Thursday, January 4, 2018

Schumpeter’s two theories of imperialism

Recently Thomas Hauner, Suresh Naidu and I published the draft of a joint piece (here and here) that examines empirically several links in the Hobson-Lenin-Luxemburg theory of imperialism. I will not discuss it here (the interested reader may  consult the first section of our paper) because I would like to focus on another contemporary theory of imperialism, Schumpeter’s.

Schumpeter’s theory is interesting for several reasons. It was formulated at the same time as Lenin’s and Luxemburg’s and clearly with the knowledge of the two. It reacts to the exactly the same events as theirs. It is different though and it was held by Schumpeter throughout his life. The key text for Schumpeter’s theory is “The sociology of imperialisms” (note the  plural) published in 1918-19. It is a very long essay of some tightly printed 80 pages in its English translation. Schumpeter did not change anything (of substance at least) to the theory as can be seen from its brief reappearance in his “Capitalism, socialism and democracy” (CSD), published in 1942 (and republished many times since).

What Schumpeter says is the following. Imperialism, most purely defined, is “objectless”, that is, it is not directed against something or somebody that can be shown to impede one’s interest. It is thus not rational: it is a simple will to power. The canonic examples, according to Schumpeter, are Assyrians, Persians, Arabs and Franks (all four discussed quite extensively). He then adds Rome where imperialism reflected class interests of the upper strata and where Schumpeter’s analysis is as materialistic as it can be. (And he has some especially nasty things to say about Rome which for the interest of space I will have to skip).

Now, imperialism as such is atavistic and in contradiction with “normal” capitalism which is rational and individualistic and whose objectives can be much better achieved in peace and by peace. We should thus expect imperialism to diminish as capitalism becomes stronger. The least imperialistic are the most capitalistic countries like the United States.

This, I think, is the usual reading of Schumpeter’s theory and it can be related to similar theories from Montesquieu’s doux commerce to Doyle’s democratic peace (although Schumpeter really talks about capitalistic peace).

However, I think that an alternative reading of Schumpeter is possible, based on his own writings and view of capitalism.

In “Imperialisms…” Schumpeter allows that imperialism can appears in capitalistic societies. But there “we must evidently see [imperialistic tendencies] only as alien  elements carried into the world of capitalism from the outside, supported by non-capitalistic factors in modern life”. (p. 194).  

But (and it is a crucial “but”) if capitalism is not the one of perfect competition and free trade but capitalism of monopolies then Schumpeter allows that “organized capital may very well make the discovery that the interest rate can be maintained above the level of free competition if the resulting surplus (my emphasis) can be sent abroad” (p. 200). “Organized capital” may realize that it has a lot to gain from having colonies. Schumpeter continues “they can use cheap native labor...; they can market their products  even in the colonies at monopoly prices; they can finally invest capital that would only depress the profit at home and that could be placed in other civilized counties only at very low interest rates” (p. 201-2)”.

Moreover, in conditions such as these “[metropole] generally pours a huge wave of capital into new countries. There it meets other similar waves of capital, and a bitter, costly struggle begins but never ends… In such a struggle it is no longer a matter of indifference who builds a given railroad, who owns a mine or a colony” (p. 201-2).

In this description of the role of monopoly capital in fostering colonization and imperialism Schumpeter is hardly a hair's breadth away from Lenin and Luxemburg. Perhaps so, it could be argued, but these are, according to Schumpeter, special conditions of monopoly (“trustified”) capitalism that cannot be identified with “normal” or “usual” free market capitalism.

But this is not what Schumpeter says in CSD. There the point is forcefully made that the key feature of capitalism (what makes it grow) is innovation and that it is possible only if capitalism is monopolistic, or if it is not, innovation itself will lead to monopolies (a thing which we can indeed see today). 

The introduction of new methods  of production and new commodities is hardly conceivable in perfect competition from the start. And this means that the bulk of what we call economic progress is incompatible with it. As a matter of fact, perfect competition is and always has been temporarily suspended whenever anything new is being introduced…even in otherwise perfectly competitive conditions.” (Chapter VIII)

Further, since monopolistic competition is dynamically more efficient than the textbook free market capitalism, the former will come to dominate and indeed become the normal form in which capitalism will exist and prosper.

