Investment bank uses Marx to forecast unprecendented expansion of ‘state capitalism’ is required to control booming ‘lumpenproletariat’
Canadian investment bank Macquarie is warning its clients that capitalism is in such a drastic state of decline that “there is no modern precedent to the degree of state control that we envisage in the coming years”.
In as materialist an analysis of present conditions as any socialist could wish to read (or, indeed, write), the July 2016 issue of investment business journal “What Caught My Eye?” uses Marx to anticipate deglobalisation and a booming “lumpenproletariat”, the latter as a result of rising unemployment from the growing ‘robotisation’ and ‘computerisation’ of working and middle class jobs.
According to the journal, the profitability crisis engulfing capitalism everywhere is down to “the Third Industrial revolution” – ie robotisation – “and what we describe as declining returns on humans”.* It goes on: “Not dissimilar to Marx’s ‘lumpenproletariat’, current generations need to adapt to a shifting landscape, just as aristocrats and farmers needed to in the 1800s.” However, unlike the previous industrial revolutions, which “aimed to supplement” humans, the Third Industrial Revolution “aims to replace humans completely”, making this one “intrinsically far more disruptive”.
As a result, “the structure of the labour force is shifting towards the modern equivalent of a ‘lumpenproletariat’”. Of course, we have already witnessed a rapidly growing dependence on zero-hour contracts and the “gig economy” (the latter growing out of capitalism’s tendency towards monopolisation).** This “lumpenproletariat” could count for “40–45%” of the US labour force by 2020. The paper also says that “around half of incremental growth and low productivity occupations constitute around 70% of employment”. The same trend is “evident in most developed [imperialist] countries. Lower productivity occupations now account for more than 70% of UK employment and almost 75% of French employment.” In fact, “these estimates understate the real impact”. While investors “might argue that… higher value jobs will eventually emerge… eventually could take a very long time”.
Obviously this transformation is not going to happen overnight. The process will involve “several waves of ‘extinctions’, with a growing range of jobs and professions becoming extinct” while remaining jobs would be subjected to “massive disruptions, and perhaps more importantly, declining pricing power”.
“As McKinsey Global institute predicts, the global economy might by 2020 have a surplus of ~100m jobs in low and medium skill occupations (including ~60m in ‘emerging markets’ alone). However, we believe that the real position is likely to be far worse as even higher skill jobs are being rapidly displaced. It is expected that over the next decade or two, around 95% of accountants; 90% of technical writers and almost half of economists and pilots would be replaced. The same largely applies to lawyers, paralegals, traders and investment advisors. It is expected that almost 90% of real estate agents would disappear and almost 100% of telemarketers (a very large and high value industry in a select few emerging markets, such as India and the Philippines). Increasingly routine articles by magazines like Forbes or various newspapers (such as sports news, weather etc) are written by computers, with limited, if any, human involvement. The same sadly applies to routine tasks undertaken by investment analysts.
“Any job that requires human touch (such as clergy, nurses, sports coaches or bartenders) is likely to be safe (at least for the time being). While most commentators highlight the need for higher education and skilling as the way to avoid ‘replacement’ and create higher value occupations, current labour market outcomes disagree. For example, according to a CareerBuilder survey in 2014, around 51% of US graduates have been employed in industries that do not require their academic qualifications.”
Consequential extremes
With the next generation of workers looking for jobs that won’t exist (“about 1bn people in Africa, the Middle East, South Asia and ASEAN, aged between zero and 15”) a somewhat neo-Malthusian tone is taken with the warning that “having too many young people might be a recipe for social and political dislocation rather than growth, even if the business climate improves”.
Problems and contradictions continue to stack up “no matter what investors do”. Declining productivity is “primarily a reflection of the fact that an increasing proportion of the labour force and employment is essentially ‘warehoused’ in lower productivity occupations, pending either their final elimination and replacement or (hopefully) an accelerated move into higher productivity occupations. Economic stagnation has also come about as a result of “overleveraging and over capacity generated over three decades of borrowing, creating strong deflationary pressures. In our view, the interaction between two powerful forces (technology and the unintended consequences of monetary policies [that were] designed to overcome and reduce the impact of stagnating productivity) is compressing productivity gains – keeping wages and incomes stagnant while requiring ever stronger doses of monetary intervention”. As with the first two industrial revolutions, this is leading to growing “hyper-competition” which is “gradually destroying productivity” in unprofitable or uncompetitive sections of the economy.
