1 shows, since the middle of the first decade of the twentieth century US merger activity had collapsed, followed in the 1910s by war in Europe together with plunging production and rising
inflation
around the world.
Nitzan Bichler - 2012 - Capital as Power
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.
he began to decipher the instant that he was living, deciphering it as he lived it, prophesying himself in the act of deciphering the last page of the parchments, as if he were looking into a speaking mirror.
Then he skipped again to anticipate the predictions and ascertain the date and circumstances of his death.
Before reaching the final line, however, he had already under- stood that he would never leave that room, for.
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everything written on them was unrepeatable since time immemorial.
.
.
.
--Gabriel Garci? a Ma? rquez, One Hundred Years of Solitude
Like other aspects of the capitalist nomos, there is nothing 'natural' about differential accumulation. To accumulate differentially is to creorder orga- nized power - and to do so conflictually against multiple oppositions. Such a process cannot be predetermined. It has neither a preset pattern, nor an inevi- table outcome. In fact, it doesn't even have to happen and can just as easily go into reverse.
Given this open-endedness, the stylized history of differential accumula- tion is nothing short of astounding. With only brief interruptions, US-based dominant capital has managed to sustain its differential accumulation through both 'prosperity' and 'crisis' - and to do so in a most counterintuitive fashion. Its differential expansion has tended to rely not on green-field growth and cost cutting as the canons would have preferred, but on mergers and acquisitions and stagflation. Moreover, as we shall see in this final chapter, the broad trajectories of amalgamation and stagflation have become so tightly correlated that they look like mirror images of each other: as one process increases the other tends to decrease, and vice versa.
The apparent automaticity of the process may give the impression of natural inevitability, but that would be the wrong conclusion to draw. Perhaps a better metaphor here is the evolution of an organized religion. Much like the almighty God invented by past rulers, the ideology and prac- tice of differential accumulation were created by capitalists as an open-ended process to increase their power. But success brings consolidation, and as dominant capital triumphed, its differential accumulation petrified into a rigid structure: it ended up conditioning and subjugating not only the under- lying population, but also its own creators.
384 Accumulation of power
In the pages that follow we focus on one key aspect of this structure: the meta-correlation between amalgamation and stagflation. The historical rela- tionship between these two regimes provides a framework for understanding key moments in the twentieth-century evolution of capitalism, as well as the limits it may face in the future.
Amalgamation versus stagflation
Figure 17. 1 contrasts the general contours of internal breadth and external depth in the United States. The chart plots our amalgamation index (the buy-to-build indicator) against a composite stagflation proxy, both smoothed for easier comparison.
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? ? ? ? ? ? log scale
? ? ? ? ? Stagflation Index *
(Unemployment plus Inflation, right)
? ? ? ? ? ? ? ? ? ? 2007 2007
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Amalgamation Index **
(Buy-to-Build Indicator, left)
? ? ? ? ? ? ? www. bnarchives. net
0. 1 ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? -5
1880
1900
1920
1940
1960
1980
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Figure 17. 1 Amalgamation and stagflation in the United States
* Computed as the average of: (1) the standardized deviations from the average rate of unem- ployment; and (2) the standardized deviation from the average rate of inflation of the GDP implicit price deflator.
** Mergers and acquisitions expressed as a per cent of gross fixed private domestic investment.
Note: Series are shown as 5-year moving averages (the first four observations in each series cover data to that point only).
Source: The stagflation index is computed based on data from the U. S. Department of Commerce through Global Insight (series codes: RUC for the rate of unemployment since 1929; PDIGDP for the GDP implicit price deflator); Historical Statistics of the United States (series D- 8, p. 126 for the rate of unemployment before 1929). For the Amalgamation Index see Appendix to Chapter 15.
Differential accumulation 385
To clarify the meaning of our stagflation proxy, recall from Chapter 16 the weak definition of stagflation as inflation together with unemployment and underutilized capacity. Now, as we have seen, the United States experienced some measure of unemployment and under-capacity utilization throughout the past century, so in that sense there was always some degree of stagnation. Also, with the exception of the 1930s, there was uninterrupted inflation. Applying both observations to the weak definition implies that US inflation during the period was always stagflationary.
With this understanding in mind, our stagflation proxy combines inflation and stagnation in three simple steps: first, we measure the standardized devia- tions of inflation from its average; second, we compute the standardized devi- ations of unemployment from its average; and finally we take the average of the two indices. Since the United States experienced continued stagflation, we treat a zero reading of the combined index as the average rate of stagflation; a positive reading as above-average stagflation; and a negative reading as below-average stagflation.
The chart shows that over the long haul mergers and acquisitions were indeed the path of least resistance (Proposition 2 in Chapter 14). Whereas stagflation moved sideways, oscillating around its own stable mean, mergers and acquisitions rose exponentially relative to green-field investment (note the logarithmic left scale).
The chart also shows that, following the initial emergence of big business at the turn of the twentieth century, internal breadth and external depth tended to move counter-cyclically. Temporary declines in mergers and acqui- sitions typically were 'compensated' for by sharp increases in stagflation; and when amalgamation resumed, with dominant capital breaking through its existing envelope and into a broader universe, stagflation promptly abated (Propositions 1 and 8).
