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10 JOURNAL OF CONTEMPORARY EDUCATIONAL STUDIES 3/2013 Tibor Rutar

Tibor Rutar

Dystopian future of education in the knowledge society

Abstract: The concept of the knowledge society or, better, knowledge economy was initially developed in the USA in the 1960s, but it has also been gaining considerable momentum over the past two decades in Europe. Proponents of the knowledge driven economy, in which knowledge becomes the main productive resource, claim their idea represents a genuine shift to a new phase of capitalist accu mulation, in which the old problems of chronic unemployment, material scarcity and competitive disadvantage are solved. In this article, we show that the claims of these ideologues are (a) mislead-ing, and (b) that the mechanisms required for the implementation of such a society have detrimental consequences on the function and role of education and knowledge. The knowledge society is not a new, qualitatively different phase of capitalism, where systemic crises are eradicated; rather, it is a society in which educational and research activities are implicitly and explicitly subjugated to the requirements of a flexible labor market and the global competitive struggle. In other words, the once universally accessible schooling and nonmarket scientific research are restructured in such a way that they serve the imperative of production for the sake of profit, not the maxim of production for the sake of satisfying societal needs.

Key words: knowledge economy, competition, technological innovation, productivity, education

UDC: 37.01

Scientific paper

Tibor Rutar, M.A., Institute for Labour Studies, Kvedrova cesta 10, SI-1000 Ljubljana, Slovenia; e-mail for correspondence: [email protected]

JOURNAL OF CONTEMPORARY EDUCATIONAL STUDIES 3/2013, 10–22

Dystopian future of education in the knowledge society 11

We, Slovenes, don’t realize just how important human capital is in the know-ledge society … Slovenia is a small economy that has to adapt to changing condi-tions of economic reality. The world won’t adapt to us, we’ll have to adapt to the world. We’ll have to increase our competitiveness and attract additional, even older, associates to our labor market.

(Repovž 2011)

Introduction

In this article, we’ll critically consider the increasingly popular concept known primarily as “the knowledge society,” propagated by such institutions as OECD and the European Commission, and its problematic elements. Firstly, we’ll summarize and explain the material conditions that acted as the basis from which the idea of the knowledge society initially arose and was later actually implemented. We’ll paint the historical picture of capitalist economies in the 1980s, when ruling poli-ticians and economists for the first time seriously considered building economies based on knowledge. Secondly, we’ll be probing into the ambiguous claim that the knowledge society represents a new and unprecedented phase in the evolution of global capitalism. Contrasted with that claim is the notion that such knowledge-based economies are merely the logical conclusion of a crisis-ridden, yet highly developed capitalism. In other words, we’ll question the contentious claim that the emergence of the knowledge society implies organic economic growth – which would mean it’s therefore a solution to the current global crisis – and generalized welfare, and that such an economy is qualitatively different from the “classic,” essentially industry-oriented, capitalist economy.

The main purpose of this article is to demystify the concept of “the knowledge society” and to examine what kind of political, social and economic effects subju-gation of education and research under capital brings about in such a society. In contrast with ideological prophets of liberal capitalism, the likes of Peter Drucker (1969) and Daniel Bell (1973), and sociological futurologists, who – at the end of “the golden age of capitalism” – triumphantly clamored for a new economic paradigm,


which should ultimately solve the problem of resource scarcity and business cycle spasms, we’ll show that “the knowledge society” is ideologically tendentious, and that it doesn’t solve what it claims to solve. Most importantly, we’ll show the dele-terious effects it has on the state of education and research activities; it reduces these two immeasurably important fields to mere factors of production, subject to market fluctuations, and erodes their autonomy and original intent.

Economy based on knowledge in an economy of stagnation

Peters (2001, p. 5) cites Stehr , who claims that the term “knowledge society” originated in the 1960s when eminent scholars such as Robert E. Lane, Peter F. Drucker and Daniel Bell identified (under various phrases) and located a new social-economic paradigm: an economy marked by a qualitative shift from classic, unqualified industrial branches to more complex, hi-tech production activities. Knowledge was christened as a new factor of production, and the era of uneducated manual laborers, so characteristic of the post-war phase of economic growth, was seemingly ending. As Drucker (1959), wrote in his Landmarks of Tomorrow as early as 1959: “The essential new fact is that a developed society and economy are less than fully effective if anyone is educated to less than the limit of his potential. The uneducated is fast becoming an economic liability and unproductive. […][T]he highly educated man has become the central resource of today’s society, the supply of such men the true measure of its economic, its military and even its political potential.” (Ibid., p. 114)

Drucker’s statement makes quite clear what remains of the ideological newspeak, propagated in the media and elsewhere, when it is revealed for what it is – it considers knowledge a mere productive resource and education a source of national competitive advantage; nothing is left of education as a value in itself or as a means for increasing social (not economic) development.

