rquez, One Hundred Years of Solitude
Like other aspects of the capitalist nomos, there is nothing 'natural' about differential accumulation.
Like other aspects of the capitalist nomos, there is nothing 'natural' about differential accumulation.
Nitzan Bichler - 2012 - Capital as Power
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? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? IMPLICIT GDP DEFLATOR (annual % change)
378 Accumulation of power
States, going back to 1809 (with both series smoothed as 20-year moving averages). The data show quite clearly that the relationship between the two phenomena is not positive, but negative. Low inflation is associated with high growth, whereas high inflation is commonly accompanied by stagnation - the very opposite of what conventional theory wants us to believe. And this inver- sion is hardly limited to the United States. In fact, during the post-war period the negative correlation between growth and inflation has become the rule rather than the exception, reproducing itself in country after country, devel- oped as well as developing (see for example, Nitzan 1995a; Nitzan and Bichler 2002: Figure 2. 8, p. 71).
At this point, the reader may wonder: if stagflation is the norm and prices tend to rise in the midst of slack, the implication is that there is no 'material' scarcity; but, then, if there is no 'real' shortage, why are buyers willing to pay higher prices?
The short answer is that usually they are not willing; they are forced. And the way to force them is by creating, imposing and maintaining various forms of social crisis, apparent or real. Military hostilities during the First World War, the reparation crisis of Germany in the 1920s, the global oil crises of the 1970s, rising unemployment in Israel during the 1980s, political instability in Russia in the 1990s, debt default in Argentina in the early 2000s and 'peak commodities' in the late 2000s are all illustrations of such inflation-triggering crises. 25
25 During the mid-2000s, many experts considered the bout of commodity-led inflation as indisputable evidence of 'real' shortage. The world, they said, was 'running out of resources' - primarily fossil fuels - and as 'demand exceeds supply' prices inevitably rise. This claim is hardly novel. It was marshaled by the Club of Rome during the previous commodity crisis (boom? ) of the 1970s, and by numerous earlier observers inspired by the social ecology of Thomas Malthus.
But the argument rarely sits well with the facts. To illustrate, note that the global quan- tity of oil reserves and the theories of their ultimate peak and depletion have hardly changed over the last thirty years. By contrast, the 'real' price of oil oscillated widely: measured in 2007 US dollars, it rose from less than $10 a barrel in 1970 to $108 in 1979, fell to $13 in 1998 and soared to $150 in 2008 (only to fall back to less than $115 as these lines are written).
This mismatch isn't difficult to explain. Mother Nature does impose real limits, but natural limits do not determine prices. Ownership does. Recall that price implies restric- tion, and restriction presupposes ownership. This prerequisite means that natural limits can have no bearing on prices unless they are mediated through the power conferred by owner- ship. The ozone layer, clean water and ocean fish stocks, to name a few obvious examples, are as physically limited as oil is. Yet having no owners to restrict their use and therefore no prices, they cannot be made 'scarce'. By contrast, oil is tightly owned, mostly by govern- ments of oil-producing countries and large petroleum companies. And it is the historical variations in the relative power of these owners - exercised mostly through the high politics of crisis and war - that explains why the price of oil varies so dramatically while its actual 'availability' does not (see for instance Nitzan and Bichler 1995: 487-92). Note that even when oil finally becomes nearly exhausted, there will be nothing to prevent its owners from giving it away for free if they so wished.
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The effect of these crises on inflation is twofold. On the one hand, they undermine the ability of most people to resist price increases. On the other hand, they enable a consensus to emerge within dominant capital that infla- tion can be used with relative impunity. In this sense, stagflation is the macro- economic appearance of 'accumulation through crisis'. Unemployment and stagnating production, along with other forms of instability, conflict and force, constitute the necessary backdrop for differential accumulation through differential inflation.
The hazards of inflation
However, stagflation isn't always a bonanza for dominant capital. We have already seen that although some stagnation is necessary for accumulation, excessive stagnation undermines it. And the same holds true for inflation: in small doses it boosts accumulation; in overdoses it can easily undermine it.
Capitalization risk
So far, our discussion has focused on the benefits of inflation for differential earnings; but we shouldn't forget that differential earnings are merely a means to the higher end of differential capitalization. Now, it is true that earnings are the most important elementary particle of capitalization, particularly over the longer run - but they are not the only factor. In addition, there is also hype, risk and the normal rate of return. These particles are also affected by inflation - though sometimes in ways that dominant capital doesn't find attractive.
