Two Year Anniversary How we got here, keep gettin here, and nowhere… S. Artesian
Saturday, March 19, 2005
UNLEASH THE ACCOUNTANTS
SEND IN THE STOCKBROKERS
I. Borrowing from his experience as a greeter at the door to vertically integrated petroleum companies, George W. Bush tried a little vertical integration in the executive branch of the US government. Guided by the capable hands that guided Halliburton, Monsanto, Enron, Dynergy, El Paso, MCI, Global Crossing, Arthur Andersen, and the Texas Rangers, George decided that transportation security, infrastructure safety, border control, marine policing and much more, would be integrated into a new ministry of the interior, the Department of Homeland Security.
The ministry was charged with developing a common platform for the collection, analysis, and investigation off all threats to the internal security of the United States. But such a database won’t be built in a day, and so while the new ministry’s budget provided billions for the application of advanced technological protections for the domestic tranquility, for private property, for the unfettered and unrestrained extraction of profit, the Minister’s own prescriptions tended toward the mundane, the simple, even the simple-minded.
Knowing that familiarity is 90% of effective representative government, the Minister decided to really put the home in homeland security, first color-coding terrorist threats and then providing the Home Depot solution to personal protection, plastic sheeting and duct tape. Where Lenin saw that every cook would govern, Bush saw every American safe and secure in a duct-taped zip locked Glad Bag. And since duct tape comes in colors, citizens everywhere could show their patriotic allegiance to the Ministry’s pronouncements by changing the duct tape to match the color of the day’s terror alert status.
Determined to stand fast behind flag, dollar , and consumer debt in the arduous and perilous times ahead, US residents stocked up on duct tape, plastic sheeting, Krispy Kremes, potassium iodide pills, and DVDs.
If defense of the homeland depended on the application of duct tape, defense of the empire required something with a bit more punch: depleted uranium. Having taped the windows at the White House, George commanded his generals and admirals to seek out , close with, and destroy the Beelzebub of Baghdad, Saddam Hussein. Steaming full ahead, the USS Carlyle with the Secretary of Defense at the helm, cruise missiles at the ready prepared once and for all to settle the question of exactly who was running the Bartertown of global capitalism.
Depleted uranium and duct tape, the alpha and omega of advanced capitalism. Depleted uranium and duct tape, items of sinister utility held the whole truth about primitivism of the modern world.
II. History does not exist for capital. In its stead the bourgeois order comforts itself with the records and measures of past performance. Price, volume, supply, demand, cost, all exist, but only as things onto themselves, separate and apart from the conditions of production.
Thus the “boon “ of the 90s has no history, no origin in the previous twenty years of declining real wages for workers in the US and throughout the world; no origin in the redistribution income from the poorer to the wealthier; no origin in the employment of legions of women at substandard wages in substandard factories for the production of everything from sneakers to chicken parts; no origin in the dismantling of the Soviet Union and the use of its economy as kindling. “History is bunk!” said Ford. “Nothing of value before me,” says our ahistorical bourgeois, “Nothing of value after me.”
The dreary present of capital and its bleak future combine to make the near past a regular utopia. But it was not, as these things go, by the measures of past performance, the biggest of boons. The average annual rate of growth (AARG) for world merchandise trade in the period 1990-2000 at 6.6% was below the levels for the periods 1950-1963 and 1963-1973. AARG for manufacturing output at 2.5% was one third that for both prior periods.
But when past performance doesn’t quite support the grandeur of a moment, then that past performance is discarded, relegated to ancient history. Nostalgia finds comfort in the performance of the period 1973-1990. And compared to that period’s meager 3.9% rate for merchandise trade, the 1990-2000 period looms as a regular Mount Olympus.
Trade is where every bourgeois sees, hears, tastes, feels the sweetness of profit. Production is only ancillary to exchange, a necessary encumbrance, but still an encumbrance . It’s the market where greed and fear materialize and disappear in the accumulation, or loss, of money. “Circulation,” wrote Marx, “sweats money from every pore.”
