The capitalist calculation problem posted by Richard Seymour

Explanations for the global financial and economic meltdowns generally focused on a few particulars. For the right, poor people caused the crisis through reckless borrowing, while the subsequent deficit was made worse by reckless spending on the poor. Worse than the poor themselves are the socialistic legislators who introduce ridiculous laws forcing companies to cease practises such as 'red-lining'. For the centre-left, the power of a barely regulated financial sector allowed the banks to make irresponsible decisions, and speculators to wreak havoc with economic stability by blowing bubbles then bursting them and making off with the dough. Though more sociologically realistic than its rightist competitors, this account neglects the reason for the financial turn in the first place, which was the otherwise intractable crisis of capitalist profitability.

The underlying problem is the impossibility of rational economic calculation in a capitalist system. Decisions have to be made by competing private firms which consistently misrepresent themselves to one another, to their workers, to their creditors, and to their consumers. As we usually discover in the middle of a crisis, misrepresenting one's assets and rate of return is normal practise for a capitalist entity. Not only that, but they consistently undermine any basis for predictability, and thus for rational calculation by revising the terms of their production, by downsizing, by cutting wages, tossing aside worker-management agreements, etc. etc. The only mechanism for calculation within the sphere of private accumulation is competitive market pricing. To see this as a secure basis for economic calculation, one has to also accept a number of philosophical and normative commitments that are quite eccentric: extreme methodological individualism, subjective value theory, the Kantian epistemology of the Austrian school, etc. These are not ideas one subscribes to lightly, or without a delight in perversity.

In fact, market pricing can tell us a thing or two. It can tell us something about the range of options available to us, with our cash, as private consumers or entrepreneurs. It can tell you what each purchase or investment will cost you. About the social effects of market transactions, however, it can't tell us a thing. This is no small matter. A system that persistently closes off fields of information to us, disclosing only that which pertains to our individual aggrandisement, is one that rewards behaviour that, while beneficial to the individual capitalist or consumer, is socially destructive and irrational for the economy as a whole. As to the information relevant to investment decisions, market pricing discloses surprisingly little. Suppose you are a capitalist. What will be rational to invest in tomorrow depends on what other capitalists are planning today. But whether what they are planning will work depends on what you are planning. And being capitalists, you don't share information around willy-nilly. It isn't the done thing. More to the point, you would need some sort of aggregate information about projected social needs, long-term developments, demographic changes, etc. Market pricing will tell you something about what was in demand yesterday, but it can't tell you what will be in demand thirty years from now.

So much the worse if you aren't a capitalist. If you're a capitalist, your only problem is how to improve returns on investment, usually in the short-term. Beyond that predatory social role, a whole series of problems enter one's vista. The question of how to rationally allocate investment, and structure social consumption in a rational manner, involves prioritising needs and wants in a way that requires information that market prices don't provide. Do you build social housing, raise incomes, or invest in a new marina? If you're a capitalist, it's easy - the marina offers more returns, hence more money for future investment and accumulation. If you're not a capitalist, other considerations hove into view. Or take pensions: how much of the social product should be set aside for future consumption? Should this be a fixed amount, or does justice demand that it increases as social production increases in the future? And what sort of infrastructure and public goods will future generations need? What about 'green' development? The only way market prices will help anyone make such decisions is by alerting investors and consumers as to what such decisions will cost them in the immediate term - hence, the attempt to meet such challenges through engineering market-driven, financialised measures such as carbon trading, pensions linked to the stock markets, etc.

In the real world, rational economic decision making is only possible to a limited extent due to the existence of an extensive non-market sphere, socialised public bureaucracies, national statistics agencies, offices for public planning and development, local authorities with oversight, etc etc. Tellingly, their behaviour becomes more irrational, wasteful and incompetent the more they are penetrated by marketised logic, the more they attempt to behave like corporations. They accumulate high overhead costs, duplicate capacity, fail to collect relevant information, and undermine the very rationalising aspects of service delivery that they are there to provide.

The core of the capitalist calculation problem is this: as a system of competitive accumulation, it involves individual capitalists in attempting to extract surplus value from the unique commodity known as labour-power; but to realise that surplus value, they must be able to occupy more of the market than their competitors, and engage in labour-saving innovation and rationalisation; but while this may be rational for individual investors on the basis of current market prices, in the aggregate it results in less labour-power being employed across the industry, thus a reduction in the total surplus value produced*; so while individual capitalists can increase their share of total surplus value, the aggregate tendency will be for the rate of return on investment to decrease, thus for investment itself to decrease, and in the long run for capitalism to enter into repeated crises and contractions. Irrational and anarchic, crisis-prone, with no means of rational planning and prediction, and ultimately bailed out by governments who socialise its losses, capitalism has one hell of a calculation problem.

