The Anxious Triumph

by Donald Sassoon

  Some have attributed these remarkable changes not just to unpopular austerity policies and substantial immigration but also to the stagnation in wages throughout the advanced capitalist world. Deprived of the prospect of a constant increase in consumption, it is not surprising if many voters are angry and blame not only politicians, immigrants, and the rich but also ‘globalization’, by now a generic name for the present phase of capitalism.

  The ancient citadels of Western capitalism feel besieged by the rise of new contenders. The idea that the periphery of the world (or ‘the Rest’, as some have called it) will challenge ‘the West’ has some connection with an older brand of ‘third-worldism’ associated with the Maoism of the 1960s. Lin Biao (then Mao’s number two), in a pamphlet written in 1965 called Long Live the Victory of the People’s War! drew a parallel between the Chinese Revolution where revolutionary ‘red bases’ in the countryside surrounded and captured the cities, and a future world revolution where the countryside of the world (‘the oppressed nations and peoples in Asia, Africa and Latin America’) would defeat ‘imperialism and its lackeys’. Lin Biao died in mysterious circumstances in 1971, when a plane carrying him crashed in Mongolia, after he had attempted a coup against Mao – or so it was alleged by the Chinese authorities. The oppressed peoples did not rise up and China is doing all it can to join and overtake the cities of the world, namely the West.

  Nowadays capitalism moves from crisis to crisis, emerging from each somewhat changed. Crises are vital to its perpetual regeneration. The global downturn of 2007–8 is an indication of the strength of capitalism, since a social system can be said to have really triumphed not when it is working well but when it is malfunctioning and everyone rushes to save it. Those who today harbour anti-capitalist views, in the face of the success of capitalism, focus on its failures, but many such failures consist in not having extended its benefits to all. And there is no way of knowing whether, in the longer run, benefits will be better distributed. Eventually, say the optimists, things will work out. On the contrary, say the pessimists, capitalism causes more problems than it resolves. The trouble is that history is the history of unintended consequences. ‘Bad’ things may turn, if one can wait long enough, into positive things. There is little doubt, for instance, that the enclosure of the common land in Britain (one of the preconditions for British industrialization) caused a deterioration in the conditions of life of those expelled from the land. But it is also true that their descendants are much better off now than if there had been no industrialization. This, of course, does not justify anything: some of the descendants of the slaves forcibly transported to the Americas may now be better off than if their ancestors had remained in west Africa – hardly a credible defence of slavery.

  Ideologies of various hues have all floundered before the seemingly inexorable march of consumer capitalism. As it spread beyond the United States, Western Europe, Australia, and New Zealand, then Japan and, eventually, parts of Asia and Latin America, the solidity of capitalism has acquired a considerable material basis. It seemed that, for the first time in the history of humanity, there was a social system able to provide a high level of consumption for the majority of those who lived and worked within it. Its only rival, communism, had failed miserably in the test that mattered above all else, even more than basic civil liberties: the democratization of consumption. Without this failure there could have been no victory for neo-liberalism, however challenged and however partial. People have been increasingly metamorphosed into consumers and, through their demand for commodities, are able to signal their desires and preferences. They vote in elections but, above all, they vote on a daily basis with their dollars, pounds, euros, ‘electing’ this or that product, thus making citizenship of the consumer society more valued than that of the polity.

