'Apart from Japan', he observed, 'the world has not seen
deflation
for 70 years' (as if the world's second largest economy can be treated as an anomaly, and '70 years' as a magic threshold beyond which deflation can never return).
Nitzan Bichler - 2012 - Capital as Power
They also gener- ated huge petrodollar revenues for local OPEC governments, who were only too eager to spend them on expensive weaponry in preparation for the next war.
As a result, the Middle East during that period became the world's largest market for imported arms, absorbing over one third of the global trade.
The big arms contractors of course loved this arrangement, and various US administrations - from Nixon's and Ford's to Bush Sr.
's and Jr.
's - supported it with equal zeal.
Indeed, what better way to fight communism, divide and rule the Middle East, and enrich your corporate friends - all in one stroke and without spending a penny?
The consequences of this process were nothing short of dramatic. Rising oil prices threw much of the world into a deep stagflationary crisis, conflict bloomed everywhere, and there was even the occasional flirt with nuclear exchange. The Weapondollar-Petrodollar Coalition, however, thrived, while the other members of dominant capital - although hit by the stagnation - ended up benefiting greatly from the consequent inflation (revisit Figure 16. 3).
The distributional consequences for the oil and armament companies are vividly illustrated in Figure 17. 3 which measures their share of global market capitalization. As the chart shows, during the 1970s and 1980s, this group of firms became one of the world's most valuable. With plenty of wars and soaring oil prices, its fortunes multiplied; and by 1981, after the onset of the Iran-Iraq wars, it accounted for nearly 14 per cent of global market capital- ization. 'War profits' were clearly the way to go.
10 For an exploration of these 'internal' politics of differential accumulation, see Nitzan and Bichler (2002), Bichler and Nitzan (2004b) and Nitzan and Bichler (2006b).
11 For a detailed history and analysis of this coalition, see Nitzan and Bichler (1995) and Bichler and Nitzan (1996).
? 25
20
15
10
5
0
1970 1975 1980
1985 1990 1995
2000 2005 2010 2015
Differential accumulation 393
? ? ? per cent
Weapondollar-Petrodollar
(Integrated Oil and Defence)
Technodollar-Mergerdollar
? ? (T echnology)
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? www. bnarchives. net
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Figure 17. 3 The two coalitions: share of world market capitalization Note: Series denote monthly data shown as 12-month moving averages.
Source: Datastream (series codes: TOTMKWD for world total, OILINWD for integrated oil; AERSPWD for defence; TECNOWD for technology).
But that was the peak. By the mid-1980s the situation started to change on several fronts. First, many developing countries, having shifted from import substitution to export-led growth, were now reclassified as 'emerging markets' open to foreign investors. Second, 'high-technology' was firing up both investor's hype and the stock market, giving mergers and acquisition repeated shots of adrenalin. And third, neoliberalism, having undermined the previous statist ideology, now opened the door for massive privatization and capital decontrols. Put together, these developments marked the dawn of a new breadth regime.
The Weapondollar-Petrodollar Coalition started to decline, and by the early 1990s, with the Cold War over and the world having been declared a 'global village', it disintegrated. Signs of its demise were clear: international hostilities were actively curtailed, with the number of major conflicts falling from 36 in 1989 to 25 in 1997; military budgets the world over came under the axe, dropping by over one third in 'real' terms from their peak in the late 1980s; the price of oil fell absolutely and relative to other prices, reaching a low of $11 per barrel in 1999, compared with over $30 in the early 1980s
394 Accumulation of power
($96 in 2007 prices); and world inflation dropped to less than 5 per cent in 1999, down from over 30 per cent at the beginning of the decade. 12
The main challenge to the Weapondollar-Petrodollar Coalition came from a new 'Technodollar-Mergerdollar Alliance', a group based on civilian high-tech and corporate takeovers and backed by Third-Way governments led by the likes of Bill Clinton and Tony Blair. Instead of 'war profits', nation- alism and conflict, the new alliance marshalled the rhetoric of 'peace divi- dends' and free investment in an 'open world'. Capital controls gave way to deregulation, protectionism to privatization, and bloody wars to peace deals. And indeed, by end of 2000, the Technodollar-Mergerdollar Alliance seemed victorious. As Figure 17. 3 illustrates, its share of global market capitalization soared to 20 per cent, while that of the oil and armament companies sank to a meagre 4 per cent. 13
Unrepeatable since time immemorial?
The retreat of breadth
During the 1990s, many experts, impressed by the new breadth euphoria, announced the arrival of a 'new economy' based on high-tech 'knowledge', 'information' and 'communication'. This new economy, they promised, would deliver not only uninterrupted growth, but also low inflation, making the anomaly of stagflation a relic of history. Other observers with an eye to culture and politics went even further, arguing that liberal capitalism had won the last battle of ideology and that history was finally coming to an end. But the prognosis proved a bit hasty.