Meanwhile, I hear tell there's a socialist calculation problem...?

*Update. Rick Kuhn points out that there is a mistake here: "This says that there is a fall in the absolute amount of labour-power employed and sv produced. In fact the organic composition of capital can (and often does) rise as the employment of labour power expands and the absolute mass of surplus value created rises. The issue is that new investment is more capital intensive so there is less labour power (and, given a constant rate of exploitation, surplus value) relative to total capitalist outlays on labour power and constant capital. The decline in the rate of profit may choke off investment before a decline in employment which is then a consequence of the crisis. Conversely, boom phases during which there is both rapid investment can be accompanied by both falls in the organic composition of capital and rises in employment."

Labels: 'free markets', capitalism, hayek, market metaphysic, menger, mises, neoclassical economics, neoliberalism, prices, rate of profit, wages

No shit. posted by Richard Seymour

After seeing the latest batch of dismal economic statistics and hearing ominous noises about new cut-backs and another round of lay-offs, I was going to write one of those posts pointing out that "It's worse than you think". I don't need to now, since the Chancellor has just come out and said we are in for the worst economic downturn in sixty years. The reason why it could get particularly bad in Britain was spelled out by Larry Elliott a while ago. To wit, the government's babbling insistence that Britain is particularly well-placed to withstand a credit crunch is absolute drivel, because the government's growth strategy has depended to a large extent on the City, even as they have allowed over 1.5 million manufacturing jobs to be lost. Having allowed the fundamentals of the economy to be eroded, there is little to help us weather the financial storm. Further, the government has relied on a personal debt surge to sustain consumption, with the total amount of debt more than doubling since 1997. The ratio of debt to disposable income in the UK was 162.9 percent [pdf] as of late 2006, which was even higher than the figure in the US. Real household incomes in the UK have risen by only 0.35% a year since 2001-2. Now that the debts are being called in and credit is increasingly difficult to get, we are arguably more exposed to a terrifying slump than America, which has a far more activist state, much more investment in manufacturing and is very quick to slash interest rates should the going get tough.

Officialdom is torn between the need to alleviate the problems faced by industry and the desire to avoid strengthening labour's hand. Take a look at the battle going on over interest rates in the UK. Practically everyone outside the Bank of England appears to be pleading for a cut, including the most powerful sectors of capital. The only person on the Monetary Policy Committee who has been calling for a cut, however, is the labour economist David Blanchflower. His colleagues argue that rates have to be kept high to counteract potential wage rises. In fact, far from the likelihood of real-terms wage rises being unleashed by a rate cut, real wages have fallen. In the last quarter, median wage rises were 3.5%, but the inflation rate (CPI) rose to 5% in the same period. At the same time, however, outside the UK Continental Shelf (oil and gas), profits have been falling - from 6.6% to 4.9% in manufacturing, and with a slight dip of 0.1% in the services sector. An overriding priority of capital, therefore, is to curb its costs. If they can't transfer the costs to workers as producers, in terms of real wage cuts, they will try to transfer them to workers as consumers, in terms of price increases. The government has taken the lead on this with its incomes policy in the public sector, cutting real wages for millions of workers. This is why wages rose by only 2.7% in the public sector, compared to 3.8% in the private sector, last quarter.

The political class is hardly divided on this question: the argument is only over the rate at which the burdens of the recession should be transferred to workers. The Tories are taking the opportunity to demand a tax cut for businesses. Cut taxes for capital, and you're going to have to cut public spending on services depended on by the poor. Either that or, as the Tories have a propensity for doing, tax consumption more. The trouble they will almost certainly face in a year's time, barring a Lazarus-like revival for the government, is that pay cuts have stimulated successive waves of labour struggle, which are likely to intensify as the crisis worsens. It will be a raucous period, whoever governs, simply because we can't afford to let them pass the costs of their crisis onto us. And I'm not talking about 'we might have a one day strike and hope the government makes a small concession'. It has gone way beyond that: with ongoing real-terms wage cuts, and an anticipated 2 million officially unemployed by Christmas (meaning the real unemployment rate will be over 3 million), government efforts to discipline trade union members through their leadership are apt to flounder. If the present course continues, it will probably lead to acts of violence in Grosvenor Square.