The very existence of this counter-cyclical pattern is already remarkable - particularly since, as we have repeatedly emphasized, differential accumula- tion does not have to happen and can as easily go into reverse. Note also the highly significant fact that the inverse correlation between breadth and depth has grown tighter over time.
This tightening is clear from the chart. During the final decade of the nine- teenth century, when big business was only starting to take its modern shape, the two series still moved in the same direction. By the first decades of the twentieth century, however, with dominant capital already having assumed centre stage, the relationship turned clearly negative, although still somewhat loose. And from the 1930s onward, as differential accumulation became increasingly entrenched, the negative fit grew tighter and tighter. 1
1 Over the past century, the 30-year moving correlation between the stagflation and amalga- mation indices in Figure 17. 1 (with the latter index expressed as a natural log and measured as a deviation from its time trend) tightened almost to the fullest: it changed from a positive 0. 06 in 1927 (virtually no correlation) to a negative 0. 95 in 2007 (a nearly perfect inverse correlation).
? 386 Accumulation of power
The progressive move from looser to tighter correlation is consistent with our earlier narrative. Differential accumulation, understood as a broad historical process, is relatively new. It rose to prominence only toward the end of the nineteenth century, when corporations grew big enough and became sufficiently intertwined with governmental organs to engage in large-scale strategic sabotage. The process first became important in certain sectors in the United States and Europe, from where it subsequently spread domesti- cally and internationally. However, the spread was very uneven; and so, despite high capital mobility, initially the cyclical regimes in different sectors and countries were disjoined and out of step with one another. It was only later - with the gradual proliferation and deepening of business principles and the ideology of discounting, with the progressive breaking of sectoral envelopes, and with the growing globalization of ownership - that differential accumulation became the compass of modern capitalism. And therefore it was only toward the middle of the twentieth century, when these processes converged, that breadth and depth grew more stylized and inversely synchro- nized.
The pattern of conflict
Now, since differential accumulation lies at the heart of the capitalist creorder, its specific regimes are important for understanding the broader nature of institutional and structural change in capitalist society.
Perhaps the most important change concerns the pattern of conflict. Recall that although dominant capital always struggles to increase its power relative to other capitalists, in breadth this struggle is direct, whereas in depth the path is indirect. When expanding through breadth, capitalists fight each other to control existing and new corporate organizations. The intra-capitalist struggle here is commonly associated with overall growth and ongoing insti- tutional change, which in turn partly conceals the conflict between capitalists and society at large. By contrast, in depth the intra-capitalist struggle is medi- ated through a redistributional conflict between capitalists and the rest of society; moreover, the redistribution here thrives on stagflation, not growth. Obviously, sustaining such accumulation-through-crisis requires entrench- ment, fortified power arrangements and a greater use of force and violence.
The very different social conditions required for each regime explain their incompatibility. Individual firms can engage in both breadth and depth; but for society as a whole, the power processes that support one type of differen- tial accumulation tend to undermine the other.
A new type of cycle
Cyclical analyses of capitalism tend to focus on the patterns of 'real economy'. The most famous is the 'business cycle', a relatively short oscillation that describes the ups and downs of 'economic activity' - from output and invest-
Differential accumulation 387
ment to inventories and employment. Long-wave cycles, often extending over decades, measure looser variables such as innovation, as well as nominal quantities like prices.
These analyses are all informed by the traditional bifurcation between economics and politics. Embedded in the material/economic sphere, they emphasize the 'automatic' underpinnings of the cycle and search for their mechanical rationale.
After the Great Depression and the rise of 'government intervention', the business cycle was augmented by political 'variables'. Although economists continued to keep their economy conceptually separate from politics, they recognized that the latter could contaminate the former, leading to a 'political business cycle'. 2
Our own breadth and depth cycles present a different story altogether. First, they deal neither with 'economic activity' nor with 'government inter- vention' that supposedly 'distorts' or 'supports' such activity; instead their subject is the broad creording of capitalist power quantified through differen- tial accumulation. Second, although the breadth and depth cycles are histori- cally stylized and seemingly mean-reverting, there is nothing automatic or equilibrating about them. In fact, given that we deal here with open-ended conflict whose outcome is never predetermined, there is no inherent reason why amalgamation and stagflation should be cyclical in the first place; and certainly there is no reason for the two cycles to be related.
The fact that they are cyclical and that they are correlated attests to the extent to which differential accumulation has come to define the capitalist nomos. Our own thesis is that for differential accumulation to occur, domi- nant capital has to expand through either breadth or depth; and that, at the societal level, these two regimes, because of their very different if not opposite character, tend to move counter-cyclically. But the grip of dominant capital can loosen or disappear, and when it does - so will differential accumulation and its cycles of breadth and depth.
