This is part 2 of a two part post.
To summarize the argument of Nobel Laureate and bourgeois ideologue Michael Spence from part one of this series: The goal of “economic restructuring” (or “rebalancing”) is for the advanced 
countries to export more of what they produce at the expense of their domestic consumption. The future expansion of socially necessary labor time (value production) and, therefore, the expansion of surplus value will depend on the growth of exports of the advanced countries into the world market. Spence proposes this can be accomplished (1) by depreciating the real purchasing power of money wages; (2) stagnant nominal wages, in turn, will reduce real wages and domestic consumption generally; and (3) the resulting “structural adjustment” will force constant and variable capital of the advanced countries to flow into sectors of production that can be exported.
It follows from this that state economic policy should be solely concerned with raising the profitability of capital by extending unpaid hours of labor in the export sector. According to Spence, if the advanced countries are to increase unpaid hours of labor, they must increase the relative size of the “tradable sector of the domestic economy”. Which is to say, in relative terms, the portion of the working day during which the working classes of the advanced countries produce its wages and state social expenditures must be reduced, while the portion of the working day that can be turned into exports must expand. The resulting “adjustment” will allow constant and variable capital of the country to flow into forms of commodity production that can be exported.
Thus the crisis can be resolved by turning the advanced national capitals into export platforms, much as has already been done with the less developed nations through IMF imposed restructuring.
2. It’s all Greece to me (or the practical problems of increasing surplus value)
From the above it follows that, in the bourgeois conception, “economic recovery” only means the increase, in both relative and absolute terms, of the unpaid labor time of the working class and has no other meaning for economists and “policy makers” alike. The question posed is whether Spence’s idea offers a realistic way for the capitalists to exit the current crisis? According to Spence, the rebalancing of the economies of the advanced countries has already begun and seems well underway in the United States in particular:
“This is already happening in the United States, where exports are above their previous peak while imports remain subdued; the current-account deficit is declining; and even net employment in the tradable sector is increasing (for the first time in two decades). Indeed, recent data suggest that more than half of the acceleration in US growth is occurring on the tradable side, even though it accounts for only about one-third of the economy”
However, there are important caveats in this rosy scenario:
“The US economy is relatively flexible, and this kind of structural adjustment in the private sector occurs reasonably quickly. And yet employment still lags, owing to longer-term factors like labor-saving technology and reconfigurations of global supply chains, in which lower-value-added segments and functions tend to be concentrated in lower-income countries.”
Which is to say, while output destined for exports might be growing in the U.S., the expansion of hours of labor remains stagnant owing to the improvements in the productive power of labor and to the fact that much of U.S. industry (its “tradable sector”) has already been exported to less developed nations, like China, where labor power can be had at a considerable discount.
Another factor in the tepid expansion of hours of labor in the United States is the massive deficits incurred to prevent the nominal devaluation of the national capital after the housing bubble burst. This has transferred a large portion of this superfluous capital onto Washington’s books. Washington now pays interest on this dead capital. This, in turn, has triggered a political conflict within the ruling class, with some demanding these growing deficits be immediately addressed by austerity, i.e., by further reducing the already compromised consumption power of the working class and extending its hours of labor still further by such measures as delaying retirement, etc.
It should be noted here that this does not mean deficits spending will be ended — far from it. Instead, Spence sees a shift in what he calls “the composition of domestic demand from consumption to investment without adding leverage.” In other words, deficit spending will continue, but the composition of this debt will be shifted away from social programs to those sectors that can actually increase their exports and the burden of this debt will fall on the limited subsistence of the working class.
And this brings us to the question of the day: Can Federal Reserve quantitative easing work to increase hours of labor? Spence raises his concern that the open-ended continuation of a low interest rate regime by the Federal Reserve threatens the long term aim of shifting production from satisfying domestic consumption to exports, but his argument here is very interesting:
“It also means getting the balance between domestic and external demand right, and appreciating the sensitivity of medium- and long-term growth to the composition (and size) of domestic aggregate demand. Against this background, monetary policymakers must be cautious, because low interest rates can shift the growth model back toward leverage and domestic consumer demand, stalling the structural shift to the tradable side that is underway.”
