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Today’s diary is a part II of a diary published a couple of weeks ago in the anti-capitalist meet-up ( and is an attempt to provide a general overview of the manner in which the capitalist economic system has altered since the great depression and post-WWII. By no means inclusive, this discussion is one of general trends in the capitalist system.

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One of the greatest victories of both social democracy and the creation of the social welfare state was the reduction of income inequality in advanced capitalist counties. One of its greatest failures was the destruction of international solidarity as so much of this was achieved by the continued exploitation of the 3rd world. The advanced capitalist world actually provided so much for its citizens.

With the consolidation of the attack on the social welfare state what will be the future? Will the incomes of the majority of the advanced capitalist world be reduced absolutely or simply further stagnated (relatively reduced)? Will developing and 3rd world economies be allowed a limited rise to provide the effective demand needed by capitalist economies? So much of what will happen depends on the reaction of the majority in the advanced capitalist world; if the majority of people in the advanced capitalist world continue to believe that the system will protect them and not fight; then I fear that we will see ever-widening distribution of wealth and income. If we fight back and extend the fight to cover those in the 3rd world and developing countries, then we stand a chance to force those who make the decisions to yield in their attempt to impoverish those in the advanced capitalist world.

The wave of austerity programs throughout Europe is changing the nature of the post-depression/post-war (in Europe) settlement. Undercutting the social welfare state and the state/public sector (that has provided massive increases in the standards of living in advanced capitalist countries) means that the idea of stimulating effective demand both for domestic and international goods and services by covering the needs of the majority in the advanced capitalist world is shifting.  Where it could be arguing that capitalism is essentially anarchic and that the manner in which the system operates produces unintended consequences, the deliberateness of the attack on the social welfare state by governments to provide impetus for capitalist investment and expansion in the face of a crisis manufactured by deregulation, makes one wonder if the welfare of the majority of citizens in the advanced capitalist world are to be the current sacrificial lamb to the needs of the system for the attempt to expand profitability.

Globalisation and Neoliberalism

When labour costs rose significantly due to trade union power and development in the advanced capitalist world, Multinational corporations (MNCs) began shifting production to 3rd world and developing countries beginning with those industries that required less capital start up and were more labour intensive in their production methods to take advantage of the deliberately abysmal labour costs and lack of protection for workers (e.g., textile production). There is no reason to utilise the more capital intensive techniques in use in the advanced capitalist world in the third world, as they have a higher capital start-up investment and operating costs. Output to meet the needs of advanced capitalist consumers could be produced (therefore providing them with no worries about realisation of the product) and they could make significant profits due to lowering costs both by using less capital intensive techniques as well as abundant cheap labour.

Neoliberalism: Export-led Growth and Economic Development

What is export-led growth or economic development? Well, essentially the focus of the economy is shifted from domestic production and development of the domestic market to production of goods to satisfy the needs of consumers in the advanced capitalist world (or to satisfy the needs of other countries if this is used in a developed capitalist economy). Essentially, the consumers in the advanced capitalist world will provide the effective demand for goods and services produced in the 3rd world. Concomitant with this is the establishment of free-trade zones in these countries for foreign "investment" where there is limited or no taxation for foreign companies for a significant period, no guarantees of technology transfer, and limited protection of the health and safety of workers and limited liability for the companies.
If we look at Egypt for example, we can quickly see the impact of neoliberalism and export-led growth development regimes. Looking at the transformation from Nasser to Sadat, the Egyptian economy went from producing sufficient agricultural products for domestic consumption to producing luxury fruits for consumption overseas (see Abdel-Fadil (1975, Development, Income Distribution and Social Change in Rural Egypt: 1952-70, Cambridge UP for an excellent discussion of agricultural policy under Nasser).