These projections hinged crucially on the promise of surging productivity. And yet, productivity growth data from the 1990s - assuming for argument's sake that 'productivity' indeed can be measured - hardly seem exceptional by historical standards. In the United States, the presumed epicentre of the 'high-tech revolution', these data pale in comparison to the record of the 'low-tech' 1950s and 1960s. Moreover, past productivity gains have often failed to stop inflation, so it isn't entirely clear why the experts expected them to succeed this time around. And, indeed, reports of the death of stagflation proved a bit premature.
The rapid breadth expansion, particularly in the emerging markets of Asia, created a massive build-up of excess capacity and loosened the grip of busi- ness sabotage. Green-field investment in the 1990s grew in leaps and bounds - much faster than world consumption and with disastrous consequences for
12 Calculated from International Financial Statistics through Global Insight (series code: L64@C001 for CPI in the industrialized countries; L76AA&Z@C001 for the price of crude oil; and L64@C111 for the US CPI); the Stockholm International Peace Research Institute (Annual); and the U. S. Arms Control and Disarmament Agency (Annual).
13 For a similar comparison based on the distribution of global net profit, see Nitzan and Bichler (2006b: p. 80, Figure 12).
? Differential accumulation 395
profit margins. The implications for differential accumulation were not lost on absentee investors, who began liquidating their holdings in peripheral regions where earnings growth fell short of the world average (Nitzan 1997; 1998a). The first victim was the Mexican peso circa 1994, followed in 1997 by the Thai baht and the rest of the Asian currencies. From there the centrifugal forces of excessive external breadth spread devaluation throughout the devel- oping world, striking most countries, from Russia and Brazil to South Africa and Argentina.
The emerging markets crisis spelled trouble for the core markets of North America and Europe. During the 1990s, developing countries absorbed some of the elevated hype from the core, and in so doing provided a defence line for 'blue chip' companies listed in the world money centres. Eventually, though, this defence line collapsed. In 2000, fear struck the core financial markets. Led by the collapsing NASDAQ, they went into a tailspin and in the process pulled the rug from under a two-decade surge in merger activity. Next, the global political economy, perhaps for the first time since the Great Depression, fell into a synchronized recession involving all major countries. And finally, after a decade of 'peace dividends', attacks on the World Trade Center and the Pentagon, followed by the invasion of Afghanistan and Iraq and the re-intensification of the Israeli-Palestinian conflict, rekindled the ghost of violence and 'war profits'.
And so the tables again turned. As illustrated in Figure 17. 3, by the early 2000s the Weapondollar-Petrodollar Coalition once more was on the ascent while the Technodollar-Mergerdollar Coalition went into a free fall.
Was the world running out of breadth? Were these developments the mark of a new depth phase? Or maybe they were soon-to-be-forgotten ripples on the tidal wave of globalization and amalgamation?
The boundaries of differential accumulation
In 1999, we presented a paper at the International Studies Association Meetings. The key question of the paper was stated in the title: 'Will the Global Merger Boom End in Global Stagflation? ' (Nitzan 1999). And the answer was positive: based on our differential-accumulation framework, we argued that worldwide mergers and their neoliberal underpinnings were about to peak, and that conflict and stagflation were ready for a comeback. 14
A decade later, such projections may seem trivial. The 'global village' is defunct; 'No-Logo' analysts have retreated, overshadowed by the pundits of terror and war; the headlines that previously announced prosperity and merger suddenly talk of stagnation and inflation; and the experts assure us that they have been predicting all of this all along.
14 For subsequent articulations of this argument, see for example Nitzan (2001), Faux (2002) and Nitzan and Bichler (2003) and Bichler and Nitzan (2004a).
? 396 Accumulation of power
But the truth is that, back in 1999, none of this was in the cards. Few in our audience understood the question we asked and even less so the answer we gave. Caught in the postmodern fashion of deconstruction, conditioned by the double separation of economics from politics and the real from the nominal, and indifferent to the speculative quantification of qualitative processes, they found our argument bizarre and our projections off the wall.
Our presentation, though, didn't really try to 'predict' the future - at least not in the technical sense advocated by Karl Popper (1963). Instead, we attempted to delineate the limits of differential accumulation and to under- stand the boundaries they impose. And that is what we have done - with further analyses and details - in the present volume.
To reiterate, differential accumulation is a qualitative creordering of capi- talist power that is speculatively quantified through the algorithm of capital- ization. It is a conflictual process and is therefore open-ended. It doesn't have to happen. If dominant capital increases its power, the rate of differential accumulation will be positive. But if this power stays the same or decreases, differential accumulation will be zero or negative, respectively. This is the general theoretical setting.
Now, using this framework we demonstrated: (1) that differential accumu- lation has proceeded more or less uninterruptedly for the past half-century and possibly longer; (2) that, historically, this accumulation occurred primarily though amalgamation and stagflation; and (3) that these two power regimes have grown increasingly counter-cyclical.
