by Hillel Ticktin


It is now around 7 years since the initial events around the current depression began, with the housing market having peaked in July 2006 in the United States, followed by the collapse of the US subprime mortgage industry by March 2007. The house of banking cards gradually fell in, reaching its depth with the Lehman bankruptcy in October 2008. Japan, of course, has remained in its own downturn since 1989, when their stock exchange declined over time to one quarter of its peak in 1989. The whole period from 1989 to March 2000 was marked by a high level of instability, with a downturn to 1993 followed by an upturn which led to a flow of money to East Asia which fled in 1997 precipitating an East Asian crisis, and then a dot com boom and collapse in March 2000. The combination of 9/11 and the war on Iraq drew the global economy out of its slump, albeit with a low rate of growth.


From a perspective in which we look back from 2014, the turning point appears to be around 1989, when there was a downturn in Western economies following the stock exchange crash of October 1987. Japan has even now to recover to a period of consistent economic growth, while Sweden and Canada went through major transformations. . It is no coincidence that the end of the Cold War was in 1989-91, during that global downturn. The entire period from 1940-90 was lived in the shadow of war and Cold War. Without the political and economic stability that it induced in ‘Western capitalism’, the future became uncertain. The next ten years saw a series of bubbles- in East Asia, with the implosion of the Long-term capital management fund, and the end of the dot-come boom in March 2000.


What Changed?


 If we look at a wider perspective than the Cold War in itself, we have to consider the origins of the Cold War and hence the Russian Revolution and so the beginning of an era of the conscious overthrow of capitalism. In turn, we have then to look at the First World War and its origins in competing imperialisms which, in their turn, have to be understood as part of the decline of capitalism. The recent enthusiasm of bourgeois journals[Υποσημείωση] for the work of Thomas Piketty, “Capital in the Twenty-First Century”, arises from the author’s alternative explanation of the reality of inequality as a natural phenomenon- that of profits growing faster than productivity. He sees it leading to greater inequality and hence social unrest. [Υποσημείωση] While greater income inequality obviously helps to make people see the capitalist system more clearly, and the disfranchised so-called middle class can be radicalised, it is the unequal relationships between master and servant that destabilizes the society, not simply inequality of income, which is more of a consequence than a cause.


From this point of view, there are two tasks. The nature of the present downturn has been discussed before,[Υποσημείωση] and we have discussed what prevents the present downturn from reaching a natural terminus and also what propels it. Further discussion necessarily involves selecting those of the crucial elements continuing the downturn which cannot be overcome. In the second place, the logic of the argument leads to a discussion of the importance of the long term forces of decline in relation to the depression and the Cold War.


The Question of Confidence and the refusal of the Capitalist Class to Invest.


The one aspect which requires detailed discussion is the limited investment taking place. It is not that there is no investment. The newspapers play up examples of so-called entrepreneurship, like the Tesla, the sports electric show car, the automatically driven car or the social media. Silicon Valley appears to permanently investing more and more. Yet, at the same time, much of it looks like play things for the rich, with something for the rest like Apples phones and tablets. As Obama pointed out the central state needed to repair thousands of bridges, and that was just part of the infrastructure requiring urgent updating, not to speak of the need for investment in health and education. Yet the things mentioned by the President of the USA – coast to coast high speed rail is another instance- are not being done.


Various commentators are now arguing that we have entered a period of low growth, where major innovations are not taking place. Some even argue that such substantial rises in productivity ceased many decades ago. Arguments of this type like that of Piketty are obviously part of contemporary ideology, buttressing the idea that the depression is God-given or a result of humanity’s over indebtedness which can only be cured by austerity. It is of course true that growth is low to negative, but the question is why this should be the case. As pointed out at the beginning of this essay, the downturn is now 7 years old, without a real sign that unemployment will descend to levels before 2006.


Underlying this issue is the simple fact that businesses, particularly in the USA and the UK, have huge surpluses which they are not investing. Further, such surpluses are merely the tip of the iceberg. The several trillions of dollars held by private equity firms like Blackrock are dwarfed by the huge levels held in banks, as Bank of New York Mellon, which I have frequently cited.


The fact is that the non-investment strategy has been a feature of capitalism since the switch to finance capital at the end of the seventies. If looked as a conscious and deliberate strategy it could be called an investment strike, as some do. However, it appears to be a result of economic forces rather than a political-economic decision.


There are two fundamental forces at work. In the first instance, there is the question of what determines the drive to invest. In classic Marxist theory, (and not just Marxist theory) investment arises from the need of firms to raise productivity above the herd in order to sell more goods. Alternatively, they need to keep to the same level as the leaders, in order not to lose their market. This is not a recipe for perfect competition but rather rotating or changing semi-monopolies. From this theoretical construction, one can argue in terms both of the entrepreneur and the innovator. Schumpeter did indeed take that route. As long as the leading firms change over time maximum possible investment necessarily takes place.


Marxist theory does not remain at that level however. Capital is self-expanding value. Money which is not invested is not capital, and the owner of the money is not a capitalist but a saver or philanthropist perhaps. Capital has to invest in order to expand its value and so ensure its survival as capital. It is not just an empirical form; it is part of its essence as capital that it has to invest. Clearly if it does not invest, productivity does not grow and the historical justification for capitalism stops operating. A planned society controlled from below then becomes obviously superior in this aspect alone. This is not the only consequence of course. Most obviously, a stagnant society becomes polarised and unstable.


The problem, however, is not one of zero investment over the globe, but of a substantial proportion of funds not being re-invested both by businesses and by the moneyed rich, or as they are called by their banks –high net worth individuals. Today, the shift away from simple ownership to high rewards for management has led, of course, to increasing levels of inequality but also to a separation of investment from the firm in that the bonuses etc. running into billions goes into banks or private equity, or in other words into finance capital.


The difference is that finance capital is inherently short-termist and hence will only invest if they get an adequate return within a short period of time. As innovation in crucial change can take a long time to get to fruition, they prefer to avoid it.


In fact, the argument on the limits to investment goes back to Lenin and Hilferding, who argued that the growth of monopoly meant that the incentive to innovate was reduced. Firms would not expand beyond the point of optimum revenue. Once at that point, they would not want to invest as the risks become too great compared with their present day certainty.


In spite of the constant refrain about the importance of the SMEs, (small and medium sized firms) they are of secondary or tertiary importance for the economy. In general, they are closely linked to the large firms, as in the case of the automobile companies. The small firms are important politically in ensuring support for conservative parties, and providing a more diverse cannon fodder to oppose change from capitalism.


The second reason why the capitalist class does not invest beyond a certain point lies in the long term uncertainty of the system itself. This is partly a political fear of the results of full employment and partly worries about the constantly changing political economic environment. The latter is, in part, a preference for guarantees provided by the state. Thus Will Hutton in an article in the British Sunday newspaper, The Observer, reported that ““Leading City economist Andrew Smithers, in his important book, The Road to Recovery, argues that the collapse in business investment, weak economic recovery and persistently high government deficit are because UK executives across the board concentrate far too much on short-term share price performance. Investment and research and development, unless underwritten by the state, are far too hazardous. Companies would rather buy back their shares and pay high dividends.” And again“Professor Richard Jones, in a paper for the Sheffield Political Economy Research Institute, showed that one of the consequences of privatisation was a collapse in R&D. By 2005, British utilities were spending a mere £15m in total, a fraction of what they did when in public ownership and not enough to buy a decent town house in Notting Hill. “[Υποσημείωση]


We can summarise the points made as follows. In the first instance, most firms are monopolies or monopolistic or in orthodox economic terms- oligopolistic. They control their prices and know the demand for their products or services and prefer to reduce disruption to these schedules to the minimum. In the second place, the control of finance capital re-inforces these tendencies and makes the outlook for capital expenditure more short-termist, so effectively reducing it to considerably lower levels depending on the period. Thirdly, the public sector was crucial in the post-war period either in directly investing in large scale, long –term projects or in providing guarantees and part of the investment itself. As the public sector is much diminished and governments are controlled or at least limited by the conservatives who are effectively anarchists in wanting little or no state, the result is that investment will necessarily be a fraction of what it has been since the Second World War.


