2. Capitalism: The Ghost Walks
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Terry Leahy 2023
In the last chapter, we looked at the basic dynamics of how capitalism works. This chapter looks at how that worked out in practice. While capitalism is a social machine, it is also an ongoing outcome of interventions and practices. Like a game. I will introduce this by looking at globalising capitalism as a basic context. Given that background, capitalism from the mid nineteenth century developed through three episodes, as does any drama.
Globalising capitalism
As I have explained in the first chapter, the accumulation of wealth in capitalism is at least partly the effect of capitalist economic structures. But obviously, much of this wealth was also premised on the colonisation and political control of the global South. Before looking at how that all worked out during the nineteenth and twentieth centuries, it is necessary to give some history to this imperialism.
I like Samir Amin’s complex account of this. In the pre-capitalist period before 1500, the basic mode of production for class societies in Europe and Asia was what Amin calls ‘tributary’. Power was centralised under the control of imperial monarchs, taking tribute from the subordinate classes. A religious ideology justified this appropriation. For example, the king might be backed up by an aristocratic class that owned land. The peasants on that land could provide tribute to their local aristocrat. For example, bags of wheat. In turn, their aristocrat would provide tribute to the king. For example, a platoon of soldiers armed to do the king’s bidding.
Linked and somewhat similar regimes were what we usually call civilisations. For example, Ancient Egypt, the successive Mediterranean empires, China, India and so on. Europe as such, especially in the North and West, was peripheral. These civilisations were for the most part contained in their own regions. Nevertheless, trading relationships were significant. As far as Europe was concerned, the main trading route was the Silk Road. This route gave a strategic importance to the Middle East as a mediating link. In all of these tributary societies, a small merchant class operating with private property, monetary exchange and wage labour constituted a ‘proto-capitalist’ element. These elements were ‘cloistered in a world dominated by tributary relationships’.[1] In other words, the ruling family and the state-based aristocracy owned the basic means of production. They controlled armed force, keeping the proto-capitalist sector within defined limits.
Europe was the first of these civilisations to break out of the tributary mode of production. As a peripheral region of the world economy, the state was not powerful. A feudal fragmentation of power allowed merchant dominated cities to establish some independence. In the late feudal period, Europe saw a strengthening of proto-capitalist elements — private property supported by legal sanctions, commodity exchange of agricultural products, free wage labour in agriculture and craft production.
This capitalist development was mercantile rather than industrial. The capitalists were merchants who made money siphoning a profit out of trading relationships. Not industrialists making money by directly producing goods for sale – as happened later. Amir sees the period of 1500 to 1800 as a transition to fully developed capitalism. As capitalist elements became more dominant, an alliance formed between new absolutist monarchies and the nascent capitalist class. Two important initiatives strengthened their hand. The Portuguese developed the sea route to Asia. Ending the key role of the Middle East in world trade. Columbus opened the Americas to European conquest. ‘From then on the Europeans knew they could conquer the world and went on to do so’.[2] The conquest of the Americas gave European capitalism leverage to enhance its domination. The wealth of American mines allowed Europe to offer products at lower prices and take over the global market. The end result was to block proto-capitalist developments in other global centres, subordinating the global South to European imperialism. Amin argues that the military superiority of Europe was an effect of capitalism — in comparison to the tributary mode of production. As a more effective system for extracting surplus product. Competition between capitalist firms allowed a technological leap forward that European states leveraged as armed force.
European imperialism in the period since 1500 cannot be understood outside its capitalist context. Without this, the wealth generated through the conquest of the Americas might have just accumulated in vaults or financed large churches. In so far as this wealth contributed to capitalist enterprise this was an effect of the growing ascendancy of the capitalist mode of production. The drive to expand capital comes out of a competitive economic structure. The desire to expand markets and get access to capital through primitive accumulation can explain the imperial project. The slavery and peonage of the New World was integrated into more directly capitalist enterprise in the core countries.[3] These colonial acquisitions enabled the beneficiaries to maximize their wealth in competition with other capitalists. The East India company, responsible for much of the conquest of India, is a good example. An earlier example is that of the Spanish conquistadors — obsessed with acquiring gold in the Americas. They would loot gold and establish gold mines serviced by slaves. This gold could be easily transported as gold bricks and taken back to Spain. In Spain it could be used to buy land and businesses. In other words, turned into capital.
On the other hand, this exploitation was carried out by means which were rarely part of the ‘capitalist’ game in the narrow sense. For example, theft of property backed by armed force is not, strictly speaking, a business measure. Genocide to clear land for capitalist agriculture and remove whole populations. Slavery, not wage labour. The export of slaves to the global North. But then again, consistent with the dynamics of capitalism, these exploiters were gaining surplus product from their slaves so that they could sell commodities on the market. These commodities were put into further circulation in other capitalist businesses. For example, cotton grown on land forcibly taken from Native Americans, worked by slaves from Africa, harvested and sold on global markets, turned into cloth in capitalist factories in Lancashire and sold again to a market of wage labourers.
