Harvey- Enigma of Capital DIGEST

THE ENIGMA OF CAPITAL by David Harvey (Oxford 2010)
DIGEST PRODUCED FOR TUSG.ORG

Capital is the lifeblood that flows through the body politic of all those societies we call capitalist. Understanding capital flow, its winding pathways and the strange logic of its behavior is therefore crucial to our understanding of the conditions under which we live.

My early seventeenth-century namesake William Harvey is generally credited with being the first person to show correctly and systematically how blood circulated through the human body. It was on this basis that medical research went on to establish how heart attacks and other ailments could seriously impair, if not terminate, the life force within the human body.

In trying to deal with serious tremors in the heart of the body politic, our economists, business leaders and political policy makers have, in the absence of any conception of the systematic nature of capital flow, either revived ancient practices or applied postmodern conceptions and sophisticated mathematical models.

In this book, I attempt to restore some understanding of what the flow of capital is all about. If we can achieve a better understanding of the disruptions and destruction to which we are all now exposed, we might begin to know what to do about it.

THE DISRUPTION

Something ominous began to happen in the U.S. in 2006. The rate of foreclosures on housing in low income areas of older cities like Cleveland and Detroit suddenly leapt upwards. But officialdom and the media took no notice because the people affected were mainly African-American, immigrant (Latino) or women single-headed households. Once again, as happened during the HIV/AIDS pandemic that surged during the Regan administration, the ultimate human and financial cost to society of not heeding clear warning signs because of collective lack of concern for, and prejudice against, those first in the firing line was to be incalculable.

It was only in mid-2007, when the foreclosure wave hit the white middle class in hitherto booming and significantly Republican urban and suburban areas in the US south (particularly Florida) and west (California, Arizona and Nevada), that officialdom started to take notice and the mainstream press began to comment.

By the end of 2007, nearly 2 million people had lost their homes and 4 million more were thought to be in danger of foreclosure. Housing values plummeted almost everywhere across the US and many households found themselves owing more on their houses than they were worth. This set in motion a downward spiral of foreclosures that depressed housing values even further.

By the autumn of 2008 the ‘subprime mortgage crisis,’ as it came to be called, had led to the demise of all the major Wall Street investment banks, through change of status, forced mergers or bankruptcy. The day the investment bank Lehman Brothers went under – September 15, 2008 – was a defining moment.

Global credit markets froze, as did most lending worldwide. Near-fatal tremors had also spread outwards from banking to the major holders of mortgage debt, and by early 2009 the export-let industrialization model that had generated such spectacular growth in east and south-east Asia was contracting at an alarming rate. Global unemployment surged. It became clearer and clearer that only a massive government bail-out could work to restore confidence in the financial system.

Shortly after Lehman’s bankruptcy, a few Treasury officials and bankers including the Treasury Secretary, who was a past president of Goldman Sachs, and the present CEO of Goldman, emerged from a conference room with a three-page document demanding a $700 billion bail-out of the banking system while threatening Armageddon in the markets. It seemed like Wall Street had launched a financial coup against the government and the people of the United States. A few weeks later, Congress and then President George Bush caved in and the money was sent flooding off.

But credit markets remained frozen. A world that had earlier appeared to be ‘awash with surplus liquidity’ (as the IMF frequently reported) suddenly found itself short on cash and awash with surplus houses, surplus offices and shopping malls, surplus productive capacity and even more surplus labor than before.

By the end of 2008, all segments of the US economy were in deep trouble. Effective demand imploded, retail sales plunged, housing construction ceased, and unemployment rose to startling rates. Many traditional icons of US industry, such as General Motors, moved closer to bankruptcy, and a temporary bail-out of Detroit auto companies had to be organized. The British economy was in equally serious difficulty, and the European Union was impacted, though unevenly, with Spain and Ireland along with several of the eastern European states which had recently joined the Union most seriously affected. Iceland, whose banks had speculated in these financial markets, went totally bankrupt.

By spring of 2009, the International Monetary Fund was estimating that over $50 trillion of asset values worldwide (roughly equal to the value of one year’s total global output of goods and services) had been destroyed. The US Federal Reserve estimated an $11 trillion loss of asset values for US households in 2008 alone. By then, also, the World Bank was predicting the first year of negative growth in the global economy since 1945.

This was, undoubtedly, the mother of all crises. Yet it must also be seen as the culmination of a pattern of financial crises that had become both more frequent and deeper over the years since the last big crisis of capitalism in the 1970s and early 1980s. There have been hundreds of financial crises around the world since 1973, compared to very few between 1945 and 1973; and several of these have been property- or urban-development-led. Crises associated with problems in the property markets tend to be more long-lasting than the short sharp crises that occasionally rock stock markets and banking directly.

HOW, THEN, ARE WE TO INTERPRET THE CURRENT MESS?

Financial crises serve to rationalize the irrationalities of capitalism. They typically lead to reconfigurations, new models of development, new spheres of investment and new forms of power. One of the major barriers to sustained capital accumulation in the 1960s was labor. There were scarcities of labor in both Europe and the US. Labor was well organized, reasonably well paid and had political clout.

Capital sought access to cheaper and more docile labor supplies. There were a number of ways to achieve that. One was to encourage immigration. The Immigration and Nationality Act of 1965 abolished national-origin quotas, and allowed US capital access to the global surplus population (before that only Europeans and Caucasians were privileged). In the late 1960s the French government was subsidizing the import of labor from North Africa, the Germans were hauling in the Turks, the Swedes were bringing in the Yugoslavs, and the British were drawing upon inhabitants of their past empire.

Another way was to seek out labor-saving technologies, such as robotization in automobile manufacture, which created unemployment. Some of that happened, but there was a lot of resistance from labor, which insisted upon productivity agreements. The consolidation of monopoly corporate power also weakened the drive to deploy new technologies because higher labor coasts could be passed on to the consumer as higher prices (resulting in steady inflation).

If all that failed then there were people like Ronald Regan, Margaret Thatcher and General Augusto Pinochet waiting in the wings, armed with the neoliberal doctrine, prepared to use state power to crush organized labor.

Capital also had the option to go to where the surplus labor was. Rural women of the global south were incorporated into the workforce everywhere, from Barbados to Bangladesh, from Ciudad Juarez to Dongguan. The result was an increasing feminization of the proletariat, the destruction of ‘traditional’ peasant systems of self-sufficient production and the feminization of poverty worldwide. To top it off, the collapse of communism, dramatically in the ex-Soviet Bloc and gradually in China, then added some 2 billion people to the global wage labor force.
Barriers to trade such as tariffs and quotas were reduced. Above all, a new global financial architecture was created to facilitate the easy international flow of liquid money capital to wherever it could be deployed most profitably. The deregulation of finance that began in the late 1970s accelerated after 1986 and became unstoppable in the 1990s.

Labor availability is not a problem now for capital, and it has not been so for the last 25 years. But disempowered labor means low wages, and impoverished workers do not constitute a vibrant market. Persistent wage repression therefore poses the problem of lack of demand for the expanding output of capitalist corporations. One barrier to capital accumulation – the labor question – is overcome at the expense of creating another – lack of a market.

So how could this second barrier be circumvented?

NEXT TIME: FINANCIALIZATION, FLOATING CURRENCIES, AND THE 3% GLOBAL COMPOUND GROWTH RATE