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Instability and unsustainability of cognitive capitalism: reconsideration from a post-Keynesian perspective.

1. Introduction

The theory of cognitive capitalism is based on an economic notion that describes the current economic system and society, and that has established itself. This notion comprises many factors such as immaterial labor, the development of information technology, globalization, the vital role of knowledge in the economy, and financialization, and is affected by the multitude theory, evolutionary economics, regulation theory, and post-Keynesian theory. In the theory of cognitive capitalism, various factors have been studied, but as a macroeconomic framework, post-Keynesian theory remains at the core. The financial crisis of 2008 that followed the worldwide recession and the slow economic recovery illustrate the macroeconomic phenomena commonly seen in the developed countries, and post-Keynesian theory has often tackled and analyzed these problems. In this paper, we reexamine the framework of cognitive capitalism from a post-Keynesian perspective on three points.

The remainder of this paper is organized as follows. In Section 2, we present an outline of cognitive capitalism and investigate especially its macroeconomic regime. In Section 3, we examine the instability of cognitive capitalism regime from a post-Keynesian perspective and show that the instability comes from weak demand and financial instability. We first consider weak demand and then investigate financialization. We do so because financialization influences the whole macroeconomy and plays a vital role. We also focus on affective labor and examine its state and function in the macroeconomy. Section 4 concludes the study.

2. Cognitive Capitalism: An Outline

In this section, we summarize the important framework of cognitive capitalism by referring to Moulier Boutang (2011) and Lucarelli and Fumagalli (2008) (1). Although we focus mainly on the macroeconomic regime, we first discuss immaterial labor, because the transformation of labor is a premise of this new regime. We then investigate the role of knowledge in the economy because this is important in the macroeconomic regime of cognitive capitalism. We analyze the macroeconomy using the framework of regulation theory and examine its characteristics and instability.

2.1 The Transformation of Labor

Before we examine the framework of cognitive capitalism, we first have to investigate the background of cognitive capitalism. The concept of cognitive capitalism was developed in relation to the multitude theory and has come to stay as a socio-economic framework (2). Therefore, the theory of cognitive capitalism assumes the multitude theory. In multitude theory, one of the key ideas is the transformation of labor, with special emphasis on the role of immaterial labor. Immaterial labor is defined as the "labor that creates immaterial products, such as knowledge, information, communication, a relationship, or an emotional response" (Hardt and Negri, 2004, p. 108). Immaterial labor is divided into two types. The first type refers to the "labor that is primarily intellectual or linguistic, such as problem solving, symbolic and analytical tasks, and linguistic expressions" (Hardt and Negri, 2004, p. 108). This type of labor is cognitive. For the other type of labor, see what Hardt and Negri (2004, p. 108) says: "We call the other principle form of immaterial labor 'affective labor'. ... Affective labor, then, is labor that produces or manipulates affects such as a feeling of ease, well-being, satisfaction, excitement, or passion." It is noteworthy that, to quote Hardt and Negri again, "[m]ost actual jobs involving immaterial labor combine these two forms.... immaterial labor almost always mixes with material forms of labor" (2004, pp. 108, 109).

Immaterial labor, especially cognitive labor, has been realized and popularized by the development of information and communication technology; cognitive labor is closely connected with knowledge. The relationship between knowledge and labor and the influence of knowledge on the economy are examined in the next section; we note that there are two new characteristics of immaterial labor. First, the distinction between labor and leisure has become ambiguous. "In the industrial paradigm workers produced almost exclusively during the hours in the factory. When production is aimed at solving a problem, however, or creating an idea or a relationship, work time tends to expand to the entire time of life" (Hardt and Negri, 2004, p. 111). Second, the form of employment not only changed but also diversified and the distinction between the employed state and unemployed state became ambiguous (Hardt and Negri, 2004, p. 111).

2.2 New Features of Cognitive Capitalism: The Role of Knowledge and the Dynamic Economies of Scale

Cognitive capitalism is based on immaterial labor, but the definition of cognitive capitalism states that it "produces knowledge by means of knowledge and produces the living by means of the living. It is immediately production of life, and thus it is bio-production.... Insofar as invention-power (far more than physical labor power) is what is mobilized specifically by cognitive capitalism, this creates a situation in which cognitive capitalism produces knowledge and the living through the production of the population. This production of life can be called "bio-production". And the power that has, as its function, the control of this "bio-production" is called "biopower" (Moulier Boutang, 2011, pp. 55, 56) (3). In the regime of cognitive capitalism, knowledge plays an exceedingly important role; so we have to examine the function of knowledge in the macroeconomy.

