Thursday, October 15, 2015

Sam King Defends Lenin's Imperialism

Sam King (no relation to my pseudonym) throws the word "monopoly" around like it actually meant something.

Mr. King is the author of a long, interesting article entitled Lenin's Theory of Imperialism: A Defense of its Relevance in the 21st Century (h/t Socialist Action). It suffers from the flaw common to most Marxist theory: it's principally concerned with a rabbinical exegesis on some ancient text. In this case the text is Lenin's Imperialism: The Highest Stage of Capitalism, published in 1900. His major claim is summarized in the final paragraph.
Far from having become antiquated, the framework provided by Lenin’s Imperialism: the Highest Stage of Capitalism is still able to cast light on even the most modern developments in world political economy – as I have tried to show in relation to China. If this article provokes even a handful of serious people to go back and study or re-study Lenin’s thesis, then it has done its job.
I think this is nutty--a study of modern economics starting from a political polemic written more than a century ago by somebody inexpert in the discipline is not worthwhile. But before Mr. King can analyze the modern economy, he has to dispense with some modern-day Marxists who have apparently lost their way. Specifically, he takes on the deceased Chris Harmon, late of the International Socialist Tendency (IST).

For example, he attributes the following to Mr. Harmon (footnotes deleted for clarity).
Harman argued, “Most of the Third World, including nearly all of Africa and much of Latin America outside Brazil and Mexico, is of diminishing economic importance for the dynamic of the system as a whole. Profits and interest payments from such regions are the lettering on the icing on the cake for world capital, not even a slice of the cake itself”, while “the major sources of surplus value in the world are in the advanced countries”. Lenin is evoked in support of this position.
Mr. Harmon's opinion seems right to me--a proper description of the modern world. Mr. King almost admits as much, but no matter.
Whatever the truth of Harman’s position on the unimportance of exploitation of the poor countries for imperialism, it cannot be said to have anything in common with Lenin.
In other words, reality sucks. Facts that don't conform to Lenin's theory, however creatively interpreted, must be studiously ignored. And so Mr. King spends the rest of the article strenuously pounding square pegs into round holes, trying to fit the modern world into Lenin's theory.

Like Biblical exegesis, the Marxist sort also has moral consequences. Mr. King does not fail to point out the long reach of class collaboration (emphasis mine).
Leaving aside that Harman is arguing here not what Lenin said, but what his “phraseology” seemed to suggest, it is easy to find categorical refutation. Lenin called it a “petty bourgeois reformist point of view” to believe it “possible, under capitalism to separate” out “‘productively’ invested capital (industrial and commercial undertakings) and ‘speculatively’ invested capital (in Stock Exchange and financial operations)”.
Lenin's theory of imperialism revolves around two concepts: monopoly and unequal exchange. The latter depends on the uniquely Marxist understanding of value. There is the market price of labor, aka the wage, which is easily measured on the market. Then there is the value of labor, which is some kind of spiritual quantity that depends on what a worker's time is actually "worth." The difference between the value and the price represents unequal exchange, i.e., the degree of exploitation of the proletariat. Since labor's value cannot be measured, these numbers are just made up and estimated. This is why Marxist polemics never contain any actual data.

Mr. King gives numerous examples of where, in his opinion, value and wage substantially diverge. Consider, for example,
...your computer. One study gives a breakdown of revenues for iPods sold in the US for $300. US-based retailers got $75. Apple secured $80. Chinese workers and bosses got $2.61 between them. How would it be possible to imagine the workers who did most of the work are exploited, not by the capitalists who get most of the profits, but only by some middlemen and subcontractors?
Of course the factory workers did not do most of the work (as Mr. King admits later in the article). The vast majority of the effort was done by designers, engineers, entrepreneurs, salesmen, and brand managers in the United States, Taiwan, and Israel. Chinese factory workers probably contributed about 1% of the value. So this is no example of unequal exchange.

Capitalists can capitalize on unequal exchange only if they have a monopoly. Otherwise (as Mr. King does not mention) the benefits go entirely to the consumer. Mr. King describes two kinds of monopolies. The first is held by multi-national corporations, of which Nike and Apple are two examples. And these do have a monopoly of sorts. While sneakers are a commodity product (i.e., no monopoly), branded Nike sneakers are a monopoly of Nike. Indeed, as any sophomore microeconomics student learns, brands create "artificial" monopolies--Crest toothpaste, McDonald's hamburgers, Nike sneakers, etc.
Where do Nike’s profits come from? Nike does not produce anything; it outsources all its production. Are Nike’s profits then produced by Tiger Woods, Shane Warne and its small group of advertising, design, sales and financial staff in their offices in the US? The Marxist answer is “no”: production workers create the value realised as profits.
Actually, yes, Tiger Woods, et al., contributed significant value to the brand. As did the designers, stylists, and advertisers in the US. It is simply not true that production workers created all the value. Only a small bit of it.

