As 2007 turned into 2008 and the themes of the economic commentariat shifted from the question of whether a recession was avoidable to whether a depression was avoidable, a new theme emerged – the possibility of "decoupling".
As 2007 turned into 2008 and the themes of the economic commentariat shifted from the question of whether a recession was avoidable to whether a depression was avoidable, a new theme emerged – the possibility of "decoupling". Previous to the crash of 2008, the term "decoupling" in economic parlance, had referred to the wished-for separation of economic growth from growing environmental impact, in search of the green capitalist grail of "sustainable growth". In 2008, as US stocks plummeted the term was appropriated for the wished-for separation of non-US, particularly Asian and "emerging" regions stock prices from being dragged down by the US trend. The notion was put forward that as the economies of industrial powerhouses like China and "emerging" natural resource giants like Brazil developed and deepened, they could avoid the US recession and continue sustained growth. In actual fact Asian stocks feel even more deeply than US ones in the following months. Nonetheless, despite the term becoming a bitter joke amongst investment pundits in 2009, the fact that Chinese and other emergent economies have resumed robust growth in the last year, whereas the US and EU struggle to justify the term recovery in the shadow of stagnation or the dreaded "double-dip", the concept has started to reappear in discussions of growth prospects, as opposed to stock prices.
The notion of decoupling this article is proposing is a more general one linked to the relation of production and consumption in capitalist economies. The argument advanced here, in outline, is that the common sense notion that growth in capitalist economies is directly linked to the growth of goods and services provided to consumers in response to their needs and desires, is false. This common sense notion that capitalist growth and increasing standard of living of the mass of people are tightly coupled – the ideology of growth – leads necessarily to the conclusion that "sustainable growth" is the only route to freeing the worlds peoples from poverty and want. It’s flip-side is the "deep green" idea that in order to save the planet from environmental destruction it is necessary that humanity as a whole adopt a policy of radical austerity (embrace poverty) and depopulation. The alternative view, advanced here, is that capitalism, from its outset, has in fact decoupled economic growth and expanded production from the provision of needs to consumers.
Underconsumptionism
We will begin with the examination of a "common sense" falsehood that has perpetually infected socialist thinking from its beginnings in the 1820s right up until present day. That is, the idea of a problem of "underconsumption" in capitalist economies. Simply put, this is the idea that if capitalist profit is based on paying workers less than the value of the product of their labour, then who will buy that portion of the product that is beyond the purchasing power of the workers pay packet? According to the underconsumptionist theory of capitalist crises, this "gap" leads to periodic crises of "overproduction" where companies can no longer find buyers for all their products, goods go unsold, machinery lies idle and workers are laid off.
"These [underconsumptionist] theories represented too an advance, in theoretical terms, on the understanding of general economic depression as a product of exogenous factors which was purveyed by Cobbett and Paine and also a necessary move away from the naturalistic, eighteenth-century perception of crisis as the consequence of scarcity or dearth. Nevertheless, as with exploitation, general economic depression was seen by [the early socialists] and their popularisers as, essentially, a product of distorted or inequitable exchange relations. Labour exchanged below and commodities above their natural values and underconsumption, glutted markets, idle capital and redundant labour followed as a necessary consequence. Indeed, this analysis led inexorably to the conclusion that these economic phenomena were and must remain permanent features of capitalism. Thus their theories explained the existence of a slump or steadily deepening depression but could not explain periods of growth or prosperity. The imminence of economic nemesis was, therefore, a logical corollary of the popular political economy of capitalist crisis. Yet it was a nemesis which stubbornly refused to materialise. Capitalism proved to be remarkably and, for these writers, inexplicably resilient and this unfulfilled prediction of general economic breakdown was to hang like an albatross around the neck of anti-capitalist and socialist theory."