Knowledge has many roles in the economy, but in cognitive capitalism knowledge has specific functions and influences the economy in specific ways because of its characteristics. Multitude theory focuses on the immaterial, but the immaterial depends on the new information and communication technology and therefore on "digitalized data" (Moulier Boutang, 2011, p. 50). This means that knowledge is at the center of the immaterial. In recent years, innovation has become exceedingly stressed, and by nature knowledge and science have close relationship with innovation. More specifically, the "appropriation of knowledge and the use of technology are the critical variables of technological progress and innovation" (Moulier Boutang, 2011, p. 51). The appropriation of knowledge has some close relationships with the intellectual property rights and is not simple, but we will explain this later.

In the Fordist regime, the economy of scale is important in that it leads to mass production and mass consumption, but in cognitive capitalism there are two new economies of scale, the "dynamic economies of learning" and the "new spatial economies" (Lucarelli and Fumagalli, 2008, p. 78). While the dynamic economies of learning mean the process of learning by doing and usage and depend on the new information and communication technology, the new spatial economies are related to a given territory and the diffusion of knowledge. It is important to note that in the new spatial economies a territory includes not only the physical domain but also the virtual networks that are on the Internet and generated by the new information and communication technology.

Knowledge influences both the dynamic economies of learning and the economy of space and networks, but to examine the impact of knowledge we have to evaluate the diffusion of knowledge, although it is difficult to directly measure the diffusion of knowledge. However, the extent of knowledge propagation can be estimated from the "efficacy of knowledge (opportunity), the spread and multiplication of uses in the economic system (cumulativeness), and the private appropriation of knowledge (appropriability)" (Lucarelli and Fumagalli, 2008, p. 78). These four factors determine "the knowledge-learning process ([lambda]) and network economies (k). The variable [lambda] depends on the degree of cumulativeness, opportunity and appropriability. Generally, opportunity is defined as the expected rate of profit (Pe). The variable k is supposed to depend on the income level (Y) and positive externalities (E). ... [lambda] is constrained by intellectual property rights" (Lucarelli and Fumagalli, 2008, pp. 78, 79).

The macroeconomic relations centered on knowledge are summarized as follows. The investments of an economy are determined by the income of the previous period, and the knowledge-learning processes ([lambda]) and network economies (k) are affected by the investments. The network economies are enhanced by the growth of income and effect of externalities, while the knowledge-learning processes are enhanced by the expected growth rate of profits and weakened by the powerful claims for the intellectual property rights. These two effects increase the profits and income of the economy, and develop this virtuous circle based on knowledge in cognitive capitalism.

In cognitive capitalism, there is another important macroeconomic relation that depends on knowledge. The "cumulativeness of knowledge and the speed of its diffusion necessarily imply increasing returns to scale" (Lucarelli and Fumagalli, 2008, p. 78). The economies of learning and network increase productivity, and there is a positive relationship between productivity and investments. These new economies of scale are realized through research and development and the diffusion of knowledge; this process is called the dynamic Kaldor-Verdoon law (Lucarelli and Fumagalli, 2008, pp. 86, 87) (4).

We analyze the effect of knowledge on the macroeconomy, but we have to investigate the relationship between immaterial labor and knowledge in detail. With the development of cognitive labor and knowledge, the traditional distinction between capital and labor becomes obscure (Moulier Boutang, 2011, p. 53). To evaluate the productivity of knowledge, a new division of cognitive inputs into four categories become necessary: "hardware (machinery), software (computer process), webware (attention and brain activities) and netware (networks stimulated by computer process and brain activities)" (Lucarelli and Fumagalli, 2008, p. 83) (5). Webware and netware are connected with cognitive labor. More specifically, webware includes attention and brain activities; the living commodities and knowledge commodities are produced by the webware and the individual living labor, where the externality of learning acts and the returns are constant or increasing; the collective commodities and knowledge commodities are produced by a collective living labor, that is, the cognitive and cooperative division of labor using netware as input. Therefore, the returns increase as a result of the effects of network externalities.

There is a close relationship between the transformation of labor and production, especially in the changes of firm and inter-firm organizations. This transformation is caused by the development of the new information and communication technology, and changes in the role of knowledge. In post-Fordism, the labor of Fordist regime has to be changed, for example, and the Smithian division of labor has to be reexamined. As quoted by Moulier Boutang, "specialization as a function of market size loses its relevance in a world of small series of production, in an 'economy of variety'" (Moulier Boutang, 2011, p. 52) (6). A small lot of production is a way to respond to uncertainty of demand, and as a whole production system, flexible and lean production system is aimed. This new production system, of which the Toyota production system is typical, has become possible through the new information and communication technology. While this system has been developed for dealing with the uncertainty of demand, a lean production needs flexible employment and is itself a factor of instability.

2.3 The Accumulation Regime of Cognitive Capitalism

In the framework of cognitive capitalism, the cognitive aspect of economic and social mechanism is the central point and has two roles to play. The first role involves the growth of immaterial labor that includes the cognitive labor explained above. The second role relates to the knowledge that affects the whole economy. In this subsection, we analyze the macroeconomic regime based on knowledge and immaterial labor.