This theoretical-empirical framework enabled us to make our 1999 projec- tion. As Figure 17. 1 shows, by the late 1990s amalgamation was reaching historical highs while stagflation was approaching historical lows. The situa- tion seemed ripe for reversion. There was no structural reason to expect differential accumulation to collapse, and since its two regimes were at histor- ical extremes, it seemed safe to expect mergers to recede and stagflation to resurface. And that is exactly what happened in the decade since this projec- tion was made.
Out of bounds
But correct projections do not mean that the social future is somehow fore- seeable, let alone predetermined. The capitalist nomos is a creature of society, articulated and imposed by the ruling class on those who are ruled. No matter how 'deterministic' it may seem, this nomos is never ironclad. Created by humans, it can be changed - and indeed replaced - by humans. In the language of Gabriel Garci? a Ma? rquez, it is 'unrepeatable and therefore unpre- dictable since time immemorial'.
As long as dominant capital continues to rule, and as long as the logic of that rule remains unchanged, we can expect differential accumulation to oscillate between breadth through merger and depth via stagflation. Furthermore, since the breadth potential eventually is self-exhausting and
Differential accumulation 397
since dominant capital is already in the final, global envelope, it seems reason- able to expect future stagflation cycles to become more frequent and deeper.
But, then, there is no certainty that dominant capital will continue to rule in the same way - or that it will continue to rule at all.
Over the past century, capitalists have managed to impose the belief that their regime is natural and therefore unalterable. They have constructed a power architecture that is more sophisticated, encompassing and supple than anything the world has ever seen. And they have successfully concealed this state of capital by erecting an anti-scientific front that fractures the conscious- ness and dresses up the power institutions of capitalism as if they were mere technical aspects of a narrow 'economic narrative'.
This edifice of power and deceit hinges on the normal rate of return and the ability of dominant capital to beat it. As long as 'business-as-usual' sabo- tage and dissonance keep capitalists convinced that profit is normal and the growth of capitalization natural, and as long as dominant capitalists are able to exceed the normal and increase their power, the state of capital holds steady and its patterns remain 'deterministic'.
But this 'determinism' is not an external law of nature or a historical law of motion. Instead, it is merely the 'determinism' of the capitalist rulers. The patterns of this 'determinism' reflect the consensus of those who dominate society. They show the conviction of the rulers that they are in command - and that those whom they command cannot resist. This conviction, though, is never certain. Confronted with sufficient opposition, whether explicit or implicit, it can crumble. And when it does crumble, the result is to shatter the 'determinism' of the rulers, the patterns of their differential accumulation and, possibly, the entire state of capital that defines their rule.
Postscript, January 2009
The research for this book was completed in early 2008. Since then, the capi- talist world has been rattled by what many consider to be the deepest crisis since the Great Depression. The global shakeup has brought one aspect of our framework into sharp focus: it has shown that differential accumulation is by no means predetermined, and that it can fail.
The open-ended nature of the process is demonstrated most vividly by the increasing threat of deflation. As we have seen, over the past half-century, the capitalist creorder has been shaped by the differential accumulation of domi- nant capital, whose growing power is fuelled by the inversely oscillating regimes of breadth and depth. Although the two regimes differ markedly, both depend on rising prices: breadth through merger requires relatively low inflation, while depth through stagflation depends on high - and rising - inflation. This requirement was fulfilled in the post-war era, the longest period of uninterrupted inflation in human history (Figure 16. 1).
But the inflationary backdrop also points to the limits of capitalist power. As noted in the introductory and concluding chapters, power is confidence in
398 Accumulation of power
obedience: it represents the certainty of the rulers in the submissiveness of the ruled. In modern capitalism, this certainty is manifested in the ability of capi- talists to control and systematize the upward movement of prices. And it is this ability - along with its associated confidence in obedience - that is totally lost during deflation. When prices start falling and the architecture of power begins to disintegrate, the rulers' confidence fizzles and history suddenly seems open-ended.
And indeed, challenges to capitalist power often emerge when they are least expected. That was the case in 1929 - and again in 2000. By the begin- ning of the third millennium, dominant capital seemed unassailable. Using mergers and acquisitions, it had penetrated and transformed most developing countries into 'emerging markets'; it had integrated former communist regimes into the logic of capitalization; and in the core countries it had imposed its own private 'regulation' while undermining public institutions of welfare and government. With the exception of small enclaves such as Cuba, Myanmar and North Korea, it had managed to subjugate and incorporate the entire world population into its all-encompassing nomos.
It was exactly at that high point, when the experts celebrated the end of history and the global village, that deflation suddenly struck. Mergers receded in the early 2000s - yet inflation, instead of rising, fell precipitously. This was no laughing matter. If disinflation turned into outright deflation, dominant capital would be bound to suffer differential decumulation. And that was just for starters. Deflation threatened to bring down the entire chain of debt obligations, whose size relative to GDP was much larger than it had been on the eve of the Great Depression. Had prices started to fall and debt to deflate, the spiral could quickly have become unstoppable.
The initial response was denial. Deflation simply was too dire to contem- plate:
'Ignore the Ghost of Deflation', recommends Financial Times columnist Samuel Britton.