  In the late 1940s, as the Cold War was rapidly developing, the sociologist David Riesman wrote a satire (at times self-mocking) called ‘The Nylon War’. He imagined the United States dropping on the Soviet Union not nuclear devices but consumer goods on the assumption that if the Russian people could only sample the wonders of American capitalism, they would no longer put up with being regaled with statistics on steel and iron production, much preferring beauty salons and vacuum cleaners:

  Over 600 C-54s streamed high over Rostov, and another 200 over Vladivostok, dropped their cargoes … By today’s standard these initial forays were small-scale – 200,0000 pairs of nylon hose, 4,000,000 packs of cigarettes … 20,000 yo-yos, 10,000 wrist watches … Yet this was more than enough to provoke frenzied rioting as the inhabitants scrambled for a share.34

  Consumption was a major element in the West’s Cold War propaganda. At the American National Exhibition held in Moscow in the summer of 1959, while many were still impressed by the Soviet success in launching the world’s first satellite in 1957, the American exhibition was ‘a consumer spectacle which showcased cosmetics, clothing, televisions, kitchens, soft drinks, mail order catalogues, fibreglass canoes and sailing-boats, automobiles and a prefabricated suburban house’.35 The ‘American kitchen’ exhibited was the centre of the famous ‘Kitchen Debate’ between Richard Nixon, then Vice-President of the United States, and the Soviet leader, Nikita Khrushchev, in which the two, somewhat childishly, argued about the benefits of communism and capitalism for the ordinary household, and in which Khrushchev announced that the next Soviet seven-year plan would match the United States in consumer goods. In so doing he explicitly acknowledged Soviet under-development and the transformation of communism into a mere ‘catch-up ideology’, the sure sign that consumer capitalism had been recognized as the standard against which the progress of communism should be measured. The USSR had won the initial phase of the space race, but lost the far more crucial consumer race, a race won, unequivocally, by the USA.

  Of course, popular consumption was not everything in the triumph of capitalism. In the Introduction we noted the various strategies deployed towards the end of the nineteenth century to contain anxieties about capitalism: democracy, welfare, nationalism, the consolations of religion, state intervention. These helped to stabilize the system. But there were costs: welfare expanded the non-private sector and demanded high taxes. The former is popular, the latter are not. Economic nationalism (protectionism) is good for those who are protected but not for those who want cheaper goods, and it interferes with capitalists’ wish to trade with anyone anywhere. Democracy introduced elements of equality but in a widely unequal system. It gave rise to expectations and constrained politicians. One could not just rule to please the powerful – at least, not all the time – one also had to please the people.

  Besides, the bedrock of international capitalism, the United States, may well see its power wane. A massive literature has been produced to suggest that American economic and financial power is declining.36 US manufacturing has been in decline for years: the sharp drop in manufacturing employment after 2000 has been directly linked to competition from Chinese imports.37 Where America has been unquestionably a true ‘hegemon’ is in its domination of the international economy. The dollar is still the main international currency with no rival in sight, allowing the United States to run the largest external debt in the world, almost twice the size of the second debtor country (the United Kingdom).38 Today the USA also exercises considerable power in the main international economic institutions. Its voting power in the World Bank and in the International Monetary Fund is the same or greater than that of the next three countries (Japan, China, and Germany).

  American innovations have led the dot.com revolution of the past forty years or at least the commercialization of such innovations. In the field of popular culture the United States is still ahead of other countries to an extent unparalleled in the nineteenth century. American universities are regarded as among the very best in the world, with eight places in the top ten according to the 2016 Shanghai Ranking System (the other two are British: Oxford and Cambridge) and half of the top one hundred.39

  Ame
rica is still, by a long shot, the world’s supreme military power. Its might is unequalled and unprecedented: as of 2015 its navy was superior to the next ten navies put together and its military spending was greater than that of the next ten countries.40 Such military superiority has seldom translated itself into military gain: the USA was powerless to alter the division of Korea between North and South, in spite of enduring 35,000 casualties; it was humiliated in Vietnam; it was unable to defeat the Taliban in Afghanistan; it was incapable of securing a peaceful and democratic Iraq (the aim of the so-called ‘humanitarian’ intervention of 2003); and it has been unable (or unwilling) to solve the Israel-Palestine dispute. Its successes in the Cold War (collapse of communism, transformation of Communist China into a market economy) owe very little to military might.