The most important factor to consider here is risk. Note that although differential earnings rise with inflation, the gains are always short-lived: they last only as long as the underlying bout of inflation continues. Indeed, it seems that the only way to keep such gains coming is to keep inflation going; and if the gains are to be raised, inflation needs to be accelerated.
Although such acceleration occasionally happens, and often with the desired differential impact, it cannot last indefinitely. As illustrated repeat- edly in history and across the world, inflation is a risky business. It is difficult to manage; it often degenerates into an uncontrollable spiral; and its conse- quences - for dominant capital specifically and for the capitalist order more broadly - are hard to predict.
This unpredictability can wreak havoc on differential capitalization. If the perceived increase in risk for dominant capital exceeds that of the business sector, the negative effect can outweigh the positive gain in differential earn- ings, causing differential capitalization to decline.
The politics of inflation
And that isn't all. Inflation destabilizes society. The architecture of capitalist power is denominated in prices; and inflation, by changing absolute and
380 Accumulation of power
relative prices, constantly alters that architecture. This reshuffling makes the political underpinnings of inflation dangerously overt.
The situation is very different from that of breadth. As we have seen, mergers and acquisitions have a long-lasting and often dramatic impact on the organization and ideologies of power. From the viewpoint of the proles, though, the process seems confined to the upper echelons of society. The media convince them that amalgamation is necessary for 'economies of scale' and 'national competitiveness', and that the financial aspects of the process are too difficult for them to comprehend anyway. And since the resulting consolidation seems to have little direct bearing on the day-to-day existence of the underlying population, few find reason to resist it - let alone to do so politically.
This sales pitch cannot work with inflation. The mechanisms of inflation, much like those of mergers and acquisitions, are political in the widest sense of the term. They are intimately dependent on the power institutions and poli- cies of the state of capital and on the government organs that facilitate and administer them. But unlike amalgamation that comes covered in a soft glove, inflation delivers a raw punch. And this naked force makes the 'poli- tics' of the process far more obvious.
Since redistribution here leverages the entire structure of prices, it has an immediate bearing on everyone. The winners and losers are evident, and their conflict is open for all to see. The underlying population, impartial to breadth, is almost always hostile to depth. It starts to resist and fight back; it calls for political changes; it demands to rein in the leading corporations; and it wants to be compensated by higher wages. And as the struggle intensifies, so does the inflationary spiral, causing the crisis to deepen and instability to heighten.
The government, seemingly 'unable' to stop the process, is blamed as a culprit and risks losing its legitimacy as a 'neutral' body. The stability of the currency, measurement habits, the law, morals and justice are all thrown into question. The ruling class itself starts to bicker over the spoils of the process, over how to manage it and over whether or not to terminate it. And as the process intensifies and its character politicizes, there arises the risk that the very supremacy of capital will be called into question. 26
Stop-gap
For these reasons, inflation is more of a stop-gap option for dominant capital. In contrast to mergers and acquisitions whose differential impact is slower to develop, the gains from inflation have no upper technical bound (as illus-
26 The extreme instability engendered by the German inflation of the 1920s is described with much panache in Stefan Zweig's memoirs, The World of Yesterday (1943: Ch. XIII). Inverted, this account tells us how the different qualitative aspects of social instability are manifested in the universal quantities of inflation.
? Depth 381
trated by episodes of hyperinflation). But these benefits come with mounting 'risks' which the large owners and leading government officials are often hesi- tant to take.
From the viewpoint of dominant capital, therefore, inflation is forever a double-edged sword. Effective but highly dangerous, it is not the weapon of first choice. It is only when the gains from breadth dry up that dominant capital, seeing its differential accumulation undermined, moves reluctantly toward relying on inflationary redistribution.
Policy autonomy and the capitalist creorder
The negative long-term correlation between growth and inflation helps to contextualize the post-war schizophrenia of 'policy makers'. Their stated purpose (with an emphasis depending on whether they sit in the finance ministry or central bank) is always the same: to promote growth and assure price stability. Their latent commitment, though, is far more flexible and seems to have progressively drifted in favour of differential accumulation.
