Keynesianism Is No long-Term Solution To The Economic Crisis

Lisbeth Latham

The current COVID pandemic has caused massive financial damage to the global economy, damage which has been felt viscerally by working people in the form of dramatically reduced incomes and the loss of millions of jobs. As we progress through the pandemic and look hopefully towards its ending and eventual recovery, minds have begun to look towards what the eventual rebuilding of the economy might look like. Whilst capital, and its representatives in governments, are already looking towards an, even more, deregulated labour market and a general deepening of the neoliberal model, on the other hand, alternative models for recovery are being forward, most particularly that proposed the by the Australian Council of Trade Unions which draws its inspiration from the post-war recovery globally and most particularly in Australia post the Second World War. While this example has understandable appeal, it is well known, it refers to a period of massive and sustained economic growth. It is a deeply problematic model for recovery to the current period of crisis as it fails to understand the roots of the recovery post Second World War which will not be easily replicated but more importantly fails to recognise the broader reality of the global climate crisis that also confronts us, and which should mean we are wary of productivist solutions to this crisis.

The current moment of twin crises of the COVID pandemic and climate change makes it both opportune and vital that progressive forces put forward a vision of a potential course of action. A course which not only facilitates economic recovery but also addresses key questions economic justice. Specifically, this means charting both a course to enable the global transitioning of the economy away from its reliance on fossil fuels and build ever-higher profits. At the same time, this process must also focus on reducing economic inequality both intra- and internationally.

In the wake of the war, the Australian government engaged in a large scale and ongoing social spending which included the building of infrastructure, such as the Snowy River Scheme and helped the Australian economy and society for an extended period of prosperity and helped the Australian economy and society for an extended period of prosperity. This spending and development played a significant part in creating employment in a context which risked mass unemployment. With demobilising armed forces and the waves of refugees that found homes in Australia in the wake of mass displacement caused by the Second World War and reconfiguring of post-war Europe. However, while it is undoubtedly the case that significant government spending was a major factor in this growth; it is not the only story.

It is important to remember that the post-war boom, which was a global phenomenon, occurred in the wake both the destruction and stagnation caused by the great depression and then shattering of the global economy and destruction of capital goods which occurred during the Second World War. This was a period of extended destruction of capital, which resulted in mass immiseration, destruction, and loss of life. This created an opportunity for an extended period of growth - which would not have been possible without this previous destruction. It lay the foundation for extended capital accumulation as countries like Australia were able to profit from the rebuilding much of Europe and East Asia. The ability to experience extended periods of growth was also expanded and extended by the ongoing arms build-up and destruction associated with the Cold War and the imperialist interventions in Korea and Vietnam. In addition, there was an opening up of a wide range of markets to international competition, markets which had previously been closed due to colonial relationships.

The current economic crisis, as devastating and destructive as it is, has not recreated the circumstances of the post-war period in any way. While COVID has unleashed a significant economic crisis as a consequence of a long run over-accumulation of capital, the COVID crisis has primarily stalled the global economy, disrupted in supply chains, and reduced demand and spending power as millions of people have either seen their hours reduced or lost employment entirely. It has not, at least not currently, substantially damaged or reduced the volume of capital goods in the real economy. Particularly not at the level of destruction which would be necessary to enable an extended period of acceleration and growth in profitable investment in the real economy. Which means that it is highly unlikely for the current crisis to reproduce a similar period of growth post the current crisis to that of the post-war boom. 

The significance of this difference can be seen in the what happened to the economies of the advanced capitalist countries at the end of the long-boom, where government stimulus spending was no longer able to smooth the business cycle and enable ongoing growth, but instead resulted in a prolonged period of stagflation, which is characterised by low growth, high unemployment, and high inflation. Any extended attempt at smoothing the business cycle now is likely to result in a similar outcome, particularly, as I will discuss later, as capital is flush with surplus capital.
This is not to say that there should not be an effort to stimulate the economy. Instead, the object of any stimulus should not be modelled on the post-war recovery other than to say it is possible to carry out large scale government spending - just as the government spending of the second world war demonstrated the possibility of massive government spending in the post-war period.

Many small and medium, and some large, businesses will go bankrupt during the current crisis. Any government stimulus should be aimed at supporting these businesses to minimise the impact of any such collapse on the hundreds of thousands of workers employed by them. However, we can see the problem of excess capital in the system even now, where the stock markets globally continue to rise despite being the global economy being in a massive down-turn (admittedly much of this rise isolated to those sections of the stock market that have been seen as a “safe bet”, particularly tech stocks). So government spending in the post-COVID recovery would be best focused on either establishing worker cooperatives or state-run initiatives. Where spending does flow to the private sector it should be tied to the shifting of ownership in part or whole to the state and to establishment and expansion of workplace democracy in those organisations. With a focus then being on a discussion on refocusing these enterprises to meet the needs of society, the workers, their communities rather than achieving private profits.


