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Buying time : Where now for capitalism and democracy? [Part 1]

by eurogreen Fri Aug 15th, 2014 at 12:53:53 PM EST

Wolfgang Streeck, leading figure of the Frankfurt school of philosophy, has published an incisive and compelling analysis of the interplay between capitalism and democracy in the developed world over the past forty years or so : Buying Time : The delayed crisis of democratic capitalism.

Eurotrib having been offered a copy, I have undertaken to review it. I feel suited to the task because I have nothing but an autodidact's random smattering of economics, sociology and philosophy, and will mostly restrict myself to a naïve synthesis of Streeck's theses, leaving my far more erudite and insightful readers to do the serious work. I will resist quoting directly from the text because I wouldn't know where to stop; everything is eminently quotable, written with admirable clarity and humour, nicely translated, a constant pleasure to read.

The book, based on the 2012 Adorno lectures, was published last year in Germany, and the English translation (by Patrick Camiller) has just been published by Verso, an imprint of New Left Books. It can be ordered in physical form from the publisher, or electronically from Amazon, iTunes, or Nook. (Yes, it's buying "Buying time" time).

The three chapters correspond to the three lectures on which they are based. Despite the book's relative brevity (less than 200 pages, excluding the extensive bibliography and index) I propose to do a diary on each chapter; each one is of sufficient density to merit discussion.

front-paged by afew


Chapter one: from legitimation crisis to fiscal crisis
Capitalism and democracy were a powerful couple during the "trente glorieuses" post-WWII years. Expectations of economic growth, full employment and increasing prosperity became so entrenched that the fundamental antagonisms between the two were overlooked, or even deemed to have been definitively relegated to the dustbin of history. This, indeed, was the dominant view of the Frankfurt School during Streeck's formative years.

The book's introduction, "Crisis theory : then and now" deals with this historically embarrassing mis-analysis. Jürgen Habermas, in particular, developed the notion of the "legitimation crisis",  postulating that people expect governments to intervene successfully in the economy to try and ensure economic prosperity, and that failure would cause the validity of the capitalist system to be questioned, thus undermining its legitimacy. Streeck presents his book as an attempt to rehabilitate crisis theory, explaining that the postulated legitimation crisis is now upon us... forty years later, having been pushed back by our governments' successive, and moderately successful, attempts at buying time.

In fact, the end of the post-war boom indeed led to a legitimation crisis --  but it was not the workers/consumers/electors who revolted. It was capital.

The notion of "Late Capitalism" has been around since the beginning of the 20th Century. But the predicted demise of capitalism is late, and keeps getting later. The error committed by the neo-Marxian Frankfurt thinkers, in Streeck's analysis, was to have considered capital as a resource, more or less biddable and accountable to democracy. Of course, as they should have known, capital is an actor, particularly in class struggle.

Streeck outlines several phases in the attempts by governments, more or less in unison, to buy time for their socio-economic model subsequent to the boom years :

  1. Inflation
    In the 70s, productive investment started to fall short of what was required for full employment. Inflationary monetary policy was the first ploy to buy time, accommodating wage rises in excess of productivity growth. But the replacement of real growth with nominal growth lost its charm with stagflation in the late 70s, which put a squeeze on profits and threatened to lead to a capital strike.

  2. Public debt
    The monetarist revolution of Reagan, Thatcher and imitators put capital back in the driver's seat. The recession they provoked, with its mass unemployment, did however require additional revenue to keep the wheels turning, and governments resorted massively to borrowing.

  3. Private debt
    In the 1990s and 2000s, slashing of public services and reduction of public debt was accompanied by an explosion of private debt.


Each of these phases is seen by Streeck as a means of conjuring money out of nowhere, in order to enjoy the benefits of growth in excess of growth itself. The financial crisis of 2008 is seen as the final reckoning, the democracy/capital nexus being confronted with its contradictions.

According to Streeck, democracy and capital were forced by circumstances into an arranged marriage after WWII. But each successive crisis entailed the progressive emancipation of capital from democratic constraints. Self-regulated markets were alleged to function efficiently, and government intervention in economic matters was de-legitimised. This ideology is now so dominant that it is hardly even questioned after the massive nationalization of private losses which was imposed on the citizen/taxpayer as the price to prevent economic collapse in the recent crisis.

In  chapter 2, "Neoliberal reform : from tax state to debt state" Streeck analyses the crisis of public finances and its origins (surfeit of democracy, or neoliberal transformation?). In chapter 3, "The politics of the consolidation state", European integration as a liberalizing machine is put on the grill. I intend to post diaries on each of these as time (and your interest) allows, and a discussion of his short final chapter, "Looking ahead" would be nice too...

Ladies and gentlemen, start your engines.

[ED Part Two is here]

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Thanks for kicking off, eurogreen.

