Realization Crises and The Transformation of Daily Life
I want to start with a simple fact, which astonished me and continues to astonish me. Between 1900 and 1999, the United States consumed, according to the U.S. Geological Survey, 4,500 million tons of cement. Between 2011 and 2013, China consumed 6,500 million tons of cement. In three years, the Chinese consumed around 40% more cement than the United States had consumed in the whole of the preceding century. That is a scale of magnitude of spreading cement around which is quite unprecedented. Those of us who live in the United States have seen plenty of cement used over our lifetimes. But what has happened in China is extraordinary. And you can just imagine what some of the environmental, political, and social consequences might be. So the question I want to ask is: why did this happen?
I should first make clear, lest I be misinterpreted, that if this fact elicits some critical commentary on my part then this does not mean I am anti-Chinese. I have to say this because in these times there is a tendency to explain what is happening in the world in terms of national rivalries and the goods and bads of national behaviors and policies. In the political world of the United States, China is frequently blamed for many of our problems (unemployment, loss of good jobs and the like). The fact that this huge use of cement occurs in China is incidental to my argument. Though I do not exculpate state policies entirely, the problems that arise are primarily those generated out of the contradictions of capital. I am anti-capital but not anti-Chinese.
I also want to signal a mild complaint about how the social sciences work these days. When I first got into academia, we were obsessed with the question, why? We spent a lot of time on that question and we often made some pretty flamboyant and speculative guesses —sometimes, I must admit, far-fetched and totally unsubstantiated and in some instances arising out of a rather dogmatic Marxist reading of capitalism’s history. But since the1970s, there has been a gradual shift of emphasis. Less and less do researchers ask, “why?” Instead, they ask, “how and where?”
Concentrating on how and where has helped a great deal to deepen our understandings. It leaves us much better equipped to unravel the intricacies of how things actually happen. It frees us from the chains of dogmatic assertions. We no longer presume some grand explanation, like the compelling force of class struggle or crude functionalist theories of state action. Instead we describe in detail how it is that, say, the developers get together with the lawyers and the construction companies, with the financiers, landowners and state officials to launch fantastic megaprojects that require a lot of cement even as they spark protests from evicted homeowners and tenants from this or that space in the city, as well as from citizens in general who believe it would be better to spend the money and resources on more socially beneficial investments. We pay far closer attention to local conditions. We are much more sensitive to cultural and environmental differences. The “where” matters. But this also has some perverse consequences. It introduces national character into the debate (e.g. in the case of Greece) in ways that can mask what the underlying dynamic of endless capital accumulation is about and the social consequences it produces. None of this, furthermore, requires a grasp of grand theories. Indeed, attachment to such theories might seems to get in the way of pursuing the details of the how and why. Following Foucault, we become sceptics of all metatheories.
But maybe we have gone too far in this direction, concentrating a bit too much on “how?” and “where?” to the point where we forget entirely to ask “why?” We ignore the power of metatheory on principle rather than as a convenient practice in certain research situations. Whenever I ask somebody who has been very deeply involved in a “how and where?” story “why did it happen?” then the answer nearly always comes back: “it’s complicated” as if that in itself is an adequate answer. My answer is, “yes, I know it’s complicated. But you’ve also got to tell me why. And if you can’t do that because you are so totally wrapped up in the complications of the how and where, then maybe you should re-think your research strategy.” Exploring metatheories in relation to particular instances might help ask deeper questions. And those questions, thoughtfully pursued, may lead to deeper understandings. I hope in what follows to show how this might be so.
So why has all of that cement been spread around In China? Cement is used in construction. This obviously means a massive investment in the creation of built environments, in urbanization and the construction of physical infrastructures. There has been an immense amount of that going on world wide in recent times – I see evidence of it in almost every city I have visited in the last few years – but China stands out in the data as by far the most spectacular example.
It is not only cement that is involved in construction. There has been an enormous expansion of steel production and use in China. More than half of the world’s steel output and use has taken place in China in recent years. That required a vast amount of iron ore to make the steel. Many other materials, like copper, sand, and minerals of all sorts, are being consumed at unprecedented rates world-wide. China has been consuming at least half and in some instances 60% or 70% of the world’s key mineral resources over the last few years.
Raw material prices have, until recently, tended to soar. Mining activity has been accelerating everywhere. The terms of trade for raw material producers have tended to turn positive over the last twenty years or so, for the first time in many a year. From India to Latin America and Australia, whole mountains are being moved in the search for minerals, with all sorts of political, economic and environmental consequences. So the question of why China has been involved in such a huge expansion of its urbanization and infrastructural investment has global ramifications. It is undoubtedly, however, one of the reasons that a troubled global capitalism has survived as well as it has these last few years. I am pretty sure that the leadership in Beijing did not set out to save global capitalism from a great depression, but this is an effect of what happened in China particularly since 2008 when the global economy went into a tail spin.
To explain this, I have to dig into the how and where of what happened. In 2007- 2008, there was a financial crisis which originated in the USA. Because it originated in the USA it was defined as a global crisis. Other crises could occur in Southeast Asia in 1997-98. They were defined as regional crises. But in the same way the United States likes to call its baseball championships a World Series so it likes to refer to its crises as world crises too. And there is a certain truth to this. The US still has one of the largest and most influential economies in the world. While it is no longer the case, as the saying once had it, that if General Motors sneezes the world catches cold, it is certainly the case that major disruptions emanating from the US will have far-reaching global consequences. There is considerable evidence also, that faced with crisis conditions, US institutions and policy makers actively sought to disperse their effects around the world by globalizing it. In so doing they used many of the multilateral financial institutions and financial inter-relations to do their bidding.
