note: this analysis was originally intended to appear in Insurgent Notes 5. However it is unlikely that IN will appear before the end of December, 2011, and I do not believe that IN can be a significant weapon of analysis and agitation with this infrequency of appearance. I don't think TWR can become that weapon either, but at least there's less waiting. So I have "resigned my position," actually discontinued my presence on the editorial board of IN. I'm sure there will be further opportunities for collaboration and disagreement with the comrades of IN, and I certainly hope to remain personal friends with them.
Chapters, 7, 9, 11, 13
1. Radio Nowhere
By the time you re-read this, it will be obsolete. Greece will have declared bankruptcy, and the European Union will have to decide whether to issue EuroBrady bonds or implode, realizing too little and too late, that it, the European Union was an idea conspicuous only in its absence.
Housing markets will continue to contract with prices, and new starts marking successive monthly declines. Commercial real estate ventures will find themselves unable to refinance portions of the $1.4 trillion in debt, direct debt and asset backed securities, coming due in the next 6 months. “Re-defaults” will become the label attached to, and identified with this new wave of seizures and foreclosures.
Copper prices will continue to decline, followed by steep declines in oil, coal, steel prices, and both container and dry-bulk shipping rates.
World trade expansion will slow and stop at a level between its 2007 peak and 2009 low.
Paralysis in the markets will be matched and over-matched by actions in the streets as strike-waves course through the UK, Ireland, Spain, France, Italy, Greece, Portugal, Russia, Venezuela, Bolivia, Argentina, and Chile.
China’s real estate market, the focus of so much investment, so much construction, and so much debt will wobble, and then tumble with bond failures and debt delinquency reaching 40% of notional values. At the same time, and as a consequence, China will be gripped by the protests of the rural population fighting their dispossession from, and despoilment of, common lands.
In the United States, the Bank of America [with a perfect name and balance sheet to match] will have followed in the path of its European cousins, and will find itself locked out of the commercial paper money markets. Bank of America will then find its creditor of last resort, the Federal Reserve unable to, if willing, to accept the $100 billion or so in delinquent or foreclosed mortgages as collateral, as the Fed maneuvers to keep Europe afloat with open-ended currency swap lines. The collapse of BofA will make that of Lehman Bros. look, and feel, like a picnic, a walk in the park, fun. The bourgeoisie will think back and recall 2008 fondly, nostalgia being the one market strategy providing positive returns.
So with this guaranteed obsolescence in mind, let’s try to catching up.
2. Chain of Fools
The bourgeoisie stumbled through 2009 like a drunk staggering away from the car he just wrapped around a tree, thanking his god not so much for his life but for the bottle that remained unbroken in his pocket, because it was in times like these that a man really needed a drink.
That’s how the bourgeoisie spent 2009: bloody, torn, hooked up to a drip feed of morphine, vodka, and cash.
2010, however, was a different story, or at least it was supposed to be a different story. Supposedly, the wreckage had been cleared away. Supposedly all that intensive care had done the job. “Good as new,” said he as he tried out his new government issued legs, patted lovingly the bulge, his wallet, which meant he was happy to see everyone and there was a gun in his pocket.
He couldn’t wait to get back behind the wheel of his structured investment vehicle. Grabbing the keys and his bottle, he OJ Simpsoned his way behind the steering wheel, turned the ignition, took a long pull on the bottle, slammed the car into reverse and took off like a bat going into hell, backwards, only too eager to do what he did best—hit and run.
And that’s how capitalism careened its way into 2011, backwards, drunk, at a high rate of speed, smack into the concrete pillar that marked the spot where that tree used to be.
The recession of 1969-1970 signaled the end of the post-WW2 golden era for US capitalism. When the rate of profitability turned down under the over-accumulated weight of the means of production, the bourgeoisie adjusted the program of “guns and butter.” The guns would remain of course, since all the guns that mattered were theirs. And the butter? All the butter that wasn’t theirs was to become the target for all the guns that were.
The bourgeoisie in general, led or driven by the US bourgeoisie in particular, girded their loins and loans, screwed what courage they could find in others to the sticking point, and plunged into their great offensive; and offensive that is defined today as it was in 1973 by two events, dual assaults on the living standards, and the lives, of workers and poor. One assault was Pinochet’s upon the working class of Chile, accumulation by the bayonet. The other pincer in this maneuver was the OPEC-led price increase of oil, accumulation through the drill-bit.
Since then, the bourgeoisie have organized profitability, more or less, and more consistently than less, around reducing the living standards of the working class and the poor. Moving wealth up the social ladder and everybody else down, that has been the bourgeoisie’s ticket to business class.
