[OPE] class illusions about the crisis and the state

From: Jurriaan Bendien <adsl675281@tiscali.nl>
Date: Tue Dec 30 2008 - 17:05:58 EST


I recommend that you have a read of Laurence Harris, "The Balance of Payments and the International System", in Francis Green & Petter Nore (eds), Economics: An Anti-Text, Macmillan, 1977. Prof. Harris wrote some very insightful, succinct Marxian essays, and this is one of them.

In vulgar economics, trade deficits and trade surpluses are significant because they seem to say something about the "health" of an economy. Essentially, it boils down to the idea that if you run a trade deficit, you increase debt levels, and vice versa, if you run a trade surplus then you have a capital surplus that can be invested in additional wealth-creation. In this sense, for example, America is supposed to be living beyond its means etc.

>From the point of view of Marxian theory all this is a little naive, not in the least because it abstracts from the different positions of different social classes and types of economic actors in a country.

Firstly, inward and outward flows of goods and services (if you like, "commodity capital") are only one aspect of foreign transactions; just as important, or even more important, are international capital flows of all kinds. Secondly, it is in the nature of finance capitalism that the proliferation of debt obligations becomes to a large extent disconnected from the production and trade in goods and services. Consequently how this trade evolves, may not tell us so much anymore in terms of macroeconomic effects. Thirdly, how foreign trade evolves, doesn't tell us much about the distribution of national income, who exactly gains and loses from it.

Thus, it is possible for a country to run a trade surplus, while its debt levels escalate nevertheless. You can also have a capital surplus and a trade deficit at the same time. You can run a trade surplus, while output growth stays rather flat. And so on. The national account doesn't really tell you much about the real patterns of capital accumulation, precisely because it does not clearly reveal who owns the assets and liabilities, who the debtors and creditors are, and the precise origin and recipients of income flows. In the US, this problem is to some extent bridged by the "flow of funds" statistics. A large chunk of US incomes and capital gains however are not even appropriated within the US, mainly for tax reasons. The same applies to the UK and many other countries. Also imports are re-exported for financial reasons, transfer pricing occurs, etc.

If the state bails out the financial system using public funds, who is really winning? I think you may underestimate the extent to which financiers have the economy "by the balls" so to speak. Within certain limits, fluctuations in exchange rates and current account deficits are really not so decisive. It's more that longterm exchange rate movements tend to reflect the relative productivity, the productive power of a country, but even this is distorted or masked by debt-driven accumulation and speculation. In part, the strength of the pound was simply a result of the fact that the UK has been one of the largest "clearing houses" for international capital transactions.

Obviously you can say that, if the national currency falls in value, this can stimulate production for export and ease current account deficits, but if production for export expands, this does not mean necessarily that the national economy as a whole is better off. In fact it may be worse off, to the extent that goods and services locally produced are no longer integrated in the local economy or benefiting the local population, making balanced economic growth process and balanced development of the local infrastructure even more difficult, if not impossible. The "race to the bottom" metaphor refers precisely to the phenomenon where, in a hierarchy of nations, poorer countries try to "trade up" and sell to richer countries, while in fact locally real wages stagnate or even fall. In this way, the competitive "export-led development" generates ever greater differentials in income and wealth.

In general, the statistical system and economic theory through the 20th century tended to assume, at least implicitly, that those who "used" capital, "owned" that capital. But it is in the nature of finance capitalism that the ownership, control and use of capital are increasingly split among different trading parties, within a very complex system of sub-contracting, which aims to isolate out the most lucrative kind of command over capital resources, and divert less lucrative operations to others, where "lucrativity" means basically obtaining the maximal capital gain with the least effort. Quantitatively, that ends up braking economic growth, and qualitatively it means that all sorts of things that would improve life for hundreds of millions of people simply do not get produced or distributed, because the financial incentives are lacking.

Balance sheets accordingly often show borrowed assets (claims on resources) far in excess of actual equity - the game is, simply put, to borrow or lend an asset and utilize that, in order to extract an income from it which is in excess of the capital cost. You almost literally try to get rich from debt. If you borrow an asset, then it's a liability, but that can work out quite favourably tax-wise as well as financially, insofar as you cannot be taxed on what you don't own anyway, or what is a cost to you. Indeed you may constantly reap profit even although formally the account shows that your trading entity is constantly running a net debt - the more capital you have, the more you can borrow, and thus the more income yield you can claim. In the process, the whole idea of an accounting system clearly stating the costs and benefits of an activity gets perverted or twisted - the formal financial rationality of the account masks the substantive financial rationality that really operates.

The "little guys" can do the production, but the "big guys" trade in assets and financial claims, based on yield expectations and considerations of risk, that's basically how it is. The system works, and seems to be less parasitic, if trading volumes and markets keep expanding, that seems to justify the game, but if they don't, because household incomes stagnate, creditworthiness collapses and consumers don't spend, you almost immediately get a cashflow problem, and it turns out that an overextension of credit took place all round - assets which no longer reap the expected yield are then suddently devalued, compounding the problems.

The trouble there is that to solve the deficits, in reality you need even more credit, while you try to restructure credit provision. That is what all the fuss is really about now - Martin Wolf thus talks about the US government as being effectively a "gigantic hedge fund" of sorts, playing poker and engaging in a battle with historical time, the hope being that across a certain stretch of time, they will be able to make the necessary adjustments that keep the whole accumulation process going acceptably.

This is where it gets politically interesting, because the whole question in this geopolitical game is now whether you can keep devolving the costs and burdens of the accumulation process to "someone else" who is presumed to be in a weaker position than you are. Simply put, somebody must pay, with labour or with money or both. The problem there is, that the strengths and weaknesses may be not so easy to evaluate objectively, and could change fairly rapidly, and that people get aggressive in order to show "who is the boss around here" and who has to shoulder the burdens. The problems of evaluation create a lot of additional uncertainty and insecurity.

The ultimately deadly logic of imperialism is however illustrated in an extremely graphic way by a recent observation from an engineer in Gaza: "While the Israeli response has been beyond any expectations, it is just an episode in a bigger project which aims to kill people's will and turn them into cattle whose top priority is not to resist the occupation but just to survive." - Baha' Enaya, in Al Jazeera December 29, 2008 http://english.aljazeera.net/focus/2008/12/20081229103924975479.html

The problem there is, that even supposing that you succeed beating people into submission, it still doesn't mean you will create social stability, and lacking that, the financial borrowing and lending process is obstructed. The ultimate implications of this are often considered as totalitarian, since in the end financial power, political power, social power and military power must become increasingly fused together, making the distinction between the legislature and the executive increasingly a mere formality. You cannot really have "governance" if effectively groups of people are a law unto themselves, and if they don't have any shared interests anyway. The fact that you are a "stakeholder" doesn't mean ipso facto that your stake is necessarily compatible with that of someone else. You might have a stake, but despite the stake of someone else.

Ideologically or intellectually, all the different linked issues are conveniently fragmented and compartmentalized, but in real life, people face the totality of their effects. Hence the terrible confusions in public discourse - the fragmented views offered often cannot really do justice to what people's total experience is anymore, other than with paltry metaphors, and there's a constant battle to impose or persuade others of your own meanings, while the stability of those meanings is ever more elusive. It's simply very difficult to have any rational dialogue, if the very negotiation of meaning itself becomes an instrument for the assertion of power, while any control over what others choose to mean is meanwhile largely absent. As Viktor Frankl put it, it is just very difficult, if not impossible, to prevent the human ability to create one's own personal meanings, despite everything.


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Received on Tue Dec 30 17:14:22 2008

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