Capitalism as a three-part drama
The discussion so far gives us a glimpse of the world prior to the development of mature ‘industrial’ capitalism in the mid-nineteenth century. I am going to look at capitalism since then as a drama in three parts, or episodes. The first is what I will call the ‘first world bargain’, a bargain with important consequences in the global South.
The first world bargain
The first world bargain began to be achieved in rich core countries of capitalism in the second half of the nineteenth century. Marx writes about the struggle for the ten-hour day in England. Unions became legal entities. Men secured universal suffrage (the right to vote) first — and women by the early twentieth century. Working class pressure produced similar outcomes in the other rich countries. The broad outline of this bargain lasted till the mid-seventies.
The heart of the first world bargain is the political accommodation between capitalists and the working people in the core countries of global capitalism. Cardan’s explanation makes sense. Starting in the 1840s in Europe and the United States, political agitation threatened revolution and made demands to ameliorate capitalism. Pressure was applied through unions, working class parties, strikes, and riots. The Factory Acts and suffrage were early victories. Increasing technological power was an effect of the competitive economic structure of capitalism. This allowed the capitalist class to respond to pressure with wage rises and improvements in conditions. These increased wages also expanded the market, and with that, the profits of businesses selling to working people. The outcome was a gradual increase in the material well-being of the working class. Piketty’s research suggests that wage increases in this early period did not eat into the relative wealth of the capitalist class. At the same time, the absolute standard of living of workers improved.
The 1917 revolution in Russia was a warning and raised the stakes leading to more compromises. Likewise, the Nazi regime. While some capitalists saw the Nazis as an answer to the threat of leftist revolution, others were not enthusiasts. The fascist version of industrial society was not compatible with aspects of capitalism as a system — the free movement of wage labour, the rights of private property, the allocation of economic power by market forces. Large sections of the global capitalist class saw the Nazis as a threat and were willing to accommodate some reforms to forestall them.
These developments throughout the nineteenth and early twentieth century made capitalists amenable to compromise with the working class in the global North. That is why I call it a bargain. The working class (the masses of ordinary people) gave up the goal of revolution. In Australia and the UK this was signalled, decades after the event, by Labour parties dropping their demand to ‘socialise’ the means of production. Ordinary people accepted alienated labour in return for increasing affluence. They put up with the extraction of surplus value, so long as their pay continued to rise.
This is how the bargain worked. The competition between firms ensured increasing technological power and productivity. It became possible to promise the working-class increasing affluence, measured by consumer goods and leisure options. Without eating into capitalist profits. An increasing supply of material goods for the same number of hours of work decade by decade. To make this bargain work, the competitive pressure on each capitalist — to drive down wages — had to be matched by coordinated working-class industrial power. To collaborate to put pressure on the capitalist class. Unions spanned different firms. Left parties introduced country wide legislation. Unions pushed this. The left parties pushed this. Gradually the wages and living standards of affluent workers in the rich countries increased. This process started in the 1850s and 1860s and continued right up to the mid-seventies. The technological complexity of capitalist production made these demands difficult to resist. If workers went on strike, it was hard to replace them.
In the 1950s, this gradual increase in affluence grew to include the ‘social wage’. The proportion of wealth and income held by the ruling class dropped significantly[4]. The social wage included unemployment benefits, free education, public health, public housing, transport services. The government owned more and more of the economy. In one form or another these developments took place in all the countries of the global North.
Pineault considers the environmental impacts of these developments. Industrial capitalism meant that capitalists were making use of resources laid down over geological time. Accumulated in a useful form by processes taking millennia. Like coal, the fossilized bodies of plants, storing carbon. A key moment in this industrial development was the use of steam engines powered by coal. Their first use was to pump water out of coal mines, opening more coal seams for exploitation. Geological reserves of surplus used to expand the available surplus. This process continues to the present, expanding the use of geological reserves to expand production and markets. Pineault also notes the vast acceleration in the growth of the use of these resources, starting with the 1950s. Politically, the capitalist class allowed wages to grow to accommodate the working class of the rich countries — following the second world war. The prestige gained by the Soviet Union, seen as an alternative to capitalism, drove a change in the class struggle. These accommodations meant an increase in consumer goods going to the working class. The ultimate material sources of these increases were resources laid down in geological time.[5]
The global South in the first world bargain
I will now explain the way the first world bargain affected the global South. The ‘bargain’, such as it is, never applied to the global South. Mostly, representative democracy has been patchy. Authoritarian governments have suppressed political agitation. Originally these were the colonial governments. Liberation struggles ensured local rule from the end of the second world war. Despite attempts to steer a new course, most ex-colonies replaced slave exploitation with wage labour exploitation. Periods of democratic government alternated with dictatorships run by ruling elites. For example, the Sukarno and Suharto regimes in Indonesia, Marcos in the Philippines. Leftist revolutions did not lead to popular control. In some cases, they just installed a new ruling clique. In others, the revolution was reversed with a return to the old status quo.