European Tribune - Buying time : Where now for capitalism and democracy? [Part 1]

In the 70s, productive investment started to fall short of what was required for full employment. Inflationary monetary policy was the first ploy to buy time, accommodating wage rises in excess of productivity growth. But the replacement of real growth with nominal growth lost its charm with stagflation in the late 70s, which put a squeeze on profits and threatened to lead to a capital strike.

Does Streeck advance an explanation for that original '70s shortfall of productive investment? I mean, if the stagflation squeeze on profits led to the risk of a "capital strike", it might be said that one capital strike had led to another...

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Aug 15th, 2014 at 12:58:26 PM EST
How does he define 'productive'? I think we need to differentiate between investments that are profitable and investments that are productive in an environment where inflation is equal to or greater than 0. For instance, the capital required to pay for the education, (USA), and the cost of setting up a medical practice will be significant, but only a small fraction of the earnings to be expected over 30 years. Likewise with wind farms and automobile manufacturing facilities. But where is the productivity from 'investing' is oil futures, the effect of which is to enable the oil to be sold at a higher price by allowing oil companies to keep oil in the ground while still getting paid for it? Likewise for investments in real estate, given the ability to generate asset price bubbles.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Aug 15th, 2014 at 01:56:05 PM EST
[ Parent ]
How does he define 'productive'?

In this context, strictly according to capital's own criteria : high rate of return on investment, with minimal risk. The capital/democracy couple is posited to have functioned reasonably well for as long as governments' objectives coincided with those criteria : i.e. there were enough low-hanging fruit to satisfy everyone.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Sun Aug 17th, 2014 at 08:54:09 AM EST
[ Parent ]
This is really important IMO.

There's still no meaningful consensus on "what happened in the 70s" - and yet nailing down this cause is vital to understanding everything that follows.

Were the "Trente Glorieuses" doomed to end? Or were they ended by pressures (and resulting actions) that could have be turned to different outcomes?

(Shortfall of productive investment sounds like a very interesting starting point.)

by Metatone (metatone [a|t] gmail (dot) com) on Sat Aug 16th, 2014 at 05:56:47 AM EST
[ Parent ]
Economically, the Americans finished consolidating their empire.

As long as they were (re)building, there was investment opportunities excess of maintenance and whatever upgrades were offered by technological progress.

Once the empire reached its maximum extent, growth could only happen as a consequence of technical innovation. And so both the volume of investment opportunities fell, and the share of investment going into maintenance rather than new growth increased.

The game changed from being revenue creation to being revenue capture.

Politically, this happened to happen at the same time peak US continental oil shifted the Texas oil companies from the "full employment" camp to the "deregulation" camp.

And the rest is history.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Aug 16th, 2014 at 07:08:41 AM EST
[ Parent ]
There is currently an enormous need for productive investment in infrastructure in the USA and the world in general. This includes renewable power and the electrification of rail transport. The problem is that, to be effective, the construction of electrical power infrastructure needs to be done at no or very low interest rates and none of those with money to invest find that attractive - this despite the continuing ZIRP. One possibility would be a public offering of bonds to finance wind farms with the explicit backing of the government for principal and interest at the minimum rate that would see them sold - target range of 2-3%. There are lots of retirees who are afraid to expose their savings to risk and can only get a fraction of a percent return on a guaranteed deposit. I see the problem as political. Such a program would benefit all from reducing GHGs and capping electricity prices to stimulating employment, but it undercuts the interests of the fossil fuel industry, and thus is very difficult to enact.

The bottom line problem is that we need to downsize the financial sector. The effect of its operations are to impose the private sector equivalent of a VAT, likely over 20%, on a huge range of activities - any thing it touches.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Aug 16th, 2014 at 11:08:30 AM EST
[ Parent ]
Of course this all could be 'financed' directly by the government of the USA - in a better world.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Aug 16th, 2014 at 11:41:44 AM EST
[ Parent ]
Chapter Two will develop the idea of capture of governments by capital... Coming up.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Sun Aug 17th, 2014 at 09:05:30 AM EST
[ Parent ]
That sounds a lot like Tyler Cowen's little book, "Great Stagnation." All the low hanging fruit have been picked.

I think my questions are:

a) What's stopping investments outside the empire?
(Lots of building still needed across the world.)

b) Your post implies that the whole set of economic theories basically only works while you have an expanding empire. After that the rate of growth limited by productivity isn't a zero-sum game, but very close to being so?

by Metatone (metatone [a|t] gmail (dot) com) on Mon Aug 18th, 2014 at 05:12:45 AM EST
[ Parent ]
Well, nothing's stopping investments outside the empire (capital controls have gone out of fashion). This is one reason the rich get richer... Among the people who got the big tax windfalls, those who don't mind a bit of risk invest for high returns in developing nations... Helps the balance of payments in the investor's country. The others buy government bonds. None of this actually benefits their compatriots or the real economy in their country (except marginally through the provision of luxury goods and services).

