Wednesday, December 28, 2011

Differential Accumulation and Threat of War?

My good friend Jonathan Nitzan sent me a paper he wrote with Shimshon Bichler on Differential Accumulation:

The Flip-Flops of Oppressive Tolerance

Early in 2011, we received a surprising invitation from the Financial Times Lexicon. A reader had suggested that an entry on differential accumulation be added to the Lexicon, and the online content developer asked us if we would be willing to write it.

Our first thought was that this must have been a mistake. The FT speaks for capital. Like all mainstream financial media, its theoretical-ideological baseline is staunchly neoclassical (plus ‘distortions’ to account for the disobedient facts). Occasionally, it allows the odd piece by a soft-Keynesian, but that tends to be the far-left marker. Rarely if ever would you read in this newspaper a real critique of capitalism, let alone one that goes to the root (unless you include in this category Op-Ed pieces by Wall-Street-warriors-turned-social-activists and other converts specializing in the ‘social justice’ niche). All things considered, it wasn’t the natural outlet for our analysis of dominant capital, modes of power and strategic sabotage. Not by a long shot.

So how did we get invited?

Simple. The content editor received a request for an entry on ‘differential accumulation’. Naturally, he didn’t know what the term meant, so he searched it on Google and found The Bichler & Nitzan Archives. At that point, he should have taken the time to read a bit. Had he done so, he would have realized that this was the wrong subject to pursue. But slaving for the FT, he had already seen it all. He knew all the tricks of self-promotion, all the ways of making banality look like novelty, all the paths to a reinvented wheel. There was nothing Bichler & Nitzan, whoever they were, could possibly teach him. So instead of reading, he passed the buck and asked us to write the entry. It wasn’t too much of a risk. If the piece ended up being a misfit, he could always flip-flop and refuse it.

We knew all about such flip-flops. Over the years, we have received enough invitations-turned-rejections to work out the template. The cycle typically comprises three stages. It begins with our receiving an enthusiastic, flattering letter asking us to make an original contribution. It continues with a steady stream of encouragements and inquiries about delivery time. And it ends with a prolonged silence, after the editor realizes he got more than he had bargained for: a piece too creative for its own good and clearly unfit for print.

Still, the invitation was tempting. This was not some obscure academic journal, or a marginal newspaper. It was the Financial Times Lexicon. Posting a permanent entry there could help us present radical ideas to a very large conservative audience. And the time seemed right. As one FT writer put it, the ongoing crisis has robbed capitalists of their ‘intellectual compass’, and intellectual confusion often opens the door for radical alternatives. Maybe this was our chance?

We decided to test the water. We asked the content developer how long the article could be: ‘as long as you wish’, he replied (virtual bytes cost nothing). We inquired whether we could incorporate figures and charts: ‘yes’, he said (visuals always sell well). We emphasized that our entry would offer a new approach: he had no objection whatsoever (tomorrow it will be flushed down with the rest of yesterday’s news). He did warn us, though, that the FT does not pay for contributions: we never thought of asking for money (suckers). The whole exchange seemed amicable, and the content developer was encouraging, even enthusiastic. And besides, we had nothing to lose but our chains.

We worked on the piece, and the content editor, fulfilling his role in the script, kept sending us encouraging queries. By the end of March, the piece was completed, and we delivered it safely to the FT. The editor replied promptly, promising to examine it ‘as soon as he can’. And then he fell silent. Ten days later, having heard nothing, we wrote to inquire. The editor apologized for not writing. He was ‘busy’ and would reply ‘as soon as he can’. Another two weeks passed, and we sent another email. It was a ‘busy time again’, we learnt, but the editor promised to look at the definition in the ‘next couple of weeks’. Those two weeks came and went, and when the silence persisted, we sent another friendly query. This time, the reply was automatic: the editor was out of the office. We waited patiently for the standard two-week period and wrote again. The editor, forever polite, apologized. He needed more time – but not to worry, he would definitely get back to us ‘within the next two weeks’.

We were getting ready for yet another two-week period, but then we noticed that there was a footnote to the email. The content editor must have realized we weren’t getting the message, so he decided to be a bit blunter: ‘Please note that some of our FT readers do not speak English as a first language, so definitions must be clear’.

And then it dawned on us.

The problem wasn’t our ideas. It was our words: they were simply too complicated. Power, sabotage, dominant capital, and differential accumulation – these are difficult words. They challenge one’s worldview. They rattle the mind. They can even make you think. And that, the content developer insinuated, is not what we need in our Lexicon.

What we need are clear words. Conventional words. Words like ‘free competition’, ‘productive investment’, ‘profit maximization’, ‘deregulation’, ‘efficient markets’ and ‘sound finance’. Words that can help us standardize the FT readership. That is what we need.

And so, we lost our chains and set our article free. You can read it below, with no FT strings attached.

I invite my readers to read their excellent short paper on differential accumulation by clicking here. Jonathan and Shimshon are two of the smartest political economists in academia but they will never win any Nobel prize for their work (not that they care). Intelligent money managers like George Soros will find tremendous value in their work (Jonathan used to be an Associate Editor at BCA Research working on emerging markets; unlike many economists, he knows all about how markets really work).

Let me go over a few key passages below. On the institution of capital, they write:
Capitalization represents the discounting to present value of risk-adjusted expected future earnings, and each of its symbolic components – the expected future earnings, the risk that capitalists associate with these earnings, and the normal rate of return that they use to bring them to present value – is a manifestation of organized power.