'Apart from Japan', he observed, 'the world has not seen deflation for 70 years' (as if the world's second largest economy can be treated as an anomaly, and '70 years' as a magic threshold beyond which deflation can never return). 'Deflation is an overblown worry', declares James Grant, editor of Grant's Interest Rate Observer. 'Believe in Ghosts, Goblins, Wizards and Witches if you will', concurs financial expert Adrian Douglas, 'but don't believe in deflation occurring any time soon'. There is little to worry about, says Fed Chairman Alan Greenspan: 'The United States is nowhere close to sliding into a pernicious deflation'. Of course, denying the problem does not solve it. And, so, for those who remain fearful, the experts promise that whatever the risk, it could easily be defused. 'The good news', announces former member of the Federal Reserve Board, Angell Wayne, 'is that monetary policy never runs out of power'. 'There's a much exaggerated concern about deflation', laments Nobel Laureate Milton Friedman. 'It's not a serious prospect. Inflation
Differential accumulation 399
is still a much more serious problem than deflation. Today's Federal Reserve is not going to repeat the mistakes of the Federal Reserve of the 1930s. The cure for deflation is very simple. Print money'. The same assumption underlies the soothing speech by Fed Governor Ben Bernanke, given in 2002 to the National Economist Club. In his address, properly titled 'Deflation: Making Sure "It" Doesn't Happen Here', Bernanke explained that 'Deflation is always reversible under a fiat money system'. 'The U. S. government', he assured his audience, 'has a technology called the printing press that allows it to produce as many U. S. dollars as it wishes at essentially no cost'.
(Quoted from various sources in Bichler and Nitzan 2004b: 294-296)
But denial and promises didn't work, so the experts called for action: 'The Federal Reserve has won its long war against inflation', wrote Chief Economist of Goldman Sachs Bill Dudley and Managing Director of Pimco Paul McCulley. 'But to ensure an enduring legacy, Mr Greenspan now needs to solve a different problem: inflation is too low, rather than too high. . . . The inflation rate should be high enough to allow the economy to take a shock without falling into deflation' (Dudley and McCulley 2003).
And Greenspan was more than ready to comply. He quickly reduced interest rates to levels not seen since the 1960s - and equally quickly realized he was pushing on a string. 'In recent months, inflation has dropped to very low levels', he complained to the Joint Economic Committee of the Congress. 'Indeed, we have reached a point at which, in the judgment of the Federal Open Market Committee, the probability of an unwelcome substantial fall in inflation over the next few quarters, though minor, exceeds that of a pickup in inflation' (Greenspan 2003). This was probably the first time since the 1930s that the Fed had pronounced lower inflation unwelcome.
In the end, though, it was the brinkmanship of the Weapondollar- Petrodollar Coalition that saved the day. The coalition managed to put the Bush clan back in the White House, inflame the Middle East, raise the price of oil and provide the necessary spark for inflation. That spark, though, merely helped delay the day of reckoning.
By 2007, storm clouds had started to gather again, and by early 2008 all hell had broken loose. Assets markets have gone into a free fall, followed by crashing commodity prices, collapsing employment and production, and broad inflation indices that are rapidly approaching zero. The threat of defla- tion, having been ridiculed by Nobel Laureates and dismissed by Central Bankers, is back with a bang.
Given the gravity of the situation, governments the world over have suspended their commitment to 'free markets' and 'sound finance' in favour of massive bailout packages for dominant capital, large fiscal stimuli, unprec- edented injections of 'liquidity' and other policy rituals. In addition, there has been some increase in televised violence - from the erupting conflicts of the
400 Accumulation of power
Middle East, to riots in Thailand, Greece and Korea, to promises of simmering discontent in Russia and China.
So far, though, policy and conflict have done little to lessen the deflation scare. Even the U. S. Federal Reserve Board sounds unnerved. Having reduced its interest rates to practically nil, it is now contemplating pleading directly with the public. According to this plan, the Fed will announce a posi- tive 'inflation target'; this announcement will then cheer up the depressed public and lift its inflationary expectations; and the inflation monster, having been invited in so politely, will rear up its beautiful head and give the Fed what it wants most: prices that go up (U. S. Federal Reserve Board 2008; Guha 2009).
These nervous calls to the omens suggest that capitalism again faces a historical crossroads. Renewed inflation will restore differential accumula- tion for dominant capital, initially through depth and perhaps later through breadth. But if the ruling classes are grabbed by panic and the power architec- ture disintegrates into deflation, the effect could be deeply transformative.
And that wouldn't be the first time. During the 1930s, falling prices shook the capitalist world and eventually led to its complete creordering. Back then, the transformation ended up strengthening the state of capital. The imposi- tion of capitalization on almost every aspect of social life, the ascent of domi- nant capital and the growing synchronization of breadth and depth helped create the most powerful mega-machine the world has ever known.