Oscillating regimes: a bird's eye view
With this open-ended conflictual framework in mind, we can tentatively iden- tify several broad phases in the global evolution of differential accumulation, temporal patterns whose initially blurred contours have gradually sharpened into focus: (1) a mixture of breadth and depth during the period between the 1890s and 1910s; (2) a partial breadth regime during the 1920s; (3) a depth
2 The term itself is due to Michal Kalecki, who looked at the process from a class perspective. In his article 'Political Aspects of Full Employment' (1943b), he argued that liberal govern- ments know how to achieve full employment and defuse the business cycle - but are unable to do so politically. Torn between their need to maintain their popular legitimacy on the one hand and to protect the capitalist class on the other, their policies often end up contributing to the business cycle rather than alleviating it.
? 388 Accumulation of power
regime in the 1930s; (4) a breadth regime between the 1940s and 1960s; (5) a return to depth in the 1970s and early 1980s; (6) the re-emergence of breadth in the late 1980s and 1990s; and (7) tentative signs of a return to depth in the early years of the twenty-first century. Let's look at each period a bit more closely.
The period from the 1890s until the 1910s was one of rapid and acceler- ating economic growth, coupled with relatively low inflation and the begin- ning of corporate transnationalization, particularly by large US-based companies. Internationally, differential accumulation was still cloaked in 'statist' clothes, with American and European companies often seen as impe- rial agents as well as pursuers of their own interests. The competitive expan- sion of these companies, however, was largely uncoordinated and soon led to the creation of massive imbalances of excess capacity. Left unattended, such imbalances would have spelled business ruin, so there was growing pressure to 'resolve' the predicament via depth. And indeed, as Figure 17.
1 shows, since the middle of the first decade of the twentieth century US merger activity had collapsed, followed in the 1910s by war in Europe together with plunging production and rising inflation around the world.
The 1920s offered a brief break. In the United States, merger activity soared while stagflation subsided sharply. In Europe, however, the reprieve was short and stress signs were soon piling up. Protectionist walls, both between and within countries, emerged everywhere; stagflation spread through a cascade of crises; and before long the world had fallen into the Great Depression of the 1930s.
By that time, the counter-cyclical pattern of breadth and depth became more apparent, with declining merger activity accompanied by rising stagfla- tion. 3 The new depth regime was marked by the massive use of military force, in which the global power impasse was 'resolved' through an all-encom- passing world war. This use of violence was articulated and justified largely in statist terms: it was a war of sovereigns waged over territory and ideology. But the war also proved highly significant for differential accumulation. Most importantly, it accelerated the relative ascent of US-based corporations, and it helped spread both the normal rate of return and the need to beat it.
After the war, the world again shifted to breadth. The counter-cyclical regime pattern was sharpened even further, while the inverse correlation between inflation and growth became increasingly apparent. Now, on the surface, it looked as if developments during that period, which lasted until the end of the 1960s, should have undermined breadth. For one, superpower rivalry, decolonization and the non-alignment movement limited the geographical expansion of Western dominant capital. In addition, many
3 Note again the bifurcated experience of the 1930s: as we mentioned in Chapter 12, most of the depression occurred in concentrated sectors, where production and employment fell by up to 80 per cent and where prices dropped very little or even rose. In the context of the times, this pattern was clearly stagflationary.
? Differential accumulation 389
developing countries that were previously open to foreign investment adopted import-substitution policies that favoured domestic over foreign capitalists.
And yet, for much of the 1950s and 1960s, these barriers on breadth were outweighed by two powerful counter-forces. The first of these was the post- war baby boom that boosted population growth. The second was the post- war rebuilding of Europe and Japan that in some sense was equivalent to the re-proletarianization of their societies. The result was a powerful breadth engine, particularly for the large US firms that saw their profit soar during that period. The macroeconomic result in the industrialized countries - anomalous from a conventional viewpoint but consistent with differential accumulation - was rapid economic growth averaging 6 per cent during that period, combined with low inflation of less than 3 per cent. 4
This picture was inverted in the 1970s. By then, the German and Japanese miracles had already run out of steam, while Western rates of population growth dropped sharply. Foreign investment could have provided a way out, yet outlets for such investment in developing countries remained hindered by communist or import-substituting regimes. Faced with these obstacles to breadth, dominant capital groups in the industrialized countries were once again driven toward depth, with the average rate of inflation during the 1970s rising to 8 per cent and the average rate of economic growth dropping to 3 per cent. And, as before, the new depth regime was accompanied by heightened conflict and violence. This time, though, the conflict was played out mostly in the outlying areas of the developing world, initially in South East Asia and subsequently in the Middle East.
The role of the Middle East
The role of the Middle East in global capitalism provides a good illustration of the temporal spread and geographical integration of differential accumula- tion. 5 Until the late 1940s, the region was 'out of sync' with the global cycle of breadth and depth. Its energy resources had already been parcelled out by the international oil companies in the 1920s; but with the world awash with oil, these companies mostly 'sat on their concessions' and produced little. As a result, the Middle East remained relatively insulated from the capitalist core, and when Europe slipped into stagflation and conflict during the 1920s and 1930s, the region prospered. After the war, though, the tables turned. The Middle East - until then a true 'outlying area' - suddenly became centre stage for the global drama of differential accumulation.
4 The growth and inflation figures in this and the next paragraph are computed from International Financial Statistics through Global Insight (series codes: L64@C110 for the consumer price index; and L66&I@C110 for industrial production).
