Imperialism Then and Now: Capital Relocation, Inequality, Encroachment and Protracted Crisis

Yves here. Today we are running the last segment in a historically-oriented series on the relationship between capitalism and imperialism. This segment argues that wage-suppression policies have hit their limits and are destined to produce protracted crisis. Please see Part 1 and Part 2 for the earlier interviews.

By Lynn Fries. Produced by GPENewsdocs

Imperialism which existed in the colonial era persists to this day and the system cannot do without it. In a 3 Part series, Prabhat Patnaik discusses his read on the history of capitalism from colonialism into the present. This concluding segment takes up the present period of capitalism.

LYNN FRIES: Hello and welcome. I’m Lynn Fries producer of Global Political Economy or GPEnewsdocs. This is Part 3 and the concluding segment of a conversation with Prabhat Patnaik. He’s talking about his new book co-authored with Utsa Patnaik, Capital and Imperialism: Theory, History, and the Present. More specifically, he giving us some perspective on the read of the history of capitalism presented in the book. So a look at capitalism in five periods spanning colonialism before WWI to the present. A read in which imperialism which existed in the colonial era, persists to this day and the system cannot do without it.

Hello and welcome. I’m Lynn Fries producer of Global Political Economy or GPEnewsdocs. This is Part 3 and the concluding segment of a conversation with Prabhat Patnaik. He is talking about his read on the history of capitalism that he breaks up into 5 periods from colonialism into the present. And how imperialism which existed in the colonial era persists to this day and the system cannot do without it. Topics sourced from a new book Capital and Imperialism: Theory, History and the Present authored by Prabhat Patnaik and Utsa Patnaik published by Monthly Review Press.

A world renowned economist, Prabhat Patnaik is Professor Emeritus at the Centre for Economic Studies and Planning, Jawaharlal Nehru University in New Delhi. Earlier books by Prabhat Patnaik include Accumulation and Stability Under Capitalism, The Value of Money and Re-Envisioning Socialism. Prabhat Patnaik’s blog is published by Network of Ideas. Professor Patnaik, welcome. And thank you for joining us.

PRABHAT PATNAIK: Thank you. Thank you very much.

FRIES: We’re going to pick up the conversation where we left off. Let’s start by going deeper into what happened to the world economy in the era of globalization for the first time in the history of capitalism. And how this fits into your read on the history of capitalism into the present. So 5th of 5 periods, the current period of protracted crisis.

PATNAIK: Throughout its history, capitalism had this remarkable feature that it actually kept the entire world segmented. In the sense that there was a diffusion of capitalism in the temperate regions but there was no diffusion of capitalism in the sense of capital shifting from the Global North to the Global South. That means investment occurring from the Global North to the Global South. Because after all in the Global South for reasons which have to do with de-industrialization under colonialism, there’s huge unemployment. Huge reserve army of labor because of which the wages are close to subsistence level.

With the wages at close to subsistence, then it would be profitable for capital to invest in the Global South using exactly the same technology of production for meeting global demand. That actually then they start investing, producing in the South using the labor of the Global South which is much cheaper for producing for the entire globe. But this did not happen.

Had this happened then the gap between the North and the South wouldn’t have been so pronounced. The gap in fact, shouldn’t have been there strictly speaking because of the fact that capital is globally mobile. Like inside the country, similarly in the world as a whole, if it is globally mobile then it would have the tendency to equalize wages all across. That did not happen. Why that did not happen is an extremely important question, but certainly historically did not.

Because of that the wages in the South continued to remain low. And labor from the South as I was saying was not allowed to move freely to the North. Therefore the wages in the South continued to remain close to a subsistence level. While in the North, because investment was taking place, because labor productivity was growing, there was an increase in real wages occurring as well. Therefore you had a divergence of wages. Northern wages kept increasing. Southern wages kept remaining at a subsistence level. That is the genesis of this segmentation. That is the real kind of gist of the segmentation.