But the transformative outcome of deflation was not predetermined then, and it isn't predetermined now. If prices start to fall in earnest, dominant capital might be seriously weakened - perhaps to the point of losing control over its very mode of power and the mega-machine that sustains it. Whether it can continue to rule, though, and in what way, remains an open-ended question. The answer to this question depends not only on what dominant capital does and how it does it, but also on the creativity, ability and courage of those who resist it in the hope of creordering an alternative, humane future.
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The consequences of this process were nothing short of dramatic. Rising oil prices threw much of the world into a deep stagflationary crisis, conflict bloomed everywhere, and there was even the occasional flirt with nuclear exchange. The Weapondollar-Petrodollar Coalition, however, thrived, while the other members of dominant capital - although hit by the stagnation - ended up benefiting greatly from the consequent inflation (revisit Figure 16. 3).
The distributional consequences for the oil and armament companies are vividly illustrated in Figure 17. 3 which measures their share of global market capitalization. As the chart shows, during the 1970s and 1980s, this group of firms became one of the world's most valuable. With plenty of wars and soaring oil prices, its fortunes multiplied; and by 1981, after the onset of the Iran-Iraq wars, it accounted for nearly 14 per cent of global market capital- ization. 'War profits' were clearly the way to go.
10 For an exploration of these 'internal' politics of differential accumulation, see Nitzan and Bichler (2002), Bichler and Nitzan (2004b) and Nitzan and Bichler (2006b).
11 For a detailed history and analysis of this coalition, see Nitzan and Bichler (1995) and Bichler and Nitzan (1996).
? 25
20
15
10
5
0
1970 1975 1980
1985 1990 1995
2000 2005 2010 2015
Differential accumulation 393
? ? ? per cent
Weapondollar-Petrodollar
(Integrated Oil and Defence)
Technodollar-Mergerdollar
? ? (T echnology)
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? www. bnarchives. net
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Figure 17. 3 The two coalitions: share of world market capitalization Note: Series denote monthly data shown as 12-month moving averages.
Source: Datastream (series codes: TOTMKWD for world total, OILINWD for integrated oil; AERSPWD for defence; TECNOWD for technology).
But that was the peak. By the mid-1980s the situation started to change on several fronts. First, many developing countries, having shifted from import substitution to export-led growth, were now reclassified as 'emerging markets' open to foreign investors. Second, 'high-technology' was firing up both investor's hype and the stock market, giving mergers and acquisition repeated shots of adrenalin. And third, neoliberalism, having undermined the previous statist ideology, now opened the door for massive privatization and capital decontrols. Put together, these developments marked the dawn of a new breadth regime.
The Weapondollar-Petrodollar Coalition started to decline, and by the early 1990s, with the Cold War over and the world having been declared a 'global village', it disintegrated. Signs of its demise were clear: international hostilities were actively curtailed, with the number of major conflicts falling from 36 in 1989 to 25 in 1997; military budgets the world over came under the axe, dropping by over one third in 'real' terms from their peak in the late 1980s; the price of oil fell absolutely and relative to other prices, reaching a low of $11 per barrel in 1999, compared with over $30 in the early 1980s
394 Accumulation of power
($96 in 2007 prices); and world inflation dropped to less than 5 per cent in 1999, down from over 30 per cent at the beginning of the decade. 12
The main challenge to the Weapondollar-Petrodollar Coalition came from a new 'Technodollar-Mergerdollar Alliance', a group based on civilian high-tech and corporate takeovers and backed by Third-Way governments led by the likes of Bill Clinton and Tony Blair. Instead of 'war profits', nation- alism and conflict, the new alliance marshalled the rhetoric of 'peace divi- dends' and free investment in an 'open world'. Capital controls gave way to deregulation, protectionism to privatization, and bloody wars to peace deals. And indeed, by end of 2000, the Technodollar-Mergerdollar Alliance seemed victorious. As Figure 17. 3 illustrates, its share of global market capitalization soared to 20 per cent, while that of the oil and armament companies sank to a meagre 4 per cent. 13
Unrepeatable since time immemorial?
The retreat of breadth
During the 1990s, many experts, impressed by the new breadth euphoria, announced the arrival of a 'new economy' based on high-tech 'knowledge', 'information' and 'communication'. This new economy, they promised, would deliver not only uninterrupted growth, but also low inflation, making the anomaly of stagflation a relic of history. Other observers with an eye to culture and politics went even further, arguing that liberal capitalism had won the last battle of ideology and that history was finally coming to an end. But the prognosis proved a bit hasty.
These projections hinged crucially on the promise of surging productivity. And yet, productivity growth data from the 1990s - assuming for argument's sake that 'productivity' indeed can be measured - hardly seem exceptional by historical standards. In the United States, the presumed epicentre of the 'high-tech revolution', these data pale in comparison to the record of the 'low-tech' 1950s and 1960s. Moreover, past productivity gains have often failed to stop inflation, so it isn't entirely clear why the experts expected them to succeed this time around. And, indeed, reports of the death of stagflation proved a bit premature.
