0:00

This is David Harvey and you're listening

0:02

to the Anti-Capitalist Chronicles, a

0:04

podcast that looks at capitalism through a Marxist

0:06

lens. This podcast is

0:09

made possible by Democracy at

0:11

Work.

0:12

Welcome to this week's edition of the

0:14

Anti-Capitalist Chronicles. As

0:17

usual, I'm deeply indebted to Democracy

0:19

at Work for putting

0:21

this on the air and doing all the work that's

0:24

involved with its production.

0:28

This week, I thought I'd reflect on a

0:30

question I got in an interview I did

0:33

earlier this week. And

0:35

the question was, how come the

0:37

United States ran such a huge

0:40

foreign indebtedness position?

0:45

And what benefits came to the United States

0:47

by virtue of that? My

0:50

instantaneous answer, without really thinking about

0:52

it too much, was that I didn't think the

0:55

United States really did benefit from it

0:57

very much. I then reflected

1:00

a little bit and said afterwards

1:02

that, well, maybe some people in

1:04

the United States benefited from it,

1:06

but the population as a whole

1:09

in the United States certainly did not. And

1:12

then the question that

1:15

followed up was, well, if

1:18

that's the case, why does the United States, with all

1:20

of its power, actually tolerate this situation?

1:22

And my answer was,

1:24

well, I think it was a great

1:28

policy mistake, a

1:30

miscalculation,

1:32

and that there was no intention

1:34

of ending up in this situation. But the fact

1:36

that in 2008, for

1:39

example, the main holders of

1:42

U.S. treasuries were countries like

1:45

China, Russia, Japan,

1:48

and so on, that that was

1:50

a situation which was

1:53

not beneficial at

1:56

all, and that it had arisen for a very simple reason.

1:58

And I think that's what I wanted to say. take the reason,

2:01

the main reason was this. Back in the

2:04

1960s, American corporations were

2:10

protected against foreign competition

2:14

by the structure of the Bretton Woods Agreement,

2:16

which inhibited capital

2:19

controls. The

2:23

relaxation of those capital controls

2:25

with the abandonment of the Bretton

2:28

Woods Agreement in August 15, 1971, that

2:30

that moment meant that the US would have

2:38

to stand up to a foreign competition,

2:41

that the free flow of foreign

2:43

capital coming into the United States or US

2:46

capital flowing abroad, all

2:48

of that changed the name of the game. During

2:51

the 1970s and so, we had a different

2:53

world order

2:55

which emerged

2:57

during those years and has been perpetuated

3:00

in effect to the present time. This

3:03

then was the situation,

3:07

but this raises two questions.

3:09

First, why did the United States

3:11

abandon the Bretton Woods Agreement? The

3:15

answer had to be in part

3:17

because it was inoperative and untenable

3:20

because over the years,

3:21

dollars which were essentially

3:24

controlled

3:25

by the

3:27

US Treasury and the US Central Bank

3:29

were getting

3:31

out of control. There emerged

3:33

something called the Eurodollar market, which

3:36

were

3:36

dollars which were held by European

3:39

banks or by branches of US banks

3:43

in Britain and Europe.

3:45

The Eurodollar market

3:48

meant that a large segment of dollar trade

3:50

was now outside of

3:52

the regulatory apparatus that existed

3:55

in the United States, so that was one aspect

3:57

of it. The second aspect of it

3:59

was, that

4:02

the bankers in the United States, the financial

4:04

interest in the United States, were

4:06

very, very interested in trying to open

4:08

up global trade because they saw many

4:11

opportunities to

4:13

facilitate foreign investment, and for them

4:16

this was very, very profitable. The

4:18

biggest windfall for them came after 1971,

4:21

it came in 1973 to 5, during the Gulf crisis and had a time when

4:32

US capital was having a hard time. A

4:35

large amount of dollars

4:37

was going to the Gulf States,

4:39

and the United States used its

4:41

military power and its diplomatic might

4:44

to insist

4:45

that the Gulf States actually

4:48

invest all that money in the global economy

4:50

via the New York Investment

4:52

Bank. So suddenly the New York Investment

4:55

Banks came flush with a great deal of money, and

4:58

this, or this kind of trade would have

5:00

been impossible under the Bretton Woods Agreement,

5:03

and therefore, what 1971

5:06

did was to open up the possibility

5:08

for a much greater influence over

5:11

public policy of the bankers and so on,

5:13

which then happened.

5:15

But where did the miscalculation

5:18

arise? The miscalculation

5:20

came, I think, because the idea

5:22

was that the US

5:25

corporations and manufacturing industries

5:27

and so on were so good, so

5:30

superb, and so powerful

5:32

that there was no way that they could be bested

5:35

by foreign competition.