For almost 40 years the bourgeoisie of the advanced countries have made their living in this practice of distressed accumulation, anointing themselves with West-Texas-Intermediate, as the great liquidators.
In the past, the bourgeoisie had revised their old algorithm of accumulation— “to get rich by appropriating the unpaid labor of others”—and more than once. In their attenuated rule, they had deployed and employed version 2 of the algorithm—“to get rich not by appropriating unpaid labor of others, but by pocketing the wealth accumulated by those appropriating the unpaid labor of others”—pretty much on a daily basis.
The version deployed in the late 1970s, expanded and refined in the 1980s, deregulated in the 1990s, and practiced in the new century with religious, and scientific, quantified fervor almost obscured its own genesis in the original algorithm, v.3 read—“to get rich by liquidating that wealth pocketed from those who had accumulated it by appropriating the unpaid labor of others.”
Capital is nothing if not increasingly derivative, and the truths of these derivatives of accumulation is the same as the truths of the derivative investment products in the financial markets: there is no value intrinsic to, produced in, provided by the derivative product while, at the same time, the derivative in its value-less-ness is the fully developed expression of the mode of production that transforms products into values, and surplus product into surplus value.
4. Ask the Angels
If the bourgeoisie have been at this for almost 40 years, if successive assaults on wage rates, benefits, employment, health, education, any and every apparent manifestation of social equality, if all that has been the order of the day for the last 14,000 days, is there anything really that different about the current conditions, the current configuration, the current predicament of capital? Is this, the period beginning in December 2007, a crisis?
Certainly, the historical data confirms the assault of capital on labor—the decline in the number of industrial workers, the disproportion between improved labor productivity and labor’s declining share of the national income; the increasing numbers of temporarily employed, marginally employed during periods of “expansion,” the increases in numbers of unemployed and the duration of unemployment during contractions; the numbers eligible for and dependent upon on food stamps; the rise in children born into poverty. Statistics like these earn economics its label as the dismal science, which label, like everything else about political economy is half-right and all wrong. Dismal? Without question. Science? Not exactly.
Marx in volume 3 of Capital puts it this way:
Crises are never more than momentary violent solution for the existing contradictions, violent eruptions that re-establish the disturbed balance for the time being. [Marx, Capital, volume 3, Chapter 15, “Development of the Law’s Internal Contradictions,” p. 357, Penguin, 1981.]
A crisis can persist for several years. But if an economic condition, pattern, predicament has lasted for 40 years, it’s not a crisis, it’s a business plan.
Certainly, the condition of capitalist accumulation during the last four years can accurately be characterized as critical—desperate, urgent, and… necessary.
However, the last four years qualify as something more, much more than a crisis. They count as a period when the crisis mechanism has been proven inadequate to re-establishing “the disturbed balance for the time being,” because, in part, there is no “balance” disturbed or otherwise to be restored, and because there is no longer time “for the time being.”
5. Just a Word…
Too much is never enough when it comes to summer, Beethoven, October baseball, and the Rhythm Revue dance party [www.classicsoul.com]. Too much, however, is made of the notions of “balance” “equilibrium” “proportion” as the normal, and normative conditions for capitalist accumulation… as if capitalism requires balance, aims towards equilibrium, produces proportion as necessary conditions of its reproduction…as if capitalism periodically disturbs the scales that have balanced, upsets the equilibrium that exists “naturally” in the economy, overturns the proportions between and among the sectors of its economy, and those are the reasons for capitalism’s short-term crises and structural decrepitude. Even Marx refers to “restoring the balance” in his discussion of crisis.
Balance, equilibrium, proportion are moments in capitalist reproduction and not determinants of that reproduction. Balance is something that exists mostly, and most conspicuously, in its absence. Equilibrium, as is the case with its political sibling equality, is a purely formal and superficial designation in political economy, an advertising program.
Imbalance, disproportion, disequilibrium are likewise moments in capitalist reproduction. However, unlike balance and equilibrium and proportion, which are random occurrences in the reproduction of capital, disproportion, imbalance, disequilibrium are essential to that reproduction. These form the intra-mediations of capital—the mechanisms by which capital concentrates itself, centralizes itself, aggrandizes parts of itself on behalf of its whole.
In the Marx’s critique of political economy, his explication of the critique immanent to capital at all moments and in all facets of its existence, dynamic disequilibrium, punctuated imbalance, chronic disproportion are revealed as the truth of that whole.
Imbalance and disproportion are everyday expressions of the laws of accumulation and stand in relation to those laws as price stands to value, that is to say the agent of the laws.