The rapid breadth expansion, particularly in the emerging markets of Asia, created a massive build-up of excess capacity and loosened the grip of busi- ness sabotage. Green-field investment in the 1990s grew in leaps and bounds - much faster than world consumption and with disastrous consequences for
12 Calculated from International Financial Statistics through Global Insight (series code: L64@C001 for CPI in the industrialized countries; L76AA&Z@C001 for the price of crude oil; and L64@C111 for the US CPI); the Stockholm International Peace Research Institute (Annual); and the U. S. Arms Control and Disarmament Agency (Annual).
13 For a similar comparison based on the distribution of global net profit, see Nitzan and Bichler (2006b: p. 80, Figure 12).
? Differential accumulation 395
profit margins. The implications for differential accumulation were not lost on absentee investors, who began liquidating their holdings in peripheral regions where earnings growth fell short of the world average (Nitzan 1997; 1998a). The first victim was the Mexican peso circa 1994, followed in 1997 by the Thai baht and the rest of the Asian currencies. From there the centrifugal forces of excessive external breadth spread devaluation throughout the devel- oping world, striking most countries, from Russia and Brazil to South Africa and Argentina.
The emerging markets crisis spelled trouble for the core markets of North America and Europe. During the 1990s, developing countries absorbed some of the elevated hype from the core, and in so doing provided a defence line for 'blue chip' companies listed in the world money centres. Eventually, though, this defence line collapsed. In 2000, fear struck the core financial markets. Led by the collapsing NASDAQ, they went into a tailspin and in the process pulled the rug from under a two-decade surge in merger activity. Next, the global political economy, perhaps for the first time since the Great Depression, fell into a synchronized recession involving all major countries. And finally, after a decade of 'peace dividends', attacks on the World Trade Center and the Pentagon, followed by the invasion of Afghanistan and Iraq and the re-intensification of the Israeli-Palestinian conflict, rekindled the ghost of violence and 'war profits'.
And so the tables again turned. As illustrated in Figure 17. 3, by the early 2000s the Weapondollar-Petrodollar Coalition once more was on the ascent while the Technodollar-Mergerdollar Coalition went into a free fall.
Was the world running out of breadth? Were these developments the mark of a new depth phase? Or maybe they were soon-to-be-forgotten ripples on the tidal wave of globalization and amalgamation?
The boundaries of differential accumulation
In 1999, we presented a paper at the International Studies Association Meetings. The key question of the paper was stated in the title: 'Will the Global Merger Boom End in Global Stagflation? ' (Nitzan 1999). And the answer was positive: based on our differential-accumulation framework, we argued that worldwide mergers and their neoliberal underpinnings were about to peak, and that conflict and stagflation were ready for a comeback. 14
A decade later, such projections may seem trivial. The 'global village' is defunct; 'No-Logo' analysts have retreated, overshadowed by the pundits of terror and war; the headlines that previously announced prosperity and merger suddenly talk of stagnation and inflation; and the experts assure us that they have been predicting all of this all along.
14 For subsequent articulations of this argument, see for example Nitzan (2001), Faux (2002) and Nitzan and Bichler (2003) and Bichler and Nitzan (2004a).
? 396 Accumulation of power
But the truth is that, back in 1999, none of this was in the cards. Few in our audience understood the question we asked and even less so the answer we gave. Caught in the postmodern fashion of deconstruction, conditioned by the double separation of economics from politics and the real from the nominal, and indifferent to the speculative quantification of qualitative processes, they found our argument bizarre and our projections off the wall.
Our presentation, though, didn't really try to 'predict' the future - at least not in the technical sense advocated by Karl Popper (1963). Instead, we attempted to delineate the limits of differential accumulation and to under- stand the boundaries they impose. And that is what we have done - with further analyses and details - in the present volume.
To reiterate, differential accumulation is a qualitative creordering of capi- talist power that is speculatively quantified through the algorithm of capital- ization. It is a conflictual process and is therefore open-ended. It doesn't have to happen. If dominant capital increases its power, the rate of differential accumulation will be positive. But if this power stays the same or decreases, differential accumulation will be zero or negative, respectively. This is the general theoretical setting.
Now, using this framework we demonstrated: (1) that differential accumu- lation has proceeded more or less uninterruptedly for the past half-century and possibly longer; (2) that, historically, this accumulation occurred primarily though amalgamation and stagflation; and (3) that these two power regimes have grown increasingly counter-cyclical.
This theoretical-empirical framework enabled us to make our 1999 projec- tion. As Figure 17. 1 shows, by the late 1990s amalgamation was reaching historical highs while stagflation was approaching historical lows. The situa- tion seemed ripe for reversion. There was no structural reason to expect differential accumulation to collapse, and since its two regimes were at histor- ical extremes, it seemed safe to expect mergers to recede and stagflation to resurface. And that is exactly what happened in the decade since this projec- tion was made.