Your point b is something I have always believed... Club of Rome and all that... It's about time it became fashionable.  

Indeed, it seems intuitively obvious that high rates of return on capital are only possible in a growing economy. So the risk-averse capital is not, in the aggregate, going to get a good rate of return. In the long term, perhaps investors will adjust their expectations to moderate, sustainable returns. In the meantime, with a huge amount of productive capacity idle, we've got a capital strike on our hands.

Government intervention seems the only rational possibility. But that would require rational government.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Mon Aug 18th, 2014 at 06:35:02 AM EST
[ Parent ]
eurogreen:
it seems intuitively obvious that high rates of return on capital are only possible in a growing economy

Which leads us to consider the prodigious rise of the financial sector. Which compensates for lack of growth by whipping up high rates of return based on the capture of future flows.

No growth now? Mine the future!

by afew (afew(a in a circle)eurotrib_dot_com) on Mon Aug 18th, 2014 at 07:00:37 AM EST
[ Parent ]
This is emphasised by Streeck, who notes the huge growth of the financial sector starting from the 80s (public debt boom) and contin through the 90s and 2000s (private debt boom) -- a real goldrush.

Where now for capital? To the moooon?

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Mon Aug 18th, 2014 at 09:02:04 AM EST
[ Parent ]
What's stopping investments outside the empire?

Investors like to get their money back.

"Outside the empire" means "outside a legal framework which I can use to obtain recourse against people who default on our business dealings."

Because the ability to reliably obtain recourse against people who default on your business dealings is a pretty good working definition of the difference between "inside" and "outside" the empire.

(Lots of building still needed across the world.)

The point is not that there is a lack of investment opportunities. The point is that there are fewer than there used to be, and this shifts power toward rentiers. This power is then used to change the rules of the game to be more favorable to rentiers, which further shifts power to rentiers.

Just like, in the expanding empire, producers gain power from exploiting previously unclaimed (by stakeholders internal to the empire) economic niches, and then change the rules to favor producers, which opens up even more previously unclaimed niches to exploitation.

Your post implies that the whole set of economic theories basically only works while you have an expanding empire.

Yes. Why is this surprising?

Growing empires attempt to explain their world, in order to better realize opportunities, since power resides with those who have a vested interest in opportunities being realized.
NB: This is not necessarily (or even typically) the same group of people as the ones who do the actual work of realizing the opportunities.

Stagnant empires invent excuses for looting.

An economic theory which "works," in the sense of providing actionable explanations for what drives economic activity, is actively contrary to the interests of those who guide the direction of a stagnant empire.

After that the rate of growth limited by productivity isn't a zero-sum game, but very close to being so?

I suppose that is a matter of taste. Personally, I find that one per cent per year compounding adds up to quite a nice positive sum over a few decades.

But relative to the expanding empire? Absolutely.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Aug 18th, 2014 at 01:10:15 PM EST
[ Parent ]
Metatone:
After that the rate of growth limited by productivity isn't a zero-sum game, but very close to being so?

Only relative to the Jumbo-burger profits they are used to.

The world could hum along happily at 4% ROI, and say inflation at 2%, but once you've seen Pareee... (Once you've tried the hard stuff).

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Mon Aug 18th, 2014 at 01:40:29 PM EST
[ Parent ]
JakeS:
And the rest is history.

"History" features notably:

  • Globalisation
  • Financialisation
by afew (afew(a in a circle)eurotrib_dot_com) on Mon Aug 18th, 2014 at 07:17:07 AM EST
[ Parent ]
As Bruce is fond of pointing out, there is no such thing as "Globalization."

There is a mix of policies for governing international trade and tribute. And there is a number of technologies to mediate international trade and tribute.

But the policy mix governing international trade and tribute is not in any important way interdependent, nor dependent in any straightforward way on the technology involved.

"Financialization" is just a polysyllabic euphemism for "looting."

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Aug 18th, 2014 at 01:32:53 PM EST
[ Parent ]
Because financiers aka venture capitalists have a divine right to maximize their investment at the expense of all others...and f*ck the externalities

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Aug 18th, 2014 at 02:51:55 PM EST
[ Parent ]
Metatone:
There's still no meaningful consensus on "what happened in the 70s"

OPEC realised it had global muscle beyond its hitherto wildest dreams?

Metatone:

Or were they ended by pressures (and resulting actions) that could have be turned to different outcomes?

See: Jimmy Carter, white house roof solar panels.

Pretty much every wrong energy choice there was to make was made, and it gets worse all the time, even if some things have improved notwithstanding.