When the golden age of capitalism, originating right after the Second World War and lasting up to the late sixties, was nearing its demise, sociologists inspired by the increasing welfare (which was seemingly simply the result of normal capitalist development) were frantically citing promising statistics, claiming that an ushering-in of a new epoch in which the educated knowledge worker is the economic resource was basically inevitable. Of course, nobody stopped and thought just exactly why the unprecedented post-war boom period occurred. The real cause was the enormous global-scale destruction caused by world war, and the restructuring of economies into state-capitalist war economies (see Roberts (2012) and Carchedi (2012)).

When the golden age – in the normal state of capitalist affairs – ran out, the long period of economic stagnation (i.e. relative stagnation) and recessions, starting with the horrendous stagflation crisis (see Kliman 2012, p. 51–59), re-placed the former period of growth. With this, we’re crossing over to the first part of the article in which we’ll be explaining historic conditions that called for the implementation of the mechanisms of knowledge society, i.e. subjugating educa-tion and research activities to global market fluctuations.


Even before the neoliberal turn, characteristic of the 1980s, and right after the stagflation crisis1 a period of relative stagnation that lasted almost four decades was underway (ibid., p. 9). Data provided by the World Bank and world-renowned expert of macroeconomic history Angus Madisson suggest that the rate of the world’s real per capita GDP growth fell sharply and suddenly after 1973 (ibid., p. 51–52). We can’t go into intricate explanation of the mechanisms that ended what was seen at the time as a period of unlimited growth in USA and other im-portant economies, and which brought about the beginning of relative stagnation.2 What is important though, is that from the middle of the 1970s onwards and up to the Great Recession of 2008, the major capitalist economies were plagued by persistent, though relative, economic stagnation, which was treated mainly by means of government loans, lowering corporate taxes, privatization, deregulation and, most infamously, financial speculation.

In such a milieu it is completely (economically) rational (even if it truly is inhuman and socially detrimental at the same time) to see tendencies towards privatizing once public, universally accessible (and up to this point unprofitable) services, such as health care and higher education. In capitalism, what drives the economy’s dynamic is the rate of investment: where productive investment is abundant (like in the golden age) you can expect high economic growth, and vice-versa.

What, though, determines the rate of productive investment? This is the rate of profit, which expresses the ratio of newly produced profits to the amount of invested capital (ibid., pp. 11–12); when the rate of profit is low, the rate of productive investment also tends to fall (for empirical demonstration of this cor-relation in the case of US economy see ibid., p. 91). One of the most efficient ways of raising the average rate of profit is to commodify the yet uncommodified spheres of social life, such as health care and higher education. Privatizing such public institutions enables them to generate profit, when ordinarily they are consciously made unprofitable. Complementary to this is the most important method of raising the individual rate of profit, i.e. the profit rate of a particular enterprise: lowering production costs and commanding greater market share by raising productivity. In this regard, higher education is an essential element of raising the rate of profit, because it can act as a source of technological innovations and another means of raising productivity in the production process: “In this new scheme, knowledge implies human capital which raises labor productivity – that is the variable part of capital [labor-power] – while innovations imply technological improvement, which raise machine productivity – that is the constant part of capital [means of production].” (Krašovec 2011, p. 14)

In other words, education of future workers and research activities can be restructured in such a way, as to readily provide (i.e. train) proper labor-power that is compatible with the requirements of highly competitive labor markets, and

1 This is a specific type of economic crisis where stagnation is accompanied by inflation, i.e. rising market prices. Usually stagnation and inflation are mutually exclusive.

