MIA > Archive > Kidron > Western Capitalism
Stability and high employment have been traced back to the vast expansion of international trade since the war. It has been remarkable enough: in the 1950s world trade grew at an average rate of about six per cent per year, rising to seven and a half per cent annually in the sixties, and nine to ten per cent in 1963-6, compared with a rate of between five and six per cent annually in the two previous periods of fastest growth this century, 1910-14 and 1921-9. Since most of the increase has been due to more intensive trading between the developed western capitalist countries – up from two fifths of the total in 1950 to about one half today, there seems to be every reason to see in trade the key to the postwar economy.
The thesis runs as follows: high employment depends ultimately on maintaining a high rate of investment which itself depends on a widely-held expectation of an increase in demand. In the heavily trading countries of the developed west, ‘the most important determinant of confident expectations about the long-run rate of increase in demand is the buoyancy of exports’. [1] Since, with high employment, there is a strong tendency to call on world supplies to satisfy a volatile consumer demand for ‘luxuries’ or to break temporary supply bottlenecks, or to take advantage of a very intricate industrial specialization, international trade – particularly in manufactures – tends to grow faster than output. This in turn recharges demand expectations, investments and employment.
As in any other causal loop – the ‘vicious’ or ‘virtuous’ circles of economics – there is no real indication of priority or of the direction of causality. A roseate export perspective might indeed trigger off investment and run it round in the direction indicated. This is certainly true of Germany’s export-led booms in 1951, 1955, 1959-60 and 1964. But it might equally be – Britain is a case in point – that the autonomous change occurs in investment and that buoyancy in a country’s international trade is a natural consequence. Or high employment itself might be the initial element. Equally, it might well be – and probably is – that none of them are ‘autonomous’, that they all rest on some other outside factor.
The picture is something like the classic boom phase of a trade cycle, with the prospect of sales, actual investment and relatively high employment mutually reinforcing each other. But there is one difference, and that a crucial one. Under laissez-faire, the boom generally ended in crisis and slump as the ‘virtuous circle’ (confidence–accumulation–employment) careered against a wall of labour shortage or some other scarcity and turned ‘vicious’ – became a circle of lost confidence–no accumulation–unemployment. We now seem to be insulated from this sort of collision: there has been what, in traditional terms, amounts to a labour famine in important parts of the western capitalist world for the better part of three decades; there have been down-turns in international trade without the rest of the loop being dragged into decline; there have been stops to expansion of a general kind (as in 1952 and 1958) and in individual countries (in Britain four times since the war; in the US three times; in Italy, in France, and even in Germany); and there have been declines in the quantity of officially held international reserves. And yet the boom goes on more or less. Clearly there is little point in seeking its causes within a loop common to both boom and slump.
At this point the argument falls back a step to technical innovation. Speed-up in technical change, it runs, has pumped dynamism into international trade and so set the beneficent loop turning. It has done so by offering affluent consumers the world over a stream of new or improved goods on which to exercise their ‘discretionary purchasing power’, and, by offering manufacturers specialist machines and materials which are often not to be had at home or only at higher cost. On this view, ‘what nations sell in international trade is, to an increasing extent, the ability to innovate quickly’ [2]; and innovation, trade and a quick metabolism of fixed capital merge together as the sustaining force of high employment and stability.
There is no doubt that the increasing pace of technical innovation has had something of this effect. Direct evidence on the abnormally fast growth of the trade in capital goods between the major capital-goods producing countries, or the faster-than-average growth in trade in manufactures between them is backed by a host of circumstantial evidence, from legal decisions to class know-how sales as income rather than as capital gain [3] to the mushroom growth of industrial espionage and counter-espionage services. [4] Innovation is fast becoming an industry in its own right, with predictable costs, products and markets. It is a growth industry which not only absorbs an increasing proportion of an economy’s resources but increases the wastage rate of fixed capital and so creates ‘opportunities of further investment’. [5] As such it has a dual value.
But it cannot claim an exogenous, independent existence. It is as much part of that loop as international trade and the direction of causality remains indeterminate. If anything, high employment is more important in stimulating innovation than innovation is in creating employment. Improbably enough, one of the most ‘innovatory’ industries in Britain is agriculture: ‘Even miserably small farmers’, runs a report,
are willing to experiment with new methods, new machines and the sort of new chemicals that would stop the average factory inspector in his tracks ... And for this there are two explanations. One is the high cost and rising shortage of farm labour, which gives farmers the incentive to try anything that looks as if it might reduce labour costs and increase labour productivity.
(the other being the ‘outstandingly good advisory service run by the Ministry of Agriculture’). [6] On a more general plane, so long as labour was plentiful and cheap, as it was more or less up to the Second World War, extensive investment through duplicating existing techniques is clearly the easiest method of expansion; drop this condition and intensive investment becomes the only way. In the one case, technical innovation is so loosely related to practical need and so unsystematically rewarded that it might give the appearance of an independent factor; in the other, it is too obviously a necessary adjunct of growth for there not to be a system of incentives for improvers and innovators, or to take it a step farther, for invention not to be institutionalized.
This it now largely is, in industry, in private research associations, in governmental and supranational laboratories. It is measured, compared internationally and shaped in advance. And while it is true that ‘under monopoly capitalism there is no necessary correlation ... between the rate of technological progress and the volume of investment outlets’ [7], it is also true that the assumption of monopoly is becoming less tenable. Everything points to fiercer, more implacable competition on a world scale. It might be economic, waged now as much with the states’ resources as those of business; it might be military, waged as much with business’ resources as those of the states. Whatever it is, it demands an output and an economic growth that only systematic innovation can provide.
Innovation is important. It is hardly autonomous.
1. W. Beckerman and Associates, The British Economy In 1975, Cambridge University Press, 1965, p.46.
2. Shonfield, op. cit., p.44.
3. e.g. Inland Revenue Commissioners v. Rolls Royce Limited, 1961.
4. A recent memorandum prepared for the Federation of German Industries by Dr Riester of Mercedes Benz demands prison sentences for industrial spies (The Times, 18 June 1966).
5. C.F. Carter and B.R. Williams, Investment In Innovation, Oxford University Press, 1958, p.17.
6. Economist, 19 March 1966. p.1148.
7. Paul A. Baran and Paul M. Sweezy, op. cit., p.97.
Last updated on 12.2.2005