The peculiar macroeconomic structure of cognitive capitalism is explained through a regulation approach (7). Cognitive capitalism is defined as an accumulation regime of post-Fordism. The characteristics of Fordism have to be first examined before analyzing their difference with post-Fordism. The characteristics of Fordism are as follows. First, the division of labor is based on Taylorism, which separates conception from execution, and the dominant organization is hierarchical. Second, a specific macroeconomic relationship assures the growth of effective demand through the redistribution of the benefits of rising productivity among the workers; this point will be discussed in detail later. Third, the mass production of standardized durable goods and mass consumption supported the accumulation regime and also the system of collective bargaining and welfare state form the institution that maintains the redistribution (Lucarelli and Fumagalli, 2008, p. 75).

The growth regime of Fordism, or the macroeconomic link, is composed of three channels. In the first channel, the growth of productivity through technical innovation induces a rise in real wages and consumption is stimulated by a high wage level. In the second channel, there is an expansion of investments due to increased consumption, productivity improves, and the total demand induced by increased consumption increases the outputs. In the third channel, there is an increase in demand, which improves productivity by increasing returns and economies of scale. This leads to economic growth through mass production and mass consumption.

These macroeconomic relations do not emerge automatically, but the institutions and behavior of the macro groups such as the firms and consumers regulated by the institutions effectuate the macroeconomic channels into an established form. Therefore, the macroeconomic relations are always regulated by institutions and the behavior of the macro groups. With regard to the regulation or coordination of Fordism, we note three points. First, the reason for the wages to rise along with increases in productivity is that this mechanism was institutionalized or became a practice as a productivity-indexed wage. This wage system was supported by the collective bargaining and the compromise that materialized between labor and management. Second, when there is an increase in consumption increases and investment is stimulated, the demand will increase because the firms behave like the so-called investment functions based on the acceleration principle. Third, increases in demand induce the rise of outputs as a result of the effective operation of increasing returns and the economies of scale.

The regime of Fordism was relatively stable, but it began to tremble from the latter half of the 1960s and collapsed thoroughly, driven by the Nixon shock and the oil shock, in the early 1970s. Although these shocks are only the moment of the end of the Fordist regime, the factors of breakdown were "rising trade union conflicts, the saturation of the durable goods markets, the increasing price of raw materials" (Lucarelli and Fumagalli, 2008, p. 76).

After the impasse of the stable regime of Fordism, a regime of post Fordism was explored, but a leading system could not be established until the 1990s. Regulation theorists call this new regime the finance-led growth regime. Although the important characteristics of this regime are clearly based on finance, its main macroeconomic channels also comprise the new dynamic economies of scales based on knowledge and networks. Therefore, we call the new regime cognitive capitalism.

Cognitive capitalism is not only a finance-led system but also it has a new macroeconomic channel of dynamic increasing returns based on knowledge and networks although it is unstable unlike Fordism. In cognitive capitalism, the economies of knowledge and networks that depend on the adoption of the new information and communication technology induce the growth of productivity, and execute the production of immaterial goods and also the generation of profits and rents (8). Investments are made from the realized profits and rents, and the dynamic economies of scale operate on account of these investments and productivity rises. Thus, in this system there is a possibility of the virtuous circle.

In the Fordist regime, the distribution of increased productivity or the compromise between labor and management is the factor that regulates the macroeconomic circuit of Fordism, but this mechanism is absent in the cognitive capitalism. However, another trade-off relationship appears in this new regime. This is not a simple trade-off relationship between wages and profits but an effect of excessive claim for intellectual property rights on the increase of productivity. "The novelty of C[ognitive] C[apitalism] is that while the unfair income distribution, or that lower income level, threatens to reduce the ability to generate knowledge, the excessive appropriability of technologies can lead to a lower diffusion of knowledge and learning" (Lucarelli and Fumagalli, 2008, p. 86). In cognitive capitalism, unlike Fordism, the institutional factor that regulates income distribution is practically absent and a scheme to settle the state of intellectual property rights is still in the formation stage and rather ambiguous.

Cognitive capitalism regime is inherently unstable on account of three reasons. First, the transformation of labor and employment causes the fragility of this regime. The increase of immaterial labor, meaning the rise of unstable employment and non-regular employees, and the decline of the collective bargaining power of Fordism waken the relationship between productivity and wages. On the other hand, despite large increases in productivity, the outcome of the increased productivity is not distributed to the workers and income inequality tends to rise. Thus, the wages in cognitive capitalism are relatively low, and the level of consumption unstable and sluggish.

