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The following notes are designed
to assist anyone who has tried to analyse developments in global capitalism.
Even if the reader has not, then the points made will highlight some issues
that should be borne in mind when examining what is written or discussed on
these topics.
1. Imperialism and world economy
Any attempt to understand things
from the perspective of a national economy is bound to fail. Even the US, the
world’s largest economy, can only be understood by looking at how it fits into the world
economy. For example, the US dollar is world money, not just the national
currency of the United States. Its importance and role depends upon the scope
of US power versus other countries, both in economic and political terms.
However, even the position of the dollar can be challenged by international
developments. It is not an unchanging hegemony; nor has it been in place for
all time. Signs that US power has limits are seen in the collapse of ‘The
Project for the New American Century’ in 2006 and the political shambles of US
policy in the Middle East and North Africa. However much destruction might be
in US interests from a tactical perspective, it is hardly a recipe for
continued hegemony.
Far less can the UK, France,
Germany, China, Iran, Turkey, Brazil, etc, etc, be understood unless their
positions in the world economy are taken into account. Their government and
corporate policy choices are decided with this in mind. Nevertheless, a key
point is that a small number of countries have a monopolistic position in the
delivery of most key goods and services and, of the 200 or so countries in the
world, there are only around 20 who count for anything in the hierarchy.
For this reason alone, Keynesian
economic theory is useless for an analysis of the world economy (see here for a fuller discussion). Quite apart from its
errors in understanding the profit-driven nature of capitalism, it focuses only
on flows of income, rather the origin of that income and, at most, allows only
for international trade balances. Almost always, a Keynesian approach is tied
into a nationalist outlook, something that underpins so many apparently radical
policies. ‘International’ Keynesianism might appear to be an exception to this,
but it is a utopian technocrat’s toolbox. The OECD, or G7 meetings, might
recommend changes in economic policy by different countries to benefit world
economic growth, but everything still comes down to whatever is in the
interests of the capitalist countries concerned.
2. Nationalism and imperialism
Attempting to ‘save’ the
national economy to make things better for its inhabitants, for example, by
calling for import controls or other forms of government regulation, is a
reactionary policy. Firstly, it endorses the existing power of the national
capitalist state to determine what will happen. Secondly, it raises national
salvation above solidarity with people in other countries who are facing
similar problems. This is particularly an issue for progressive people in the imperialist
countries that have a dominant position in the world economy. If radicals make
any concessions to those who are seeking to defend their privileges in a
bankrupt system, rather than to show how the system is indeed bankrupt and must
be overthrown, then they have only a short step from this to supporting
imperialist aggression. The records of many wars stand in evidence.
I would possibly make one
exception here. If, following a popular seizure of state power, that new
government enacts policies to defend itself, then it could be seen as a
legitimate, though temporary means of securing progressive gains. But if a
radical in a rich country calls for such measures, while not mentioning the
precondition of a popular seizure of state power before, then you know you have
found an apologist for imperialism.
3. The ‘real economy’, finance and profit
There are different kinds of
capitalist company and different ways in which they try to make a profit. All
profit, rent or interest derives from the surplus labour performed by workers,
but the process of capitalist market exchange hides this and makes it appear as
if ‘making money’ in business is simply a result of special talent or, perhaps,
luck, irrespective of the kind of business concerned. So, producing a good or
service as a commodity in the market, buying and selling these commodities,
being a real estate agent, lending money or dealing in foreign exchange, bonds
and equities can all look, from a capitalist market perspective, as much the same
kind of profit-making business. That view upsets common sense. So economists
have come up with the notion of a ‘real economy’ of making things versus the
rest of the economy, especially versus a ‘financial economy’. However, this
distinction ignores both how capitalism is not bothered about making anything
except profit and how all the major ‘real economy’ companies are heavily
involved in the financial sphere, from stock market takeovers to financial
dealings of all kinds.
The modern economy has a
pervasively financial form, and the key signals for what is profitable,
acceptable or viable to capitalism are transmitted through the financial
markets – as reflected in a company’s share price, or a company’s or
government’s ability to borrow money. This is basically a more developed form
of the traditional ‘laws of supply and demand’ for the commodities a company
might produce. It remains the case, nevertheless, that it is capitalist
production that produces the profit that is shared, in various ways, among the
different types of capitalist company.
