As the "financial crisis"
rumbles on with the pundits looking for growth, and in some case
looking with a microscope to get some encouragement, there is the
tendency to spout figures about the future recovery and give
percentages. This isn't science speaking, this is guesswork and it is
also based on the theory that we got out of it last time, so we will
get out of it this time. Not always a sure bet. Capitalism develops,
it changes and morphs into a different type of exploiting beast. What
happened after the 30's can not be taken as standard procedure. After
all it took the second world war to drag the old capitalist beast out
of the depression. I doubt if even that would work this time round.
Like I said, today's big fat capitalist beast is a different animal
all together.
In an interesting article on "AWorld to Win", Fawzi Ibrahim argues that the
present crisis demonstrates that global capitalism has for the first
time reached the “critical zone” – the point of “capital
deficiency”. Below is a short extract from his article. Well worth
a read.
In a boom, profits are high; capital accumulates, yielding even more profits which are then invested to produce more profits and so on. However, if for any reason the rate of profit falls, then profits would follow suit unless more capital is invested to counterbalance the fall in the rate of profit. The amount of additional investment necessary to compensate for a fall in the rate of profit would depend on the original or baseline investment.
For instance, a small initial capital of £10m at an annual rate of profit of say 5% would yield a profit of £500,000. If the rate of profit fell by 1%, to 4%, the profit would drop to £400,000. To compensate for this drop and keep profit at the same level of £500,000, investment must go up to £12.5m, a rise of £2.5m, and a relatively small amount which may not be too excessive for the market to provide. However, if the baseline investment was £10bn instead of £10m, then the additional investment necessary to maintain profits for the same drop in the rate of profit would be 1,000 times greater at £2,500m. If the rate of profit fell by more than 1%, an even greater additional investment would be necessary.
In a highly developed economies such as those of the USA and the UK in which the baseline capital investment is in trillions, even a relatively small drop in the rate of profit would necessitate additional investment in billions if profits are to be maintained. If profits are to increase, as it is the aim of all corporations, the additional investment would have been even greater.
In general, therefore, as capitalism develops and capital accumulates, the baseline investment increases and with it the additional investment necessary to counteract a fall in the rate of profit. At some time, when capital accumulation reaches the astronomical levels we have today, a tipping point is reached at which the increase in investment necessary to counterbalance a drop in the rate of profit becomes prohibitively high, greater than the amount the market can provide. This is the “critical zone”, the zone of capital deficiency.
While the outward symptoms of the great depression of the ‘30s and the present financial/economic meltdown are very similar – bank failures, economic downturn, unemployment, hardship and near-collapse of the system – the underlying terrains are anything but; in fact they are polar opposites. The 30s’ depression was one of abundance, capital abundance; that of 2008-09 is one of deficiency, capital deficiency.