Second, the financial market plays a more crucial role in cognitive capitalism than in Fordism. In the regime of cognitive capitalism, the relationship between a rise in productivity and wages is not clear, but there is a financial macroeconomic channel that supplements unstable wage income and demand. Therefore, the "financial markets play a multiplier role on aggregate demand" (Lucarelli and Fumagalli, 2008, p. 82). The specific roles of finance are characterized by three macroeconomic channels. First, the rise of asset prices, like the stock, land, and housing prices, leads to the rise of financial returns, and also to the increase of household financial income. Then, consumption is stimulated and demand increases. Second, although the rise of asset prices stimulates investments, in contrast to Fordism, real investments can be constrained, because the volume of real investments is always compared with the volume of financial returns. Third, increases in consumption and investment induce the total demand to rise, and this could cause the profits also to rise. Thus, a virtuous circle in which the rise of asset prices corresponds to increased profits is materialized. These macroeconomic channels can be regulated by corporate governance that affects the points where a rise of asset prices produces increases of financial returns. The firms raise their dividends and tend to have a management that raises stock prices because of the increased influence of the stock markets (Boyer, 2004, Yamada, 2011).

These macroeconomic channels are unstable for the following reasons. First, the source of growth is the rise of asset market prices, but asset price inflation is not permanent and is itself unstable. Second, both the domestic financial market and also international markets affect the domestic economy, because in recent years, owing to the liberalization of capital movements, funds from foreign countries flow into domestic markets. Therefore, any instability of the domestic and international financial markets can directly affect the whole macroeconomy. Third, financial income is polarized just as well as wage income. This means that even if the asset markets grow dynamically, the growth of consumption demand based on financial income would be small.

However, the role of finance needs to be paid attention. Although the finance-led growth regime is realized only in the U.S., and also in the U.K. to be precise, the factors that constitute a finance-led regime exist in other developed countries too (9). Therefore, in the framework of cognitive capitalism, the role of finance is important, but the macroeconomic regime is not simply finance-led, and the financial macroeconomic channels are supplementary except in the U.S. (Yamada, 2011).

Third, the development of globalization has a number of influences on the macroeconomy. Outsourcing and the globalization of production are actively pursued, but the developed countries are highly dependent on the high growth rate of emerging industrial countries like BRICs. The economies of these emerging countries and part of the developed countries like Germany and Japan are export-led growth regimes. The exports of a country are largely determined by the economic activity of its trade partners. As already mentioned, globalization of finance is one of the causes of instability, but the globalization of production also causes instability of these regimes.

3. Reexamination of Cognitive Capitalism

The outline of cognitive capitalism has been presented above, and we now reexamine the three points at issue. Cognitive capitalism is unstable as mentioned above, and is also practically unsustainable. The financial crisis of 2008 has proved the instability of this regime, originating in financial aspects especially in the U.S.; other developed countries affected by the financial crisis are even now under depression, and recovery is slow even in countries where the financial institutions are relatively sound, like Japan. Employment is unstable in cognitive capitalism because the new production system has to cope with uncertain demand, and this unstable employment enhances the disparities of income, and the level of consumption becomes vague. Income from the financial market supplements wage income, but the sustainability of the regime is weak owing to instability of the financial markets. The influence of globalization increases in comparison with Fordism, and especially in cognitive capitalism the level of demand depends on the high growth of the emerging countries.

The causes of instability in cognitive capitalism are weak demand and financial fragility. Financial fragility is connected to financialization, which is one of the characteristics of cognitive capitalism. Although the importance of financialization is fully recognized nowadays, the role and functions of financialization in cognitive capitalism regime are not sufficiently investigated. While immaterial labor is the basis of cognitive capitalism, cognitive labor, which is included in the immaterial labor, is paid the most attention. However, affective labor is important and is related to the problem of weak demand. In the following subsections, we first, investigate the weakness of demand, then analyze financialization, and finally examine affective labor.

3.1 Weak Demand

Apart from the instability originating in financial markets, the cause of fragility of cognitive capitalism is "the absence of the wage-productivity nexus" (Lucarelli and Fumagalli, 2008, p. 82), leading to weak demand. While a mass production-mass consumption virtuous circle existed in Fordism and is supported by a productivity-indexed wage, mass production and mass consumption do not play leading roles in cognitive capitalism and the institutional constellation remains largely changed. The collapse of the correlation between increases in productivity and wages is clearly the main reason for the weakness of demand, but there are other factors that produce weak demand in cognitive capitalism. In this section we analyze them one by one.

