 Fa ydych chi, yw bron i'r wyf, Memcio cyffredin iawn i gyda gynllunio ddangos. Felly rwy'n fweithio i',n cael ddweud. Mae wedi bod llwyddo ddiwedd i'n tyfu a allwch eu gael am hyn. Mae'n痴wys i chi'n gweithio, byddo'ch gweithio dda'i cyffredin iawn. Mae'n gweithio i ei gweld gyd� о gweithio'r llwyddo, flwyddo'i'r llwyddo. I wnaeth bod ni'n gweithio i'r llwyddo. But it's so fantastic to see people supporting the seminar series an interest in the topics we're discussing. So, you know a formal welcome to the 2016-2017 Development Studies Seminar Series. To what I know is going to be a very exciting, interesting and debate provoking set of talks. Not just this evening but throughout the series as a whole. Mae Fhysiwys wedi bod yn ymddi'r gweithio ymddi, ac efallai'n ymddi'r 100 oes ymddangos ymddi, sy'n gwybod am hynny ymddi, ac mae'n ddiweddol am y 25 oes ymddangos ymddi, yn ymddi'r gweithio ymddi. Yn ymddi'r gweithio ymddi'r ymddi, ymddi'r ymddi ar wyth, ymddi'r rydych yn ymddi'r gyngor o'r gyfeithio. Mae hynny'n gwybod i'r gweithio ymddi ymddi, ac mae'n gweithio ar y cyfrifiadu. And thereafter it was run alongside the growing range of master's programs that we've developed. And we've since grown over that 25 years and the 20 years of the department, immensely both in terms of the number of staff, the number of students and the number of programs that we're offering. So alongside that existing Joint BA honours in development studies, we now have a new full BA honours program in development studies. We have seven master's programmes, plus a number of other pathways within existing programmes. And of course we have a very strong and very popular research degree programme. And our research, while disparate in nature and topic, has synergies throughout the department through the research clusters and through events like this that bring us together to explore the common themes and issues throughout our work. And I've said this before to the master's or to the postgraduate students at our induction event. But I think it's essential that we remind ourselves that the subjects and issues that lie at the core of development studies as a discipline, as a subject, are among the most important facing the world today. Issues around inequality, the uneven impacts of globalisation, issues around violence, conflict and the transition to peace, the power and politics of international organisations, the purpose and effectiveness of aid, social movements, non-state actors and civil society, questions of formal and informal labour and climate change and natural resources. And these have been at the heart of our teaching, our research and our engagement and collaboration with global networks of scholars and policy makers for the 25 years that development studies has been taught at SOAS. And I think particularly within Britain at the moment, with the right turn that we're seeing in government policy towards Europe and the wider world, a declining commitment to internationalism with the government's demands for lists of non-UK workers, its restrictions on students and also academics coming to UK universities whether to study, to do research or just to visit and give talks. The government's refusal to engage with non-British experts in the framing of policy with the Minister of International Development who doesn't seem very committed to the very existence of her own institution. And in a world where ever more seem enthralled by those who dissemble, obscure and reject the notion of evidence and data, what we have done and what we do over the past 25 years and in the future has perhaps never been more important. And these seminars, this seminar series is an important reminder of those ideas and those values drawing on the knowledge and research of the world's best in their fields, encouraging dialogue and debate. And they're part of the commitment that development studies will remain at the heart of what SOAS does for not only the next 25 years but far, far beyond that. I'll allow, cost us to introduce our first speaker but I'm really looking forward to tonight's talk and of course to those that come. So welcome to our first seminar and please keep coming throughout the year. It would be wonderful to see all of the seats and all of the steps filled throughout the rest of this series. Thank you very much. Many of you will know already who Professor Anwar Sheik is. He's one of the world's leading heterodox economists. He's Professor of Economics at the New School in New York and he's also Associate Editor of the Cambridge Journal of Economics and he's written widely on trade, finance theory, political economy, welfare, the welfare state, inequality and past and current global economic crisis. He's written on much more and he's, yeah, we're going to have questions afterwards so you can save your questions for the end. Well, thank you so much for inviting me. It's not only an honor but it's a pleasure to be back at SOAS. I came here in 1998 to start to work on this book. I also got married here in London in that same year so this is an anniversary in many senses for me. The book took a long time but anyway, I'm so happy to be back. I'm happy to talk to you about it and happy to see so many people interested in development issues and a critical approach to development and to economic analysis. My interest in development stems from the fact that that's how I started. I started as a graduate student coming from Pakistan to Colombia and I was interested in development economics and I discovered something utterly shocking which is that the theory that I was presented with bear no resemblance to any society or any human behavior that I could see and I'd ever seen. I was told that, well, that's a standard theory and you apply it. I said no. I refuse to accept that this is a foundation so I refuse microeconomics and the macroeconomics built on conventional microeconomics but I took up the task of trying to find a framework within which these same questions could be addressed because it doesn't do any good to say, well, their construction is not any good but I don't have an answer for that. If you don't think it's any good then it's your responsibility to have an answer for the same things and so my book is dedicated to trying to provide a framework that is consistent and coherent and can cover a wide number of subjects. I'm going to run through some of that shortly that we have to deal with in economics but this book is focused on the developed world and there's a reason, a tactical reason, a historical reason for that. When I was studying development economics I was told, well, the treatment of the developed world is well established and we all know it and you have to learn it and so you have to apply that but I thought that treatment was completely rubbish so therefore applying it made no sense to me so I needed to have a framework in which the analysis of the center was done. Now it's not that I invented that, I actually excavated that because if you think about it historically and perhaps you know the history of economic thought, you know how this came about but the early studies of analysis of capitalism from Adam Smith, David Ricardo, Marx and then Keynes and Kalecki also subsequently were attempting to grapple with a real system, an actual living, adapting, organically changing system and they were trying to find out certain intrinsic structural properties and motivations that were deep there. So if you read Smith you will see that it's still relevant today, you read Marx especially, you'll see it's still relevant today but also Ricardo. But around the 19th century, the mid 19th century began to develop a school of thought that was not interested in representing capitalism, it