6. Taking the K.A.S.H.
Capitalism’s recovery from the 2001-2003 recession was not organized around expanding consumer credit, reduced interest rates, or “exuberance”—rational or irrational. That recovery had two sources. One was the rigorous control of capital spending. The sustained increases in capital spending during the 1994-2000 period had driven profit rates down from their 1997 highs. Expansion continued after the profit rate turned, as it usually does. What’s the point of all that investment if it isn’t used to increase the mass of commodities forced into the markets?
Expansion in the information, communication, and transportation sectors of the US economy were particularly acute, as logistics were better controlled, and logistic costs [warehousing, transportation] declined throughout the economy. Transportation, communication, logistics—for capital to complete any of its metamorphoses, it has to move, or rather be moved, even if the movement is but a representation, an image, a cascade of zeros and zeros + ones that define the virtual content of the current reality.
By the end of this communications and control “revolution,” it was estimated that 97 percent of all fiber optic cable installed in the United States was dark, carrying no signal, no data; without function. Function, under capitalism, is a bit different and a bit more than simple use. Function is a capital relation, a social quality, where and when the commodities enter into the reproduction, the expansion of the mode of production; where and when in fact, the commodities “live” by giving up their “lives”—the value accumulated, embedded in them—to more production, that is to say to the aggrandizement of more labor. A fiber optic cable exists to transmit data point to point, but capital survives only by engendering more capital.
The bourgeoisie, after 2003, were determined to enforce that survival by consuming their fixed assets without replacement for as long as possible.
This certainly wasn’t the first time the bourgeoisie had attacked the accumulation of fixed assets. For years, the bourgeoisie had been engaged in asset-stripping, asset-liquidation schemes involving industrial, manufacturing, and transportation companies.
Somebody somewhere had figured out that the parts were worth more than the whole, as long as the whole could be made smaller. So, a private equity company using a leveraged-buyout shell corporation would launch a tender bid for outstanding shares of a target company, particularly a manufacturing company.
The target would be acquired, and the asset-strippers would take the company private. With the company now private, with the asset-strippers in control of the target’s cash and cash flow, the asset strippers would award themselves a special dividend, with the target company assuming high levels of debt to make the payment. Then, with the target burdened with debt, the strippers would begin selling off the businesses of the company, using these revenues to retire portions of the debt, while rewarding themselves with further cash payments.
At the end of this process, what remained of the target was just that—remains.
This technique was honed to its imperfection during the reign of that idiot-hero of capitalism, Ronald Reagan.
In the Reagan version of liquidationist capitalism, industrial production was subordinated to finance. The huge cash pools generated in asset liquidation flowed through and to the banks, and leveraged the banks’ control.
In the Bush version, that is to say the idiot’s version of the idiot’s version, the restraints on fixed asset accumulation and the attack on wage rates effectively detached the major industrial and manufacturing corporations from dependency on bank financing. In the European Union banks provide 80% of the financing for non-financial corporate sector, while in the US only 30% of the financing is provided by banks. It’s not that “cash is king” for US industries. It is that “cash generation is king.”
And the banks? With the distinction between commercial and investment banks abolished, and with their access to a portion of the profits generated in production severely restricted, the banks turned with renewed zeal to the next best thing, securitized consumer lending. The difference between securitized consumer lending and corporate is that lending to corporations involves a claim against future earnings, future extractions of surplus value. The securitized consumer debt was established as a trading position where there were no earnings to be claimed, except from the counter-party to the established position.
The “asset” itself was dead, having become an object of consumption. Restoring such an “asset” to the assumed imagined life of capital, of the commodity, required the collateralization of the security representing the asset. Since there were no future earnings to be generated by the asset, since the asset did not and could not reengage with wage labor, the collateralization of the security encumbered the assets with levels of debt that required the devaluation of any collateral so encumbered. Sooner or later, the value supposed to exist in, actually superimposed upon the collateral, had to prove itself as a cash value. “Dead” assets can only prove their value through their liquidation. The asset-stripping liquidationist bourgeoisie had proved that in the 1980s by killing “live” assets through the assumption of debt, hadn’t they?
The bankers, hedge-fund traders, structured investment used-car salesmen, our no-memory, history is bunk, short-attention-span buccaneers forgot that. In taking their trading positions, in creating their structured investment vehicles, in committing their collateral to the securitized debt, the banks were, in effect, sheep thinking they were leading lambs to slaughter only to find that mutton was the menu of the day on the killing floors.
