How Capitalism defeated the Left and then itself

Paul Mason and Kondratiev Long Cycles

Marx was wrong.

Not about everything. In fact, all told, not about very much. But he was wrong about something that has been at the very heart of Marxism for a century and a half: the prediction that capitalism will face a crisis which will see it destroyed, and then replaced by something better.

It hasn't happened, despite plenty of people wishing it. Why it hasn't happened is a very important question right now, as capitalism is undoubtedly in a very deep crisis yet is signally failing to die let alone be replaced by something better.

This essay isn't about how to make that happen. Instead it is about why this has not already happened.

Crisis, what crisis?

The first half of Marx's prediction was undoubtedly correct: capitalism always faces a crisis. Or rather crises, because there have been rather a lot of them. This is perhaps Marx's greatest insight, that capitalism is not stable and these problems come round regular as clockwork. What's more, every now and again they are not ordinary run-of-the-mill crises but huge, industrial strength crises that threaten its very existence.

Marx lived through only one of these, so he missed the pattern, but in 1922 the Russian academic Nikolai Dimitrievich Kondratiev spotted it.

Kondratiev was the son of a peasant who had never-the-less managed to get into St Petersberg University. In 1917 he served for a few days in the social democratic administration that followed the fall of the Csar. With the Bolshevik revolution he returned to academia.

What Kondratiev spotted in his numbers was a 50-60 year cycle in interest rates. Marx had shown how overproduction caused regular recessions, but those cycles were over a much shorter time scale than these cycles. This was something much bigger and more fundamental. When he looked at other economic indicators the cycle appeared to be repeated. He traced two of these since the dawn of industrialisation.

This suggested that Marx's theory was wrong, or at least incomplete. If capitalism had survived two major catastrophe's already, why should the next one prove fatal?

Spotting the existence of the cycle though didn't explain it. Academics who followed Kondratiev thought changes in technology explained the cycles. These theories were plausible, but also contradictory. It's rare to find two that agree.

However of ex-journalist and fellow Lancastrian Paul Mason, looking at the problem anew from the present day, thinks there is more to it than this. Having witnesses recent events in Greece first hand, he knows a thing or two about crises. He also knows a thing or two about Marx, which is rare for a journalist.

This is his view of K Cycles and what they mean.

On your cycle

Capitalism requires growth. This is created by the capitalists using their unequal power over workers

to generate profits from the surplus value of their labour. In order to increase productivity they mechanise the workplace. That is Marx in a nutshell.

However, there are limits to this, and it is these limits that cause the periodic crises in capitalism. There is only so much work you can get out of a human being and, at any given level of technology, there is only so much labour you can save by investing in machines. There are other ways out of the conundrum too, such as new markets, new commodities and even new workers, but these have their limits too. At some point there is nowhere else for capitalism to go and capitalism faces an existential crisis.

According to the economists who explain it all with technology, the new machines then appear like magic to solve the problem. However according to Mason, the reality is a lot more messy.

But before we come to that, let's just sort out the time frames we're actually talking about.

The First Wave: 1780 to 1848

The first Kondratiev cycle started when capitalism started at the end of the eighteenth century. A lot of things happen one after the other, the first factories, the canals, better steam engines, railways, steel and so on. This is capitalism raw and primitive. Men, women and children exploited in Dark Satanic Mills. Labour was is unskilled, hours long and management is scary rather than skilful.

This cycle begins quietly but it's trajectory is evident from British, French and US data - the rest of the world is not yet affected much by capitalism - and that data points to it all coming to crashing end in about 1848, the Year of Revolutions and the year that Marx, along with his drinking buddy Engels, publishes The Communist Party Manifesto.

The Second Wave: 1848 to 1898

The second cycle follows on. This is capitalism as we know it. The bourgeoisie in their top hats and the workers in the flat caps. But this is different to what we had before. Labour is not monolithic. There are skilled and semi-skilled workers, there are trades, there are guilds and there is a financial system keeping the wheels turning. There are also Imperialists, seeking out new markets and new resources for exploitation.

But by the 1890s though the wheels are starting to come off the wagon. Economic crises are more frequent, labour unrest is more common and by Queen Victoria's Diamond Jubilee there is no part of the earth left which had not been brought into the global market. We are at the second crisis.

