Translated from Gegenstandpunkt: Politische Vierteljahreszeitschrift 1-2001, Gegenstandpunkt Verlag, Munich

News from the “New Economy”
Advantages and Disadvantages of Speculating on the Total Market

If one were to believe the dogma of the apostles who pronounce that economic reason alone rules in, and only in, a market economy; and if one were to believe their analysis of recent events in the stock market; then it is evident that for some time now, sheer greed for money has dominated one of the most important, supposedly forward-looking sections of the market economy; and led to a horrendous overreaction in the wake of all sorts of fraudulent insider schemes; in other words, to an extreme overvaluation of so-called growth stocks; which has now been punished by an “astronomical elimination of paper wealth.” For the well-informed community that adores the pure reason of the market, a glance at the practices of the active, big-money managers at the Holiest of market Holies is enough to explain both the boom — which they had welcomed in happy anticipation — as well as the crisis in the equity trade: a phase of the most unreasonable exuberance — there is even mention of the “speculators’ herd instinct” and of “collective hysteria” — turned once again, after some bankruptcies and failed manipulations, into a period of exaggerated skepticism.

These intelligent people, who offer such astute interpretations of the business trends of international finance capital, are not at all worried — and rightly so — that their equally enlightened public might turn away in shock and abhorrence from a mode of production that makes the weal and woe of entire societies dependent on the unbridled hustle and bustle of a bunch of obviously insane asset managers. Notwithstanding the moral labels (‘greed’ ‘exuberance’ ‘hysteria’) they’ve attached to the men of action, they consider the absurdities of this important business they report on to be so profoundly established and settled that no doubts remain concerning the business itself.

So once again, it’s up to the editorial staff of GegenStandpunkt to defend these blockheads of the stock market against belated, know-it-all condemnations, even if these same persons take themselves for the freelance demiurges of the capitalistic world economy. Even speculators, especially in their discretionary, indeed capricious, decisions, are nothing but character masks of finance capital, which pushes for growth with the power of financial constraints in force everywhere and at all levels of the economy, and which doesn’t tolerate any restriction until its own self-created limits have temporarily caught up with it. Even in the “new economy,” nobody but men of honor have been doing nothing but their job. To the extent that wealth has been destroyed, which they, of course, in no way contributed to with their speculation, they now have to face being denounced as greedy spendthrifts or swindlers. In fact, and in accordance with all the rules of the capitalist profession and speculative rationality — of course with the requisite false consciousness as well — they have done nothing but create another business sector in the capitalistic world, and given a perfect example of how things go there.

1. A new kind of commercial capital with products of its own

That which calls itself the “new economy” has “something to do with”[1] a new use-value. It’s a rather complex economic good we’re dealing with here. It includes a new technical gadget that frees telephoning from being bound to the fixed installation of cables, thereby, in principle, making available anybody who either should be able to be contacted or summoned at any time, or wants to be ready to talk all the time and everywhere. And, of course, nobody sticks to a mere possibility, so the inevitable happens: an explosion of chattering by phone. Even more important is a second, quite different achievement in information technology: the creation of a worldwide, direct connection between computers that facilitates data transmission in real time, and thus serves a real, substantial need of the business world. The latter has always considered any period of time needed for the turnover of capital as a useless, fallow period, as a deduction from its growth and therefore a loss, and is therefore receptive to anything that serves to speed up its business activity at any point whatsoever. Since the status of the personal computer has been enhanced, from a writing and calculating machine to an instrument of network communications, the services of the worldwide data transmission network as a medium for offering, selling, and buying goods of all sorts are no longer reserved for professional businessmen, but seize the masses; who, in turn, make the appropriate use of the new means of communication a must for any company that wants to offer whatever product to whichever person. From this, in turn, the broad public concludes that anybody not on the net is being excluded from an increasingly important sector of the market — not only as far as any commodities are concerned, but also from news and other goods of this kind — to say nothing of the unique possibility of putting one’s own existence “on the Internet” as an important piece of information for either potential employers or for exhibitionist or otherwise entertaining purposes. In this regard, the characteristic use-value produced by the “new economy” consists in a new, ubiquitous and extensive method of commercializing everything and everybody, as well as in the participation in the commercialization of anything and everything, one’s own self included. Add to that all kinds of ways of using digital data exchange in other spheres of society — from public authorities, who increasingly present themselves as a market for public services, to scientific research, which also enters the business of marketing itself. Of course, one cannot imagine a contemporary military command without the most exquisite products of the communications sector; and — in order to return to business life in a more narrow sense — these things perform their services for capitalistic production, where everything is about developing those forces of production that capital knows how to acquire for itself with its command over the cooperation and division of its labor force and branches of business. And so on. However, this new sphere of business can undoubtedly be classified in the main as commercial capital that makes extremely progressive offers here: hardware that provides and secures the overall network, and with the increasing number of subscribers and electronic messages, becomes immediately obsolete; software that manages participation on the net and becomes outdated even more rapidly; and finally the brilliant prospect of linking the global data-exchange network with the cell phone to create a paradise of a ubiquitous total commercialization — a prospect which more than ever turns all previous achievements into mere rubbish.