First, the difficulties of mass production constitute one of the characteristics of cognitive capitalism. The diffusion of consumer durables or a more general saturation of demand indicates that the demand has become unsteady and changeable. The second factor is changes in the production and employment systems, with unstable employment increasing to cope with the fluctuations in demand, especially non-regular employment becoming a normal condition, and the diffusion of a lean production system. The wages of non-regular employment are generally restrained and low, and this necessarily leads to weak demand. The third factor leading to weak demand is the increase of income disparities. The polarization of wages has in turn two causes. One is the expansion of non-regular employment, and the other is the high remuneration of management and executives. The phenomenon of polarized wages is an issue of the wage system. More generally, in cognitive capitalism the compensation for labor is not estimated by physical productivity alone and contains some ambiguities. Under the harsh global competition of cognitive capitalism, obscure compensation means low wages. The forth factor is the deterioration of the institutions that complement wage income, such as income redistribution and the welfare state. Income redistribution and social securities still function, but these social expenditures are restrained owing to neo-liberal tightening policies. These tightening policies constitute the fifth factor of weak demand and are composed of not only fiscal austerity but also monetary restraint. A fiscal tightening policy tries to achieve a small government and sound finance, while the aim of the monetary policy at present is the suppression of inflation. Inflation--targeting policies have become pervasive, but it is the deflationary policy and the objective of full employment has been practically abolished (10).

In cognitive capitalism, although the total demand is weak due to disintegration of the institutional constellation of Fordism that supports income, the reason for a macroeconomy to prosper seems to be that financial income and favorable exports supplement the deficiency of demand. Both the income from financial markets and export demand are unstable, and therefore the instability of the whole regime is inevitable.

3.2 The Role and Position of Financialization

Financialization is one of the characteristics of cognitive capitalism, but its role and position are rather ambiguous. Before we examine financialization in this regime, we have to reconsider the definition of financialization, because its meaning is wide and vague to a certain extent. According to Epstein, "financialization means the increasing role of financial motives, financial markets, financial actors and financial institutions in the operation of the domestic and international economies" (2005, p. 3). This definition is extensive, but there are two aspects, one quantitative and the other qualitative. With regard to financialization, the quantitative aspects are often paid attention, but the quantitative expansion of financial aspects also accompanies financial bubbles, and after a financial crisis, the financial quantitative indicators to a certain extent return to the level that existed before the bubbles (Minsky, 1982). Before the financial crisis of 2008, in some developed countries like the U.S. and the U.K., the financial sector expanded quantitatively, but in Japan after the bubble of the late 1980s, the financial sector suffered a severe blow and did not recover fully (Nishi, 2012). Although we cannot rely on quantitative indicators, financialization seems to progress. Therefore, we investigate the other aspects of financialization, that is, qualitative conditions (11).

The transformation of the financial sector in cognitive capitalism is analyzed in the "financial economy of production" (Fumagalli and Lucarelli, 2010). This is a framework of money and finance that can be used to compare cognitive capitalism with Fordism. This concept is developed from the theory of monetary circuit, in which the macroeconomy is explained based on bank money and credit (12). In this theory, the macroeconomy is appreciated as a monetary circuit as follows. A commercial bank lends money to a firm that needs investment funds, and the firm makes outlays for investments and wages and produces goods. The wage-earners buy the goods produced with their wages, and the firm receives the proceeds of sales and repays its bank borrowing. This process shows the circuit of money that is created by the banks and used by the firm and wage earners, and finally extinguished by reflux to the bank. In this process, money is endogenous and bank money is depicted. This is a monetary system of industrial capitalism and thoroughly applicable to Fordism. Here we have the credit channel of money supply, as well as the state finance channel and the balance-of-payments channel. The state finance channel is supplied by public debts, and it plays an important role in Fordism, but the balance-of-payments channel is comparatively not important in post-Fordism.

In cognitive capitalism, financialization, that is, the increased importance of financial markets, is an essential feature, and the system of money is no longer a simple monetary economy of production. This new regime of money and finance is the financial economy of production. In the financial economy of production, there are three new characteristics. First, the development of a financial market means not only its quantitative expansion but also its increased influence on the macroeconomy as a whole. In a simple monetary economy of production in Fordism, the role of the financial markets is complementary and necessary for the closure of monetary circuit. In the monetary economy of production, if the wage-earners do not consume all their income, the residue is saved in a bank in a pure credit economy. This means that the savings of wage earners assume the form of bank deposits and the firm holds unsold goods and is not able to repay all its borrowing to the bank. If the firm issues bonds to raise its shortage of funds and the wage earners buy the bonds, the firm is able to repay the whole of its borrowing; this is executed in the financial market. In cognitive capitalism, a firm raises funds not only from the bank but also from the financial market and the wage earners depend more on consumer credit from banks and other financial institutions. Financial markets also expand due to the rise of financial investments, and firms and investors participate in the financial markets and actively trade in financial commodities.

