Endgame: economic nationalism and global decline
Jamie Merchant, Reaktion, £15.95

JAMIE MERCHANT is media director for the Center for Progressive Strategy. He depicts the decline of capitalism, focusing on the US and British economies.

US real growth per head averaged 2.3 per cent from 1953 to 1973, 2 per cent from 1973 to 2007, and 0.7 per cent from 2007 to 2019. From 1950 to 1973, the world economy grew on average by 2.92 per cent per head, by 1.8 per cent from 1973 to 1990, then by 1.5 per cent, down to 1.2 per cent in 2019. 

This steady decline happened under conditions most favourable for the free market – reactionary governments, cowed labour movements, stagnant or falling real wages, revolutions in computing and microprocessing technologies, and the incorporation of the massive cheap workforces of China, India, and the post-Soviet sphere. 

So, if capitalism can’t work in the best of circumstances, when could it? 

In the US, as in Britain, workers have had flat or falling wages for decades. Their share of the total national income has fallen over the last 15 years. The great mass of that income went into capital gains — basically rents — for the owners of capital assets.

Under capitalism, central banks focus on one thing: preserving “price stability,” “the bedrock of our economy” according to Federal Reserve Chair Jay Powell. The overriding aim of US central bank policy is to maintain the value of assets priced in the dollar. These assets include about half of all internationally traded bonds, 60 per cent of the world’s foreign exchange reserves held by other central banks, and the value of stocks held in the dollar — around $40 trillion traded on US exchanges, which represent most of the world’s publicly traded stock. 

Rising inflation depresses the dollar’s value in relation to other currencies, devaluing these investments. It cuts into stock prices, interest payments collected on loans issued by banks, and the value of investments in bonds — including the most important bonds of all, US Treasury bonds. 

In short, inflation past a certain point is intolerable for the owners of the world’s wealth. Inducing a recession to remove pressures from the labour market is the most direct way to restore price stability.

Since the late 1970s, US corporations have mostly bought financial assets instead of investing in the kinds of productive operations that generate good jobs. “Uncoincidentally, the period of financialisation... exactly parallels the rise of market fundamentalism in the United States.” Similarly, in Britain, only a tenth of investment goes into producing the goods we need.

In response to this decline, governments across the world now claim to have an industrial policy. The US’s 2022 Inflation Reduction Act was supposed to transform the economy by upgrading and expanding its manufacturing sector, but instead its output fell for 12 straight months after its passage – the longest such fall since 2009. This is consistent with the secular decline of labour productivity in US manufacturing, which has been flatlining or falling since about 2010. Far from growing, manufacturing employment is forecast to decline even further.

In India, Narendra Modi took office on promises to unleash market-led innovation to revive India’s economy. This quickly became a pantomime of industrial policy, a frantic free-for-all of subsidies to businesses. India’s manufacturing share of GDP is still at a 20-year low. 

An industrial policy under capitalism is doomed to fail. Supporters of Starmer’s Labour, please note. 

Merchant’s last chapter is much the weakest. He does acknowledge the importance of “all conflicts around the direct employment of labour power to extract profits for corporate expansion, the exploitation of surplus labour time through waged or salaried arrangements... [and] the potential power of workers’ organisation to impact the critical pressure points of a decrepit capitalist economy.” 

But he calls this realm The Shop, “the terrain of the Few”, as opposed to “The Street, or the Economy of Violence”, “the realm of the multitude, or the Many.” Surely he is wrong in terms of numbers: far more people are in work than are on “the street.” He seems to prefer the politics of the street, of “violence” praising what he calls “the reactive, blind fury of the mass riot.”