Given that the declining economic trends identified are “global phenomenons” that have been developing since the 1970s, “secular factors must far outweigh cyclical factors”. The authors say that “disorientation breeds fear and fear leads to extreme choices”, noting that the comparable societal development of the 19th century spawned “violent anarchist” movements. The growing ‘lumpenproletariat’ is traditionally the “most extreme” demographic. As insecurity and inequality have grown, the growing “populism” witnessed in the US and Europe is “not an aberration but a logical outcome”.
“Hence, we expect that over the next five to ten years, most countries will swing either to the Left or to the Right and in both cases the role of the government and state is likely to rise. Although over the longer-term the risks are high (as the Weimer Republic in 1923, Japan in the 1930s, or Britain in the 1960s, illustrated), we do not currently see an alternative.”
The likes of Donald Trump, Nigel Farage and Marine Le Pen are the beneficiaries. With several ultra-nationalist parties already in power across Europe, liberalism is indeed once again enabling a frightening rise in barely opposed and ‘legitimate’ far right governance. The severity of the crisis and rising inequality is “causing a backlash against [international] trade and immigration”, increasingly likely to result in “chilling” effects. As with the 1870s-80s, “either overt or covert protectionary measures have always been dangerous, as they tend to invite retaliation (as with trade wars between France and Italy or Russia and Germany in the late 19th century illustrated). Hence, even in the absence of formal rules, increases in tariff protection in the late 19th century were generally gradual and hesitant. In our view, this is exactly what is likely to happen over the next five to ten years, except there would be less reliance on tariffs and greater use of non-tariff protection (such as labelling of products; quality and safety rules; anti-dumping regulations).” Historically, it takes a “significant shock” before tariffs and trade restrictions “accelerate significantly”. However, between October 2015 and March 2016, G20 economies introduced 145 new trade-restrictive measures, an average of 21 per month, the largest monthly number since WTO starting keeping such records in 2009. The total since 2009 is 1,583. “While these measures only cover around 5% of global exports, the ratio is increasing and tends to be mostly focused on dumping allegations across some of the key over-supplied industries, such as metals and chemicals.”
Ever-stricter immigration controls, unsuprisingly, are also expected. “As in the late 19th/early 20th centuries, governments would increasingly resort to tighter border and immigration controls. While cultural and xenophobic issues would play a part, it would be essentially designed to shelter disoriented and frightened citizens from the perception that not just foreign goods but also foreign people are eroding local opportunities. The borders finally closed globally in the 1920s; we expect the same to occur across a wide range of countries. The only key difference is a high probability of growing refugee migration that is likely to rise significantly as employment and income opportunities decline in emerging markets [oppressed countries] with a surplus of younger people. In our view Europe will remain on the frontline but economic and refugee mass migration will impact every [continent].”
The numbers of displaced people globally are already at “historically high levels” both within and outside national borders. “While considerable attention is focused on cultural, religious or other causes, we believe that at the end of the day economics is at the base of most human endeavours,” exactly as Marxists have always stressed. The rise in terrorism is also put down to growing unemployment and instability (complementing the fact that the US and other imperialist countries have funded and armed terrorists to inflict ‘regime change’ in countries such as Libya and Syria, where they need to privatise state assets to sustain capitalist growth).