Imperialism casts a new light on
this process too. Access to funding, access to markets, the ability to use
super-exploited labour, the ability to close off markets to competitors, or to
use the legal system to protect property and patents, are all special
privileges of the major countries, to which the weaker, poorer countries have
far less recourse. This affects the profits appropriated by capitalist
companies. If the analysis you read takes little or no account of it, you are
reading the work of an ignoramus or, more likely, an apologist for the
imperialist system.
4. Forms of profit and finance
In recent years, one area of my
research was capitalist profitability, the rate of profit, etc. The more I
looked into it, the trickier it got. Firstly, the available data do not
necessarily measure what they claim to measure. For example, if a company
registers a large profit, then that looks like what it has ‘made’, when the
reality is that its profit is what its market position has enabled it to
appropriate, perhaps by depending upon super-exploited labour from its
suppliers, or from a monopolistic position in the world economy defended by
patents and commercial laws. Secondly, even if these things were not a problem,
then there is still the important question of the different ways in which
different kinds of capitalist company generate their profits.
Marxist theory makes a big
distinction between capitalist companies in the industrial and commercial
sphere and those operating in finance. Ironically, government statistics do a
similar thing, although legions of mainstream economists do not. This
distinction is based upon the nature of the capitalist investment taking place.
The investment by industrial and commercial capitalist (ICC) companies is
different from financial investment.
ICC companies largely advance
their own money, or at least do not borrow much. This is shown in their low
borrowing ratios, with borrowing commonly well below the equity investment of
the capitalist owners. However, advancing capital in the financial sector is a
very different matter, one that has been poorly covered, or understood, by
Marxist writers (except, perhaps, for Suzanne de Brunhoff in her Marx on Money,
and one or two others).
Financial companies, such as insurance
funds, pension funds, asset managers, hedge funds, banks, etc, advance money
they are given by others. Banks also have an ability to create their own
assets, via the banking system, as another way to ‘advance’ capital. All of
this is a very different form of securing a profit than in the case of ICC
companies, despite the fact that all of them rely upon the surplus
labour performed by the working class.
For the financial companies, the
revenues they gain are commonly in the form of interest on loans made or bonds
purchased, or as dividends ‘earned’ from the equity securities they own, or as
rents from their investments in property assets. For Marxist analysis, this is
technically different from ICC profits earned – after paying interest, etc –
from the advance of capital by the owners of such corporations.
The distinction is most simply
seen by comparing the leverage of financial companies with ICC. Often, the
borrowing ratios of the former are more than twenty times higher than the
latter. As a result, with the same advance of the owners’ capital, the
amount actually invested/lent, etc, by a financial company can be dramatically
higher than for ICC investments. This is a practical expression of the fact
that the rate of interest, or such ‘financial’ returns, is not the same as the
rate of profit. They have very different roles in the capitalist system, as I
argue in my new book.
Any notion of financial
‘investment’ gets even more complex with financial derivatives. Here, what is
recorded in accounting practice as an ‘asset’ is simply a derivative with a
positive market value. If the derivative market price changes so that it is a
loss to the holder, then it becomes a liability.
What appear initially as clear
concepts of investment, and the rate of profit on that investment, are
complicated by the reality of modern finance. Just consider, for example, that
corporations quoted on the major stock exchanges pay most attention to their
‘return on equity’ or their ‘earnings per share’, rather than to a rate of
profit due on the invested capital. This is the case, even though the
capitalist system’s underlying rate of profit ultimately drives the ‘return on
equity’, etc.
5. Economic history
The subject of economic history
has more or less disappeared from academic prospectuses. However, it is an
indispensable for any understanding of the modern world. Luckily, there are
books still being produced that delve into archives and bring to light hidden
aspects of important past events, ones that usually contradict the standard
mythology, whether on the funding of the welfare state in rich countries, the
dealings between major powers or of the road to war and oppression. It may seem
perverse that the most enlightening critiques of imperialism can come from what
would appear to be mainstream or even conservative writers, at least the ones
with their wits about them who do not blindly accept what ‘everybody knows’. By
comparison, many radicals often just embellish the mythology with invented
stories of ‘struggle’ and ignore inconvenient facts, notably the chauvinism of
the masses in the major countries. Rather than a ‘struggle’ by the working
class for reforms, a story that appears to be anti-capitalist, often the
reality was instead that the ruling elites did a deal with the bureaucracy of
trade unions and popular political parties to secure a national consensus that
would support imperialism.
Tony Norfield, 1 February 2016