(Noel Thompson, "The People’s Science", 1984)
Clearly a theory that has been proclaiming every capitalist crisis since the Panic of 1825 as the harbinger of capitalism’s terminal stagnation and decline, is empirically false. However, its continuing appeal amongst both the anti-capitalist left and the more pessimistic wings of the right (William Stanley Jevons, one of the father’s of the so-called "marginalist revolution" shared with many late Victorian conservative economists the idea that capitalism had entered a period of terminal decline, caused, in Jevons‘ view, by the advent of "peak coal" announced in his 1865 work "The Coal Question") is an indication that it is based on a common sense ideology that arises from the process of the capitalist economy itself.
The work of Karl Marx in the latter part of the 19th century was in part dedicated to undoing the simplistic ideas of the early socialists, of capitalist profit originating as a product of distorted or inequitable exchange. It is both an irony of history then, and a measure of the staying power of underconsumptionist "common sense" that a good number of the theorists who built the political ideology of Orthodox Marxism on the foundation of his work, ended up re-introducing underconsumptionist ideas into their vulgarised version of his ideas. How did this happen?
"One aspect of Marx’s analysis of reproduction which has caused endless debate […] is the question of markets. How can capitalists hope to sell all the goods that they produce? There is an argument used by many Marxist theorists, which I shall label underconsumptionism (see Bleaney, 1976, for fuller discussion). In its simplest form it goes like this: if the workers cannot afford to buy the whole product, then how can the capitalists sell it? In the schema of simple reproduction Marx answers that the capitalists consume the surplus product themselves. This entails selling to each other, since each specialises in the production of a particular product, but wishes to consume others. However the idea that capitalists consume their profits is only an analytical fiction necessary to preserve the idea of simple reproduction. In fact the capitalists save and accumulate, and are forced to do so by competition (see below). This does not, however, fundamentally alter things. The capitalists still exchange the surplus product among themselves; they simply buy means of production instead of means of consumption, and the proportions between departments 1 and 2 must be correspondingly different. The argument is slightly complicated by the assumption that wages are advanced to workers; some of the new investment takes the form of wage payments to additional workers, who then spend the money on consumer goods The money used to carry out these transactions is not a problem either since it passes from hand to hand without being used up. At the end of each cycle it has returned to its starting point, ready to circulate again.
The core idea of underconsumptionism is that consumer demand is somehow more fundamental than demand for means of production, that the latter only exists to provide for the former. It is often argued (Sweezy, 1942 is a classic case) that if consumption is (say) static, then there will be no incentive to invest. This is simply wrong, since investment can be directed to the investment goods (means of production) industries as well as to the consumer goods industries. In a socialist system, investment would be directed to the satisfaction of human needs, but in a capitalist system all that matters is that the investment be profitable. Consumer demand has no special status in a capitalist framework; the bulk of it is from workers, who will only be employed if they contribute to profits. so that both consumption and investment derive primarily from spending by capitalists which is directed to making profits.
This does raise the possibility that investment will be inefficient if profit prospects are poor. In this case capitalists will cut back on investment and employment, thereby reducing demand and setting off a chain reaction. On the other hand, when high profits are expected, the chain reaction works the other way round. Marx expected capitalism to evolve through a series of booms (which ensure the development of the forces of production) and slumps, or ‘periodic crises’. Marx’s analysis of these issues is scattered, and it is not easy to refute the suggestion that he was an underconsumptionist since some isolated phrases taken out of context can be interpreted in this way. What is important is that the logic of his analysis is not consistent with underconsumptionism. The schemas of expanded reproduction show that it is possible in principle for demand to expand in line with supply although it is equally possible for the system to suffer crises as it does, repeatedly, in practice. The reason for these crises must be sought in the determinants of profitability, and not in any inherent problem of demand."