To deal with runaway unemployment, governments will have “no choice” but to “provide minimum income guarantees and spending vouchers, and perhaps other rewards for higher spending, without any requirement to look for or hold a job. While some would call it socialism, we maintain that it is the inevitable and logical outcome of the Third Industrial Revolution.” It should be stressed here that a “minimum income guarantee” under capitalism is not socialism. Because capitalism can no longer afford welfare states, even in rich countries, it wants to replace them with something cheaper under the guise of “simplification”, streamlining all benefits into a much-vaunted Universal Basic Income. It is hard to believe that UBI could be applied universally though, or indeed “generously” or fairly enough to cover basic needs. The needs of a single young man and a single disabled mother are not universal. Would asylum seekers and immigrants get access to it? How would homeless people get access to it? What’s more, imperialism needs to keep the working class divided, by privileging a ‘labour aristocratic’ section. It is a Hayekian wet dream designed to placate a growing reserve army of labour at bare minimum subsistence costs. What’s more, in a world dominated by low income and widespread unemployment, purchasing power dwindles. Who will be able to buy the products made by the phenomenal robot factories? Overcoming this problem would involve “conventional neo-Marxist (they mean neo-Keynesian) redistributions of income and wealth” but it “would be mostly financed directly through central banks, thus breaking the nexus between borrowing and spending”. “The same largely applies to governments’ role in fixed assets and infrastructure investment. Although the risks are high, we believe that there is no choice but for governments to become far more proactive. We also believe that given the above challenges, as well as the pre-existing debt burden (more than 3x global GDP), the state cannot allow volatility rates embedded in the financial superstructure to undermine the real economic outcomes. The need to control financial volatilities and finance its expanded role implies the inexorable path towards ‘nationalisation of credit’.”
Of course, the implied concept (from “expanding state capitalism”) of a “stateless capitalism” is a fantasy that would collapse overnight. The capitalist state is required precisely to take up the slack in a crisis, to relieve markets of unprofitable sectors, and to subsidise the private sector’s relative inability to afford innovation.
Limited investment opportunities
For the authors’ clients, a “different set of investment strategies” are required, but because “the entire financial sector is impaired, we do not include any financial stocks”. The choices are limited. But, write these diabolically bloodless authors, “given that we are not looking for safety and are not aiming to reduce volatility, the [recommended] portfolio tends to be tilted to globally and regionally competitive corporates, with IT, software, technology, pharma/biotech and life sciences, as well as industrials and consumer discretionary stocks having a dominant share. Most consumer staples do not make it on account of falling margins and/or rising leverage.”
Because of the “declining returns on humans”, investors are told to put their money into robotics and automation, genome augmentation, gaming and entertainment, ‘skilling’, “social and geopolitical dislocation (i.e. weapons, drones, security firms)”, and ‘facilitators and enablers’.
They are also told to focus on “capturing the benefits from governmental action, no matter how destructive or ineffectual they might turn out to be”. Presumably, the benefits are that the state takes on the burden of the failing parts of the private sector. On fixed asset and infrastructure, there are “not very strong reasons” for investing “significant further incremental funds” because the bulk of the [first] world already has “acceptable” infrastructure. However, from governments’ perspectives, the advantage of fixed asset investment is its “multiplier impact and a quick ‘bang for the buck’ (irrespective of whether incremental infrastructure improves productivity)”. R&D and skilling was an area which was “unnecessarily abandoned by the public sector after 1979/80”. Because the private sector “tends to do very basic research”, it would “make sense” for the US government, for example, “to resurrect Bell Labs or NASA”. Similarly, in many countries, governments have “retreated too far from skilling and education”. However “the unfortunate part about this type of investment is that while potentially useful, it has very long-term pay-back periods”. The nationalisation of finance and capital markets is expected because “the current structure and positioning of banking, finance, life and insurance and pension systems is unsustainable. Hence it is highly likely that the state would need to get increasingly involved, ultimately leading to nationalisation or effective underwriting of significant portions of capital markets.”
This all needs funding though. It is hard to imagine how the rich would embrace the “neo-Marxist style redistribution of wealth” when higher taxes would hinder profit-making amid a profitability crisis. The authors claim that, “given that success and innovation is very seldom motivated by taxes (or lack of them), it is quite possible that it might work”. Increased state borrowing and central bank-funding are the other options, including a “far more potent form of Quantative Easing”. But, they warn, “even at zero rates, any country becomes bankrupt when leverage reaches critical levels” and “leaves it unable to ever return to some form of normality”.
The future “(unfortunately) lies in the close merger of fiscal and monetary policies”. Although more aggressive QE “over the longer-term would lead to lower Returns On Equity and greater misallocation of resources, it is also likely to be successful in kick-starting aggregate demand multiplication and inflation”. This appears to be wishful thinking: debt must be serviced and repaid by returns on production, while investment through increased public debt would still run into the key problem of falling profitability.
The companies who are likely to “win” from such government policies are all defined as “local”, as companies such as “Apple, Google or Starbucks will come under significant pressure to ‘localise’ and safeguard jobs while contributing to taxation”. Trotsky’s explanation of Nazi Germany comes to mind: “Though raised on the back of the petit bourgeoisie” it was in fact “the most ruthless dictatorship of finance capital”.