5 For a more detailed examination of the Middle East and differential accumulation, see Nitzan and Bichler (1995), Bichler and Nitzan (1996), Nitzan and Bichler (2002: Ch. 5), Bichler and Nitzan (2004b) and Nitzan and Bichler (2006b).
? 390 Accumulation of power
Initially, the link was pretty simple, with oil from the region helping sustain the growth underpinnings of global breadth. During the early 1970s, however, when differential accumulation shifted into depth, the relationship became more complicated. The background for this latter shift is illustrated in Figure 17. 2. The chart shows a positive long-term correlation between infla- tion in the industrialized countries on the one hand and the global arms trade expressed as a share of world GDP on the other. Conventional economics would probably treat this relationship as accidental and largely irrelevant. From the viewpoint of dominant capital, however, the relationship is system- atic and meaningful: it points to the conflictural underpinnings of its differen- tial accumulation cycles. 6
As we noted earlier, the inflationary depth regime of the 1970s and 1980s was largely a response to Western dominant capital 'running out of breadth'. This exhaustion in turn was partly the consequence of bipolar geopolitics that prevented capitalist expansion into outlying areas and contested Western
14 ? ? ? ? 0. 6
? ? ? CPI in the Industrialized Countries (annual % change, left)
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? World Military Exports / GDP (%, right)
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? www. bnarchives. net
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 12
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00 1940 1950 1960 1970 1980 1990 2000 2010 2020
Figure 17. 2 Inflation and arms exports
Note: Series are shown as 3-year moving averages.
Source: International Financial Statistics through Global Insight (series codes L64@C110 for CPI); U. S. Arms Control and Disarmament Agency, World Military Expenditures and Arms Transfers (various years).
6 The chart itself is meant merely to highlight the importance of conflict; the actual pattern of the conflict of course is far more complex and involves much more than arms exports.
? Differential accumulation 391
control over strategic regions, particularly the Middle East. One key conse- quence of this antagonism was an intense arms race, and hence it is not surprising that the time pattern of arms exports - a handy proxy for 'belli- cosity' - roughly follow the periodicity of Western inflation: the first process was fuelled by and nourished the antagonism and violence of depth, the second its redistributional mechanism. Both arms exports and inflation rose until the mid-1980s, peaked as the Cold War began to weaken, and went into a free fall with the disintegration of communism and the onset of global breadth. 7 Moreover, the two processes were causally connected, with military conflict, especially in the Middle East, contributing to rising energy prices, and therefore to higher inflation.
The late 1980s seemed to mark the beginning of yet another breadth phase - this time at the global level. On the surface, the new breadth regime was somewhat anomalous according to our criteria: inflation in the industrial countries dropped sharply, and yet, unlike in previous cycles, growth did not revive. A closer inspection, however, easily shows why.
First, with the collapse of the Soviet Union and the wholesale capitulation of statist ideology, the entire world finally opened up for capitalist expansion and differential accumulation. The result was that, although external breadth for dominant capital fizzled in the industrial countries proper, it remained strong outside of these countries, particularly in developing Asia. 8 Moreover, cheap imports from Asia helped keep inflation in the industrial countries low despite the latter's domestic stagnation. Second, the ideological demise of public ownership and the 'mixed economy' opened the door for privatization of state assets and government services, which, from the viewpoint of domi- nant capital, was tantamount to green-field investment. 9 And third, the decline of statist ideology weakened the support for 'national' ownership, thus contributing to the spread of cross-border mergers and acquisitions. Together, the combination of expansion into less developed countries, privatization and corporate amalgamation helped sustain a powerful breadth drive for large Western corporations despite the lacklustre growth of their 'parent' countries.
7 The data for military exports here are based on the value of deliveries; if instead we were to display military contracts (which lead deliveries roughly by three years), the correlation would have been even tighter.
8 During the early 1990s, GDP growth in East Asia averaged 9 per cent, compared with less than 3 per cent in the industrialized countries. During that period, transnational corpora- tions based in the United States saw their net profit from 'emerging markets' rise to 20 per cent of the total, up from 10 per cent in 1980s (Nitzan 1996b).
9 Although government deficits declined to around 1 per cent of world GDP in the late 1990s, down from their all time high of over 5 per cent in the early 1980s, government expendi- tures haven't fallen. They have risen from 14 per cent of GDP in the 1960s to 17 per cent in the 1980s, and remained more or less at that level since then (computed from World Bank Online). The privatization of such services - including transportation, water, infrastructure, education and security - typically takes the form of giving/selling them to dominant capital, which in turn contributes to differential accumulation in a manner similar to green-field investment.
? 392 Accumulation of power
Coalitions
So far, we have focused on dominant capital as a whole. The concrete history of differential accumulation, however, including its transition from one regime to the next, depends crucially on what happens within dominant capital. This process includes the inner conflicts between various corporate- state coalitions and alliances that comprise the nuclei of dominant capital, as well as the struggles that pit these coalitions and alliances against groups outside of dominant capital. An analysis of these issues is beyond the scope of this volume, but their significance can be illustrated briefly. 10
During the depth phase of the 1970s and 1980s, differential accumulation was led by a 'Weapondollar-Petrodollar Coalition' made up of large oil companies, armament contractors and OPEC, and was backed by the United States and several European governments that supplied arms to the Middle East and encouraged high oil prices. 11 The central accumulation mechanism of this coalition was the ongoing cycle of Middle East 'energy conflicts' and 'oil crises'. The basic logic of the process was simple enough. Rising petro- leum prices brought massive profits for the oil companies. 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).
