Andrew Glyn’s previous books sought to analyse the factors which moved the world economy from its “golden age” of strong growth before 1973 into the subsequent period of mass unemployment, lower growth and greater instability.
When we met at Corpus Christi College, Oxford, where he has taught since 1969, he said of his new book, “I wanted to trace how the world economy has changed over the last 30 years and try to make some sense of it. From the 1960s to the 1980s the primary problem for the capitalist class was the strength of labour. That threat has receded. I wanted to work through why this was and where the main problems for the world economy are now located.”
Capitalism Unleashed covers the growth of privatisation and deregulation, the explosion of the financial sector, globalisation and the rise of China. It also looks at the assault on pay and conditions and the decline of union strength, the contradictions of growth over the last three decades and much more.
“In earlier books, such as British Capitalism, Workers and the Profits Squeeze (1972), I and my co-authors placed strong emphasis on the relations between capital and labour. It is still my view that labour’s position became stronger in the long boom, trade unions negotiated higher wages and greater welfare spending. Even where trade unions were not strong, the sheer intensity of the boom pushed up wages significantly. Growing international competition also made it more difficult for firms to raise their prices in response to higher costs. The strength of labour forced an increase in real wages at the expense of profits. For me that was the most important cause of the transition from the golden age to an era of instability.
“The need for the capitalist class to weaken labour to restore their profits explains the policies they pursued. When Thatcher was elected, many on the left argued that monetarism was completely irrational. I disagreed. The rationale of monetarism, as a broad economic philosophy replacing Keynesianism, was to re-establish that the market rather than union militancy should determine wages, and that mass unemployment was a price that would have to be paid to restore profitability and ensure a healthier capitalism.
“Indeed countries with relatively high levels of industrial militancy in the 1960s later suffered much higher levels of unemployment. So the more the industrial unrest in the 1960s the more that unemployment had to be pushed up to try and force wages down and productivity up. Of course there was much wringing of hands about the rising unemployment but its effect in putting labour on to the defensive was welcomed.”
Not that monetarism more narrowly defined has been consistently pursued by governments. Huge budget deficits were run up in the US in the 1980s as military spending rose without a corresponding rise in taxes or growth in the economy. Ironically, this contrasts with the heyday of Keynesianism in the 1950s and 1960s when governments did balance their budgets on average despite increased spending on the welfare state.
“Huge budget deficits don’t necessarily revive economies. Japan is an example of where deficits failed to haul the economy out of its stagnation over the last 15 years because on their own they did not bring the higher investment on which growth crucially depends. But government budget deficits in the US clearly did have some pump priming effects in the 1980s and again more recently.
“But we also see in the US today a second stimulus to the economy dragging it forwards and that’s the growth of private sector debt, which has spiralled with the liberalisation of the financial system. If the 1980s saw a right wing military Keynesianism, the new century has seen the growth of a sort of private sector consumer-led Keynesianism. Nonetheless, the prevailing philosophy has been to lower expectations of what the state can do to benefit labour and to insist that the market cannot be bucked.”
Glyn argues economic and political conditions have pushed labour into retreat over the last 25 years, citing the very low levels of industrial action over the last 15 to 20 years. “In Britain the decisive turning point I believe was the defeat of the great miners’ strike of 1984-5. I didn’t want to admit it at the time, but I think this drove the trade unions onto the back foot and enabled successive governments to push through privatisation and deregulation to a far greater extent than in other countries, like Germany, where there wasn’t that kind of significant defeat of a major section of the labour movement.
“Trade union strength has also been adversely affected by structural changes. The more strongly unionised industrial sectors have declined and the rising private service sector is far less unionised. Unionisation has grown in the public sector which has to some extent offset declines elsewhere. But that also explains, to my mind, the continuing drive to extend privatisation in the public sector. Its main economic rationale is to try and drive down wages by weakening union organisation.
“Aspects of globalisation have also affected trade union militancy. Capital is more mobile and internationalised making workers more insecure. At present investment from the industrialised countries in new factories and so on in the low wage economies of the South is only about 4 percent of their investment in their home bases in the North. As yet this is a trickle. But the image of the new owners dismantling machinery at Longbridge and shipping it off to China is very striking. And the threat from globalisation does not just come from relocation of investment. Purchasing parts by subcontracting to Southern producers has the same effect. Either way, the jobs of workers in the North are threatened.
“The trickle of investment from North to South now could become a flood. What makes this such a difficult issue is that this is the very same process which is bringing rapid capitalist development to some very poor parts of the world. If globalisation has helped to weaken the labour movement, it also has potentially profound and profoundly disruptive effects on the world economy.
“In this respect, one of the most important changes is the access world capitalism now has to huge sources of cheap labour in Russia, Eastern Europe and, above all, China. I used to argue very strongly that the changes claimed by globalisation theorists were much exaggerated in relation both to trade and investment. These claims were being used by politicians to claim, falsely, that the traditional aims of the left were no longer realisable. However if recent trends continue we really will be in a new situation.
“The really significant development here is the extraordinary growth of China. Over the past 50 years or so we have seen the rise of Japan and subsequently the South East Asian Tigers. Their rise has not been completely unproblematic either for Europe and the United States. Indeed there have also been stresses and strains for both Japan and the Tigers. Japan has seen 15 years of stagnation since its bubble burst in 1990 and the Tigers suffered a severe shock in the late 1990s. However broadly speaking their emergence has been absorbed by Europe and the US.