During breadth periods, the stated and latent goals are consistent, with high growth and low inflation allowing 'policy makers' to do little and claim success. The problem arises when differential accumulation moves into depth and the macroeconomic scene turns stagflationary. Then the two commit- ments clash and the winner is almost always dominant capital. Policy is 'tight- ened', presumably in order to rein in inflation; but the consequence tends to be the exact opposite: the pace of growth slows, heightening the crisis that dominant capital needs in order to keep inflation going.
Occasionally, policy tightening claims a big victory - for instance, during the early 1980s, when Fed Chairman Paul Volker was congratulated for 'bringing inflation down' by sharply hiking the rate of interest. But was tighter policy really the cause of lower inflation? As illustrated in Figure 15. 2, by the early 1980s, dominant capital was already busy riding a new merger wave, having no appetite for further inflation. If this interpretation is correct, the real cause of disinflation was the resumption of breadth, with Volker and his restrictive policy merely playing catch up.
These considerations reveal a glimpse of the new state of capital. As Galileo Galilei reputedly observed:
Surely, God could have caused birds to fly with their bones made of solid gold, with their veins full of quicksilver, with their flesh heavier than lead, and with their wings exceedingly small. He did not, and that ought to show something.
(Quoted in Singh 2004: 73)27
27 This quote is often referenced to Galileo's Dialogue Concerning the Two Chief World Systems (1632), although we were unable to find it in the English translation of that text.
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In principle, 'policy makers' don't have to line up for dominant capital. They can loosen policy when the largest firms demand tightening, and vice versa. They can restrict mergers and dismember capitalist giants. They can set prices, provide subsidies and impose different forms of taxation to undermine the differential accumulation of the leading corporations. They can even move toward a truly democratic society, where the citizens themselves make policy and dominant capital fades into oblivion.
These options are all open in principle - that is, assuming today's 'policy maker' can even fathom them, let alone fathom them and retain their status as 'officials' of the capitalist state. But one way or the other, the systemic patterns of US differential accumulation suggest that these options are less and less open in practice. The officials and theorists of the state continue to talk about 'policy autonomy'; but the content and direction of the poli- cies themselves seem increasingly predicated on the capitalist creorder of differential accumulation.
17 Differentialaccumulation
Past and future
. . . 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. . . 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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? ? ? ? ? ? ? ? ? ? 2007 2007
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Amalgamation Index **
(Buy-to-Build Indicator, left)
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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.
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? IMPLICIT GDP DEFLATOR (annual % change)
378 Accumulation of power
States, going back to 1809 (with both series smoothed as 20-year moving averages). The data show quite clearly that the relationship between the two phenomena is not positive, but negative. Low inflation is associated with high growth, whereas high inflation is commonly accompanied by stagnation - the very opposite of what conventional theory wants us to believe. And this inver- sion is hardly limited to the United States. In fact, during the post-war period the negative correlation between growth and inflation has become the rule rather than the exception, reproducing itself in country after country, devel- oped as well as developing (see for example, Nitzan 1995a; Nitzan and Bichler 2002: Figure 2. 8, p. 71).
At this point, the reader may wonder: if stagflation is the norm and prices tend to rise in the midst of slack, the implication is that there is no 'material' scarcity; but, then, if there is no 'real' shortage, why are buyers willing to pay higher prices?
The short answer is that usually they are not willing; they are forced. And the way to force them is by creating, imposing and maintaining various forms of social crisis, apparent or real. Military hostilities during the First World War, the reparation crisis of Germany in the 1920s, the global oil crises of the 1970s, rising unemployment in Israel during the 1980s, political instability in Russia in the 1990s, debt default in Argentina in the early 2000s and 'peak commodities' in the late 2000s are all illustrations of such inflation-triggering crises. 25
25 During the mid-2000s, many experts considered the bout of commodity-led inflation as indisputable evidence of 'real' shortage. The world, they said, was 'running out of resources' - primarily fossil fuels - and as 'demand exceeds supply' prices inevitably rise. This claim is hardly novel. It was marshaled by the Club of Rome during the previous commodity crisis (boom? ) of the 1970s, and by numerous earlier observers inspired by the social ecology of Thomas Malthus.
But the argument rarely sits well with the facts. To illustrate, note that the global quan- tity of oil reserves and the theories of their ultimate peak and depletion have hardly changed over the last thirty years. By contrast, the 'real' price of oil oscillated widely: measured in 2007 US dollars, it rose from less than $10 a barrel in 1970 to $108 in 1979, fell to $13 in 1998 and soared to $150 in 2008 (only to fall back to less than $115 as these lines are written).