5:37

Now, we can go sector

5:39

by sector to see if

5:41

that was really the case, but I think the automobile

5:43

sector

5:44

is the one which is most telling.

5:47

In the 1960s, in

5:49

the United States, there were three auto companies

5:52

that held to an oligopoly

5:54

position. They engaged

5:56

in price leadership, they had, they struck

5:59

the same kind of union contracts and so

6:01

on,

6:01

so that there was a working class

6:04

element involved in how

6:06

those corporations operated. So you had

6:08

Ford, General Motors, Tesla, Chrysler,

6:11

who were essentially the kings

6:14

of the castle

6:18

in terms of the US automobile.

6:21

Of course, the automobile in the United States was

6:23

sacrosanct, and so everybody assumed

6:26

that this whole kind of opening up to foreign

6:28

trade and all the rest of it would

6:30

simply enhance the position of Detroit

6:33

and actually open up

6:35

all kinds of possibilities in foreign markets.

6:38

Well,

6:38

some of that did happen, but

6:42

the reverse happened. By the time you go

6:44

to 1980s,

6:45

suddenly you find that the automobile

6:47

industry in Detroit is under serious

6:50

competitive pressure,

6:51

coming from the then West

6:54

German automobile industry,

6:57

particularly BMW

6:59

and Volkswagen, and

7:01

a great deal was

7:03

also, competition was also coming

7:05

from the Japanese auto

7:08

industry and Toyota

7:11

and so on. So by the

7:13

time you get to the 1980s, Detroit

7:15

is in serious, serious trouble because

7:18

the foreign auto companies are essentially dominating

7:20

the US market.

7:22

And that domination

7:25

was for a particular reason,

7:27

that during the 1960s,

7:30

the automobile industry started to reorganize

7:32

themselves and their leadership

7:34

changed. In the 1950s, 1960s, the

7:36

leadership in the automobile

7:39

industries tended to be drawn from

7:42

deep knowledge of engineering.

7:44

So innovations in

7:47

automobile design and so

7:50

on, and it was very dear to the heart of the engineers

7:52

and so the engineering or

7:54

basis, if you like, of the Detroit

7:56

industry was very strong in the 1960s.

8:00

By the time we get towards the end of the 1960s,

8:02

that leadership has changed. It's

8:05

more and more led

8:07

by financiers and by

8:09

accountants and so

8:11

on. And so the interest

8:14

of Detroit was less and less about

8:16

engineering of cars and more and more about

8:19

making money.

8:20

And so the monetary aspects of things became

8:22

very significant so that

8:25

monetary operations started to be incorporated

8:27

within the Detroit auto companies.

8:30

For example,

8:32

the opening up of

8:33

foreign trade meant that and

8:36

the change in

8:37

currency markets

8:40

meant that you could speculate

8:42

a great deal in foreign exchange

8:45

relations and given that the

8:50

automobile companies had interest in Latin

8:52

America and Europe and so on,

8:54

commodity futures and

8:56

trading in

9:00

foreign exchange futures and so on

9:02

started to become part and parcel integrated

9:04

within the company.

9:06

And in some respects, that

9:09

became even more profitable than making

9:11

cars and it became more of, therefore,

9:14

a greater and greater interest to the Detroit people.

9:16

But the result worth in American cars turned

9:19

out not to be anywhere near as good as the

9:22

Japanese and the West

9:24

German cars. So that, for example, when

9:27

I bought a car in 1987, I didn't even think about buying a

9:31

US made car. You automatically

9:33

thought Toyota or

9:36

Volkswagen or even a Saab

9:39

or Volvo or something of that kind.

9:42

So in effect, the

9:45

policy presumption which had existed in the

9:47

1970s, that the US industrial

9:49

would

9:53

become all conquering, turned

9:56

out to be false. It was the other way around,

9:58

actually, the all conquering old. automobile

10:00

industries in the 1980s were primarily

10:04

Japanese and

10:06

to some extent West German.

10:08

So, what that led to, of

10:10

course, was a bigger impact

10:13

upon the

10:15

trade balance. This

10:17

is the sort of thing that led further

10:19

and further and further

10:21

into the United

10:23

States becoming a debtor

10:25

country in terms of its foreign trade balance.

10:28

Now, this then leads us immediately

10:31

into the kind of question of

10:33

the kinds of things

10:35

that go on in terms of corporate governance.