This situation maintained the low cost of labour in the global South. Authoritarian governments suppressed working class agitation. It was hard to organize unions, go on strike and bargain for higher wages. It was difficult to get a social democratic government in power to enact welfare measures. It was virtually impossible to tax the rich. Competition between the countries of the global South means they are forced to produce goods at the lowest possible prices. In this period their production was oriented to mining and agriculture. Industrial production was largely confined to the rich countries. Local elites in the South were bought off by global North money and adapted their economies to the needs of the global North. Revolts were suppressed by armed force.
It makes sense to see these countries now as parts of a global capitalist machine. There are local capitalists and a local middle class, tied in as junior partners in relation to global capital. There is a mass of wage labourers on very low incomes. There is a large ‘reserve army of labour’. People who have been deprived of their means of production and will take a job if they can get one. So, the global South is a functioning part of a global capitalist system. On the other hand, the location of the world’s most extreme poverty in these ex-colonies is ‘empire’ as it now operates — and comes out of the history of European imperialism.
Poverty in the global South comes out of this context. The low rate of employment reflects the fact that there is only a limited number of consumers in the rich countries that can buy stuff. For example, in South Africa at the present time, there is a thirty per cent unemployment rate. For those between 15 and 24 the rate is 60 per cent. The ‘expanded rate of unemployment’, including those not registered as looking for work, is 44 per cent.[6] Unemployment like this drives down the price of labour — as people scramble for any job they can get.
This global inequality implies a mediated exploitation of third world workers by affluent first world workers. In 2006, I spent time in South Africa. Ordinary people in South Africa were getting AUS $40 a week. Much of this work was making things which were later bought by ordinary people in the rich countries. Like cars, macadamia nuts, platinum, citrus, tomatoes. How much were those ordinary people in the rich countries getting paid? In Australia at that time, a typical wage for standard unskilled work was between $800 and a thousand dollars a week. So, the worker in Australia could buy many hours of labour, embodied in a product coming from South Africa, for the price of one hour of their own labour. A recent analysis by Hickel, Lemos and Barbour finds that ‘in 2021, the economies of the global North net-appropriated 826 billion hours of embodied labour from the global South, across all skill levels and sectors’. Meaning that this embodied labour doubles the amount of labour available for consumption in the global North[7].
I call this a ‘mediated exploitation’. Mediated through market processes that are out of the hands of ordinary people in both countries. Largely, an exploitation that ordinary people in the rich countries fail to understand. Despite this mediation, there is no doubt that everyday workers in the rich countries are exploiting people in the global South. A crucial part of the first world bargain. Ulrich Brand and Marcus Wissen recently coined the term, ‘imperial mode of living’, for this inequity. Earlier writings by political economists talk about ‘dependency theory’ and ‘world systems theory’. In the last few decades ‘postcolonial theory’ addresses similar issues.
First world workers end up like the intermediate class of previous class societies. The soldiers in the Roman empire, the skilled craft workers of ancient Egypt. Such people live better than the great mass of the subordinate class and protect the ruling class. In this role in capitalism, the ordinary people of the rich countries have been pressed into service to invade, colonize, and put down rebellions. A legion of folk songs from the nineteenth century suggest that this imperial mission was heartily endorsed in the heyday of the colonial period.
In the postcolonial period, local armies took on insurgencies with the assistance of military aid from the global North. In Indonesia in the sixties up to half a million leftists and supposed leftists were killed by the army and right-wing vigilantes. In a few cases, the United States sent its own forces to prevent developments that were inimical to global capitalism. While the rhetoric was all about democracy, the interests of the global ruling class were always a key factor. Where to intervene to save democracy and where to make allies with right wing dictators. In Korea, Vietnam, Iraq, Afghanistan, to mention a few of the direct interventions. Indirect interventions included assistance in right wing coups. The overthrow of the Allende government in Chile, of Lumumba in the Congo. Economic embargoes against enemies of capital. The embargoes on Cuba, Venezuela, Iran.
Gilly gives us a detailed list of cases where external interventions have attempted, and often succeeded in crushing revolutions.
