Dominant Capital and the New Wars

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* Article: Dominant Capital and the New Wars. By Shimshon Bichler and Jonathan Nitzan. Journal of World-Systems Research, 10(2), 255-327, 2004. doi

URL = pdf

See also the book by the same authors: Capital as Power

Contextual Quote

"The new wars of the early 2000s mark a significant turning point in world affairs. During the 1980s and 1990s, it was popular to talk about the return of ‘unregulated capitalism.’ It was the dawn of a new era, many said, the era of ‘neoliberal globalization.’ The hallmarks of this new-old order appeared unmistakable. Falling budget deficits, tight monetary policy, deregulation, free trade and capital decontrols became the new orthodoxy. Th e ideological rhetoric spoke of ‘democracy,’ ‘global villageism’ and ‘peace dividends.’ The welfarwarfare state was on its way out. Laissez faire was back in fashion. The trajectory seemed so obvious that some were even tempted to announce the ‘end of history.’

In the early 2000s, though, the tables suddenly turned. Fiscal and monetary policies were ‘loosened,’ ‘protectionist’ measures were reintroduced and the tidal wave of capital fl ow turned to a trickle. Talk of a ‘global village’ quickly disappeared and was replaced by a global ‘war on terror.’ Democracy has given way to Homeland Security. Expectations for peace dividends have dissipated in favor of ‘war profits.’ History was back with a vengeance."

- Shimshon Bichler and Jonathan Nitzan [1]


"The recent shift from global villageism to the new wars revealed a deep crisis in heterodox political economy. The popular belief in neoliberal globalization, peace dividends, fiscal conservatism and sound finance that dominated the 1980s and 1990s suddenly collapsed. The early 2000s brought rising xenophobia, growing military budgets and policy profligacy.

Radicals were the first to identify this transition, but their attempts to explain it have been bogged down by two major hurdles:

(1) most writers continue to apply nineteenth century theories and concepts to twenty-first century realities; and

(2) few seem to bother with empirical analysis.

This paper offers a radical alternative that is both theoretically new and empirically grounded. We use the new wars as a stepping stone to understand a triple transformation that altered the nature of capital, the accumulation of capital and the unit of capital. Specifically, our argument builds on a power understanding of capital that emphasizes differential accumulation by dominant capital groups. Accumulation, we argue, has little to do with the amassment of material things measured in utils or abstract labor. Instead, accumulation, or capitalization, represents a commodification of power by leading groups in society. Over the past century, this power has been restructured and concentrated through two distinct regimes of differential accumulation breadth and depth. A breadth regime relies on proletarianization, on green-field investment and, particularly, on mergers and acquisitions. A depth regime builds on redistribution through stagflation that is, on differential inflation in the midst of stagnation. In contrast to breadth which presupposes some measure of growth and stability, depth thrives on accumulation through crisis. The past twenty years were dominated by breadth, buttressed by neoliberal rhetoric, globalization and capital mobility. This regime started to run into mounting difficulties in the late 1990s, and eventually collapsed in 2000. For differential accumulation to continue, dominant capital now needs inflation, and inflation requires instability and social crisis. It is within this broader dynamics of power accumulation that the new wars need to be understood."


Based on the reading notes of Michel Bauwens, 2006:

There is now a new system of accumulation, based exclusively on financial capital. Capital has become power, power to generate 'future expected profits'. Accumulation has become differential, i.e. the power to bring the average rate of profit of other sectors, or of others in the same sector, down. Profit differentialization replaces profit maximization. Hence it is in the interest of some sectors, such as energy and defense, to generate stagflation, by increasing conflict which leads to higher oil profits, for example.

Present day capitalists own not the means of production, but a financial claim on corporate earnings: "There is a definitive break between the material facts of production and the financial reality of accumulation.

Today, every assessment is measured against a 'benchmark', reflecting the average rate of profit in a given sector (i.e. differential accumulation). The financial game IS the real game, as overall the value of the stock follows the average rate of profit. Achieving differential accumulation requires power, and eventually, it may be of interest to favour accumulation through crisis. Accumulation can be based on growth in size, i.e. breadth, growing faster than average, which happens eventually through mergers and acquisitions, or through depth, i.e. increased productivity per employee, which essentially happens by rising prices faster than average. This is the stagflation path. Merger and stagflation are two broad regimes which alternate.

Inflation is always differential and therefore redistributional:

   - 1) profit rises faster than wages
   - 2) large firms grow faster than small ones and increase their pricing power

The authors note that the inflation-related redistribution process is dependet on power, both capital-labor and dominant capital vs. capital in general. Thus, whereas the link is especially strong in the US, it is far less clear in France and Germany. However, in countries like the US, even if dominant capital can profit from inflation, they also know it is socially destabilizing. Even thought economists equate inflation with rapid growth, the reality is different: there is a remarkable correlation between inflation, stagnation and high unemployment. Moreover, stagflation always follows crises, hence 'accumulation through crisis'.