Now, what has happened in the current globalization is that to some extent that is being overcome. Because now capital from the North has started moving South to locate plants in China, in Vietnam, in Indonesia, in Malaysia. Or to locate service sector activities for instance, in India. You have call centers in India, which actually do the same job that normally in the US these jobs would be getting performed but the wages there are much higher compared to the wages here. So it’s much more profitable to shift that kind of service sector activity to India rather than retain it in the United States.

So for all these reasons, a whole range of activities are increasingly being shifted from the North to South. And that is a unique feature of the contemporary globalization. To the extent that happens, then that difference in wages which had existed certainly does not grow. And what is more, there is some tendency for the wages also in the North to come down.

Stiglitz made a calculation, according to which if you compare the real wages of a male American worker in 1968, with the real wages in 2011, average male American worker, then in 2011, the real wages were marginally lower than in 1968.

Now, obviously it doesn’t mean it has been falling all through or has been stagnant all through. It has gone up. Hopefully. It’s still much higher than what you find in the South. There’s no equalization of wages, but there is a pressure on Northern wages.

Let us say, therefore that the different wages or if you like the vector of wages all over the world does not go up. It’s more or less given, more or less fixed in this period of globalization. But on the other hand, labor productivity is going up everywhere.

If labor productivity goes up, but the real wages do not go up in that case, you’ll find then the share of surplus in output increases everywhere. It’s like a distribution from wages to surplus; wages to profit shares.

But of course, if a hundred dollars are shifted from wages to surplus, if they were part of the wages all of the a hundred dollars would have been consumed. But if they’re shifted to surplus, then let’s say only $50 are immediately consumed within any given period. Therefore there is an overproduction of $50 worth of goods because demand has gone down by that.

Therefore there is a tendency towards ex ante overproduction which this phenomenon of globalization generates because of the fact that it is actually making workers everywhere, including Northern workers, compete against Southern workers who have an albatross around their necks in the form of the huge labor reserves that have been generated because of colonial deindustrialization.

So these labor reserves now begin to affect Northern wages as well. They cannot go up with productivity. And therefore surplus rises everywhere in the world economy as a whole and there is an ex ante tendency towards overproduction.

FRIES: I see you note in the book that this rise in surplus in the distribution between wages and surplus in the world economy as a whole shows up in the inequality of income distribution in most countries established by Thomas and other researchers.

PATNAIK: You know people like Piketty who actually document this increase in income inequality do not see the increase in income inequality as arising from this reason. They use all kinds of other theoretical frameworks which I won’t go into. But those frameworks assume full employment and so on which are really not realistic assumptions. Their work is important because it documents this increasing income inequality everywhere in the period of neoliberal globalization.

FRIES: That gives us a broader perspective on overproduction crises in capitalism and how the tendency to overproduction was unleashed by globalization. Comment more on what you call de-segmentation. Corporate media reports that globalization and outsourcing from North to South made the Global South a beneficiary of growth and development. What are your thought on that?

PATNAIK: Firstly, I should make it clear that de-segmentation which means the coming over of a lot of activities from the North to the South does not mean that the South is developing. It is not that the Third World countries as a whole are actually witnessing development. By the way, which is the standard thing that all Bretton Woods institutions, everybody says that: Oh, you know, globalization has brought about the high growth rates in the South.

That high growth rate is something that is not giving rise to an improvement in the conditions of the bulk of the population in the South. Because the hiatus now is within the South.

The dividing line is now no longer between the North and the South but it has now reached within the South. The dividing line is within the South between a segment of the population who are the beneficiaries of globalization and those who are integrated with international finance capital(which consists of the monopoly capitalists, big capitalists and so on, on the one hand, and segments of the upper middle class that are beneficiaries that have attached to this big capital) and the rest of the population (consisting of peasant agriculturists, laborers, urban workers, craftsmen, fishermen and so on). So that petty producers, peasant agriculturists, laborers of various descriptions, they are the sufferers from this globalization.