(Anthony Brewer, "Marxist Theories of Imperialism, a Critical Survey", 1980)
[Clarification note: In the above a level of familiarity with Marx’s schemas of reproduction is assumed. Specifically mention is made of departments 1 & 2 – Marx (Capital, Vol 2, ch 20): "…the total production, of society may be divided into two major departments: I. Means of Production, commodities having a form in which they must, or at least may, pass into productive consumption. II. Articles of Consumption, commodities having a form in which they pass into the individual consumption of the capitalist and the working-class."]
Here Brewer puts his finger on the nub of the problem, that "consumer demand is somehow more fundamental than demand for means of production". As Darwin discovered back in the 19th century, people are very attached to the idea of humans having a special place in the universe – a kind of ontological exceptionalism. Hence the argument still rages to this day between religious creationists and supporters of evolution, many of them atheist or agnostic, who claim that humans have no special place in the cosmos that separates us from the rest of the animal kingdom.
Even though the capitalist economy is clearly the creation of humans rather than god, there is still a form of the fallacy of "intelligent design" that people assign to the workings of the economy. That is, that as most people’s interactions with the economy is contributing to social production and receiving a share of the social product (in goods and services), therefore the two must be connected in a tightly-coupled, rational way. Naturally conventional economic apologetics does nothing to challenge this notion. In other words, the idea is that all production must have as its end goal, directly or indirectly, the delivery of goods and services to individual consumers.
B2C & B2B
In modern business parlance, the categorisation of business transactions by the clients purchasing the products or services of your enterprise have spawned the terms "business to consumer" and "business to business", abbreviated as B2C and B2B respectively. The figures are that in OECD economies, more than 90% of firms outputs are destined for B2B consumption and less than 10% to B2C consumers.
Turtles all the way down
However, the acceptance of the fact that the majority of goods and services produced in a modern economy are not destined for consumption by the mass of individual consumers, but by businesses and other corporate entities can still be held compatible with the tight-coupling theory via a kind of "turtles all the way down" logic. That is, that all of those goods and services being provided to businesses or other corporate consumers (public services, local and national government, NGOs, etc.) are themselves being consumed in a productive process that must result in outputs that are again being provided to other corporates or consumers. Following the regression, we will, so the idea goes, sooner or later find a consumer at the bottom of it all, and they must be, ipso facto, the "prime mover" that gives the whole chain its purpose, that makes the "design" "intelligent".
But if Christians bring the "good news" that, however mysterious, there is a purpose to life and that god loves us, then economics is the dismal science in that it brings the bad news that whether there is a god or not, the economic system does not love us, and its central purpose is profit, not meaning or human happiness. From the perspective of a manufacturer or spades, whether their spades are sold to agricultural cooperatives or a punitive government scheme to make unemployed workers dig holes and fill them back in again, is immaterial. Profit made from activities that result in the delivery of goods or services wanted by individual consumers compared to profits made from activities that are, from our human-centred perspective, judged to be "wasteful" (a normative or moral category, rather than an economic one) are equally profitable from a capitalist point of view.
Life story of the paperclip
Consider the paperclip. It’s been around since the 1870s when it was produced by the Gem Manufacturing Company in Britain. This simple double loop of springy steel serves one purpose but does it well enough that it’s basic design has remained unchanged since its invention. Of course individuals buy paperclips, but the huge majority of paperclips manufactured are consumed by corporate bodies. So does that make them "department 1" means of production? Hardly, there just a humble consumer item that corporate consumers happen to consume in bulk. They don’t generally enter into the material substance of any good eventually delivered to an end-user individual consumer, their working life is, for the most part, born, circulated, lived and died entirely within the corporate sphere without ever exiting it (as a use-form, as opposed to waste material). As such it is usually classified as faux frais – that part of incidental costs that does not enter into the product but is necessary for enabling the general work process, like office lighting or workplace cleaning. This is distinct from the raw materials and part-finished goods from which material commodities are made or the ancillary goods such as electricity, fuels or water that are consumed in the process of creating goods, even if they do not directly enter into their material composition. The category appears at first sight marginal until we begin to think outwards from the paperclip to the papers they gather, both physically as paper and more immaterially as bearers of information, all of which are, like the paperclip, mostly being born, circulating and living and dying within the corporate sphere without ever ending up in the hands of a single consumer.