was interested in idealizing capitalism and it is from this route that you get perfect competition, perfect knowledge, perfect consumers, subsequently rational expectations and the standard macro theory. It's a consistent and coherent line and in my opinion it's consistent and coherent misrepresentation of the reality. And if that's the case then I have to try to persuade you that of course you have to study it, of course you have to understand it and of course you have to understand those critiques of it such as post-cainting economics which I will come back to. But I believe that it's necessary to have a foundation from the start that is based on real behavior. So the book is focused on real microeconomics, real consumer behavior, real theory of the firm which I call real competition and then the macroeconomics which then based on these foundations presents a particular set of understandings of the world and some understandings of some constraints. Now I should just parenthetically say that it's not, I didn't come to this because I had bad teachers, I had the best teachers. My microeconomics teachers, both of them won Nobel prizes in economics for microeconomics. Bill Vickery and Gary Becker. My macroeconomics professor was the advisor to Eisenhower, the head of the Council of Economic Advisers, Arthur Burns. My teachers of trade were Ron Finlay and Peter Kennan, the stars in their field and these are people, some of these people I was very close to personally but I still believe that the framework from which they started was wrong. Not just inadequate, not just modifiable, but wrong as a starting point. So the question that that leads to is, if that's the question, how do you begin afresh? And the first thing to understand is that when it comes to consumer behavior, we know that people are complicated, we know that people are social animals, we know that we are influenced by what others think and do and by messages subliminal and explicit, by social pressures, by emotions, by patriotism, by nationality, ethnic and racial identities. We know that and it shouldn't come in as something that you add on, it should be from the start. So if you want to start with proper understanding of human behavior, start with anthropology, start with psychology. Not the psychology nowadays which is kind of wiggling its way into your classical theory, but real psychology. Start with the analysis of how people behave. Of course you should read history and of course you should understand how politics influences us. So then you face a problem. If we know that people behave in very complex ways and with very interactive ways, how do we characterize that? Well, let me start by saying that I'm going to try and show you that that perfectly allows us to derive all the laws of microeconomics of consumer behavior, down the sloping demand curves, elasticity of demand for necessary goods and luxury goods, income elasticity, the consumption function, all of that can be derived from the foundation of real behavior. But I want to stop for a moment and say, isn't it odd, isn't it bizarre that when you go into a microeconomics course you're presented with an image of a human being that is anti-human, non-human? What is a utility curve? It's a preference structure, right? It's shaped a particular way to make the story come out right. If it's shaped differently, it doesn't work. The shaping is done to make the answer right. But what does it say? It says that every individual is concerned as consumers and as choice makers with one thing only which is things. Marx calls this commodity fetishism. It's an extreme form of commodity fetishism if you've read Marx, where people are represented as caring only about things. Think of what that means. If you get some more of one thing according to utility theory, you're better off. That make any sense to anybody? What if that came from my mother? What if it came from my children? What if it came from my tribe, my nation? Is it really true that what I get is the only measure of how I care or how I make decisions? I don't know of any theory of human behavior except economics that makes such a bizarre claim. And the point is that we don't need to make that. If you allow for the fact that you do care, that it does matter, that you respond to stimuli, actual and hidden stimuli, that you respond to emotions and anger and love, all of that, you can still derive all the laws and we're no longer trapped in this strange island of isolation and sociopathology that we call economic man. By the way, economic man is usually Robinson Crusoe. I don't know how many people know. I've read Diffol, Daniel Diffol. Robinson Crusoe was a slave trader. That's how he happened to be on the island. He was taking slaves or second trip back from Africa to, I think it was Brazil. The ship was shipwrecked and he landed on an island. Is that really the model that we want for human behavior? A slave trader? Know your history. Know your economics and also know that once you leave that behind, you can develop an analysis. I'm going to start to show you how that works. If the center of the whole story of economics is how markets work, that's the whole point. One side is the consumer behavior and I've already said that standard beginning is absolutely invalid. But the other side is the theory of the firm. What determines the theory of the firm? The answer given by every economic tradition is that firms are motivated by profit. We say that competitive firms are motivated by profit and they also compete with each other. But then again in Orthodox economics, firms don't compete with each other. Firms take a price as given. They have perfect knowledge of all the possibilities and outcomes and they passively adjust their output to maximize their profit. In real competition and you don't have to believe my book go to Harvard Business Review, you will see that what firms do is they set prices. Of course they set prices. Who's going to set prices? You walk into a shop is not Walras's auctioneer who went by and put stickers on there. It was a people working the shop and if it doesn't work then they don't sell the goods and they adjust the price. So the price is a signalling device by individual firms and other firms recognizing that compete with them. If your price is too high then they'll next door or down the block they'll say sale 25% off and guess where you'll end up going? Of course that's their job is to undercut each other. Their job is to compete. From that point of view real competition is a war. It's not the ballet that you get presented with people optimizing and dancing around to nice harmonious music. This is a war and the point of war is to kill your opponent. That's the point. So the history of firms and history of competition is a history of conflict among individual firms. Conflict also between industries because they have industry interests. Conflict between nations because nations have economic interests also. So conflict enters right in the beginning. But yet in the heart of this conflict is another conflict which we know historically extremely well which is the conflict between capital and labor. The conflict about how wages are determined and the fact that if you raise the wage you're lower profits and that is something every firm knows. Every firm if you go to them and say look I just came from my economics course and it says if I raise all wages then everything will be better. People, consumers will buy more and you'll be better off. They'll throw you out and rightfully they should because in fact the first step that'll happen is that they will have an equivalent drop in profits. If they could raise their prices if costs went up they'd raise their prices