So, it is wrong to say that globalization has benefited the South. No, globalization has basically meant a shift of some activities to the South of which there’s a small segment of the population in the South that is the beneficiary but the rest of the population have actually suffered

FRIES: As a follow on to that, comment on how growth theory in mainstream economics is concerned with accumulation through expansion. Whereas you point out that what you call “accumulation through encroachment” is a hallmark of contemporary imperialism and a direct result of neoliberal policies. Explain that.

PATNAIK: So I draw this distinction between accumulation through expansion and accumulation through encroachment.

Now, suppose you have a certain amount of capital. Let’s say capital is in hundred blocs. Each bloc grows by 10% because each block makes some profits. Out of that profit, they invest a certain amount. It grows by 10%. Now that’s obvious.

That is what economic theory is all the time talking about. They look only at accumulation through expansion. All growth theory in economics is concerned with that. Accumulation through expansion. The amount of capital stock, it increases because of the investment decisions.

In addition to this, there is an accumulation of what I call accumulation through encroachment. Now that accumulation through encroachment can be let us say that public sector units are being privatized. So the private capital stock is rising. Not because they have made investments. Not because they have made physical investments but because they have just bought up the public sector units.

So that taking the economy as a whole, there is no increase in the capital stock. But taking the private capital stock, there is an increase. And this increase is what I call through encroachment.

Similarly, if you have private capital that displaces small producers, now you don’t necessarily take over the exact physical assets of the small producers but the market that the small producers had occupied or catered to is the market which now accrues to the big capital. And the big capital therefore occupies the space of the small producers, small capitalists. So that is again an example of accumulation through encroachment.

Now under neoliberalism because of the fact that all obstacles to accumulation through encroachment are removed, peasant agriculture is no longer supported or defended by the State. Similarly, small capital is not necessarily defended by the State. Similarly public sector units are actually privatized. You actually find that the scope for accumulation through encroachment increases considerably.

FRIES: So that increasing scope for “accumulation through encroachment” also means growth by appropriation of what had been common resources?

PATNAIK: Yes, that’s, that’s a classic example of accumulation through encroachment. And that goes back a long way. That began in the 16th century Enclosure Movements in Britain. So the 16th century Enclosure Movement meant basically that the Commons were appropriated by the big landed estates. And because the Commons were appropriated by the big landed states, the land they had increased.

But at the same time, the small peasantry, you know, had access to Commons and because they had rights over the Commons a whole lot of commodities were garnered by them from the Commons. But because the Commons were appropriated by the big landed estates, they cease to have that access anymore because the Commons got enclosed. And that being the case, the small peasant economy became unviable. Many of them had to abandon agriculture and become laborers.

So, the Enclosure of the Commons is a classic example of accumulation through encroachment. The mistake which is often made is to assume that this is something which only is confined to the period of birth of capitalism but once capitalism gets born then it only proceeds through accumulation through expansion. But no this phenomenon of accumulation through encroachment is a phenomenon that lasts throughout the history of capitalism.

FRIES: You argue this phenomenon of accumulation through encroachment lasts throughout the history of capitalism. So staying with the case of encroachment on peasant farmers. Talk about what is going on with peasant farmers in India and the broader implications.

PATNAIK: You know, there’s a huge agitation going on of peasantry in India at this moment. It’s going on at this very moment. Big agitation. This agitation is against three farm laws that our present government has brought in. And these laws would basically allow agribusiness to encroach on peasant agriculture through contract farming.

But contract farming is a way whereby they actually put the squeeze on the peasantry. And ultimately the peasants are worried that they will lose their land and simply become laborers on lands cultivated by big business.

We always used to think that, the peasants produced let’s say food grains, higher food grain prices would hurt the industrial workers. So we always thought that there is a conflict of interest between the peasants on the one hand and the industrial workers on the other. And a conflict which had to be managed by the State coming in through food subsidy and so on.