Given that Alistair Darling can see the shit hitting the fan in slow motion, does he have any solutions? Well, no. The government is still pursuing its blessed "knowledge economy" [pdf], as evidenced by the continued encroachment of private capital into academic institutions and the recent announcement that City Academies might run failing primary schools, even as the academies are themselves failing. It is devoted to neoliberal policy solutions, which is why it is set to plough a billion pounds into the nationalised Northern Rock even as they slash jobs, just to keep it running as a possible private sector entity. Brown remains intransigently opposed to any windfall tax on energy companies who are reaping obscene profits while we... well, you know what we reap. Even the moderate lefties at Compass are starting to sound like class warriors in contrast to this spent administration (not that the Compass group of MPs have a spine between them). There is going to be no relief for manufacturing: the government isn't about to abandon a strong pound when London is the financial centre of the world and try to build an export-driven manufacturing economy. I need hardly say that all of this punishes Labour's core voters for the benefit of the wealthy, just when the collapse of the core vote is looking deadly to the government. This is why it could be heading toward another 'heartland' wipe-out, this time in Glenrothes (where, lord save us all, Gordon Brown is 'masterminding' Labour strategy). And to think - the only likely alternatives to Brown that the big battalions of the labour movement can produce are Alan Johnson and David Miliband.

Labels: economy, interest rates, new labour, prices, recession, strikes, wages

The double squeeze posted by Richard Seymour

When the economy tanks, prices are supposed to go down as demand slumps. The trouble is that prices are soaring, particularly in the commodities that people most need. I expect many people will, like me, have noticed the weekly food bill going up. Food prices have apparently risen 20%. Alongside food prices, the latest news is that energy prices are set to go up by 40% this winter. This compounds already existing rises in fuel prices, and it also comes at a time when New Labour has scrapped the winter fuel allowances for pensioners. At the same time, the Bank of England is determined the keep interest rates high and even considered raising them this month. The tight credit market drives up the real cost of borrowing as it is. One effect is to drive would-be home buyers off the market and force them to seek rented accomodation. That's driving up rent already, with an overall rise of 6% (a figure that conceals even sharper rises in particular locations). The Bank of England raises interest rates to curb inflation, but the theory is that such inflation results in normal circumstances from an overheating economy or 'excessive' wage demands. This inflation, however, is the result of speculators moving from riskier margins to blue chip stocks, as the subprime collapse undermines the allure of high-risk, high-profit investments. So, what the Bank is actually doing is knowingly restricting consumption when times are already tough. The signs are that they will drive interest rates up further. So, we're being hammered from every direction.

The only hope is the kind of collective resistance that will be displayed in the public sector pay strikes this summer. Note that the Shell fuel tanker workers won a 14% pay increase as a result of their strike, causing the CBI to worry that there will be a summer of discontent. In the last year alone, strikes in the public sector have risen by 25%. That's a trend that is likely to continue, although those calling for tougher militancy will face the argument from New Labour supporting union leaders that they have to scale back the action in order to do least harm to the government given the prospects of a Tory victory in 2010. The unions have got precious little from the government for previous acquiescence, and the Brown administration has moved far enough to the right to given an opening to its Left for David Davis of all people - he, who would restore the death penalty and isn't too hot on gay rights. What is more, when people feel helpless and desperate they can very easily swing further to the right - inaction on the part of organised labour may actually help hand the Tories a victory. Nonetheless, the argument will be made and heard, and the contest will then be between loyalty to Labour - eroding rapidly, but still quite strong among some - and the desperate need to pay the bills.

Labels: economy, energy, interest rates, prices, profits, strikes

The Cost of Labour posted by Richard Seymour

Given that New Labour were the ones who tried to stoke up anti-immigrant xenophobia in Crewe and Nantwhich, on the assumption that the 'white working class' is basically racist and authoritarian, we can almost bet that the government will place themselves to the right of the Tories on this question at the general election despite the evident failure of this strategy by yesterday morning. That is, while the Tories will be trying to position themselves as the nice party of progress, disavowing the furious xenophobia and anti-Islamic bigotry of the Conservative Party from base to peak, New Labour will do all but throw on the jackboots and chant "skinhead, oi oi" in the vain hope of staking out a 'populist' territory. Am I over-stating the case? Is this overly pessimistic? I don't think so. If the experience of Margaret Hodge didn't teach the Labour leadership that pandering to racism just bolsters the far right, then nothing could, not even the loss of 18.2% of the vote in a heartland seat on a high turnout.