Financial depth and Corporate depth
Here perhaps a conceptual measure may be worth positing. The language of economy brings us the measure of "financial depth" which, at a macro level, is the proportion of market capitalisation in an economy (the sum of all financial assets including equities, bonds and more exotic instruments) to the GDP. For instance we can say that globally financial depth increased from just over 100% in 1980 to over 300% in 2008. Similarly we can define corporate depth as the proportion of goods and services in the economy consumed by corporate bodies as opposed to the aggregate amount consumed by individual society members. This is clearly different for different sectors of the economy. For example, human food products of agriculture would tend to have fairly low corporate depth as, unlike paperclips, most food products are consumed by people, not business or public sector bodies. NB here we illustrate a significant methodological issue, that the consumption of individuals working for corporate bodies needs to be netted out from that out corporate consumption itself, a non-trivial problem practically, given available metrics, but conceptually comprehensible. Paperclips and the general category of stationary supplies, as already mentioned, would have quite a high corporate depth. Similarly most software is written for corporate clients, the software industry, despite the high visibility of retail products like Windows or computer games, actually has a high corporate density. But the concept becomes more useful when we consider it at an aggregate, macro level. As previously mentioned, figures based on business order books have already been suggested for corporate densities of 9 to 1 or more. In an economy where the corporate depth means the large majority of output is consumed by corporate bodies rather than society members, it becomes easier to understand the possibility of economic growth that is not associated with a rise in real incomes for the majority of society. This is the decoupling argument. The strongest form of that argument is that, once capitalisation of the economy and corporate depth has increased to a significant level, the increase in real incomes for the majority of society is not only no longer the main driver of (capitalist) economic growth, but that it is rather a side-effect at best, and a precarious one at that. That in fact, the degree of any linkage of real incomes to economic growth over the full capitalist cycle of boom and bust, is not internal to the "objective forces" of the economy, but a reflection of worker’s power – or relative lack of it – in the wider political and economic process of society as a whole.
The Ideology of Growth
The ideology of growth confronts us on the TV news and in the newspapers every day. Particularly in periods of economic crises, but also in the periods of prosperity, the central political question is the health of the economy. By health is meant growth – if the economy is declining or contracting then it is sick and we will all suffer. Conversely, if the economy is growing then it is healthy and the faster it is growing, the healthier it is… up until the point that people start to worry about whether it is "over-heating" like an over-stoked steam engine about to melt it’s boiler leading to an "economic meltdown". It would appear the railway metaphors of the 19th century have, like the notion of underconsumptionism, accompanied us into the 21st century.
But it’s not simply a case of simple propaganda on the part of opinion formers. Our lived experience is that when the economy contracts in crisis periods, we lose jobs, suffer wage cuts and generally our income levels and standard of living goes down and we see this replicated throughout our communities and the society we live in. Similarly, the change from recession to periods of renewed growth for the economy is often (but not always!) associated with an improvement in our chances for some or better employment, increasing our incomes and standard of living. So the association between the decline and growth of the economy and that of our own living standards appears natural and self-evident. From that it is a short journey to the assumption that an increase in the standard of living of the mass of humanity, the escape from poverty and want, is coupled with the growth of the capitalist economy. This is the ideology of growth : capitalist growth <=> increase in human happiness.
Anti-Consumerism
The flipside of this coupling is the moralistic rejection of "consumerism", understood as an evil of modernist society. The anti-consumerist critique is in many ways an inheritor of the alienation from and revulsion for modernity expressed in the earlier European modernist cultural and political movements. It also inherits parts of the disdain for "grubby materialism" seen as opposed to more "spiritual" or "higher" values that have been knocking around Western thinking since at least the time of Socrates and Plato.