The primacy of power, say Bichler and Nitzan, is built into the concept of private ownership. The very concept implies exclusion and deprivation. In this sense, private ownership is a negative, not a positive, entity. It is based not on the ability to produce, but on the capacity to incapacitate. It is wholly and only an institution of exclusion, and institutional exclusion is a matter of organized power. Of course, exclusion does not have to be exercised. What matter here, argue Bichler and Nitzan, are the right to exclude and the ability to exact pecuniary terms for not exercising that right. This right and ability are the foundations of accumulation. They enable capitalists to profit greatly from mismanaging the world’s ecosystem, from making society more unequal and from blocking the development of humane alternatives – and to do all that under the guise of ‘scientific management’ and the ‘efficient allocation’ of resources.

Capital, Bichler and Nitzan claim, is nothing but organized power. This power, they say, has two sides: one qualitative, the other quantitative.
The qualitative side comprises the many institutions, developments and conflicts through which capitalists constantly creorder – or create the order of – their society; that is, the processes through which they shape and restrict the social trajectory in order to extract their tributary income. The quantitative side is the universal algorithm that integrates, reduces and distils these numerous qualitative processes down to the monetary magnitude of capitalization.
In order to understand capitalism, you have to understand how organized power serves the interests of the elite few. And as we all know, absolute power corrupts absolutely. But according to Bichler and Nitzan, power is never absolute; it’s always relative:
For this reason, both the quantitative and qualitative aspects of capital accumulation have to be assessed differentially, relative to other capitals. Contrary to the claims of conventional economics, say Bichler and Nitzan, capitalists are driven not to maximize profit, but to ‘beat the average’ and ‘exceed the normal rate of return’. Their entire existence is conditioned by the need to outperform, by the imperative to achieve not absolute accumulation, but differential accumulation.

And this differential drive is crucial: to beat the average means to accumulate faster than others; and since the relative magnitude of capital represents power, capitalists who accumulate differentially increase their power (to emphasize, for Bichler and Nitzan capitalist power relates not to the narrow neoclassical notion of ‘market power’, but to the broad strategic capacity to inflict sabotage).

The centrality of differential accumulation, claim Bichler and Nitzan, means that the analysis of accumulation should focus not only on capital in general, but also and perhaps more so on dominant capital in particular – that is, on the leading corporate-state alliances whose differential accumulation has gradually placed them at the centre of the political economy.
Bichler and Nitzan plot the differential accumulation of dominant capital in the United States since 1950 but note the following:
This measure, though, significantly underestimates the power of dominant capital. Note that the vast majority of firms are not listed. Since the shares of unlisted firms are not publicly traded, they have no ‘market value’; the fact that they have no market value keeps them out of the statisti-cal picture; and since most of the excluded firms are relatively small, differential measures based only on large listed firms end up understating the relative size of dominant capital.

In order to get around this limitation, Bichler and Nitzan plot another differential measure – one that is based not on capitalization but on net profit – and that measure includes all U.S.-incorporated firms, listed and unlisted.

As expected, the two series have very different orders of magnitude (notice the two log scales). But they are also highly correlated (which isn’t surprising, given that profit is the key driver of capitalization). This correlation, say Bichler and Nitzan, means that we can use the broadly based differential profit indicator as a proxy for the power of dominant capital relative to all corporations. And the result is remarkable. The data show that during the 1950s, a typical dominant capital corporation was 2,586 times larger/more powerful than the average U.S. firm. By the 2000s, this ratio had risen to 22,097 – nearly a ninefold increase.
That last figure is an eye-opener. The paper ends with a discussion on Middle-East energy conflicts, a subject that might be a dominant theme in 2012:
Bichler and Nitzan’s research offers various historical studies of differential accumulation in which they examine the quantities and qualities of capital as power. One of these is their work on the Middle East. Figure 5 (above) shows the differential performance of the world’s six leading privately owned oil companies relative to the Fortune 500 benchmark. Each bar in the chart shows the extent to which the oil companies’ rate of return on equity exceeded or fell short of the Fortune 500 average. The gray bars show positive differential accumulation – i.e. the per cent by which the oil companies exceeded the Fortune 500 average. The black bars show negative differential accumulation; that is, the per cent by which the oil companies trailed the average. Finally, the little explosion signs in the chart show the occurrences of ‘Energy Conflicts’ – that is, regional energy-related wars.

Now, conventional economics, say Bichler and Nitzan, has no interest in the differential profits of the oil companies, and it certainly has nothing to say about the relationship between these differential profits and regional wars. Differential profit is perhaps of some interest to financial analysts, and Middle-East wars are the business of experts in international relations and security analysts. But since each of these phenomena belongs to a completely separate realm of society, no one has ever thought of relating them in the first place. And yet, these phenomena, argue Bichler and Nitzan, are not simply related. In fact, they could be thought of as two sides of the very same process – namely, the global accumulation of capital as power. They point to three remarkable relationships depicted in the chart:
  • First, every energy conflict was preceded by the large oil companies trailing the average. In other words, for an energy conflict to erupt, the oil companies first had to differentially decumulate – a most unusual prerequisite from the viewpoint of any social science.
  • Second, every energy conflict was followed by the oil companies beating the average. In other words, war and conflict in the region, which social scientists customarily blame for ‘distorting’ the aggregate economy, have served the differential interest of certain key firms at the expense of other key firms.
  • Third and finally, with one exception, in 1996-7, the oil companies never managed to beat the average without there first being an energy conflict in the region. In other words, the differential performance of the oil companies depended not on production, but on the most extreme form of sabotage: war.
That last one should make us pause and reflect on the state of the world today and whether or not we are on the verge of another "extreme form of sabotage," ie. war. I thank Jonathan and Shimshon for their thought provoking analysis and hope my readers will take the time to read their excellent paper. Below, Ted Rall on RT discussing how US trajectory on Syria 'a self-generating path to war'.

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