But if the normal form of capitalism is monopolistic, then the “normal” form of behavior of such capitalism is as forcefully described in “Imperialisms….”: trying  to keep the domestic rate of profit above the “natural” level by exporting capital to colonies, aiming to control cheap labor and resources, and likely running into struggle and conflict with other monopolized national capitalisms. So this is the normal modus operandi of capitalism—according to Schumpeter.  

The contention that perfect  competition and free trade would be incompatible with imperialism becomes really irrelevant: even if the contention is valid, it refers to a textbook case of capitalism that, Schumpeter tells us, is bound to lose out and yield to a more dynamic and innovative monopolistic capitalism.

Putting these two things together then gives us a reformulated Schumpeter’s theory of imperialism which comes exceedingly close, nay is practically identical even in its emphasis on the low domestic rate of return, to classical Marxist theories of imperialism. Whether Schumpeter would be appalled, or whether he might have been aware of it, is relevant for la petite histoire. But it seems to me that the logical proximity of the two theories cannot be denied.

Friday, December 29, 2017

Will there be postcapitalism? Review of Paul Mason’s “Postcapitalism: A Guide to our Future”

It is an immensely ambitious book. In less than 300 pages, Paul Mason not only explains the past 300 years of capitalism and the efforts to replace it with another system (socialism), but shows how it would be eventually transformed and proposes a set of policies to help that transformation along. Moreover, it is not a superficial book as it might seem at first by contrasting the enormity of the material covered and the relatively slender size of the volume. One should not be misled either by the folksy style used by  Mason. The style may be journalistic, but the questions asked, the quality of the discussion, and the objectives of the book are first-rate.  

The book can be read in many ways. One could focus on the last three chapters which are of a programmatic nature and intended to supply some positive objectives to the new left. Or one could discuss the book’s belief in cyclical development of capitalism driven by the long-run Kondratieff’s cycles (we are currently, according to Mason’s reading, in the upswing of the fifth cycle). Or one could focus on Mason’s very brief but powerful history of the workers’ movements (Chapter 7) and one of his rare agreements with Lenin that workers could at best reach “trade-union consciousness” and were not interested in overthrowing capitalism. Or one could debate the usefulness of Mason’s resuscitation of Marx’s labor theory of value.

I will not do any of this since this review is relatively short. I will discuss Mason’s view of the current state of capitalism and of the objective forces that, he argues, lead it to postcapitalism. The gist of Mason’s argument is that the ICT revolution is characterized by enormous economies of scale which make the marginal cost of production of knowledge goods close to zero, with both the quantities of capital and labor embodied in such products tending to zero. Imagine an electronic blueprint of whatever needed for 3D printing or a software directing the work of machines: once such investments have been made there is hardly any need for additional live labor, and since the capital (software) has a quasi infinite life, the share of capital “embodied” in each unit of output is minimal (“what you ideally want is a machine that never wears out, or the one that costs nothing to replace”, p. 166).

When the marginal cost of production goes to zero, the price system no longer functions, nor can standard capitalism exist: if profits are zero, we do not have a capitalist class, nor surplus value, nor positive marginal product of capital, nor wage labor.  We are approaching the world of mass abundance where the usual rules of capitalism no longer apply. It is a bit like the world of absolute zero temperature, or the world where time and energy become one. It is in other words a world very far from the one that we inhabit now but it is where, according to Mason, we are going.

What are the ways capitalists can offset driving themselves out of existence? There are three ways, and to those who have read Marxist literature of the early 1910s, they would be familiar because similar issues were discussed then. The first is to create monopolies. This is exactly what Apple, Amazon, Google and Microsoft are doing now. The economy can become monopolized and cartelized as it did in the last decades of the 19th and the first decades of the 20th century.

The second response is to reinforce protection of intellectual property. This is again what the just mentioned companies, or song producers and Disney are trying to do ever more aggressively using the power of the state. (The reader would realize that protection of property rights increases capital unit costs and thus prevents the marginal cost of production dropping to zero.)  

The third response is to continually expand capitalism’s “field of action”: if profits in one area threaten to drop to zero move to another area, “skating [forever] to the edge of chaos” between expanding supply and falling prices, or …find new things that can be commercialized and commodified.

Readers of Rosa Luxemburg would recognize here a very similar idea, namely that the existence of capitalism depends on its continued interaction with non-capitalist modes of production and once these are exhausted capitalism will be driven to the world of zero profits. These concerns have an even older pedigree, going back to Ricardo’s view that, without the repeal of the Corn Laws, all capitalists’ profits will be eaten up by landlords’ rents and development stifled, and to Marx’s “law of  tendencial fall of the rate of profit” caused by ever greater capital intensity of production.