--Gabriel Garci? a Ma? rquez, One Hundred Years of Solitude
Like other aspects of the capitalist nomos, there is nothing 'natural' about differential accumulation. To accumulate differentially is to creorder orga- nized power - and to do so conflictually against multiple oppositions. Such a process cannot be predetermined. It has neither a preset pattern, nor an inevi- table outcome. In fact, it doesn't even have to happen and can just as easily go into reverse.
Given this open-endedness, the stylized history of differential accumula- tion is nothing short of astounding. With only brief interruptions, US-based dominant capital has managed to sustain its differential accumulation through both 'prosperity' and 'crisis' - and to do so in a most counterintuitive fashion. Its differential expansion has tended to rely not on green-field growth and cost cutting as the canons would have preferred, but on mergers and acquisitions and stagflation. Moreover, as we shall see in this final chapter, the broad trajectories of amalgamation and stagflation have become so tightly correlated that they look like mirror images of each other: as one process increases the other tends to decrease, and vice versa.
The apparent automaticity of the process may give the impression of natural inevitability, but that would be the wrong conclusion to draw. Perhaps a better metaphor here is the evolution of an organized religion. Much like the almighty God invented by past rulers, the ideology and prac- tice of differential accumulation were created by capitalists as an open-ended process to increase their power. But success brings consolidation, and as dominant capital triumphed, its differential accumulation petrified into a rigid structure: it ended up conditioning and subjugating not only the under- lying population, but also its own creators.
384 Accumulation of power
In the pages that follow we focus on one key aspect of this structure: the meta-correlation between amalgamation and stagflation. The historical rela- tionship between these two regimes provides a framework for understanding key moments in the twentieth-century evolution of capitalism, as well as the limits it may face in the future.
Amalgamation versus stagflation
Figure 17. 1 contrasts the general contours of internal breadth and external depth in the United States. The chart plots our amalgamation index (the buy-to-build indicator) against a composite stagflation proxy, both smoothed for easier comparison.
10,000. 0
1,000. 0
100. 0
10. 0
1. 0
2
1
0
-1
-2
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-4
? ? ? ? ? ? log scale
? ? ? ? ? Stagflation Index *
(Unemployment plus Inflation, right)
? ? ? ? ? ? ? ? ? ? 2007 2007
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Amalgamation Index **
(Buy-to-Build Indicator, left)
? ? ? ? ? ? ? www. bnarchives. net
0. 1 ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? -5
1880
1900
1920
1940
1960
1980
2000
2020 2040
Figure 17. 1 Amalgamation and stagflation in the United States
* Computed as the average of: (1) the standardized deviations from the average rate of unem- ployment; and (2) the standardized deviation from the average rate of inflation of the GDP implicit price deflator.
** Mergers and acquisitions expressed as a per cent of gross fixed private domestic investment.
Note: Series are shown as 5-year moving averages (the first four observations in each series cover data to that point only).
Source: The stagflation index is computed based on data from the U. S. Department of Commerce through Global Insight (series codes: RUC for the rate of unemployment since 1929; PDIGDP for the GDP implicit price deflator); Historical Statistics of the United States (series D- 8, p. 126 for the rate of unemployment before 1929). For the Amalgamation Index see Appendix to Chapter 15.
Differential accumulation 385
To clarify the meaning of our stagflation proxy, recall from Chapter 16 the weak definition of stagflation as inflation together with unemployment and underutilized capacity. Now, as we have seen, the United States experienced some measure of unemployment and under-capacity utilization throughout the past century, so in that sense there was always some degree of stagnation. Also, with the exception of the 1930s, there was uninterrupted inflation. Applying both observations to the weak definition implies that US inflation during the period was always stagflationary.
With this understanding in mind, our stagflation proxy combines inflation and stagnation in three simple steps: first, we measure the standardized devia- tions of inflation from its average; second, we compute the standardized devi- ations of unemployment from its average; and finally we take the average of the two indices. Since the United States experienced continued stagflation, we treat a zero reading of the combined index as the average rate of stagflation; a positive reading as above-average stagflation; and a negative reading as below-average stagflation.
The chart shows that over the long haul mergers and acquisitions were indeed the path of least resistance (Proposition 2 in Chapter 14). Whereas stagflation moved sideways, oscillating around its own stable mean, mergers and acquisitions rose exponentially relative to green-field investment (note the logarithmic left scale).
The chart also shows that, following the initial emergence of big business at the turn of the twentieth century, internal breadth and external depth tended to move counter-cyclically. Temporary declines in mergers and acqui- sitions typically were 'compensated' for by sharp increases in stagflation; and when amalgamation resumed, with dominant capital breaking through its existing envelope and into a broader universe, stagflation promptly abated (Propositions 1 and 8).