It should be noted that in the above passage Spence does not raise a concern about hyperinflation that is the typical complaint among the critics of the Federal Reserve. Instead, he is concerned that a low interest rate regime will allow the working class to make up for the collapsing purchasing power of its wages with increased debt — thus slow the shift from fictitious profits realized through debt-financed domestic consumption to profits realized through increased exports. The danger of present monetary policy, therefore, is that attempts to constrain the subsistence of the working class will be frustrated by easy access to consumer credit.
Beyond the general problem of expanding hours of labor by increasing the exports of advanced countries, Spence also notes the peculiar problem of the euro-zone common currency. The common currency is an obstacle to the extension of hours of labor necessary to increase the mass of profits, because it makes it more difficult for European capital to constrain domestic working class subsistence simply by depreciating the currency:
“[Inflationary price] adjustments cannot happen in a monetary union, so unit labor costs are slowly re-converging via a protracted process of flat nominal wage growth and slowly declining real wages (a process that would be quicker with higher inflation in Germany and Northern Europe). With domestic demand in short supply, this slow road essentially postpones or impedes growth via expansion of the tradable sector.”
Briefly stated, since by the very structure of the eurozone, currency depreciation is not available, European capital is forced to impose a regressive regime of outright reduction of wages and state spending on EU member states like Greece and Spain. But this primitive regime of barbaric reductions only serve to completely undermine domestic consumption, without increasing exports and, therefore, the extension of hours of labor on which the increase in profits demands. As a result, attempts to eviscerate subsistence in southern Europe is only having the effect paradoxical effect of further reducing total hours of labor.
Conclusion:
With the United States and the European Union together accounting for about 45% of gross world product, i.e., about 45% of the total exchange value realized in a year, Spence’s argument that the mass of surplus value can be increased by expanding the exports of these two regions of the world market runs into four obvious difficulties.
First, an attempt to “rebalance” hours of labor in these regions from domestic consumption to production of exports, critical to Spence’s argument, runs into the problem that the productivity of labor in the advanced countries is already highly developed. Expanding hours of labor under any circumstances would be extremely difficult, since each unit of added necessary labor now requires a much larger increase in the market for the output.
Second, precisely for this reason, in both the United States and the European Union, there has been the displacement of production from the developed regions to the less developed regions of the world market for the purpose of exporting capital (i.e., capital in the form of consumer commodities) back into the domestic markets of the developed regions. A large portion of what might have been considered the”tradable” sector of advanced economies has already been exported to low wage countries. Now Spence wants to turn the market for this exported productive capital — the consumer market of the advanced countries — into export platforms in their own right.
Third, attempts by the US and the EU capitalists to now constrain domestic consumption in the developed regions, while critical to the idea of turning the regions into export platforms, suffers the problem that weakening domestic consumption weakens demand for imports from precisely the industries that were themselves previously exported to low wage countries and thus reduces profits still further.
Fourth, the EU, in particular, suffer from the problem that it was deliberately designed to prevent fascist state counter-cyclical policy, which means efforts to increase exports by reducing the real subsistence of the working class via currency devaluation are not available to it. Moreover, the massive deficits incurred in the US to stem the nominal devaluation of capital in the crisis must be made good — further weakening demand for imports.
Thus the present crisis was prepared precisely by the methods employed to temporarily resolve the previous crisis: The fall in the rate of profit produced by improvements in the productivity of labor in the advanced countries led to the export of entire industries to less developed regions of the world market; this, in turn, made consumption in the advanced countries dependent on the exports of the low wage countries, while, at the same time, reducing the consumption power of the working class in the advanced countries — again reducing profits. Additionally, attempts to resolve this crisis by means of fascist state counter-cyclical policy has run into the problem that the EU, accounting for 23% of gross world product has no facility with which to pursue such counter-cyclical policies. Meanwhile, the United States, accounting for 22.5% of gross world product, finds itself hampered by mounting debt required to prevent devaluation of the superfluous capital following the bursting of the housing bubble and a political crisis over how to resolve this mounting debt.
The crisis likely cannot be resolved in the manner Spence proposes, i.e., within the limited framework of a collection of mostly autonomous state managed economies — each attempting to function independently and to manage their respective national capital in an environment of heightened competition. Rather, fascist state managed economic policy itself has run into a dead end produced by irresolvable imbalances in what are now antiquated national accounting categories.
The Real Movement 