So Mason’s points in this respect are not new, but situating them at the current stage of capitalism and ITC revolution is new. The three ways that capitalists try to redress the ineluctable decrease of the rate of profit are all found wanting. If monopolies were a way to maintain capitalism that would imply the end of technological progress. Capitalism would become a “regressive” system. Not many people would disagree with Mason’s call to suppress the monopolies such as Amazon and Microsoft. The same is true for protection of property rights whose enforcement moreover is getting more and more difficult.

So with a tendency of profits to go to zero and inability to protect property rights, the only solution that remains is commercialization of daily life (the new “field of action”). This is how Mason explains the tendency of capitalists to move unto previously non-market transactions: to create new goods out of our homes which we now rent by the day, out of our cars, out of our free time. Practically every human interaction will have to be commodified: mothers will charge each other a penny when they push each other’s kids on a swing in the playground.  But this, Mason argues, can’t continue. There is a natural limit to what the humans will accept in terms of commodification of daily activities: “you would have to treat people kissing each other for free the way they treated poachers in the 19th century” (p. 175).

Mason’s arguments are, I think, very persuasive so far, but this is the place where I am tempted to part ways. His explanation of why we are living through a period of unprecedented commodification of our personal lives is very well taken, but his optimistic outlook that such commodification faces limits as well as his emphasis on the increasing importance of non-market transactions (open source software, writing blogs like this one for free etc.) is wrong.  

Let me start with the latter. Mason exaggerates the importance of new technologies or new goods that are developed through cooperation and supplied for free. Yes, many things can be accessed for nothing but even if they seem to be provided voluntarily there is, in the background, a mercenary element: you may write a code or text for free but this is done to influence others, become noticed and ultimately paid for it.  Mason probably wrote his book for free; but the success of the book will ensure that he would be paid for whatever next he says or writes. So focusing on the former without including the latter is misleading.

Why is his view on commodification wrong? Commodification is not just imposed on us externally through companies that want to find new sources of profits. We are willingly participating in commodification because through long socialization in capitalism, its global reach and thus mimicry among those who have not been socialized as long, people have become capitalistic calculating machines. We have each become a small center of capitalist thinking, assigning implicit (”shadow”) prices to our time, our emotions or family relations.

The ultimate success of capitalism is to have transformed, or developed, human nature into making  each of us into excellent calculators of “pain and pleasure”, “gain or loss” so much so that even if capitalist factory production were to disappear today we would be selling each other services for money: we shall become companies. Imagine an economy (similar externally to a very primitive one) where all production is conducted at home. This would seem a perfect model of a non-market economy. But if we had such an economy today, it would be fully capitalistic because we would be selling all these goods and services to each other: a neighbor will not keep an eye on your children for free; nobody will share food with you but will charge you; you will make your husband pay for sex and so forth. This is the world we are moving towards, and the field of capitalistic operations is thus likely to become unlimited because it would include each of us. “The factory in the cognitive capitalism is the whole of society” (p. 139).

Capitalism will run for a very long time because it was successful in transforming  humans into calculating machines endowed with limitless needs. What David  Landes saw as one of the main contributions of capitalism, better use of time and ability to express everything in terms of abstract purchasing power, has moved now into our private lives. We do not need capitalist mode of production in factories if we have all become capitalistic centers ourselves.   

Saturday, December 23, 2017

Democracy of convenience, not of choice: why is Eastern Europe different

There are, in my opinion, two considerations that are almost never taken into account when the reluctance, or outright refusal, of East European countries to accept African and Asian migrants, many of them Islamic, is discussed.  They are the history of these countries over the past two centuries, and the nature of the 1989 revolutions.

When one draws the line from Estonia to Greece, or to be more graphic and to imitate Churchill from Narva to Nafplion, one notices that all currently existing countries along that axis were during the past several centuries (and in some cases, the past half-millennium), squeezed by the empires: German (or earlier by Prussia), Russian, Habsburg, and Ottoman. All these countries fought, more or less continuously, to free themselves from the imperial pressure, whether it was exerted through cultural assimilation (as in the case of Czechs and Slovenians), imperial conquest and partition (Poland), imperial conquest tout court (the Baltics and the Balkans), temporary inclusion as a second-tier ruling nation (Hungary) or any other way.  

