Cooking the Books (2)

Global turbulence

Around 1973 the post-war boom came to an end. Various explanations were advanced. At the time one of the more popular was that profits had been squeezed because the working class had been able to take advantage of full employment to push up wages, as put forward by Andrew Glyn and Bob Sutcliffe in British Capitalism, Workers and the Profit Squeeze.

It was also the view, at the other end of the political spectrum, of Mrs Thatcher, who determined to destroy this supposed power of the unions. Which her government did after 1979. But this didn’t bring about a return to pre-1973 boom times. Which shows, argues Robert Brenner in The Economics of Global Turbulence, that it wasn’t increased wages that caused the fall in the rate of profit that precipitated what he calls “the long downturn” that is still with us.

So what did? His explanation is that the unplanned and competitive nature of capitalism led to world overproduction and overcapacity in manufacturing industry. The expansion of American manufacturing industry led the post-war boom but, in time, the same productive methods it employed were applied by its competitors in Germany and Japan, so increasing – over-increasing in fact (in relation to paying demand, not real need of course) – world manufacturing capacity.

“Normally” this would be rectified by a world slump in which the high-cost, inefficient producers would be eliminated but this didn’t happen, argues Brenner, or at least not sufficiently, because of government intervention and because some of the inefficient producers were prepared to carry on with reduced profits. And it still hasn’t happened as, although world paying demand (world trade) has expanded, world manufacturing capacity has expanded more, with the arrival, first, of Korea and Taiwan and, now, of China. As a result since 1973 the world economy as a whole has only been limping along.

The motor of capitalism has always been industry, which transforms material things into other material things. It is the renewal and expansion of such industries, and the repercussions this has on the rest of the economy, that has resulted in the accumulation of productive capital that is the essence of capitalism. But in Western countries today, with their stagnant or declining manufacturing sectors, this no longer appears to be the case. Judging by the commentaries on the financial pages, this role of motor would seem to have been taken over by “consumption”.

Capitalism has of course always satisfied paying consumer demand but this has been generated as a by-product of the accumulation of capital. Keynesianism was an attempt to go beyond this and artificially stimulate consumer demand through government spending.

Brenner argues that governments are still trying to stimulate and manipulate demand, by deliberately engineering an illusory increase in wealth by lowering short-term interest rates. This has the effect of increasing the price of stocks and shares and houses; people feel richer and, once a stock exchange or housing bubble develops, can get more money to spend through cashing in their capital gains. Brenner calls this “asset-price Keynesianism” and argues that in the end it is just as impossible to sustain as classical Keynesianism. Not only does it lead to “stop-go” as the artificially inflated demand draws in imports and creates balance of payments problems, but it also leads to stock exchange and/or housing booms and busts.

He says that the current apparent expansion in the US will sooner or later come to an end (as it now seems to be) “but, whether the reversal takes place with a whimper or a bang, economic slowdown and new turbulence still seem much more likely than a leap into a new long upturn”. So capitalism will just stagger on from mini-boom to mini-slump and back as it has done since 1973.
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Each year half a million people in India and other tropical countries catch visceral leishmaniasis, also known as black fever. Infected by the bite of a sand fly, they rapidly weaken and lose weight before dying with painfully swollen livers and spleens.

A safe and effective treatment for black fever was found long ago: the antibiotic paromomycin (cure rate 95 percent). But the firm that developed it -- Pharmacia, a precursor of Pfizer – shelved it in the 1960s for lack of a "viable market." What that means is that the people who need it cannot afford to pay for it. It is simply not profitable for pharmaceutical companies to fight diseases that afflict the poor. Less than 1 percent of the new drugs developed in 1975–99 were for tropical diseases (Joel Bakan, The Corporation, p. 49).

Lack of effective demand is not the only thing that makes many useful drugs unprofitable. In general, a capitalist firm can only make big profits by selling drugs on which it has a patent – that is, an exclusive right to make, use, and sell a new product for a certain period (in Britain and the US it is 20 or even 25 years). Firms are not interested in making drugs that cannot be patented.

An interesting recent development is the emergence of a new kind of charity that raises money not just to distribute but to produce things that people need but can't afford. One such organization is the Institute for OneWorld Health (IOWH), founded in San Francisco in 2000 by Dr. Victoria Hale (http://www.oneworldhealth.org). A pharmaceutical chemist, Dr. Hale had felt frustrated watching the industry abandon badly needed and promising but unprofitable drugs. At about the same time, James Fruchterman, an electrical engineer, set up Benetech, another "nonprofit company," in Palo Alto, California, to produce new types of equipment for the disabled.

The first program of IOWH aims to make paromomycin available to black fever sufferers in the north Indian state of Bihar. The program is being funded (to the tune of $4,700,000) mainly by Bill and Melinda Gates. The Indian government has given its approval and an Indian firm (Gland Pharma of Hyderabad) has agreed to manufacture the drug at cost. Other programmes are planned to tackle Chagas disease, malaria, and diarrhea.

It is hard not to sympathize with well-meaning projects of this kind. But we also have to consider the problems faced by nonprofit organizations as they operate under the constraints of a profit-driven economy.

The first problem is how to raise enough money. IOWH is asking the Gates for another $30 million. They can't take out loans or raise funds on the capital market because that would force them to operate on a profit-oriented basis. But unfortunately only a few of the very wealthy are willing to give to charity on a really major scale and the demands made on those few are legion. And doesn't it seem perverse first to accumulate profit and then use it to ameliorate the ills constantly generated by that same profit-making process? Does the left hand know what the right hand is up to?

It also bears noting that the paromomycin is not going to be provided free of charge. The aim is only to make it as affordable as possible. Dr. Hale hopes to keep the cost down to $10 for a 21-day course of treatment, but the website of the World Health Organization merely says "below $50." We shall see. The point is that in the context of India – and especially in that of Bihar, India's poorest state – these are by no means paltry sums. The average per capita income in Bihar is $120 (5,500 rupees) a year. As the distribution of income is highly unequal, even $10 will be well beyond the means of many sufferers.

In his enthusiastic report in the Guardian Weekly (October 20-26, 2006, p. 29), Ken Burnett asks why nonprofit pharmaceutical companies should not be followed by nonprofit seed companies, water companies, travel companies, and so on. Why not, indeed? But if this is supposed to be a process that develops under capitalism, we can't avoid asking: "Where is the money coming from?" So far all we have is one small nonprofit pharmaceutical company and one small nonprofit engineering firm.

Nevertheless, it is encouraging to see people trying to move in this direction, people who crave meaningful work for the benefit of the community. The very existence of nonprofit companies is a protest against and challenge to the system of production for profit. We would only take the argument to the next logical step. Why not extend the principle of production for need to the world economy as a whole?

STEFAN