“The growth of China is an economic shift of a completely different order. Its labour force is nearly ten times the size of Japan and Korea combined. China already runs a big balance of payments surplus and the value of the dollar is now dependent on the Chinese monetary authorities buying dollars. Should there be a change of sentiment within the Chinese government, the dollar would plummet and the US would have to raise interest rates to halt the dollar’s decline and prevent inflation taking off.
“It’s very difficult to think clearly about the potential impact of the stellar growth of the Chinese economy. Wages are starting to rise, which will make China less competitive, but will also reduce the bonus enjoyed by consumers in the North from cheap Chinese goods. It is difficult to see how Europe and the US could absorb the competition coming from China. If the attraction of cheap labour turns the present trickle of investment from the rich countries into a flood, this would threaten stagnation in the North.
“A second major disruptive factor is the explosive growth in the financial sector, threatening serious instability. The Bank for International Settlements, which is supposed to regulate as well as monitor the international financial system, has produced a number of reports showing they are very worried. Those who would justify financial deregulation claim that risk is increasingly spread across the system and that this encourages real investment in the rest of the economy. In fact real investment has remained relatively stagnant throughout the industrialised world, with the temporary exception of the internet boom in the US at the end of the 1990s.
“The fragility of the financial system is the most likely triggering factor for a major economic crisis. We have already seen, in recent years, major shocks to the financial system when the hedge fund Long Term Capital Management (LTCM), with two Nobel prize winning economists on its board, went under and again with the collapse of the currencies of the Tiger economies.
“Something must be amiss when the famous US investor Warren Buffet calls financial derivatives ‘financial weapons of mass destruction’, when a respondent to a Financial Times survey calls banks’ lending to hedge funds the ‘crack cocaine of the financial system’ and when the European Central Bank bizarrely likens the collapse of hedge funds to a bird flu pandemic.”
I asked Glyn whether he thought states still had the power to intervene to try to overcome these potential financial shocks. “In Capitalism Unleashed I recounted how the US Federal Reserve made available huge sums of money to prevent the LTCM crisis from having catastrophic consequences. However there is no guarantee that such interventions will always be so successful. The financial elastic has thickened, and this can help absorb smaller shocks, but it is also being stretched exceedingly tight. Who can guarantee that it won’t snap?
“Over the last 20 years there has been a very significant retreat for labour. Wages have stagnated and profits have been substantially restored. The pay-off from the point of view of orthodox economics should be an upsurge of investment and a restoration of rapid growth and higher employment. Yet this has not occurred to any significant extent. One reason for this must be fears of instability.
“There is a real paradox here, because in terms of economic growth, the 1990s were actually the most stable post-war decade in both the rich countries and in the world economy as a whole. Yet individual firms deciding when, where and how much to invest, seem to be faced with greater and greater uncertainties. Exchange rates have fluctuated wildly and long established industrial giants lost market share. Investing to expand production is not simply a question of current profits being at a high level, but of the capitalists’ having confident expectations about the future. ‘Animal spirits’, in Keynes’ vivid term, are currently at a low ebb.”
Glyn does not believe that individual states are in a position to successfully impose controls over financial flows because of their size, but he does believe they can successfully impose higher taxes to pay for welfare. He rejects the argument beloved of New Labour politicians that higher taxes in Britain would discourage investment and “enterprise”. “A much higher tax regime exists in Sweden alongside relatively high levels of economic growth and with the apparent support of much of the population, enabling Sweden to support a much higher level of welfare spending than in Britain.”
Glyn is reluctant to make firm predictions for the future. “The world economy is too complicated and there are too many different causal factors. I don’t believe, as I used to, that Marx’s concepts should be applied too literally to economic data. I prefer the view of the Japanese Uno school that Marx’s analysis should rather inform one’s way of looking at the world and the questions one asks. The first volume of Capital, for example, provides a brilliant framework for understanding what is happening in China today.”
Although the future is uncertain and the predictions tentative, Glyn nonetheless believes some outcomes are more likely than others. In particular, as he puts it in Capitalism Unleashed, “having beaten off the challenges of the 1970s the capitalist system in the North has not reached the ‘end of history’ where growth and stability are assured.”
He singles out three major problems for world economic growth over the next few years. Firstly, productivity growth is likely to slow over the next few years with the secular shift towards services where it is more difficult to innovate. An ageing population compounds the problem.
Secondly, there are likely to be increasing environmental constraints on the world economy. Already there is evidence of this in rising oil prices and depletion of other essential materials.
Thirdly, the benefit to the North from low wage production in China will decrease as wages inevitably rise in China, as the precedents of history suggest always happens as labour reserves dry up.
These three factors presage very slow rises in average living standards. Slower economic growth, especially when combined with growing inequality in incomes, could generate much increased conflict over distributional issues.
“In the old days, unskilled workers could get relatively well-paid jobs in manufacturing. Now the only jobs are poorly paid in the service sector, many of them servicing the rich who have seen their own incomes rise enormously. This will bring to the fore again the issues of inequality and redistribution. Will we face a dystopia in which very large numbers of less qualified and poorly paid people exist to service the consumption needs of the rich? Or can we gain mass support for much higher taxes on the best off sections to redistribute income and develop welfare services to mitigate rising inequality and slow growth in living standards?”
Capitalism Unleashed contains a wealth of argument, analysis and facts about the world economy over the last 30 years and is very accessible to the general reader. You may not agree with everything Glyn says, but socialists will benefit greatly by reading and engaging with it.
Capitalism Unleashed by Andrew Glyn is published by Oxford University Press,£16.99. It is available from Bookmarks – phone 020 7637 1848 or go to www.bookmarks.uk.com.
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