Chris Harman: Snapshots of capitalism today and tomorrow: ISJ 113: Review

Chris Harman is the major theoretician and economist of the SWP. In an important piece in International Socialism Journal (ISJ) 113, Snapshots of capitalism today and tomorrow, Harman attempts to provide empirical evidence for the notion that world capitalism is stagnant and that: “There will be the sudden explosion of political crises and with them sudden splits within and between ruling classes. Lenin defined a “pre-revolutionary situation” as one where the mass of people could not tolerate the old conditions any more, but neither could the ruling class.”...writes Bill Jefferies...

Harman thinks that the world economy is in a deeper crisis than the 1970s/80s and that world capitalism faces a pre-revolutionary situation if not now then sometime in "the decades ahead". Harman begins his piece by quoting the World Bank’s World Development Indicators 2003 and Global Economic Prospects 2004, to assert that:

“The first significant thing about the world economy is the way in which global economic growth, averaging out booms and recessions, has not only declined from the golden age of capitalism in the 1950s and 1960s, but also from the levels known in the late 1970s and 1980s.”

Harman wants to prove capitalism’s crisis by showing how GDP per capita, the amount of value produced per world inhabitant has, according to his table, declined continuously from the late 1960s onwards. And indeed the figures do show a decline up to 2003, when Harman’s figures stop. But critically Harman’s decision to use four year old figures is no mistake, since 2003 with the integration of the former workers states into the world economy there has been a sharp upturn in world output, with four years of sustained above average growth.

Harman’s figures are out of date.

Take for example the Global Economic Prospects 2006 (the Global Economic Prospects are published a year in advance i.e. 2004 was published in 2003) where we find that world GDP per capita had begun to reverse its decline.

Annual average GDP per capita growth

1980s 1.3 %

1990s 1.2%

2001-2006 1.5%

(World Bank GEP 2006 p8)

An upward trend which has risen to 1.7% by 2006 and is projected to rise to 2.1% by 2015. This upward trend is confirmed in the GEP 2007. The GDP measure used by the World Bank, gives a dominant weight to the economies of the older imperialist powers because it bases output on exchange rates fixed at year 2000 levels.

This upward trend is even clearer in the latest IMF Global Economic Prospects 2007, which seeks to take account of the effect of exchange rates in underestimating the level of output of the developing economies.

GDP per capita average annual growth

1970s 2.5%

1980s 1.6%

1990s 1.7%

2000-06 3.1%

Source IMF World Economic Outlook Sept 2006

The upward trend in world growth is evident even including the mis-measure of the output of the former centrally planned economies of the Stalinist states.

The restoration of capitalism across the world in 1989/91 massively increased the size of the world market. The Stalinist centrally planned economies did not produce commodities, objects intended for sale on the market, they were not capitalist.

Even the IMF/World Bank describe these economies before 1991 as “centrally planned economies”, they were what Trotskyists described as “degenerate workers states.” The exact definition is not as important as the understanding that these economies were not capitalist ones.

However, these economies are measured by the IMF/World Bank as if they were capitalist economies. The collapse of these economies through the 1990s is measured in the IMF/World Bank’s GDP figures as a collapse of capitalist production instead of the creation of it. This is why world capitalist output and GDP per capita growth figures, seem to decline in the 1990s. An intuitively absurd idea, that the expansion of world capitalism across states encompassing a third of the world’s population, should actually lead to a fall in capitalist production – but one described by the GDP figures used by the capitalist economics agencies – is used by Harman to assert that world capitalism is stagnant.

The 1990s GDP figures describe the exact opposite of reality. It was the restoration of capitalism across the former centrally planned Stalinist states that enabled capitalism to enter a new period of imperialism - globalisation - based on the massive expansion of the world market.

Harman as a state capitalist theoretician is of course in accord with the IMF/World Bank’s mistake. Harman too denies that these states based on central planning were substantively different from the restored capitalism of post 1991. All the more remarkable then, that when using the latest statistics Harman’s assertion that the world economy is stagnant cannot be sustained.

Is there a falling rate of profit?

Harman quotes figures from Dumenil and Levy’s 2004 book “Capitalism Resurgent” to show that the capital to labour stock has risen in the USA and France. He wants to use this rising ratio to imply that there is a falling rate of profit. He says “There will be a tendency of the ratio of profits to investment to decline unless capitalists can increase the share of the value going to themselves rather than to workers.”

And uses a graph from Robert Brenner’s “The Economics of Global Turbulence” to show that profit rates in Germany, US and Japanese manufacturing fell until the year 2000.

By why not use the graph from Dumenil and Levy’s book which shows that profit rates in the US have risen from a nadir of 1983 14% to 2000 16%, or Europe 1983 12% 2000 22%?

Why use a graph based on US, German and Japanese manufacturing, which accounts for only around a quarter of the output of these nations given the shift of manufacturing to the emerging and transition economies under globlisation?

