by Michael Roberts
Last weekend’s G20 summit in Osaka resolved nothing substantial
in the ongoing trade and technology war that the US is now waging with
China. At best, a truce was agreed on any further escalation in tariffs
and other measures against Chinese tech companies. But there was no
long-lasting agreement reached. And that’s because this is a ‘cold war’
between a relatively declining economic power in the US and a new and
dangerous rival for economic supremacy, China. Just like the last ‘cold
war’ between the US and the USSR, it could last a generation or more
before a winner emerges – and the odds are against the US this time, the
longer the cold war lasts.
At the G20, Trump and Xi agreed a truce on existing tit-for-tat
measures and will renew ‘negotiations’. Trump made a few concessions,
allowing US companies to resume selling products to Huawei. So,
presumably, Google, Android etc. will reappear on Huawei devices. And
China will be able, presumably, to buy the processors and chips it needs
from Intel, Qualcom and Micron. But there was no clarity on whether
these concessions include what Huawei can sell to US companies (i.e. 5G
networks).
But as sure as night follows day, the trade war will resume at some
point, because the US’ key demands are just unacceptable to China,
namely that China relinquish its drive to match US technology and agree
to accept US supervision of its economic affairs.
The G20 may offer a brief respite for financial markets, but it will
not alter the general downturn that the world economy is now
experiencing, with the likelihood of a new slump in global production,
trade and investment getting ever closer. Already global activity
indexes in both manufacturing and so-called services sectors have slowed
to levels not seen since the end of the Great Recession in 2009.
As of June, the JP Morgan global activity index suggests that world
economic growth is down to a 2.5% annual rate – a figure often
considered at the threshold of ‘stall speed’ ie anything below that rate
would slip into a global recession.
The reality is that Trump cannot reverse the steady decline in
America’s former manufacturing prowess and now China’s challenge to its
technological superiority. Manufacturing employment in the US has
fallen from around a quarter of the workforce in 1970 to 9% in 2015.
This decline was not due to nasty foreigners cheating on trade deals, as
Trump likes to argue. Most studies (not all) dismiss that thesis. A study by Autor et al
reckons competition from China led to the loss of 985,000 manufacturing
jobs between 1999 and 2011. That’s less than a fifth of the absolute
loss of manufacturing jobs over that period and a quite small share of
the long-term manufacturing decline.
The biggest reason Trump can’t bring back home these manufacturing jobs is because they have been lost in large part to the success of ‘efficiency’ in the US
Over the past three-and-a-half decades, manufacturers have shed more
than seven million jobs while producing more stuff than ever. The
Economic Policy Institute (EPI) reported in The Manufacturing Footprint and the Importance of U.S. Manufacturing Jobs that “If
you try to understand how so many jobs have disappeared, the answer
that you come up with over and over again in the data is that it’s not
trade that caused that — it’s primarily technology,”…Eighty percent of
lost jobs were not replaced by workers in China, but by machines and
automation. That is the first problem if you slap on tariffs. What you
discover is that American companies are likely to replace its more
expensive workers with machines.”
What these studies reveal is what Marxist economics could have told
them many times before. Under capitalism, increased productivity of
labour comes through mechanisation and labour shedding i.e. reducing
labour costs. Marx explained in Capital that this is one of the
key features in capitalist accumulation – the capital-bias of technology
– something continually ignored by mainstream economics, until now it
seems.
Marx put it differently to the mainstream. Investment under
capitalism takes place for profit only, not to raise output or
productivity as such. If profit cannot be sufficiently raised through
more labour hours (more workers and longer hours) or by intensifying
efforts (speed and energy – time and motion), then the productivity of
labour can only be increased by better technology. So, in Marxist
terms, the organic composition of capital (the value of machinery and
plant relative to the number of workers) must rise secularly.
Against the view of mainstream ‘free market’ economics, historically, it has been government spending that has underpinned the development of unproven technologies.
This has usually occurred under duress, with innovation during war a
notable driver of development, leading to breakthroughs in materials,
products and processes. The commercialisation of the jet engine, rocket
motors, radar and modern computing can all trace their emergence back
to World War 2 while the Cold War and the space race developed these to
the point that launched the current technology age in the 1990s.
The space race was important as both sides in the cold war put to
work their newly-acquired German scientists and engineers to drive
forward their rocket projects. This culminated with President Kennedy’s
Apollo programme. The US having been beaten by the Soviets to the
first man into space, reacted by devoting immense resources to catching
up. The space race at its peak involved nearly 400,000 people and drew
in 20,000 private industrial firms and universities. Not only did the
mission itself throw off numerous innovations — much of the technology
needed to get to the moon did not exist when the programme was announced
— but it created clusters of new high-tech industries across the US,
building on the networks that had begun to emerge during the war.
This accelerated the development of numerous computing technologies,
including the integrated circuit, mass data transfer and systems
software. These were the breakthrough technologies that drove IBM and
HP’s development into computing giants. Other engineers from the
programme went on to found Intel and numerous other tech stalwarts.
Without Apollo, it’s unlikely that Silicon Valley would have developed
into the tech and economic powerhouse taken for granted today. Apollo
also drove broader business innovations, including things that
consultants have lived off ever since, like strategic planning,
budgeting as well as new management and enhanced decision-making
processes.
But as profitability in the capitalist sector fell from the mid-1960s
to the early 1980s, government taxation was reduced and so spending,
especially state investment, was slashed. Technical advances in America
increasingly depended on private sector innovation. But for the most
part that was not forthcoming. America’s capitalist sector, like others
in the major economies, opted to relocate more of their production
overseas in search of cheap labour and then in turn export back to the
US. That was expressed in investment in Latin America (especially
Mexico) and later into China.
There was one exception – the US hi-tech sector. US technological
advances are now completely dependent on investment in this sector.
Everything in the US now depends on the FAANGs (Facebook, Apple,
Alphabet, Netflix and Google) plus Microsoft. Just these few companies
invest a staggering 80% when measured against a share of US government
spending on education, transport, science, space and technology. The
scale of this expenditure dwarfs endeavours like the decade-long Apollo
programme, where spending came in at approximately $150bn in today’s
dollars — less than two years of current FAANGs plus Microsoft’s total
investment expenditure.
The US hi-tech sector is the last bastion of America’s productive
superiority. Investment bank Goldman Sachs has noted that, since 2010,
the only place globally where corporate earnings have expanded is in the
US. And this, according to Goldmans, is entirely down to the
super-tech companies. Global profits ex technology are only moderately
higher than they were prior to the financial crisis, while technology
profits have moved sharply upwards (mainly reflecting the impact of
large US technology companies).
If China is eventually able to compete with the FAANGS, then the
profitability of capital in the US will take a big shift downwards, and
with it, US investment, employment and incomes over the next decade.
That is at the heart of the trade and technology war and why it will
continue.
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