The very existence of this counter-cyclical pattern is already remarkable - particularly since, as we have repeatedly emphasized, differential accumula- tion does not have to happen and can as easily go into reverse. Note also the highly significant fact that the inverse correlation between breadth and depth has grown tighter over time.
This tightening is clear from the chart. During the final decade of the nine- teenth century, when big business was only starting to take its modern shape, the two series still moved in the same direction. By the first decades of the twentieth century, however, with dominant capital already having assumed centre stage, the relationship turned clearly negative, although still somewhat loose. And from the 1930s onward, as differential accumulation became increasingly entrenched, the negative fit grew tighter and tighter. 1
1 Over the past century, the 30-year moving correlation between the stagflation and amalga- mation indices in Figure 17. 1 (with the latter index expressed as a natural log and measured as a deviation from its time trend) tightened almost to the fullest: it changed from a positive 0. 06 in 1927 (virtually no correlation) to a negative 0. 95 in 2007 (a nearly perfect inverse correlation).
? 386 Accumulation of power
The progressive move from looser to tighter correlation is consistent with our earlier narrative. Differential accumulation, understood as a broad historical process, is relatively new. It rose to prominence only toward the end of the nineteenth century, when corporations grew big enough and became sufficiently intertwined with governmental organs to engage in large-scale strategic sabotage. The process first became important in certain sectors in the United States and Europe, from where it subsequently spread domesti- cally and internationally. However, the spread was very uneven; and so, despite high capital mobility, initially the cyclical regimes in different sectors and countries were disjoined and out of step with one another. It was only later - with the gradual proliferation and deepening of business principles and the ideology of discounting, with the progressive breaking of sectoral envelopes, and with the growing globalization of ownership - that differential accumulation became the compass of modern capitalism. And therefore it was only toward the middle of the twentieth century, when these processes converged, that breadth and depth grew more stylized and inversely synchro- nized.
The pattern of conflict
Now, since differential accumulation lies at the heart of the capitalist creorder, its specific regimes are important for understanding the broader nature of institutional and structural change in capitalist society.
Perhaps the most important change concerns the pattern of conflict. Recall that although dominant capital always struggles to increase its power relative to other capitalists, in breadth this struggle is direct, whereas in depth the path is indirect. When expanding through breadth, capitalists fight each other to control existing and new corporate organizations. The intra-capitalist struggle here is commonly associated with overall growth and ongoing insti- tutional change, which in turn partly conceals the conflict between capitalists and society at large. By contrast, in depth the intra-capitalist struggle is medi- ated through a redistributional conflict between capitalists and the rest of society; moreover, the redistribution here thrives on stagflation, not growth. Obviously, sustaining such accumulation-through-crisis requires entrench- ment, fortified power arrangements and a greater use of force and violence.
The very different social conditions required for each regime explain their incompatibility. Individual firms can engage in both breadth and depth; but for society as a whole, the power processes that support one type of differen- tial accumulation tend to undermine the other.
A new type of cycle
Cyclical analyses of capitalism tend to focus on the patterns of 'real economy'. The most famous is the 'business cycle', a relatively short oscillation that describes the ups and downs of 'economic activity' - from output and invest-
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ment to inventories and employment. Long-wave cycles, often extending over decades, measure looser variables such as innovation, as well as nominal quantities like prices.
These analyses are all informed by the traditional bifurcation between economics and politics. Embedded in the material/economic sphere, they emphasize the 'automatic' underpinnings of the cycle and search for their mechanical rationale.
After the Great Depression and the rise of 'government intervention', the business cycle was augmented by political 'variables'. Although economists continued to keep their economy conceptually separate from politics, they recognized that the latter could contaminate the former, leading to a 'political business cycle'. 2
Our own breadth and depth cycles present a different story altogether. First, they deal neither with 'economic activity' nor with 'government inter- vention' that supposedly 'distorts' or 'supports' such activity; instead their subject is the broad creording of capitalist power quantified through differen- tial accumulation. Second, although the breadth and depth cycles are histori- cally stylized and seemingly mean-reverting, there is nothing automatic or equilibrating about them. In fact, given that we deal here with open-ended conflict whose outcome is never predetermined, there is no inherent reason why amalgamation and stagflation should be cyclical in the first place; and certainly there is no reason for the two cycles to be related.
The fact that they are cyclical and that they are correlated attests to the extent to which differential accumulation has come to define the capitalist nomos. Our own thesis is that for differential accumulation to occur, domi- nant capital has to expand through either breadth or depth; and that, at the societal level, these two regimes, because of their very different if not opposite character, tend to move counter-cyclically. But the grip of dominant capital can loosen or disappear, and when it does - so will differential accumulation and its cycles of breadth and depth.
Oscillating regimes: a bird's eye view
With this open-ended conflictual framework in mind, we can tentatively iden- tify several broad phases in the global evolution of differential accumulation, temporal patterns whose initially blurred contours have gradually sharpened into focus: (1) a mixture of breadth and depth during the period between the 1890s and 1910s; (2) a partial breadth regime during the 1920s; (3) a depth
2 The term itself is due to Michal Kalecki, who looked at the process from a class perspective. In his article 'Political Aspects of Full Employment' (1943b), he argued that liberal govern- ments know how to achieve full employment and defuse the business cycle - but are unable to do so politically. Torn between their need to maintain their popular legitimacy on the one hand and to protect the capitalist class on the other, their policies often end up contributing to the business cycle rather than alleviating it.