Their histories are practically nothing but unending struggles for national and religious emancipation (when the religion of the conqueror differed from theirs, as in the case of Ottomans and the Orthodox, or as between Catholics and Protestants).  National emancipation meant the creation of a nation-state that would ideally include all members of one’s community. Of course, none of the nations were averse, when given half a chance, to convert themselves into the rulers of other weaker neighboring states—so there was no valid ethical superiority they had compared to the empires that ruled, and often oppressed, them. The line between the oppressed and the oppressor was always thin.  

Eventually, as the four empires receded, notably in the aftermath of the First World War, and eventually in the early 1990s when the last such empire, the Soviet Union, collapsed all countries along the Narva-Nafplion line became independent and almost wholly ethnically homogeneous.  

Yes, I know that there is an exception, Bosnia, and precisely because it is an oddity and exception, the civil war was fought there. But every other country is now fully, or fairly close to being fully, ethnically homogeneous. Consider Poland that in 1939 consisted of 66% of Poles, 17% of Ukrainians and Belorussians, almost 10% of Jews and 3% of Germans. As a result of the Second World War and the Holocaust and then the westward movement of Polish borders (combined with the expulsion of German minority), in 1945 Poland became 99% Catholic and Polish. It fell under the sway of the Soviet Union but since 1989 it was both free and ethnically compact.

In fact,  if we define the national ideals as (a) zero ethnic members outside country’s borders and (b) zero members of other ethnic groups within the borders, Poland, Czech republic, Slovakia, Slovenia and Greece (total population of almost 70 million) fulfill these two criteria almost to perfection. Close by come Hungary, Lithuania, Croatia, Serbia, Albania and Kosovo (total population of about 30 million) that fulfill almost fully the criterion (b);  Estonia, Latvia, Bulgaria, Macedonia and Romania (about 30 million) satisfy (a), but do have relatively important minorities within their borders. The upshot is that most countries that run from the Baltics to the Balkans have today almost entirely homogeneous populations within their borders, i.e. they satisfy either both (a) and (b), or (a) alone.

What would migrants do? They would dissolve that homogeneity, thus undermining the key objective for which these countries fought for several centuries. This time ethnic heterogeneity would not be imposed from the outside by one of the conquering empires but would, insidiously, come from within in the form of migrants, people of different culture, religion, and most scary in the eyes of the locals, people whose birth rates significantly outstrip the anemic, or even negative, growth rates of the native population. Migration thus appears as a threat to the hard-won national independence.

The second consideration is related to the first. It has to do with the nature of the 1989 revolutions. They were often interpreted as democratic revolutions. Thus the current “backsliding” of East European countries toward overt or covert authoritarianism is seen as a betrayal of democratic ideals or even, more broadly and extravagantly, of the ideals of the Enlightenment. The refusal to accept  migrants is regarded as contradicting the nature of the revolutions. This is however based on a misreading of the 1989 revolutions. If they are, as I believe they should be, seen as revolutions of national emancipation, simply as a latest unfolding of centuries-long struggle for freedom, and not as democratic revolutions per se, the attitudes toward  migration and the so-called European values become fully intelligible. These values, in Eastern eyes, never included ethnic heterogeneity within their borders. For Westerners this may be an obvious implication of democracy and liberalism, but not for the Easterners who are asked to risk their key accomplishment in order to satisfy some abstract principles.  

When the revolutions of 1989 happened it was easy to fuse the two principles:  nationalist and democratic. Even hard-core nationalists liked to talk the language of democracy because it gave them greater credibility internationally as they appeared to be fighting for an ideal rather than for narrow ethnic interests.

But it was a democracy of convenience, not a democracy of choice. It was similar, to give an out-of-Europe example, to the Algerian revolution which was also viewed by their protagonists not as a national but fundamentally as a democratic revolution. And indeed when you have an overwhelming majority in favor, the two objectives, national and democratic, can run together and be easily confounded. It is only when tough choices, like now, have to be made that we can much more clearly see which one of the two was really a driving force. And when we see that, we cannot be surprised by the apparent obduracy of Orbans, Kaczynskis,  Zemans and many others. It is inability to see them in the right context that has blinded both Eastern and Western elites to the reality.