Supporting report for the political resolution
The Technology Revolution
We are, and have been for at least the last 30 years, in the midst of a profound technology revolution, where the central, controlling, essential technology is changing from electro-mechanical to electronic-based productive forces.
Like any process, the revolution goes through stages. A technology revolution begins with a prelude, where all of the various supporting players take their place on the stage. The introduction of a qualitatively new motive power -- not possible, practical or meaningful without this prelude -- is inserted into the production process. The second stage of the revolution is the first visible one -- the old production processes remain intact, but driven now by the new technology. This stage is followed by a restructuring or reorganization of the process to take better advantage of the new technology. The reorganization in turn demands a revolution in the means of communication and transportation. With the revolution in the means of communication and transportation begins the revolution in the general conditions of the social process of production, and a relatively rapid escalating "autocatalytic process" -- "one that catalyzes itself in a positive feedback cycle, going faster and faster once it has started." (Jareth Diamond, Guns, Germs and Steel, 1996)
One stage doesn't end abruptly and a new one begin. While the stage of replication is still being completed -- the deployment, for example, of robots continues -- the stage of reorganization of production has advanced to the point where the revolution of the means of communication and transport -- around the Internet, and also mobile phones, satellite transmission, fiber optics, etc. -- is in full sway. The stages overlap. The modern communication revolution/networks start around 1970 -- the Ethernet standard, the original Arpanet, (the precursor to the Internet) and proprietary networks. But not until a host of intersecting steps -- widely accepted, open standards like TCP/IP and HTTP (late 1980's), faster computers, the extension of faster communication infrastructure (including faster modems, DSL, fiber optics, more cable laid, faster switches), graphical browsers (early 90's) -- that it comes into its own.
Automated production by robots and computers cannot develop further without digital networks. With new communications technology, the technology revolution enters a new stage where the entire organization of the economy is transformed. The high-speed Internet is transforming the organization of production.
The maturing of the Internet as an integral part of the productive process is ushering in a new stage in the undermining of the extraction of surplus value. It is important to note that while the immediate impact of current technological innovation is to increase efficiency and productivity, this is not the key to development. The significance of the application of electronics to large-scale factory production was not that it was labor-saving, but rather that it was labor replacing, thus transforming the nature and role of labor in this aspect of the productive process. Similarly, the Internet does not simply increase efficiency. The Internet is transforming the nature of communications and transportation and indeed the nature of how things are produced.
The step-by-step maturing of the general crisis of capitalism -- as value and profit production is replaced by valueless production -- is the underlying content of our time. This process manifests today in the stage of the technology revolution where the process of production is revolutionized by the radically new means of communication.
To take advantage of what computers do best, part of the reorganization of production takes the form of the digitalization of production -- conversion to a form that is optimal for the new technologies. The Internet is the infrastructure to move these bits around. The digital form -- 1s and 0s -- has profound economic advantages. The incredibly cheap replication, storage and transmission of this form (often mistakenly referred to as "information") begins to hint at the possibilities of the economics of abundance. The biological equivalent -- cellular production and reproduction -- holds maybe even more promise.
Every aspect of the economy is touched -- production, distribution, markets, finance.
One example of this in production is how digitalization and the Internet are impacting Hewlett-Packards' production of measurement and testing equipment. H-P is projecting that their customers will be able to obtain "test and measurement functionality" via a Web site. Imagine performing vital test and measurement operations with no equipment on site. H-P, instead of producing and shipping extremely costly measurement equipment, will be selling a "service." Here we find the potential of a large-scale reduction in the "hard goods" needed to be produced. Microsoft's .Net initiative, and long-standing efforts by companies like Oracle and Sun Microsystems to see "the net is the computer" are other examples; as is the worldwide assembly line made possible by technology that coordinates production. (see e.g., Business Week: Special Report,"Smart Manufacturing", 8/7/00)
Where goods can be rendered digitally -- e.g., motion pictures delivered as digital bits over the Internet to movie theaters instead of as celluloid, old forms of distribution are completely replaced. The new networks make tighter coordination of more traditional forms possible too, e.g., using satellite tracking to monitor truck deliveries.
Markets are radically changed where auctions force suppliers to compete more on cost. (Wall Street Journal, "Internet Changes Face Of Supply And Demand", 10/18/99). New markets in electricity, water and network bandwidth (Enron/Azurix) become possible. Financial markets are also radically transformed -- e.g., online trading, "all-bits" stock exchanges, and new electronic bond markets.
Maximization of profit under these conditions
The maximization of profit is the prime directive of capitalism. The penalty for the capitalist who fails to observe this simple premise is severe -- being driven from the marketplace or the production site into the ranks of the propertyless by some other capitalist who does achieve the maximum profit. It pushes the application of electronic technology to every corner of the economy.