That is a terrible policy for fulfilling the needs of people in these countries and has lead to manufactured food shortages.  Food security became compromised, bad harvests lead to dependence on international producers of grain rather than domestic producers. In addition, given that international producers are able to produce and sell at lower cost, domestic producers are pushed out of the market, leading to independent farmers working for MNCs as low level workers instead of producers of foodstuffs. Dependence upon foreign providers for food leads to further susceptibility to price manipulation due to speculation on commodity markets and increased dangers of rising prices and manufactured shortages (gjohnsit had a very good diary on this earlier this week, see

Impact on Advanced Capitalist Countries

The shifting of more and more manufacturing production to the third world led to the decline of manufacturing and industrial production in the advanced capitalist world. This is occurring at the time where there is a call for free trade and opposition to domestic protectionism. In the advanced capitalist world, this has lead to:

  1. an increase in persistent unemployment: systemic (rather than cyclical) unemployment is due to a number of factors primarily arising from the use of techniques that are relatively more capital intensive in production, high levels of productivity, decline of the manufacturing sectors that have a high multiplier effect throughout the system at all levels, the fact that employment is dependent upon the expected demand for goods and services, and skill mismatch between the needs of businesses and specific worker skills;
  1. at the same time, attacks on the rights of the poor to entitlement benefits to protect them (see e.g., the whole work-fare program and other policies trying to link work with receipt of benefits);
  1. the movement from an industrial and manufacturing base (which has high levels of multiplier effects and increasing returns to scale) to service production which is less responsive to fiscal policy interventions in terms of impact;
  1. wage stagnation due to the attacks on unionised manufacturing and industry commensurate with the rise of lower paying service work in retail often of a part-time nature with low wages, minimum benefits and no job protection along with the rise of "subcontracting" types of work treated as self-employment (this is a very strong movement in the US, UK and Italy) to avoid paying benefits to pensions, national insurance also with limited job protection. This has lead to lower average wages for lower income earners and general wage stagnation for the lower and middle income deciles;
  1. A return to the older pre-keynesian types of argumentation involving the abandonment of the Keynes’ and Kalecki’s theory of effective demand with attempts to stimulate effective demand to stimulate economic growth in favour of the Hakeyian free-trade and limited government intervention and regulation of economic affairs which has been demonstrated to lead to greater inequalities in wealth and income, the increase in short-term speculative investment, and the increased number and severity of booms and busts.

Capitalist Crises and Economic Growth discussions:

Crises and Collapses

An important thing about capitalist crisis is that they are a normal part and parcel of the capitalist economic system. In fact, they are how capitalism gets rid of redundant capital, increases the centralisation of capital (see my diary, on centralisation of capital: and restore profitability and potential growth to the system. Economic crises in and of themselves will never bring down a system and will probably not bring about a collapse of the system; in fact, a system can limp along for many years with a stagnant economy (e.g., ancient Rome, Imperial China and the Ottoman Empire). Systems do not collapse without a subjective (class emergence or class resistance or class war) or external (invaders or war) stressor.

Nothing will change unless we change the system; all that will happen is additional immiserisation of the working classes and further exploitation. When I hear people talking about the system’s inevitable economic collapse, it really reminds me of Christian millenarian believers awaiting the rapture and Jesus’s "inevitable" return. Without this subjective element, the capitalist system works quite well in the context of authoritarian political regimes.  To change the system requires all of our efforts to bring about this change towards a positive resolution that will work towards ending economic, political and social inequality and injustice.

One major change has occurred and this has introduced a serious constraint upon capitalist growth regimes probably for the first time in their history. This change relates to the impact of and the potential for environmental catastrophe and the depletion of non-reproducible means of production. Whether or not they can (or are willing to) adapt production methods and develop reproducible substitutes for these depleted resources will determine whether there are new growth paths that can be achieved within the context of the capitalist system. This may represent a countervailing tendency to the general situation and/or could prevent/ensure any major resurgences of growth in a capitalist context.

Economic Growth Discussions:

Contemporary discussions of economic growth have become specifically referential to rising incomes in the financial sector rather than economic growth which provides expansion of the system and provision of employment. The separation of the increased growth in the value of assets as compared to growth in indicators reflecting the situation in the real economy such as GDP, employment has led to arguments describing economic recovery based on the financial sector bouncing back rather than examining the ability of the system to demonstrate sufficient levels of economic growth to sustain employment recovery for example. In this context, we need to distinguish short-term speculative use of the financial markets as compared to longer termed proper investment that does enable economic growth; if proper investment is not occurring this is essentially due to the fact that business does not perceive that expected demand warrants said investment.

The shift in argumentation may be due to several factors: the fact that large bursts in economic growth or transformational growth (this is a term from Edward J. Nell to describe a massive transformation in growth regimes due to inventions (e.g., steam engine or computers) or changes in the nature of production (e.g., mass production, automation) may simply not be possible due to the nature of the system in advanced capitalist countries or simply, that the next big idea is simply not obvious and they are moving backwards to try and use techniques in the 3rd world that were so successful in the advanced capitalist world. It could also be an attempt to move attention from the true state of the economy by concentrating on the performance of the financial sector. There is also the probability that those advocating these positions hold a completely erroneous belief that the situation in the financial markets is a true reflection of the state of the economy and the system as a whole. Most probably, the concentration on growth is hiding the true underlying motive; that being the profitability of the system in use in the advanced capitalist world.


