from economics to violence

Watching events unfold in Westminster yesterday, I reflected, not for the first time, that David Harvey's analysis of neo-liberalism becomes more persuasive by the day. There are those Marxists, such as Robert Brenner and Giovanni Arrighi, who understand neo-liberalism primarily in terms of the restoration of profitability via enforcement of labour flexibility - reduction of labour market rigidities and weakening of trade union power. So a rebalancing of class power occurs, away from labour and towards capital, but accumulation still occurs within the production process. This is the 'optimistic' view of the last 30 years.

Harvey understands it as 'accumulation by appropriation'. Where capital can no longer extract adequate surpluses through exploiting labour in the production process, it simply grabs assets wherever they happen to be lying around, seemingly unowned. This logic doesn't simply apply to capital; it is carried out by various elites, in the style of Russian oligarchs. Hence bankers and executives have appropriated from capital (via the shareholder value revolution), just as much as they have done so from labour.

See these two quotes from some eminently non-Marxist observers in the last couple of weeks:

If British bankers had paid themselves 10% less per year between 2000 and 2007, they would have had more capital, some £50bn more, to help them to withstand the crisis. The extent of the undercapitalisation of our banks was £50bn, and was exactly the sum put up by the taxpayers for the emergency stabilisation of our banking system.

Gordon Brown, The Guardian, 7th December

If banks reduced the proportion of their revenues that they pay out in pay and bonuses back to what it was in 2005 (which was a pretty good year for the banks), they would free up £10bn - which could be used to strengthen themselves by retaining it as capital (which is what the Bank of England and FSA would prefer) or to pay higher dividends.

Robert Peston, BBC, 25th November 

Bonuses have reached a scale now where they can quite legitimately be understood as a fiscal issue. Once again, the concept of 'fairness' obscures the issue. The fact that a banker earns in 15 minutes what a cleaner earns in a year (or whatever) is mind-boggling, but slightly distracting from the political logic. More significantly, next month banks will pay out £7bn in bonuses to their own staff, earned through trades and fees earned as intermediaries. Given that this is occurring in a semi-nationalised, government-backed industry, it is surely far more relevant to compare that £7bn to the £3bn being cut from university tuition.

That £3bn figure also needs examination. Given the strength of feeling on this issue, and the damage the policy has done to the Coalition (via the Liberal Democrats) it seems like a small economic return on a very large outlay of political capital (it's equivalent to privatising the BBC, though I would of course smash up Parliament Square to defend Radio Four). One of the commentators yesterday pointed out that if tuition spending was cut at the identical scale to cuts going on elsewhere (which is already unprecedented), there would be no question of fees rising much above £4,000 a year, rather than the £9,000 that has been legislated for. So why have they gone quite so far?

The theme here, as Georges Bataille would not have been surprised to observe, is one of excess, leading to violence. If bankers had just managed to keep a limit on their already-extreme levels of personal appropriation, then the financial crisis may not have turned into a fiscal crisis. Banks may even have remained a private industry, independent of the state. If George Osborne were just willing to treat higher education as a public good amongst many - in need of a harsh squeeze, but no more (he is, after all, a Tory) - then Churchill's statue may not be dawbed in graffiti this morning. But at a certain point, you have to consider the possibility that going too far is an economic and political strategy in its own right.

When the pursuit of economic excess runs out of economic opportunities, it seeks it via political excess instead. When a positive sum game becomes zero sum, violence becomes a factor, as signalled by the eruptions in London. The government currently under-writes one industry, which is about to pay £7bn in bonuses to individuals. Meanwhile, it is withdrawing less than half that sum from another 'industry' (on which our 'competitiveness' is, by the government's own estimation, no less important), and is prepared to endure the worst civil disorder in 60 years to do this. It's hard not to conclude that political excess, ultimately manifest in violence, is now a normal part of our governing logic, and not an exception.

Comments

[Ian C]

A brilliant post, and right on the money (literally).

I do wonder about the political logic, though. Is Osborne really trying to 'go too far'? Or is he boxed in by a combination of lack of willpower to go after the banks and lack of analysis of the wider impacts on his electorate of the student fee policy? The expenditure of political capital looks more stupid and ill-thought-out than calculated.