  Whether and for how long the United States will be able to maintain its hegemonic position is an open question. No one can predict the repercussions, political and military, of a further shift to the advantage of the East and above all towards China, or even what this shift might look like. No one can predict whether or to what extent there will be serious rivalries between capitalist states, or even wars among them (if any, there has not been a war between two advanced capitalist states since 1945). Whatever happens, it is highly likely that global capitalism will be able to adjust to such shifts, and adapt itself to new geopolitical circumstances as it has done in the last one hundred years. Some will suffer and some will gain, as usual. The United States may be the foremost capitalist state and the self-appointed defender of world capitalism, yet there is little doubt that capitalism can survive without American hegemonic power, as it was doing a century ago.

  Much has changed since the decades of the fin-de-siècle. Capitalism today is somewhat different from the triumphant ‘Western’ capitalism described in this book. The most startling changes are to do with the shift to the East of manufacturing, the tremendous expansion of financial services, the size and scope of trans-national enterprises, the growth in the economic role of the state, the centrality of the United States as the chief defender of international capitalism, the collapse of communism – historically the only real global challenge to capitalism – and the transformation of China into a major economic power.

  Today China is the second industrial country in the world, and catching up with the United States. Its interventionist policies and the preponderant role played by state-owned enterprises have created a huge domestic market. Soon China will become not just the largest market in the world, unsurprisingly given the size of its population, but also the largest market for luxury goods, to the delight of European brands such as Giorgio Armani, Louis Vuitton, and Cartier.41 The Chinese advance (or return) to a high level of economic performance had been preceded by other oriental exploits: first that of Japan, then that of the so-called Asian Tigers (South Korea, Taiwan, Singapore, and Hong Kong). Manufacturing output as a percentage of national output has markedly declined in what were once the most industrialized countries in the world.42 De-industrialization, in the sense of the declining share of industrial workers in the workforce, often attributed to the deliberate policies of neo-liberals, in fact started in the West in the 1970s, before the advent of Margaret Thatcher and Ronald Reagan and before the rise of China as a powerful economy. In 1965 (under Lyndon B. Johnson) the share of manufacturing employment peaked in the USA at 28 per cent and has declined ever since.43 Charles Feinstein even claims that de-industrialization began in the late 1950s in the United Kingdom and in Belgium, the two countries that had been in the lead of early industrialization.44 This has resulted in higher unemployment in the post-1980 period than in the golden age of capitalism (1945–75), greater inequalities, and relatively stagnant wages.45 The increase in inequalities goes against a previous trend of decreasing inequalities in OECD countries.46

  Taking the twentieth century as a whole, however, the most significant change in terms of employment in the top capitalist countries has been the massive shift from agriculture to services.47 The most obvious consequence of this is that while in 1900 the typical worker was an unskilled male employed either in agriculture or in industry, now the new industries and services required a higher proportion of skilled professional and clerical labour and an increasing proportion of women.48

  The shift away from industrial production to services is exemplified by a startling statistic. Uber, an internet ‘taxi’ service, launched in 2009, was, by 2015, worth more than the Ford Motor Car Company.49 In 2017, Facebook, Amazon, Netflix, and Google were valued on Wall Street at more than $1.5 trillion – about the same as the Russian economy.50 And more people were employed in US nail salons (68,000) than in the US coal industry.51 In 1896, when the Dow Jones started, it listed only twelve companies. Of these, none are listed today – another example of the constant ‘creative destruction’ of the capitalist market economy first envisaged by Werner Sombart and then by Joseph Schumpeter. General Electric, the last to survive since 1896, was booted out in June 2018. By then most of the now thirty listed stocks are in retail (Wal-Mart), software (Apple and Microsoft), or finance (Goldman Sachs and JP Morgan). Amazon and Google are not included in the Dow Jones, because they are so big that to include them would skew the index too far away from the twenty-eight other companies.52

  Today’s capitalism has less to do with manufacturing and more to do with finance, and this, for now, is still dominated by the West (though the largest banks are Chinese, the top one in the world being the state-owned Industrial and Commercial Bank of China). Established well before modern industrial capitalism, banks in the nineteenth century were still institutions that lent money to businessmen to enable them to do business. The great economists of the past (Adam Smith, David Ricardo, Karl Marx) did not analyse them in depth. Adam Smith’s discussion of banking is limited to a few pages of Chapter 2 of Book 2 of The Wealth of Nations. David Ricardo devotes only one chapter (Chapter 27 in the 1821 edition) of The Principles of Political Economy and Taxation to banks – largely to examine the possibility of panics caused by depositors simultaneously withdrawing their money. Banks are barely mentioned in the first volume of Capital (the only one Marx completed), while in the third volume he wrote: ‘An exhaustive analysis of the credit system … lies beyond our plan.’53

  Banks, by creating money via mortgages and loans, enabled the constant increase in household debt and hence of consumption. By the 1990s this reached record levels, ‘making possible’, as Robert Brenner warned before the downturn of 2008, a historic and explosive growth in consumption.54 In the United States the growth of debt-driven consumption turned out to be a compensation for lower incomes. If wages do not increase at the same rate as previously, it makes perfect sense to borrow in order to sustain consumption, particularly in the most important asset for households: the purchase of homes. Rising inequality in the West and particularly in the United States has contributed to rising debt for the bottom 95 per cent of the American population who preferred to owe money than to consume less.55

  The Western financial system has developed over the last fifty years into something akin to a casino, as Susan Strange perceived a few decades ago: ‘As in a casino, the world of high finance today offers the players a choice of games.’ Instead of roulette or blackjack, one ‘may place bets on the future by dealing forward and by buying or selling options and all sorts of other recondite financial inventions’.56 An element of gambling has always been part of industrial capitalism. Will the internal combustion engine really take off? Yes. Will people really spend money to buy televisions? Yes. How long will the success of Polaroid photography last? Polaroid was introduced in 1948; by 1978 the company had 21,000 employees; by 2001 it had been bankrupted by digital cameras. Will anyone buy DeLorean cars? No: production started in 1981 and ceased in 1982.

  Some decades before the downturn of 2007, Hyman Minsky, the eminent economist, compared financialization to a Ponzi scheme (from the Boston fraudster involved in pyramid selling) because it rolls over the
debt, increasing its size, while the actual settlement of the debt is constantly deferred. As a result, what can trigger a financial crisis in an inherently unstable financial system is not some entirely exogenous factor but normal events. Crises are ‘normal’: ‘as long as an economy is capitalist, it will be financially unstable’, but, Minsky, added, ‘all capitalisms are unstable, but some capitalisms are more unstable than others’.57 What can make the difference is the intervention of the regulatory authorities. The increase in total debt might not have happened or would not have happened to the same extent had not the Glass-Steagall Act of 1933 been repealed under the Clinton administration and the financial system deregulated by assorted neo-liberals.

  Minsky’s financial-instability hypothesis suggests that the more the system appears to be stable the more it is unstable: when everything works well, operators are more likely to run risks since they assume that matters will go on working well (just as gamblers might be tempted to increase their bets if they continue to win).

  Of course, financial gambling is not new: in the early seventeenth century in the Netherlands, a famous ‘Tulip mania’ drove the price of tulip bulbs to absurd heights before it collapsed; in the early eighteenth century, in England, the South Sea Company, a private company created with state support to reduce the cost of the national debt, saw its stock rising enormously in value before collapsing a few years later, ruining many. Such panics, bubbles, crashes, and so on were described as early as 1841 by the Scottish journalist Charles Mackay in Extraordinary Popular Delusions and the Madness of Crowds, where he discussed speculators alongside medieval crusaders, witch-hunters, and alchemists. But in those days and even later in the nineteenth century, the financial system was not as intrinsic to the international economy as it is now.