before costs went up. That's obvious. Why should you wait? If you can raise it you raise it to the highest level you can. What your competitors will permit. If your costs go up you're constrained at that end by competition and your profits go down. This is again an extremely well established empirical phenomena. So then competition is a war. There is an internal struggle in competition in every firm between labour and capital between employers and employed. And that is a struggle which pushes if the employers have the advantage wages are pushed down the length of the working day is expanded the intensity of the working day is expanded the working week is expanded. It's not something that happened in the past. It happened it was true in the 19th century in the advanced world you had 12, 14, 16 hour working days child labour very low wages extremely long working week six days but is that in the past? Go to China go to Bangladesh go to Vietnam you will see exactly the intrinsic logic of the system playing out not because these people are less good people than in the west the difference is in the west labour won a series of battles that prevented that from happening and in the developing world those battles are still just ongoing they're still beginning so the difference is not so that the intrinsic culture and rationality of system it's the logic of capital which pushes down and therefore the logic of resistance which pushes back up and it's an extremely well-documented history of the battle back and forth between wages, productivity and profits in my book I show this battle operating in the United States from 1947 to the present and show how the structure of social structure has an influence on that and also how unemployment has an influence on that every worker knows that if you're going to fight for something it's better if there's a tight labour market because then they can't go somewhere else but if there's a loose labour market then it'll be hard for you to fight for something because they can go somewhere else now the whole point about neoliberalism and globalism was to make the labour market global so that firms could say well okay you want an eight hour working day and you want vacations and all that I'll see you in China and they leave the iPhone this iPhone is made in China Steve Jobs says he cannot make it could not make it in the developed world because the cost would be too high now is he a bad guy? yeah he was a bad guy but that's besides the point he did it because it was cheaper and that if you understand that lots of things fall into place not an imperfection to go for cheaper wages worse working conditions environmental degradation that's the perfection of the system that's the logic it's when you intervene in that that you're causing a disturbance in the logic of the system and once you see this development also falls into place and I'm going to try to come back to that the last thing I want to mention is that I'm going to try to argue that what capitalism does it is very good at which is making profit it's extremely good at making profit but how do firms make profit? they have to not only find cheaper resources and use them to make profit but they also have to fight each other and they have to fight labor so that they have tremendous incentive to lower costs and if you can't lower it by pushing down on labor and increasing the length of the working day to 16 hours a day and 6 days a week if they are restricted by social structure developed over a century of battle then the other way you can do it is to create new more advanced technology usually machines replacing labor because machines can work more rapidly I presume everybody's seen the Charlie Chaplin movie called Modern Times if you haven't you really need to go on YouTube and look at this up where Chaplin's working in a factory and there's an assembly line and they keep getting orders from above we need more output we need it faster because there's more profits you've already employed the workers the faster they work the more you get and it keeps getting faster and faster and he's trying to keep up and he's unable to keep up eventually falls into the assembly line and goes into the machinery because in his effort to keep up with the needs of the system he has sucked into it literally well on a world scale one of the things you can see very clearly is a very large pool of unemployed labor and that pool you see a pool of employed labor that's cheap but you also see a large pool of unemployed labor and that pool is one of the fundamental drivers now of social instability because if you're unemployed in capitalism especially in the poor world in a developing world you don't have any other place to go and it is a source of great misery because you're displaced from what you could have done you can't work the land that you don't have any land you can't work in the factories because they don't need you there's nowhere for you to go you're concentrated in the cities displaced from the lands and you're literally looking at a deadly dead end future it is perfectly sensible if people under these circumstances begin to agitate for and dream of another way of life now what is plausible is that religion can fill that gap politics can fill that gap but as economists we also have to be able to say how else can that gap be filled with jobs it's not enough to say that we can help you feel better in where you are we also have to say there's a future and there an understanding of how the market operates and therefore how you can use that understanding becomes very crucial I often say that a market is like a nuclear reactor and if you're committed to capitalism you're committed to nuclear power but nobody in their right mind would think that a nuclear reactor runs itself it's not Bart Simpson who's going to save your life you better need good engineers and people who understand if you're going to go with nuclear power you better know how they work and you have to understand that there are side effects which are necessary part of that mechanism so imagine that you had a textbook in physics in engineering that said nuclear power is perfect remember when I was growing up they had these comic books and then nuclear power was perfect it was shiny and people flying around in cars and they were all happy and dressed they were also all white but that's another story and everybody was happy it was everything was by nuclear power they never told you what was coming out of the back of that nuclear power plant because in those days nuclear power was seen the way in economics we now see the market as something perfect, ideal and designed to make everybody better off it ain't so so in my book the emphasis is on the idea of competition conflict and the fact that persistent inequalities and booms and busts as recurrent outcomes now this is a very important theoretical point but it's also important historically if you have a system in which everybody makes their decision on what to produce on their own guess about what's going to happen which is how production takes place by the way 50% or more of firms in the first five years go out of business because they're wrong but that's how you do it you make a guess and you do it how your guess is going to mesh the fantasy we are peddled in economics in orthodox economics is that somehow these will mesh automatically and we call this general equilibrium there is no such thing the mesh comes about because the discrepancies have to be reconciled and they're reconciled by overshooting and undershooting the balance comes from offsetting errors so you get a boom and the boom is not consistent with the base with the foundations, the fundamentals and that boom it then eventually