But now what we find is that if the peasant agriculture is getting squeezed then peasants actually migrate to cities for jobs. Because they are not viable anymore in agriculture. When they move to cities for jobs, they actually don’t get jobs.

There aren’t that many jobs. So they swell the reserve army of labor. Or the given amount of work is distributed among more people. And even the organized, that is unionized industrial workers bargaining strength goes down.

So you find that the distress of peasants gets translated also into the distress of the urban workers. So there is a commonality of interests there. It’s in the interests of the urban workers to make sure that the peasants are not displaced, are not distressed. So it’s a commonality at both ends.

FRIES: And under neoliberal globalization for the first time in the history of capitalism, as you commented earlier, distress among workers in the Global South gets transmitted into pressure on wages and so bargaining strength of workers in the Global North. So comment more on your argument that globalization under the hegemony of global finance capital, so basically what we refer to as neoliberal globalization, is at a dead end.

PATNAIK:  It is clear that the world cannot be where it is. This prolonged crisis is having very important implications in the capitalist world because of which something needs to be done urgently about it. One important implication of this prolonged crisis is in my view, the growth of neo-fascism.

Neofascist movements are arising everywhere. Look at India, look at Poland, Hungary, even the United States under Trump. You look at Britain, UKIP. You look at Marine Le Pen, France. You look at, you know, Germany, AFD; Brazil, Bolsonaro. Everywhere there is a strengthening of neo-fascism.

Now this strengthening is obviously something which gains from,it profits from the increase in unemployment. Because neo-fascist movements as marginal phenomena exist in all modern societies. But they’re moving center stage aided by monopoly capital. Because monopoly capital feels threatened in a period of crisis. Its legitimacy, social legitimacy goes down.

Therefore it actually uses the neo-fascist movements in its own interest. They help in very many different ways. They change the discourse. In India today, the idea of the government is not to continue with a discourse of people’s living standards. It has to do with accentuating the division between Hindus and Muslims.

Everywhere neo fascism targets the other. Changes the discourse to be one against the other. It occasionally even explains the crisis in terms of the other. That the Chinese are stealing jobs from us. The Mexicans are stealing jobs from us.

All this poses a very serious threat to the social structure of capitalism. That being the case there is now a certain kind of urgency that even the liberal bourgeois elements in capitalism face in order to do something about the crisis. And it’s in that context that some of the moves which are being made today have to be understood.

One of these moves is the fact that now there is an effort in the United States to revive a kind of Keynesian policy. Because the United States is less concerned than the other major capitalist countries about pleasing globalized finance.

Because globalized finance considers it, its home base. And therefore there is not going to be huge capital outflows from the United States elsewhere because United States is the safest place. Its currency is as good as gold. And therefore you will not find capital outflows the same way that would find from other capitalist countries.

So the US has a degree of freedom, some leeway. But anyway, the US fiscal deficit is going to increase and the whole argument is that we are thereby reviving Keynesian demand management. We know that Trump had spent $2 trillion as kind of a rescue cum support package during the pandemic.

When Biden became president, he spent another $2 trillion. And now [recorded July 8th] he has come up with another proposal to spend close to $2 trillion, $1.9 trillion for an infrastructure plan. Not confined to a single year, but over a period of time.

Now, I was sayingBiden is attempting to revive Keynesianism. But there is an aspect of it which I want to draw attention to which is not often recognized. As I said finance capital which is opposed to Keynesianism, if the US is pursuing this, may find it difficult to migrate elsewhere. And therefore Biden may actually be able to stimulate the US economy.

But suppose it does that. Then you would find a revival of inflationary pressure. Already oil prices are rising. And the IMF today [recorded July 8th] has said that actually in the U S inflation is beginning to pick up. Now, when that happens, then you would find that an effort will be made to impose austerity on the Third World so that inflationary pressures are kept in check. So that the prices of raw materials are kept in check.