2 For an in-depth theoretical and empirical analysis of these phenomena see Kliman (2012), Mattick (2011), Carchedi (2011) and Roberts (2009).


to constantly develop innovation techniques, which serve as a means of raising productivity and consequently of improving competitiveness of individual enter-prises in particular and the whole national economy in general.

Knowledge as a commodity

The Organisation for Economic Co-operation and Development (OECD) vehemently claims that the increasing importance of knowledge has “significant policy implications for the organization of production and its effect on employment and skill requirements” (Peters 2001, p. 8), while new growth theory stresses “the role of education in the creation of human capital and in the production of new knowledge” (ibid.). If we manage to ignore the obvious and annoying managerial discourse permeating these kinds of texts, the perversity of which has been also stressed by Krašovec (2011), we’re led to see just how transparent their intentions of merging the logic of markets with the fields of higher education and research actually are. As Peters (2001) has pointed out, these documents tirelessly repeat that (a) “education is important for successful research activities (e.g. by producing scientists and engineers), which in turn is important for productivity growth” (ibid., p. 9) and that “education creates human capital, which directly affects knowledge accumulation and thus productivity growth” (ibid.). Peters also exemplified his contention by citing a 1990s speech, made by Tony Blair: “The Government must promote competition, stimulating enterprise, flexibility and innovation by opening markets. But we must also invest […] in education, in science and in the creation of a culture of enterprise. […] [T]o collaborate for competitive advantage.” Blair goes on to say: “In Government, in business, in our universities and throughout society we must do much more to foster a new entrepreneurial spirit: equipping ourselves for the long term, prepared to seize opportunities, committed to constant innovation and enhanced performance. That is the route to commercial success and prosperity for all.” (Blair 1998)

A similar, if slightly subtler, image is provided by Slovenian documents such as Resolution on a National Program of Higher Education, which had been enacted a whole year before the now-former right-wing government started implementing austerity measures: “The current system of structuring and financing higher education supports a state, in which every higher education institution is striving to be successful on all fields and to meet every goal of higher education. Such a culture doesn’t lead to excellence and competitiveness, but to mediocrity – because every institution can’t be the best and it certainly can’t be the best on all fields.” (Reso lucija o … 2011)

It is hard, if not impossible, to miss the painfully obvious connotations per-vading such glorifications of the knowledge society. They can be fully recognized in all their “market is the answer to everything” glory already in Drucker (1959, p. 122), when he writes the following: “Educational capacity, as much as natural resources or industrial plants, is becoming a crucial factor in international trade, economic development and economic competition” (ibid.). The knowledge society,


therefore, isn’t a society in which people are educated for the sake of their eman-cipation and the development of their potentialities. It’s also not a society in which knowledge and research are values in themselves, and where poverty and exploita-tion (of humans as well as nature) are a thing of the past. The knowledge society is a society where knowledge and research are reduced to “factors of production” and integrated with the market logic of raising productivity for the sake of raising competitiveness and securing a dominant position in the world capitalist market. It’s a society in which the crisis-prone nature of capitalist development requires constant colonization of yet unexploited and unprofitable spheres of social life, and where pervasive privatization of higher education institutions is conducted under the banner of optimal utilization and rational allocation of knowledge. There are only few who still resist the imposition of market values of knowledge society and who warn, that “the faculty should not be a business, where commercial interest trumps academic interest. Students aren’t supposed to be kings only because they’re customers.” (Kristan 2013)

Drucker utilizes sleight of hand techniques of obfuscation, to avert his atten-tion (and ours) from the burning question of the (nonexistent) noneconomic, social utility of thusly restructured schooling. He is quick to tell us that subjugating higher education to market interests won’t also subjugate it to the ruthless im-peratives of profitability, but that it will contribute useful “social profit” (Drucker 1959, p. 135).3 How this so-called “social profit” differs from classic, indeed the only, profit remains an irresolvable mystery, especially when Drucker quickly reaffirms (a) private ownership of higher education institutions, and (b) competitive free-market struggle as the most rational, most efficient mechanism for coordinating higher education (ibid.). Market prices and profits are obviously the main lever of higher education in the knowledge society, so the so-called “social profit” is a mere discursive lure, a mirage, a euphemism.

