Tag Archives: Economics

A new mode of production?

Carlota Perez’ chapter in “Rethinking Capitalism” presents an analysis of change and growth in modern capitalism and the potential for a new phase of innovation developing green growth.

Perez uses an analysis similar to Kondratiev long waves and influenced by Schumpeter to break what is sometimes perceived to be continuous technological innovation under capitalism into  a number of distinct phases, each following a recognisable pattern from invention to installation and deployment. Perez shows how each phase is punctuated by a predictable bubble followed by bust and recession. After the failure of this initial wave of investment comes a ‘golden age’ as the technology matures and is deployed across the economy before gradually stagnated. The successive waves start with the initial industrial revolution based on water power and canals, then the development of steam and iron. Steel and chemicals drive another surge in the late 19th century

Perez argues that orthodox economic modelling fails to account for this essentially dynamic and changing nature of capitalism. Instead standard models assume a system based on equilibrium, tending to return to the current historic trend and explaining deviation from this by looking for external influences. In other words they are fundamentally static, predicting that the status quo will continue forever. But we know – and Perez demonstrates – that capitalism has not remained static through it’s history and that the future, with the impacts of automation and climate change, will not be the same as the economic system we experience today.

I believe that what Perez is theorising is what in Marxist terms might be termed changes to the mode or production – albeit within the overall structure of capitalism. While property relations – and therefore the relations of production in Marxist terms – have remained broadly the same over the last 200 years or so, the technologies of production have been subject to profound development and transformation. Although the overarching description “capitalism” is still valid there can be no doubt that the world is a different place than it was in 1800 or 1900.

Perez is proposing that a theory of change is introduced into ‘modern’ economic thinking. Something that Marx was proposing 150 years ago, along with theorising the mechanisms by which it comes about and how it interacts with wider society. Meanwhile the economic models on which policy making is based on locked into the same static view of the world that Marx criticised so mercilessly.

Rethinking Capitalism Jacobs, M. and Mazzucato, M. (Wiley-Blackwell, Chichester, 2016)

A short “future left” reading list

After a recent conversation with my dad, I decided to capture in one short post a reading list for anyone interested in future strategies for the modern left.

First for the long view analysis of where we are and how we got here, start with Robert Brenner’s “The Economics of Global Turbulence” (which I wrote a post about a short while ago) and a superb article by Wolfgang Streeck in New Left Review.

For some philosophical underpinning this article by Slavoj Zizek from 2000 with it’s critique of the “third way” and foreseeing it’s failure and the subsequent delivery of the working class to the far right. Also his “Living in the End Times“.

For the impact of this on practical politics and how the changes in the economy have changed politics on the left Owen Jones’ “Chavs” and Richard Seymour’s “Corbyn: The Strange Rebirth of Radical Politics”.

And for what a programme for the modern left might look like, how it might be built, and what theory and technology need to underpin it Paul Mason’s “Postcapitalism” and Srnicek and Williams “Inventing the Future”. For a slightly more philosophical approach to the need for a modern left see “Crowds and Party” by Jodi Dean.

And if you only read one book from the list, make it “Inventing the Future”, which is a truly superb analysis of where the left is and what it might do next.

It is worth pointing out that I don’t at present feel that Corbyn and those currently in charge of the Labour party are in tune with the thinking in these books at all. In fact they seem keener on re-fighting the battles of past years, a strategy surely bound to fail.

Accumulated Past Labour and Post Capitalism

Capitalism as a system is based on the continuous accumulation of wealth through the appropriation of surplus labour. One consequence of this is the steady growth in the stock of capital driving enormous changes in productivity. British steel, currently in the news, demonstrates this clearly. Output may have fallen by just over half in the last 40 years from 29m tonnes to 12.5m tonnes, but over the same period the number of people employed dropped by 90%, implying a dramatic increase in productivity over the same period.

This steady accumulation of the outputs of past labour, when held in private ownership, stands opposed to the living. It becomes something which both ensures the continuation of the owner-owned relationship and conditions what work means so that it becomes possible to talk about a half-mile long rolling mill controlled by a shift of 12 workers. In other words it has both a quantitative and a qualitative aspect.