Trade and output, production and circulation, profit and expenditures, growth and assets, are quantities , static measures of capital’s performance. They are the end of history at the bottom line of the accountant’s ledger book.
The rate of growth, the rate of profit are the qualities of capital that take it back to its origins; that bring history up to date, and with a vengeance.
III. The history of capitalism since 1973 is the record of its struggle with the falling rate of return on investment. It is the history of overproduction.
After OPEC 1 and OPEC 2, after stagflation, inflation, recession, the financial arson of the leveraged buyout period, deregulation, the S&L collapse, the first Gulf War, more deregulation, globalization, after all that it’s still overproduction manifesting itself as the declining return on investment that shakes the ground of capital.
Basking the glow of the oil fires in Kuwait, capital thought it had the solution to overproduction. Sense and anti-sense were rolled into one. Capital formation would be the end to overproduction. Capital formation, increasing the need/availability of/for equity and debt was the promise at the end of history. Recombinant capital triumphant!
The first triumph was the emerging markets of Pacific Asia; Indonesia, Taiwan, South Korea, Indonesia, Singapore, Malaysia, the Philippines. Between 1990-1996, annual increases in fixed capital formation in ranged between 20% and 40% of the GDP.
Between 1979 and 1997, China, a globalization all unto itself, received $510 billion dollars in foreign direct investment and an equal amount in loans.
Between 1992 and 2001, capital expenditures in the United States doubled. In the US and the UK, the telecommunications industry led the way , amassing almost one trillion dollars in loans, half a trillion dollars in bonded debt, and issuing another half trillion in equity. Still, with all this capital formation, this two trillion dollars measured only half of the industry’s cumulative capital spending up to 2001.
In 1993, capital investment in communications, information equipment, and software was measured at 37% of all capital investment. By 1999, the amount invested in these areas tripled, and accounted for 53% of all capital spending. By 2000, the proportion had grown to 60% of all new capital spending.
The technical progress of the telecommunications industry propelled forward by capital formation. At the same time it devalued all preexisting capital. Each new Atlantic cable added bandwidth equal to all previous existing transatlantic bandwidth.
Profits grew, and the growth was a direct result of this technical expansion, this transfiguration of labor productivity into the instrument of expropriation. The costs of production for this industry, for manufacturing, transportation and communications as a whole, were driven to historic lows.
In 1993, after-tax corporate profits measured 29.3% of the growth in nonresidential private fixed assets. By 1995, the ratio had grown to 33% of the growing investment in nonresidential fixed assets. The ratio of profits grew yet again in relation to the expansion of fixed assets, measuring 34% for 1996 and 1997 before falling in 1998 to 26.9%, a rest stop on its way down to 16.35% in 2001.
After-tax corporate profits exhibit a similar, and similarly dramatic relation in its ability to replace the consumption of fixed capital in the production process. For 1993, profits equaled 76% of the consumption of fixed capital, a margin that grew to 97% in 1996 and, dream of dreams, holy of the most holies, 102% in 1997. By 1998, the ratio declined to 86.8% and by 2001, it was down to a recession level 67.4 percent.
Any way we turn it, cut it, look at it, 1997 was the peak year for the rate of profit as US after- tax corporate profits reached 7.61% of the gross product of non-financial businesses. That ratio collapsed by half to measure a meager 3.8% in 2001.
While capital investment increased, manufacturing employment was essentially flat, and compensation rates barely moved. The very mechanism for the expansion of profits thus became the reason for the reduction in the rate of profits as less and less labor power animated greater masses of fixed capital.
In this decline, the telecommunications industry again led the way. When the markets proved incapable of sustaining the acceleration in capital formation, the debt and equities of the industry collapsed. By 2001, 60 billion dollars in telecommunications debt was in default. Average equity valuations had declined by half , physical assets were selling for 2 cents on the dollar. Assets only have value for capital to the degree that they can accelerate the extraction of profit.