Concentrating on the advanced capitalist world is a mistake; capitalism is a global economic system. That is why I concentrated on the differences in the situations between the advanced capitalist world and the third world in the first part of the diary a couple of weeks ago.
What we need to acknowledge with the austerity measures being introduced in Europe and the attack on the social welfare state and the remnants of social democracy is that the post-depression/post-war consensus is breaking down. The social welfare state has been under concerted attack for the past 30 years and has been nibbled away; what we are seeing now is the culmination of this attack.

We are at a time where the power of the trade unions has been deliberately destroyed due to the shift of manufactures and industries outside of the advanced capitalist world (the last bastion of trade union power is state workers whom are facing attacks all over Europe and in the US; witness the state worker wage freeze in the US, the sacking of state workers in Greece, the UK and Ireland), the power of the centre-left is at an all-time low with many of liberal parties abandoning Keynesian liberalism for neoliberalism (see, for example, the democratic party in the US, the Liberal Democrats in the UK), so-called social democratic parties abandoning social democracy first for liberalism and then for neoliberalism (e.g., the Italian Partito Democratico, New Labour, et al) and the non-mainstream and extra-parliamentary left divided, isolated and essentially irrelevant in political discussions. In fact, there is no way that this final attack on the social welfare state and social democracy would have been undertaken if not for this situation.

While the capitalist system as a whole will not collapse, it will certainly have a deleterious impact on the vast majority living in the advanced capitalist world as the standards of living to which they have become accustomed are being rapidly eroded. Immiserisation of the majority of people in the advanced capitalist world (at the same time that there is increased concentration of wealth and income in the hands of a very few) will not only lead to a contraction of effective demand that is essential for profitability and economic growth, but will undercut the fabric and ideology that is propping up so much of the bourgeois democratic system. It is extremely probable that those in charge of making the decisions in the system believe that the lost effective demand of the advanced capitalist world (so important for prevention of realisation or underconsumption crises up to now) can be made up by small increases in the incomes of people in the 3rd world; given the level of incomes of the vast majority of the 3rd world, that is not a bad bet.

This means that the vast majority of people in the advanced capitalist world could be being perceived as essentially extraneous to the financiers and decision-makers representing MNCs.

Moreover, our lack of solidarity with the people in the 3rd world and developing world is coming back to bite us on the arse. While we grew wealthy, they were kept poor. As the system shifts focus to these countries, a small increase in incomes will go quite a long way to providing effective demand to ensure continued profitability for the system.  A number of countries have moved to create trading unions between emerging economies (e.g., Latin America), progressive governments are coming into power and changes in income distribution are beginning. Instead of allowing the system to dictate to them, they are in the position where they can begin to dictate to the system and enable significant capitalist penetration on their own terms or not.

Quite honestly, they owe the majority in advanced capitalist countries nothing; we were not there for them and in fact often supported our governments’ interventions, why should they be there for us in our time of need?


To end on a positive note, rather than one of despair, let’s discuss what we can do to fight the situation and what our goals should be.
There are several things that are essential that need to be done.

The first is to break the marriage between governments in the advanced capitalist world and financiers and MNCs.  We need to be fighting for not only the limited protections offered by the current versions of the social welfare state, but an extension of the protections offered to the poor and the working poor and better conditions of life for the working classes.

Secondly, we need to move beyond the limits of the discussions determined by efficiency and competitiveness of the capitalist economic system and look instead of the needs of the majority in the world and the preservation of our planet.

Finally, instead of whinging, "they are stealing our jobs;" we can work towards a better future for all free from the confines imposed by the capitalist system. Support these governments that are trying to better the conditions of life for their citizens, support the extension of trade unionisation, employment law and health and safety legislation; do not let the MNCs and the financiers set the terms of the discussion.

Solidarity is not simply a word; we need to understand that we have more in common with the majorities in other countries than with the needs of corporations and the capitalist economic system.

Originally posted to NY brit expat on Sun Jan 23, 2011 at 02:59 PM PST.

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