So we may end up having a situation where there is Keynesianism in the First World and austerity in the Third World. Now that is something which is again really going to really worsen the plight of the working people, peasants, workers and so on in the Third World. Actually make matters much worse. That is something which is a fallout of, if you like, what the capitalist solution might actually lead to.

As opposed to this, what we are arguing is an alternative. Wecannot have a global solution in the sense that the whole of the Third World suddenly arises up. And the whole of the First and the Third and every possible world, you know, the world proletariat and the world peasantry rises up. Because obviously they have not ha d joint movements of that kind. Movements have remained confined to individual nations.

Now that being the case, then let us say that in India now there is a big struggle of the peasantry that they are doing. Now suppose you could have a struggle of the workers and peasants against the crisis which is engulfing the Indian economy. If so, then politically this might give rise to the coming into government of an alternative political formation that represents the interests of the workers and the peasants.

If this alternative political formation is going to remain faithful to its constituency, then it will have to overcome the hegemony of globalized finance capital. Therefore it has to delink itself from this web of financial flows by having capital controls.

That is a necessarycondition for the autonomy of the State that we have been discussing. That if you have globalized finance and the nation State and then the nation state is caught in the web of globalized finance, then of course the nation State cannot do anything other than simply cow-tow to globalized finance.

But if the nation State is going to do something different, then it will have to get out in the web globalized finance. Andan important way of doing so would of course be through capital controls. That’s a form of the delinking from globalization.

The problem is when you have capital controls, then you would have difficulties in meeting your trade deficit. So you would have to have some trade controls. And when you have trade controls, then you would have pressure being exerted by the advanced countries through, for instance, the imposition of sanctions on any government that tries to get out of this globalized regime.

Therefore the transitional difficulties are there butone has to face these transitional difficulties as best as one can.

And the people of the Third World, the workers and the peasants and so on have to recognize this. And they have to be aware of the fact that getting out of this globalization is essential for a new order to come in. And when they get out of globalization, they will be opposed by the local capitalists.

It will have to be on an agenda that would actually lead on to socialism. It would have to be an agenda that is opposed to the local monopoly capital and of course globalized finance capital. And that would necessarily give rise to an alternative trajectory of development that must lead on to socialism.

FRIES: That would provide an alternative to ending up in a situation where the conditions of life for vast populations in India and throughout the Global South are made much worse under a deepening of subsistence wages, a swelling reserve army of labor and so on. In an ideal world that kind of fallout from First World policy could also be avoided if instead of austerity along with Keynesianism, First World policy would support and promote Third World capacity to increase their supply and so keep prices and inflation down that way.

PATNAIK: Yes. You know, I mean, after all, as I said, there are two ways in which prices can be kept down. One is by squeezing demand the other is by increasing supply. That actually, if the petty producers, the peasants, and agriculturists and so on are protected and promoted and encouraged to increase production then of course the inflationary pressures would be kept down. And likewise, of course, in the case of minerals, oil and so on which is very important commodity.

So, there are two kinds of issues here. One is to enlarge production and of course in the case of oil, one has to move out of oil use. Develop other substitutes and so on. Being a complex issue, I don’t want to go into. But of course all that has to be done. But for a range of primary commodities which are of an agricultural nature, output has to be increased.

And therefore, as you said, in an ideal world the First World should be supporting the Third World and Third World governments to enlarge output as a means of controlling inflation. But not to impose austerity, not to impose income deflation.

But you see this has actually been the typical method. Not only earlier, even now, even now. Third World debt is supposed to be rolled over and many of the Third World countries went to the IMF to enable them to roll over the debt. And the IMF wherever it helped imposed conditionalities.

And Oxfam made a study that out of about 81 such agreements where the IMF came to the rescue of Third World countries to roll over their debt, the conditionalities entailed austerity, out of 81 in 77 cases.

