Whether today’s global overcapacity is seen as cause or effect of the economic crisis, one thing is certain: it isn’t easy to make a profit in a world awash in overproduction. Capitalism is born in conditions of scarcity and is unable to function outside of them. So it seems logical that the crisis creates a tendency to restore these conditions artificially. But how does this affect the chances of the global economy to find a way out of its present predicament?
Most analyses of how the present crisis arose focus on the mechanics of the formation of bubbles. Debates are raging about what measures need to be taken to prevent them in the future but these are like discussions on how to treat the skin lesions of an Aids-patient. The problem lies deeper. Regardless of their specifics, bubbles are always a failure of capital to live up to its promise. The money that fed those bubbles was invested as a claim on future profit. When it becomes clear that this profit will not materialize, the bubble implodes. When this happens in one sector, the blame can be assigned to the mismanagement, delusions and malfeasance that occurred in that sector. In the housing market crisis in the US, there was certainly plenty of blame to go around; likewise in the credit market crisis that followed. And in the car-industry too. But by now, entire economies are imploding bubbles. There are again specific reasons why this happens first here and not there but the chain of imploding bubbles is getting so long that specific reasons can no longer account for what is becoming a generalizing phenomenon. The underlying problem is no different in Greece than in the housing crisis: not enough profit is being generated to satisfy the claims of the capital invested in it.
The debt-crisis keeps escalating, despite all the talk about the nascent recovery. Of course the crisis does not follow a course of linear descent but the expectation that a deep recession must lead to a strong recovery just like winter leads to spring is just magical thinking. And it is magical thinking to talk about “the stalled economy” as if it were a car that could be started with the jumper cable of a stimulus package. I doubt if there are many economists who really believe in that image. Most of them realise that the anti-crisis measures can at best prevent the unraveling for some time, time that will be much needed to restructure the economy.
But how? Austerity measures are imposing themselves. Consumers, workers, companies, governments must spend less to make room for future payments to capital because otherwise, the value of existing capital collapses. But all these austerity measures, which will become sharper as time goes by, undercut demand. The overcapacity of the economy increases. Opportunities for productive investment diminish. The trend pushes owners of capital towards speculative investment, to the formation of new bubbles of fictitious wealth whose implosions will create new shocks. Governments are inevitably driven to contradictory policies. What they create with one hand, they destroy with the other. Their austerity measures undermine their recovery policies, and the latter, by creating new debt, new claims on future profit, undermine the former. What is the way out of this dilemma?
A new paradigm for growth?
There is none, as far as I can see; at least none that avoids a steep devalorisation of capital, with devastating consequences for the reproduction of society. The best we can hope for is that this traumatic experience will make it clear that the very foundation of the world economy, production for profit, has become obsolete. But if you’re a politician or an economist working for a think tank or a government, you have of course to believe that ‘yes, we can’: That the shocks can be absorbed and that a new paradigm for growth can emerge from them. From this hope, three strategic priorities follow. Neither of them is new, but the present situation gives them a new urgency.
1. Raise profits by lowering wages. More specifically, combine as much as possible Fordist production (mass production based on assembly-line labour) with the lowest possible wages. That means intensifying globalisation. Use the oversupply on the global labour market, enlarged by the crisis, to push wages wherever possible under the value of labour power, that is, under the cost for the wage earner to reproduce his life. There is no limit to that except the resistance of the working class. The fact that paying wages under the value of labour power destroys labour power is not a limit when that labour power is abundant. As any overproduced commodity, labour power must devalorise. This cannot be resisted from within the logic of capital. Resisting thus becomes in practice refusing to be a commodity, rejecting the value-form.
2. Raise profits by cutting faux frais, by shedding as much as possible superfluous constant and variable capital. That means getting rid of unneeded factories, machinery and workers and lowering as much as possible the costs that the management of the superfluous population entails. Not an easy task of course. The help of the trade unions, who by their function as managers of labour power understand that what they deal in is a commodity that ultimately must bow to the logic of the market, will be indispensable.