Out of bounds
But correct projections do not mean that the social future is somehow fore- seeable, let alone predetermined. The capitalist nomos is a creature of society, articulated and imposed by the ruling class on those who are ruled. No matter how 'deterministic' it may seem, this nomos is never ironclad. Created by humans, it can be changed - and indeed replaced - by humans. In the language of Gabriel Garci? a Ma? rquez, it is 'unrepeatable and therefore unpre- dictable since time immemorial'.
As long as dominant capital continues to rule, and as long as the logic of that rule remains unchanged, we can expect differential accumulation to oscillate between breadth through merger and depth via stagflation. Furthermore, since the breadth potential eventually is self-exhausting and
Differential accumulation 397
since dominant capital is already in the final, global envelope, it seems reason- able to expect future stagflation cycles to become more frequent and deeper.
But, then, there is no certainty that dominant capital will continue to rule in the same way - or that it will continue to rule at all.
Over the past century, capitalists have managed to impose the belief that their regime is natural and therefore unalterable. They have constructed a power architecture that is more sophisticated, encompassing and supple than anything the world has ever seen. And they have successfully concealed this state of capital by erecting an anti-scientific front that fractures the conscious- ness and dresses up the power institutions of capitalism as if they were mere technical aspects of a narrow 'economic narrative'.
This edifice of power and deceit hinges on the normal rate of return and the ability of dominant capital to beat it. As long as 'business-as-usual' sabo- tage and dissonance keep capitalists convinced that profit is normal and the growth of capitalization natural, and as long as dominant capitalists are able to exceed the normal and increase their power, the state of capital holds steady and its patterns remain 'deterministic'.
But this 'determinism' is not an external law of nature or a historical law of motion. Instead, it is merely the 'determinism' of the capitalist rulers. The patterns of this 'determinism' reflect the consensus of those who dominate society. They show the conviction of the rulers that they are in command - and that those whom they command cannot resist. This conviction, though, is never certain. Confronted with sufficient opposition, whether explicit or implicit, it can crumble. And when it does crumble, the result is to shatter the 'determinism' of the rulers, the patterns of their differential accumulation and, possibly, the entire state of capital that defines their rule.
Postscript, January 2009
The research for this book was completed in early 2008. Since then, the capi- talist world has been rattled by what many consider to be the deepest crisis since the Great Depression. The global shakeup has brought one aspect of our framework into sharp focus: it has shown that differential accumulation is by no means predetermined, and that it can fail.
The open-ended nature of the process is demonstrated most vividly by the increasing threat of deflation. As we have seen, over the past half-century, the capitalist creorder has been shaped by the differential accumulation of domi- nant capital, whose growing power is fuelled by the inversely oscillating regimes of breadth and depth. Although the two regimes differ markedly, both depend on rising prices: breadth through merger requires relatively low inflation, while depth through stagflation depends on high - and rising - inflation. This requirement was fulfilled in the post-war era, the longest period of uninterrupted inflation in human history (Figure 16. 1).
But the inflationary backdrop also points to the limits of capitalist power. As noted in the introductory and concluding chapters, power is confidence in
398 Accumulation of power
obedience: it represents the certainty of the rulers in the submissiveness of the ruled. In modern capitalism, this certainty is manifested in the ability of capi- talists to control and systematize the upward movement of prices. And it is this ability - along with its associated confidence in obedience - that is totally lost during deflation. When prices start falling and the architecture of power begins to disintegrate, the rulers' confidence fizzles and history suddenly seems open-ended.
And indeed, challenges to capitalist power often emerge when they are least expected. That was the case in 1929 - and again in 2000. By the begin- ning of the third millennium, dominant capital seemed unassailable. Using mergers and acquisitions, it had penetrated and transformed most developing countries into 'emerging markets'; it had integrated former communist regimes into the logic of capitalization; and in the core countries it had imposed its own private 'regulation' while undermining public institutions of welfare and government. With the exception of small enclaves such as Cuba, Myanmar and North Korea, it had managed to subjugate and incorporate the entire world population into its all-encompassing nomos.
It was exactly at that high point, when the experts celebrated the end of history and the global village, that deflation suddenly struck. Mergers receded in the early 2000s - yet inflation, instead of rising, fell precipitously. This was no laughing matter. If disinflation turned into outright deflation, dominant capital would be bound to suffer differential decumulation. And that was just for starters. Deflation threatened to bring down the entire chain of debt obligations, whose size relative to GDP was much larger than it had been on the eve of the Great Depression. Had prices started to fall and debt to deflate, the spiral could quickly have become unstoppable.
The initial response was denial. Deflation simply was too dire to contem- plate:
'Ignore the Ghost of Deflation', recommends Financial Times columnist Samuel Britton.
