The Telegraph
Friday , June 12 , 2015
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Into the unknown

- Marx was right, but what will happen now?

Cynics will say that there is cause for some celebration - a record has been broken. It is mid-2015, and the economic recession that set in in the United States of America, and had its impact, large and small, in different parts of the world, has persisted for a full eight years and shows no signs of abatement. Worse, this is certainly one of the most dismal phases in global economic history ever since industrial and other relevant economic data were put into some shape on a worldwide basis.

What is at the root of the American crisis has been discussed threadbare in scholarly papers as well as official and unofficial reports and documents. Technology under capitalism has advanced so spectacularly that productivity per person has soared. The consequence is the progressive shrinkage in the labour content in an average output. Production may go up sharply, but extra employment accompanying extra output is negligible or even negative. Another outstanding feature of capitalist development is the nearly unbelievable phenomenon that, at a particular point of time, technology becomes its own master. An inner impulse drives it at its own momentum to explore new frontiers of technology which would shrink demand for labour even further.

The sequence is simple. New investment, in case ventured, will yield remarkably satisfactory per capita larger output, but, since employment will not grow in proportion, or not grow at all, the additional output will fail to be clear in the market and a crisis of under consumption will ensue. Investors will withdraw into their shell, the crisis will gradually become contagious, the capitalist system will be at a loss to decide which direction to turn.

The advanced industrial countries experienced huge mass unemployment in the Great Depression that took place eight decades ago. Organized trade union movements grew increasingly stronger every day, in country after country hunger marches choked the streets, deep resentment kept mounting at either the reluctance or the incapability of the government in charge to ameliorate the distress of the unemployed millions. The paralysis in decision-making was caused by blind adherence in most of the countries to the conventional economic thinking that, during such crises, public expenditure should be curtailed. This further aggravated the situation. John Maynard Keynes was yet to receive adequate credentials of a serious economist to be reckoned with.

In a few countries, the conditions were tailor-made for some rabble-rousing demagogues to avail themselves of the main chance and lead the suffering workers astray towards loyalty to fascism or Nazism. In contrast, the Soviet Union, which had entered the era of centralized and coordinated economic planning, could remain totally free from the scourge of mass unemployment.

Notwithstanding the fact that while in technologically advanced or semi-industrial countries, the load of unemployment today is no less than what it was during the crisis eight decades ago, no turmoil reverberates across the labour market. There are two possible explanations for this puzzle. First, most of the countries of capitalism are enormously more prosperous today than they were during the Great Depression, and are in a position to buy peace from the unemployed masses of all descriptions by offering them social security payments, which often closely aggregate to the quantum of the standard wage rate: the guitar-strumming brigade in Europe's streets are quite happy to lead an indolent existence in preference to joining any rabid crowd of troublemakers, so that occasional protests, such as the Occupy Wall Street demonstrations, peter out after a point. The second factor underlying the relative quiet among the unemployed is without question the set-back the trade union movement across the continents has suffered, following the collapse of the Soviet Union and subsequent developments. The ideological backbone of the working class movement has been severely damaged, and it will be unrealistic to expect a turnaround before a few more decades pass. In any case, the working class is in no position, at this moment, to thwart technological progress.

China, which has been getting industrialized at a remarkably fast pace, and, by and large, has been way ahead of all other nations in terms of the achieved rate of economic growth in the recent period, has been unable to avoid altogether the scourge of the global recession: its over-emphasis on exports to the US could not but hurt it. However, this adverse development has persuaded its decision-makers to direct their attention towards the hitherto-left-way-behind remote Western regions of the country, and the resulting increase in domestic purchasing power has partly compensated for the relative decline in export earnings from the US.

The other noteworthy point is the markedly less severe set-back the on-going recession has caused to Latin America as a whole than what was apprehended. There is little mystery behind this. The overbearing attitude of the US administration has alienated almost all the countries in South and Central America. They have learnt over the years that an alternative to total dependence on their mighty northern neighbour exists: they need to nurture and develop the complementarities in their own economies, and avail themselves of these to develop more intense intra-Latin-American trade. This would maintain a reasonably satisfactory rate of growth for each and every country and say no to Yankee imperialism.

But to get back to the central issue of the persisting recession. Does not today's sombre economic standstill hint at the emergence of a challenge to the dominance of the US that is a great global conundrum? At one end, socialism stands seemingly totally discredited with the collapse of the Soviet Union and the regimes associated with it in Eastern Europe. Even China, while by far the most rapidly rising economic power now in a position to challenge the dominance of the US, has opted for a genre of neo-capitalist development - of course under the exclusive auspices of the Communist Party. At the other end, though, the countries of classical capitalism are facing a persistent slowing down of growth accompanied by the phenomenon of unstoppable technological advance, underwritten by huge capital accumulation, which further impedes growth of income and employment.

The villain of the piece seems to be the ever-growing accumulation of capital funds caused by profit-making capitalist ventures. The pile of ever-increasing capital stock is used for innovations that lead to technological progress. A point arises where productivity induced by technological growth reaches such a fantastic height that the use of labour per unit of output drops perceptibly; overall employment, instead of rising begins to fall, affecting adversely the demand for goods and services, and the rate of profit is imperilled. This, then, is the irony. Marxism has been banished by the world to the back-burner, and yet, what Marx predicted 150 years ago with regard to the growing magnitude of the organic composition of capital, resulting in steadily declining profit, has finally come true - or so it appears. The major capitalist nations in the West are in a befuddled state of mind. In the US a mute debate is on about where the priority should lie: the war against "Islamic terror" or the battle against the very real economic stagnation. Neither of the two conventional strategies to conquer recession is working. The "monetarist" prescription of a balanced budget and low rates of taxation on richer sections to induce greater private initiative for new activities has failed miserably. The alternative strategy authored by Keynes to take recourse to budgetary deficits, which, among other things, could generate employment and create new income via direct and indirect public dispensation, is not proving to be of much avail either.

The US authorities are desperately looking for opportunities to enlarge exports, both of goods and services and of capital, to shore up the rate of profit. That explains the American obsession with establishing a stable investment base in China, despite the on-going political tussle between the two countries for emerging as the world's number one power. India may pine to export more goods and services and have a greater share of capital exports from the US. The American firms and investors are, however, not that interested: India cannot match China either in terms of the stability of the polity and its administrative framework or as a land of an invitingly luscious domestic market. The doggedly persistent economic crisis is assuming the form of a different kind of tension in Europe. The European nations are relatively indifferent to extra-continental interests and are more concerned about holding on to what they have. One grave consequence is increasing tension within the European Union, with richer members like Germany and France increasingly reluctant to underwrite the amelioration of travails inflicted on the southern European countries like Greece, Portugal, Spain and Italy, where the toll of the recession has been the severest.

It is a confused, mixed-up world. Tomorrow will, of course, be another day. Few, however, dare to take a wager on what shape it will assume. And Africa, apart from its fringes, remains the dark continent. Nobody has the time or curiosity to speculate what might have happened in case the huge load of accumulated capital choking the rate of profit and deepening the pangs of economic recession was gifted away en masse without conditions to the tottering African economies for planned, integrated development.