This is the stuff, so to say, of which the “new economy” is made. For an “economy” to emerge from it, however, a capitalistic life must be breathed into it.

2. Advance praise materializes itself as a capital advance

That an entire branch of business has spread like wildfire around mobile phones and the Internet has something to do with the enormous exchange value the financial business world — always on the alert for profitable investment — credits the emerging new use-value of commercial capital with. The community of investors and creditors sees great promise in the new medium, quite in the sense of those who intend to pursue it; and, because capitalists — due to their “déformation professionelle”[2] — take business success as a matter of marketing strategy anyway, they inevitably and firmly believe that the new method of marketing anything and everything is an unbeatable guarantee to make never-ending amounts of success out of marketing anything and everything. Being quite certain in this, heads of companies and managers of the money wealth of society mobilize whatever credit is needed for every marketing “idea” that promises to realize the potential use of the new medium — and not only that. Companies already active in this sphere spare neither restructuring nor debt in order to puff themselves up; others forget about their traditional business and switch over with all the force of their accumulated assets and their corresponding creditworthiness. And, founders of firms intent on becoming active in this oh-so promising field are not only given conventional bank credit after a thorough assessment and against secure collateral, they are also allowed to raise capital by selling stocks, avoiding the obligation to repay or make interest payments; an advance of real company capital from outside financial resources. For this to work, the finance business even sets aside its otherwise restrictive regulations, still valid for other companies as always, that tie the granting of the status of ‘joint-stock company,’ namely permission to deal in stocks, to existing proof of outstanding success on the market. Such guarantees from the so-called “old economy” are replaced for commercial capital dealing in electronics and telecommunications by the firm belief that, via the computerized exchange of data, a totally new, boundlessly profitable management of the entire market economy is inevitably to come about and outshine all the previous returns on which stock-market speculators have ever speculated.

In this way, a technically separate market for so-called “high-tech shares” has come into being. Once and for all, freed from considerations for traditional solvency requirements and conventional stock market regulations, the world of speculators in finance capital has offered itself the chance to make lots of money on a brand-new branch of business and its assumed gigantic and unavoidable growth.

3. The Markets are bullish — proving speculation is sound

The offer has been taken, and in the way intended. Speculation has actually freed itself from proven turnovers and earned profits. What is more, there is no lack of finance capital looking for investment. On the contrary, a worldwide over-accumulation of financial means has made promising investment possibilities a rare thing. Hence, mobile phones and the Internet, together with start-ups for software and web design, are just what is needed. So the inevitable happens: quite a lot of new companies are created, placed on the stock market by helpful advisers in the IPO business, and subsequently reward investors with a rocket-like take-off of the price of their shares. Experienced telephone companies invest in “innovative” departments and raise new money in turn by going to the stock market or by listing their new subsidiaries there and thus multiplying their “market capitalization.” The same thing is done by large concerns that commit themselves to “e-”commerce through acquisitions or by changing their business entirely. The more money is poured into the “new market,” the more the value of the demanded securities increases, and the same is true the other way around. The speculation in soaring stock prices turns out to be confirmed and increases prices even further — far beyond any conventionally observed price-earnings ratio, because neither money holders nor fund managers want to miss out on the boom. Of course, all investors have their doubts as to whether so much fast growth will still be “sound,” and whether the companies will ever be able to justify the billions to which their market value has in the meantime been built up by stock trading. The continuing speculation, however, furnishes the justification in practice, and hence the convincing proof, that new standards have indeed become valid on the “new market.” It’s all-too obvious that really financially strong companies can be founded on new ideas of how to totally commercialize all the world via computer and the Internet — just imagine the possibilities once everything is online and computerized, and once the entire inventory of the world has been made available through “e-commerce.”

Thus the “new economy” is born. And this is what it is: a new branch of commercial capital brought about and given impetus by a gigantic speculation in its inevitable future success.