The domination of the past over the present is a theme in Marx discussed in Fredric Jameson’s “Representing Capital”, a book which I reviewed a short while ago. As Jameson writes, it is not the structural relationship between the worker and their tools which is significant, but the sheer volume of capital set in motion. The human becomes an adjunct to the tools with the rhythm of work dictated by the needs of machinery.

“The quantities of the past have been rendered invisible by the production process outlined above, and yet they now surround the worker in a proportion hitherto unthinkable.”

(“Representing Capital”, Jameson, Verso London 2014, p. 102)

The past is therefore ever-present and “towers above” the worker dwarfing “even his collective presence” (ibid). When the means of (re)production are so massive their private ownership is an almost insurmountable barrier to change.

It is however this vast accumulation, and the productivity potential which it brings, that forms one of the key planks underpinning the strand of “post-capitalism” thinking on the left – exemplified in books by Paul Mason and Nick Srnicek & Alex Williams. Modern productive capacity has the potential to truly change the way society is organised, but the structure of existing social relations left unchanged seem likely to lead instead to rising inequality and unemployment as automation becomes more prevalent.

As Srnicek & Williams write:

“Today we see the occluded potential of this approach everywhere, in the fact that the technologies for achieving classic leftist goals (reduced work, increased abundance, greater democratic control) are more available than ever before. The problem is that they remain encased within social relations that obscure these potentials and render them impotent.”

(“Inventing the Future”, Srnicek & Williams, Verso London 2015, p. 150)

The challenge for the left then is how to build a movement which might break these social relations and create something else to take advantage of this potential. Both Srnicek & Williams and Mason have suggestions for how this might be achieved but it is still not clear how a movement which is both intellectually coherent and yet also an ‘organic’ mass movement of the people can be realised – something with Srnicek & Williams rightly identify as a key failing of “Occupy” and other modern protest movements.

Technology, Growth, and Post-Capitalism

Robert Brenner’s book “The Economics of Global Turbulence” is built around the thesis that the developments in the global economy since 1945 have been driven by systemic overcapacity within manufacturing, driving down the rate of profit. The various responses from within the leading capitalist countries have failed to deliver the theoretically expected response – the shift of investment into alternative industries, allowing the economy to adjust to demand through the closure of firms – delivering production which is rebalanced into the equilibrium which orthodox economists believe markets tend towards.

Brenner’s analysis is therefore fundamentally Marxist in approach. He stresses the drivers creating an inherent tendency for the rate of profit to fall based on the response to competitive pressure, meaning that companies are unlikely to exit the field as predicted by orthodox theory but will persist with lower rates of profit for longer than expected periods of time. Government policies have failed to resolve this long term decline either by Keynesian demand management (which simply allows the less competitive companies to survive, continuing the overcapacity) or fiscal and monetary tightening (which creates an economic environment in which reinvesting in other production lines is unlikely). The inability of capitalism to coordinate activity across the economy has resulted in serious and persistent imbalance.

In other words, the global economy since 1945 has not shown a tendency towards equilibrium. Rather the mechanics of capitalism have produced a long slow decay – termed the “long downturn” by Brenner – with moments of crisis precipitated by changing policy responses and the changing global (im)balance between the major capitalist nations.

Since the neo-liberal revolution, these policies have been driven by the orthodox belief that declining profit rates have been caused by over-generous wages and welfare systems. The sustained assault pursued over more than 30 years on earnings and conditions of employment have has however failed to deliver sustained improvement in profit rates. But it has provided quite effective support for asset holders. As Brenner notes in one example:

“[E]ven contemporary economic orthodoxy has failed to establish that inflation rates of up to 8 percent have any negative impact on the economy’s vitality… [T]here is no evidence that reducing inflation below 8 percent yields any gains whatsoever in terms of growth or living standards. For this reason, there are strong grounds for believing that the grand crusade to control inflation, while very costly to most people, has had little positive effect, except, of course, for the owners and lenders of capital.”