Chart: All Ordinaries Index 2000 - 2020, source: Market Watch.

Beyond this problem - there is a deeper existential one. Our planet is on the verge of environmental collapse, the biggest threat is climate change, but we have a significantly broader problem, which even if we could achieve a change in the carbon budget, we would be faced with the fact that the planet cannot sustain the need of capitalism to constantly expand and grow. This drive towards growth and expansion is not driven by a commitment to meet human consumption needs - it is entirely disconnected from them and puts human life at risk and threatens to accelerate the metabolic rift being experienced by the planet.

As such while there is space for:

• Expanding manufacturing for transitioning the Australian economy and those of other countries away from fossil fuel-based energy production;
• Growing local manufacturing to reduce our reliance on importing manufactured goods and the associated environmental impact of large scale transport;
• Supporting and funding the transition away from fossil fuels for countries of the global South supporting the development of their local manufacturing and agriculture;
• Construction of public housing with an emphasis on better quality and more sustainable housing stock;
• Expanding recycling industries as part of an effort to reduce our reliance on extractive industries for raw materials;
• Expanding the scope and frequency of public transport;
• Repairing and strengthening of public services, most notably health, education, and research which the crisis has demonstrated have been woefully under-resourced as a consequence of decades of neoliberalism;
• Growth in employment in counteracting the destruction that capitalist development has wrought on the environment;
• Shifting agricultural practices to more sustainable forms;
• Establishment of a conservation body aimed at direct remediation of the environment and ecosystems

There is no space for a drive for an extended period of growth in the output of either capital or consumer goods.

It remains unclear how much work the focuses above would create. Collectively we need to start to re-envision what full-time work is. The focus on a five-day 38-hour workweek has resulted in both problems of unemployment and underemployment which combined was more than 13% prior to the onset of the pandemic in Australia. At the same time, workers in Australia who are employed full-time worked some of the longest hours in the Organisation for Economic Co-operation and Development. This meant that work is extremely unevenly distributed across the labour market. Rather than pushing for full employment based on 38-hour week model, we should be exploring how to more effectively share employment, particularly in socially and environmentally useful ways that will both enable working people to actually benefit from the last three decades growth in labour productivity by evening the spread of working hours, reducing income inequality across the workforce and ensuring those individuals those who are unable to work have their incomes lifted to a liveable level.

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Superwealth: Understanding The Decoupling Of Stock Values From Real Economic Value

Lisbeth Latham

Global wealth inequality is reaching historic highs. Inequalities have been both highlighted and exacerbated by the current crisis. However, while the world’s super-rich are obscenely wealthy, most discourse around this issue fundamentally misunderstands and misrepresents the nature of much of this wealth – which, in turn, can distort our view of what addressing this inequality should look like.

Deindusrialisation and financialisation
As the global, post-war long boom came to an end in the late 1960s and early 1970s, capital began to intensify a range of processes that had been at play in the economies of the advanced capitalist countries. Most notable of these was the process of deindustrialisation, as capital shifted manufacturing from high-wage, heavily organised factories in the metropolitan centres of the Global North to the periphery – initially of the imperialist countries themselves, and then to former colonies and neo-colonies of the Global South.

This shift temporarily boosted profits and provided spaces for these profits to be reinvested, but this was possible only up to a point (though repeatedly, capital shifted from one low-wage country to the next in response to worker organisation and resistance). Capital still faced the problem of what to do with the new profits being generated, and to maintain profit growth the capitalist class sought desperately to find new areas to invest in.

While new technologies have developed and state-owned industries have been pried open through privatisation, the main source for investment and reinvestment of profits was in the financial markets, where new and more bespoke products, with ever more rapid exchanges and turnovers, were developed as mechanisms through which to make money. This process of shifting investment and money out of the real economy and into financial markets is known as financialisation.

The 60 stock exchanges around the world currently have a total capital value of $69 trillion. The growth in financial markets over the 45 years can be seen in the S&P 500 index, which tracks the value of the top 500 stocks and equities on the US New York Stock Exchange, NASDAQ and Cboe BZX Exchange.

The S&P 500 had an average closing price of 21.0 points in 1930. This rose to 86.18 in 1975, and to 3,050.00 in 2020. Similarly, the Irish Overall Index, which has measured the value of stocks on the Irish Stock Exchange since 1989, has grown from a closing price of 1,586 in 1989 to 6,464 on 3 August 2020.

