just 0.2 percent in the first quarter of 2010. The US is growing faster, and is also faring better than Germany and Japan, which are more export-oriented and have suffered more from the decline in world trade than from the initial financial meltdown. China was also hit by falling demand for its exports but has continued to boom due to a massive state-sponsored domestic investment programme:

http://www.socialistreview.org.uk/article.php?articlenumber=11255

This has revived the fortunes of some of the developing economies that supply it with raw materials. But even in China there are fears that growth is unstable, with widespread concerns about an emerging property bubble, a glut of lending raising the prospect of colossal levels of bad debt, and the danger that too much is being produced for still-limited markets.

The weakness of the global recovery means that workers will continue to suffer. In some countries this takes the form of high unemployment and attacks on wages, as in the US, Spain and Ireland. In others, such as Germany and Japan, where unemployment has not risen as fast, companies have sought to hold on to workers but have cut pay rates, reduced hours or shifted workers onto part-time contracts. Britain lies somewhere between the two extremes. ibid.

Unemployment and underemployment will persist well into any recovery. A recent IMF report argues that employment falls further and takes longer to recover during recessions that have a significant financial component. The report indicates that it could take a year and a half from the end of the recession for any substantial improvement, assuming that the recovery continues:

http://www.dailymarkets.com/economy/2010/04/22/imf-global-recovery-stronger-than-expected-but-strength-varies/

Finally, any recovery is and will remain uncertain. State interventions replaced private borrowing and investment with mountains of public debt, and falling tax revenues made it difficult to recover the money spent. Now governments everywhere face a dilemma. Do they cut back to pay off their debts, risking a “double-dip recession” as the stimulus is withdrawn? Or do they continue spending and risk a run on their currencies, as the eurozone experienced amid fears of a Greek default?

Copyright: Daniel Margrain.