3. Raise profits by artificially creating conditions of scarcity. Develop a global, parallel economy centered in the most advanced countries that is sheltered by its exclusive market positions from the deflationary trend that inevitably engulfs most of the world. That entails shifting the center of gravity of the economy, of profit making, from the production of goods to the production of innovation, of new knowledge for the production of goods; a shift away from economies of scale (whose yield turns negative as overcapacity grows) to the goal of constant adaptation, constant recreation of scarcity.
The limits of those first two strategic goals are not objective; they depend on overcoming the will to survive of human beings, on defeating their capacity to imagine themselves as something other than commodities. But that is not the scope of this article. It is the development of the third goal and the limit it encounters that I want to look at in the rest of this text.
“The Tao of Undersupply”
Let’s return to the question how to make a profit in a world awash in overproduction? Hugh MacLeod formulates the problem on his website gapingvoid.com this way:
“For every mid-level managing job opening up, there’s scores of people willing and able. For every company needing to hire an ad agency or design firm, there’s dozens out there, willing and able. For every person wanting to buy a new car, there are tons of car makers and dealers out there. I could go on and on. I could also go on about how many good people I know are caught in oversupplied markets, and how every day they wake up, feeling chilled to the bone with dread and unease. So maybe the thing is to get into “The Tao of Undersupply”. If only 100 people want to buy your widgets, then just make 90 widgets. If only 1000, make 900. If only 10 million, make 9 million. It isn’t rocket science, but it takes discipline.”
It takes more than discipline though. And sometimes it takes rocket science too. The problem with Hugh’s strategy is that when there is a hole in the market, capital will fill it. Someone else will make those widgets, unless there’s a way to prevent him. There is.
There is the blunt weapon of protectionism, but the blowback more often than not defeats its purpose. Then there is the market control achieved through the concentration of capital. That is of course a constant tendency throughout capitalism’s history but it accelerates in periods just before convulsions of major proportion: around the turn of the 19th and 20th century, in the late 1920’s and in the past decade. The present crisis conditions further facilitate the concentration of capital. Stronger companies buy up embattled rivals at bargain prices and tie others to them in so-called ‘strategic alliances’ that establish control over the market through networks rather than through outright monopolies or explicit cartel-agreements. In many sectors the number of decisive players has been so far reduced that de facto monopolies (diamonds) or oligopolies (oil, bauxite, airplanes) have a tight grip on the global market. This tendency is perhaps most visible in the production of finite, raw materials, but is present throughout the economy, from software and banking to processed foods and retail. For those giant conglomerates there is no need for an explicit collusion on order to exercise their joint capacity to fix prices above the value of their products and to jointly reduce supply in support of that goal (such as when the major oil companies reduced their refining capacity in the past decade)
While the unprecedented degree of concentration of capital assures that the ‘traditional’ way of obtaining surplus profits through monopolistic or oligopolistic control over existing markets will remain important, there is another way to those surplus profits that is more striking, more typical of our times: the commodification of knowledge.
A World of Patents
A company that introduces a new commodity (or a new method to produce commodities, which itself is a commodity) in the market, has by definition a monopoly over it and thereby the opportunity to set its price above its value, as high as the market can bear. In this respect, it doesn’t matter if the newness is real or artificially created. Through massive propaganda, Nike succeeded to convince consumers that an “Air Jordan” is something different and better than other sneakers, for which it could charge a price unrelated to the value created by the workers in Indonesia who produced these shoes (whose wages, by the way, were but a fraction of the money it paid to Michael Jordan for appearing in commercials for the product). Of course, such marketing campaigns cost money too that has to be calculated into the price but at the same time they serve as thresholds that keep smaller companies, unable to spend so much on marketing, out of the market. As a result, marketing claims an ever larger share of the total costs of big companies.
When Apple recently introduced its iPad, the newness was more than a perception but the same mechanism applies. As the exclusive seller of this product, Apple is able to command a price far above what it costs to make the product in its factories in China. Nobody else can make an iPad. Its production is protected by patents. The search for artificial scarcity is both a cause and a result of the vertiginous growth of information technology, biotechnology and other knowledge based development and their widespread application in all branches of industry. As a result, the growth of patents, after following a slow but quite steady course since the late 19th century, exploded in the 1980’s. Intellectual property rights became a keystone in the international trade agreements concluded since and both American and European authorities repeatedly lengthened the duration of patents and copyrights.