Examples would include Mexico (1910), Russia (1917), China (1949), Bolivia (1952), Korea (1953), Vietnam (1954), Algeria (1954), Guatemala (1954), Egypt (1956), Hungary (1956), Cuba (1959), Angola (1961), Guinea-Bissau (1963), Mozambique (1964), Czechoslovakia (1968), Chile (1970), Iran (1979), Nicaragua (1979), El Salvador (1980), and Grenada (1983).[8]
While the above is a good broad brushstrokes picture of the global South, I do not want to imply unrelieved misery and victimisation. The liberation struggles were effective in bringing about real changes. Patchy democracy, and even the more enlightened dictatorships, improved people’s lives. Programs of public health, family planning, education. In some countries, aspects of the welfare state — South Africa, Brazil, Indonesia, China. Capitalism requires participation even in the global South and governments must negotiate that. If you spend time in these countries, you cannot help but notice that ordinary people aspire to ‘development’ and make considerable sacrifices to assist their children to become educated and get good jobs. In Indonesia recently I was driving with Jean Couteau who has lived in Bali for decades. Surrounding us in the busy traffic were motor bikes owned by many ordinary Indonesians. It was school pickup, and children wearing school uniform were riding pillion on many of the bikes. I was talking to Jean about the book, The Imperial Mode of Living and he pointed to the people around us. These people, he said, compare their lives to those of their grandparents. An upward trajectory of affluence and modernity, not a nightmare of exploitation from the global North. While Bali is one of the more favoured parts of the global South, this sense of improvement is present in much of the global South.
So that was the first world bargain as it affected the global South.
Capitalism, the second episode
The second episode is globalization. Several things happened, which ended up with globalization — the most significant development of this second episode. The term often used for this change is ‘neo-liberalism’. For me, this is a bit of a smoke screen. Neo-liberalism is what the capitalist class could achieve after globalization had changed the balance of power.
Looking back at the seventies, we can see why the capitalist class was worried. Agitation and effective political action were eating away at the power of the capitalist class in the global North countries. Through the social wage, through full employment, job security and affluence. All of these strengthened the hand of the working class in the rich countries. There was an escalation of demands. To control production at each local site, for ever higher wages, for an increasing share of public ownership and public control, for increasing regulation.
The hippy generation attacked the work ethic and puritanical morality. Resistance to the Vietnam war and to conscription galvanized young people. Women’s liberation exposed the boring disaster of women’s unpaid work. Feminists attacked hierarchical power relationships in the family, comparing patriarchy to capitalism. The 1968 uprising in France allied students and workers with demands for workers’ control of production. In the United States, riots by the black underclass destroyed whole suburbs. The rioters came from an underclass that was also the workforce in the US car industry. Left terrorist groups proposed an end to capitalism. The Baader-Meinhof group in Germany planted bombs. In Italy, left radicals ran a campaign of knee-capping — shooting capitalist magnates in the knee. Sabotage as resistance to capitalist work became widespread. For example, causing a stoppage of the production line to get an afternoon off. Strikes that were not authorized by unions, wildcat strikes. While all these were dramatic and disturbing, a quiet revolution, the advance of the welfare state, also plagued the capitalist class — an increasing share of the economy was being run by the government.
All this was combined with revolutionary movements in the global South. The Vietnam war, pitting communists from North Vietnam against a pro-capitalist government in the South. Marxist insurgencies in Nepal, India and the Philippines. The revolutionary upheavals in Cuba, Guatemala, Nicaragua and Chile. Left-wing insurgencies in Algeria, Angola, Tanzania, Mozambique, South Africa and Zimbabwe. Leftist groups hoped for a world-wide revolution against capitalism.
Globalization and the global South
Globalization was the dynamic that allowed the capitalist class to deal with these threats in the global North. This was not a conspiracy, a conscious decision to impose globalization as a strategy. It was more of a discovery, initially driven by the profit motive. Production was more profitable if wages were lower. Wages were lower in the global South. A simple move of manufacturing production to the poor countries would undermine the power of the working class in the rich countries. You could put a factory in Indonesia or Taiwan or South Africa — knowing that in the last thirty years the government had educated the local workforce. Why leave your factory in Liverpool? Where the workers are so much trouble. Why not go to South Africa where wages are low? Where the police fire live bullets into crowds of striking unionists. So, this was no conspiracy, but became a trend as firms copied other firms. The effect was an exodus of manufacturing jobs from the rich countries. For example, in the UK 40 per cent of the workforce were in manufacturing jobs between the 1840s and the 1960s. Now there are only 8 per cent in manufacturing.[9]
Globalisation was not just a response from global North companies. As well, some post-colonial countries managed to develop a flourishing capitalist class of their own. These new capitalists started out with joint ventures and moved on from that. They took advantage of the low wages in their home countries and undercut global North companies. Exporting to the affluent working class of the rich countries. China and the East Asian tiger economies pioneered this.
You could wonder why the capitalist class had never thought of this strategy before. In fact, several conditions for globalisation had only just been realized. The anti-colonial revolutions in the third world provided the conditions for education. The subordinate class became citizens, and education the pathway to development. For example, in Indonesia, Sukarno and Suharto established compulsory and free public education. In South Africa, majority rule added to the existing racially segregated education system. Thereby creating a whole new cohort of the class system, the black middle class. Around the world, in even the poorest families, parents prized education as the route to social mobility. This educated population was a first condition for the extension of industrial production into the global South.