The other monopoly is "financial capital." Despite spending seven years as a card-carrying Commie, and an additional thirty as a student of economics, I still have no idea what that term means. It's a boogeyman, like neoliberalism. So I can't do Mr. King's argument justice, but he seems to claim that "financial capital" is increasingly monopolized. Really? Today we have not just banks, but commercial and investment banks, hedge funds, venture capital, mutual funds, pension funds, exchange-traded funds, shadow-banking systems, all kinds of derivatives, along with many financial instruments I've never even heard of.

I don't understand the half of it. And neither does Mr. King. For that matter, neither does anybody else. The whole thing is so complicated and so interlocked that nobody has a clue what will happen when something goes wrong. But one thing is certain: it is definitely not a monopoly! So on that Lenin is just wrong.

One more claim by Mr. King is worth examining.
Indonesian textile workers receive wages around one-thirtieth of the Australian minimum wage. They must work a full work day to earn what an Australian worker gets in the first minutes of a shift.
A similar discrepancy occurs on the US-Mexican border. Workers can increase their wages by a factor of 10 just by moving from Juarez to El Paso. Why? It is not, as Mr. King rightly states, because American textile technology is so superior. Indeed, he remarks that such low-tech manufacture is comparably productive around the world. And it's not that Americans are more skillful--the Mexican gets the pay raise on his first day in the USA.

Instead it has to do with good institutions. I count the following advantages of El Paso over Juarez.

  • Low crime. Crime adds a significant cost, and the crime difference between El Paso and Juarez is significant.
  • Secure property rights. Factory owners in El Paso have secure title to the land going back several centuries. There is no doubt who owns it. The government is (generally) not able to simply expropriate it. Nobody will invest very much if property rights are not secure.
  • Rule of law. American courts and the American legal system have a long tradition in both common law and constitutional law. They will get it right most of the time. That's not true in Mexico: the common law tradition does not exist, and the constitution is not awarded the same authority. Legal outcomes are much less predictable.
  • Economic freedom. Entrepreneurs in the USA are free to fail. Nobody goes to jail for going bankrupt (unlike, e.g., China). Conversely, American businesses can keep the proceeds of their efforts, even if in a narrow sense it's unfair. The biggest correlate for a country's standard of living is the measure of economic freedom.
Lenin understood none of this, though in 1900 perhaps we can't blame him. Sam King, on the other hand, really should know better.

Further Reading:

Tuesday, October 13, 2015

Book Review: Popper's Bitcoin Book

Nathaniel Popper is the author of Digital Gold, an account of the short history of bitcoin. Bitcoin is a digital currency invented by "Satoshi Nakamoto," and released to the world in 2009.

The book is advertised as a business book, and no doubt some legitimate fortunes have been made and lost. A few of the characters are, indeed, entrepreneurs in the spirit of Sam Walton, Steve Jobs, or Aubrey McClendon. The name Wences Casares, the Patagonian founder of Xapo, comes to mind, though (apart from Satoshi himself) no bitcoiners rise to the rank of genius that one associates with those other giants of industry.

But two other less creditable strands are prominent, especially in the early years. First is a kind of crackpot libertarianism--a cross between Ron Paul and Occupy Wall Street. It's a paranoid world view that posits some grand conspiracy theory between the government, big business, and the Federal Reserve, among others. These are people for whom the dollar bill is an infringement on liberty, and the main object of activism is to protect one's privacy from the prying eye of government. Roger Ver, a longtime champion of bitcoin, who served time for illegally selling explosives and has renounced his US citizenship, is representative.

The second strand is outright criminality. The biggest use for bitcoin, even today, is buying and selling illegal drugs. The founder of the trade was a poor fellow named Ross Ulbricht, aka Dread Pirate Roberts. Along with belonging to the kooky Libertarian club, he also grew mushrooms in his basement and wanted to sell them. Apart from hawking them on a street corner, a bitcoin-enabled internet storefront looked to be a golden opportunity. And so Silk Road was born--the internet marketplace run along the principles of, but that used bitcoin as a cheap, relatively anonymous way to transfer money.

For this Mr. Ulbricht is now serving a life sentence without parole, a punishment which many (perhaps including me) think is excessive.

