Is there a "new" economy - or just the same old system dressed up?
A net gain for Capitalism
Andy Kilmister
EVER SINCE the beginning of capitalism the ruling class has dreamt of abolishing booms and slumps in the economy. In the late 1960s economists earnestly debated whether the business cycle was obsolete.
The last two years have seen a revival of this kind of thinking in the United States, which has now spread to Britain. The first two months of this year have seen a massive media hype around the concept of the 'New Economy'.
The Financial Times recently ran a five part series on 'The End of Economics' at the same time as The Economist had a lengthy central feature on 'E-Commerce'. Meanwhile papers like The Guardian are packed with features on the latest youthful internet millionaires.
European stock markets are now following the US example of the last two years and booming on the basis of information technology shares.
Is this just a passing frenzy, or does it signify anything important about the changes taking place in global capitalism?
The most detailed examination of this kind of question in the Marxist tradition is the theory of long waves developed by Ernest Mandel in his book Late Capitalism and a number of other writings. Mandel attempts to analyse key turning points which laid the basis for sustained upswings or downturns in capitalist development lasting for a period of some 25 years.
The current hype about the internet and the new economy is essentially based on the idea that such developments could mean the start of a new upswing of a long wave. This would bring an end to the downturn in the world economy, characterised by slow growth, periodic deep recessions and weak credit-based booms, which has lasted since 1973.
A new 'long boom', which could be compared with that from 1948 to 1973, would justify the stock market fever and bring sustained increases in profitability.
But Mandel's central point about such upswings is that they cannot depend on one factor alone. Rather, as Marx wrote in the " Grundrisse" , "the concrete is concrete because it is the concentration of many determinations".
Any attempt to ground a new long wave on technological developments alone is doomed to fail. Such developments have to be seen in interaction with the state of class struggle, the uneven development of different sectors of the economy, imperialism and international economic relations, and so on.
However, the more sophisticated advocates of the 'new economy' idea do recognise this. Their argument is not that a long boom will be based solely on technology but that, particularly in the USA, a number of other factors have come together in the last two decades which now provide the context for technological developments to be translated into lasting capitalist expansion.
Chief among these factors are the strength of the employers' offensive in the workplace and its effect on trade unions, the increase in international competition represented by globalisation', the deregulation of large sectors of the economy, particularly finance, and the attack on the welfare state.
This current of opinion, which is clearly highly influential with Tony Blair and the Labour leadership, goes on to argue not just that these factors provide the opportunity for a technology-based upswing in the USA, but also that they are necessary for Europe and Japan to share in this upswing. The new economy thesis is an important element in the world-wide push for neo-liberalism.
But can current technological developments provide the basis for a new long wave? It is important to be clear about the different kinds of technology involved. Areas like biotechnology may well be more important in the long run than the internet.
Even within the general area of information technology there are important differences between changes in computer-based information transfer and in telecommunications, although the two are becoming increasingly linked. The initial growth of massive computer software companies like Microsoft was entirely unrelated to the internet, the importance of which Bill Gates recognised rather slowly.
However, while capitalism is developing a wide range of technologies, it is the internet which is really central to the current claims about a new economy. So far, while there have been a number of radical analyses of the positive and negative potential of the internet, there has been very little written from a Marxist perspective about where it is located within capitalist business.
There seem to be three main areas where the internet is playing a role.
First, there is the use of IT internally within companies as a way of restructuring. This can involve production itself, but also as in the case of Unilever's recent plans, purchasing, marketing and after-sales service. The result in this case is projected to be job losses of 10 per cent and factory closures of over a quarter, world-wide.
Secondly, there is the use of the internet as a way of distributing products and services to consumers. The industries mainly affected by this so far are banking and finance, retailing and the media. Others may follow though, for instance education.
Thirdly, there are a range of companies which actually make profits from providing the infrastructure which allows the internet to function. These range from the big internet service providers which allow access to the net, down to small start-up companies which provide distinctive kinds of software which increase the possibilities open to net users.