The above-mentioned liberal economists, sociologists and politicians, who see the knowledge society as a veritable heaven on Earth, usually admit that in their visions they’re exposing education and research to market whims, i.e. to com-petitive struggle, and subsequent rationalization tactics of lowering costs, which are undertaken by the newly born “manager-deans” and similar postindustrial chimeras. However, they claim in their defense, there’s no problem with that. It’s quite mindboggling how we can consciously subject higher education to techniques that lower its quality by lowering costs (in Slovenia this has manifested itself in firing faculty workers and increasing the workload of the remaining staff), without actually admitting the deleterious effects this has on the education process. From the standpoint of the concept of a knowledge society, education and research are quite gleefully presented in a utilitarian light, as simply factors of production. That’s why we’ll show, in contrast with Blair and others, why competition and “entrepreneurial spirits,” which force producers to cut costs and produce for the sake of profit, are incompatible with “prosperity for all” – they’re actually the reason for periodic economic crises under capitalism.

3 The term “social profit” is neither defined nor implicitly explained by Drucker in his work.


The issue we’re trying to uncover relates exactly to the schizophrenic merging of social welfare with the interests of capital and the market. The problem is two-fold: Firstly, subjecting education under capital implies tendentiously promoting only specific kinds of knowledge, i.e. knowledge that can be used to produce technological innovations, and creating labor-power fully equipped to deal with the precarious conditions of the existing labor market; secondly, the knowledge society simply can’t (even if we accept the detrimental effects it has on schooling) by itself usher in a long-term phase of organic economic growth. In contrast with right-wing monetarist policies, enjoying popularity since at least the neoliberal turn onwards, and left-wing Keynesian remedies, we’ll show that business cycles in developed capitalist economies can’t be subjectively regulated because they’re endogenous, not exogenous, phenomena.4

As to our first point, two additional matters should be pointed out. The labor market in major capitalist economies in general and the Slovenian market in particular is getting ever more flexible5, which means that future laborers will have to face conditions of utter instability and that they’ll have to be educated in such a way as to be prepared to deal with those conditions. Today, the main paradigms of education are “learning to learn” and “lifelong learning;” there’s no room for meticulous, critical and deep-insight learning. Or, as is written in the New Zealand report The Knowledge Economy: “Countries that have encouraged their people through education and life-long learning and by investing heavily in research and development (R&D) are well positioned to take advantage of these new global markets” (Peters 2001, p. 11). These new global markets demand highly flexible labor-power that is willing to face uncertainty, has internalized the value of a precarious workplace, and is welcoming of a flexible work schedule that includes work in the afternoons, over the weekends and even at night. Such markets require workers not burdened with cumbersome critical and reflexive knowledge, but liberated by their dynamic “know-how” that, in the context of a highly differentiated and segmented global market, enables them to readily adjust to the unforeseeable fluctuations of supply and demand.

4 Periods of booms and slumps are endogenous because their origins can be found in the logic of capitalist production of commodities; booms and slumps are therefore not external anomalies. As we’ll show in the last part of the article, economic crises are a necessary precondition of economic growth, and vice-versa. Above-mentioned policies of regulating business cycles ignore the fact that booms and slumps originate from the sphere of production, not distribution, which means various redistributive policies can’t end a crisis – they can merely postpone it.

5 Flexibilization of the labor market is characteristic for capitalism in or nearing crisis, because it redistributes wealth away from labor compensation (costs) towards corporate income (profits). Concrete flexibilization mechanisms basically imply increasing the number of precarious jobs, lowering capital financed benefits (i.e. contributions for insurance, pensions, commuting expenses etc. of the employees) and diminishing other social transfers. “Permanent employment […] has been declining in the past two decades [and there] has been a steady expansion of various forms of contingent work […] Employees (except for key personnel) become interchangeable, disposable, recallable, and transferable.” (Szabó and Négyesi in Kennedy 2010, p. 826) Likewise: “They work their eight-hour shift for no payment; they aren’t even compensated for their lunch or commuting expenses. Young people with a higher education degree, trying to gain experience and less demanding jobs are [forced] to work voluntarily. And there’s going to be more of them.” (Andrenšek 2013)