So austerity, imposition of austerity is not an idea that has been given up by the Bretton Woods Institutions. Therefore, the tendency would be to control inflation in the First World by imposing income deflation in the Third World.

While, ideally, as you say, in an optimum world, it should have been through enlarging supplies from the Third World by enlarging output which could happen by supporting peasant petty production and so on. I believe that a socialist economy can do that.

In fact, I believe that a very fundamental difference between capitalism and socialism is that capitalism encroaches on petty production while socialism can in principle prevent such encroachmentsand protect and promote petty production.

FRIES: In commenting on imperialism into the present, you say a significant feature of this new phase of imperialism is the squeeze it imposes on the rural economy of the Third World countries where the bulk of these countries’ populations live. Do you then think this will be the principal source of resistance to contemporary imperialism?

PATNAIK: Well, I mean, I think, okay, let me put it this way. I believe whether it is in the Third World or in the First World, the existing crisis requires that overcoming it must be by confronting globalized finance. If Biden is following a Keynesian policy, then he is also in some sense confronting globalized finance. Because globalized finance doesn’t want Keynesianism.

So the confrontation against globalized finance; getting rid of the hegemony of globalized finance is a necessary condition for mankind to get out of this present predicament.

Now, if in the Third World, we simply keep waiting then the First World confronting globalized finance and getting out of the current predicament there, would simply mean that our burdens would become even greater. That’s what I was talking about, austerity here as opposed to Keynesianism there.

Therefore what we have to do is that we also have to make our own effort to get out of the hegemony of globalized finance. Not that hopefully would not arouse the kind of hostility from the advanced countries that it has done till now. But on the other hand, we have to reckon with the fact that it will around that hostility.

And if it does then obviously life may become very difficult here. But we have to face that difficult time. And then, in the course of doing so, we would be following a trajectory of development that would lead on to socialism.

So I would not say that the struggle is only in the Third World. I would say the struggle is everywhere. People are probably not aware everywhere that there’s a common enemy that is globalized finance capital.

But on the other hand, unless the struggle is joined everywhere, we may end up in a situation where the First World confronts globalized finance and adopts Keynesian policies but the impact of it is to squeeze the Third World even further.

FRIES: We are going to have to leave it there in this conversation with Prabhat Patnaik. And this look into Capital and Imperialism: Theory, History, and the Present. Prabhat Patnaik, thank you.

PATNAIK: Thank you very much.

FRIES: And from Geneva, Switzerland thank you for joining us in this GPEnewsdocs segment.

Prabhat Patnaik is professor emeritus at Jawaharlal Nehru University, New Delhi, Centre for Economic Studies and Planning where he taught for four decades. He was Vice-Chairman of the Kerala State Planning Board from June 2006 to July 2011. An eminent and prolific economist, his published works include numerous books such as The Value of Money, Re-Envisioning Socialism and Accumulation and Stability Under Capitalism. His most recent book, co-authored with Utsa Patnaik and published by Monthly Review Press (2021) is Capital and Imperialism: Theory, History, and the Present.

Print Friendly, PDF & Email


  1. Dave in Austin

    Colonialism and capitalism; is there a link? Maybe. But history suggests the link is between Colonialism and every large, powerful state and people:

    Russia 1600-1900; Ottoman empire 1,200 to 1,800; China on numerous occasions between 1,000 BC to 1,400 AD (although they called them clients). Athens, the Hittites… the list is endless.

    The powerful extract from the less powerful.

    They extract land for excess populations (settler colonialism from before the Greeks in the Crimea; the American west; the Chinese in Manchuria- an extension of the 1,000 year expansion of the Han to the south plus today’s Luso-Brasilians in the Amazon, Javanese in eastern Irian Jaya and (lest the author forget) Hindus in Assam.

    They use weaker neighbors for economic extraction. The list starts before the slaves and elephants arrive in Egypt as “gifts” from the neighbors to too many modern examples to relate- the expropriation of rift land in Kenya, Berber land in Algeria and Arab land in West Bank leap to mind.