4. Demand is created and is enormous — but not large enough

The speculative advance of capital creates a new business sector: it makes existing companies grow, causes others to switch over into the new sphere, and creates lots of new ones. All of them get started as expected and demanded by investors, produce hardware and software, create the demand they supply, exploit the willingness of commercial and private customers to pay, actually turn over considerable sums — for instance in Germany, allegedly $5 billion a year through online fees charged for the time required to open unsolicited e-mail advertisements — and thus conquer a large part of the purchasing power of society. It is clear, however, that effective demand is not infinite, nor is the aroused interest itself boundless; not even chatting and “surfing” are limitlessly enjoyable. Nor is it a secret that the companies committed to this new business with their new range of saleable goods compete with the rest of the business world and with each other for turnover and profit in their special market. It’s quite normal, therefore, that on the one hand the companies of the “new economy” meet with obstacles everywhere; after all, it’s only a matter of a new branch of marketing. Yet on the other hand, in anticipation of all the more bigger turnovers and profits in the future, the speculative zeal for founding new companies helps each new business and company overcome the obstacles met in marketing its own respective marketing offers. One thing is thus certain from the beginning: the new business sector is set up by a capital advance that puts it into high gear, yet that cannot be serviced for the time being by its proceeds. Releasing business activities from the limits of an actually exploitable demand does create demand, but within limits that speculation ignores and not only allows but also demands to be exceeded — it creates too little demand for the amounts that have to work as capital, i.e., that are to be accumulated. The creation of the new business sector is based on, and accompanied by, a gigantic over-accumulation of claims on returns — which, by the way, is completely normal for a capitalistic business-founding boom.

The consequences are clear and inevitable: mutual disappointments don’t fail to materialize. Financial managers who quite deliberately gave away “venture capital” did not, however, intend to founder with the financed risk, but instead to pursue the goal of getting a business going which would cope directly with its risks and obstacles without having to rely on continued financial advances. Now they’re confronted with balance sheets which show that the initial profit has not even provided sufficient means for keeping the company going in the medium term, to say nothing of a profitable future. Conversely, the people who founded a company firmly counted on more credit being added to the first advance as soon as it had been squandered away — especially considering that the community of speculators created a special section of the stock market for them with nothing but prospects of distant future profits for proof of solvency. Now they feel let down with their “start-ups.” Both sides have to face the fact that despite all their quite opposite expectations, a capital advance is no guarantee for success, not even in their “new economy.” This plunges them into a deep depression. All the same:

5. The struggle proceeds: for and against “moral depreciation.” It amounts to a selection among the competing wonder boys.

The companies of the “new economy” fight for the speculative investors’ trust they are dependent on: for credit, for a second chance if need be. By making a supreme effort, especially in using the unpaid labor time of their wage-earning but otherwise completely equal employees, they try to furnish proof that they have the best chances of being successful in the market for gadgets and plans for using the new media as a market medium, if not immediately, then soon, or at any rate sometime. Evidence is presented: market shares and turnovers achieved by the clever acquisition of companies and low prices for relevant services and equipment. Even more important are innovations that persuade the financial world that the respective company doesn’t merely compete for shares in the limited market for digital things and telecommunication companies created so far, but has assiduously been creating really new needs along with the required willingness and ability to pay, so that in this case, the expansion of the business sphere is not yet finished but is rather “the future” on the horizon. The top performance in this “competition of innovative ideas” has beyond doubt been achieved by the big telecommunications companies: For umpteen billions, they have bought licenses put up for auction by various European governments in order to operate a transmission network of a completely new generation that doesn’t even exist yet. It was obviously clear to the involved companies — and they have, at any rate, done everything to make it clear by their actions — that in their business, the temporary uselessness of a right to wavelengths of a certain frequency, bought for a crazy amount of money purely to be on the safe side, needn’t be a disadvantage, but is rather a striking proof that the true, and truly big, business with the real technological breakthrough is still to come. Hence, today, only those who have already secured their participation in the future medium for themselves deserve credit, because, when it comes, everything being played around with at present will have become obsolete. On a smaller scale, the struggle for survival of the just-recently-hyped new generation of entrepreneurs on the “new market” follows the same pattern: those who want to stay in business must be masters of making existing wares, hard and soft, look old: “technologically” outdated, “morally depreciated” by a kind of progress which is most convincing when still in the development stage and the expert from India hired to carry it out is still on his way.