Additionally, we mustn’t gloss over the fact that what has been responsible for a rising number of the so-called “service workers” or “white-collar workers,” so characteristic of the knowledge society, wasn’t a benevolent qualitative transforma-tion of capitalist economies, but rather outsourcing manual labor and industrial production to less developed peripheral countries, where cheap workers have no other choice but to become the “blue-collar workers” that are so anathema to the West. “[E]very creative ‘cyborg’ in the center necessarily implies a sweat-shop worker on periphery, while more intensive exploitation of the Third World from 1980s on is, in the context of global neoliberal contra-revolution, a prerequisite for the greater autonomy and freedom of creative and cognitive workers in the center.” (Krašovec 2010, p. 89)

It is quite symptomatic indeed, that in today’s knowledge society not just any knowledge is valued or valuable. As is written in one of the latest reports of Slo-venia’s Ministry of Education: “Data from the Analysis show it would be beneficial to seriously rethink higher education enrollment policies, especially in the case of humanities, social, business, administrative and juridical sciences. When designing enrollment policies and determining the annual number of higher education en-rollment, we should, besides noting the state and trends in higher education and on the labor market, also consider long-term projections of Slovenia’s [economic] development and the development of labor market.” (MIZKŠ … 2013)

Experts for education and employment are desperately trying to convince us our future is to be found in knowledge and higher education, yet in the same breath they’re warning us that social sciences are passé, because there is no demand for social scientists and intellectuals on the labor market. The “knowledge” in the term “knowledge society” is a very specific kind of knowledge – on the one hand it is the knowledge of natural sciences that can be used for developing technological innovations and other scientific methods of raising productivity, and on the other hand it is knowledge in a very general sense of the word, i.e. knowledge as a worker’s immanent tool that provides him with plasticity and adaptability, so he isn’t rigidly specialized and therefore unable to conform to market fluctuations. From the viewpoint of capital it’s quite reasonable (a) to co-opt and transform social sciences as much as possible in such a way as to accommodate them to direct and indirect principles of capitalist accumulation,6 and (b) to banish and trivialize all remaining sciences (philosophy, history, linguistics, critical theory etc.) that resist capitalist co-optation. Žiga Turk, former Slovenian Minister of Education, didn’t even bother to conceal his capital-motivated interests: “It is a legal responsibility of the government to confirm enrollment restrictions. We’ve reviewed what has been put forward by universities, we’ve conducted a study regarding employability of graduates and unemployment in different fields, and on Friday before holidays

6 With “indirect principles of capitalist accumulation” we mean everything that can be used to intensify the accumulation of capital, without it being directly involved with market relations, for example, the development of technological innovations in the sphere of public research activities. With “direct principles” we mean everything that is privatized and acting as self-valorizing capital, for example, private faculties that produce profit and conduct their operations via market commodity exchange.


we have, indeed, asked universities to additionally intensify their [enrollment] restrictions.” (Turk in Očitek … 2013)

Technological innovation and productivity

We now turn to an explanation of how technological innovations, i.e. market-oriented knowledge and education, bring about a growth in productivity. In capitalism, market competition compels producers to constantly lower their pro-duction costs; if they refuse and don’t seize greater market share, they sooner or later go out of business. If an enterprise produces its services or commodities at lower costs than other enterprises, with which it competes, that enterprise can also sell its services or commodities at cheaper prices than their competitors, and thus commands a greater share of effective demand. In such a scenario the enterprise producing at lower costs wins doubly: (a) because it offers lower prices than its competitors, it can sell more than if it didn’t sell at such lower prices; (b) because it produces at lower production costs (but still sells at or slightly below the average market price) the enterprise will appropriate special profit (above normal) in the sphere of exchange, regardless of its potentially increased market share. Because the price of its commodities is lower than the average market price (which implies greater market share), yet still higher than the new, individual price of its commodities (which implies extra profit), the enterprise gains doubly (for more consult, for example, Carchedi 1991).