collapses comes back down it shoots below the fundamentals and now you have a bust and as you recover from the bust you go back and forth that's not just my idea it's obviously Smith and Ricardo Marx but this is also George Soros' theory of reflexivity which is that it's in the nature of social life especially in capitalism to overshoot and undershoot and that's just the way the system achieves its balance so we have to build that in to the story from the start my book is a long book it's a big book and it's because I chose to develop the alternate framework entirely rather than to in parts because I wanted to make the argument that this is a coherent alternative framework so let me say a little bit about the other alternative framework that we have on the left and that's post-canging economics now if you've studied economics I assume everybody's had a micro course yeah is it safe assumption here everybody's had microeconomics no? okay okay well if you do and when you do you will be presented with a model of perfect capitalism with perfect consumers perfect firms optimizing maximizing and general equilibrium if you get that far in the course and sensibly when you look at the real world it's nothing like that so the sensible response is to say well we don't have competition anymore we have monopoly we don't have perfect consumers we have asymmetric information or we have people are not smart enough to do it so that the idea becomes that you think you're moving towards reality by accepting this framework and modifying it but that is in my opinion a big mistake because you're starting from a dead end and you're now trying to make the story better by adding wrinkles into it and a wrinkled dead end is not a good place to be in my opinion you have to start somewhere else so the post gainsian tradition has been focused on two things the genuine emphasis and recognition that effective demand is crucial and matters and the other side which is a dependence on the idea of imperfect competition but I argue in the book at some length and I do this by examining the arguments of the the key figures in the theory that imperfect competition is a trap because it's tied to perfect competition imperfect competition is the dual of perfect competition what we need to have is an analysis of real competition so the book develops that at great length now I'm saying all these things I'll be able to illustrate them a little bit at the end but just to tell you that the book develops micro and macroeconomic theory from real behaviour real competition and uses it to explain the empirical patterns and alternate theoretical arguments in neoclassical and post gainsian theory of the microeconomics of demand and supply wages and profits technical change relative prices of goods and services the actual empirical things also here interest rates bond and equity prices exchange rates international trade patterns balances of trade between countries growth unemployment inflation and the persistence and and determinants of national and personal inequality and I do that by trying to show that the same framework can be used to explain these different things it's a consistent and coherent framework and one of the points I make in the book is that there is a recurrent pattern of general crises what I call crises but really if you look over the long period of time you'll see that patterns of what we call great depressions occur the last one being 2008 and the main point is there'll be another one because the intrinsic driving mechanism is not the government not who's good in the government who's bad it's not Trump versus Clinton or Cameron versus May or Corbyn it's the structure of the market that drives these things and that structure creates its own patterns of booms and bus so let me begin now let me move quickly to show you some of the pattern because I'm talking about a system and I want you to understand the system has very strong properties this is the structure of my book the of all the lectures in my book are videotaped and they're on my website called RealEcon.org the book is a big book but it's not that expensive it's about $37 US so I don't know what that translates into $30 or something like that but it's expensive but not that expensive it's not as expensive as an econometrics textbook look at it that way, right? and I ask you to at least take a look at the website and look at the many people are working on these ideas now and if you're interested then you can coordinate and connect to people people are using the book for their courses people are using for their research and we're going to be sharing all that plus all the data in my book is there I not only have all the sources and methods but the actual data in spreadsheets so you can take it you can use it you can adapt it and if I made mistakes you can find them so that's an important thing I want to briefly oops is this the wrong sheet? no it's okay I want to briefly show you how you can do consumer behavior without any need to do optimizing and utility theory and here as you basically make use of the properties of a the stochastic properties in any large group if I would survey this group and ask you to pick a bundle of commodities or just pay them luxury going necessarily good because in a graph you can only have two dimensions you can't do n but mathematically it doesn't matter so you can pick a bundle of goods but it's quite striking and this is something every business knows is that even though your individual preferences may change and shift at a time your aggregate is quite stable and that's because the aggregate is shaped by structure by your income distribution by your own personal training your background and so the aggregate produces some point on this is a budget line if you take a micro luxury good if you have an income the maximum you can buy the luxury good is up here if you have a maximum of the necessary good is here any combination in between is on the straight line because your income is given and there is some combination produced by some population now if you raise that price of one of the goods let's say the necessary good so if the price of the necessary good goes up then the amount, the maximum you can buy why is the income this is the price the maximum you can buy goes down if you have the same income and the price of one of the goods has gone up so the budget line shifts inward and you can show that what happens is at the point also shifts inward that what does it mean inward it means that on average if the price goes up sufficiently people will buy less of the good that's called a downward sloping demand curve and yet I made no reference to the motivation of the individuals only to the stability of the aggregate that's one thing we do know from this point of view you can derive demand curves and in the book I show that four different completely antithetical representations of individual behavior will give you the same results one is neoclassical theory everybody is rational completely selfish and they have utility curves cof Douglas and they maximize and rationalize and they get something and raise the price and they get something else the other one opposite everybody picks randomly if I give you a computer tablet and said look here the option just pick a random number or your tablet will generate a random number well in the aggregate that random number would be stable because we know that if you choose from an aggregate population probability distribution get a mean and you'll have that mean well if I raise the price of one good result from random behavior then there's another set of behavior we can imagine that people one set of people are structured right to do what are neighbors around them to do think of them as older people they tend to look to see who's wearing what and dressing in who's talking that way and another set insists on doing the opposite this is called mutation essentially in the one they change that behavior well we have two groups together in agent phase simulation average outcome this is just for the sake of illustration this is completely different from the standard theory and yet all of those different models will be the same developers for a luxury good and necessary good here but in general and that can be shown generally Anwar could you just speak in the mic that can be shown generally from the properties of stochastic for averages so we can derive all the standard results of microeconomics without any reference to any particular form of behavior now why is this relevant because it opens up the space for us to actually deal with real behavior so let's look a little bit at how capitalism works when it works because it doesn't always work and doesn't work everywhere this is the GDP industrial production index of the United States from 1860 to 2010 and what you observe two things it grows and it has a lot of fluctuations it's turbulent growth and that's a natural characteristic of the system real investment the same thing turbulent growth real GDP GDP per capita this is very important it rises over time not in the smooth way that we often build into models but it does rise over time and it's precisely where why it's successful people are breaking down the walls to get in because here it's been a success and I want to talk later about why it's not been a success elsewhere, not necessarily these are the fluctuations around the trend and just to tell you that these begin in 1831 to 1862 these are business cycles and you'll see this great event in the middle that was called the Great Depression of the 1840s and that was an event now we moved to another period of time 1867 to 1902 another period and again you see the fluctuations back and forth and there's an event in the middle called the Great Depression of 1873 to 1893 it was called the Long Depression in its day then another period 1903 to 1939 again an event called the Great Depression of 1929 now the point is capitalism has changed a lot since the 1800s between the 1700s and yet these events recur and part of the book is to explain why they recur, why they are inherent in the logic of the system I'm going to skip over some things here and I want to do one more thing which is inflation if we look at the price index in the UK and the US from 1780 to the present you'll notice something very striking the price index has I don't know if this will show here does it here, yeah okay you can see that this is 1780 and you can see in both countries these long waves you see these these long waves are what and they exist and they seem to exist until about 1940 then what in 1940 you get inflation in fact you get it everywhere in the capitalist world inflation, something changed and we need to be able to explain that so the book has a section on the theory of inflation but important point the starting point here in 1780 is essentially the same as in 1940 so there was no inflation in the capitalist world as a whole there were isolated cases of course we do know that but in the centre countries there was no inflation until the post war period and that is something important to understand because that's another question about how it comes about given that the system has certain properties now here's another one if I take this previous one which is prices expressed in US dollars and British pounds and I express them instead in gold, which is how in the back of his book then something remarkable happens these are golden prices UK prices expressed in gold US prices expressed in gold and now you see these long waves you see them here you see these peaks due to wars but you see the waves and now we've come to the 1940s where previously the pattern disappeared but now the pattern is still there and in fact this is 2000 here and 2010 here what this tells us is that these long waves continue to exist you just have to look in the right place for them so to speak but something more important in every one of the down phases of the long wave there's an economic crisis 1825 down phase here 1847 down phase here the great depression of 1873 1893 down phase here the great depression of 1929 to 1939 and the down phase here which is called the great stagflation have you read about it there was a depression covered up by fiscal stimulus and inflation now that led me to ask a question in 2000 I began to ask myself how long will it be if this pattern holds before we come to the next phase well if you smooth this data between the peak and the beginning of the crisis is roughly 8 or 9 years here also between the peak and the beginning of the crisis 8 or 9 years so I said ok here we've come in 2000 by 2003 we knew we had a peak so in 2003 I was telling my classes if this pattern holds then the next one will be 2008 2009 well it was 2007 2008 not bad for such a primitive technique I want to do one other thing and then I'm going to move to this is the data from Madison Angus Madison's book and what you have here is GDP per capita from 1600 to 2000 1990 because that's far as his data goes here is western Europe you see it rising slowly rising slowly the box but then you see it taking off as capitalism begins to transform England and Europe until you get the rise in GDP per capita here is the western offshoots the black line US, Canada, Australia, New Zealand and you see they have the same pattern they start rising as they are discovered and colonized but then they really take off as they are as capitalism comes into its own there this is Africa which begins to rise really in the 19th century but its sort of take off is in the 20th century this is Asia Africa takes off and then begins to stagnate on average and this is Asia and this one is Latin America another point is that capitalism there produces an increase in GDP per capita that's the point not consistent Africa is not at least as of 1990 which is where Madison's data goes but I want to show you a different implication of that if I take the richest four countries in this set and the poorest four the richest and poorest change then I can see the richest poor benefit greatly from capitalism beginning in the 18th century 19th century is really when the take off is and you see that and the poorest four on the other hand actually end up no better off than they were in 1600 maybe even worse off so what does that say capitalism produces wealth is it unevenly and it in fact suppresses growth some places and therefore it intrinsically produces inequality that's the key point so if I take the ratio of the richest four to the poorest four that's what it looks like this is an inequality created by capitalism because all part of the globe then becomes incorporated in capitalism and you see the tremendous rise in inequality now in the book I try and show why that is I try and show how markets work I try and show that trade for instance does not bring advantages to both sides that's a complete lie and why you've got five minutes is profits to both sides the two sides are trading because the capitalist on two sides are trading but they're losers firms lose, businesses lose workers lose and this is what's happening now in all the debates in the US special debates Bernie Sanders and Donald Trump are both right in saying that free trade doesn't benefit many people in the working class it did not in fact and they're absolutely right Hillary Clinton is right in saying it makes the US richer but what the US she's talking about of course the big corporations that