Maximization at the stage of the robot means the industrial layoff, concessions. Maximization at the stage of the Internet means contingency and just-in-time everything, the reconfiguration of markets, the destruction of the old sphere of circulation (down with Main Street, up with Walmart), the destruction of the hierarchical/vertical corporate form and its replacement by the virtual corporation.
In digital capitalism, new competitions emerge -- between formerly distinct industries now converged by new technologies, between old enterprises and new enterprises quicker to embrace the new technology, and between old competitors finding new ways to attack their traditional markets. The global production site demands global consolidation; and the new communication technologies make it possible. The seesaw between monopolization and competition intensifies -- old players are compelled to combine, while new players are compelled into the market -- new entrepreneurs hoping to strike it rich and avoid the slippery slope into the new class, or old industries driven to compete in new markets to stay viable in the new climate.
The basic law may once have been obscured (in the United States at least) by shifting the pain to colonies (direct and otherwise), by a social welfare net, by regulated industries, by markets clearly defined by both geography and chemistry. But the new technology climate strips away these market barriers. With increased direct access to consumers, workers, financial markets; with the increased speed of the economy, the new technologies flush the basic law of capitalism out into the open. There are many consequences of this law at this stage.
First and foremost, the maximization of profit under capitalism in the age of electronics -- under globalization -- means the deeper immiseration of most people and the further polarization of wealth and poverty.
Capitalism in the age of electronics -- globalization -- expresses itself most profoundly not in employment statistics, but in the polarization of wealth. The handful of billionaires at one pole, and the vast majority of the rest world's population on the other is one expression on a global scale (200 people own more than 2.5 billion of the world's poorest). Polarization takes place also within the local economies -- in the U.S., the share of wealth of the top 10% continues to grow, while the share of the bottom 90% continues to shrink, according to a 1998 Federal Reserve report. Employment only masks this splitting apart: in the U.S., according to a June, 2000 Conference Board report, poverty has grown among full-time workers in the past four years.
This polarization happens for many reasons. Computers coupled together via the Internet make possible new marketing and distribution schemes that were previously difficult or impossible to achieve. So, for example, a national, or even international market in electricity is possible, as various local electrical grids are able to share load in ways that were impossible without computing power to coordinate it and price it. But for this interconnected system to work for Capital, prices must be deregulated, to provide an incentive to take the electricity to market. But electricity production is expensive to expand under a centralized capitalist model, where large utility companies block renewable energy research, appropriate technologies, and insist on large power plants. So production of new (and ecologically safe) sources of electricity languishes. The deregulated electronic market unleashes the conscious-less law of supply and demand, and electricity prices skyrocket, bleeding money from consumers. And the Dow Jones Utilities Average climbs (up 30 percent between February and August 2000). The scenario is repeated for gasoline, heating fuel, milk, computer operating systems, transportation and other basic commodities.
Also, high tech production in some places is matched by low-tech production in others. Labor-intensive production somewhere is possible, enforceable and practical because of new technologies of communication. Globalization builds the factories and creates the labor markets in previously unindustrialized regions. The resulting super-exploitation helps to create the polarity of wealth and poverty.
Along with the polarization of wealth, and its destructive impact, other destructions of social life take place in the networked economy. The networked economy is the great speed up, intensifying the pace of work, while extending the working day to that of the 7x24 robot. It both enables and requires the circulation of capital at faster speeds, so it turns over faster (to maximize profit); it demands that human beings keep up with the packets of digitized commodities zipping at the speed of light through fiber optic cables. The family is required to work more hours, in competition with the robot, trying to hold on to a slipping standard of living, and, stripped of any social safety net, fending for themselves in the contingent economy. How else is a family to survive under electronic capitalism, except by working harder, faster, longer?
The maximization of profit demands the maximization of consumption. Any activity that does not involve increasing the velocity and mass of commodities being exchanged is a drag on the economy. More areas of life are commodified. No time to watch the kids - take them to a childcare franchise. No time to care for elders - take them to the nursing home chain. No time to fix dinner - out to the fast-food "restaurant". Through ubiquitous and more aggressive and more scientific advertising, people are reduced to consumption machines. As the public sector is whittled away, every cultural moment is an act of consumption in the pay-per society.
To finance this consumption, people must load up on debt, pushed on them by increasingly aggressive finance companies. The finance companies themselves are attempting to maximize profit, feeding the pyramid of speculative capital. The credit card debt and the no-down payment mortgages and the rent-to-own scams are securitized and packaged and resold and end up paying the interest on money market accounts and currency funds sloshing through the global economy. The debt and interest payments prop up the speculative economy, and tie consumers to the intensified new economic regime.