“The Economics of Global Turbulence” p.253, Robert Brenner, Verso, London 2006.

Recent writing by Paul Mason and Wolfgang Streeck (among others) has talked of the gradual death of capitalism and the growing emergence of a ‘post capitalist’ world, driven at least partially on capitalism’s failure to deliver a sustained rate of growth, and the impact of the policies pursued across capitalist countries to address the manifest problems. Brenner provides a detailed review of analysis of statistics that could provide a concrete underpinning for this viewpoint.

Brenner takes issue however with one of the proposed causes underlying the slow decline of capitalism, namely the long development swings associated with technological development. This view emphasises that economic growth in the past has been delivered by spurts of innovation, from the original industrial revolution on, and that in the absence of another bout of new technology to spur the economy forward long term decline is inevitable. Brenner considers this view Malthusian, and outlines clearly that the statistics do not support it when the cycle of growth across different countries is considered. In fact it is the inability of a global capitalist economy to coordinate and plan activity which prevents it from being able to take advantage of technological change, and also constricts it’s ability to remain dynamic.

“Continuity of technical change, but a reduction in the ability to make use of it”

“The Economics of Global Turbulence” p.243, Robert Brenner, Verso, London 2006.

Updated for the Verso edition in 2006, Brenner extends his analysis to cover the period from the bursting of the dot-com bubble in 2000-1 to 2006. He identifies the continuation of the tendencies towards manufacturing overcapacity – driven now by the massive growth of China taking a growing share of the global market through low labour costs and an undervalued renminbi. Meanwhile, the US economy is sustained by facilitating a series of financial asset bubbles, most recently in domestic housing, and endemic trade deficits. Brenner highlights the instability this is likely to cause, and of course we all know how this story ended.


At the moment I’m reading the current issue of the Historical Materialism journal. This opens with a transcript of a lecture delivered by Leo Panitch and Sam Gindin last year.

The lecture is based around a number of themes but with a strong focus on the need for  a stronger theory of the influence of institutional structures both on the working class movement and on the ability of capitalism to survive into the 21st century.

I’m not sure I agree with that in principle. I think in general the nature of institutions is less important than the social structures and economic relations around and underneath them. However there was one section of the lecture which I think is very insightful for Marxist thinking concerning competition within capitalism which I wanted to capture here.

Essentially it challenges the assumption that competition which leads to monopoly means a reduction in the level of competition – that monopoly means that capital gains a level of control over the market which reduces or removes the impact of competition. This is a theory associated with Lenin and other thinkers from the early 20th century.

As Panitch and Gindin point out, it has become clear with the growth of large multinational companies – which might be thought of as monopolies in their field – that competition is still a significant factor. What is different is that these large companies continue to compete strongly for the available surplus value, between each other, but sometimes even between different divisions or regions of the same company. Even in conditions of monopoly competition remains a primary driver of the dynamics of capitalism.

Marx: An Overview of Capitalism as seen from Volumes 2 and 3

There is a superb segment within Part 5 of Capital Volume 3 which provides provides an overview of how Marx conceived the different functioning parts of capital operating as a system. It also has tremendous relevance to our own form of capitalism where the realities of production seem to have been left behind, and we exist in a sort of dream state where money can seemingly generate a profit simply because of it’s inherent nature.

The passages are in chapters 30, 31, & 32 (from the Penguin Classics edition translated by David Fernbach) where Marx pulls together the various threads of production, circulation, and distribution to create something akin to an overall system view, drawing together threads from all three volumes of Capital.

Capitalist production rests on the creation of surplus value, which is generated during the production process by living labour power. This surplus value is appropriated by the capitalist and must then be sold in the market to realise both the capital invested at the start and the surplus value generated. True value is determined by the quantity of labour required to create the commodity. This is broadly the ground covered in Volume 1.

At this point capital moves into the circulation process which Marx divides into three fundamental and interlocking circuits, those of money capital, productive capital, and commodity capital. Set together these form what David Harvey compares to blood flowing around the body of capitalism.

In the money circuit, money capital is used to drive the production process and create commodities which are then converted back into money.