10:38

And I think in this regard, I

10:40

go back to a book that

10:42

a colleague of mine at Johns Hopkins University

10:45

wrote sometime about now

10:48

called The Cultural Crisis of the

10:50

Firm. And one of the things

10:52

she pointed out was that actually

10:55

firms are not simply run

10:58

by economists and automatons

11:00

who are kind of playing

11:02

the game of economic,

11:04

the perfect economic

11:07

calculator. There

11:09

is a culture to the firm and the culture is

11:12

sometimes misplaced in relationship

11:14

to economics. And there's

11:16

a lot of that bad economic decisions are

11:18

made for cultural reasons and the bad

11:20

economic decisions lead into

11:23

crises in particular firms. So,

11:25

for example, she

11:27

worked a great deal on

11:29

the case of McDonnell Douglas where there were

11:31

some obvious things that needed to be done in

11:33

the face of changing

11:36

defense requirements. But McDonnell

11:39

Douglas failed to do them because

11:42

the culture of

11:44

management and so on was kind of

11:47

set in stone and

11:49

they really couldn't do it for cultural reasons. And

11:51

the result is that the company started to

11:54

fail seriously for economic

11:57

reasons.

11:57

And we've seen this sort of thing going on.

11:59

right as well.

12:01

So this cultural crisis of the

12:04

firm leads into the kind of question

12:06

as to why is it that capital produces

12:09

corporations and practices

12:11

which are actually deleterious

12:14

in the long run,

12:16

both to the macro economy

12:18

in the sense of the trade balance, but also

12:21

in terms of employment and investment

12:24

structures internally, but also deleterious

12:27

even from the standpoint of the company

12:29

itself. A more

12:31

recent example of exactly this problem comes

12:34

up in the semiconductor industry, where 20

12:38

years ago a firm like

12:40

Intel was

12:41

very much in the lead,

12:43

but there were certain kind of innovations

12:45

coming online and Intel was

12:47

comfortable in what it was doing and looked at these

12:50

innovations and said

12:51

it wasn't going to really pursue them because it was going

12:53

to take a lot of extra money and re-engineering

12:56

and re-configuration of what was going

12:58

on in the company. So Intel

13:01

sat there with a very good situation

13:04

at that time,

13:09

but at that time another company,

13:12

which was the Taiwanese company, which is the

13:14

Taiwan Semiconductor

13:17

Manufacturing Corporation, TSMC,

13:21

took up these innovations and started

13:23

to run with them. And by

13:25

the time you get to about 10 years

13:28

ago, TSMC is way, way

13:30

ahead of Intel in terms

13:32

of its

13:35

market share and its profitability

13:37

and its size and all the rest of it. So

13:40

TSMC now is the

13:43

chip maker, which is

13:46

responsible for about 80% of the most

13:48

advanced chips which

13:50

were created with the new technology.

13:53

And Intel is way behind and

13:55

is now actually trying to catch up by spending

13:57

a lot of money,

13:58

billions of dollars to try to do.

13:59

to catch up with the

14:02

Taiwanese companies way, way ahead.

14:04

And here too, it was a company decision

14:07

that

14:07

actually led into this, and it raises

14:09

this kind of question

14:11

of, are

14:14

we going to spend a lot of time praising

14:17

how brilliant the market system

14:19

is and how brilliant American corporations

14:21

are in terms of their management structure,

14:24

and we have plenty of examples of this kind,

14:26

which show that

14:29

in fact the drive, which is supposed

14:31

to be there, is not there for cultural reasons.

14:34

But then there are other answers

14:37

to this question as to why is it that

14:40

capital ends up doing things

14:42

which are actually negative in

14:44

relationship to its own reproduction.

14:47

And this of course is where Marx comes

14:50

in very, very strongly. Whereas

14:53

contemporary economics, generally

14:55

speaking, feels that the market will at

14:57

some point or other

14:58

lead everything to converge into some equilibrium,

15:01

what Marx does is to identify the contradictions

15:03

that lead

15:05

into crises of capitalism and

15:08

what those crises do in relationship

15:11

to output and employment

15:13

and all the rest of it.

15:15

Now there are three ways you can look at this.

15:18

The first way is to say, look

15:20

at it from the standpoint of the individual firm.

15:23

The individual firm will adopt technologies

15:26

which

15:26

further its own particular interests.