are trading not the ones who lost the ones who succeeded and so they're both right but if you understand that profit is a dominant thing you can see that there's nothing that implies that because you have more profit the environment will be better people will be better your family will be better your job prospects that is a much more concrete things and they are winners and they are losers so I'm going to wrap up here by saying that what I've tried to argue is that if you approach this from the point of view of real competition and real behavior and real markets then you find that markets do work they work at what they're good at making profit but it doesn't follow that it provides automatic full employment or benefits for everybody in fact we know that's not true markets can unemployed people faster than they can employ people and they do in many parts of the world the big mistake in economic analysis is to think that what's good for profit is good for people or good for the environment or good for development if you understand that that's not the case then the question becomes to what extent can you channel and direct this nuclear reactor and to what extent do you have to talk about giving up nuclear power and talking about solar power instead right that socialism so we have Costas Lapavitzis here as our discussant Costas is a professor in economics here at South he has written on financialization the Eurozone the political economy of money and finance and he also writes for the Guardian fairly regularly although not recently and in 2015 in January fair enough really in January 2015 he was elected to the series of government so he's a former MP and he's just going to talk for a few minutes just to draw out some of the themes that Anwar has been talking about so Costas sorry about that well first of all I'd like to thank the department of development studies for the invitation which was rushed but welcome and it is particularly welcome for me because gives me an opportunity to express my appreciation of Anwar Sheikh when I first came to economics which now seems like a very long time ago back in the 70s really Anwar Sheikh was already an established political economist with an international reputation and he was one of those people who belong to that generation what I call the post 60s 68 or so on generation that basically re-established political economy and Marxist political economy is a serious presence globally it's he was one of the people who really formed what is the dominant tradition in political economy today Anglo-Saxon political economy and Anglo-Saxon Marxism and for us, for me and for many others he was a teacher and remains so now the book that we are launching today here at SOS is a big book no question as Anwar himself has acknowledged it's a statement for our times it's the product of a lifetime lifetime's work quite obviously and it's been a long time in the making a lot of people have been waiting for this book not least Anwar himself as he struggled with the data and the theory it's clearly a contribution to theory in the first instance it's a very ambitious book it starts from first principles and seeks to traverse the entire spectrum micro to macro in a consistent and coherent way without falling prey to neoclassical theory it contains things that we've seen Anwar developed before it covers areas of trade which are things that he developed long time ago but areas of micro generalities and micro regularities and it also covers for me areas of competition which are very interesting with an emphasis on gain-seeking as the thing that makes capitalism tick it's also an empirical work because Anwar made his mark with theory to begin with but soon much of his work was empirical and the work of many of his students was equally empirical and then this output began to emerge and it was on the how to measure the national income and how to measure profit and all these things are reference points for all of us in doing empirical work on contemporary capitalism Now I can go on for a long time telling you about all these things and how important they are and how this book calls for people to dip in and out to read consistently to return to it and so on and to emphasise particular areas and to use particular areas to realise this but I'm here as a discussant and the job of a discussant is also to pose questions it's also to raise issues to encourage responses and to probe more deeply into what the argument is so this is indeed a book about micro behaviour but it's also and I don't think I'm the only person in this room who would say that it's also a book that is about the macro behaviour the long-term behaviour in particular of the capitalist system and I think this is what will generate a lot of interest among economists and non-economists and this is pretty much what the second part of the presentation was about and it was a very strong statement I will just say one thing here I could have said many but I'll just say one thing because I don't want to take too much time and invite honour perhaps discussions subsequently it's a very strong statement about a grand cyclical movement of capitalism in terms of prices but also in terms of output and employment and so on the real and the nominal in other words and it connects this grand cyclical movement to the rate of profit and on this basis there is this argument that perhaps we've entered a new period of long malfunctioning with the crisis of 2007 2009 now this and I think honour would be the first to recognise is basically contractive this is contractives theory and he was the one to trace these long waves other people have discussed them and Mr Mandel being one of them but several others and there is an established tradition in economics that takes in contractive cycles and I think honour has been contributed to this what has always puzzled me about contractive cycles which were discussed extensively for many times and also in the 1920s is of course what creates the regularity you can talk about 50 year cycles but what creates the regularity this is a question and he might or might not answer it now or he might or might not come up in discussion the only regularity I could see and so could others is basically some kind of bunching of technological innovations some kind of accumulation of knowledge and bunching of technological innovations that will create that will have an impact on productivity and it will affect other performance of the capitalist economy generally but why is there a regularity in the bunching of technological innovations what is it that explains that that's always something that I found mysterious about the contractive cycles so perhaps Anwar can tell us more about how he tackles that and how he deals with the impact of that on the rate of profit I could have raised other issues for discussion again but I would choose not to because I don't want to take your time I'm sure that you'll have questions to ask him directly and I'm sure he will come back with all the clarity that he has that he has made this accustomed to over the years so without further ado I'd like to thank Anwar Sheikh once again for being here for introducing his book to us and I want to assure him that he will continue to be a source of knowledge and inspiration for all of us in London as well as elsewhere, thank you thank you Costas ok so questions, we have a bit of time and there are two roving mics going around the woman in the green and then Alessandra down here are there roving mics so when is the next crisis when is the next crisis when is the next crisis and talking about frames everybody is talking about either the nuclear power or the solar power so what is the road between them and in