Mitt Romney, Karl Marx, and the myth of creative destruction

It takes a leap of faith for governments to stand aside and allow the creative destruction inherent in a free economy, but it’s a leap that has been successfully made by every advanced country in the world. As Alan Greenspan has observed, “Deep down that is probably the message of capitalism: ‘Creative destruction’—the scrapping of old technologies and old ways of doing things for new—is the only way to increase productivity.

–Mitt Romney, “No apology: the case for American greatness”

The wage laborer everywhere follows in the footsteps of the manufacturer; he is like the “gloomy care” of Horace that sits behind the rider, and that he cannot shake off wherever he go. You cannot escape fate; in other words, you cannot escape the necessary consequences of your own actions. A system of production based upon the exploitation of wage labor, in which wealth increases in proportion to the number of laborers employed and exploited, such a system is bound to increase the class of wage laborers, that is to say, the class which is fated one day to destroy the system itself. In the meantime, there is no help for it: you must go on developing the capitalist system, you must accelerate the production, accumulation, and centralization of capitalist wealth, and, along with it, the production of a revolutionary class of laborers.

–Frederick Engels, “On the question of free trade“, 1888

Before WWII, the Depression did a great deal to prepare the way for the recovery. Capital was devalorized or scrapped. Business had to get more efficient.

Terrible way to go and a terrible price to pay, but when the Depression ended, business could produce the same GDP with 16% less capital.

One great contradiction of capitalism is that it needs crises to create the level of competition needed to become more efficient.

–Michael Perelman post to Marxmail and PEN-L on “How WWII Ended the Great Depression”

The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U.S. Steel illustrate the same process of industrial mutation–if I may use that biological term–that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in.

–Joseph A. Schumpeter, “Capitalism, Socialism and Democracy”

I have vivid recollections of my seventh grade Social Studies teacher Bobby Rosenberg explaining how all this works back in 1958. Look, kids, capitalism might destroy jobs but it always creates new ones. For example, when the automobile came along, blacksmiths no longer had jobs but on the other hand many more jobs were created at GM, Ford and Chrysler. Of course, all this was fairly easy to swallow back then. This was, after all, the Age of Affluence. Ronald Reagan hosted the GE Theater on TV, whose slogan was “Progress is our most important product”. This was when the post-WWII expansion was in full bloom and only the most unrepentant enemy of capitalism could believe otherwise. One of them was Nathan Pressman, the long-time member of the Socialist Labor Party who wrote letters to our local paper The Republican Watchman (it was a Democratic Party editorially, named in the spirit of keeping an eye on the bad guys) about the evils of capitalism.

I never got a chance to talk to Bobby’s sister Cissie Blumberg about what she thought of this. Bob was a New Deal liberal while his sister was both a New Deal liberal and a CP’er—not much of a contradiction I suppose. My guess is that she would have agreed with this analysis, since it was so commonly accepted across the left. It was an example of being able to understand the “contradictory” aspects of the system. WWII killed millions of innocent people but it also gave us aluminum and rocketry, and where would we be without that?

Ten years after taking Bobby’s class, I found myself on the front lines of creative destruction as a programmer trainee at Met Life in NY. In one job after another, I built systems that replaced file clerks with electronic systems. I might have been destructive but I was also the beneficiary of a creative process that was creating new jobs for software developers and in the hardware assembly lines of Silicon Valley and eventually in China. At least, that’s what the pundits told me.

Unlike 1958, today’s America is not so willing to accept this proposition at face value. Jobs have been disappearing since 2007 in wholesale numbers but there’s little evidence of a recovery. This is not to speak of the lack of anything on the horizon that begins to resemble the job-creating Tsunami of the automation revolution that began in the mid-1950s. We were told that Green jobs would be coming soon but it is hard to take that seriously now, especially since the investments in such new technology has mostly lined the pockets of one percenters with ties to the White House rather than the man or woman on the street.

In an instance of the pot calling the kettle black, Newt Gingrich referred to Mitt Romney as a vulture capitalist whose track record for creating jobs was dubious at best. He told Bloomberg News: “The question is whether or not these companies were being manipulated by the guys who invest to drain them of their money, leaving behind people who were unemployed. Show me somebody who has consistently made money while losing money for workers and I’ll show you someone who has undermined capitalism.”

Understandably Gingrich’s use of the term vulture capitalism made his fellow troglodytes uncomfortable since it evoked the protest movement down on Wall Street that they hated so much. Charles Krauthammer, one of the most reactionary of this gang, took Gingrich to task:

But I though what was remarkable is what Newt did today. It wasn’t just that he went negative. He pulled out the heavy artillery on this on his attack on Romney. I am with the commentary that Brit Hume did earlier in the show. What kind of attack is this of one so-called person of the right to another? What conception of capitalism do you have if you attacking your opponent for entering what is the risk taking of capitalism? It’s the old line from Schumpeter which is that capitalism is creative destruction. And this kind of attack is what you’d expect from a socialist.

 Perhaps the best way to get votes nowadays is to attack people like Mitt Romney who is a Mormon version of the Gordon Gekko character in Oliver Stone’s “Wall Street” and a symbol of corporate greed second to none, except perhaps for Barack Obama and all his economic advisers. Rick Perry, arguably one of the stupidest candidates for high office since Dan Quayle, was smart enough to open up the attack on Romney as a “vulture capitalist” before Gingrich did.

Sean Hannity, like Krauthammer, took Perry to task for using this term and even explicitly connected him to OWS:

You said — talking about his days at Bain Capital, Bain Capital compared companies like that, they leave the carcasses behind. Bain is a vulture capital company. They walked into South Carolina, a company like Gaffney. They picked the bones clean of those people who lost their jobs in the same mill. You say, rather than restructure jobs, they’re trying to make money. Ethics get thrown out the door. They make as much money as they can in a hurry.

You know, when I hear that, it almost sounds like “Occupy Wall Street.” It doesn’t sound like somebody that is governing the state of Texas as a conservative.

These debates within the Republican Party—if you can call them that—are very weak reflections like the images in Plato’s cave of the underlying reality that jobs have disappeared and will likely not return. What makes Romney’s defense of his record at Bain Capital ring so hollow is the perception by so many that jobs are not being created along the lines described both by Engels or by Schumpeter or by anybody else not intoxicated by libertarian ideology.

Back in 2007, David Harvey wrote an article titled “Neoliberalism as Creative Destruction” that is very useful for clarifying the issues.  In essence, he argues that firms such as Bain Capital have not really been successful in terms of the process described by Engels as “bound to increase the class of wage laborers” but in restoring the class power of the bourgeoisie. Harvey writes:

So why, then, in the face of this patchy if not dismal record, have so many been persuaded that neoliberalization is a successful solution? Over and beyond the persistent stream of propaganda emanating from the neoliberal think tanks and suffusing the media, two material reasons stand out. First, neoliberalization has been accompanied by increasing volatility within global capitalism. That success was to materialize somewhere obscured the reality that neoliberalism was generally failing. Periodic episodes of growth interspersed with phases of creative destruction, usually registered as severe financial crises. Argentina was opened up to foreign capital and privatization in the 1990s and for several years was the darling of Wall Street, only to collapse into disaster as international capital withdrew at the end of the decade. Financial collapse and social devastation was quickly followed by a long political crisis. Financial turmoil proliferated all over the developing world, and in some instances, such as Brazil and Mexico, repeated waves of structural adjustment and austerity led to economic paralysis.

On the other hand, neoliberalism has been a huge success from the standpoint of the upper classes. It has either restored class position to ruling elites, as in the United States and Britain, or created conditions for capitalist class formation, as in China, India, Russia, and elsewhere. Even countries that have suffered extensively from neoliberalization have seen the massive reordering of class structures internally. The wave of privatization that came to Mexico with the Salinas de Gortari administration in 1992 spawned unprecedented concentrations of wealth in the hands of a few people (Carlos Slim, for example, who took over the state telephone system and became an instant billionaire).