The crisis of 2007-8 was in the first instance quite localized. It originated particularly in the South and Southwest United States and it largely arose out of intense speculation in housing and property markets in those regions. Speculative money poured into US property markets (as it also did in a few other places such as Ireland and Spain) when the stock market crashed in 2001. The world was awash with surplus liquidity at that time and much of it was absorbed in property markets forcing prices up and up. When the speculative housing bubble burst, there was a foreclosure crisis on housing loans. A “fictitious demand” had been created by offering sub-prime mortgage finance to people who had very little credit-worthiness. Property values collapsed in these regions in 2007 and many people lost their homes. People who have been foreclosed upon and who are unemployed don’t go out and buy things. So the consumer market in the United States collapsed and many people lost their jobs. But the primary supplier to that consumer market was China. This was one link whereby the local crisis went global. The other link was through the financial system. The financial institutions had so structured the mortgage debt on housing as to be able to pass it on to others as an investment yielding good returns that were supposedly as “safe as houses.” But many of the mortgages were not secured by ability to pay, Anyone who had been gulled into investing in the new financial instruments lost money. The banks who held a serious part of the debt were threatened with failure and tightened credit including credit to consumers everywhere. Consumers who have just lost a lot of money and their jobs, and who can’t get credit certainly don’t go out and buy things. The weakness in the US consumer goods market spread and deepened. The downward spiral threatened to engulf the whole world in depression.
China suddenly found its export industries contracting if not collapsing in 2008. A twenty percent or more drop in exports occurred in a matter of months. Chinese statistics are notoriously unreliable as to what is real and what is not. But by some accounts, something like 30 million jobs were lost in China through the collapse of export markets in 2008-9. This is a huge job loss. If the real number was, say, 20 million the job loss was still huge. The Chinese government has traditionally been very nervous about potential social unrest. And with 30 million unemployed workers, this was a rather dangerous situation to be in. I believe the Chinese Government did what it did mainly to avert that obvious danger.
By the end of 2009, a joint report from the IMF and the ILO tallied up estimates of the global net job losses from the crisis. The United States had the largest losses. China only had a net job loss of about 3 million. Somehow or other, China managed to absorb 27 million people in the labor market in the space of about one year. This is an astounding and totally unprecedented performance.
How did they absorb such vast amounts of surplus labour so fast? It seems the central government basically told everybody to get out and lend and create as many projects and megaprojects as possible. Everything from regional to local to national endeavors were put to work. The banks were told to lend without restraint. In the United States, when Federal Reserve and the US Treasury gave money to the banks to lend, the banks ignored the instruction. In the US, the government does not have power over the banks. The banks used much of the money they were given to retire their bad debts and even buy back their own stock. The Chinese banking system does not work in the same way. If the bankers are told by the Central Government to lend, they lend. And they evidently did, incidentally making a lot of people ultra wealthy in the process.
So China absorbed a massive amount of labour by launching a huge urbanization and infrastructure development program, building whole new cities, integrating the space economy of the nation with highways and high speed rail networks, connecting southern and northern markets in a much stronger way, developing the interior of China so that the coast and the interior were much more matched together. While clearly the Central Government had wanted to do something like this for some time (plans were laid for the high speed rail network during the 1990s), the Chinese Government mobilized everything it could to absorb the surplus and potentially restive labour force because it probably thought it had to if it was to survive politically. In 2007 there were zero miles of highspeed rail but by 2015 there were 12,000 miles or so linking all the major cities together at 300 km an hour. Again, this by any standard was a phenomenal performance.
I am here reminded of what the United States did after World War II. The US economy needed to absorb a huge increase in productive capacity created during World War 2 and create well-paying jobs for a large number of Veterans returning from the war. If the Vets returned to the United States to be faced with unemployment on the scale of the 1930s, then there would surely be serious political and economic consequences. The problem for the US capitalist state and class was: how do we not go back into Depression? How do we actually absorb all of that productive capacity in ways which are going to be profitable and satisfy the wants and needs of a vast army of demobilized military? What would happen if the returning Vets faced a return to depression conditions, when the war against fascism had been fought in alliance with the Soviet Union?
One answer was the repression of all left-wing thinking through a fierce anti-communist movement known as McCarthyism. But that in itself could not have succeeded as well as it did without solving the economic problem. The US economy had to expand rapidly enough to absorb the surpluses of capital and labour. In part this was done through US imperialism, the Cold War (also anti-communist) and a vast expansion of militarism. These all certainly played a role. But in themselves these were not enough. The US was a largely self-contained economy not that much dependent on foreign trade. The expansion had to be internal to the United States itself.
The big thing accomplished after 1945 in the United States was a huge wave of investments in the built environment, in urbanization and in physical and to some extent social infrastructures (e.g. the higher education system). The interstate highway system pulled together the West coast and the South and spatially integrated the US economy in new ways. Los Angeles was an ordinary size city in 1945 but by 1970 it had become a huge megalopolis. Metropolitan areas were totally re-engineered with transport and highways and automobiles and suburbs and the development of a whole new suburban lifestyle (celebrated in popular TV sit-coms like The Brady Bunch or I Love Lucy). Well-paid jobs were required to support the effective demand for a suburban lifestyle. Labour and capital came to an uneasy compromise at the urging of the state apparatus in which a white working class made economic gains even as minorities (e.g. African Americans) were left out. As a result, the 1950s and 1960s were, in many respects, the golden years of capital accumulation in the USA. Very high rates of growth, a satisfactory situation for a white working class even as a powerful civil rights movement and uprisings in the central cities showed that all was not well for the African American and immigrant populations left behind. But the aggregate effect was to solve the overaccumulation problem through urbanization and investments in the built environment. As a Federal Reserve Report later put it, the United States has the habit of “getting out of crises by building houses and filling them with things.” My point, as we shall see, is that this is also how capital gets into crises as well.
In response to the crisis of employment in 2008, the Chinese in effect did much the same as the US had done after World War II, but did it much faster and at a far higher rate. This change of scale is very important to remark. I had come across this same strategy of using urbanization to solve economic and political problems several times before. The economic crisis of 1848 prompted working class and bourgeois revolutions in Paris. Both failed and Louis Napoleon took absolute power in a coup d’état in 1852 and declared himself Emperor in 1854. Louis knew that he would not last long unless he put labour and capital back to work. A fan of the utopian theories of Saint Simon, he initiated a lot of public works projects to be funded by associated capital. To this end he brought Haussmann to Paris to plan and rebuild the city. This was one way in which the surplus labor and surplus capital was profitably absorbed. The French economy flourished. Capital and labour were fully and profitably employed creating the new boulevards, department stores and the like. Daily life in the city was transformed into the consumerism of the city of light. The crisis of overaccumulation of both capital and labour in the period after 1848 was solved by transformations in lifestyle as well as transformations in the built environment. We still see the consequences of this effort when we walk Haussmann’s boulevards today. But the scale at which this was done was nowhere near that accomplished in the US after 1945 which was in turn nowhere near the scale and speed of transformation that has recently occurred in China.