There are patents on everything. In total there are more than 32 million of them, and almost two million new ones are filed every year, excluding the right to use, develop and sell technologies, programs, products, methods of research and production, procedures, even scents and colours, by anybody but the patent-owner and those licensed by him. Even a large part of our genes now fall under patents and cannot be studied without paying a license to their “owner”.
Obviously, that is quite profitable to the latter. Patents last on average 20 years and can be renewed, while it takes a pharmaceutical company typically 1 to 3 years to recoup the R&D costs of new products.
The wild growth of patents is not limited to sectors where you might expect it, that are geared towards the development of new consumer goods such as pharmaceuticals. In the field of electrical machinery for instance, between 2002 and 2006, companies filed 92082 new patent-applications in the US, 264 686 in Japan, 49 477 in Germany, 24514 in China and 8757 in the UK.
As the British economist Arnold Plant wrote: “It is a peculiarity of property rights in patents (and copyrights) that they do not arise out of the scarcity of the objects which become appropriated. They are not a consequence of scarcity. They are the deliberate creation of statute law, and, whereas in general the institution of private property makes for the preservation of scarce goods, tending . . . to lead us "to make the most of them," property rights in patents and copyrights make possible the creation of a scarcity of the products appropriated which could not otherwise be maintained.”
Microsoft declared in 2004 (quite shamelessly, since many of its own products such as Word and Excel are derivative of unpatented inventions by others) that its goal was to file 3000 new patents a year, an increase with 50%. The company is right on target. Toyota obtained more than 2000 patents on its Prius alone. Its goal is to make it impossible for others to develop hybrids without paying a hefty price to Toyota. These examples explain why the pace of technological change is much less impressive than the steep increase of patents would suggest. Since they cover so many things, they effectively prevent the development of new products by unlicensed competitors. Many patents are not even applied to new products. Their owners simply wait until others develop something similar in order to extort a fee. This road to surplus profit takes armies of researchers and even more so, armies of lawyers to enforce the artificial scarcity which is constantly under threat, since knowledge is by its nature communicative and derivative of other knowledge. Only big powerful companies can afford them, so this is another threshold that keeps unwanted competitors out. More generally, it also requires real armies, the power of states to maintain a world order in which artificial scarcity is protected.
No way out
At the center of the trend towards an economy based on artificial scarcity, stands IT, which has driven capitalism’s tendency to lower the value of commodities to its most extreme point. Since it costs next to nothing to reproduce digital goods, their social value, in Marxist terms, is also next to nothing. They are in effect abundant and can only be made profitable by sabotaging the law of value, by limiting competition to prevent the market to establish their prices freely. Other companies that base their profit-strategies on artificial scarcity express the same tendency. Their actually production costs are usually very low but their profits are not. But what is the source of these profits? Since it requires ever less labour time to reproduce their commodities (the cost of R&D may be high but has no bearing on the cost of reproduction), the part of it that is unpaid, surplus value, must fall too and thus cannot explain the rise of their profits. The profit is surplus value but it comes from elsewhere: it is paid by the customers.
That’s why it is a fallacy to think that a global advanced economy based on artificial scarcity could function on a parallel level, sheltered from the general crisis. It sucks value from elsewhere and thus effectively taxes the rest of the economy. The more it takes in, the heavier the tax. It is therefore dependent on the capacity of the rest of the economy to pay that tax, and thus on its ability to create new value. That doesn’t look good.
So despite the desires of capitals based on artificial scarcity to extricate themselves from the mess (highlighted by Germany’s reaction to the debt-crisis in Greece), there’s no way out. At the contrary, by siphoning of capital to production with relatively little value creation, it aggravates the general problem.
However it is to be expected that capitals geared towards artificial scarcity will continue to reep higher than average profits, even when the average rate of profit continues to decline. Thus production of these commodities will attract more than its share of capital. That makes it a prime candidate for the formation of new bubbles (as they have been before), heralding new shocks for a system desperately clinging to scarcity.
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