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regime in the 1930s; (4) a breadth regime between the 1940s and 1960s; (5) a return to depth in the 1970s and early 1980s; (6) the re-emergence of breadth in the late 1980s and 1990s; and (7) tentative signs of a return to depth in the early years of the twenty-first century. Let's look at each period a bit more closely.
The period from the 1890s until the 1910s was one of rapid and acceler- ating economic growth, coupled with relatively low inflation and the begin- ning of corporate transnationalization, particularly by large US-based companies. Internationally, differential accumulation was still cloaked in 'statist' clothes, with American and European companies often seen as impe- rial agents as well as pursuers of their own interests. The competitive expan- sion of these companies, however, was largely uncoordinated and soon led to the creation of massive imbalances of excess capacity. Left unattended, such imbalances would have spelled business ruin, so there was growing pressure to 'resolve' the predicament via depth. And indeed, as Figure 17.
1 shows, since the middle of the first decade of the twentieth century US merger activity had collapsed, followed in the 1910s by war in Europe together with plunging production and rising inflation around the world.
The 1920s offered a brief break. In the United States, merger activity soared while stagflation subsided sharply. In Europe, however, the reprieve was short and stress signs were soon piling up. Protectionist walls, both between and within countries, emerged everywhere; stagflation spread through a cascade of crises; and before long the world had fallen into the Great Depression of the 1930s.
By that time, the counter-cyclical pattern of breadth and depth became more apparent, with declining merger activity accompanied by rising stagfla- tion. 3 The new depth regime was marked by the massive use of military force, in which the global power impasse was 'resolved' through an all-encom- passing world war. This use of violence was articulated and justified largely in statist terms: it was a war of sovereigns waged over territory and ideology. But the war also proved highly significant for differential accumulation. Most importantly, it accelerated the relative ascent of US-based corporations, and it helped spread both the normal rate of return and the need to beat it.
After the war, the world again shifted to breadth. The counter-cyclical regime pattern was sharpened even further, while the inverse correlation between inflation and growth became increasingly apparent. Now, on the surface, it looked as if developments during that period, which lasted until the end of the 1960s, should have undermined breadth. For one, superpower rivalry, decolonization and the non-alignment movement limited the geographical expansion of Western dominant capital. In addition, many
3 Note again the bifurcated experience of the 1930s: as we mentioned in Chapter 12, most of the depression occurred in concentrated sectors, where production and employment fell by up to 80 per cent and where prices dropped very little or even rose. In the context of the times, this pattern was clearly stagflationary.
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developing countries that were previously open to foreign investment adopted import-substitution policies that favoured domestic over foreign capitalists.
And yet, for much of the 1950s and 1960s, these barriers on breadth were outweighed by two powerful counter-forces. The first of these was the post- war baby boom that boosted population growth. The second was the post- war rebuilding of Europe and Japan that in some sense was equivalent to the re-proletarianization of their societies. The result was a powerful breadth engine, particularly for the large US firms that saw their profit soar during that period. The macroeconomic result in the industrialized countries - anomalous from a conventional viewpoint but consistent with differential accumulation - was rapid economic growth averaging 6 per cent during that period, combined with low inflation of less than 3 per cent. 4
This picture was inverted in the 1970s. By then, the German and Japanese miracles had already run out of steam, while Western rates of population growth dropped sharply. Foreign investment could have provided a way out, yet outlets for such investment in developing countries remained hindered by communist or import-substituting regimes. Faced with these obstacles to breadth, dominant capital groups in the industrialized countries were once again driven toward depth, with the average rate of inflation during the 1970s rising to 8 per cent and the average rate of economic growth dropping to 3 per cent. And, as before, the new depth regime was accompanied by heightened conflict and violence. This time, though, the conflict was played out mostly in the outlying areas of the developing world, initially in South East Asia and subsequently in the Middle East.
The role of the Middle East
The role of the Middle East in global capitalism provides a good illustration of the temporal spread and geographical integration of differential accumula- tion. 5 Until the late 1940s, the region was 'out of sync' with the global cycle of breadth and depth. Its energy resources had already been parcelled out by the international oil companies in the 1920s; but with the world awash with oil, these companies mostly 'sat on their concessions' and produced little. As a result, the Middle East remained relatively insulated from the capitalist core, and when Europe slipped into stagflation and conflict during the 1920s and 1930s, the region prospered. After the war, though, the tables turned. The Middle East - until then a true 'outlying area' - suddenly became centre stage for the global drama of differential accumulation.
4 The growth and inflation figures in this and the next paragraph are computed from International Financial Statistics through Global Insight (series codes: L64@C110 for the consumer price index; and L66&I@C110 for industrial production).
5 For a more detailed examination of the Middle East and differential accumulation, see Nitzan and Bichler (1995), Bichler and Nitzan (1996), Nitzan and Bichler (2002: Ch. 5), Bichler and Nitzan (2004b) and Nitzan and Bichler (2006b).