Ankie Hoogvelt in her useful study of the global South mentions two others. The first is containerization. It had become possible to ship things around the world in standardized containers. These were easy to unpack and created the option of joining different parts of production in widely dispersed sites. You could make the gearbox in one country and the starter engine in another and assemble it all somewhere else. The second condition is digital communication. This enabled a firm to coordinate operations across several different countries at once. Large global firms also developed the practice of outsourcing parts of their production to small contractors. Competition between contractors ensured the most efficient low-cost production. While one section of the global working class might achieve some power locally, you could always move production to somewhere else where conditions were more favourable. An example is the history of the printing industry in Australia. The first move was to Hong Kong. As wages there went up, the industry re-located to Taiwan. Then to the Philippines. Now India.
The consequences of globalization in the rich countries
These are the things that enabled globalization. What were the effects?
More inequality
Stagnation of wages for the ordinary masses of working people in the rich countries and a corresponding rise in the wealth of the top end. The bottom twenty per cent of the population have experienced a decline in incomes. Meanwhile incomes and wealth at the top end have been going up.
Piketty traces some of these developments. Let us look at how this worked out in the leading capitalist country of this period, the United States — for the top ten per cent. Between 1910 and 1940, the top 10 per cent were getting 43% of national income. From 1945 to 1980, with higher taxes, the top ten per cent was only getting 33%. By 1980 to 2000, after twenty years of globalisation, their share of national income jumped to 50%. Most this growth was in the top one per cent. For Europe the share of the top ten per cent in the national income started out at 47 per cent in 1910 and dropped steadily to 32 per cent by 1950. It had gone down to 28 per cent by 1980. But between 1980 and 2010 it climbed again to 35 per cent. [10]
There was a similar pattern for the top ten per cent in national wealth. For example, in Britain they held 90 per cent of national wealth in 1910. This fell steadily to 65 per cent by 1970, stayed flat at this level to 1990 and then started to climb, getting to 70 per cent by 2010.[11]
Let’s look at the share of national income going to capital (as dividends, rent etc.) and the share going to labour (as wages). For example, in Britain, the share going to capital stayed at between 30 and 40 per cent between 1770 and 1910. It then fell with the depression and rose again to 30 per cent by 1940. Between 1940 and 1970, the height of the welfare state, it stayed at close to 20 per cent (meaning 80 per cent was going to labour). Between 1970 and 2010 the share going to capital climbed again reaching 28 per cent.[12]
Governments cut back but also expand
The second consequence was a change in the way governments operated in the economy — neoliberalism. Neoliberal propaganda traded on the resistance to taxes that came with a stagnation in real wages and job insecurity. But, as we shall see, the rhetoric of spending cuts was not always matched by the reality.
There was a fall in public ownership of the economy, relative to the share owned by private capital and relative to GDP. Piketty surveys eight rich countries. In 1970 the worth of public capital as a percentage of annual national income was between nought and 100 per cent. By 2010 it had dropped to between 70 and minus 70 per cent. Meanwhile the worth of private capital started out in 1970 as between 200 and 350 per cent of national income — and climbed to between 400 and 700 per cent.[13]
Along with this fall in public ownership, there was a winding back of some government services. To take Australia as a typical example. While public health insurance remained, the government paid less out of a typical doctor’s fee — with patients paying the gap. Work pressure on medical staff in hospitals intensified. Services were more often inadequate. More parents chose private schools and were paying more. In universities, class sizes doubled. Student loans replaced free tertiary education. The government funded technical education sector (TAFE) was decimated, and fees were increased. Public transport was privatized. Likewise, the banking sector and energy. Public housing provision was discontinued. The real value of unemployment payments decreased. The endless box ticking required to access them increased.
Despite all this contraction, there was actually an increase in some government spending. Take the UK as an example. Between 1949 at the beginning of the welfare state period and 1982 at its close, government spending as a share of GDP climbed from 37 per cent to 56 per cent. Then, in harmony with the rhetoric of neoliberalism, government spending fell to 39 per cent by 2000. However, it then climbed again, reaching 48 per cent in 2011. The percentage of GDP going to social expenditure was 10 per cent in 1960, 15 per cent in 1980 and 23 per cent in 2010. Public social spending includes such things as health, family services, disability payments, housing, unemployment benefits, age pensions. There were similar patterns of change in the other rich countries. In 1960 public spending in the USA was 30 per cent of GDP, 36 per cent in 1980 and 43 per cent by 2011. In Australia, while overall government spending declined from 44 per cent in 1980 to 37 per cent by 2011, the proportion of social spending continued to go up, from 12 per cent of GDP in 1985 to 18 per cent in 2016.[14]
These patterns reflect a shift in government spending. More money was being spent on social welfare. Less was available for key public services. The effect of globalization is to shift power to the rich. And what the rich have done is to undermine the conditions of employment. So instead of getting a regular full-time job, more people are employed in casual or part time jobs. When one of these ends, they must make do till they find another one. They do not get holiday pay. The effect is an increase in registered unemployment and undeclared periods of underemployment. There is also increasing pressure on the system from this economic insecurity. Appearing as mental and physical illness, drug use, crime and other social damage. All of which increases the number of people drawing on government provision[15]. In the welfare state period, unemployment in Australia was at close to two per cent. That is hard to believe now, when unemployment is considered low at six per cent and averages out at 7 per cent. In real terms, it is much higher than this. Government statistics now count anyone as employed who has some hours of work.