'Apart from Japan', he observed, 'the world has not seen deflation for 70 years' (as if the world's second largest economy can be treated as an anomaly, and '70 years' as a magic threshold beyond which deflation can never return). 'Deflation is an overblown worry', declares James Grant, editor of Grant's Interest Rate Observer. 'Believe in Ghosts, Goblins, Wizards and Witches if you will', concurs financial expert Adrian Douglas, 'but don't believe in deflation occurring any time soon'. There is little to worry about, says Fed Chairman Alan Greenspan: 'The United States is nowhere close to sliding into a pernicious deflation'. Of course, denying the problem does not solve it. And, so, for those who remain fearful, the experts promise that whatever the risk, it could easily be defused. 'The good news', announces former member of the Federal Reserve Board, Angell Wayne, 'is that monetary policy never runs out of power'. 'There's a much exaggerated concern about deflation', laments Nobel Laureate Milton Friedman. 'It's not a serious prospect. Inflation
Differential accumulation 399
is still a much more serious problem than deflation. Today's Federal Reserve is not going to repeat the mistakes of the Federal Reserve of the 1930s. The cure for deflation is very simple. Print money'. The same assumption underlies the soothing speech by Fed Governor Ben Bernanke, given in 2002 to the National Economist Club. In his address, properly titled 'Deflation: Making Sure "It" Doesn't Happen Here', Bernanke explained that 'Deflation is always reversible under a fiat money system'. 'The U. S. government', he assured his audience, 'has a technology called the printing press that allows it to produce as many U. S. dollars as it wishes at essentially no cost'.
(Quoted from various sources in Bichler and Nitzan 2004b: 294-296)
But denial and promises didn't work, so the experts called for action: 'The Federal Reserve has won its long war against inflation', wrote Chief Economist of Goldman Sachs Bill Dudley and Managing Director of Pimco Paul McCulley. 'But to ensure an enduring legacy, Mr Greenspan now needs to solve a different problem: inflation is too low, rather than too high. . . . The inflation rate should be high enough to allow the economy to take a shock without falling into deflation' (Dudley and McCulley 2003).
And Greenspan was more than ready to comply. He quickly reduced interest rates to levels not seen since the 1960s - and equally quickly realized he was pushing on a string. 'In recent months, inflation has dropped to very low levels', he complained to the Joint Economic Committee of the Congress. 'Indeed, we have reached a point at which, in the judgment of the Federal Open Market Committee, the probability of an unwelcome substantial fall in inflation over the next few quarters, though minor, exceeds that of a pickup in inflation' (Greenspan 2003). This was probably the first time since the 1930s that the Fed had pronounced lower inflation unwelcome.
In the end, though, it was the brinkmanship of the Weapondollar- Petrodollar Coalition that saved the day. The coalition managed to put the Bush clan back in the White House, inflame the Middle East, raise the price of oil and provide the necessary spark for inflation. That spark, though, merely helped delay the day of reckoning.
By 2007, storm clouds had started to gather again, and by early 2008 all hell had broken loose. Assets markets have gone into a free fall, followed by crashing commodity prices, collapsing employment and production, and broad inflation indices that are rapidly approaching zero. The threat of defla- tion, having been ridiculed by Nobel Laureates and dismissed by Central Bankers, is back with a bang.
Given the gravity of the situation, governments the world over have suspended their commitment to 'free markets' and 'sound finance' in favour of massive bailout packages for dominant capital, large fiscal stimuli, unprec- edented injections of 'liquidity' and other policy rituals. In addition, there has been some increase in televised violence - from the erupting conflicts of the
400 Accumulation of power
Middle East, to riots in Thailand, Greece and Korea, to promises of simmering discontent in Russia and China.
So far, though, policy and conflict have done little to lessen the deflation scare. Even the U. S. Federal Reserve Board sounds unnerved. Having reduced its interest rates to practically nil, it is now contemplating pleading directly with the public. According to this plan, the Fed will announce a posi- tive 'inflation target'; this announcement will then cheer up the depressed public and lift its inflationary expectations; and the inflation monster, having been invited in so politely, will rear up its beautiful head and give the Fed what it wants most: prices that go up (U. S. Federal Reserve Board 2008; Guha 2009).
These nervous calls to the omens suggest that capitalism again faces a historical crossroads. Renewed inflation will restore differential accumula- tion for dominant capital, initially through depth and perhaps later through breadth. But if the ruling classes are grabbed by panic and the power architec- ture disintegrates into deflation, the effect could be deeply transformative.
And that wouldn't be the first time. During the 1930s, falling prices shook the capitalist world and eventually led to its complete creordering. Back then, the transformation ended up strengthening the state of capital. The imposi- tion of capitalization on almost every aspect of social life, the ascent of domi- nant capital and the growing synchronization of breadth and depth helped create the most powerful mega-machine the world has ever known.
But the transformative outcome of deflation was not predetermined then, and it isn't predetermined now. If prices start to fall in earnest, dominant capital might be seriously weakened - perhaps to the point of losing control over its very mode of power and the mega-machine that sustains it. Whether it can continue to rule, though, and in what way, remains an open-ended question. The answer to this question depends not only on what dominant capital does and how it does it, but also on the creativity, ability and courage of those who resist it in the hope of creordering an alternative, humane future.
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