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Initially, the link was pretty simple, with oil from the region helping sustain the growth underpinnings of global breadth. During the early 1970s, however, when differential accumulation shifted into depth, the relationship became more complicated. The background for this latter shift is illustrated in Figure 17. 2. The chart shows a positive long-term correlation between infla- tion in the industrialized countries on the one hand and the global arms trade expressed as a share of world GDP on the other. Conventional economics would probably treat this relationship as accidental and largely irrelevant. From the viewpoint of dominant capital, however, the relationship is system- atic and meaningful: it points to the conflictural underpinnings of its differen- tial accumulation cycles. 6
As we noted earlier, the inflationary depth regime of the 1970s and 1980s was largely a response to Western dominant capital 'running out of breadth'. This exhaustion in turn was partly the consequence of bipolar geopolitics that prevented capitalist expansion into outlying areas and contested Western
14 ? ? ? ? 0. 6
? ? ? CPI in the Industrialized Countries (annual % change, left)
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? World Military Exports / GDP (%, right)
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Figure 17. 2 Inflation and arms exports
Note: Series are shown as 3-year moving averages.
Source: International Financial Statistics through Global Insight (series codes L64@C110 for CPI); U. S. Arms Control and Disarmament Agency, World Military Expenditures and Arms Transfers (various years).
6 The chart itself is meant merely to highlight the importance of conflict; the actual pattern of the conflict of course is far more complex and involves much more than arms exports.
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control over strategic regions, particularly the Middle East. One key conse- quence of this antagonism was an intense arms race, and hence it is not surprising that the time pattern of arms exports - a handy proxy for 'belli- cosity' - roughly follow the periodicity of Western inflation: the first process was fuelled by and nourished the antagonism and violence of depth, the second its redistributional mechanism. Both arms exports and inflation rose until the mid-1980s, peaked as the Cold War began to weaken, and went into a free fall with the disintegration of communism and the onset of global breadth. 7 Moreover, the two processes were causally connected, with military conflict, especially in the Middle East, contributing to rising energy prices, and therefore to higher inflation.
The late 1980s seemed to mark the beginning of yet another breadth phase - this time at the global level. On the surface, the new breadth regime was somewhat anomalous according to our criteria: inflation in the industrial countries dropped sharply, and yet, unlike in previous cycles, growth did not revive. A closer inspection, however, easily shows why.
First, with the collapse of the Soviet Union and the wholesale capitulation of statist ideology, the entire world finally opened up for capitalist expansion and differential accumulation. The result was that, although external breadth for dominant capital fizzled in the industrial countries proper, it remained strong outside of these countries, particularly in developing Asia. 8 Moreover, cheap imports from Asia helped keep inflation in the industrial countries low despite the latter's domestic stagnation. Second, the ideological demise of public ownership and the 'mixed economy' opened the door for privatization of state assets and government services, which, from the viewpoint of domi- nant capital, was tantamount to green-field investment. 9 And third, the decline of statist ideology weakened the support for 'national' ownership, thus contributing to the spread of cross-border mergers and acquisitions. Together, the combination of expansion into less developed countries, privatization and corporate amalgamation helped sustain a powerful breadth drive for large Western corporations despite the lacklustre growth of their 'parent' countries.
7 The data for military exports here are based on the value of deliveries; if instead we were to display military contracts (which lead deliveries roughly by three years), the correlation would have been even tighter.
8 During the early 1990s, GDP growth in East Asia averaged 9 per cent, compared with less than 3 per cent in the industrialized countries. During that period, transnational corpora- tions based in the United States saw their net profit from 'emerging markets' rise to 20 per cent of the total, up from 10 per cent in 1980s (Nitzan 1996b).
9 Although government deficits declined to around 1 per cent of world GDP in the late 1990s, down from their all time high of over 5 per cent in the early 1980s, government expendi- tures haven't fallen. They have risen from 14 per cent of GDP in the 1960s to 17 per cent in the 1980s, and remained more or less at that level since then (computed from World Bank Online). The privatization of such services - including transportation, water, infrastructure, education and security - typically takes the form of giving/selling them to dominant capital, which in turn contributes to differential accumulation in a manner similar to green-field investment.
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Coalitions
So far, we have focused on dominant capital as a whole. The concrete history of differential accumulation, however, including its transition from one regime to the next, depends crucially on what happens within dominant capital. This process includes the inner conflicts between various corporate- state coalitions and alliances that comprise the nuclei of dominant capital, as well as the struggles that pit these coalitions and alliances against groups outside of dominant capital. An analysis of these issues is beyond the scope of this volume, but their significance can be illustrated briefly. 10
During the depth phase of the 1970s and 1980s, differential accumulation was led by a 'Weapondollar-Petrodollar Coalition' made up of large oil companies, armament contractors and OPEC, and was backed by the United States and several European governments that supplied arms to the Middle East and encouraged high oil prices. 11 The central accumulation mechanism of this coalition was the ongoing cycle of Middle East 'energy conflicts' and 'oil crises'. The basic logic of the process was simple enough. Rising petro- leum prices brought massive profits for the oil companies. 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).
