Late capitalism – how do they know?

posted in: Economics | 0

The recent death of British historian Eric Hobsbawm produced a surprisingly broad range of eulogies, even from those who were repelled by his long term membership of the Communist Party (Niall Ferguson for example turned out to be a good friend of his). Hobsbawm was a Marxist historian, meaning that he incorporated the grand vision of history and class analysis in Karl Marx’s writings. He clearly hoped for the redemptive revolution that Marxian economics predicted but he was too good a historian to think that events would conform neatly to a theory.

Some of the obituaries referred to “late capitalism”, a term that is associated with the writer Ernest Mandel who used it in his book written in the early 1970s. Wikipedia tells us that the term was used as early as 1902. The question for me is, how do they know we are living in late capitalism?

Marxist theory is a rich source of ideas and insight into the social world and the dynamics of a private property-based market economy. You don’t have to be remotely sympathetic to the barbarous communist experiments of the twentieth century to find his work intellectually rich. Marx would have resisted a separation of his work into economics, politics and sociology, which are the divisions of modern social science. But to the extent that there is a Marxist economics it made a few clear predictions. The main one was the law of the tendency of the falling rate of profit (not a snappy phrase admittedly). Marx expected the dynamic competitive phase of capitalism (which he admired for its energy and ability to transform the world – he was not an early environmentalist) to give way to increasing concentration of capital, a slowdown in growth and a long term decline in the return on capital. Ultimately this would result in a crisis, in which the working class, which had become immiserated by the power of capital to keep its wages low, would overthrow the system. The general idea of falling profitability was not new, it was found in the classical economists from whom Marx borrowed a lot, mainly because they underestimated the possibility of long term technical change.

Marx in 1881, aged 64, the year before his death, looking like everyone’s favourite grandfather. Source: Wikipedia

Failed Marxist predictions

We know two things from the history of the world economy since Marx wrote the first volume of Capital in 1867. First, the average rate of profit has fluctuated but there is no evidence that it is tending to fall. At times when it has become very low there have been deliberate attempts by the state to push it up. Marxist authors such as Hobsbawm were more clear sighted than many others in identifying a major goal of the Thatcher governments in the UK in the 1980s as raising the profitability of the British economy, partly by reducing the bargaining power of organised labour, partly by increasing product market competition. These mechanisms are quite familiar from non-Marxist economics but Marxists correctly put a central emphasis on profitability. But Marx’s own prediction has proven false.

Secondly, there has been not a single revolution of the type that Marx predicted, namely a capitalist industrial economy in which the proletariat took control. All the successful revolutions and particularly those in Russia and China were mainly driven by the rural peasantry and took place in immature, relatively backward economies. In both China and Russia war and nationalism were more important to events than crises of capitalism.

So what gives Marxist writers such as Mandel and current writers confidence that the current stage of capitalism is “late”? One might instead argue that with the conversion of the world’s largest population, China, to a broadly capitalist economy (albeit with a Leninist government), that capitalism has only recently got into its stride. The only non-capitalist economies are world class basket cases that nobody would want to emulate. (They are also vile places for their people and for the environment). Capitalism, in the sense of a system where the main allocation of resources is done through markets and the main ownership of property is private, is the dominant system in most of the world. It has varying flavours: Japanese capitalism is quite different from that in Sweden or the US, but they are all recognisably capitalist if the contrast is drawn with the communist centrally planned economies we have observed since 1917.

The poverty of historicism

The error of seeing history as conforming to predictable laws was labelled by the great philosopher of science Karl Popper as “the poverty of historicism” in his book of that name. Not only is it intellectually indefensible, it tends to be associated with a totalitarian instinct. Marx himself was rather ambivalent in his writings. Although his economics implied a relentless logic that would work itself out inevitably, he wrote frequently that people are what cause events, not something called “history”. Yet in his later life, living a relatively happy bourgeois family life in Hampstead in north London, he saw no need to actively support the various would-be revolutionaries who came to his door, since the revolution would come in its own good time, regardless.

The “late capitalists” are millenarianists – like the religious faithful who are convinced that their saviour will return one day, they are convinced that the promised land of communism (somehow shorn of its Soviet and Maoist unpleasantness) will inevitably come. The use of phrases such as “inexorable laws of historic destiny” allow them to relax and wait. There is a romantic utopianism in their views, which is all too human. It would be so comforting to think that there was much better world coming to us soon, and that we didn’t even have to do much work to bring it about because it was inevitable. But, like the promises of sugar candy mountain from the mendacious raven in George Orwell’s Animal Farm, the dream of a revolutionary world is false. Those who wish, as Marx urged, to change the world must deal with it as it is, without the illusions of historical destiny. This, practical politics, is much harder and messier.

Incidentally, Marx wrote nothing useful on what the post-capitalist economy would look like, other than that it would allow people to have a rich and leisurely life:

“In communist society, where nobody has one exclusive sphere of activity but each can become accomplished in any branch he wishes, society regulates the general production and thus makes it possible for me to do one thing today and another tomorrow, to hunt in the morning, fish in the afternoon, rear cattle in the evening, criticise after dinner, just as I have a mind, without ever becoming hunter, fisherman, herdsman or critic.” The German Ideology. Marx believed that specialisation and the division of labour, identified by the first modern economist Adam Smith as the wellspring of productivity, alienated workers. But he didn’t explain how material plenty could be achieved without the division of labour.

The future path of capitalism is unknown and may be turbulent. But it is pretty much the only game in town at present so we have to make it work.

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