Or why not work out the rate of profit for himself using the latest data up to 2006. According to my calculations, based on the same set of data, from the US government’s Bureau of Economic Analysis, as used by Robert Brenner and Dumenil and Levy, the US rate of profit fell to a nadir of 1982 Q1 16.4% before rising to a Q3 2006 30.1%, the highest level since Q4 1966. The recovery of profit rates is the strongest in over 50 years, with 15 successive quarters until the present of double digit profit growth to raise profits to their highest rates since the late 1960s.

Harman’s picture of the world as stagnant with falling profit rates, relies on out of date material and a highly selective use of sources. It is not an accurate or up to date picture of the world economy today.

Profit rates have risen for two successive decades, the 1990s and 2000s, for the first time since the 1940s/50s. And the reason they have risen so strongly is because the addition to the world capitalist market of the output of the former now restored capitalist states has not only doubled the size of the world working class that can be exploited by capital, but meant that world capitalism inherited a mass of means of production, in the form of cities, docks, railways etc. that had already been paid for by the working class, for free. As capitalism has begun to more efficiently exploit this mass of means of production, then the initial one off boost to world capitalism through the restoration of capitalism in the 1990s has been transformed into a surge in world production, trade and profits.

Imperialism and semi-colonies

Harman then goes on to look at the domination of finance in the world today. He never uses the word imperialism in the Leninist sense or semi-colonies. Rather he speaks of a “hierarchy of national capitalisms” which is not a “static one”. Indeed. He produces a graph which shows how Chinese exports as a proportion of world exports have grown from 1990 0.5% to 2005 6%. Against the background of a general massive increase in trade. Is it simply the case that China suddenly started to produce a load more exports or was there something more fundamental which changed both within the world economy and China?

Quite simply there was. The restoration of capitalism in China and across the former degenerate workers states meant that trade exploded, doubling across the former USSR even as its economy collapsed through the 1990s.

Capitalism is generalised commodity production, the production of things for sale on a market, not surprisingly as capitalism was restored across the world the proportion of trade, i.e. things for sale on the market to total world output increased to previously unheard of levels.

The removal of trade barriers with the destruction of the former Soviet Bloc, meant that the world was systematically opened up to the exploitation of multi-national companies and banks. Exports of foreign direct investment, in the form of direct investment and mergers and acquisitions exploded through the 1990s as the imperialists sought to take advantage of these new openings.

Harman shows that multi-nationals have grown and that most foreign investment continues to be directed at the major imperialist nations themselves but Harman wants to down play the significance of the “emerging” or “transition” economies to world capitalism: “…figures for foreign investment provide an indication of where capitalists see the most likely sources of stable, long term profitability….. The old “third worldist” notion that capitalism lives mainly off the exploitation of the poorer countries of the “Global South” does not fit with the realities of the system today.”

But far from being a third worldist notion, the idea that imperialism exploits the world through the export of finance capital is a thoroughly Leninist one. Even in the height of imperialism in the late nineteeth early twentieth century, prior to WWI the bulk of imperialist investment and finance was still directed at the major imperialist nations themselves. In fact far more so than today. By 2004, the last year Harman quotes, FDI to these emerging or transition economies was one third of the level of the developed economies, its highest level ever.

The FDI inward stock of the developing and transitional economies rose to 2005 40% of that the developed economies from 1990 25%. The total FDI inward stock of developing nations and transition economies increased by 625% from 1990-2005.

The addition of the former workers states to the world economy has lead to a profound shift away from the older imperialists and the development of new rivals like China and Russia.

Harman even quotes figures for US cereal exports to downplay the export of raw materials from developing countries and particular Asia. Of course if he had chosen iron ore, then he would have found that Brazil was the world’s largest producer or cotton where China is the world’s largest producer or oil where Saudi Arabia is.

The exploitation of the US and European working class

Harman points to the falling wages as a proportion of GDP of US workers and their increased hours to show how the rate of surplus value has risen in the USA - at least these figures are not in question, although the implication that living standards have fallen for the US workers class in general is. The re-newed dynamism of manufacturing production with the addition of former workers states to the world capitalist market has lead to the deflation of manufacturing goods, which has meant that the world’s capitalists have been able to pay for improvements of living standards out of productivity rises. Hence the cost of the reproduction of the working class has fallen, the value of their wages has diminished, but the amount it can buy has increased. Sharply rising income inequality has gone alongside slowly recovering wages, living standards even for the poorest section of workers in the USA have recovered since the mid-1990s, even though they still remain only marginally above their 1970s levels and have not grown anything like as fast as the wealth of the rich.

Harman wants to prove something more however - that the USA has succeeded where Europe has failed. But in fact the trends towards the increased exploitation of the European (and Japanese for that matter) show exactly the same picture, of an increased, more flexible work force, earning a lower proportion of national income in Europe and Japan, just as in the USA.