When the new home construction market peaked in 2006, and then began its decline in 2007; when HSBC reported in 2006 that increasing numbers of its mortgage borrowers were falling into delinquency; when the rate of return peaked for non-financial corporations in 2006; when oil prices exploded in 2007, channeling profit to the energy companies, sooner and later both came together in the collateralized debt, asset-backed securities market. Devaluation raced through the network of parties and counter-parties like the Spanish influenza. The markets froze. The securities could not be valued by the markets as the underlying assets themselves were value-less.
7. Stuck in My Car
The Great Recession officially began, according to the US National Bureau of Economic Research, in the 4th quarter of 2007. The depth of the contraction was the sharpest since the Great Depression of the 1930s. Comparing 2009 to 2008, the manufacturing sector eliminated 15% of its work force, cut 15% of its wage bill for production workers, reduced production hours by 16%, shipped products amounting to 19% less value, and allotted 22% less for capital expenditures [figures from the US Census Bureau Annual Survey of Manufacturers: http://fastfacts.census.gov/servlet/IBQTable?_bm=y&-ds_name=AM0931GS10].
The reward for these efforts materialized in improving rates of return on net property, plant and equipment. After-tax profit as a percentage of the net PPE which had measured 2.6% in the 1st Q2009 improved to 7.5% in the fourth quarter. By the 4th Q2010 the rate had reached 9.5%, and in the 2Q 2011, the ratio reached 12.5%, praise the lord [figures derived from the US Census Bureau Quarterly Financial Report http://www.census.gov/econ/qfr/]
Here’s where things start to get sticky. And to slow down. The boost to profits has been provided exclusively to the rate of profitability and not to the mass of profits. Manufacturing profits after taxes remain 30% below their 2006 peak, and 20% below their 2007 level. The recovery from the 2009 low has been provided almost entirely through the decline in the wage-bill. Fixed production assets in manufacturing, transportation, circulation have not been reduced, consumed, liquidated. In 2007, US fixed assets in the agriculture, mining, utilities, construction, manufacturing, transportation, and information sectors totaled $8.148 trillion. In 2010, that total had grown to $8612.6 trillion.
As production increased through 2010 and the first half of 2011, growth in profits was driven by increased productivity of labor—more and more fixed assets were brought online and more and more output was extracted from the [reduced] units of labor. Such growth is circumscribed by the labor so employed. So as expansion increases, more labor will be demanded, and consumed for each [declining] increment of increased production. “Speed up” increases in productivity must inevitably slow down. Further increases in output require a disproportionate increase in working hours, increasing workers’ compensation and unit labor costs as fixed assets themselves can no longer amplify the productivity of labor. Despite the continued low utilization rates, bringing greater fixed assets back into production will undermine the very basis for the recovery as the wage-bill climbs.
On October 13, 2011 the US Bureau of Labor Statistics reported that, compared to the 1st Q 2011, productivity in the 2ndQ 2011 for the non-farming sector decreased 0.7% as output increased 1.2% while working hours increased 2.0%, leading to a 3.3% rise in unit labor costs. Unit labor costs in manufacturing increased 4.6% on a quarter to quarter basis, but only .4% on the year to year basis.
This is not a “wage-push” eroding profitability. It is a capital constraint upon profitability, and will result in first, a flattening of the profit curve, and then a real decline in earnings. It is precisely that [fore]shadow of the decline in earnings that has brought our capitalists full circle from greed to fear to panic.
Without improving earnings, the remaining overhang of non-performing debt—perhaps some $2 trillion in mortgage based debt in the US alone cannot be mitigated. The banks cannot be rescued, again. The sovereign debt of the EU “periphery,” and the debt-holders, cannot be protected from the gathering tidal wave of devaluation. This is what drives the bourgeoisie into both expanding belligerence and increased paralysis.
Now certainly, there is no established, fixed decline the rate of profit below which capitalism cannot function, cannot recover. But there is also no decline in the rate of profit that capitalism, and its personified agents, the bourgeoisie, can afford to ignore, dismiss. The bourgeoisie understand this, even in their panic, especially through their panic.
The next “round” in the capitalist cycle of devaluation has already begun. The thing about accumulation is… well, that it accumulates; that the problems to the reproduction of capital, and the impairment of the reproduction of capital are indeed, cumulative The response of the bourgeoisie will be, and necessarily, even more of the same, “more” in such quantity that it becomes qualitatively different—with levels of privation, brutality, and immiseration imposed upon the working class different in degree and kind, with destruction of the accumulated assets of capitalism weighing like a concrete overcoat on the backs of the living. The response of that and those living must begin with “de-funding” the source of devaluation, the debts, and then removing the source of the debts, the capitalist mode of production.
October 19, 2011