Second, in addition to the three channels of money supply, we have the financial market channel (Fumagalli and Lucarelli, 2010, p. 32; Fumagalli and Lucarelli, 2011, p. 61). This is a channel in which the money created in the financial markets circulates. Fumagalli and Lucarelli relate the channel with "the buyout and merger of other firms by pursuing a strategy of growth and control of markets and also to avoid bothersome competitors" (Fumagalli and Lucarelli, 2010, p. 33). Although mergers and acquisitions are important purposes of funds, various investment activities are also stimulated. These financial investments usually make use of leverage, and if the investments prove successful, the firms make financial gains and money is created. New financial commodities, such as securitized commodities, are developed in the financial market vigorously, and this financial innovation creates near money that can be used expediently almost in the same way as money and consist of money supply (Minsky, 1982, Pollin, 1991, Wray, 1990) (13). This channel already existed in Fordism, but it has now become an important channel in cognitive capitalism both quantitatively and qualitatively.

Third, another feature of the financial economy of production is the increased influence of the international financial market. This means that the balance-of-payment channel of money supply has come to affect the domestic economy. Especially, the investments of one country tend to be dominated by reputation of the country and the policy of the country is influenced by the international financial market. Globalization exerts an influence on both the financial market channel and state finance channel. With regard to the financial market channel, foreign investors actively enter and trade. The state finance channel is also affected by foreign investors, and this phenomenon could occasionally lead to the severe problem of sovereign debt.

The framework of the financial production economy is an analysis of financialization from the perspective of money and credit, and the role of financialization in the macroeconomic relations is not examined sufficiently. With regard to financialization Moulier Boutang says as follows: "Finance can be said to be the only way of 'governing' the inherent instability, which have been known for a long time, and even if the weight gained by finance within globalisation changes the scale of problems as well as the possibilities for re-equilibration that are habitually assigned to it" (Moulier Boutang, 2011, p. 136). Finance has come to plays the role of "governing" the whole economy, and Moulier Boutang gives several examples. First, although the production of immaterial goods and intangible assets has increased in cognitive capitalism, the evaluation of these goods is difficult. The introduction of market-value accounting is one of the means of settling, and in this method value of goods is evaluated by the financial market. The other example is the concept of "goodwill". Goodwill "records the positive difference between the value found in stock exchange transactions ('fair value off the books') and the value as determined by the accounting books ('in the books')" (Moulier Boutang, 2011, p. 140). In these examples, the financial market is introduced for estimating the value of what is difficult to determine.

Second, the employment system has changed significantly from Fordist regime. Wage is no longer productivity indexed, and the level of wages has come to depend on the relation between the supply and demand of the labor market. Non-regular employment has increased and the volume of atypical employment is affected by the short-term supply and demand of the labor market. In addition to non-regular employment, "para-subordinate work" has developed. "In para-subordinate waged work--or self-employment, or second-generation autonomous work--the personal relationship of subordination to the employer is eliminated; here subordination is maintained through a supply contract provision, which falls within the commercial market rather than within a labour market supervised by the labour code" (Moulier Boutang, 2011, p. 142). It seems that the increase of this new form of employment is due to the expansion of the market mechanism, and financialization is almost the same as the expanded sphere of a market, but the reason for the increase of a particular kind of contract work is not only due to the transformation of the employment system from aggravation of competition but also the difficult estimation of remuneration of work related to the next point. Third, "[t]here is, therefore, in the production of knowledge or of information goods ... a fundamental uncertainty ... Price formation then borrows the mechanism Andre Orlean has highlighted as operating in financial speculation: that of forming a common opinion among the agents. ... There is therefore a strong correlation between the formation of the value of a cognitive good and the financial assessment of a stock exchange asset" (Moulier Boutang, 2011, pp. 144-145). As an example, Moulier Boutang mentioned the biotechnological industry, whose value is estimated in the emergent stock market, or the second market like NASDAQ, for financing deficit firms.

These examples and the roles of financialization described by Moulier Boutang are important aspects of cognitive capitalism, but financialization has an additional role of governing macroeconomic growth regime. This role is the corporate governance already mentioned. Financialization influences every part of the macroeconomy, and this phenomenon is analyzed in the framework of the financial production economy, but the state of corporate governance affects the management of firms and the determination of wages. This function of corporate governance is the same position as that of a compromise between labor and capital in Fordism and plays a crucial role. In Fordism a compromise can result in a productivity-indexed wage and guarantees sufficient demand and mass production, but in cognitive capitalism, the function of corporate governance is wider and complex. Corporate governance can greatly influence determining the volume of dividends and wages, meaning that corporate governance sets both the channels of wage demand and financial income demand in a macroeconomic regime. Moreover, corporate governance also affects investments, because investments are made from the profits of firms and dividends are paid out of the profits. Thus, corporate governance affects the management strategy of firms, but the mode of influence differs owing to various institutional constellations and economic conditions. Therefore, an analysis of corporate governance is essential to the study of cognitive capitalism.

The reason for the development of financialization in cognitive capitalism has to be examined, but this is not easy. According to Moulier Boutang, financialization is necessary because we have to cope with instability or uncertainty in cognitive capitalism, although financialization itself is one source of instability. In the example explained above, financialization is considered as the expansion of utilization of the financial market, but in this argument financialization can be reduced to the intensification of subsumption of the market. Subsumption of the market is an important concept applicable to cognitive capitalism, but the role of financialization is not limited to this concept. The origin of financialization is related to the Foucauldian concept of "bio-politics" introduced by Negri and Moulier Boutang. "In the cognitive capitalism school of thought, flexible production and financialisation are both seen as being subordinate to the achievement of permanent innovation. ... Transformations in the role of money and funds in economies should be read, in this context, as manifestation of a new 'governmentality' of capitalism, to use Foucauldian vocabulary, or 'governance,' to use the vocabulary of the world of finance" (Moulier Boutang, 2011, p. 139). Therefore, financialization consists of the governmentality or mode of governance of cognitive capitalism, and the relation between financialization and bio-politics needs to be examined.

In cognitive capitalism, knowledge plays a crucial role in the production of physical and immaterial goods, and the humans producing knowledge tend to be focused on and become the object of power and policy. This situation is called bio-politics and bio-power which have already been explained. The reason why financialization is inevitable in the regime of bio-politics is investigated by Foucault in his The Birth of Biopolitics in 1978 and 1979. Foucault targeted the theory of human capital in his analysis of American neo-liberalism; in this theory, the worker is considered "a machine that produces an earnings stream ... This is not a conception of labor power; it is a conception of capital-ability which, according to various variables, receives a certain income that is a wage, an income-wage, so that the worker himself appears as a sort of enterprise for himself (Foucault, 2008, pp. 224, 225). Therefore, the worker becomes an agent of the same quality of enterprise and makes investments. Foucault further explained this argument referring to the example of migration. "Migration is an investment; the migrant is an investor. He is an entrepreneur of himself who incurs expenses by investing to obtain some kind of improvement" (Foucault, 2008, p. 230). Thus, in a neo-liberal economy the wage earners invest for themselves and make financial calculations. This means that in cognitive capitalism individuals are necessarily involved in financialization. Therefore, not only entrepreneurs and rentiers but also wage earners behave like investors and internalize financial calculations.

3.3 Cognitive Labor and Affective Labor

The important characteristic of cognitive capitalism is the magnification of immaterial labor. Cognitive labor, which comprises immaterial labor, is related to knowledge and plays a vital role in the production system that uses knowledge, whereas affective labor is actually important in the economy. An increase in affective labor is connected with the rise of non-regular employment and low-wage labor and therefore becomes the cause of income disparities. The division of labor has changed due to the transformation of labor, but the division of labor itself is not simple in cognitive capitalism. In Fordism, the "classic sequence of conception/production/ marketing" (Moulier Boutang, 2011, p. 52) existed, and this process roughly corresponds to the division of labor. The task of conception is executed by cognitive labor, and production is practiced by physical labor. This division also corresponds to the distinction of skilled and unskilled labor, and the task of marketing is carried out by affective labor. Whereas in Fordism the process of production and type of labor are related, in cognitive capitalism, except for simple unskilled physical labor, each process of production has the factor of immaterial labor in varying degrees. The cognitive aspects and affective aspects of immaterial labor are not separated clearly, and most of the labor therefore becomes affective labor.

Although affective labor is important in cognitive capitalism, it seems that the theory of cognitive capitalism mainly focuses on cognitive labor and has a rather optimistic view of the state of labor. According to Federici, "Compared with assembly-line work, 'affective labor' may appear more creative, as workers must engage in a constant re-articulation/reinvention of their subjectivity, choose how much of their 'selves' to give to the job, mediate conflicting interests. But they must do so under the pressure of precarious labor conditions, an intense pace of work, and a neo-Taylorist rationalization and regimentation of work that one would have imagined foregone with the decline of the Fordist regime" (Federici, 2011, p. 68). In cognitive capitalism, cognitive labor is also clearly unstable, but as a macroeconomic regime, the burden of coordination lies heavily on affective labor. For example, the precariousness of affective labor is one of the causes of weak demand. The state of affective labor and the relationship between affective labor and the employment system need further studies in detail.

4. Conclusions

In this paper, we examined the regime of cognitive capitalism mainly from a post-Keynesian perspective. Our conclusions are threefold.

First, one of the causes of instability in cognitive capitalism is the weakness of demand, and we examined this in detail. The main factor of weak demand in a macroeconomic regime is the lack of an adequate wage-productivity nexus, resulting in relatively low wages and therefore a low level of demand. Although the coordination of wages is important in a macroeconomic regime, weakness of demand can be brought in by many factors, such as saturation of demand, the increase of non-regular employment, polarization of wages, the regression of welfare states, and tightening policies. Financial income and export demand can supplement a weak demand, but these sources are themselves unstable and unreliable and the instability of the whole macroeconomic regime could rather become amplified.

