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Marx And The Capitalist Cancer Of Overproduction

Economics / Economic Theory Sep 01, 2014 - 12:43 PM GMT

By: Andrew_McKillop


Thomas Piketty Tried
Unremarked by most reviewers of Piketty's book “Capital” earlier this year, he also tried to “square the circle” on this longstanding subject. Marx argued that capitalist blind faith in ever-growing markets on the back of ever-growing populations in ever-growing economies could and would try to increase industrial production “until the last moment”. To do this, not only would they need more credit at lower interest rates – harming their pure financial banker brethren – but they would have to pay ever-lower real wages to their slavish workers. With lower real incomes, unsurprisingly, their workers would buy less - but the capitalists “could not understand”. So crisis was hard-wired into the system.

Marx was writing in the 19th century era of industrial technology. He did not know about numerically controlled machine tools and computer-controlled machining centers with downloaded “plug in and forget” programs for instantly producing new parts and subassemblies for finished products, in either new or existing ranges of output. Marx had no idea what would happen to the automobile industry, or the PC and cellphone industries, or other manufacturing industries which did not exist in his time.

Where The World's Unsold Cars Go To Die
We could start with the world car industry. Current theoretical capacity, which is unusuable, is now above 85 million family car units per year, but actual production is held down, by semi-voluntary means to around 70 to 75 million-a-year. Total sales in 2013 were at most 68 million, but optimistic forecasts for 2014 year sales, for example by Scotia Bank's Global Economics division, July 30, were for 71 million total sales. Between the start of 2013 and end of 2014, global carmaking capacity may increase by 4 million-a-year, and could attain 6 million-a-year of additional capacity, bringing the world total to around 90 million-a-year, end-2014.

World human population growth, 2014, will be about 69 million.

No rocket scientists are needed to forecast what this means. The US “car subprime crisis” was inevitable. China's car industry, which recently outstripped the US car industry to become No 1 by annual capacity and output is in no way profiting from that status. Making things worse, China's present annual capacity, a theoretical-only 19 to 20 million units a year, could attain 30 million-a-year by as early as 2022 unless voluntary cutbacks in capacity growth become formal.

When sales growth stagnates, which is the case for cars, there are only a limited range of solutions for the makers. These include “upmarketing” or producing and selling higher-priced cars, the opposite or “downmarketing”, calling governments for bailout aid and support, and simply parking up the unsaleable cars and trying to forget about the problem.

Other mostly theoretical solutions include getting out of the car business entirely – like Saab, by bankruptcy or near bankruptcy – and through finding “alternative but related” fields of manufacturing and economic activity. Several Japanese carmakers are now highly active in urban car parking systems and projects, for example. Others are looking at solar energy. Google is looking at “driverless” cars – to produce cars that will join the 10-mile or 15-mile daily tailbacks of “driverful” cars on all major highways in and out of large urban centers at the start and end of each working day. Nobody yet suggests cars for infants, the blind or handicapped and aged person, but that could come.

This is a crisis of the type Marx talked about!

After Park and Ride You Make a Phone Call
Beyond the park and ride stage we have Park Them Up and Leave Them To Rot. The above image of tens of thousands of unsold cars concerns a dump at Sheerness, UK, growing every day but hundreds of similar dumps exist in a growing number of other countries – including China. In several major carmaking countries, including South Korea, Japan, Brazil, the UK and USA, the dumps are often seaboard located, due to the world's car shipping capacity growing at least as fast as carmaking capacities. The unsaleable cars are therefore shipped and shuffled around, on large container ships consuming 100 tons of fuel oil per hour (730 barrels per hour) to deliver the cars – to a different unsold car dump! 

Modern capitalism. Or you can produce it, but can you sell it, Smiler?

Marx knew nothing about cellphones, smart phones and hand-held Internet devices, but he would have been impressed by the animal excesses of modern capitalist endeavor in this sector. Taking only the case of Samsung, the world's No 1 producer of cellphones and smart phones, its last-quarter 2013 sales, on an annual basis was running at 930 million units-a-year. Total Samsung capacity was far north of 1 billion-a-year. World total capacity, including No 2 Apple, No 3 LG Electronics and No 4 Lenovo, is placed by analysts at well above 1.7 billion-a-year.

World human population growth in 2013 was about 69 million. World total human population in 2013 was about 7.1 billion.

The end of the road for the growth of output of cellphone, smart phone and hand-held Internet devices is not so hard to forecast, but first there will be a price collapse. Marx would have been very satisfied with this read-out and might ask if it is possible that the cellphone makers could move on and up to producing cars, or building container ships to transport them?

Marx was not known for ecological righteousness, despite some hagiographers claiming that, but due to his origins he would have appreciated finding fully-functional and serviceable throw-out cellphones in city waste bins – thrown out because they are totally worthless. Resale values even for smart phones, run at a cool 80% less than the purchase price. If your useless gadget does not have 4G, count on a 95% mark down. Modern capitalism!

And The Rest
Why is the world seaborne container shipping industry in semi-permanent crisis? Try the Baltic Dry Index and find out. Why do shipbuliders go on producing the things? Perhaps out of sheer stupidity. Perhaps out of suicidal impulse. Ask a psychologist rather than an economist.

Both modern and antique capitalism, which in the second case had an excuse, knew nothing and therefore learned nothing from modern industrial technology. Taking only the cellphone industry, plenty of analysts say that 2 billion-a-year is a “reasonable capacity” figure in the near-term, but how are we going to sell the things? In simple arithmetic terms this would mean 28 devices for every single new human being born in the world, every year. Obviously they have to grow up a little, in order to play around with football videos or download pornography and the latest ISIS public execution.

Unappreciated or under-estimated by most analysts, the overcapacity and overproduction threat also hangs over sectors like urban development, housing and office building. Modern industrialised production technology in the building sector can enable double-digit increases of annual output on a sustained basis, doubling world total built environment capacity in 4 to 6 years – every 4 to 6 years. This is fine, but the human numbers to use that capacity growth – especially in the older, mature or advanced economies often with declining total populations - do not exist.

This is an almost total inversion of the “Malthusian paradigm” or fear of resources and production growing arithmetically, while human populations grow “geometrically”. Malthus in fact meant asymptotic growth, which has its growth limiting functions, but probably did not know the word. Modern capitalist endeavor, alt least in the industrial technology domain, has reset the capitalist gameplan, The previous model was how to profit from scarcity whether real or fabricated, to a context where industrial capacity growth can outstrip market absorbtion capacities rather easily.

By Andrew McKillop


Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2014 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisor.

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