In addition to this there is an argument that, simply by providing information more easily to consumers and competitors, the growth of the internet will increase competition and that this will keep inflation down and allow longer periods of growth.
Most of the "new economy" hype is concentrated on the second kind of company. Yet this is exactly the area where the long-term effects of the internet on capitalist expansion are likely to be weakest.
There are two main groups of companies here; those which charge for their products on the net, which tend to be relatively established and often large, and those which do not. The internet is clearly an important new channel of distribution for some products. This is especially true for those things which can actually be delivered over the net, notably music through the MP3 software, and financial services. Tickets for travel and cultural events are also a natural area for IT. The occasional bright idea like that behind Lastminute.com can bring profits.
But while this will reshape certain industries it is likely to remain limited in extent. Booksellers were the first to exploit IT for retailing,and it seemed a natural product - easy to ship, and with great advantages resulting from being able to list a wide range of products on your site. But companies like Amazon.com have still made no profits.
The cost of delivering, and the discounts needed to encourage buyers to wait for delivery, have wiped out the effect of growing market share. And other products are much less well-suited to this approach.
A share index of the 15 biggest online retailers in the USA calculated by the magazine USA Today fell 31 percent between November and the beginning of February. Other online retailers have done worse. Shares in eToys fell 45 percent in a month, Value America is sacking half its workforce and Beyond.com is laying off 20 per cent of staff and leaving the consumer market, with shares down 80 per cent.
The basis of the large number of consumer based internet companies which do not charge is even shakier. Guardian profiles of their founders are always noticeably reticent on one basic point - how they will make any money! In fact, in nearly every case it is through selling advertising space.
The idea is that if enough people are seen to be visiting the site then advertisers will be keen to pay for a space on it. Yet recent reports are decidedly down-beat about the effect of internet advertising. A large proportion of the advertising carried out on the internet is actually by other internet based companies and so is just inflating the speculative bubble.
Even if the internet were to become the main vehicle for advertising this could not provide the basis for the upswing of a long wave. Advertising is not productive capital but commercial capital which represents a transfer of value within the capitalist class. It cannot raise the overall level of production and profit in the long run.
The companies charging for retail products on the net are analogous to catalogue sellers: those which don't charge to free newspapers, or at best to ITV companies. Neither provides the basis for a major transformation of capitalism.
But what about the third group of companies, those based on making the internet itself work?
These have been compared to the railway companies of the nineteenth century. But there is an important difference. The process of competition is much sharper. Simply providing net access is not going to provide sustained profits into the future. This is what lies behind the recent merger between America Online (AOL) and Time Warner.
While this was widely seen as a tribute to the power of the internet, The Economist correctly reported it as the reverse. AOL realised that its future profitability depended on being able to offer not just access but also 'content'. And such content is increasingly under the control of the big media multinationals. Increasingly we can expect to see them merge with internet companies, transforming that part of the 'new economy' into simply an alternative distribution channel for corporate entertainment.
The real substance behind the new economy hype lies with the first aspect of the internet, the use of it as a further element in the restructuring of capitalism. It remains unclear just how significant it is in this regard. On the one hand it is true that manufacturing productivity growth in the USA is now rapid by historical standards - up 6.4% per cent last year, the fastest growth since the early 1970s. But this may not last.
It has also been bought at the expense of a huge rise in investment, largely funded by foreign capital. This means that the rate of profit remains relatively low. It is too early to say whether IT will lead to a continuing rise in the rate of profit. But with 80 percent of global 'e-commerce' transactions last year between businesses rather than linking businesses with consumers, this is the area that socialists need to analyse if we are to get a picture of what is new about the 'new economy'.
And while that remains the case, the speculative share bubble based on the internet, and the record US consumer borrowing which has followed it, are more likely to lead to the same old credit-fuelled capitalist crisis which we have seen over the last two decades than to a new golden age.