From the point of view of a discussion on decline, the growth of monopoly, relatively less aggressive push for higher productivity, short-termist approaches are all aspects of a declining mode of production. The holding back on investment and need for the state to provide the necessary back-up show the new mode of production beginning to show itself even if in a protean form.


The Cold War used extensive state intervention in the economy which stabilised the economy, maintained relatively high levels of employment and a substantial welfare state particularly in Western Europe.


3. The Forms of Stability in the Cold War and the results of their termination


In my view, there were five major forms or effects of the Cold War itself during this period, other than hot and Cold Wars, which were crucial in ensuring that stability. Without the Cold War, these features cannot survive. They have either to be substantially modified or disappear completely. Since the USSR no longer exists, and there is no likely successor, for the time being at least, the transformation of the countries of the Warsaw Pact plays an important part in the new character of the world. These changes were as follows:


Historically unprecedentedly high levels of military expenditure had underpinned the US and so global economy. There were, of course, two major wars, those of Viet-Nam and Korea. As these involved both open battles and guerrilla warfare on a considerable scale, expenditure was high, peaking in 1968. In the period 1945 down to the sixties, the two colonial powers, the UK and France, attempted to hold on to their colonies. France kept its West African colonies, while the UK defeated the rebels in Malaysia and Kenya. US military expenditure is provided for in the annual budget presented to Congress. However, there is further expenditure under other headings in the budget, so that the exact total is considerably larger than that officially estimated. Nonetheless, it may be enough to look at the changes over time to see the overall trend. These show peaks, as a proportion of gdp, in 1968, 1986, and then a halving in the proportion of defence expenditure in the gdp down to 3 per cent by 2000.[Υποσημείωση] Even the increase induced by 9/11 and the wars in Iraq and Afghanistan left defence expenditure, as a fraction of gdp, some distance from that in the time of Reagan or earlier, though it did ensure that the downturn of March 2000 ended. The deliberate run –down in military expenditure under Bush Senior and under Clinton was no coincidence. Demands for budgetary control reflected a long-standing demand that taxes be cut. With the ‘enemy’ now regarded as either in retreat or defeated, cuts were made.


Clearly, much more could have been spent on worthy causes, but that was not the mood of a Republican controlled government or Congress.


Rise and Decline of USA, hid the real decline of capitalism


The US replaced the UK as global imperial overlord and as a wealthier and industrially more developed power it was both more efficient and more able to tolerate the development of a national bourgeoisie. Whereas the UK protected its own industry, the USA was able to permit and encourage the development of local industrial development, under the aegis of its own companies, which often retained technological and managerial control.


However, the need to maintain control over the working class in the developed countries led to the switch to finance capital as a mode of control. That in turn, allowed the developed countries to export their factories to China and other parts of the third world. This produced an illusion of continued growth.


However, without the apparatus of the Cold War there was no basis for permanent and continual investment, hence the discussion above on why investment is curtailed.


2. Ideological Control. This involved a particular interpretation of history which showed itself both in the media and in educational institutions. It was reinforced by the realities of Stalinism and by the fact that millions who had suffered under Stalinism had emigrated to the West. Those who had come from those areas in an earlier period often had relatives who related their problems to their families in the West. The educational institutions, the press and religious institutions produced an overwhelming and extreme anti-socialist orthodoxy. It underpinned loyalty in the wars that were fought, and the suppression of a left culture. It effectively shaped the left as it emerged once the initial force of the ideological onslaught had worn itself out. The result was that much of the left assumed that the enemy’s enemy was their friend, others preferred an anarchistic empiricism. Others, in their isolation, turned to dogmatism. With the end of the Cold War, Communism was no longer a threat or even an enemy, given the liberalism of such Communist Parties that survived. Social democracy had already disintegrated. There could no longer be an enforced ideological unity based on anti-communism. Attempts to revive new forms have patently failed. In the UK, the Daily Mail campaign against Marxism, as being necessarily Stalinist, failed derisorily. An anti-terrorism war campaign died a death. Today, the cry that in a time of austerity we are all in it together is very different. It is a classic nationalist ploy, which is in itself divisive in that the government is manifestly well-off, while figures on inequality are almost never off the pages of the tabloids. It is a cynical ploy in an age of cynicism. Cynicism, however, is not a theory or understanding of society, it is a defence against action, which will disappear when the possibility for change shows itself.