In all this, there was an underlying problem. The new constructions had to be debt-financed. New institutions and methods of financing had to be created to sustain the effort in each case. A new kind of credit-driven banking became more prominent in Paris. But at a certain point debt creation and skepticism as to the value that stood behind the debt came to the fore. The debt crisis of 1867-8 in Paris engulfed not only the speculative financial institutions but also the finances of the city and Haussmann was forced to resign. The city was mired in debt and close to bankruptcy. Unemployment and unrest ensued In Paris. Louis Bonaparte sought to save himself by a nationalist strategy that led into the Franco-Prussian War of 1870-71. He lost the war and fled to England. In the wake of the war and the German siege of Paris the inhabitants made their own revolution – the Paris Commune of 1871 – one of the greatest urban uprisings in human history. The people took back “their” city from the bourgeoisie and the capitalists who had plundered it.
Solving the overaccumulation problem through rapid urbanization comes at a certain cost. In both the Paris and the United States cases, it meant relying heavily upon debt finance and the deployment of fictitious capitals. In the United States, new mortgage finance and other institutions had been put in place in the 1930s but even greater levels of state intervention occurred after 1945. The system worked well for a time but stresses were evident as early as 1967. The whole process came to a crashing halt with the property market collapse and the technical bankruptcy of New York City (one of the largest public budgets in the capitalist world at that time) in 1973-5. This initiated a period of serious recession and capitalist restructuring not only in the United States. The general crisis of the 1970s affected Britain, Europe, North America as well as many other countries such as Australia and Latin America. In somewhat similar fashion, the crash of the US stock market in 2001 led money to flee the stock market and produce the property market boom that helped sustain global capitalism up until the Lehmann Brothers collapse of 2008. The Lehman Brothers collapse had effect throughout the global financial system.
China likewise debt-financed its way out of its difficulties in 2008. But unlike Greece and other places, China didn’t debt-finance using dollars or euros. It had enough foreign exchange surplus from the United States to be insulated from foreign pressures. China could borrow in its own currency. The great advantage of this is you can always issue more money and if necessary inflate away the debt and recapitalize the banking system (as happened at the end of the 1990s). China moved from a fairly low debt to GDP ratio to one of the highest in the world by 2015. A hidden banking system came into being to cover over many of the gaps in finance and hide a lot of the debt obligations. It doubled its ratio of debt to GDP in about six years through this huge urbanization and infrastructural investment surge. Reports circulated suggesting many municipal and local governments were effectively bankrupt by 2013 and the condition of some lending institutions was dire. Nevertheless, it was still the case that about a quarter of Chinese GDP was taken up by housing construction alone. When all the other investments in the built environment were added in, about half of Chinese economic activity and growth was arising out of re-shaping the built environment. Hence all that production and consumption of cement and steel. The China, ike the US before it, was avoiding recession and a potential depression along with the political threat of widespread unemployment “by building houses and filling them with things.”
This was the Chinese answer to what might have been a very serious depression in 2008. This was not an answer, however, unique to China. There were attempt to emulate it elsewhere. Turkey, for example, which went through a crisis in 2001, got out of the problems of 2007-8 through the same kind of huge expansion in its urbanization. New airport, a third bridge over the Bosphorus, the urbanization of the northern part of the Bosphorus to create a city of some 45 million people. Every city in Turkey showed evidence of a strong building boom. Turkey, largely as a result of this, was little affected by the crash of 2008 (although it, too, saw its export industries suffer). Turkey had the second highest growth rate, after China during this post-2008 period. Spectacular urbanization in the Gulf States also absorbed a lot of surplus capital. In the main urban centers property markets quickly revived for the upper income brackets after 2009. New York City and London soon were experiencing property revivals in high-end construction even in the absence of any investment in affordable housing for the less well off.
Anybody who supplied China with the necessary raw materials, like copper, iron ore, and the like, came out of the crisis of 2008 pretty well. Most of Latin America, which was full of raw materials recovered relatively quickly from the 2007-8 crisis. In addition, Latin America turned itself into one vast soybean plantation, basically, for the China trade. It switched its allegiances in terms of global trade to the Pacific and to Asia. The depression, which affected the United States and elsewhere, didn’t really affect Latin America to the same degree. It was relatively mild. Mineral rich Australia likewise thrived.
In Brazil, besides having raw materials, they also did the same thing the Chinese had done. President Lula, when the crisis hit, said, we’re going to build a million houses, low-income houses for the poor. That program, Mi Casa Mi Vida, became part of the Brazilian answer to what was a rather shallow depression in 2007- 2008. Unfortunately, as often happens, what the Brazilians did was basically give the money to the construction companies. They didn’t ask them to urbanize in any sensible kind of way. So construction companies just built shoddy housing in bad environments without any kind of infrastructures. They didn’t build a city. They didn’t build a liveable urbanization. They just built houses and dumped them down wherever they could find a place to put them. Of course, that did absorb capital and labor. But it didn’t actually create a decent living environment for anybody.
When we step back and look at this world in aggregate during this period then a strange dichotomy becomes apparent. There is this vast urban and infrastructural expansion going on in China, with outliers in other countries like Turkey or in other sectors (like high-end condo construction for the rich in major urban centers around the world). Many countries were enabled by these strategies to recover quickly from the effects of the crisis of 2007-8. In the United States and Europe, however, we find a commitment to the politics of austerity which locked their economies into no growth. In this part of the world, the politics of neoliberal orthodoxy and austerity were, for the most part for ideological reasons, tightened. This contrasted with a Keynesian style expansion of China. The world effectively divided into two camps. The Chinese camp expanded through broadly Keynesian practices that depended upon demand creation led by the state and the West contracted through its dedication to supply side management that focused on fiscal practices of debt reduction. Public policies and politics were differentially shaped accordingly. The Chinese camp effectively rescued capitalism from a deep depression threat through massive urbanization and investment in infrastructures.
But as happened to Haussmann in 1867 and as happened to the grand suburbanization spree at the end of the 1960s in the USA, all good things come to an end. China in the years since 2013 has been increasingly exhibiting signs that its solution is running out of steam, that there is chronic overproduction and overaccumulation in the built environment, that its economy is burdened by vast holdings of non-earning assets and that the returns from the undoubted improvements in productivity are just not there. It may no longer be possible to continue down the path of endless expansion of investments in housing and other physical infrastructures (as happened in the USA after 1968 and to Haussmann in Paris after 1867). Since 2013, China has pursued an “on again and off-again” approach to its expansionary ambitions, sometimes curbing infrastructural investments only to switch them back on again when conditions looked bad. The simplest (an undoubtedly crude) was to look at the problem is that in the early stages of the investment wave when a third of Chinese GDP went into fixed capital infrastuctures then the growth rate stood well above 10 percent (sometimes as high as 12 percent) but as conditions became more fraught after 2007 the expansion of the allocation to fixed capital investments to half of GDP has generated a falling growth rate down according to official statistics closer to 6 percent (with some outside analysts suggesting in reality it is far lower). The rate of return is falling fast and indebtedness is rising faster and faster.
Ventures of this sort elsewhere have also run into difficulties. Dubai World went bankrupt and had to be bailed out. The Turkish boom has been cut short, foreign investors are bailing out and empty apartment blocks litter the land.
It is simply not possible to continue such strategies for ever, and the volatility in fortunes is marked. As the construction boom recedes, surplus productive capacity in, for example, cement and steel production, becomes a problem. The global demand for raw materials slackens and the terms of trade for raw material producers turn unfavorable. Two or three years ago Brazil was flush with money. Now it is in recession. The money has dried up. Politically everything is also falling apart.Ecuador was doing great until a couple of years ago. They were building highways, shopping malls and high rise condominiums along with a new airport on the back of high prices in extractive industries. I couldn’t figure out how this related to their great vision to pursue “Buen Vivir” rather than economic growth. But no matter, that was what they were doing. All of that has now come to an end. Since 2014 most of Latin America has seen deepening economic distress. And a substantial part of the reason is because the China market is not so vigorous anymore. The slackening of demand from China has had negative effects elsewhere. Even Germany, which exports high tech machine tools and equipment to China, has felt the draught.
In this way, the crisis tendencies of capital have been moving around. This is where the macro-theory proves helpful. It helps us understand why crisis tendencies necessarily move around geographically, from one part of the world to another and sectorally from one industry to another. A housing crisis in the American South and West, creates a financial crisis in New York and London, which becomes a credit crunch across Europe and North America which is solved by the proliferation of sovereign debt crises which produce cascading crises in the living standards of the people. At the end of the day it is the people who pay and the people who suffer while capital is rescued. Just look at the case of Greece.
As crises get moved around, they are subject to interpretation by the media and by popular common sense explanations as having different causalities. In the Greek crisis, the fight with the Germans occurred because the many Germans believed the Greeks were lazy and culturally backward. Very simplistic explanations circulate, e.g. the crisis is due to immigrants (very common theme in Europe and the USA) or lazy welfare cheats and unfair foreign competition (e.g. from China!!). Scapegoat and blame everyone and everything, except capital!
The thesis I am proposing here is not only that crises get moved around, but that crises are embedded in the very structures of what capital accumulation is about. This is where some consideration of macrotheory is helpful. My thinking here is guided in part by a reconsideration of Marx’s theory of value. In going back over this, I find that Marx is interested not only in value, but in anti-value. The idea of anti-value is simple. A capitalist invests in producing a commodity and the commodity has a potential value. But if nobody wants, needs or desires the commodity then it has no value. The history of capital is, therefore, about the production of new wants, needs and desires. And this is what the transformation of Paris and the building of the suburbs in the United States entailed. And it is what is happening so dramatically in contemporary China. The cultural and psychological jump from peasant life in a village without any mobility to whizzing around the country at 300 km an hour is huge. Without this, what seemed like socially necessary labour time becomes socially unnecessary labour time. From this also derives a theory of devaluation of capital as an answer to overaccumulation. Surplus capital and labour may be absorbed by investments in infrastructures and the built environment but the result may be the creation of excess productive capacity. The result is devaluation. This is the problem that is clearly haunting China right now. Anti-value is everywhere. If it cannot be redeemed by new value production, the result is devaluation.
I am struck here by a powerful analogy. The physicists explain the birth of the universe in terms of the clash of matter and anti-matter. Marx explains the dynamics of capitalism in terms of the dynamic relationalities of value and anti-value. This may be also what Schumpeter meant by the term “creative destruction” as an essential feature of capitalism.
Capital systematically creates anti-value in the form of debt that can be redeemed only through future value production. This is a fascinating aspect of Marx’s theory which has not been looked at closely enough. The anti-value is fundamental to the value. You cannot do without it. The theory of this awaits proper elaboration. But recent events illustrate the relations involved.The crisis of 2007-8, for example, had its roots in the way that the earlier crisis of 2001, which was focused on the US stock market, was resolved. When the dotcom economy crashed, money rushed out of stock markets. The world was awash with surplus liquidity (as the IMF repeatedly complained). But where was this money to go?Alan Greenspan, head of the Federal Reserve, dropped the interest rates. Property investments looked attractive. Money was lent to producers of housing at the same time as it was lent to consumers on easy terms. Finance supported both the supply and even more important the burgeoning demand for housing. Prices of property assets rose rapidly. Investing in property looked even more attractive. But debt requires the creation of value to redeem it. If this new value does not materialize, then you go bust. In this way, credit and debt dictate future value production. Either that or devaluation or even destruction of capital ensues.
This disciplining effect of debt encumbrance is important. Debt means we are no long “free to choose” as Milton Freidman in his paeon of praise to capitalism supposes. Capital does not forgive us our debts as the Bible asks but insists we redeem them through future value production. The future is already foretold and foreclosed (ask any student who has $100,000 student loans to retire). Debt imprisons us within certain structures of future value production.
This was well understood back in the 1930s when all of those reforms occurred in the mortgage market for housing in the United States. The prize of homeownership could be achieved by resort to the 30 year mortgage! Debt-encumbered homeowners don’t go on strike, it was said. After World War II the strategy was to debt encumber as many homeowners as possible. They then have to support the capitalist system to pay off their debts.Furthermore, these homeowners will live in the suburbs, out there where revolution is hardly going to be on the agenda. They have to have a car and a lawn mower. They increasingly aspire to a nice home and a swimming pool. Suburbanization contributed enormously to social stability and fostered certain mental conceptions of the world and political subjectivities to support rather than challenge the status quo of a rampant capitalism.
The World Bank and the IMF promote individual home ownership worldwide because, they say, it assures social stability. But this does not solve the overaccumulation problem which has now produced the foreclosure wave which has in turn destabilized whole populations and communities. Foreclosed homeowners and all those people who feel threatened by increasing insecurities are unsurprisingly doing all kinds of crazy things politically, both on the left and the right. Hence Trump and the tea-party and Bernie Sanders and his quest for a political revolution. What has traditionally been a solution becomes the problem. Saddling whole populations with massive debts they cannot possibly repay (as in the case of Greece and to some extent as in the case of student debt in the United States) is a contradictory recipe for social stability.
I lived in Baltimore for many years. When the riots and burnings broke out there in 2015, I was reminded of what happened back in 1968, just after the assassination of Martin Luther King. Baltimore burned down back then. Many years later we get a repeat performance. In between lies three decades of deindustrialisation and a decade of sub-prime lending in the housing market primarily for African-Americans and single-headed households. The foreclosure wave re-created social instability with asset value losses concentrated in marginalized minority populations. The difficulty is to figure some sort of response that avoids the obvious risk of repetition of such disasters.
This then raises an interesting question as to what options exist for China. What is it that the Chinese are going to do, given their current difficulties of grumbling overcapacity? Here I find the idea of “the spatial fix” is useful. When there are surpluses of capital and labor somewhere or other, and when prospects for profitable use in a particular territory are negligible because the market is saturated, then capitalists start to export their surplus capital (and sometimes surplus labour) to build elsewhere.
This was what economic imperialism was about from the mid-19th century onwards. Surplus capital and labor from Britain came to the United States, or went to Australia, South Africa and Argentina. But where did these places get their money from to buy up the surplus capital in commodity form? Surplus money capital was leant to those countries so they could build their railroads and infrastructures and this created a demand for British surplus capacity in steel and locomotive production. This ultimately led to the creation of new and dynamic capitalist economies elsewhere, particularly in the United States. This was the creative economic side of British imperialism.
The other strategy was more negative. Britain tried, for example, to keep India as a captive market to which they could send their surplus product after destroying indigenous productive capacity. But this did not help resolve the problems of overaccumulation of capital and surplus labor in Britain because the demand from India was not very strong or expansive over time. The Indians were therefore forced to produce all kinds of things, including opium to sell to China in return for the silver which was then shipped back to Britain. Britain drained wealth from India and China in this way but did not help create much wealth. This was a non-dynamic form imperialism.
Britain could not suppress industrial development in the United States in the way it did in India. The surplus capital and labor that came from Britain to the United States helped create a new and expansive center of capitalist development. This created an ever-increasing demand, which could absorb British goods. This was a much better solution to Britain’s over-accumulation problems than the exploitation of Indian wealth ever was. The only problem was, at some point or other, the United States became a stronger, larger and more competitive economy than Britain. But then the US began to generate surplus capital and in turn had to figure out what to do with it. So it, too, began to export capital and to develop imperialist style practices.
This process of creating “spatial fixes” to deal with the tendency to overaccumulation is everywhere apparent. The Japanese turned towards the export of surplus capital towards the end of the 1960s. South Korea followed suit in the late 1970s and Taiwan in the early 1980s. Flows of surplus capital from all these territories went all over the world but were particularly important in building productive capacity in China. Now it is the turn of the Chinese. They have a lot of overcapacity in many sectors such as cement and steel production. So how is this to be absorbed? The state is attempting to reduce capacity in these sectors a bit through plant closures.But China is also looking for opportunities to spread this surplus cement and steel around. This is what is scary. They have come up with a number of answers. One of them is internal.The Financial Times reports that the Chinese are now proposing to create one city of something like 130 million people which is equivalent to the total population of Britain and France.It will be centered on Beijing. Investments will be centered on high-speed transport and communications. This will absorb a lot of steel and concrete. But what kind of daily life would be possible in such a city?
In fact this is not really a city in the conventional sense that is being proposed. What is being planned is the rationalization of not one but three major urban regions – one centered on Beijing, the second on Shanghai and the third in Guangdong province. Several multimillion cities already exist In each of these regions. The plan seems to be to seek a higher order rationalization of relations between these rapidly expanding cities so that they knit together more efficiently. Planners will doubtlessly play with and mine large data sets on, for example, existing movement patterns and put the concept of “smart cities” into overdrive in the cause of this hyper-rationalization of space relations. The rationalizations will doubtless entail much use of surplus cement and steel capacity.
But that will not be enough to absorb all the surplus capacity. China is attempting to disposes of its surplus cement and steel everywhere by exporting as much as it can at low cost. This means that higher cost steel plants elsewhere (e.g. in Britain) are being forced to close down. China is being challenged by the United States and others before the WTO for dumping subsidized steel on the world market and may be forced to stop this trade. But Chinese corporations are also building railroads, highways and physical infrastructures in East Africa using Chinese cement and steel as well as surplus Chinese labor, even though there is plenty of surplus local labor. The same is happening in Latin America. Proposals exist to build a competitor to the Panama Canal through Nicaragua and transcontinental rail lines running from Pacific to Atlantic coasts. We will be able to get from a port in Peru to Sao Paolo in one and a half days or so. Several proposals of this kind were laid out some time ago. But nobody took them seriously until the Chinese came along and said they had plenty of cement and steel and that they would lend the money to purchase these materials and to build the infrastructures.
Other business press reports show how China is rebuilding the Silk Road route from Shanghai to Istanbul (and into Europe) via Tehran. A fast high-capacity rail network (using a lot of cement and steel) is planned through Central Asia into Europe. Central Asian cities along the route are already experiencing building booms. This is a program which would probably not occur were it not for the fact that the Chinese have all of this surplus capacity in cement and steel production. This is one of the ways in which they hope to stabilize what might otherwise be a “rough landing” in a Chinese economy suffering from overcapacity. The surplus capital overaccumulation problem can be resolved for a time by resort to a “spatial fix.”