These conditions have been worse in other rich countries. For example, in 1985 in Spain, the unemployment rate was 17 per cent. However, another 28 per cent were not bothering to register as unemployed. In 2020, European countries had rates of ‘labour underutilization’ between 19 per cent (France) and 26 per cent (Spain and Italy). These hidden unemployed are not looking for work, because they don’t expect to get a job, or working less hours than they need.[16]
Governments spend money mopping up the consequences of this shift in the labour market — and there is less available for other government services.
The cost of basic necessities goes up
Real conditions have been undermined by the galloping costs of essentials. While it looks as though wages have stagnated, this is misleading. Within that wage packet, the cost of consumer goods has declined while the cost of essential goods and services has gone up. Electronics, white goods, cars and like items have become cheaper relative to income. These goods are now manufactured in the global South where wages are low. But the cost of essential goods has gone through the roof. For example, in Australia between 2005 and 2020, spending on education increased by 89 per cent, spending on health by 84 per cent and spending on housing by 64 per cent. Meanwhile the prices for many everyday consumer items, now coming from the global South, declined[17]. During the welfare state era, owning a house in Australia was affordable for a sizeable majority. This is no longer the case. Between 1960 and 2006 real house prices increased at an average of 2.7 per cent per annum while household incomes were only going up at 1.9 per cent. In 1966, 73 per cent of households in Australia owned or were buying a home. By 2023 that had fallen to 63 per cent[18]. Various neoliberal measures have produced this consequence. The decline in public housing construction – removing competing low prices from the housing market. Tax breaks for investors renting out their real estate. The opening of the housing market to the upper echelons of other countries. Investment in rental housing as a form of superannuation. Low interest rates.
Capitalism, the third episode
The third episode is a cliff-hanger. We don’t know what might happen.
There is no doubt that the first world bargain is finished. The first world bargain was increasing affluence and wages. Productivity increases because of technological inventions — caused in turn by competition. The cooperation of the ordinary people of the global North with the capitalist class. The social compact. What’s killing that off?
First is globalization, as explained. The capitalist class does not have to accommodate popular pressure in the rich countries. They no longer need industrial labour sourced from the rich countries.
Secondly, the environmental crisis. There is no way to maintain the affluence of ordinary people in the rich countries and deal with the climate disaster and other kinds of environmental problem — like the plastics crisis, the energy crisis, and the global water crisis, to mention a few typical issues. Solving any of these problems costs money that cannot continue to fund everyday consumer goods and government services. Not solving any of these problems also costs money. In Australia the recent bush fires and floods — the impact of climate change — showed the second side of this dilemma. These catastrophes destroyed many homes. Insurance companies will not pay the owners to rebuild in the same locations. They cannot sell their properties for anything like what they were worth before these disasters. A catch 22 of capitalism. Government assistance is a joke.
It may also be that we are past the peak of invention, that we are beginning to run out of technologies that can produce things more cheaply with less labour and less materials.
Of course, globalization has produced some small gains for the global middle-class, like the workers in South Africa, with jobs in car factories. These workers are surely doing better with these jobs than they would starving in a rural village. That’s certainly true. However, what gets ignored in paeans to globalisation is this. There are still more than a billion people without adequate food and another billion suffering from severe food insecurity. For example, in Africa and South Asia between 25 and 50 per cent of children under five years old are stunted from malnutrition[19]. The cause is poor food supply exacerbated by gastric infections. A consequence of inadequate sanitation. Capitalism, despite its glitzy achievements, is hardly an epitome of efficiency. In terms of human needs, it’s a complete schemozzle.
Impasse for reformists
The third episode of capitalism implies the insufficiency of reformist options. Reforming and regulating capitalism to make these problems go away. Starting in the nineteenth century and accelerating in the fifties, working class pressure reformed capitalism, improving people’s lives substantially in the rich countries and even to a degree in the global South. The vote, the welfare state, better wages and conditions, shorter working hours, some regulation of environmental impacts. These strategies worked — that is not an illusion. But extending these reformist options is no longer viable for the rich countries and even less likely for the global South.
If you tried now to enact a strong program of reform – for example like those proposed by Jeremy Corbyn or Bernie Sanders — big business would move their operations to countries that are maintaining a ‘favourable’ economic strategy.
Globalization is a trap for reformists. An ‘own goal’ for the left where social democratic parties implemented it. The only way to make strong reformist proposals work would be to cut your country off from the rest of the world. To start producing for local consumption. Running your own show without the constant threat of ‘offshoring’. But if you do that, what happens next? The price of consumer goods goes through the roof. Re-planting the manufacturing industry is expensive enough. Then there is the cost of the environmentalist retrofit we need. Not to mention the high cost of labour with local manufacturing. If a reformist government attempted this, they could expect to lose the next election — as it became clear what was involved. The continuation of alienated labour, the continuation of the privileged lifestyles of the rich — combined with hikes in taxes and the price of everything.