Is this the start of the break-up of the long neo-liberal alliance of the plutocracy and the middle classes. One hopes so, but it still has not happened even in the USA under much worse squeezing of the 'squeezed middle' than we have had so far.

[Dick Pountain]

Great post. Another way of saying "accumulation by appropriation" is "predation" (as in "The Predator State": Galbraith, or "primitive accumulation" (as in "Afflicted Powers": RETORT.

[Carol Wilcox]

Don't forget that the most precious asset which capitalists have appropriated is land - our common heritage. Land values are created by the whole community. All land rent should be collected for public benefit. Have a look at how much of this super-wealth is actually represented by landed property. In the UK less than 1% own 70% of land by acreage - and probably by value as well.

[Paul Sagar]

Bloody excellent post.

Just goes to show the power of ideas and ideology: who would doubt that Tories in Parliament don't even consider the possibility that what they are doing is somehow incoherent or contradictory? So enthrall to their dominant political ideals are they; these, ultimately, are what Adam Smith called the Men of System - politicians who are so enamoured with a specific programme that they cannot see the danger and recklessness of that programme. As Smith warned, they are amongst the most dangerous men of all to have in power.

[pete]

The 50% tax rate comes in to play here. If the treasury haven't included bonuses in their forecasts, then the government is in line for an additional £4.1bn in income tax and national insurance (according to the CEBR).

However if the treasury have included these bonuses in their forecasts, which would seem sensible, then diverting the money to the shareholders would net the government, say, £4.6bn (since we only own shares in 2/3 the major banks) less a £4.1bn drop in tax revenue - precious extra money; and the problem of where to cut persists.

The politics at work here is that of the carnivore extracting the weak member of a herd: protecting health, schools, and defence has meant other areas face disproportionate cuts. Presumably it never occurred to Osborne et al that students might object; I'm glad they have the backbone.

[Oranjd]

Will, that you had to make reference to "eminently non-Marxist observers" suggests we have no way of expressing succinctly a perspective which does not require a beard... (Paul mentions Smith, a Marxian sans Marxism.)

Harry Shutt deserves a mention here as his critique echoes Harvey but is much more helpful on recommending reforms, unlike Harvey who is a little vague on what particular reforms it might help us to champion - company law and other arcane subjects.

Given Freeman's point about the doubling of the global labour-force available to capital, we are likely to hear a lot more "squeezed middle" - and this squeeze is likely to be violent.

[Luis Enrique]

bonuses certainly are a fiscal issue. Under the current configuration of taxes, if by magic the financial sector stopped paying itself so handsomely, and filling the Treasury's coffers in the processes, at least in the short run we'd face a big taxation shortfall.

it's a nice point that if bankers had paid themselves less the banks might have been in a better position to withstand the crisis, but it's pretty amusing to see people arguing retrospectively for higher bank profits. Can you imagine a left-winger, or anybody else, standing up any time before 2007 and saying: "these banks need to be paying out less revenue as salaries and bonuses, and retain more as earnings. Cut costs and raise profits! What do we want? More profitable banks!"

But paying bankers less and making more profit wouldn't have been enough, they'd also have needed to resist paying out those higher profits as higher dividends. i.e. they'd have needed to accumulate equity, raise their capital/asset ratios, precisely as is being pushed for by reformers (and implemented to some extent by Basel III).

I keep repeating myself with the following, but the question that needs addressing is not why bankers pay themselves so much, but why banking is so lucrative in the first place.

Revenue = profits + costs. Cost are mainly salaries and bonuses. Mucking about with how banks split their revenues between profits and salaries is of secondary importance, what matters is why revenues are so high.

The answer to that has to do with how bankers appropriate money from the rest of the economy and how their revenues are, to an extent, illusory ... but is also a very long and complicated answer that requires breaking down the various things that banks do.

for what it's worth - which is not much, because it doesn't stand a chance of being implemented - the reform that would resolve much of the above is Larry Kotlikoff's Limited Purpose Banking. Under that system bankers wouldn't make out like bandits and banks wouldn't go bust. Downsides include (probable) higher costs of borrowing for firms, consumers having to pay directly for banking services (ATMs, online banking) that we current get for "free" and savers being more exposed to underlying risk.