Money, as the abstraction of the abstraction of exchange value, is the most sensitive link in the daisy chain of capital’s transformations. Thus the overproduction, the capital formation, that precipitated the peak and the decline in the rate of profit manifested itself first in an attack on the currencies of those countries where fixed capital formation had been most intense, Pacific Asia. From there, the manifestations of overproduction spread east and west , attacking the currencies of Brazil and forcing Yeltsin’s government in Russia to default on its GKO bonds.
Mesmerized by the opening and closing bells of the New York Stock Exchange, the US bourgeoisie were not just deaf to the sounds of distress coming across the Pacific, they were amused. Entertained by the disaster in Asia, they trembled at the threat to Brazil, and sweated bullets at the default of Russia. Such was the ultimate product of capitalist circulation.
Behind the ringing in of the new highs in the stock market, behind the electric sounds of credit cards and cash registers engaged in oxymoronic couplings, exchanging digitized bodily fluids in a billion bits of a million orgasms each second, there was the soft sound of something falling and not yet hitting, a body perhaps.
Somewhere in some back office two accountants worked long and hard into the night, rearranging profits, assets, trades, like molecular biologists rearranging snips of genetic code. “Did you hear that ?” asked one. “Sounds like chickens,” said the other. “Maybe they’re coming home to roost,” answered the first. The two accountants looked at each other and agreed to book the chickens as assets. But the noise wasn’t that of chickens. It was the wolf knocking at the door. And she was hungry.
IV. The bourgeois class is not organized as a class for the pursuit of knowledge, the advancement of society, science, technology, or even socially necessary production. The bourgeois class exists only to make money.
The history of the last thirty years is the record of the bourgeois order’s attempt the overcome the predicament at the core of the capitalist mode of appropriation. The means of production are organized as private property but can only function, generate profit, as capital, that is, by an exchange with social, wage-labor. The appropriation of unpaid, surplus, labor-time, time not necessary for the sustenance of wage-labor is the basis for the extraction of profit.
For the system of production as a whole, increasing the rate of aggrandizement depends on the technical development of the means of production. At a certain, critical, point the expansion of production outstrips the growth in the relation of profits to expansion itself. Production outpaces reproduction. The rate of profit falls. Then the expense and the development, of the means of production become a threat to the security of the bourgeois order’s private property.
Everything that has been established, science, technology, culture, civil society , becomes, at best, a burden. Then the accountants step forward and transfer all of these “progressive” expressions of capital into the non-performing asset category, the category marked for liquidation.
The history of the past 30 years of the petroleum industry gives this predicament at one and the same time its most crude and most distilled expressions.
When, in 1999, OPEC doubled the price of crude oil, it was another in its appearances as the 51st state of the United States. OPEC had rescued the petroleum industry before, in 1973 and again in 1979. It stepped forward again in 1999 to rescue the industry from the nightmare of its own making, overproduction; and overproduction made manifest by a precipitous drop in oil prices in 1998 as the actual market prices gravitated downwards toward the actual, and historically low, costs of production.
OPEC’s first intervention, in 1973, resulted in the quadrupling of industry profits by 1978 while the industry fixed assets expanded by 60 percent.
OPEC’s second intervention, in 1979, boosted profits and financed rapid investment in the fixed assets of the industry. In 1981, oil profits recorded a peak that was seven times the 1973 level. In 1982, the fixed asset value of the industry was six times the 1973 level. That measure of fixed assets was not exceeded by the petroleum industry until 1996.
Earnings, however, slowed and after the price break in oil in 1986, the return on investment dropped below 6%. The lead-in to 1986 was a decline in the rate and mass of profits. Profits in 1984 were half the 1982 measure. The industry responded by reducing its labor force , first by 13 percent between 1982 and 1984 and then by a further 33% between 1984 and 1987.
US petroleum companies embarked on a massive divestment of fixed assets. From the mid 80s to 1993, the companies that participate in the US government’s Financial Reporting System (and account for half of total output and revenues) reported capital and exploratory spending 448 billion dollars coincident with 16% decline in their fixed assets.