Undoubtedly, many Labour members thought the campaign was disgusting. They will agree with Compass that the campaign was "poisonous" and "smacks of the poison spread by the far right". They will plead with the party bosses to come up with something to deal with spiralling inequality and slightly ameliorate the class structure that is generating so much justified resentment. And they can even offer a pragmatic argument, if no one will listen to the principled one. They can say that if the government stokes up racism about immigration, they can't expect to benefit from it because the racists will quite logically say that it happened under New Labour's watch and vote for someone else. But is anyone listening? Are there any forces capable of making this point heard? Does New Labour even have anything else to offer? Like I say, I think not. Brown may be overthrown, but he'll only be replaced by some oleaginous Blairite. We are just going to have to get ready for a 2010 atrocity, with all the filthiest rhetoric about immigrants and 'yobs', and all of the worst aspects of the government's social authoritarianism given a full public airing. The only possible antidote is the antifascist movement which, if it mobilises quickly and en masse, can undermine the vague 'respectability' that the media and politicians have been giving to racist arguments about migration and Muslims. As a start, United Against Fascism and Love Music Hate Racism have called a national demonstration against fascism and racism on 21 June, starting from Tooley Street behind the London Assembly building.

Anyway, that's a long intro to what this post is actually about. Anti-racist argument about immigration rightly stresses the contribution that immigrants make to the economy and the society in general. The TUC points to the benefits to public services, and our growing need to make up a labour shortfall caused by a declining birthrate and a longer life expectancy. We rightly point out that services we value could not have been built without the work of migrant labour. When we are told by some who should know better that immigration pushes wages down, empirical refutation isn't difficult to find. For example, a recent study for the Low Pay Unit found that overall pay tends to increase a bit as a result of immigration, although the lowest paid might experience a slight fall. Even conceding for a moment the ridiculous idea that addressing domestic inequality by raising barriers to preserve global inequality is some form of social justice, the evidence suggests that restricting immigration is a poor way to reduce domestic inequality. One kind of argument that sometimes comes out though, especially from pro-market commentators, such as Nigel Harris (whose book Thinking the Unthinkable is a very good treatment of the whole topic, despite his present neoliberal orientation), is that immigrants do the kinds of jobs that 'indigenous' workers will not, and that this leads to economic growth. Such is the view propounded by the Home Office. Now, it is just uncontroversially the case that, for example, the recently influx of Eastern European workers into the UK did stimulate growth and coincided with an overall rise in real pay for most workers. Undoubtedly, those workers were filling a supply gap that was not being met otherwise. Yet there are two problems with this kind of argument. The first is that it implies a kind of voluntary unemployment by British workers. The second is that it implies that the exploitation of migrant labour is okay, and actually a good thing. This may be a logical argument for some elements of the CBI, but it isn't our argument. It is true that the argument implicitly favours a freer movement of labour, against the global management and coercive systems (border controls, visa and pass systems, detention centres, extensive surveillance etc) which seriously weaken our class. To that extent, it is superior to the anti-immigration argument from the likes of Polly Toynbee, who has falsely argued that higher immigration leads to greater competition for work and lower wages all round. But it still misconstrues the case.

I find it useful just to look at what Marx said about the source of wages. In Capital, Volume I, chapter six, the argument is put that wages are the payment, not for labour, but for labour power. That is, capital is augmented (makes a profit) because it withholds a definite quantity of unpaid labour. What one is paid for is labour power, one's capacity to work, understood as "the aggregate of those mental and physical capabilities existing in a human being, which he exercises whenever he produces a use-value of any description." One is paid so much as is necessary to reproduce that labour power in its "normal state" - Marx speaks of reproducing the means of subsistence, but here he clearly refers to a historically produced subsistence as opposed to the minimum amount of nutrition, clothing and so on that one could possibly live with. The means of one's subsistence can include sufficient wages to use the internet, purchase a car, mortgage a house or pay rent on a flat, have the normal range of consumer durables, including a washing machine and perhaps any other labour-saving device that allows you to get to work on time and have sufficient hours after the working day to unwind and recuperate for the next eight hours. It would also include support for a family, which is after all the unit through which the labour is replaced. If you look at the UK national minimum wage, or the US mimimum wage, the level is determined not by reference to some ahistorical level of bare subsistence, but by how much it costs to reproduce one's labour in the here and now. If the rate is far too low in both cases, this is a concession to the needs of poverty employers whose margin of profit is slight. In comparing the wages of migrant and 'indigenous' workers, one therefore has to look at the determinants of the cost of labour power.