3. Internal security measures. The acceptance of security measures over the left and often over any opposition to the establishment within countries was a feature of the period. McCarthyism in the USA was a classic example. The war on terror has increased security measures but they are not comparable to the forms of control over the ordinary population.


4. Global policing. The maintenance of forms of global economic and political policing by the Unites States and the former colonial powers is considerably weakened. South America was regarded as the backyard of the United States and both direct and indirect intervention was common. Today, it is more limited. Chavez would not have been tolerated in an earlier period, as shown by the way the US helped to get rid of Allende. The limits of the US have been shown in the Ukraine. Above all, the results of the interventions made in the Middle East have been dubious, to say the least. The result is a muddle and a mess looked at from the side of the ruling class. The same kind of result may be expected in relation to Russia and the Ukraine. Indeed, the settlement after 1991, where the USA played a critical role, was a failure. The transition to capitalism has indeed failed. Those in favour of capitalism say it has not been completed.


5. Ruling class unity. The increased cohesion of the ruling class, both within and beyond national borders, as in the example of P2 in Italy, ensured that left parties and groups were kept under control, through a variety of measures. In third world countries, coups were easily resorted to, when the ruling class felt threatened. The mass killing of the left by the army in Argentina in the seventies was paralleled by the events in Chile. Theorists have written of the independent role of the army in society in view of the way it has taken power in a number of countries at various times. However, the army cannot rule without assistance from those who do rule in a capitalist society. They cannot run the economy with any degree of success, unless they are prepared to shift into a so-called command/planned economy, to which they are generally opposed. Hence, they generally take power at the behest of the ruling class or a section of the ruling class. As the army command is generally from, around or in that layer it is hardly surprising. The ruling class lived in an atmosphere of uncertainty with a siege mentality. In developed countries, the Communist and Left Social Democratic parties plus militant unions created a visible threat. In fact, the Stalinist parties and the Social Democrats were unlikely to do very much. It was only in the seventies, when Stalinism was in decline and the working class was militant that a real threat existed. Even if the Stalinism and the left were never as strong as depicted, the ruling class were not going to take any risks of another October Revolution.


The attempts to replace the Cold War ideology and strategy have not been successful. The first, that of a War on Terror, was associated with President Bush and ended as a force before his term finished. The second has been the theme of austerity.


The austerity policy has become embattled partly through direct street protests and other forms of direct action and partly because social democratic parties have to oppose it, even if they enforce it in a slightly weakened form. There have been protest movements over the world and there is no question but that the overall downturn and associated cuts precipitated the so-called Arab Spring. Indeed the Ukrainian protests/uprising might not have occurred in all their bitterness if the EU had supplied a relief programme or if the Ukraine had been exporting more goods in the world market. There is no question but that the protests have more to do with the failure of the move to the market, but since a socialist alternative is not on the cards, the economy and society are in a dire state, with the population looking to Russia or the EU or both.


The result has been that austerity rules have been tempered by extending the period when they are to function so putting off further cuts by a varying period of time. However, unless there is an equivalent of a global Marshall plan, the prospect of a static or declining standard of living will propel the population of much of the world to action.


In sum, the end of the Cold War has destabilized the global economy and polity. In the first instance, the instability has led to increased fragmentation, muddle, and uncertainty in the context of a global depression, which is a direct result of the end of the forms of the Cold War. There is no left to replace the ruling class, but the situation of the ruling class is weaker than it has been for a long time.


Hillel Ticktin