Farrar, Straus and Giroux

In this sense Hilferding, Luxemburg and the rest were not ‘bad Marxists’ when they began to move away from abstractions and towards the concrete facts: they were being good materialists. Their mistake was to assert that monopolized state capitalism is the only pathway to a postcapitalist system.

The French economist Michel Husson and New School professor Ahmed Shaikh have both demonstrated how neoliberalism restored profit rates from the late 1980s onward. But these show a sharp fall in the final years before the 2008 financial crisis.28 Husson argues, correctly, that neoliberalism ‘solves’ the problem of profitability – for both individual firms (by suppressing labour costs) and for the system as a whole (by massively expanding financial profits).

Luxemburg had ignored the fact that new markets are formed in a complex way, interactively, and that they can be created not only in colonies but within national economies, local sectors, people’s homes and indeed inside their brains.

In fact, the moment of mutation is fundamentally economic. It is the exhaustion of an entire structure – of business models, skill-sets, markets, currencies, technologies – and its rapid replacement by a new one.
It happens – in systems terminology – at the ‘meso’ level, between micro- and macro economics. Its scale locates it somewhere between the credit cycle and the doom of the entire system. Once the mutations are understood as likely and regular events, then any model of capitalism that treats them as accidental or optional is going to be wrong.

in the neoliberal system, firms use profits to pay dividends rather than to reinvest. And in conditions of financial stress – obvious after the Asian crisis of 1997 – they use profits to build up cash reserves as a buffer against a credit crunch. They also relentlessly pay down debt, and in the good times buy back shares as a kind of windfall profit distribution to their financial owners.

The crisis that broke out in 2008 was not the result of a breakdown of this or that counteracting factor, or due to a short-term fall in the profit rate. It was the breakdown of an entire system of factors supporting the profit rate, called neoliberalism. Neoliberalism was neither a great boom nor, as some claim, a hidden period of stagnation. It was a failed experiment.

Once the new technologies, business models and market structures begin to work in synergy – and the new ‘technological paradigm’ is obvious – capital rushes into the productive sector, fuelling a golden age of above-average growth with few recessions. Since profit is everywhere, the concept of allocating it rationally between players becomes popular, as does the possibility of redistributing wealth downwards. The era feels like one of ‘collaborative competition’ and social peace.
Throughout the whole cycle, the tendency to replace labour with machines operates. But in the upswing, any fall in the profit rate is counterbalanced by the expanded scale of production, so overall profits rise. In each of the up cycles, the economy has no trouble absorbing new workers into the workforce even as productivity increases. By the 1910s, for example, the glass-blower displaced by machinery becomes the projectionist in a cinema, or the worker on a car production line.
When the golden age stalls, it is often because euphoria has produced sectoral over-investment, or inflation, or a hubristic war led by the dominant powers. There is usually a traumatic ‘break point’ – where uncertainty over the future of business models, currency arrangements and global stability becomes general.
Now the first adaptation begins: there is an attack on wages and an attempt to de-skill the workforce. Redistribution projects, such as the welfare state or the public provision of urban infrastructure, come under pressure. Business models evolve rapidly in order to grab what profit there is; the state is urged to organize more rapid change. Recessions become more frequent.
If the initial attempt to adapt fails (as it did in the 1830s, 1870s and 1920s), capital retreats from the productive sector and into the finance system, so that crises assume a more overtly financial form. Prices fall. Panic is followed by depression. A search begins for more radical new technologies, business models and new supplies of money. Global power structures become unstable.

In emphasizing this, I am making what I consider a crucial addition to wave-theory: in each long cycle, the attack on wages and working conditions at the start of the downswing is one of the clearest features of the pattern. It sparks the class warfare of the 1830s, the unionization drives of the 1880s and 90s, the social strife of the 1920s. The outcome is critical: if the working class resists the attack, the system is forced into a more fundamental mutation, allowing a new paradigm to emerge.

If the working class is able to resist wage cuts and attacks on the welfare system, the innovators are forced to search for new technologies and business models that can restore dynamism on the basis of higher wages – through innovation and higher productivity, not exploitation.

The tendency of the rate of profit to fall, interacting constantly with the counter-tendencies, is a much better explanation of what drives the fifty-year cycle than the one Kondratieff gave.