Other people got caught up in Silk Road, including an early bitcoin entrepreneur named Charlie Shrem. A born salesman and a natural champion for the new technology, he ran the first currency exchange facilitating bitcoin purchases. While great at raising capital, he wasn't a particularly good manager and had no interest at all in regulations surrounding financial transactions. So, despite likely having no criminal intent, he is now spending two years in the federal pen--a sentence that is surely unduly harsh.

And then there is Mark Karpeles, the French dude who bought Tokyo-based Mt. Gox, building it into the premier trading platform for bitcoin. Unfortunately his bookkeeping was not up to the challenge, and in 2014 Mr. Karpeles revealed that somehow the company had "lost" 750,000 bitcoins, worth as much as $500 million. That story is complicated (I don't think it is completely told in Mr. Popper's book), and some of the money has been recovered. Nevertheless, Mr. Karpeles is now charged with embezzlement.

Despite this, surprisingly bitcoin is still around. There are four reasons for its continued existence. First, successors to Silk Road have proliferated, and the technology remains today the best way to buy and sell contraband. This remains the biggest use for the currency and guarantees a market. Second, honest, non-ideological entrepreneurs have entered the market, of which Wences Casares is a preeminent example. He is looking for legitimate markets, and indeed, bitcoin is now popular in places where banks are unreliable, e.g., Mr. Casares' native Argentina.

Third, the dreaded establishment has latched on to bitcoin. Every major bank now has a research program on the technology. The blockchain (bitcoin) algorithm can be used to trade any number of things cheaply, e.g., stocks, bonds, and real estate. Blythe Masters, the lady wunderkind working for JP Morgan, actively disowns bitcoin currency, but is using the blockchain to trade derivatives. (Ms. Masters does not appear in Mr. Popper's book, but she is the first woman to play a significant role in any of the business books I have read.)

And finally, even the evil government is beginning to take notice. Much to the Libertarians' dismay, the gnomes at the Fed and the IRS have realized that bitcoin is not like cash. The latter is truly anonymous and can be used to evade taxes, among other things. Bitcoin is precisely not anonymous, but merely pseudonymous. Indeed, all transactions are a public record, just waiting for the police to figure out who hides behind the pseudonyms. That's how Mr. Ulbricht got caught.

So now some paranoid people are suggesting that the Fed wants to eliminate cash altogether and replace it with bitcoin or some similar system.

So what do Trotskyists think about bitcoin? I have absolutely no clue. My guess is that few of the papers on my Beat would know the difference between a blockchain and a cement block. If you're stuck in a 19th Century timewarp, then new technology becomes a mystery.

As for me, I'm cautiously optimistic about bitcoin. I took Mr. Casares' advice, which I paraphrase from memory here:  
Buy four bitcoins, which today costs about $1000. There's a good chance that you'll lose all your money--that the price of bitcoin will fall to zero. But there's also a chance that bitcoin will eventually be worth $1 million.
Paypal has about 200 million users in the world, and everybody acknowledges that Paypal is a success. But you need a credit card to use it, and only one billion of the world's population has a credit card. Bitcoin, on the other hand, only requires having a cell phone. Six billion people have a cell phone. So bitcoin has a much larger potential market than Paypal.
Today bitcoin has 13 million users. When it has 200 million (like Paypal) it will be a success. 
I bought the bitcoin lottery ticket. The most I can lose is a grand. But I might also become rich.

Further Reading:

Sunday, October 4, 2015

Trotskyists on Economics

Here is a roundup of recent Trotskyist opinion on economics, broadly interpreted.

Consider first Socialist Action's article headlined Scientists Say: End Fossil Fuel Use Now. I guess that means I won't be able to heat my house this winter. And I should probably forget about going to work on Monday, as that entails driving a car. Oh, and I'm not allowed to use a thorium reactor, either.

So maybe I shouldn't take author Christine Frank so literally? Perhaps she'd be willing to give me thirty days to wean myself off of hydrocarbons? Maybe even a year, though who knows, all of Antarctica might melt before then.

As it turns out, Ms. Frank's solution ignores her imaginary deadline.
The only way to stop further environmental devastation by a greedy capitalist class that refuses to give up its fossil-fuel-based economy is to nationalize the entire energy industry and put it under democratic workers’ control. At the same time, we must ensure a just transition with retraining, union wages, and full benefits for all workers making the shift from the production of dirty fuels to clean, renewable energy.
Even if you could accomplish all of this before the End Of The World, it's not clear to me that democratically empowered workers are going to vote for collective suicide, e.g., freezing to death in the winter. But then Ms. Frank never had much of a brain for practicalities.