15:30

And in adopting those technologies, it

15:32

creates a technological world which may

15:35

actually play a negative

15:37

role in relationship to the future

15:39

of capital accumulation. In

15:41

other words, individual capitalists operating

15:43

in their own self-interest do things

15:45

which in aggregate create a

15:48

negative situation for

15:50

the reproduction of capital. The

15:53

most obvious example of this comes in the

15:55

case of technological change and

15:58

Marx's theory of relative

15:59

of surplus value. Now, I

16:02

encountered this in a sort of discussion I had

16:04

in New Left Review about rates

16:06

and masses where somebody said to me, one

16:09

of the critics wrote and said, well,

16:12

why would an individual capitalist

16:16

engage in technological change when

16:18

that technological change

16:22

raises the productivity of labor

16:24

and that increasing productivity of labor means

16:27

that you employ fewer laborers? And

16:29

if you employ fewer laborers, if you

16:32

take the labor theory of value, then you're going to have

16:34

less surplus value, which means that there's going to

16:36

be a falling rate of profit. So you get the

16:38

thesis of a falling rate of profit

16:40

arising out of rising productivity

16:43

of labor, and that rising productivity

16:45

is powered by individual capitalists adopting

16:48

the innovations.

16:49

Why would somebody do that? Why

16:52

would somebody adopt that technology when

16:54

the output means a falling rate of profit?

16:57

It doesn't make sense. Well, it makes sense

16:59

when you introduce the idea that

17:02

individual capitalists operate in

17:04

the context of what

17:08

Marx calls the coercive laws of competition.

17:11

And the coercive laws of competition are such

17:14

that if I have a better technology than you,

17:16

I'm

17:17

going to get a bit

17:19

of surplus value more than you. So I'm going to

17:21

get higher

17:22

profit rates, and over time,

17:25

I'm likely to drive you out of business because I

17:27

have more surplus value than

17:29

you have.

17:30

The result of that is that the response

17:32

to the coercive laws of competition is that

17:35

if I make an innovation, you're going to

17:37

follow my innovation and catch up with

17:39

me

17:40

and even go beyond me. So

17:42

it is the coercive laws of competition which

17:44

force people to adopt technologies

17:48

which are labor saving and which

17:50

therefore reduce the labor import and which

17:52

therefore have an effect to the falling rate

17:54

of profit. So in other words, there

17:57

is a rational reason why some

17:59

Somebody who has no interest

18:01

in the falling rate of profit will engage in practices

18:04

which actually lead the profit rate to fall.

18:06

This is Marx's argument. In

18:08

this case, we would say it's

18:12

the way in which individual actors

18:15

are supposed to come up with

18:17

technologies and so on which improve their own

18:19

position, but do it in such a way as

18:22

to actually reduce the capacity

18:24

for the reproduction of capital in general. That's

18:27

the first

18:28

part of the story.

18:30

The second part of the story really comes

18:32

out from individual sectors

18:34

in the sense that

18:36

it's hardly as if the energy

18:38

companies feel that they're actually

18:40

duty-bound to behave in such a way as

18:42

to support

18:46

the reproduction of capital accumulation. No,

18:49

they're out there to make a profit and so you

18:52

might find a whole sector

18:53

like fossil fuel sector which

18:56

is going to engage in practices and so on which are

18:58

going to be down to its own benefit which

19:00

will be negative from the standpoint

19:02

of the economy as a whole and certainly negative

19:05

from the standpoint of environmental

19:07

conditions and all the rest of it. Individual

19:10

capitalists operating in their own self-interest

19:12

are part of the problem.

19:14

Sectors or large

19:16

corporations or monopoly groups are

19:20

another reason why the economy

19:23

is likely to drift off in a negative direction

19:26

because each individual sector

19:28

will pursue its own interests and

19:30

in pursuing its own interests will actually

19:33

in some instances support the fee further

19:35

accumulation of capital. In other instances

19:38

subtract from it so that for example

19:40

if we look at what is happening

19:42

in terms of land markets or something of that

19:44

kind, landlord interests can enter

19:47

in, property

19:49

owning factions can enter in, all

19:52

kinds of things like this can happen which

19:54

actually therefore set up

19:56

rational reasons why

19:59

a

19:59

capitalist economy can never advance

20:02

cleanly and purely

20:05

into the future.

20:07

So there are those sorts

20:10

of issues which crop

20:12

up. And I think that actually

20:14

when you start to look at it in the history

20:16

of capitalist corporations

20:18

in the United States, we see many instances

20:21

in which corporations get themselves

20:23

into a mess and go even further.

20:26

So we have things like the Enron debacle

20:28

at the end of 1998. You

20:30

have investment

20:33

speculative crashes

20:36

like long-term capital management in 1998.