The technology revolution under capitalism
The technology revolution happens within capitalist production relations. The drive to maximize profits pushes the technology revolution forward, but electronic-based production undermines value production. This is a profound contradiction.
On the one hand then, International Labor Organization figures indicate a general increase in worldwide employment, with most of the growth in many areas of the world in what it calls the "informal sector" -- the contingent, temporary, or sweatshop labor. At the same time, production and distribution is being reorganized around a high-speed Internet, eliminating work and increasing efficiency in a wide range of industries -- where the Internet has been deployed widely. Both of these processes are explainable consequences of the electronics technology revolution.
The introduction of new productive forces into a mode of production process is complex, messy ... dialectical. The change from the electro-mechanical based production system to an electronic-based one describes a technology revolution. The technology revolution has prompted a profound reorganization of the economy, as capitalism has tried to accommodate and take advantage of the new technologies in the struggle to maximize profit. In its dialecticalness, we should expect that it will be uneven, characterized by advances and retreats, where old and new co-mingle and opposites interpenetrate, tendencies conjure counter-tendencies; actions, counter-actions.
The difficulties of the quality of labor-replacing technology asserting itself within capitalism is described in two general criticisms: If these new technologies are labor-replacing, where is the evidence of a great leap in productivity? Certainly not in official productivity figures. And if these technologies are "labor-replacing", where is the empirical evidence of labor being replaced? Certainly not in employment figures. Addressing these criticisms reveals the dialectical nature of a technology revolution. The productivity challenge and employment challenge are two sides of the same argument, and can be approached by looking at the mechanisms that counteract the impact of labor-replacing technology.
The productivity and employment challenge can be addressed even more briefly: from developer of the productive forces, capitalist relations turn into their fetters. Between requiring more unproductive labor to ensure the circulation of commodities in a hyper-competitive, world-wide web driven global market; premature depreciation or expanded competing technical labor to remain competitive; or autonomous retaliation by workers, capitalism invokes or erects its own constraints on new technologies. Where new technologies enable access to cheap labor, or speed the circulation of capital over digital networks, or cheapen means of production or stretch what can be squeezed out of raw materials, or enable the commodification of new areas of social life, new technologies extend the life of capital, but at a steep social cost.
The promise of these technologies cannot be realized under capitalism. From developer of the productive forces, capitalist relations turn into their fetters. By requiring more unproductive labor to ensure the circulation of commodities in a hyper-competitive, world-wide web driven global market; by forcing the premature depreciation of technologies to remain competitive; by provoking retaliation and sabotage by workers; by criminalizing people who would take advantage of the abundance generating possibilities -- capitalism conjures its own chains on new technologies.
So while the main tendency in the economy is towards labor-replacing technology, and therefore the end of surplus value and profits, counter-tendencies inevitably emerge. Under capitalism in the age of electronics, new technologies enable access to cheap labor; and Capital builds the markets and factories to exploit that labor. New technologies speed the circulation of capital over digital networks. They cheapen the means of production and stretch what can be squeezed out of raw materials. Under capitalism, they enable the commodification of new areas of life. That is, maximizing profits under these conditions means slave labor, sweatshops, forced overtime, cutting the social safety net, taking on more debt, and the end of service and civility and leisure -- misery and poverty for the majority of the world; obscene wealth for a tiny minority. Capitalism survives by destroying society and the planet. But capitalism does not fade away -- it must be destroyed as a conscious act and replaced by something new.
Globalization
The historic trajectory of capitalism is the completion of the world market. "Globalization" is the shape that capitalism takes under electronics. This too has shifted and changed as the stages of the technology revolution have progressed.
At any point in capitalism's history, some section of that class has played a dominant role, able to set the agenda for the class. Part of globalization is the rise of speculative capital. Speculation has always been an aspect of capitalism, and related to insurance and credit. Today, though, speculative capital has become the dominant wing of capital. Among the speculative capitalists there are different wings. One section is tied to the multinational corporation, that carries out economic activity in multiple countries -- their treasurers and risk managers are compelled to hedge and use derivatives to bring a degree of stability to operations. Another section is tied to the finance industry (e.g. Goldman Sachs), and makes its money via volatility -- movement in any direction.