This has happened many times before. But there is something different this time around. If you look at the scale of Haussmann’s project in Paris, it was about the city. If you look at what went on in the USA after World War II, it was at the metropolitan region level across the whole nation. Robert Moses was the iconic figure. You move from Haussmann to Moses. The figures of cement use with which I began, is, however, indicative of another dramatic change of scale that appears global in reach. And it is of an enormity that I find deeply troubling.
It is at this point we should step back and ask the question, why this dramatic change of scale? Is this really necessary? Why does it seem so inevitable? Why is it that it seems so impossible to say, “no, no, we don’t want that”? Why can’t we make something different? If capital is about freedom of choice why is it that this future is foretold?
The answer has a lot to do with the nature of what capital accumulation is about. Capital accumulation is, of course, about expansion. It has to be about growth. And this for a very simple reason. The capitalist starts the day with a certain amount of money, goes into the market, buys labor power and means of production, creates a commodity, and sells it at the end of the day for more money than at the beginning of the day. That is, value has to increase. In a healthy capitalist economy, all capitalists possess more value at the end of the day than they had at the beginning. So when we look at the history of capital accumulation, we see that it has been growing at a compound rate.
Compound growth rates produce exponential curves. And exponential curves dawdle along and then suddenly take off and sweep upwards at an alarming rate. There is an inflection point in exponential curves when the upward sweep starts.
It’s like the famous story of the person who invented chess and asked the king to give him a reward. He asked the king to put one grain of rice on the first square and double it for every square. By the time you get to about the 46th square, all the rice in the world is used up. And how you get to the 64th square, nobody knows.
This is the nature of compound growth.
Compound growth is built into the capitalist accumulation process. But there is, alas, no law to stop it. All of us tend to get involved in urbanization projects organized around the question how best to make things grow. We want growth. But why do you we want growth? Why in particular do we want compounding growth when we know it will likely spiral out of control and become impossible?
Limitless growth is the wrong thing right now. We’re on that inflection point in global accumulation. And if we actually double or triple the amount of cement we have to pour in 30 years time, which is implicit in what compounding growth is about, our grandchildren will be up to their ears in cement.
This is not a feasible project. Right now, the problems of environment are serious enough to say we have to do something about this absolutely senseless commitment to growth come what may. And there’s an irony here. We’ve actually, in Europe and the United States, for all the wrong reasons, seen very low growth in recent times. But that’s environmentally friendly.
The places that have not seen slow growth have experience great environmental stress. This has spilled over to wherever surplus capital moves to. More than half of foreign investment in Ecuador is Chinese. When the oil prices collapsed Ecuador had to borrow from China. They borrowed to build things such as a huge hydroelectric project thatwill provide about 60% or 70% of the electricity needed in Ecuador. This is a huge project. And of course, they also want to support putting a highway over the Andes. These megaprojects are being built with Chinese steel and cement. They are happening because of the necessity of endless growth of capitalist accumulation.
At this point, we need to consider how and why such growth can be controlled and reduced. The compounding rate of growth since about 1780 onwards, according to Angus Madisson who has spent many years on the data, is something like a 2.25% compound growth. That’s what history of capital accumulation points to.2.25% compound growth in 1780 wasn’t really a problem. By the time you get to 1900, it’s still not really a problem. Much of the world had not yet been incorporated within capital accumulation.But look what’s happened since 1970. China has come into the system. The Soviet empire has collapsed and joined the capitalist global economy. India and Indonesia are far more integrated. The world’s wage labour force has increased by a billion or more (to a total of 3 billions) over the last thirty years. And we’re talking about a 3% compound growth on all of this from hereon out? Peering just a little bit into this future reveals some strange and troubling signs, beyond that implied by the cement and steel data.
In the light of this, there are a number of things we should start to think seriously about. We have to think about how to organize an economy in such a way that it’s not dedicated solely to economic growth. There are hints of this in many places Ecuadorians and others have this notion of building a future around something called Buen Vivir and enshrined that objective in their constitution. The UN Development Reports try to separate economic growth from the development of human capacities and powers and seem to focus policies on the latter. There are all sorts of initiatives to promote social entrepreneurialism and the sharing economy in conventional circles and more far-reaching pushes on the left to foster cooperatives and solidarity economies. In practice most of these initiative turn outturned out to be either mere rhetoric or masks for the continuation of capital accumulation by other means. There is widespread recognition of the need to reorganize and re-orchestrate the use of the world’s resources. But here too the realities are vastly different from the rhetoric. Ecuador enshrines the indigenous idea of the rights of mother nature into its constitution. But as China pursues its own spatial fix spending spree on a global basis, it needs as we have seen a lot of mineral resources. Ecuador gets into serious financial difficulties because of the collapse of the oil prices.So what does Ecuador do? It borrows from China. And what do the Chinese want in return? They want open access to all the mineral resources of southern Ecuador, which happens to be where a lot of indigenous populations are.And those indigenous populations are not liking what’s happening. A political struggle ensues. Indigenous leaders are being killed. This is an all too familiar story. You all have heard it often in the past and you will hear more of it in due course.
This is what compounding growth is all about. We need to find ways to manage and eventually contain it. Within the urban process we can see something else that is going on that requires careful attention.
Urban growth is increasingly about creating possibilities for investment of surplus capital and surplus savings. It is only incidentally, if at all, about creating a decent urban life. I mentioned the Brazilian case because it was about feeding the construction interests and employing surplus labor and capital in construction. But construction of what? It was not about creating decent urban environments for all people to live in at all. There was no commitment to that in the process. It was simply about absorbing surplus capital and labour. But the urban property market has also become a market for investors of surplus savings. We are, it seems, less and less interested in creating cities for people to live in. Instead, we are creating cities for people to invest in.
Why is this? And why do I see it even in Palestine and Turkey, as well as in New York, London, Shanghai and all the other major cities I have visited recently? It arises because some people have surplus money which they are looking to invest and save for their future and for their family’s future—this is where the individualism and private property relations come in. But where do you put your savings in these times? Where is a safe place?Do you put it in the stock market? Do you keep it in monetary instruments of some kind, bonds, now earning zero percent or even negative rates of interest? Or do you put it in purchasing property assets? A lot of capital has been flying into this last option since the 1970s. That trend seems to be accelerating as other options either offer very low rates of return or appear, like the stock market, to be more and more volatile and high risk.