This mismatch isn't difficult to explain. Mother Nature does impose real limits, but natural limits do not determine prices. Ownership does. Recall that price implies restric- tion, and restriction presupposes ownership. This prerequisite means that natural limits can have no bearing on prices unless they are mediated through the power conferred by owner- ship. The ozone layer, clean water and ocean fish stocks, to name a few obvious examples, are as physically limited as oil is. Yet having no owners to restrict their use and therefore no prices, they cannot be made 'scarce'. By contrast, oil is tightly owned, mostly by govern- ments of oil-producing countries and large petroleum companies. And it is the historical variations in the relative power of these owners - exercised mostly through the high politics of crisis and war - that explains why the price of oil varies so dramatically while its actual 'availability' does not (see for instance Nitzan and Bichler 1995: 487-92). Note that even when oil finally becomes nearly exhausted, there will be nothing to prevent its owners from giving it away for free if they so wished.
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The effect of these crises on inflation is twofold. On the one hand, they undermine the ability of most people to resist price increases. On the other hand, they enable a consensus to emerge within dominant capital that infla- tion can be used with relative impunity. In this sense, stagflation is the macro- economic appearance of 'accumulation through crisis'. Unemployment and stagnating production, along with other forms of instability, conflict and force, constitute the necessary backdrop for differential accumulation through differential inflation.
The hazards of inflation
However, stagflation isn't always a bonanza for dominant capital. We have already seen that although some stagnation is necessary for accumulation, excessive stagnation undermines it. And the same holds true for inflation: in small doses it boosts accumulation; in overdoses it can easily undermine it.
Capitalization risk
So far, our discussion has focused on the benefits of inflation for differential earnings; but we shouldn't forget that differential earnings are merely a means to the higher end of differential capitalization. Now, it is true that earnings are the most important elementary particle of capitalization, particularly over the longer run - but they are not the only factor. In addition, there is also hype, risk and the normal rate of return. These particles are also affected by inflation - though sometimes in ways that dominant capital doesn't find attractive.
The most important factor to consider here is risk. Note that although differential earnings rise with inflation, the gains are always short-lived: they last only as long as the underlying bout of inflation continues. Indeed, it seems that the only way to keep such gains coming is to keep inflation going; and if the gains are to be raised, inflation needs to be accelerated.
Although such acceleration occasionally happens, and often with the desired differential impact, it cannot last indefinitely. As illustrated repeat- edly in history and across the world, inflation is a risky business. It is difficult to manage; it often degenerates into an uncontrollable spiral; and its conse- quences - for dominant capital specifically and for the capitalist order more broadly - are hard to predict.
This unpredictability can wreak havoc on differential capitalization. If the perceived increase in risk for dominant capital exceeds that of the business sector, the negative effect can outweigh the positive gain in differential earn- ings, causing differential capitalization to decline.
The politics of inflation
And that isn't all. Inflation destabilizes society. The architecture of capitalist power is denominated in prices; and inflation, by changing absolute and
380 Accumulation of power
relative prices, constantly alters that architecture. This reshuffling makes the political underpinnings of inflation dangerously overt.
The situation is very different from that of breadth. As we have seen, mergers and acquisitions have a long-lasting and often dramatic impact on the organization and ideologies of power. From the viewpoint of the proles, though, the process seems confined to the upper echelons of society. The media convince them that amalgamation is necessary for 'economies of scale' and 'national competitiveness', and that the financial aspects of the process are too difficult for them to comprehend anyway. And since the resulting consolidation seems to have little direct bearing on the day-to-day existence of the underlying population, few find reason to resist it - let alone to do so politically.
This sales pitch cannot work with inflation. The mechanisms of inflation, much like those of mergers and acquisitions, are political in the widest sense of the term. They are intimately dependent on the power institutions and poli- cies of the state of capital and on the government organs that facilitate and administer them. But unlike amalgamation that comes covered in a soft glove, inflation delivers a raw punch. And this naked force makes the 'poli- tics' of the process far more obvious.