In the productive circuit the starting point is the pair of labour power and means of production. Used to create commodities which when converted into money can be used to buy more means of production and labour power to start the process again.

In the commodity circuit, stock converted into money and pushed through the productive process creates a larger stock of commodities.

These three interlock to create the whole circuit from money, to means of production and labour power, to commodities, and back into money again. At any given time any single business will have capital committed within each three of these circuits. Maintaining the flow around and between each circuit and through the whole system is vitally important. Capitalism is a fundamentally dynamic system, any pause in circulation is likely to precipitate a crisis.

Finance capitalism and credit lubricates this system. The complexity of the required flow, and the need for hoards of money to be available to bridge pauses, gaps, and disproportionality leads to the elaboration of a credit system to get around the need for money to be held in an unproductive hoard. This credit system also allows for money which does accumulate at rest to be recycled out elsewhere via the banks.

Credit therefore addresses one problem by keeping things moving, but does it by creating another. This is the financial system which allows those who have accumulated capital in the past to grab control over current production and for speculation and purely financial crises to appear which end up damaging accumulation. In other words as wealth accumulates and is distributed unevenly it creates significant imbalances.

It seems to me that in essence this is how modern western capitalism operates. The accumulated wealth of the past has allowed the west to act like a rentier maintaining a large financial system that appears to operate according to different rules disconnected from production. Marx’s analysis suggests that this cannot last forever. The fundamental importance of value production will reassert itself eventually and in the meantime this over-financialised system will be unstable.

To me this analysis of the circulation and distribution of capital from Volumes 2 and 3 bring Marx’s thinking on capitalism much closer to the modern world with rapid financial flows across an interconnected system.

Some more on ‘Occupy’

After my recent post which mentioned the ‘Occupy’ movement in the context of Critical Theory I came across a section in David Harvey’s Companion to Marx’s Capital Volume 2 which talks about ‘Occupy’ in the context of Marx’s discussion of interest and money capital.

In this section, Marx is talking about the contrast between ‘functioning’ capital which is actively in use within the production process and ‘money capital’ which is held apart from the production process and loaned out at interest. Functioning capitalists are those who employ capital directly in the production process to create surplus value. Money capitalists are therefore those with an accumulated stock of money which they loan out at interest.

The thinking Marx develops here (Part 5 of Volume 3 on the division of profit into interest and profit of enterprise) has enormous relevance for modern capitalism. With much production (and therefore the generation of surplus value) having moved to the Far East, the accumulation of vast money resources during the earlier phases of capitalism has allowed the west to retain the illusion of dominance maintained by the fantasy that money generates a profit all by itself. You don’t have to fully accept the labour theory of value to realise that Marx surely has a point here, that there is something strange about the disconnected financial capitalism of Europe and the United States. The illusion that money itself can create more money (value) is surely misguided.

This has significant implications for thinking about the organisation of western capitalism, and it’s belief that it can successfully maintain itself despite the fact that the creation of much surplus value has moved elsewhere, and the signs of a geopolitical shift towards China after the 2007-9 crash are clear to see.

It also has implications for dissent and the struggle against capitalism in the west. As Marx points out, the relationship between money capital and functioning capital is one between capitalists, putting the emphasis within the economy on the tension between interest and profit, money and production for the division of surplus value. This tension, which has been very visible in the west with the financialisation of capitalism, is quite distinct from the ‘normal’ class struggle between labour and capital. It could perhaps be seen as at least part of an explanation for the slow decline in trade unionism in the west. In other words as production is progressively moved to China and the east, tension within western capitalism is founded more and more on the gap between bankers and the rest of capitalism.

And so we come to the ‘Occupy’ movement. It seems to me that this expresses that change in the tensions within capitalism perfectly. The focus of the movement is on banks and their control over the economy. And yet it also seems strangely unfocused, somehow missing the drive for fundamental change. Marx’s analysis makes clear that in the focus on banks and bankers they miss the target. Without necessarily meaning to, they are effectively fighting within the system. The challenge remains how to focus that anger on truly overthrowing the system itself, real change. Where is the movement leading the real struggle?