The S&P 500 Index, Historical Chart 1928-2020.

Stock market detached from economic performance
This growth in the value of capitalisation on a stock exchange, while significant, does not necessarily reflect the same level of growth in the real-world performance of the underlying companies and equities. These two factors can be significantly out of step with each other, resulting in financial assets being either significantly over or undervalued.

When they are overvalued, which can occur for a range of reasons, a bubble can form. When the two values come back together, considerable losses, both notional and real, can occur (up until an individual sells their assets all gains and losses are purely notional).

So what does this mean for the wealth of people like Jeff Bezos, Bill Gates and Mark Zuckerberg? These individuals are undoubtedly obscenely wealthy, and they have significant political power based on their wealth and control of large companies that play a central role in the global economy.

However, as impressive as it can sound to say that Bezos is worth $190.6 billion, or that his wealth has increased by $74bn this year, much of this wealth is simply not real. These statements are supposed to sound impressive to build on the myth of these great capitalists ‘creating wealth’.

If we were to seize all of Bezos’s wealth and turn it over to the public good we would not gain $190.6bn. Instead, we would have a – not insubstantial, but far smaller – amount of money, and have a percentage share of a company with an annual revenue of $280.52bn and net profits of $11.588bn, profits that would be sharply reduced as we dismantled Amazon’s super-exploitative employment practices and its parasitic relationship to other businesses.

The reality is that the bulk of the growth in the “value” of Amazon – which has seen its share price increase to a high this year of $3,312.49 compared to an average price of $1,789.19 in 2019 – has not been driven by a significant increase in the performance of the company, but rather by a perception of Amazon and other similar companies as a safe bet by some investors, and by hedge funds looking to make money from speculation based on this perception.

The Financial Times reported on 20 August that we have entered a new renaissance for hedge funds using a macro investment strategy (strategies based on assessment of shifts in geopolitical and macroeconomic trends in countries), saying: “The main fund at Brevan Howard, the firm headed by billionaire Alan Howard, was up over 21 per cent in the first half of 2020; Paul Tudor Jones’s flagship fund at Tudor Investment Corporation has gained 8 per cent through July; and Chris Rokos’s Rokos Capital Management has climbed 24 per cent through to the end of July, according to investor documents and people familiar with the matter.”

It continued: “Caxton Associates has returned 31 per cent this year, according to investors, while a fund run by the firm’s chief executive Andrew Law is up 42 per cent. Meanwhile, Louis Bacon’s Moore Capital, which last year decided to eject the remaining external investors from its flagship funds after a long barren stretch, notched up a 25 per cent gain in seven months through July.”

None of this is to say that we should not aim to nationalise large companies, and put them to the use of meeting the needs of people. But we need to be aware that the amount of real value locked up in these companies is overstated, and has much more to do with stroking the egos of the rich and reinforcing ruling-class myths than it does with the actual potential social good these companies could perform.

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Originally published by the Irish Broad Left.

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Top image: Jeff Bezos. Photo by Michael Prince/Forbes.

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JobKeeper Exec Bonuses and Dividends Were Built into the System

Lisbeth Latham

In the last week, news has leaked regarding companies in receipt of JobKeeper wage subsidies either paying their executives large bonuses or paying out dividends to shareholders. This development has led to claims that these companies are rorting JobKeeper. However, while these payments are clearly immoral, far from being a rorting of JobKeeper, they are entirely consistent in the government’s intent of JobKeeper as primarily a subsidy to business.

Source: Unions NSW

When JobKeeper was legislated I described it as “for companies still employing people in work, the subsidy is more a subsidy to their profits rather than a wages subsidy”. This was because rather than provide a wage subsidy from which workers could build their income towards their pre-COVID level if work was available, the subsidy established an amount of payment which eliminated the need for a business to pay its workers wages for their work until they had performed the equivalent amount of work as the subsidy. This had the effect of both ensuring that hundreds of thousands of workers experienced a significant decline in their income whilst companies and organisations could redirect revenue that would normally have gone to covering wages to other things including paying executive bonuses and dividends to shareholders.

So while people are right to be angry at companies prioritising bonuses and dividends, we need to be clear - they aren’t “rorting” JobKeeper, they are using it precisely how it was designed to be used. The actions of these companies demonstrate the pressing need for a genuine wage subsidy scheme that guarantees the incomes of all workers regardless of contract type or residency status.

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This article is posted under copyleft, verbatim copying and distribution of the entire article is permitted in any medium without royalty provided this notice is preserved. If you reprint this article please email me at revitalisinglabour@gmail.com to let me know.

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