Conclusions
The authors have correctly interpreted that irrepressible economic factors (ie what Marx and Lenin described as capitalism’s decaying nature) are driving ‘liberal democracy’ as we know it into its grave. Essentially, they are saying that either fascism or neo-Keynesian social democracy is required to save capitalism from collapse. In the 2oth century, both were needed, with the horrors of fascism and two world wars combining to create viable conditions for the ‘New Deal’ of social democracy and Keynesianism, whereby the destruction of entire countries created massive profitable investment opportunities.
The authors go on to say that the period between 1950–1990 was the “golden age” of capitalism, because “it was a time of increasing opportunities and generally rising returns on human capital”. However, 2000–2030 “will likely be classified distinctly differently”.
For communists, it is galling to think that capitalism’s “golden age” ended at the very moment the socialist bloc fell. At the time, we were told by some that the end of the Cold War was “The End of History”, that the world could now sally forth peacefully into Capitalist Utopia. But far from “ending history”, capitalism’s defeat of socialism was the moment the course of history was reset. Had the revolutions of the 20th century or the Cold War ended in global socialism instead of global capitalism, the inherent (and ever-sharpening) contradictions and underlying structural fault lines of capitalism would have been removed. Capitalism’s symptomatic crises—of hunger, poverty, housing, energy, climate, environmental, etc — would have been eminently solvable under a socialist system dependent on serving people and need instead of profit and greed. Keynes’s theory that everyone would be working only 15 hours a week by now would have been eminently achievable. The imperatives behind trade, regional and world wars — namely, that a deepening profitability crisis forces national capitals into ever-intensifying competition for what remains profitable — would have been removed. The repressive measures socialist states required to defend themselves from imperialist aggression would no longer be necessary. A permanent world peace was within grasp, but it was squandered and tossed away by the opportunisits, idealists and anti-communists who opposed the socialist bloc. Now we are back where we started, only this time global warming is making the planet inhospitable, the Soviet Union isn’t around to defeat fascism, and the advanced lethalness of 21st century technology threaten horrors that could potentially eclipse the cataclysms of the 20th century. The ‘migrant crisis’, symptomatic of the war and poverty imperialism inflicts on oppressed nations, is a case in point.
The present capitalist crisis is already the deepest ever, and no wonder: the system requires infinite growth, but having conquered almost the entire planet, it has nowhere left to go. Capitalism, a progressive force when it usurped feudalism, has long outlived its historical mission. Inevitably, it is slowly self-imploding. The only solution, the only possible resolution, is socialist revolution. The grand coalition of anti-communists who oppose it are fighting for nothing more than total barbarism. The future of civilisation and humanity depends on socialism prevailing once and for all.
*The “declining rates on humans” thesis is striking as particularly Marxist. The most easily identifiable expression of the present crisis is capitalism’s tendency to over-accumulate capital — there is a massive unspendable glut of capital situated in rich, imperialist countries. However, Marx also found that the human labour that goes into commodity-production is the source of profit (or “surplus value”, ie what the capitalist appropriates after ‘paying’ the worker enough to subsist). Therefore, in the past, when mechanisation reduced the number of humans in the workforce, it reduced total surplus value; increased exploitation per worker meant the total mass of profit continue to rise, but the rate of profit fell – driving the system into crisis and determining its development. Marx called this “the most important law of political economy”. To clarify, while humans can sell their labour power (a commodity in itself), robots or machinery cannot. They can only “pass on” (into commodities) stored value from the human labour that made them in the first place. Therefore, if the Third Industrial Revolution “aims to replace the human workforce” it also inadvertently aims to abolish the source of profit.
**The Marxist term ‘lumpenproletariat’ is used in a slightly confused way by the authors. The casualisation of the workforce through zero-hour contracts and the gig economy is arguably more of a classic ‘deskilling’ and proletarianisation of labour. In relation to booming unemployment created by robotisation, ‘lumpenproletariat’ certainly seems an to be an apt term.
NB: Although hardly short, this article was an attempt to summarise the Macquarie document while retaining its most important parts. It is well worth reading in full (above).