Since redistribution here leverages the entire structure of prices, it has an immediate bearing on everyone. The winners and losers are evident, and their conflict is open for all to see. The underlying population, impartial to breadth, is almost always hostile to depth. It starts to resist and fight back; it calls for political changes; it demands to rein in the leading corporations; and it wants to be compensated by higher wages. And as the struggle intensifies, so does the inflationary spiral, causing the crisis to deepen and instability to heighten.
The government, seemingly 'unable' to stop the process, is blamed as a culprit and risks losing its legitimacy as a 'neutral' body. The stability of the currency, measurement habits, the law, morals and justice are all thrown into question. The ruling class itself starts to bicker over the spoils of the process, over how to manage it and over whether or not to terminate it. And as the process intensifies and its character politicizes, there arises the risk that the very supremacy of capital will be called into question. 26
Stop-gap
For these reasons, inflation is more of a stop-gap option for dominant capital. In contrast to mergers and acquisitions whose differential impact is slower to develop, the gains from inflation have no upper technical bound (as illus-
26 The extreme instability engendered by the German inflation of the 1920s is described with much panache in Stefan Zweig's memoirs, The World of Yesterday (1943: Ch. XIII). Inverted, this account tells us how the different qualitative aspects of social instability are manifested in the universal quantities of inflation.
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trated by episodes of hyperinflation). But these benefits come with mounting 'risks' which the large owners and leading government officials are often hesi- tant to take.
From the viewpoint of dominant capital, therefore, inflation is forever a double-edged sword. Effective but highly dangerous, it is not the weapon of first choice. It is only when the gains from breadth dry up that dominant capital, seeing its differential accumulation undermined, moves reluctantly toward relying on inflationary redistribution.
Policy autonomy and the capitalist creorder
The negative long-term correlation between growth and inflation helps to contextualize the post-war schizophrenia of 'policy makers'. Their stated purpose (with an emphasis depending on whether they sit in the finance ministry or central bank) is always the same: to promote growth and assure price stability. Their latent commitment, though, is far more flexible and seems to have progressively drifted in favour of differential accumulation.
During breadth periods, the stated and latent goals are consistent, with high growth and low inflation allowing 'policy makers' to do little and claim success. The problem arises when differential accumulation moves into depth and the macroeconomic scene turns stagflationary. Then the two commit- ments clash and the winner is almost always dominant capital. Policy is 'tight- ened', presumably in order to rein in inflation; but the consequence tends to be the exact opposite: the pace of growth slows, heightening the crisis that dominant capital needs in order to keep inflation going.
Occasionally, policy tightening claims a big victory - for instance, during the early 1980s, when Fed Chairman Paul Volker was congratulated for 'bringing inflation down' by sharply hiking the rate of interest. But was tighter policy really the cause of lower inflation? As illustrated in Figure 15. 2, by the early 1980s, dominant capital was already busy riding a new merger wave, having no appetite for further inflation. If this interpretation is correct, the real cause of disinflation was the resumption of breadth, with Volker and his restrictive policy merely playing catch up.
These considerations reveal a glimpse of the new state of capital. As Galileo Galilei reputedly observed:
Surely, God could have caused birds to fly with their bones made of solid gold, with their veins full of quicksilver, with their flesh heavier than lead, and with their wings exceedingly small. He did not, and that ought to show something.
(Quoted in Singh 2004: 73)27
27 This quote is often referenced to Galileo's Dialogue Concerning the Two Chief World Systems (1632), although we were unable to find it in the English translation of that text.
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In principle, 'policy makers' don't have to line up for dominant capital. They can loosen policy when the largest firms demand tightening, and vice versa. They can restrict mergers and dismember capitalist giants. They can set prices, provide subsidies and impose different forms of taxation to undermine the differential accumulation of the leading corporations. They can even move toward a truly democratic society, where the citizens themselves make policy and dominant capital fades into oblivion.
These options are all open in principle - that is, assuming today's 'policy maker' can even fathom them, let alone fathom them and retain their status as 'officials' of the capitalist state. But one way or the other, the systemic patterns of US differential accumulation suggest that these options are less and less open in practice. The officials and theorists of the state continue to talk about 'policy autonomy'; but the content and direction of the poli- cies themselves seem increasingly predicated on the capitalist creorder of differential accumulation.
17 Differentialaccumulation
Past and future
. . . 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. . . 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.
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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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? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Amalgamation Index **
(Buy-to-Build Indicator, left)
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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.