As explained above, the environmental crisis is also a barrier to reformist options. The basic compensation for work in rich countries has always been an increasing supply of consumer goods and leisure options. You cannot reconcile this with measures to deal with the environmental crisis. Not dealing with it entails the same problems — declining affluence for ordinary consumers. Capitalism by its very nature creates pressures to grow the economy and cut corners to externalize environmental damage. Reform adequate to deal with these problems kills economic growth, destroys jobs, and implies a vast bureaucratic oversight — itself a huge cost on real incomes. More on these issues in the following chapters.
So, my sense is that promises of reform made along these lines are either disingenuous or naïve. No leftist mainstream party is in fact going to restore tariffs and end globalisation. Or institute environmentalist policies that will be adequate to the science. If they do indeed attempt this policy in good faith, they will be voted out. When politicians on the far right promise to restore local manufacturing, it is just a straight lie. They are equally aware of the real consequences of moving in that direction.
It seems to me that now there are two drastic alternatives, we can either have a re-feudalisation of class society, or we can have de-growth and revolution.
Re-feudalisation
What does a re-feudalisation of class society look like? Like more of the same. The tendencies already present in globalisation are intensified. Markets target the rich. Most production is oriented to the top ten per cent of the global population. The bottom 90 per cent are gradually losing out. Malnutrition would become common in the rich countries, just like in the global South.
To stay on top in this situation, the capitalist class would have to abandon representative democracy and get populist support for authoritarian solutions. Authoritarian governments are already typical in the global South. In the rich countries the ordinary population has been raised on a diet of increasing affluence as compensation for wage labour. As the various pressures in play remove this entitlement, the ordinary people of the rich countries are ropeable. Sections of the capitalist class will call on authoritarian solutions to cap this discontent. The Trump regime is an early adopter. The recent conversion of Elon Musk to Qanon is telling. Putin’s Russia is a model of what might take place.
While this is the political scenario, the economic scenario that fits this politics is ‘corporatism’. A mafioso version of a monetary economy — but not really capitalism. Certain companies are allies of the ruling cliques and get favoured treatment. The government dismantles companies that are owned by disloyal capitalists. The competitive capitalist market vanishes. There are monopolies authorized by the state. As in mercantilist Europe.
The long-term effect is that technological innovation and increases in productivity disappear, not just in one country but in the whole world.
This is not a good setting for effective action on climate and other environmental catastrophes. Of course, technological stagnation and corrupt cronyism reduces the options to come up with workable solutions for environmental problems. But the political issues are just as relevant. The ruling elites would have to watch their backs before anything else. They would be plagued by the threat of rebellion from below and by coups from disaffected elites. So environmental action would become window dressing, stage props for doing nothing. Worse even than the current scenario. Within a hundred years or less, the end result would be collapse.
This scenario is misunderstood if it is conceived as a continuation of capitalism, an adaptation of the capitalist economy. It is a maintenance of the power of certain sections of the capitalist class. But the social machine, the mode of production, is not capitalism.
Degrowth and revolution
The other alternative is de-growth and revolution. That is the one I’m looking forward to. The population of the world goes, ‘You know what? This is not working. We need to do something completely different’. And in the rich countries people are prepared to accept a cut in their consumer affluence. In the global South they are prepared to accept that the American dream will never happen.
Affluence, if it is measured in material goods, is no longer an option. Renewable energy technologies are insufficient to provide the current rich world energy diet for the whole globe. There are not enough minerals to make the batteries and not enough mountain valleys for pumped hydro power storage[20]. The need to preserve global biodiversity means that we must cut back our impact in terms of agriculture, timber, energy, land clearing, toxic waste. Recycling and removing toxins, the ‘circular economy’, implies more hours of work and less production.
But what is the payback, the compensation for these losses in consumer goods for the rich world? A successful and sensible alternative to capitalism could promise quite a lot. Firstly, security in your basic material needs. Your housing would be secure, your food would be sufficient. You would not expect any sudden changes in your conditions as far as that goes. Control of everyday life. In a gift economy, people doing the work would actually decide what they wanted to produce in consultation with their communities. They would have complete control over what they are doing and how their production is organised. Their work would not be commanded by any boss. They would be doing the things that they themselves have determined to be useful. In other words, everyday material security, along with creative and social pleasures, would compensate for the loss of consumer goods.
This combination of de-growth and revolution could in fact get support. People are much more aware of the necessity for degrowth than you might imagine. They just cannot see how it can happen without Mad Max or Hunger Games coming along for the ride. But of course, the current mainstream strategy of doing nothing and voting for mainstream parties does not prevent nasty feudalism. The prospect of collapse becomes more real every decade. Hanging on to the dreams of the past looks more and more delusional.