The main mechanism that brings about such a reduction in production costs is, of course, technological innovation, i.e. higher labor productivity that enables enterprises to produce more output in the same amount of time. That productivity increases truly reduces prices is admitted even by such orthodox economists as Alan Greenspan (once the president of the US Federal Reserve): “Faster produc-tivity growth keeps a lid on unit costs and prices. Firms hesitate to raise prices for fear that their competitors will be able, with lower costs from new investments, to wrest market share from them.” (Greenspan in Kliman 2012, p. 16) We can see that technological innovations are a priceless (pun intended) means of lowering costs and raising competitiveness. How what we’re talking about is related to the article’s topic becomes clear when we go back to the above-cited texts, praising the knowledge society. Knowledge in such a society is praised only because it raises the productivity of production process and laborers, not because it emancipates people and helps them on their path of self-actualization. Drucker (1959) explicitly denies this, but can’t keep himself from at least implicitly affirming our hypothesis in the same sentence: “This does not mean education has to be measured by the income it produces. Far from it. But we cannot afford education that does not make the individual a bigger, a better, a more dedicated, or a more excellent – that means, a more productive – person.” (Ibid., p. 128; emphases added)

With regard to principles, the concept of knowledge society is extremely prob-lematic, as it values only the kind of knowledge that is market- and enterprise-oriented, and because it praises educating future workers only insofar as they’re


taught how to cope with precarious, uncertain conditions in flexibilized labor markets. The concept also implies privatizing faculties and other higher educa-tion activities, which means restructuring them in such a way as to subject them to unrelenting market imperatives – the major two of these being production for the sake of profit and the constant lowering of production costs. There is, however, an even graver, more deleterious consequence that results from praising market competition. Knowledge society apologists claim their concept is the way out of the current capitalist crisis, and that in any case we all gain tremendously by integrating our lives with the market (see Blair’s text above). We shall, however, show that this claim is not based in reality. Au contraire, incessant technological innovation, dictated by market competition, is in the context of capitalist mode of production the underlying element responsible for crises in the first place.

Why competitive struggle is malevolent

Competition is a zero-sum game, i.e. greater competitiveness of one enterprise (or country) necessarily implies lesser competitiveness of another enterprise (or country),7 which means that there is always a winner and a loser and that uneven8 development of vast geographical regions is a leitmotif of capitalism. It should further be pointed out that competition is also directly tied to the cyclicality of economic development, the horrendous effects of which we have been experiencing since at least 2008, but in reality even since the 1970s, when relative stagnation had just begun. As we’ve already shown, incessant market competition lowers commodities’ prices by lowering production costs. If wages and salaries of workers (their compensation) remain the same, while new technological innovations boost physical output by the same rate as that invested capital grows, the average rate of profit tends to fall under conditions of disinflation (Kliman 2012, p. 16). That technological innovations do cause disinflation (falling rate of price increases) is

7 A concrete and up-to-date example can be found in the foreword to Slovenian translation of A Short History of Neo-liberalism (Furlan in Harvey 2012, p. 292), where Sašo Furlan interprets sta-tistical data thusly: “The growth of German export industry, usually explained away with the myth of ‘German efficiency’, was in actuality a consequence of brutal wage growth restrictions … We can notice similar growth dynamic in Belgium and the Netherlands. This was the way for central countries [as opposed to peripherals] to accumulate current-account surpluses. But current-account surpluses of some countries necessarily reflect current-account deficits of others, and in the eurozone these countries were the peripherals, i.e. Portugal, Greece, Spain and Ireland. Certain countries’ deficits were only the other side of, and a necessary condition to, the German surplus.” (Ibid.)

8 Krašovec (2011, p. 5) exemplifies this with a historical account of the rise of Asian Tigers: “If we look at a region as a whole (and aren’t distracted only by tremendous successes of Asian Tigers), we can see that the high-tech development of Eastern Asia followed the classic formula of combined and unequal development – some countries (especially Japan, South Korea, Taiwan and Hong Kong) were able to develop educational and industrial capabilities, they became worldly competitive and have managed to raise their standard, while others were mired in stagnation or even regression. Thus Malaysia, Philippines and Indonesia, for example, have been transformed into East-Asian workshops, i.e., countries that have boosted competitiveness of Japan’s high-tech industry, by providing it with cheap labor-power; yet these countries haven’t been the beneficiaries of rising social standards or economic development.”


admitted even by the already cited Greenspan: “Indeed, the increased availability of labor-displacing equipment and software, at declining prices and improving delivery times, is arguably at the root of the loss of business pricing power in the recent years.” (Greenspan in ibid.) If we agree that the rate of profit determines the rate of productive investment, this means that the only source of income (i.e. of wages, salaries, profits, interests, rents etc.) in the economy also tends to fall and therefore weaken. Besides the already mentioned heterodox economists, Kliman (2012) has presented vast empirical as well as theoretical evidence that suggests the causal relationship is indeed “the rate of profit → the rate of produc-tive investment.”