With the media dominated by upper-class interests, the myth could be propagated that certain sectors failed because they were not competitive enough, thereby setting the stage for even more neoliberal reforms. Increased social inequality was necessary to encourage entrepreneurial risk and innovation, and these, in turn, conferred competitive advantage and stimulated growth. If conditions among the lower classes deteriorated, it was because they failed for personal and cultural reasons to enhance their own human capital through education, the acquisition of a protestant work ethic, and submission to work discipline and flexibility. In short, problems arose because of the lack of competitive strength or because of personal, cultural, and political failings. In a Spencerian world, the argument went, only the fittest should and do survive. Systemic problems were masked under a blizzard of ideological pronouncements and a plethora of localized crises.

With all the focus on Romney and the destructive effects of Bain Capital, it is important to remember that the people who currently work there are not necessarily committed to the politician under demagogic attack from Newt Gingrich and Rick Perry. The Washington Post reported on October 19^th: “Obama has outdone Romney on his own turf, collecting $76,600 from Bain Capital employees through September — and he needed only three donors to do it.”

It should be added that Barack Obama is very much at home in the “Spencerian world” alluded to by David Harvey. In speech after speech, the neoliberal President has emphasized the need for the United States to become more and more competitive as if a community college course in computer programming will lead to a job for an unemployed auto worker.

Perhaps the whole question of “creative destruction” has to be revisited. The cycles of boom and bust that is familiar both in Marxist literature and that of its opponents has always been understood as a contradictory phenomenon. It leads to a revival of the capital accumulation process—to use Marxist terminology—by pruning uncompetitive firms and tapping into new areas of profit.

Unless we are careful, we can fall into the trap of seeing this process as some kind of historical cycle that never reaches completion, as the kind Bill Murray experienced in “Groundhog Day”. As an example of this kind of thinking, you need only look at Andre Gunder Frank’s “ReOrient”, a massive book that predicts China’s rise to the preeminence it once enjoyed and implicitly will surrender to the West at some future point in history–ad infinitum.

Despite Hegel’s belief that all of history was moving in unidirectional fashion toward the highest realization of the Human Spirit—namely the German state of Kaiser Wilhelm—there is a cyclical element in his thesis-counterthesis-thesis schema that reappears in Karl Marx but altered to support the proposition that a worldwide communist revolution will provide the final synthesis.

Marx’s writings were conditioned by the reality of the mid-19^th century when capitalism was in its most dynamic phase. Periodic crises would lead to unemployment and even to war, but a new phase of capital accumulation would arise on the ashes of the previous cycle. Furthermore, in its analysis of the capital accumulation cycle, volume two of Capital led some Marxists to conclude that there was nothing intrinsically self-destructive about the capitalist system.

The expectations that American, European and Japanese capitalism will somehow come out of the current crisis on a stronger and more vibrant basis seem grounded more on habits of mind rather than hard reality. It is entirely possible that these economies will recover but not on the basis described by Engels or Schumpeter. Unemployed auto workers or computer programmers cannot be assured of being swept along in a new upward cycle. It is entirely possible that the reserve army of the unemployed will never be called into action for the 21^st century equivalent of Ford Motor in the 20s and 30s, or IBM in the 50s and 60s. That goes a long way in explaining why there has been a recent drop in unemployment as more and more Americans have given up trying to find a job. These are members of the reserve army who have simply torn off their uniforms and gone AWOL.

The myth of “creative destruction” was sustained for many years by the unquestionable dynamism of 20^th century capitalism. As we slouch toward an uncertain future in the current century, such a myth must be disposed of once and for all. The only destruction worth considering in a positive way is that which will occur as a mobilized humanity takes up arms against the modern aristocracy, defeats it, and then tosses it into the ashcan of history. As daunting a prospect this might seem, we have no alternative.