economics I mean not in political and what things we have to struggle to go there and one in the front here thank you very much for the great presentation I guess my question relates to the politics of inequality that you just touched upon a little bit you actually suggested capitalism actually generates inequality intrinsically and recently there's been a lot of work on inequality as a matter of fact which however makes an argument about classes like at least upper classes making a difference in terms of the process of generation of inequality and I'm referring here particularly to the work of Thomas Piketty so I wonder because in his analysis he makes a very strong argument that is because we're moving towards patrimonial capitalism that we observe this increase so are you suggesting that it doesn't really matter which classes are in the top and the system will generate that intrinsically anyway because that of course has big implication for what we can imagine in terms of politics to counter these trends thanks and we've got one over there thank you for your presentation so far I've read most of your works and I understood that you are reasoning the capitalist crisis as a consequence of the falling rate of profits which is an inevitable consequence of the real competition mechanisation conflicts between capitalist class and working class and conflicts among capitalist and workers it is easy to understand that mechanism but I couldn't find any detailed and concrete concrete analysis of the consequences of this crisis on microeconomics microeconomic variables for example investment for example industrial production interest rates inflation etc for inflation you published articles I wrote them but as a complete model I couldn't see is it possible to develop a model to understand what is the consequence of capitalist crisis on all macroeconomics macroeconomics variables thank you I would like a bit more clarification on the issue of competition and conflict it appeared to me that you have placed together conflict between capital and conflict between labour I mean both in Marx and in reality the two things are totally different in that one type of conflict is meant to be antagonistic as we say the other is meant to be synagonistic so to speak you mentioned Harvard business review in recent years it has been recognized that capital has moved in what we call today co-petition which really is the English version of the word synagonistic in Marx that is competing and cooperating together and I find it fascinating that even all the latest economists not exactly left-wing magazines are suggesting that the main problem today's capitalism is actually which is monopoly in effect with the other dimension on finance capital contributing in actually creating some sort of global monopoly through some of the major companies that are funded for 15 years with losses until they managed to actually monopolize the whole globe in one sense so I'm a bit worried about I'm a bit wondering about your ideas on this type of topic you did mention monopoly on the one side but the other side for me the issue of inter-organizational versus inter-organizational competition and conflict inter-organizational co-operation and how they are related is key to realizing what's happening going forward and I haven't seen you touching these things Thank you Shall we talk tomorrow? I don't know if I can answer them No no no Thank you for the presentation I want to ask two things one which is the role of money in your theory as a value in itself in exchange value and which is the role of the bank of central banks and commercial banks both in crisis and in periods of expansions because for example Schum Peter related on crisis and on the role of bank so which is how your theory relates to this Thank you Just one more in this round so that woman over there Thank you very much for the very interesting presentation I have two questions first one is really would you say that you are contributing to keeping the Marxist political economy theory alive today and applying it to the changes that happened in the capitalist system but with the same principles of Marxism that and my second question is that could you please elaborate a little bit you mentioned something about the capitalist system today creating big polls of unemployed people and that causes the major instabilities that we have social instabilities and that gap should be filled it is filled either with religion or politics could you maybe just say a bit more about that Thank you These cover a lot of ground but there is some similarity so let me see if I can in the book in the book I focus on the role of profitability in regulating demand and supply rather than the long waves but I had published that elsewhere and I decided once a book reached a thousand pages there are some things I had to stop talking about that was one of them but here is a very important issue I was concerned about showing that the treatment of demand and supply can be incorporated into the framework of profitability and that is important because the two interact so for instance if we say that we want to stimulate the economy then by so doing we hope will raise employment if we raise employment as the labour market gets tighter wages may rise if they rise relative to productivity then the profit rate will fall because the wage share is rising the profit rate will fall that falling profit rate will undermine growth because it's no secret that the thing firms care about is profits that's what Cain says and Mark says but that's also what the Harvard business review says so therefore there is a limit to fiscal stimulus and one of the things I show in some detail in the book is that I want to take on the Cainzian and Kaleckian idea that demand is autonomous and independent it is not because demand and supply come from the two sides fundamentally of profitability when a firm decides to make a decision to produce in that same moment it has to make a decision to buy raw materials which is the demand for raw materials it has to hire workers which is a demand for their consumption goods it has to make buy machinery for expansion that's a demand for investment goods and has to pay out all the people that it borrowed money from that's a rentier's income from which comes their consumption demand so demand and supply because in that act of producing the supply it creates a demand are from the same root it doesn't follow that they match obviously because when you're buying you're not interested in whether they can sell and when you're producing you're interested in whether you can sell but they're not so that is what causes those ups and downs and it also causes this fundamental limit to fiscal stimulus so that's what I chose to focus on in the end of the book and in the end of the book I have a very detailed analysis of the current crisis and that detailed analysis is showing that the current crisis was not directly caused by falling rate of profit in fact the data I have perhaps I can go back and just show you what that looks like I skipped over this but this is the data for the corporate rate of profit in the United States from 1947 to 1979 2011 and you see and this is official data bureau of economic analysis there's no mystery in it you see downward trend you also see fluctuations due this is a great Vietnam war and great society boom of Lyndon Johnson you can see the trend going down then this big boom and return but from this point on the profit rate is stabilized so it's not true that the crisis when it came was due to falling rate of profit directly what I argue in the book is that inflation took place by reducing workers wages relative to productivity and that is from the