By means of regression analysis, Kliman has calculated, by employing US statistical data from the past four decades, the relationship between these two elements, and he has concluded that the variation in the rate of profit explains 83% of the variation in the rate of productive investment; R2 is 0.83, and thep-value is less than 1/900 trillion, which suggests that chance for this relationship not to really exist is infinitesimally small (ibid., p. 90). His theoretical reasoning is as follows: “Since the rate of profit is the ratio of profit to advanced capital, the rate of accumulation [the rate of productive investment] is equal by definition to the ratio of net investment to profit times the rate of profit. The rate of profit is therefore a key determinant of the rate of accumulation. If all profit were invested, the rate of accumulation would equal the rate of profit, so the rate of profit is es-sentially the maximum rate of accumulation.” (ibid., pp. 88–89; for mathematical derivation of this relationship see n13 on p. 216)

In simplified terms, in a capitalist economy the potential of investment is determined by the rate of profit, i.e. by newly produced value and invested capital. We’ve demonstrated that empirically as well as theoretically. Market competition forces the owners of capital constantly to lower their production costs – they manage this by employing technological innovations that increase productivity – so they can conquer a large market share and consequently larger profit. However, by doing this (lowering costs) they, in the long-run, reduce their own profitability and the profitability of the whole real economy. That is so because higher productivity doesn’t mean that more value is being produced, which would imply that more profits were being produced. It actually means that the same amount of value is produced, but that it is distributed among more (physical) output, between more goods – this is the definition of productivity. But in conditions of disinflation, affirme d to exist even by the economist ideologues, commodities’ values and prices fall; because profits can only be made by producing new and more value, profits and what they determine (e.g. rate of investment) tend to fall. Because productive investments are the only source of an economy’s growth, this means that economic growth will also tend to diminish.

The only way out of the economic crisis we’re in (or any other, for that matter), is mass destruction of existing capital value, which would devalue invested capital and thereby restore the rate of profit and the rate of investment with it. English heterodox economist Michael Roberts – one of the few economists who predicted the Great Recession as early as the mid-2000s – summarizes the operating principl e


of capitalist recovery thusly: “In the natural recovery, the recession reduces the cost of production and devalues capital sufficiently to drive up profitability for those capitalist enterprises still standing. Unemployment drives down labour costs and bankruptcies and takeovers reduce capital costs. Businesses then gradually start to increase production again, and eventually begin to invest in new capital and rehire those in ‘the reserve army of labour’ without a job. This boosts demand for investment goods and eventually workers start buying more consumer goods and recovery get [sic] under way.” (Roberts 2009, p. 271)

Conclusion

All this convincingly suggests that business cycles in capitalist economies are ultimately driven by the objective trajectory of the rate of profit, which tends to fall because of market competition. In other words, the dynamic of business cycles must assert itself, regardless of our (redistributive) policy remedies, because it is determined by an objective process of profit production; political intervention may only postpone, but not end, the crisis. What the ideologues of knowledge economy claim – to solve the current crisis and provide welfare to all – seems unconfirmed and even false. Competition is a zero-sum game, which means it will always postulate winners, whose advantageous position is constituted by others who are less lucky; this can’t be Blair’s famed “prosperity for all.” On top of that, we’ve seen that competition is the ultimate cause of crisis periods, where incomes of all economic agents are falling because of the low rate of productive investment. The knowledge society isn’t a qualitatively new phase of capitalism, because (a) it utilizes no new regimes of capital accumulation, and because (b) it doesn’t fix the underlying structural deficiencies, e.g. periods of mass unemployment and stagnation or falling economic growth, of the system in which we live.

Lastly, we’ve shown that the knowledge society requires knowledge (science and education) to be subjugated under capital, i.e. it is directly and indirectly conformed to the interests of capital accumulation. This happens indirectly by propagating only those kinds of knowledge that produce technological innovations, and by praising schooling practices that produce labor-power, carefully prepared to face uncertain, precarious labor market conditions. This happens as a direct result of privatizing educational and research institutions, so they become market-oriented and produce profit by selling their services.

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