Socialist Action is obviously not serious about convincing anybody who doesn't already agree with them. Their website is principally dedicated to the psychological amusement of their own comrades.

Equally ridiculous is the article by Socialist Action's Marty Goodman entitled Syriza Wins, Greek Workers Lose, about Alexis Tsipras' reelection as Greek prime minister following his abrupt turnabout on the memorandum. The correct path for Greek workers, according to Mr. Goodman, is to support the Trotskyists in the ANTARSYA coalition--you know, the ones that got 0.85% of the vote. (Mr. Goodman hilariously mentions that this is an improvement over last time!)

The Left breakaway from Syriza that supported Grexit did much better, getting somewhat less than the 3% necessary to enter parliament. Such a smashing success, per Mr. Goodman, is attributable to their supposedly bourgeois insistence on continued capitalist rule.

The fact is that the overwhelming majority of Greeks want to stay in the Euro. And no wonder, as the alternative is instant poverty. When Tsipras' negotiation failed to produce the expected free unicorns, Greek voters--sadly but predictably--settled for the only remaining option. Mr. Goodman's thesis that the election was somehow unrepresentative is delusional.

I try to take my Trotskyist friends seriously, but these Socialist Action articles are just stupid--there's no other word for it.

The folks over at Solidarity hold the same opinion as Ms. Frank, but they are better informed and more honest about what it entails. Reprinting a piece from the Bureau of the Fourth International (whatever that is), they lay out the unvarnished truth.
To save the climate: 1) 4/5ths of known reserves of fossil fuels must remain underground; 2) the energy system based on these fossil sources (and on nuclear power) must be destroyed as quickly as possible, without compensation; 3) production which is harmful, unnecessary, or based on planned obsolescence must be abandoned, in order to reduce the consumption of energy and other resources; 4) the despotic and unequal productivist/consumerist system must be replaced by a renewable system, one that is efficient, decentralized, social and democratic.
This requires nothing less than the disemployment and mass impoverishment of the majority of the world's population. Of course if that's what's necessary to Save the Planet, then certainly we should all go along--even democratically elected workers must agree.

The Militant's masthead includes the slogan "published in the interests of working people." Socialist Action and Solidarity will both claim similar sentiments. But their relentless insistence on mass poverty will never win the support from anybody who actually has to work for a living.

More serious is an article in Solidarity by Kevin Lin, entitled Chinese Strikes in Manufacturing: From Offensive to Defensive? Mr. Lin obviously knows something, and that right there makes the piece worth reading. He describes strikes at manufacturing companies in China, including at a footwear factory and a clothing & leather company. Some were successful and others not so much.

His thesis (and I simplify it here) is that in the previous decade strikes have been for higher wages and better working conditions--demands that Mr. Lin terms "offensive." More recently, however, unrest has been caused by company closures, severance packages, and demands for workers to relocate. These are "defensive" because while they protect workers, they don't improve standards of living.

Mr. Lin claims that because of the weakness in the Chinese economy, defensive struggles will now prevail. I think he's right.

The Militant also reports on labor unrest, this time in the US. As usual, they're the best reporters on my Beat. Alyson Kennedy files from East Chicago about the contract negotiations between the United Steelworkers and ArcelorMittal. After describing the weakness in the global steel market, she writes,
“We are in for a long fight,” Darrell Reed, a member of Local 1010’s grievance committee, told the Militant. “I’m not optimistic that the latest negotiations will get us something we can live with. Both active and retired members have to stand together. Health care is a major issue, especially for retirees. For some of them the company’s offer means not having enough money for food after paying for health care.”
Mr. Reed has it right. Margins in the steel industry are razor-thin, and companies have no ability to raise prices. Further, even as the workforce shrinks, the number of retirees continues to grow. And contrary to Marxist opinion, benefits for retirees do not come from the capitalists' margins, but instead are paid out of the salaries of the employees. That's why it's going to be so hard to keep active and retired members on the same page--they're both competing for the same pot of money.

Actually, it's all of a piece--the unrest in China, the dispute in the steel industry, and even the demand for $15/hour. For higher wages for Walmart employees means that savings have to come from elsewhere--either by hiring fewer workers in America, or by pinching suppliers. But the suppliers are Chinese workers, who end up footing the bill. That's why their strikes are increasingly defensive, and also increasingly unwinnable.

The only winners are American consumers, who will get cheaper prices. All the workers--whether in the US or China--are really on strike against the consumer. And it's a battle the unions will never win.

The Militant, at least, does not always demand Instant Poverty Now.

Further Reading: