Seventeen Contradictions and the End of Capitalism (34 page)

In 1820, Maddison calculates, global output was worth $694 billion in 1990 constant dollars (‘billion’ on the US scale, meaning 1,000 million). By 1913 it had risen to $2.7 trillion (on the US scale a trillion is 1,000 billion); in 1973 it stood at $16 trillion and by 2003 nearly $41 trillion. Bradford DeLong gives different estimates, starting with $359 billion in 1850 (in 1990 constant dollars) rising to $1.7 trillion in 1920, $3 trillion in 1940, $12 trillion in 1970, $41 trillion in 2000 and $45 trillion in 2012. DeLong’s figures suggest a lower initial base and a somewhat higher rate of compound growth. While the figures are quite different (testifying to how difficult and often arbitrary these estimates are), in both cases the effect of compounding growth (with considerable temporal and geographical variation) is clearly visible.
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So let us take a 3 per cent compound rate of growth as the norm. This is the growth rate that permits most if not all capitalists to gain a positive rate of return on their capital. To keep to a satisfactory growth rate right now would mean finding profitable investment opportunities for an extra nearly $2 trillion compared to the ‘mere’ $6 billion that was needed in 1970. By the time 2030 rolls around, when estimates suggest the global economy should be more than $96 trillion, profitable investment opportunities of close to $3 trillion will be needed. Thereafter the numbers become astronomical. It is as if we are on the twenty-first square of the chessboard and cannot get off. It just does not look a feasible growth trajectory, at least from where we sit now. Imagined physically, the enormous expansions in physical infrastructures, in urbanisation, in workforces, in consumption and in production capacities that have occurred since the 1970s until now will have to be dwarfed into insignificance over the coming generation if the compound rate of capital accumulation is to be
maintained. Take a look at a map of the city nearest you in 1970 and contrast it with today and then imagine what it will look like when quadrupled in size and density over the next twenty years.

But it would be a serious error to assume that human social evolution is governed by some mathematical formula. This was the big mistake made by Thomas Malthus when he first advanced his principle of population in 1798 (roughly the same time when Richard Price and others were celebrating – if that is the right word – the power of exponential growth in human affairs). Malthus’s arguments are directly relevant to the issue at hand, while they also provide a cautionary tale. He argued that human populations, like all other species, had the tendency to increase at an exponential (that is, compounding) rate, while food output could at best increase only arithmetically given the conditions of agricultural productivity then prevailing. Diminishing returns on the application of labour in agriculture were likely to make the gap between rates of population expansion and food supply even greater over time. The widening gap between the two curves was taken as a measure of the increasing pressure of population on resources. As the gap increased, the inevitable result would be, Malthus argued, famine, poverty, epidemics, war and increasing pathologies of all kinds for the mass of humankind. These would act as brutal checks to keep population growth within the bounds dictated by supposedly natural carrying capacities. Malthus’s dystopian predictions did not come to pass. In recognition of this, Malthus later broadened his principles to include changes in human demographic behaviour, the so-called ‘moral restraints’, such as later age of marriage, sexual abstinence and (tacitly) other techniques for population limitation. These would dampen if not reverse any tendency towards exponential population growth.
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Malthus likewise failed miserably to anticipate the industrialisation of agriculture and the rapid expansion of global food production through colonisation of hitherto unproductive lands (particularly in the Americas).

By invoking the tendency towards the exponential growth of capital accumulation, are we in danger of repeating Malthus’s mistake of assuming human evolution conforms to a mathematical formula,
rather than reflecting fluid and adaptable human behaviours? If so, are there ways in which capital has been and is adapting to accommodate disparities between an accumulation process that is necessarily exponential (if that is indeed the case) and the conditions that might limit the capacity for exponential growth?

There is, however, a prior consideration that needs to be addressed. If population is growing exponentially (as Malthus supposed), then the economy has to grow at a parallel rate for living standards to be sustained. So what, then, is the relation between demographic trajectories and the dynamics of capital accumulation?

Currently, the only countries that are increasing their populations at a 3 per cent compound rate of growth or more are in Africa, South Asia and the Middle East. Negative population growth rates are found in Eastern Europe, while Japan and much of Europe have such low growth rates that they are not reproducing themselves. In these last cases economic problems are arising because of lack of domestic labour supply and because of the increasing burden of supporting ageing populations. A smaller and often declining workforce has to produce sufficient value to pay pensions to an increasing retired population. This relation continues to be important in certain parts of the world. Early on in capital’s history, rapid population growth or a vast reserve of untapped and yet-to-be urbanised wage labour unquestionably helped to fuel rapid capital accumulation. Indeed, a plausible case can be made that population growth from the early seventeenth century on was a precondition for capital accumulation. The role of what Gordon calls ‘the demographic dividend’ in fostering economic growth was clearly important in the past and continues to be so. The vast inflow of women into the labour force in North America and Europe after 1945 is one case in point, but this is something that cannot be repeated. The world’s labour force expanded by 1.2 billion between 1980 and 2009, nearly half of that growth coming from India and China alone. This too will be hard to repeat. But in many parts of the world this relation between rapid population growth and rapid capital accumulation is beginning to break down, as population growth conforms to an S-shaped curve
that starts flat and then accelerates exponentially upwards before rapidly slowing down to become flat, with zero or even negative population growth (for example, in Italy and Eastern Europe). It is into this demographic vacuum of zero growth in some parts of the world that strong migration streams are drawn (though not without social disruptions, political resistances and a lot of cultural conflict).

While population projections even in the medium term are a particularly tricky proposition (and the projections change rapidly from year to year), the hope is that the global population will stabilise during this century and peak at no more than 12 billion or so (perhaps as low as 10 billion) by the end of the century and thereafter achieve a steady state of zero growth. Clearly this is an important issue in relation to the dynamics of capital accumulation. In the United States, for example, job creation since 2008 has not kept pace with the expansion of the labour force. The falling unemployment rate reflects a shrinkage in the proportion of the working-age population seeking to participate in the labour force. But whatever happens, it is pretty clear that capital accumulation in the long-term future can rely less and less upon demographic growth to sustain or impel its compound growth and that the dynamics of production, consumption and realisation of capital will have to adjust to these new demographic circumstances. When this might happen is hard to say, but most estimates suggest that the vast increase in the global wage labour force that occurred after 1980 or so will be hard to replicate once it exhausts itself after 2030 or so. In a way this is just as well, given that, as we have seen, technological change is tending to produce larger and larger redundant and even disposable populations among the less skilled.
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The gap between too few high-skill workers and a massive reserve of unemployed and increasingly unemployable medium- and low-skill workers appears to be widening, while the definition of skills is evolving rapidly.

So would it be possible for capital accumulation to move beyond the exponentials it has exhibited over the past two centuries on to a similar S-shaped trajectory as has occurred in the demographics of many countries, culminating in a zero-growth, steady-state
capitalist economy? The answer to this prospect is a resounding no, and it is vital to understand why. The simplest reason is that capital is about profit seeking. For all capitalists to realise a positive profit requires the existence of more value at the end of the day than there was at the beginning. That means an expansion of the total output of social labour. Without that expansion there can be no capital. A zero-growth capitalist economy is a logical and exclusionary contradiction. It simply cannot exist. This is why zero growth defines a condition of crisis for capital. If prolonged, zero growth of the sort that prevailed in much of the world in the 1930s spells the death knell of capitalism.