In this way, in the “new economy,” in which pioneers of a field of business promising infinite profits are supposed to succeed, rather normal competition and selection is taking place, and is not only annihilating newly created “jobs” but also wreaking havoc with the wonder kids of e-commerce. The initial boom ends in quite an enormous attrition of founders of new businesses — and thereby simply follows a law of capitalism as eternally new as the capitalistic yearning for a “new economy,” namely:

6. The “natural” course of things: annihilation and centralization of fictitious capital

When a head of a big company lets a business department grow or die, when a fund manager decides in favor of, or against, a stock, there are of course always quite particular and good reasons for doing so: each time, speculators have in mind their convincing indications for the individual case as to whether one object of investment is culpably undervalued, or another share hopelessly overvalued — even though it is only the corresponding, or perhaps even the precisely opposing, evaluation of other speculators. However multifaceted, however shrewd, and however special the speculative motives for one or the other competitive decision may turn out to be: the economic content of the decision to examine the companies of the “new economy” more critically, to grade them, and to speculate their paper value down is just one and the same. In practice, the community of speculators admits — once again, as so often before — to having created an over-accumulation of claims for returns on the companies it has credited — in this case those of the “new economy.” When it selectively cancels certain advances given in expectation of future yields, it executes the all-too common fact that it has been bustling about with fictitious capital and has long since annihilated masses of money and credit.

What remains of the company scene is the result of a competition fought by heads of companies and investors; each of them pursuing a special strategy of his own with the goal of avoiding a loss of value and cuts in credit. In doing so, the finance artists prove themselves to be character masks of a general capitalistic necessity in this respect as well. Despite all their maneuvers and tricks — considered to be fraudulent if they fail, strokes of genius if they succeed — they accomplish nothing more than the banality that the expropriation falling due tends to go with the amount of property. The biggest survive; fictitious capital with the power to continue or create new business gathers on their balance sheets; the cunning devils of e-commerce get their “second chance,” if at all, in the service of companies reputably established by the power of their capital: as suppliers or employees of Microsoft, Nokia, Siemens and others. So the early boom of the “new economy” is as reliably followed by an annihilation of assets as by a centralization of the capital advanced, which has long since been consumed or blown away, but is nonetheless maintained with new credit as a financial asset and means of business.

7. These and other victims

So there’s nothing new in the “new economy,” not even in its first crisis. Some mourn for their and eke out their existence, at best as unemployed hackers with a share of the initial profits of their former joint-stock companies they managed to set aside in the nick of time, at worst with stocks that were to remunerate them for their 16-hour working days but have become worthless. Others regret the disappearance of the large amounts of money they had been entrusted with to make grow that have been cut in half after a short-term increase in the value of the investments made with them, or have disappeared altogether. And the winners carry on.

Anyway, at least there’s an innovation to record in the distribution of losses incurred. Those who have set up and managed the trading in the tech market — who by the way have been making lots of money in each phase of share trading, and still do — have succeeded in enlisting lots of “small savers” to use their nest eggs as a source of money for speculative investments, and in allowing these new customers to be first among the participants in the big annihilation of wealth. Those affected, who actually never get beyond putting consumption off a bit and so will never become owners of capital, are fobbed off with a cynical remark concerning their losses: they have had to pay dearly for learning the wise old saying of the stock market, according to which “one” needs a lot of staying power in this sphere and a lot of patience if “one” ever intends to realize measurable profits. This information comes as quite a bad joke, indeed, concerning a business sphere where pros speculate with lots of other people’s money in lightning price changes and make maximum profits out of minimal margins. However, these are fitting cynical words of comfort for people who have put their savings into a sphere which once and for all is neither made, nor suitable, for giving rise to great hopes of getting one’s earnings increased for consumption in the near future: now they only need to wait some decades to have their losses made good… This kind of comfort is just the thing where states the world over impose a new kind of retirement insurance on ordinary people through pension reforms: sure, a lot of savings has been ruined recently by just the same funds that in the future are supposed to consolidate the living standard in one’s old age; but, because everything will be just fine in the long run and the retirement age really isn’t yet in sight for the generation being urged to buy private insurance, there is no reason to be worried; indeed, since the welfare state goes one step further and deduces a legal necessity from its experience with the ups and downs on the “new market” — private investment advisers need a legally binding code of honor. Nothing can then go wrong any more. It is as if the reformed welfare state, which cuts lawful pensions and recommends private financial investing as a compensation, would, as a precaution, prove that it, at any rate, won’t cheat the people out of a reasonably comfortable old age.

Translators’ Notes

[1] German Chancellor Schröder.

[2] French expression: habitual and (possibly!) erroneous thinking in a profession.

© GegenStandpunkt 2005