European unemployment has fallen from 1999 9.5% to 2006 7.7%, the participation rate of the population in the labour market has risen from 1996 66% to 2006 70% with the proportion of part time workers increasing from 1992 12% to 2004 19%. The proportion of wages as a percentage of national income, has fallen from 1991 62% to 2005 56%, the wage share in manufacturing has fallen from 1995 70% to 2005 62%, while in services it has remained steadier at 1995 54% to 2005 52% but the proportion of services in the total economy has massively increased. So there is a more flexible, larger work force, with a higher proportion of temporary or part time contracts and this is has directly effected. (See EU quarterly report Spring 06).

The USA exploits the world

Harman quotes figures pointing to the US balance of payments deficit, he explains that:

“US investments in the rest of the world are only worth 80 percent of foreign investment in the US but nevertheless rake in a higher total in interest and profits. In effect capitalists and governments elsewhere in the world are paying a subsidy to the US economy in return for being able keep their funds there.”

This is called imperialist exploitation. It seems that the “old third worldist” notion of nation exploiting nation do in fact have some substance after all. It is certainly true that the US may invest the largest proportion of its FDI in other imperialist nations, but this in and of itself says nothing about the differential rates of return on these various investments. The reason the greatest proportion of investment flows to the established “industrial” nations is because of the lack of investment opportunities in the developing nations, hindered by a very large agricultural pre-capitalist sector in “emerging” nations and by a collapsed economy in the former centrally planned economies of the workers states. As urbanisation increases and as the former workers states, now transition economies, recover the rate of investment in these states rises and disproportionately faster than the older imperialists? Why? Because the rate of profit is higher in them.

USA and Europe

Harman points to the relative hegemony of the USA, he asserts that “One function of an expansion in arms spending has been to provide a helping hand to the corporations” and of course its true the USA does use arms spending to help its multi-national corporations, witness Haliburton in Iraq, but Harman is being deliberately misleading when he asserts that US arms expenditure has grown, this is a common theme of under-consumptionist theorticians, who want to explain the rival of the US economy by “military Keynesianism”. In fact arms spending as a proportion of GDP is half of its levels of the cold war, notwithstanding the Iraq conflict. In 2006 the US budget deficit is expected to have been 1.9 % of GDP compared with 2.1 % for the Eurozone, 3% for the UK and 4.6% for Japan.

Harman asserts that Europe is caught between rising Chinese exports, a USA which has been able to substantially raise the rate of exploitation of its domestic working class and a Japan which has continued to invest even during the stagnation, while it continues to pay a higher proportion of welfare payments that its rivals. Harman asserts that “This has been happening while European capitalists face the same pressure on the rate of profit as elsewhere.” Yet we already know that according to Dumenil and Levy estimates that the European rate of profit has nearly doubled since its low points in the early 1980s.

Harman of course doesn’t use this figure, but rather wants to claim that the overburden of the continued burden of the welfare state on the European bosses:

“All this creates political difficulties for them when they go on the offensive to increase their own rate of exploitation.”

Yet as he also points out unit labour costs in Germany have fallen by 4% over the last ten years and Germany has now become the largest exporter in the world. In fact the European bourgeoisie, as is testified by the sharp rise in the rate of profit have already made significant counter-reforms against the social consensus that dominated their economies in the post-WWII period. It is not Americanize or bust for European imperialism and the success of this counter-reform programme has over the last year been vindicated by renewed growth across the European Union.

Financial Instability

Almost as an aside Harman asserts, siting the collapse of Long Term Capital Management hedge fund in 1998, that capitalism is more unstable owing to the expansion of deriviatives and growth of financial speculation: “Investors always look for quick profits elsewhere when there is downward pressure on profit rates in productive sectors of the economy.”

But how then to explain the greater stability of the world economy through the 1990s until present? Far from the financial crisis of the LTCM and the Hi-Tech bubble dragging the world into crisis, the second largest slump in world stock markets in history, reminiscent in scale to that of the Great Crash of 1929, caused barely a hiccup in the world economy. The slow down from 2000-2002 was the mildest in 30 years.

How to explain the general rise in profits across the world? Surely this cannot be entirely attributable to financial deals, fiddles and fraud?

Of course Harman’s out of date figures mean he doesn’t have to but he is only putting off the inevitable. The stagnation theorists can only look to the past for so long to hide from the imperative of objective reality. Which figures will Harman quote in another five years?

China

Harman claims that “there are fears that it is being accompanied by some of the symptoms of a classic capitalist bubble”… “There is strong evidence that the rising ratio of capital investment to workers is exerting a downward pressure on profits,”… “The official figures for “non-performing loans” in the Chinese banking system vary between the official figure of 20 percent of the total loans.