    The author is in a long line of “Beat the Europeans Over the Head” folks who attack western colonialism while ignoring the colonialism of their own forebearers- and often modern relatives.

    1. Mike

      Good question- is there a relation between Capitalism and Colonialism? Undoubtedly, and it continues a line of exploitation that goes back millenia, well before capitalism. True, capitalism did not start colonialism, but it sure enhanced it to the point where many of the elites in exploited countries tripped down that yellow brick road quite gladly, enforcing the will of the colonial powers quite well, with aid of a propaganda machine ably used to ensure wealth transfer was well tolerated by those who would object.

      Rather than dwell upon the exceptions that excuse or accuse capitalism, maybe the writers as well as readers would see their way out of this morass if a more global view was engaged.

  2. tegnost

    accumulation through encroachment

    That defines amazons business plan pretty well.

    One of these moves is the fact that now there is an effort in the United States to revive a kind of Keynesian policy. Because the United States is less concerned than the other major capitalist countries about pleasing globalized finance.
    While I understand his point about “home base”, global finance doesn’t really consider itself a citizen of anywhere, more like the ruler of everywhere, when their perfect world is finally achieved (see ISDS clauses in trade agreements), and in this sense I don’t see biden as any less neofascist than trump, claims of keynesian objectives notwithstanding. Banksters rule here at least as much as anywhere else.

  3. Keith Newman

    The topic is interesting and thought-provoking but I find this interview unsatisfying. The Third World is presented as a single block of people being continually and increasingly impoverished. True, India is a living nightmare for hundreds of millions (at least) but China, 1.4 billion people, has lifted hundreds of millions out of abject poverty. This is due to deliberate government policy. There are very significant differences between countries which are glossed over.

  4. Gulag

    I don’t understand why globalized finance wouldn’t want Keynesianism?
    Isn’t this exactly a key dynamic that is going on now in contemporary American capitalism?

    The increasing liquidity flows from our all-powerful Federal Reserve, as Stephanie Kelton argues, is always good for some institutional structures and their key players.

    Aren’t federal deficits presently being run primarily for the benefit of the biggest players in U.S. domestic financial capital?

    1. tegnost

      Aren’t federal deficits presently being run primarily for the benefit of the biggest players in U.S. domestic financial capital?

      I prefer to call them the lazy socialists who hate sharing.

  5. Mikel

    “While in the North, because investment was taking place, because labor productivity was growing, there was an increase in real wages occurring as well.”

    The definition of labor productivity is being stretched to infinity to make this statement true.

  6. HH

    If you can imagine a highly automated future in which most people don’t work, then a lot of “isms” go into the dustbin. There may be other forms of exploitation, but the pursuit of cheap human labor won’t be among them

  7. nothing but the truth

    you can cherry pick facts, or make up facts, ignore inconvenient ones, or just bully your way into deriving the conclusion that suits you or your client.

    and this has affect on the real world.

    this is what i love about economists.

  8. Sound of the Suburbs

    We have been carrying out a forty year experiment to find out what Western companies and investors like.

    Maximising profit is all about reducing costs.
    China had coal fired power stations to provide cheap energy.
    China had lax regulations reducing environmental and health and safety costs.
    China had low taxes and a minimal welfare state.
    China had a low cost of living so employers could pay low wages.
    China had all the advantages in an open globalised world.
    Western companies couldn’t wait to off-shore to low cost China, where they could make higher profits.

    Western businesses tried cutting costs here, but could never get down to Chinese levels and they needed to off-shore to maximise profit.
    They gave away decades of Western design and development knowledge in technology transfer agreements.

    China was a new, fast growing economy compared to the mature, slow growing economies of the West.
    Investors would be able to achieve better returns in the new, fast growing Chinese economy and this is where the money headed.
    US investors love China and know it’s the best place to make real money.
    George Soros, Bill Gates, Warren Buffett, Elon Musk, Jeff Bezos …..