Regardless of its somewhat suspect ideological progenitors, modern anti-consumerism is based both on a recognition that life under capitalism is alienating and rubbish, and the vapidity of the ethos of self-actualisation through shopping, combined with the growing awareness that ever expanding capitalist production is threatening the environment. The result is a kind of "new green austerity" that preaches an end to consumerism through the promotion of things like "no shopping day" and other marginal counter-cultural pseudo-events.
Here the assumed coupling between capitalist growth and consumer desire is seen as a necessary to fight the immorality of the desires of the masses in order to save the planet and humanity from the stupidity of its own self-destruction. Rather like the temperance campaigners of old who presumed that the relation between the misery of workers and wide-spread alcoholism was that stamping out the latter would cure the former, the commodity fetishism of "consumerism" is presumed to be a cause of the ills of capitalist society, rather than merely another one of its effects – a belief that is itself an inverted form of commodity fetishism. Anti-consumerism is not a critique of the ideology of growth but a moral inversion of its results.
Joining the dots
So what is the connection between the underconsumptionist view of capitalism that still haunts the left and the ideology of growth? It is the assumption that individual human consumption is already the rational centre around which the economy orbits.
Certainly the underconsumptionist left proposes that this is so only imperfectly under capitalism – that capitalist profits and unproductive financial speculation are reducing the share of economic growth that could go towards satisfying the needs of ordinary workers. But a common "producerist" ideology of growth is common both to the apologists of capitalism and its underconsumptionist left critics. The latter insist on how growth will double or triple under socialism until poverty and want are finally banished forever. Here capitalist growth is a problem only in so far as it is insufficient and part of its product is being unjustly monopolised by a tiny wealthy elite. Opposed to the producerist left, is a green movement that is split between a new green temperance movement that says we must oppose growth and accept a more materially impoverished existence, or a more "pragmatic" green movement that while critical of the environmentally destructive effects of unregulated capitalism, insists that the way forward is through regulation, Pigovian taxes and public planning, towards a "new green capitalist" model of "sustainable growth". All three are in competition with the apologists of the free market who preach life and the pursuit of happiness through consumerism and ever-expanding growth.
The error here is that in order to turn the world the right way up, you need to start by recognising that it is currently upside down. It is not the demand by people for commodities that is the driving force in the capitalist process, but the demand by capital for opportunities for its own self-expansion. We can see this in the language we use. The term "market" now means not only the locus of buying a selling (market place) or even the system of buying and selling taken as a whole (as in "market failure") but one side in particular of the buying and selling process – namely the demand side (as in the market for Y has collapsed…). This asymmetry of meaning, the association with the demand side, is not merely contingent but reveals a significant relation between capital and market. It is capital’s search for markets, rather than market’s (in the sense of demand) search for capital, that is the driving force in the capitalist process. The fact that the underconsumptionist left have this relation reversed is revealed by their continual resort to the term "fictitious capital" in the search for explanation of capitalism’s cyclical crises. In fact it is not the capital that turns out to be fictitious when the music stops, but the markets current investments are predicated on.
The Communist Alternative
The communist alternative is that the ideology of growth that unites capitalists, the producerist left, the sustainable growth greens and their anti-materialist brethren, is entirely wrong. Within a capitalist economy, corporate entities are equally valid consumers as people, regardless of any social utility or otherwise of those institutions. In capitalism, economic growth that does not result in an increase in the employment or living standards of the mass of ordinary workers, is entirely possible and has, arguably, already happened in certain regions in recent decades. The converse is that it would be possible to increase the material standard of life of the majority of humanity without a necessary increase in the volumes of material resources consumed in production, but only in the context of an allocation system freed from the intermediation of profit-seeking money. The outlines of what would be necessary to create a truly sustainable economy, freed from the insatiable and limitless demands of capital for growth, will be the topic of the next text, The Trilateral Omission.