We have dealt at length with these assertions about China elsewhere “China a bubble about to burst” suffice it to say these rather glib assertions are not based on the most uptodate data either in fact:

“Corporate profit growth has consistently surprised on the upside. Despite persistent warnings or predictions of a collapse in corporate earnings by many analysts in the last few years, corporate China has actually delivered quite decent profit growth. Since mid-2002, the beginning of the current cycle, profit growth each year has stayed in the 20%-40% range, exceeding market consensus by a significant margin. ” (Goldman Sachs Global Economics Paper 146 October 06)

And…

“As a result of capital injection, the capital adequacy ratio (CAR) of these banks has improved. At end-2005, the CAR of the BOC stood at 10.42% (2002: 8.15%), CCB’s at 13.57% (2002: 6.91%), and ICBC’s at 10.26% (2002: 5.54%)4. Improvements in the capital adequacy ratio have allowed these three banks to write down their non-performing loans (NPL) faster. The NPL ratio of the big 4 fell from 19.2% in Q1 2004 to 9.5% in Q1 2006.” (Deutsche Bank Research Bureau China’s Banking Sector Ripe for Change Dec 06)

Harman’s Glimpse of the Future

While not so bold as to actually make any predictions based on his analysis:

“It is impossible to foresee how the contradictions shown in these snapshots work themselves out. But the key thing is not to pontificate over whether there will be another slump in the near future…”

Harman asserts that:

• European imperialism is “caught in a nutcracker”
• The expansion of credit threatens the system by becoming increasingly separated from production
• Sections of the ruling class will turn on each other
• States will protect their might by military means
• Globalisation does not mean the end of state intervention

But without an accurate assessment of the economy or period, these assertions are either plain wrong, misleading or vague to the point of uselessness. Imperialism is the epoch of wars and revolutions. We knew that already. The point of an analysis of the world economy is to show how in any given phase of imperialism its contradictions will manifest themselves.

While Harman points out that “it is worth noting that the old cycle with recessions roughly every ten years seems to have re-emerged since the early 1980s” this plays no part in his analysis of world capitalism. He believes the stagnation of the world economy means:

“We can expect the dynamics of intercapitalist competition to produce more military conflicts and political earthquakes as nationally based multinationals battle for survival in an unstable global economic system.”

To form a “pre-revolutionary situation”...sometime:

“The “snapshots” suggest that we will see many more in the decades ahead and not only in places that are peripheral from the point of view of those who run the world system.”

Harman wants to hedge his bets. A pre-revolutionary situation will arise he says and we will see revolutions in the decades ahead he says, but which decade? This one or the next one of the one after that? If capitalism really is in a deeper crisis than the 1970s/80s, then the world must already face the type of crisis he designates as a pre-revolutionary situation not sometime in the distant future but now. If he believed in his economic analysis, there would be no need to be so equivocal.

The reader is left asking what's the point of Marxist economics if all it can do is use out of date figures to produce vague generalisations which are no use as a guide to action?

Post Script

The commonplace of leftists who came into politics in the 1960s-80s was that capitalism was stagnant and the world was in a revolutionary period. This was indeed an accurate description of the world during the downward long wave which persisted from the late sixties until the restoration of capitalism across the former Stalinist centrally planned economies in 1989/91.

But it is not true today.

The restoration of capitalism across states encompassing a third of the world’s population, when combined with the very serious defeats of the workers movement particularly in the US and UK, has enabled capitalism to have a period of renewed growth and expansion - commonly known as globalisation. This period of globalisation has been characterised by surging trade, renewed growth and rising profit rates, as well as an explosion financial parasitism and foreign investment. But while the dynamism of globalisation is apparent to every single bourgeois commentator on the world economy without exception, there exists by no means such consensus on the left.

The PR-N was forced to split from the L5I, because of its refusal to countenance the idea that imperialist capitalism could be anything other than stagnant or that the world situation could be anything other than a “pre-revolutionary period”, almost identical to Harman’s.

They used exactly the same out of date figures (literally) to support this proposition. Except they had less excuse as they were supposed to be Trotskyists, who understood the difference between capitalism and central planning.

The SWP and L5I in refusing to acknowledge the profound change to the world situation with globalisation effectively repeated the mistake of the Trotskyists after WWII, who similarly refused to accept the existence of the post war long boom. This failure of the Trotskyists lead to their degeneration and decline as they refused to refashion Marxism for the actual conditions but instead relied on empty abstractions and phrases forgetting as Lenin often repeated, the “essence of Marxism is a concrete analysis of a concrete situation”.

Almost six months later Harman has provided a neat re-hash of all the arguments directed against us over the last three years. It’s no more convincing now. To re-fashion Marxism for the current period instead requires an honest appraisal of the period and an application of revolutionary politics to it. In order to change the world it is necessary to understand it.

Fri 12, January 2007 @ 20:18