The housing market and property market went through a crash in 2007-8 in many parts of the world after nearly a decade of speculative activity. But guess what? One of the primary objectives of people right now is to invest in property and land because this seems a safer choice to preserve and enhance value in a generally weak and insecure investment climate. Land and property are now much more favored as destinations for absorbing surplus liquidity and protecting savings.
I’ve seen this both in Turkey and in Palestine. You have this incredible situation, particularly in Palestine. Around Ramallah, they’re building these high-rise apartment blocks. Who’s is building them? Well, it’s some of the people who have employment in the Palestinian Authority, which is notoriously corrupt. And those people who have that employment are taking their money, and they’re putting it into property and land if they can because that offers some security.
China recently has loosened its regulations over export of private capital. One of the primary buyers of property in New York right now are private Chinese investors who are getting their money out of the country one way or the other and buying property elsewhere. A few years ago during the Irish boom a lot of investment came from Ireland into the New York property market. And of course the Russians, the Saudis, the Australians are doing the same. The Chinese are now doing the same in London.And it’s not only the billionaires who are doing it. It’s actually upper-middle-class people who are engaging in the equivalent of a property and land grab wherever they can. Most pension funds are likewise increasingly investing in this direction. They have always had an arm in doing that. My own pension fund, TIAA-CREF, is into doing this stirring up some controversy. They are involved in some pretty ghastly things in Latin America in terms of land grabs.
What we are seeing since 2008 is a redirection of capital flow away from creating a livable environment for the mass of the citizens of any place to creating investment opportunities for people who want to store their money and keep their wealth in some form which they feel is fairly safe from an individual standpoint. Property markets are becoming a target also for hedge funds (e.g. buying up the foreclosed houses and speculating on a revival of values). Of course, if you had tried this in Syria, you would have lost out very badly. But in other parts of the world, land and property is judged still to be a primary form of secure and safe investment. The financiers and developers oblige by building up-scale investment properties in situations where there is a crying need for affordable housing for the mass of the population.
This raises the question: what should planners be doing? Should they be spending their time trying to figure out how to create investment opportunities for middle and upper class people for investment purposes? Or should they be seeking to create an alternative urbanization which responds to what the mass of the people need, want and desire?
There is, I sense, a tremendous alienation right now in terms of what the urban process is about. It is therefore absolutely no surprise that over the last 15 years or so, some of the major outbreaks of discontent in the world have an urban base. Gezi Park—what was that about?It wasn’t a working-class uprising. This was a cultural and popular uprising against the diminished and degraded qualities of urban life and the authoritarianism and lack of democracy in decision making in the city. The recent crazy course of politics in the USA, has a lot to do with the impact of the foreclosure crisis and a spiraling sense of anger and anguish within the population as a whole that nothing can be done about the declining qualities of urbn services and urban life.
Through the foreclosure crisis many people lost their houses – their primary form of saving, their future financial security. They are angry at their dispossession. They need somebody to blame. They can’t blame capital because everybody tells them that would be a socialist or even communist position to hold. But the great thing about Bernie Sanders is he’s actually made socialism partially respectable, particularly with people under 35. He says we should do away with student debt and higher education and health care should be free and open to all. Such ideas sound pretty good to the younger generation. If that is socialism, why not?
But it is at this point where we have to think more carefully about the why. The why is very simple in essence. Accumulation for accumulation’s sake, as Marx points out, is the center of what capital about. And that means production for production’s sake which either means pouring more and more cement everywhere until we are up to our necks in the stuff, or saying we have had enough of this and need to do something different. We should at least consider getting off the capitalist treadmill of limitless and endless accumulation and think about ways to organize our economy along totally different lines.
I am a great admirer of many of the things that capital has created. And Marx was too. We have a lot of useful and wonderful things we can use in a completely different way if only we put our minds to it. But in order to do that, we have got to get out of the ideological mess we have got ourselves into that says, there are certain things that can be said and studied, and certain things that cannot be said and studied. The boundaries between acceptable and unacceptable research and thinking are as firmly fixed in universities as they are anywhere else. Anti-capitalism is not by and large considered an acceptable perspective from which to work. Yet it is the only perspective that make real sense for these times.
And that is one of the more horrific things about our current situation. The problems and processes I am here describing are not debated and discussedin the way they should be debated and discussed in those institutions which should be discussing them. The universities in the USA and elsewhere have been corporatized. They have become neoliberalized. They have become bastions of knowledge dedicated to the perpetuation of endless capital accumulation, capitalist growth without limits, even as they channel innovation into supposedly solving the problems of, for example, social inequality and environmental degradation.
There is some resistance, of course. Universities are to some degree still open and they will probably always be hard to tie down. But the resistance is weak because the money power increasingly lies on one side of this struggle as universities face public funding cuts in favor of private and corporate support or debt-financed tuitions. Debt encumbered students tend not to rock the boat!! That trend is becoming stronger and stronger. It could be reversed, of course, but at this time the political prospects for such a shift are rather bleak.
At the same time, the political base for radical movements and social change has also shifted. Contemporary discontents in many parts of the world now emanate from a rather different class configuration to that which the left has traditionally favored. This question of class configuration to political struggle must be approached from a rather different direction. These reconfigurations have much to do with the paths of contemporary urbanization. I find myself at this point somewhat at loggerheads with much of the traditional Marxist fraternity.
Marx put a great deal of emphasis upon the production of value and surplus value through the exploitation of living labour in the labour process. Volume 1 of Capital focuses exclusively on this. Volume 2 is about circulation of capital as a whole with particular emphasis upon the realization of value and surplus value in the market. Just to complete the picture, Volume 3 is about the distribution of value and surplus value – a topic which is assumed away in the other two volumes apart from the obvious distribution relation between the wages of labour and the profit (surplus value) that accrues to capital in general. Marx is very clear, in Grundrisse and elsewhere, that in order to understand capital, you have to understand what he called the contradictory unity between production and realization.
Now Volume 1 is read in Marxist circles and revered, quite rightly, because it is a magnificent book. Volume 2 is hardly read at all because it is not only incomplete, but also very dry while some of it is basically unreadable. But if you don’t study it, you don’t understand how capital circulates. And unfortunately, a lot of Marxist thinkers have not understood capital because they have ignored Volume 2.