The combined costs of reproducing one's labour power as a Polish worker is lower than the cost of reproducing one's labour power as a British worker. We can suppose this is given some expression in the minimum wage levels in both countries. The British minimum wage is roughly equivalent to 1,190.49 per month, whereas the Polish minimum wage is roughly 329.49 per month. So, suppose a degree-educated twenty-something man migrates from Warsaw to London for a year or two to get some money together. Say he has a wife and small children. As will often be the case, he takes a demotion and works in relatively low-skill jobs for wages that would not sustain much of a life in London, but will support a single man in cheap accomodation and allow him to send a bit home every month. Further, because of his precarious position, the employer has more leverage and can extract more intense work and higher levels of productivity (naturally, the employers prefer to speak of the admirable motivation of such workers, as if it was just a cultural quirk rather than the result of a particular mode of capitalist discipline). In the case of someone who has got here by illegal means, the advantage is even more decisively on the side of the employers. It is a similar story with undocumented workers in the US. So, where a job might have gone unfilled because the cost of reproducing labour was too high for the employer to afford it, suddenly he might be able to hire two or three additional workers. The rate of employment can actually increase dramatically as a result of such immigration, and in fact that seems to have happened.

Necessarily, anti-racists have to play the numbers game. When the right complains that immigration is somehow deleterious to our economy and public services, we rightly point to increased employment, higher growth and increased tax receipts. But of course, the advantage to the employers partially depends upon this international coercive apparatus which loosely corresponds to a global 'colour bar'. It maintains a rough segregation of labour that permits the continued flow of managed migration without allowing the cost of labour power to equalise across nationalities. That is far from the 'free movement of labour', because freedom is impinged variously by quotas, by status differentials, by a plethora of restrictions that are designed to enhance profitability. The basis upon which socialists support free movement for labour is not that it delivers cheaper labour for business, but by contrast that it strengthens us as a class to be able to move wherever there is work, rather than existing as part of a domestically-confined large reserve army of labour. At the moment, European capital supposedly requires 8% unemployment - the 'natural' or 'non-accelerating inflation' rate of unemployment. Anything lower and the bargaining power of labour pushes up the cost of labour power (that's the 'accelerating inflation'), which is disadvantageous to the employers. However, we don't necessarily fancy being appendages to the machinery of capital, and that is what we become when migration is restricted to suit its interests.

Labels: immigration, labour, marx, prices, profits, wages

The (increased) cost of living and dying posted by Richard Seymour

Food prices are at their highest level for fourteen years and a recent surge in wheat prices is going to drive up prices even further. Real-terms inflation for essential goods has been rising dramatically for a while, which means that the cost of living for the poorest is most dramatically affected. Rising global oil prices will compound this effect. Concurrent with this is the continuation a long-term decline in labour's share of income. Andrew Glyn's recent Capitalism Unleashed tells some of the sordid story behind this (although I find fault with his profit-squeeze theory of capitalist crisis), and of course it is a story of the successful temporary restoration of ruling class power following the years of insurgency that terrorised them in the 1960s and 1970s. So it is that in Britain labour has a lower share of national income, a de facto incomes policy designed to lower it even further, and savage attacks on welfare, specifically disability benefits at a time when our living conditions are already being squeezed. Meanwhile, taxes on corporations have been repeatedly cut. Two Labour MPs appeal in vain for the spurning of neoliberalism. There isn't much to be hoped for from the Labour left. Hope lies, as ever, with the proles.

Labels: inflation, neoliberalism, prices, profits, wages

Something else for Gordon Brown to choke on posted by Richard Seymour

Oh dear. Barely his second full day on the job, and already he's got the first national postal strike in more than a decade, and it's solid, and it's aimed at his policies. Socialist Worker has a tonne of reports and pictures coming in from across the country, and it looks like the posties have hit hard. Bear in mind what's happening here: at a time when inflation on necessary goods is hitting the poorest hardest, and when house prices and rents are increasingly unaffordable, Brown is applying brakes on wages. One of the means by which New Labour has always run a tacit incomes policy has been to restrain public sector wage growth, thus setting the trend for the rest of the economy. The attempt to enforce a 2.5% cap on wage rises means that there is a de facto cut. House price inflation stands at 11%. Hidden inflation on essential goods was as high as 9% this Spring. Therefore it's extremely important that the posties break this policy now, while Gordon is still fresh.

Labels: capitalism, gordon brown, postal workers, prices, profits, wages