The de-growth and revolution option fits with grassroots strategies in much of the global South. It has become obvious that insertion into the global agricultural economy is no solution for many of the rural poor. Moving to the big city and getting a global factory job may work for a minority. But most in the global South are not finding ‘development’ a brilliant solution to their problems. Meanwhile we know that a simple permaculture agroecology strategy — with only minimal use of industrial products like mosquito nets, cement, wire, and poly-pipe tubing — can make huge improvements in nutrition and health. So long as people have control over their own land. None of this is rocket science. These experiments are being tried in a patchwork of projects in the global South. On a larger scale by revolutionary movements such as the Zapatistas and Rojava.
These provide a living model of how well de-growth can work. The ordinary people of the rich countries could end up seeing this as the way forward. A revolution in the rich countries would localize production. Complementing this, revolutions in the global South could block the drain of wealth to the North. System change to a gift economy could undermine the racist lifeboat mentality so common in the North now. ‘We are the little red hen, we do the work, while you come begging for our help.’ These paranoid views reflect the very real insecurity plaguing ordinary people in the rich North. With that insecurity gone, these globally privileged classes might develop a more realistic analysis and a more generous practice. Global production today is excessive, and consumption is confined to elites. There is more than enough for us all to live a simple sufficiency while also looking after our planet.
So, this is the shape and basic history of the social machine that is capitalism. The following chapters will look at alternative pathways that have been proposed, starting with a chapter on what’s wrong with money!
References
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[1] Samir Amin, Global History: A View from the South, Pambazuka Press, Capetown 2019, p.18.
[2] ibid., p.30.
[3] Chris Hesketh, ‘Debating modes of production in Latin America’. Progress in Political Economy, 12 September 2023.
[4] Thomas Piketty, Capital in the Twenty-First Century. Harvard University Press Cambridge, MA, 2014.
[5] Eric Pineault, A Social Ecology of Capital. Pluto Press, London, 2023.
[6] Statista, ‘Unemployment rate in South Africa from Q1 2019 to Q3 2022, by age group’, in Statista, viewed on 27 December 2023, https://www.statista.com/statistics/1129482/unemployment-rate-by-age-group-in-south-africa/; Business Tech, ‘The provinces in south africa where more people are unemployed than working’, in Business Tech 2022. viewed on 27 December, 2023, https://businesstech.co.za/news/business/650185/the-south-african-provinces-that-have-more-people-unemployed-than-working
[7] Jason Hickel, Morena Hanbury Lemos and Felix Barbour, 2024, “Unequal exchange of labour in the world
Economy,” Nature Communications, 15: 6298.
[8] Adolfo Gilly, Paths of Revolution. Verso, London, 2022, pp. 207-208.
[9] The Economist, ‘Britain’s manufacturing sector is changing beyond all recognition’, in The Economist, 5 May 2016, viewed on 27 December 2023, https://www.economist.com/britain/2016/11/05/britains-manufacturing-sector-is-changing-beyond-all recognition?
[10] Piketty, op.cit., pp. 291, 324.
[11] Piketty, op.cit., p. 344.
[12] Piketty, op.cit., p. 200.
[13] Piketty, op.cit., p. 184.
[14] Our World in Data, ‘Public Social Spending 1880 – 2011 as share of national GDP’, in Our World in Data. 2023, viewed on 29 December 29, 2023, https://ourworldindata.org/government-spending
[15] ibid.
[16] ILOSTAT, ‘Statistics on unemployment and labour underutilization’, in ILOSTAT. 2023, viewed on 29 December 2023, https://ilostat.ilo.org/topics/unemployment-and-labour-underutilization; Olivier Blanchard, Charles Bean and Wolfgang Munchau, ‘European unemployment: the evolution of facts and ideas’. Economic Policy, vol. 21 (45) 2006, pp.7-59.
[17] Michael Janda, 2021, “Inflation Analysis Shows Costs of Necessities Rising Fast As Many ‘Wants’ Become Cheaper,” ABC News, May 26, 2021.
[18] Shane Oliver 2023, “Australian homeownership peaked in 1966, How do we make property more affordable?”, Livewire, May 23, https://www.livewiremarkets.com/wires/australian-home-ownership-peaked-in-1966-how-do-we-make-property-more-affordable, accessed January 28, 2023. Judith Yates, 2008, “Australia’s Housing Affordability Crisis,” The Australian Economic Review 41 (2): 200-214. Yuhno, Cho, May Li, Shuyun and Lawrence Uren 2021, “Understanding Housing Affordability in Australia,” Australian Economic Review 54 (3): 375-386.
[19] FAO 2022, The State of Food Security and Nutrition in the World, Rome, United Nations.
[20] Ted Trainer 2022, “Can Australia Run on Renewable Energy: Unsettled Issues
and Implications,” Biophysical Economics and Sustainability 7 (10): 1-17.