The Third Wave: 1898 to 1948

What rescues capitalism is the Second Industrial Revolution. New technologies arrive by the score.

The chemical industry produces artificial fertiliser, artificial dyes and petrol, which in turn powers cars, planes and motorbikes. Electricity lights us up and the telephone wires us up.

But perhaps more profound is the change in the nature of capitalism itself. The main actors are now no longer the rich capitalists, but the big corporations. These entities themselves appeared to fly in the face of everything Marx had written. Huge in scale, they ware protected by tariff barriers and operate state sponsored monopolies. Internally their organisation is based on function rather than competition. Writers as diverse as Rosa Luxembourg and James Burnham would eventually look at these big companies and wonder whether there really is much of a difference between capitalism and communism now.

The start of the downward curve of this wave is very easy to spot: the Wall Street Crash of 1929, which heralded the Great Depression. The final end came with the Second World War, a global crisis which, despite killing tens of million of people, never-the-less ushered in the next wave of global capitalism.

The Fourth Wave: 1948 to ?

The exact year this begins is a bit arbitrary, but 1948 is a good one, as it is the year of the Marshal Plan and the invention of the transistor. New technologies abound once again, but perhaps more significant is the change in the nature of society. This is the era of social democracy and the welfare state. 

No longer are the workers exposed to raw capitalism with no protection, they have health care, trade unions, unemployment benefits and representation in the political process. Over the next twenty five years almost everything the Left has fought for since the time of Marx comes to pass, and in return for these gifts from the capitalists the workers embraced consumerism, which in turn makes the wheels of the economy turn faster than ever before.

And then it all goes wrong.

Twenty five years into the cycle is 1973, and there, sure enough, is a huge crisis - the oil shock of 1973. Actually we could have picked other dates in that decade: the Nixon Shock in 1971 when the USA dropping off the Gold Standard or the second oil shock in 1979. Which ever one we go for though, it is clear that by 1980 the good times are over.

No Fifth Wave

If history had followed the deterministic course it appeared to be set on, the next cycle should have

started in 1998. Looking back to that year you can see some evidence for this. Bill Gates launched the second incarnation of his Windows software, and in the next few years Google, Youtube and all the architecture of the information revolution would be up and running.  At the same time we have the Kyoto Agreement of the previous year, potentially ushering in a new green industrial revolution.

But if this was the start of a brand new cycle, then we should not have had the biggest financial crash since the 1920s just ten years later. Instead of recovery the problems of the 1970s just carry on getting worse. Instead of a 25 year downward curve we have a forty year one, with no end in sight.

So what went wrong?

How Cycles End

To answer this question we need to look back at how each of the previous cycles ended.

But first a recap on what is going on here. After twenty five years of growth fuelled by increasing productivity from mechanisation, the economy starts to stagnate. Capital needs to look elsewhere for profits. With all the known markets all full there is only one source left, more exploitation of the workers.

Winding back to the 1810s, here we first see the staggering growth rates of the early industrial revolution start to falter. Capital has to call in the army to deal with the Luddites in 1812, and again in 1819 when 80,000 people gathered at Peterloo to demand reform. By 1832 though the Establishment is getting rattled, and agreed modest reforms. By the 1840s the Chartists are marching and, although an army of Special Constables is drafted in to meet them (including future Liberal PM Gladstone) the government effectively gives in.

Fast forward fifty years and the workers are marching again. Anarchists, communists, socialists and most of all trade union are fighting back. In organised labour capitalism appears to have finally met its match. Many of the bourgeoisie really think the end is nigh.

So here we have it. The new cycles of capitalism are not created by the fortuitous arrival of new technology, nor by the enlightened insight of the capitalists. Capitalisms natural instinct is more repression, and only when that is stopped by the workers fighting back against does it try a different direction. It was not quite how Marx predicted, but not that far off.

Now let's look at the end of the third cycle in the 1930s. Once again the workers are mobilising, here and around the world. But lets ignore for a moment this country. Here we have austerity, but after the Royal Navy mutinies over pay cuts we dropped off the Gold Standard, listen to Keynes and start on the road to recovery. It is bad, but it could have been worse.

And in Europe it is.