We have seen the following stagflation crises:

   - WWI, i.e. the reparation crisis in Germany in 1920
   - the global oil crisis of the 70s
   - the Russian instability of the 90s
   - the debt default of Argentina

Such crises undermine the ability of people to resist price increases and allow a consensus among dominant capital to use inflation with impunity.

But because inflation is so risky, it is always a strategy of last resort, to be used when there is no alternative. Thus historically, but especially after WWII, there are two regimes, two paths, and the author show a graph that prove they are contradictory to each other.

In 2000, the post-1980 merger wave came to a standstill, after the stagflation index had hit a 70-year low. Corporate pricing power had hit an all-time low and corporate profits took a nosedive unparalleled since the 1930s. In 1998, hidden by the tech boom, deflation became a worry. It is a serious threat and makes 'printing money', i.e. inflation, more attractive.

But prices only rise if companies actually raise their prices, which they do only when they think that:

   - 1) inflation is inevitable
   - 2) it is in their differential interests to do so

There must be a triggering shift on outlook, which the authors situate in early 2003, when the first columns calling for inflation start to appear. This is dependent on a 'spark', which, since there is a historical correlation between the price of oil and inflation, was provided by the war in Iraq.

Box: A note on power

- "The stock market may be based on subjective speculation, but it is a speculation that is tightly correlated with the capitalist reality of profit."

- "Differential accumulation means that one's capital measured in dollars, expands faster than the average.

   - the 'passive' method is based on buying undervalued stock and then wait for opinion to rally round; this is the strategy of Soros and Buffett
   - however, when you get to be a big player, your own moves affect the pricing, you have to become 'active'; this means direct intervention.

Thus accumulation is dependent on power!! Accumulation is political. Dominant capital is the ruling class which uses a variety of instruments (govt, law, PR, etc ...), to achieve its objectives.

Box: Notes on growth

Mergers make sense because they fuse existing operations and do not create surplus production, a but a key problem is that they can run out of targets.

There have been four historical waves of mergers:

   - monopoly, within a sector, late 19th cy
   - oligopoly, vertical integration, 20-30s
   - conglomerate, diversification, 50-60s
   - globalisation, 80s, 90s

These waves were interrupted by crises, i.e. periods of stagflation.

Inflation or 'price revolutions' occurred in the 13th cy, the 16th cy, the 18th, and 20th centuries, each time accompanied by major social crisis.


The new characteristics of capital accumulation

By Shimshon Bichler and Jonathan Nitzan:

We need "an alternative conceptualization of capital, understood not as a material entity but as a power institution. What gets accumulated, we argue, is neither ‘utility’ nor ‘dead labor,’ but financial claims on expected future earnings. These expected earnings, in turn, represent neither the ‘marginal productivity’ of capital nor ‘surplus value,’ but the way capitalists view the future structure of power in society.

A power understanding of accumulation leads to different units of analysis. Marx differentiated between three ‘types’ of capital owned by three corresponding ‘fractions’ of the capitalist class—‘industrial,’ ‘commercial’ and ‘fi nancial.’ This division is no longer tenable. All modern ownership is financial, and only financial. It is a claim on pecuniary earnings. And pecuniary earnings reflect not production or consumption, but power, and only power. Th is central role of power means that it is no longer enough to think in terms of capital ‘in general’ and ‘individual capitals’ in competition. Instead, the attention should be focused on dominant capital—namely, on the largest power coalitions at the centre of the political economy. Different coalitions within dominant capital sometimes are associated with different ‘types’ of business activity, such as oil, weapons, telecommunication or financial intermediation. But these differences are only partly, and sometimes not at all, related to the nature of ‘production’ per se. Business is a matter of profit, and profit comes not from production, but from power — the power to reshape the trajectory of social reproduction as a whole.

Different segments within dominant capital are differentiated by the nature of their power. Production, narrowly defined, is merely an aspect of that power.

Driven by the quest for power, the goal of these dominant capital groups is not absolute accumulation, but differential accumulation. They try not to maximize profit, but to beat the average and exceed the normal rate of return. Th ere is a big difference between these two goals. Profit maximizers focus on their own earnings. By contrast, differential accumulators also benefit, sometimes greatly, by lowering the earnings of others.

This difference is reflected in the ‘mechanisms’ of accumulation. Traditional analysis of accumulation emphasizes the importance to accumulation of overall growth and price stability. But for dominant capital, differential accumulation works best through mergers and acquisitions and through the redistributional effects of stagflation (stagnation combined with inflation). And, indeed, during the twentieth century, with the progressive spread of dominant capital and differential accumulation, there emerged an almost stylized cycle of diff erential accumulation ‘regimes,’ oscillating between relatively long periods of corporate amalgamation and shorter periods of stagflation."


More information

  • This essay could be seen as a summary of the theses developed in their remarkable book: Capital as Power