    Everything was stacked in China’s favour.
    This is what they like.

  9. Sound of the Suburbs

    We never did learn as much as we should have done from 1929.

    Neoclassical economics produces ponzi schemes of inflated prices.
    When they collapse, it feeds back into the banking system.
    Neoclassical economics still has its 1920’s problems.

    What’s wrong with neoclassical economics?
    1) It makes you think you are creating wealth with rising asset prices
    2) Bank credit flows into inflating asset prices.
    3) No one notices the private debt building up in the economy as neoclassical economics doesn’t consider debt.

    What is the fundamental flaw in the free market theory of neoclassical economics?
    The University of Chicago worked that out in the 1930s after last time.

    Banks can inflate asset prices with the money they create from bank loans.
    Henry Simons and Irving Fisher supported the Chicago Plan to take away the bankers ability to create money.
    “Simons envisioned banks that would have a choice of two types of holdings: long-term bonds and cash. Simultaneously, they would hold increased reserves, up to 100%. Simons saw this as beneficial in that its ultimate consequences would be the prevention of “bank-financed inflation of securities and real estate” through the leveraged creation of secondary forms of money.”
    Margin lending had inflated the US stock market to ridiculous levels.
    Richard Vague had noticed real estate lending balloon from 5 trillion to 10 trillion from 2001 – 2007 and went back to look at the data before 1929.
    Real estate lending was actually the biggest problem lending category leading to 1929.

    The IMF re-visited the Chicago plan after 2008.

    Existing financial assets, e.g. real estate, stocks and other financial assets, are traded and bank credit is used to fund the transfers.
    The money creation of bank credit inflates the price.
    You end up with a ponzi scheme of inflated asset prices that will collapse and feed back into the banking system.

    At the end of the 1920s, the US was a ponzi scheme of inflated asset prices.
    The use of neoclassical economics and the belief in free markets, made them think that inflated asset prices represented real wealth.
    1929 – Wakey, wakey time

    Why did it cause the US financial system to collapse in 1929?
    Bankers get to create money out of nothing, through bank loans, and get to charge interest on it.
    Bankers do need to ensure that money gets paid back, and this is where they get into serious trouble.
    Banking requires prudent lending.

    If someone can’t repay a loan, they need to repossess that asset and sell it to recoup that money.
    If they use bank loans to inflate asset prices they get into a world of trouble when those asset prices collapse.
    As the real estate and stock market collapsed, the banks became insolvent as their assets didn’t cover their liabilities.
    They could no longer repossess and sell those assets to cover the outstanding loans and they do need to get the money they lend out back again to balance their books.
    The banks become insolvent and collapsed, along with the US economy.

    When banks have been lending to inflate asset prices the financial system is in a precarious state and can easily collapse.

    What was the ponzi scheme of inflated asset prices that collapsed in Japan in 1991?
    Japanese real estate.
    They avoided a Great Depression by saving the banks.
    They killed growth for the next 30 years by leaving the debt in place.

    What was the ponzi scheme of inflated asset prices that collapsed in 2008?
    “It’s nearly $14 trillion pyramid of super leveraged toxic assets was built on the back of $1.4 trillion of US sub-prime loans, and dispersed throughout the world” All the Presidents Bankers, Nomi Prins.
    We avoided a Great Depression by saving the banks.
    We left Western economies struggling by leaving the debt in place, just like Japan.
    It’s not as bad as Japan as we didn’t let asset prices crash in the West, but it is this problem has made our economies so sluggish since 2008.

    The last lamb to the slaughter, India
    They had created a ponzi scheme of inflated asset prices in real estate, but it collapsed.
    Now they need to recapitalize their banks.
    Their financial system is in a bad way, recovery isn’t going to be easy.

    Repeating the same thing over and over again during globalisation has ensured we are now certain what happened in 1929.

Comments are closed.