Marx's point of view an increase in the rate of surplus value it stabilizes the profit rate but there's more because investment is determined not by just the profit rate but the difference between the profit rate and the interest rate and one of the remarkable things that was done in the same era was the policy that someone asked the question was the role of money in central banks I spent a lot of time discussing the role of money and the role of central banks but here the actual effect of that was to you have a falling rate of profit which then is stabilized by an attack on the welfare state and labor that's Reagan and Thatcher but the interest rate which has had its own path is now reduced almost down to zero so the gap between the two widens goes hand in hand with the speculative bubble because credit is so cheap that people can borrow and speculate and go across the world and lubricates the spread of financial capital across the whole world but it also sets up the crisis and I'm not the only one this is George Soros' argument by the way the bubble gets its own negation it collapses in 2008 so there is a very detail about the Great Depression and lots of other things that's chapter 16 of the book which is analysis of the forces of profitability which is not the same thing as a falling rate of profit and that's an important thing to understand someone asked about when the next crisis is and the answer is it depends on whether these patterns continue to hold Japan has been in stagnation for a long time but it didn't allow its financial system to collapse and unemployment to rise the US in that same period coming out of that did allow unemployment to rise so did the UK so the reaction of countries is a more concrete factor but the forces that underlie that are exactly the forces of profitability Japan's profitability is stagnant but its economy is stagnant too but they're not allowing those that stagnation to manifest itself as a crisis so what they have is stagnation and I can't say that that's worse than having unemployment and having people displaced and from jobs and from life which is work is life so much of the book is spent on arguing that the theory of real competition is not just a theory but it's empirically correct and that the profit rate is actually equalized across industries now what I make the argument in the book is that the rate of profit which is equalized is the rate of return on new investment not the average profit rate but the rate of return on new investment and I show how they can be measured and that's the same argument by the way in Keynes and Marks it's the rate of return on new investment so this is something I raced through but I skipped but if you go to the rate of return on new investment this is average profit rates in the OECD countries and so in the US in manufacturing by different industries industries are listed here and you can see the average profit rates cluster they follow certain pattern but they do not equalize so then one could say well their difference is really monopoly power that's a standard explanation in the Marxist and the Post-Gangin tradition I argue there is no evidence for systematic monopoly power at all because if you look at the incremental rate of return which is a rate of return on new investment you see very clearly the dark line is the average and you see how they go back and forth back and forth back and forth and I have a lot of theoretical empirical work in the book about profit rate equalization so I don't believe in the monopoly stage of capitalism and that's why I said my work is different from Post-Gangin economics but also from the bulk of the Marxist tradition and one can ask how did the Post-Gangin economists in the Marxist tradition come to believe that what they saw was monopoly and the answer they give themselves is that competition is what you find in orthodox economic textbooks the editor's a monthly review now literally said that the definition of competition is that given by Milton Friedman is that really plausible Milton Friedman is the same as Carl Marx I mean these people are supposedly red marks how can it be that competition the misrepresentation of competition in Milton Friedman is what Marx had in mind but that is necessary for them to say that because they then say if I see firms that have any size that's imperfect competition if I see a big firm that's concentration and centralization which means the end of competition I argue throughout in the book there is no empirical evidence supporting the idea that scale or size has any impact if you observe it moving over time any impact on profitability in fact sometimes it's positive sometimes it's negative one of the best known economic phenomena in business in the business literature is that bigger firms have lower profit rates well they are bigger and presumably that's a monopoly power how come they have lower profit rates and it turns out that if you look at the data small firms have some of them at very high profit rates and others have very low profit rates they have a big dispersion the big firms have a narrow dispersion and the average is low but the small firms have a huge death rate if you adjust for risk survival risk it turns out the two rates are roughly similar and that is data taken from the business literature it's the Compusat database and you can do that all the data is in the book as I said so I don't believe that capitalism is run by monopoly power and that answers the other question why did I not talk about the fact that in capital there is no longer an antagonism that's because I think there is an antagonism I think it's ongoing in all the time and sometimes it's a cold war sometimes it's a hot war sometimes it's about resources sometimes it's about turf, brands but it's an ongoing war and so I think that it's not just the relation between capital and labour which the Marxist tradition tends to focus on but also the antagonism among capitalists and that means among capitalists in the developing world and in the centre you don't think Chinese capitalists are hostile to American capitalists they certainly are and guess what American capitalists are really hostile to German capitalists the fact that they have some commonalities doesn't mean that they wouldn't cut each other's throat they get a chance the images of the mafia not a ballet sometimes they sit and have dinner but don't turn your back whatever you do because you never know what the next outcome will be inequality in the data I showed you was the inequality among nations but in the book I also discussed personal inequality there's inequality of wages and inequality of property income and those inequalities have different laws and I show how the principle of profitability and financialisation is able to explain exactly the genicoefficient in different parts of the world and in the US particularly I focus on the data there I can explain the degree of inequality from two things the movement of the profit wage ratio and the degree of financialisation of incomes that takes place in the 2008 period so we run out of time I have other things to say but let me stop here the book has a lot of material I didn't even mention laws of money interest rates, stock prices inflation I urge you if you're interested to look at that web page to see what other people are doing if you can afford to buy the book I would be very grateful I don't make a lot of money from it but maybe you could buy me a couple of beers at least from the sales here and my main goal is to get people to think and talk about an alternate place for economists to approach the world that's my main interest so anything that helps to do that is from my point of view a success thank you