The Internet/electronics communication networks contribute to volatility - momentum trading. This herd behavior results from movement feeding on itself, providing wild swings in prices. This has also happened in the trading of bonds: "More bond dealers and institutional investors are using equity-linked computer models to estimate credit risk. The models derive asset value, leverage, and likelihood of default from the market value and volatility of a company's share price. So, if the price drops precipitously, dealers and investors quickly mark down the value of its bonds as well." (Business Week 10/31/00) The same phenomenon can be seen in other places -- a recent Business Week article on smart factories described a case where software "agents" controlled pricing and exchange in bidding for raw materials led to wild swings in pricing. (Business Week, 8/7/00)
On the other hand, the network nature of the economy creates redundancy within the system, so the system can route around problems. The global financial system has functioned more like a web or net of relationships than as a chain -- a connection may be broken in one place, but that is not sufficient to break the system. If one thinks of the financial system as a rubber band, the high tech-based global financial system allows the rubber band to be stretched further and further through more and more exotic forms of credit, securitization and hedging, but at less overall risk. The system as such will be able to withstand a number of shocks, as long as they don't all happen at once. The ruling class propaganda machine will be able to present system failures as local events, like rolling brown-outs, and not as instances of a permanent system-wide failure as far as the vast majority of the world's population is concerned.
With the Internet, new forms of speculation and hedging become possible as commodities and futures in new deregulated fields, like gas and electricity are traded online. The role of as financial traders takes on a larger role than the more traditional role of companies as commodity producers. The various forms of speculative capital protect the system and also weaken it: while there is a larger, worldwide pool over which to spread risk, all players are drawn into the same global pool. In an increasingly interconnected global economy, each national or regional crisis is a break at a weak point/link of that global economy. Although financial mechanism can limit and/or the losses of the financial speculators, the economic and social damage to the people continues and deepens. Nor can these mechanisms overcome the underlying causes of the problem. Each such crisis is an intensification of the general crisis of capitalism.
Crisis
Each advance in labor-replacing technology, and therefore each stage, undermines the ability of the capitalists to extract surplus value in the process of production. Thus, step by step the "new" intensifies the crisis of capitalist system and calls into question its ability to operate as a viable economic system.
Capital has both internal limits -- surplus value and profits come from unpaid living labor; and labor-replacing technology drives the amount of living labor towards zero; and external limits -- we live on a planet with finite resources and a geographically finite market. The general crisis of capital -- capital colliding with its internal and external limits -- has been and will continue to be the inescapable theme of the world economy today. The general crisis is expressed as globalization. The visible cyclical crises of capitalism are colored and shaped by the features of globalization -- a lengthening of the cycle through the extension of more debt, carefully managing the subjective understanding of the economy and what is possible, and regionalizing and containing crises.
Today, the world economy depends on the health and stability of the US economy. Japan is effectively on the sideline. Europe is fragmented. Asia's economies are tied to U.S. economy's well-being. The U.S. continues to be the market of last resort.
The current "boom" is financed with a tremendous amount of debt. This level of debt is made possible by the communication technologies.
"A record $4.5 trillion in debt has been accumulated by U.S. non-financial corporations, up 67% in the past five years, according to the Federal Reserve, and household borrowing has risen almost 60% to $6.5 trillion. Some $160 billion of "subprime" mortgage loans to lower-credit borrowers were made last year, representing 11% of all mortgages, up from $40 billion, or just 4% of the total, in 1993. Junk bonds (bonds sold by companies with the highest credit risk) have soared to $529 billion from $173 billion a decade ago. In addition, $320 billion of syndicated loans were made last year to companies with lowgrade credit ratings, up from $58 billion in 1990.
"Thanks to securitization, -- the bundling of loans into debt securities -- lenders can sell their loan portfolios to investors, take the money from the sale and then make even more loans. This has spread credit risks, because thousands of loans end up in these debt securities. So even if some loans go sour, that would have only a minor effect on investors who buy them.
"The $3.1 trillion market for asset and mortgage backed securities [securitization] is likely to overtake the Treasury market as the largest fixed income sector in the world in the next year or two. The forces of financial innovation and Madison Avenue marketing, along with growing prosperity, combined to change attitudes about being in hock. The average U.S. household now sports 13 credit or charge cards, and carries $7,500 in credit-card balances, up from $3,000 in 1990. Household debt is a record 101% of income, up from 84% in 1990. Household debt is about 13% of assets today, about the same as a decade ago [because household assets have risen in value -- stocks, home prices and incomes." (Wall Street Journal, "Debtor Nation", 7/5/00)
A crisis is an interruption. One likely source of interruption will appear in the credit markets. Being strung out on debt, an interruption in credit will affect weaker companies first. If the interruption is severe enough, because of the interconnection within the economy, it will have a profound effect on the economy. As credit is cut off, whether by banks tightening lending, interest rates rising (making borrowing more expensive), or the stock market sinking (making IPOs impossible), capital spending will be cut back, causing weaker companies to fail, layoffs will increase, and household bankruptcies will climb. This will put more pressure on banks and investors, resulting in a vicious cycle.
Most economists agree that some kind of downturn is very likely. The destruction of welfare and the social safety net over the past 15 years will dramatically amplify the pain of such downturns, and its effects will be magnified worldwide.
Written in late 2000