Second, another cause of instability in cognitive capitalism is financialization. We reconsidered the role and position of financialization in this study, because the function of financialization is rather wide and vague. Financialization has both quantitative and qualitative aspects, but although the quantitative aspect is related to the financial bubble and crises, financialization cannot always be estimated by using quantitative indicators. In order to examine the qualitative aspect, we first analyzed the framework of the financial economy of production. The characteristics of financialization is that, first, not only the firm sector but also the household sector involves the financial market and the financial investments has become active; second, the financial market channel as a money supply channel tends to play an important role; and third, the influence of the international financial market increases. These new features are related to the monetary and financial economy, and the place of financialization in the macroeconomic regime is the corporate governance that affects the firms' behavior through the stock market. The corporate governance functions not only the same role of a compromise between labor and capital in the Fordism regime, but also influences the whole strategy of firms. Financialization has a crucial role to play in cognitive capitalism because, according to Moulier Boutang, financialization is the governing position of the economy, and, according to Foucault, even a worker becomes an enterprise and an investor who invests for himself and exercises financial thinking.

Third, affective labor is important in cognitive capitalism, but this has not been paid sufficient attention compared to cognitive labor. In cognitive capitalism, most labor has some affective aspects, but affective labor is connected with non-regular employment and a low level of wages. Precariousness of labor is often pointed out in cognitive capitalism, but affective labor is typically precarious labor and also the cause of weak demand.

NOTES

(1.) For cognitive capitalism, see Moulier Boutang (2011), Fumagalli and Lucarelli (2007, 2010), Lucarelli and Fumagalli (2008), Peters and Bulut (2011), and Cvijanovic et al. (2010).

(2.) For multitude theory, see Hardt and Negri (2000, 2004, 2009), Marazzi (2008, 2011), Fumagalli and Mezzadra (2010), and Virno (2004, 2008).

(3.) For "invention-power", see Lazzarato (2004).

(4.) The law of Kaldor-Verdoon gives the positive correlation between labor productivity and volume of output. The English translation of Verdoon's original paper is contained in McCombie et al. (2002).

(5.) In Moulier Boutang (2011), "wetware" is used for "webware." In this classification netware is added to the classification of hardware, software, and wetware in Nelson and Romer (1998). The original definition is as follows: "Hardware includes all the nonhuman objects used in production--both capital goods such as equipment and structures and natural resources such as land and raw materials. Wetware, the things that are stored in the "wet" computer of the human brain, includes both the human capital that mainstream economists have studied and the tacit knowledge that evolutionary theorists, cognitive scientists, and philosophers have emphasized. By contrast, software represents knowledge or information that can be stored in a form that exists outside the brain" (Nelson and Romer, 1998, p. 51).

(6.) For "economy of variety", see Boyer (2004).

(7.) For a regulation approach, see Boyer (2004).

(8.) In cognitive capitalism, the distinction between rents and profits becomes ambiguous. For the importance of rent, see Marazzi (2011) and Vercellone (2010).

(9.) In developed countries, at least corporate governance has been intensified and its influence on the management of firms is strengthened.

(10.) For a critique of monetary policy including inflation targeting, see Lavoie and Seccareccia (2004), Arestis et al. (2005), and Epstein and Yelden (2009a). In particular, Epstein and Yelden (2009b) indicate the deflationary nature of inflation targeting.

(11.) In the qualitative studies of financialization, Lazzarato (2012) emphasizes the role of debt and it is interesting, but we focus on the role of financialization in macroeconomy.

(12.) For monetary circuit theory, see Rochon (1999) and Graziani (2003).

(13.) This phenomenon is called "financial innovation" and analyzed by Minsky (1982) and structuralists like Wray (1990) and Pollin (1991), who introduced this phenomenon into the endogenous money supply theory. Therefore, "financial economy of production" seems to be a structuralist version of the theory of monetary circuit.

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Atsushi Naito is Associate Professor of Economics at Ohtsuki City College. He graduated from Hitotsubashi University, where he also received his Master's degree and Ph.D. in economics. His major fields are post-Keynesian monetary theory and the history of economic thought. He wrote The Reconstruction of Endogenous Money Supply Theory: A Post-Keynesian Approach to Money and Credit (Naiseitekikaheikyokyuuriron no Saikouchiku, 2011). His recent studies encompass the relationship between financialization and cognitive capitalism, monetary policy, and Keynes's economic thought.

ATSUSHI NAITO

naito@ohtsuki.ac.jp

Ohtsuki City College
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Date:Jul 1, 2013
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