The half trillion dollars in capital spending developed and deployed new technologies and methods. These advances were applied to the recovery and extraction of oil from both existing and developing fields. The application of computer -assisted 3D seismic imaging to exploration and development dramatically reduced offshore, onshore, and foreign average finding costs (calculated over three year spans) for the FRS companies. For the 1979-1981 period those costs measured approximately $24 per barrel equivalent. For the 1991-1993 period, the costs were $6 per barrel equivalent.
Advanced drilling techniques both extended the life of older fields, yielding more proven reserves, while maintaining the relatively low costs of production per barrel. The productive life of the North Sea fields was extended by at least eight years , while the costs of production fell before $4 per barrel.
Despite and because of this “progress,” this immense capital investment animated by such reduced demands for labor power, the return on investment for the industry remained relatively stable, and relatively flat, and relatively low. Between 1990 and 1995, the ROI exceeded 9% only once, in the buildup to war year of 1990.
Capital spending reached record highs for the FRS companies in 1996 and 1997, due in part to the onset of massive capital combinations concentrating the industry through mergers and acquisitions. At the same time, finding costs reversed their historical decline. More technology, more money, 45% more than in 1995, was devoted to deep water offshore exploration where finding costs average twice that of onshore exploration. These costs were not only the costs of actual exploration, but reflected the increasing acquisition costs of the increasing acreage necessary for development.
In 1996, with production costs below their previous lows, the ROI finally reached double digits at 10.1% , with total profits measuring $32 billion dollars. In, 1997 the ROI grew to 10.8% despite oil prices falling $7 per barrel in the 12 months; despite/because production expanded 3.1% and consumption expanded 2.6 percent. Overproduction was the near immediate response to the recovery of the rate of return. The time, the distance between the recovery of the mass of profits, the temporary surge to the rate of profit, and the transformation of that increase of mass into a reduced rate of growth had shortened. Capital had the world on a string, all right, but the string was already at the end.
In 1998, earnings collapsed, the FRS companies’ total net income was only 40% of the 1997 mark with ROI at 3.8 percent. Capital spending was at the highest level since 1984, with mergers and acquisitions accounting for 28% of the expenditures. Again, offshore exploration accounted for the bulk of the increase in finding costs. The number of onshore exploratory wells declined by more than one-third.
When OPEC doubled its price in 1999, the Seven Sisters of the petroleum industry would have cheered, wept, danced… if there had been seven sisters. The mergers of Exxon, Mobil, BP, Amoco, Chevron, Texaco had reduced the family by half. And these weren’t exactly sisters, but dowager empresses, having each other over for lunch, ready to have each other for lunch.
Nostalgic for its past performance, blind to its history, capital turns with desperate belligerence on the terms and conditions of its own existence. Property must be preserved, the means of production, fixed and circulating, variable, constant, breathing and mechanical, can, must, and will be sacrificed. Property first and foremost.
V. The second Gulf War has nothing to do with oil and everything to do with oil. It has nothing to do with oil as a resource and everything to do with the production of oil as a commodity. It has nothing to do with supply, demand, scarcity, depletion and everything to do with the terms of reproduction that generate supply and demand, scarcity and overproduction.
At the exact moment that history rushes forward overwhelming the categories of past performance with the reality of production organized by one class appropriating the labor of another class; at exactly the moment that private property runs up the inside of the walls of a cage of its own making; at exactly that moment when private property, when capital, marks down and scraps its own past performance of “democracy,” elected government, civil liberties, of the freedoms of speech, assembly, at just that moment the left proclaims its once and future nostalgia for the husks of capitalist corn.
Just when overproduction declares that the elements of civil society have always rested on the expropriation of unpaid labor, slave and/or wage, the left dons the wardrobe of civil society and substitutes the old fashions for class analysis.
Past performance is capitalism’s substitute for history, but sooner or later, history accepts no substitutes. Then, every issue, every opposition, every problem, every solution is posed in the historical terms of class, of the exchange between labor and the instruments of production. Then every struggle is no longer a struggle unto itself but the manifestation of terms of the whole struggle, the terms of wage-labor and capital, the terms of property and revolution.
The time for the coming of such a crisis is announced
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forthcoming: Clothes make the man; clothes made by women
posted by The Wolf Reports @ 5:47 PM