At the end of the first section of Volume 1, chapter 1, Marx tells us that the potential value created in production comes to nothing if it is not realized through a sale in the market. This is where anti-value comes in. And that means we need to study very carefully the processes of realization. But for most of Volume 1, Marx assumes that all commodities exchange at their value, which means that there are no problems of realization. This is not a realistic assumption though it is understandable why Marx might appeal to it to study other aspects of capital accumulation. In practice, the realization of values under conditions of accumulation rests upon the production of new wants, needs and desires backed by ability to pay. The politics of the production of such wants, needs and desires has been a tortured and intriguing history beset with all manner of social struggles that have often passed by unobserved and unremarked. But without them capital would long ago have collapsed. This then poses the problem of how to imagine a world of perpetually escalating wants needs and desires frequently not backed by ability to pay (except through escalating personal and corporate debt) and in any case cast in such a way that they cannot be satisfied or fulfilled because if they were, then that would mean the end of further capital accumulation. The production of unsatisfied and in some instances unsatisfiable needs is fundamental. We have already encountered a major example of this in the production of suburbanization as a new way of life for the mass of the population in the United States after 1945 and how this rescued global capitalism from collapse.
Furthermore, as we have seen, capital can extract wealth as much from the realization process as from the production process. The worker may earn more, but is no better off if he or she goes home and pays higher rents and the inflated living costs imposed by price-gouging merchants and service providers. What workers may gain in the form of higher wages through work-based struggles may be recuperated by capital at the point of realization.
Ask people, what are the major forms of exploitation experienced in the United States today? They mention the fees of credit-card companies. They mention landlords and rents and property-speculators. They mention what telephone companies do to their telephone bills by adding all these weird charges which say you were roaming somewhere where you weren’t. They mention health insurance companies, local taxes, transport costs, and so on. There is an immense amount of racketeering (sometimes akin to robbery) that goes on at the point of realization. The politics of struggles over realization are everywhere apparent.
It is also important to recognize that realization of value does not necessarily occur at the same geographical space as production of value. My Mac computer contains value produced in China by Foxconn but its value was realized in the United States by Apple. The bulk of the value is realized by Apple (or Wal-Mart or the Banana Republic) when most of the value is created by the direct producers in China. Merchant capitalists realize much of the value that is created by the activities of industrial capital elsewhere.
A lot of wealth is being extracted from the realization process. And a lot of that wealth extraction occurs in the course of daily life on the streets of the city. It is therefore no accident that most of the uprisings we have seen in recent times, such as those in Brazil and in Turkey in 2013, were more about the politics of realization than they were about the politics of production. Discontent with the qualities of urban life have brooked large in such struggles. This is where a lot of contemporary politics now lies. We need to pay attention to it both theoretically and practically as well as politically. But to understand that we need to undertake a careful study of volumes 2 and 3 of Capital and not remain content with a reading of volume 1.
Realization struggles are difficult to theorize and organize for a number of reasons. First, the class configuration that’s involved in the extraction of wealth through realization is different from that which is involved in production. It’s not capital versus labor in the realization process. It’s capital versus everybody else affected by the thievery and racketeering that goes on. The struggle is between buyers and sellers rather than between labour and capital. Upper middle class populations are buyers and get involved struggles (sometimes of the not in my backyard sort) against racketeering merchants. Do we seek them out as allies against the property speculators?
Go to a small family restaurant owner in New York City and ask why they pay their workers so badly. The immediate response would be: “you don’t understand. I’m exploiting myself at a huge rate.I get in here at six in the morning. I don’t go home till ten at night. I work my ass off. How can I possibly afford to pay anybody very much more than I get?”
Then ask: “where does all the money you make go?” The answer is: “to the bank to pay interest on the loan, to the landlord to pay the rent, to the electricity company to pay the bill, and to the taxman of course!! And by the way the landlord raised the rent by 25% just last year and there was nothing I could do about it.” A lot of family businesses are closing down because of rapidly rising rents in New York City. So if I said to that person, hey, let’s have an alliance against the banks and the landlords and the tax man, I think the answer would be, “Yes, that sounds a great idea.” But this is rather far from the conventional vision of a proletariat as a primary agent of political change.
These are the sorts of frustrations that can produce political movements to the right as well as to the left. This is to some degree the discontent that Trump and the Tea Party capture. But the deep and complicated discontents with the qualities of daily urban life need to be addressed. We should not dismiss them as secondary.
We’ve got to understand why and how the discontents with daily life in the city are escalating and they might be reconfigured around a political movement dedicated to the idea that we need and want to create cities that are fit for people to live in. In practice, as we have seen, we are more likely to be creating cities that are fit for people to invest in rather than cities to be lived in.
This has to be reversed, We want not only to create cities which are about non-growth, but cities that address social needs, reduce inequalities and improve environmental qualities.
Marx deploys an interesting idea, which comes I think from Hegel. Hegel talked about the difference between what he called a “bad infinity” and a “good infinity.” A good infinity is something that continues to reproduce itself over time forever and ever and ever. A circle is a mathematical depiction of the virtuous infinity.
It’s when the circle becomes a spiral that problems start. Things spiral out of control. Capital is spiraling out of control. And that spiraling out of control is represented by the fact that the infinity is not contained in any way. It just goes further and further and further.The number system is a bad infinity. For every big number you can make, there’s always one more you can add to it. It goes on and on and on and there can be no telling where it will go because it will never come to closure.And you never know where it’s going to go. It’s like pi in the other direction. How many decimal points do you put on pi?
A bad infinity is what capital is about. We have to get back to a good infinity. Marx understood that very well. He is very strong about the nature of reproduction, reproduction of the social order and how we can think about the reproduction. In both volumes 1 and 2 of Capital he describes in detail the virtuous infinity of simple reproduction.It is reproduction on an expanded scale where the problems really start. We have to get back to thinking about the good infinity, as opposed to the bad infinity of things spiraling out of control. The metaphor of spiraling out of control is something which is, I think, very meaningful to what is happening globally and locally. Until we can find means to control endless accumulation for accumulation sake, there will be no amount of tinkering and doing good things on the edges which is really going to make that much of a difference to what seems to me a huge macroeconomic problem. This is how the anti-capitalist perspective becomes so crucial to defining the nature of the problem of contemporary urbanization.