How, then, can capital continue to accumulate and expand in perpetuity at a compound rate? How can it do so when it seems to entail a doubling if not tripling in the size of the astonishing physical transformations that have been wrought across planet earth over the last forty years. The dramatic industrialisation and urbanisation of China over those years is a foretaste of what would have to be accomplished to keep capital accumulation going in the future. For much of the last century large parts of the world were attempting to mimic the growth path of the United States. In the coming century most of the world would have to mimic the growth path of China (with all its ghastly environmental consequences), which would be impossible for the United States and Europe and unthinkable almost everywhere else (apart from, say, Turkey, Iran and some parts of Africa). Throughout these last forty years, it is worth remembering also that there have been multiple traumatic crises, usually localised, cascading around the world, from South-East Asia and Russia in 1998 through Argentina in 2001 to the almighty global financial crash of 2008 that shook the world of capital to its very roots.

But it is here that the cautionary tale of Malthus’s mistaken dystopian vision ought to give us pause. We need to ask: in what ways can capital accumulation change its spots to adapt to what appears a critical situation in order to reproduce itself? There are, in fact, a number of key adaptations that are already occurring. Can the difficulties be staved off and if so can they do so indefinitely? What
behavioural adaptations, akin to Malthus’s ‘moral restraints’ (though the term ‘moral’ will hardly end up being appropriate), might reshape the accumulation dynamic while preserving its necessary essence of compounding growth?

There is one form that capital takes which permits accumulation without limit and that is the money form. This is so only because the money form is now unchained from any physical limitations such as those imposed by the money commodities (the metallic moneys like gold and silver that originally gave physical representation to the immateriality of social labour and which are largely fixed in terms of their global supply). State-issued fiat moneys can be created without limit. The expansion of the contemporary money supply is now accomplished by some mix of private activity and state action (via the state–finance nexus as constituted by treasury departments and central banks). When the US Federal Reserve engages in quantitative easing it simply creates as much liquidity and money as it wants at the drop of a hat. Adding a few zeros to the quantity of money in circulation is no problem. The danger, of course, is that the result will be a crisis of inflation. This is not occurring because the Federal Reserve is largely refilling a hole left in the banking system when trust between the private banks broke down and interbank lending, which was leveraged into massive money creation within the banking system, broke down in 2008. The second reason why inflation is not on the horizon is because organised labour has almost zero power (given the disposable surplus labour reserves) in these times to raise wages and thereby influence the price level (though class struggles in China have raised labour costs there marginally).

But, plainly, the perpetual accumulation of capital at an exponential rate by way of an exponential creation of money is almost certain to end in disaster unless accompanied by other adaptations. Let’s go through a number of these before deciding whether they add up to what a sustainable future for the reproduction of capital might look like under conditions of perpetual compound growth.

Capital is not only about the production and circulation of value. It is also about the destruction or devaluation of capital. A certain
proportion of capital is destroyed in the normal course of capital circulation as new and cheaper machinery and fixed capital become available. Major crises are often characterised by creative destruction, which means mass devaluations of commodities, of hitherto productive plant and equipment, of money and of labour. There is always a certain amount of devaluation going on as new plants drive out old before their lifetime is over, as more expensive items are replaced by cheaper items because of technological changes. The rapid deindustrialisation of older industrial districts in the 1970s and 1980s in North America and Europe is an obvious example. In times of crisis, of war or of natural disasters, the devaluation can be massive. In the 1930s and the Second World War losses were considerable. Estimates from the IMF suggested that the net losses worldwide in the financial crisis year of 2008 added up to close to the value of one whole year’s global output of goods and services. But large though these losses were, they did little more than generate a brief pause in the trajectory of compounding growth. In any case, as property values recovered, particularly in the USA and the UK, where they had been hit hard during the crisis, so a lot of asset values were recovered (though, as always, they now lay in the hands of the rich folk, thereby contributing to the massive regressive redistribution of wealth that, in the absence of revolutionary interventions, typically occurs in the course of a crisis). The devaluations would have to be vastly greater and longer-lasting than those experienced in 2008 (closer, perhaps, to those of the 1930s and 1940s) to really make much of a difference.