20:39

So the point here is that the

20:43

United States became a debtor country,

20:46

not because there was some policy

20:48

decision made that that's a good idea, but

20:50

the center policy decisions were made and

20:52

a set of individual initiatives occurred,

20:55

which actually then forced

20:59

the economy as a whole to move down

21:01

a channel in which the US ends up being

21:03

a debtor country big

21:05

time. And

21:07

now we've sort of stuck with that as

21:10

a fact. Now being a debtor country,

21:12

is that good for

21:15

the United States? Well, of certain people,

21:17

it's very good. Some

21:19

other things I think that

21:22

renders some

21:27

other countries nervous about holding

21:30

American debt is of course, as

21:32

in the case of Russia right now,

21:35

suddenly something goes negative.

21:37

The United States is always in a position to sort

21:40

of sequester all

21:43

the funds that the Russians

21:45

have in US debt and prevent

21:47

their Russians using that debt

21:50

in any way to support their economy. So

21:52

are you coming a bit vulnerable if you hold US

21:55

debt and then the US starts to playing

21:57

games with it,

21:58

but it's very dangerous for the US to.

21:59

to start playing games with it, because then nobody's

22:02

going to buy US debt and take

22:04

up US debt. So you have to be very careful

22:06

about how this works out. But generally

22:08

speaking, Wall Street is quite happy

22:10

to have US hugely indebted

22:13

because Wall Street deals with the

22:15

buy and selling of US debt.

22:17

And of course, that means

22:19

they get all the commissions and all the rest of it. So

22:21

Wall Street

22:25

is not really too perturbed about

22:27

the US debt. On the other

22:29

hand,

22:31

Main Street and the population

22:33

in general

22:34

may find the problem of the US

22:37

debt problematic in the sense that

22:39

it has an effect upon interest rates and

22:42

all the rest of it. So you can start

22:44

to trace back

22:45

lots of good and bad

22:47

effects of being indebted throughout

22:50

the whole of the US economy.

22:52

Now this habit, however,

22:55

of imagining

22:57

that somehow or other US

23:00

capitalism and US capitalist

23:03

corporations somehow

23:05

or other excel

23:08

in their capacities and powers turns out

23:10

to be absolutely not the case.

23:12

And we have all of these examples of

23:14

companies which steer themselves into,

23:18

if not bankruptcy, but into second rate status.

23:21

Intel is now a second rate

23:23

company compared to TSMC.

23:25

And

23:28

there's now this kind of problem

23:31

of exactly how

23:33

to deal with this situation

23:36

given the fact that

23:37

TSMC is a company

23:40

in Taiwan, and Taiwan

23:42

is a problem in the

23:45

sense that it is considered

23:47

by the Chinese to be a province of China

23:50

and considered by everybody else to be

23:52

an autonomous state. And

23:56

the kinds of issues that crop up with

23:58

that, which I think are

23:59

talk about next time. But

24:02

here is, if you like, the main

24:05

thing. Never

24:07

assume that economic rationality

24:10

leads to, at one

24:12

level, conforms to economic

24:15

rationality at another level. When

24:17

Marx talks about the falling rate of profit,

24:19

he's talking about economic rationality

24:23

at the individual firm level,

24:26

which leads to behaviors which

24:28

create

24:29

economic irrationality

24:31

in the macro economy.

24:33

That is going on all

24:35

of the time. When we introduce sectors

24:37

into it and so on, you can

24:39

see immediately that

24:41

this idea that the market is going

24:43

to lead, or economic rationality is going

24:45

to lead to a rational

24:48

result in the form

24:50

of

24:53

an equilibrium economy where everything

24:55

is kind of worked out nice

24:58

and cozy, that is unlikely to be

25:00

the case. Therefore, one is certainly

25:02

going to have signs of economic

25:05

irrationality all over

25:07

the place, which are powered by

25:09

economic rationality at a different level.

25:12

That is one of the major findings

25:15

that Marx has, which says that

25:18

it's the internal contradictions of capital,

25:20

which lead into crises of various

25:22

kinds. The macro economy

25:25

goes down the chute because individual

25:28

capitalists are behaving rationally.

25:31

Therefore, in Marx's

25:33

argument,

25:35

there's nothing essentially leading

25:38

to a rational outcome, leading to

25:40

the major irrationality

25:42

of a crisis,

25:43

the sign of which is that you have surpluses

25:46

of labor,

25:47

surpluses of capital, side

25:49

by side, and seemingly no way

25:51

to put them back together to meet up

25:54

with real, chronic social need.

25:56

This is the situation as it existed in the

25:58

1930s. There

26:00

were massive amounts of unemployed

26:02

population,

26:04

massive amounts of unemployed capital,

26:06

not knowing where they were.