The Death of Labour

When Hitler came to power in 1933 his first target is organised labour. When Dachau opens the first people to be enslaved there are 5000 communists and social democrats. Between 1933 and 1946 3.5 million Germans are interned for political reasons and 77,000 judicially executed.

The Left lost a civil war in Austria in 1934, resulting in the Social Democratic Party being outlawed, whilst between 1936 and 1939 Franco kills 350,000 anarchists, communists and republicans during the Spanish Civil War, and more in the repression that follows.

In Greece the dictator Metaxas bans all political parties (including his own, which was a somewhat unique move), arrests the communists and embarked on a war on Greek culture which sees even Plato put on a list of banned authors.There are other crackdowns in Poland, Hungary and the Baltic states.

In Russia the gulags have even more inmates than the German concentration camps, and a similarly terrifying death rate. For good measure the NKVD sends a team over to Mexico to put an ice axe through Trotsky's head.

What Orwell called "the flower of the European working class" is dying. Had Hitler stuck to exterminating his own people, and not had a go at the Poles as well, it may well have died completely. In the First World War many socialists became conscientious objectors, refusing to fight a war for capitalism. That does not happen in the Second World War. The survival of the Left depends on an allied victory.

Capital Wins

Fortunately the allies do win. Organised labour survives, but it is a close run thing.

For a while it prosperes too, but with the fourth cycle starting on its downward spiral this isn't going to last forever. The USA had thought it had been fighting communists since 1950, but really it was fighting nationalists. In 1973 though they have a real working class enemy in Salvador Allende of Chile.

Allende is deposed in a military coup and commits suicide. 3000 of his followers are killed and 27,000 are locked up, many being raped or tortured. Chile, meanwhile, is subject to a radical experiment to try to save capitalism. Now we call it free market reforms, or neo-liberalism, or austerity, but then it was known as the Chicago School model, as that is where its architects came from.

Taxes are be lowered, the state is shrunk, corporations are be given free reign, money is set free and organised labour is crushed. The capitalists ledgers are back in the black again, with the hit being taken by the working poor or the work-less even poorer. 

It works, sort of. Actually the free markets bits aren't that great a success, and Chile has capital controls in place for longer than Milton Friedman's fans like to admit, but crushing the trade unions proves to be a tremendous success. The model works, now it just needs to be rolled out.

The election of Margaret Thatcher in the UK and Ronald Reagan in the USA allows this to happen. Reagan has striking air traffic controllers led away in chains whilst Maggie crushes the miners. Environmentalism, which for a while in the seventies had seems almost as big a problem as the oil price, is brushed aside, as Reagan tells us that most pollution is caused by trees.

Capitalism is back in business.

By the 1990s it appears that even the Left agrees. Clinton is elected to balance the budget and New Labour sweeps into power boasting that it doesn't mind if people get "stinking rich". The EU, which has been a bastion of social democracy for so long, goes with the flow.  

Then comes the credit crunch.

New exploitation, new technology and new financial products, it turns out, can't keep creating new money out of nowhere forever. The Left has been defeated, but still the problems of capitalism have not gone away.

Marx is suddenly being disinterred.

The Future

Kondratiev himself had paid a high price for his insight. His theory that capitalism wasn't inevitably doomed, but could reinvent itself with enough of a push, did not play well in Stalin's Russia. He was imprisoned in 1932 and then, on a cold September day in 1938, he is led out to the firing squad. He is the age I am now, 46.

 

His theory's status in economics is mixed. The Right had no interest in capitalism having a crisis, whilst the Left had no interest in capitalism surving a crisis. A handful of futurologists read him, but it took a journalist of the credit crunch to bring him into the twentifirst century.

Mason's view of what happens next is clear. We need to start the delayed fifth cycle. We need a new version of capitalism that will be based on information technology and a green industrial revolution. What's more, just like in the previous four cycles, we also need to redefine the nature of work. Mason believes that a new vision of intellectual property will set information free and a universal income will set people free.

He may be wrong on the details, but I do not believe he is wrong on the fundamental problem. The left's defeat was ultimately capitalism's defeat as well. The sooner we all, left and right, see this and move on, the better.  

Paul Mason Postcapitalism: A Guide To Our Future (2015) Allen Lain