That's when corporate power realised it had to utterly capture government, enter stage right, Ronnie 'seen-one-redwood, seen-'em-all' Raygun!

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Sat Aug 16th, 2014 at 09:00:16 AM EST
[ Parent ]
Oil Cartel caused cascading price increases in most everything in the west as a much bigger share of overall economic output went to the cartel nations. About the only government that took effective action to address the root cause of that problem was France - The nuclear buildout, ramping up production of the 2CV and other very high-milage cars, the TGV (Electric, so... Powered by the nukes.) - These were the tools actually available in the 1970's

Solar and wind in that era was utterly inadequate technology -  I hope this is not something anyone wishes to dispute?

 Everyone else started shooting themselves in the foot, then reloading and shooting the other foot - The problem was real value flowing out of what had been a fairly closed system of labor of capital to new actors who provided no new product in return, but the response was to slam on the breaks on wages via unemployment. Which is utterly insane, and acted as a drag on even those nations responding initially sanely.

by Thomas on Fri Aug 22nd, 2014 at 03:45:25 PM EST
[ Parent ]
Quoting from page 21:
A legitimation crisis theory that starts with capital treats firms and their owners and managers as advantage-seeking profit maximisers rather than as prosperity machines, or functionaries obediently carrying out government economic policy.

This is what governments failed to understand in the 70s, it seems. They had no "plan B" for when fundamental interests diverged, and have been inventing stopgap measures ever since.

Streeck's strength is as a sociologist/philosopher, identifying social actors in an economic context (something entirely absent, for obvious reasons, from conventional economics)

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Sun Aug 17th, 2014 at 09:01:54 AM EST
[ Parent ]
It's hard not to read Streeck's anlysis as extremely Euro centric, or indeed German centric.   The whole point of globalising capital is to render it beyond Government control, and the whole point of neo-liberal "reforms" is to free capital from Government regulation.  

Who outside Germany could even the consider the possibility that capitalists might be "functionaries obediently carrying out government economic policy" - when it is becoming increasingly clear - particularly in the USA - that capitalists are waging war against democratic Government, and they are winning hands down.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun Aug 17th, 2014 at 10:17:05 AM EST
[ Parent ]
Note that in the quote is talking about crisis theory in the early 1970s. The Frankfurt School, which emigrated to California in the 1930s, evidently came back impregnated with New Deal thinking, which was highly applicable in Europe in the post-WWII years. Which lead to a comprehensive mis-analysis, as outlined above.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Sun Aug 17th, 2014 at 12:10:13 PM EST
[ Parent ]
that, no doubt because Streeck is not an economist, he does not challenge the orthodox interpretations of economic history that he presents (though I don't doubt that some here will do that). However, he does challenge, very strongly, the moral and ethical transformations imposed by the colonisation of public discourse by standard economics. Hayek, who reduces the notion of social justice to a quasi-religious superstition, has triumphed... "market justice" is what we get. This notion seems to me to be both redundant (if "perfect market" outcomes are defined to be just, it's hardly worth keeping the archaic notion of justice at all) and tautological.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Fri Aug 15th, 2014 at 01:05:57 PM EST
eurogreen:
if "perfect market" outcomes are defined to be just, it's hardly worth keeping the archaic notion of justice at all

That reminds me of Erhard's view of the Soziale MarktWirtschaft: "The market is social".

However, the Social Market Economy was based on strong institutions with legal guarantees. And marketista liberals today live happily with the notion (and fact) of powerful corporate litigation.

Of course, Hayek would agree with your conclusion about the "archaic notion of justice". I think he would say that what the market does is neither just nor injust, that the concept of justice is inapplicable. Presumably, only charity is. See philanthropic billionaires.

by afew (afew(a in a circle)eurotrib_dot_com) on Sat Aug 16th, 2014 at 02:42:16 AM EST
[ Parent ]
"The market is social".
It is indeed a social activity, intensive even - for those at the top.

For the rest - socialization is just a matter of religious (or irreverent) practice.

by das monde on Sat Aug 16th, 2014 at 04:34:55 AM EST
[ Parent ]
More on Hayek in Chapter Three...

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Sun Aug 17th, 2014 at 09:04:25 AM EST
[ Parent ]
I'm surprised that Globalization and technology doesn't merit a mention in his thesis (or at least your summary of it).  Globalization seems to me to have been the ultimate delaying strategy for the crisis of capitalism - proving a source for cheap labour and materials when local resources ran short, and when inflation made them more expensive for capital to employ.

Globalization, for a time, allowed increased living standards in metropolitan/imperial countries so long as their workers kept moving up the food/knowledge chain and so the middle classes were kept happy - their superior qualifications enabled them to maintain or even increase their differentials with the manual labouring classes.

Now, of course, even "professional" jobs are being automated and undercut by cheaper labour from abroad and so the alliance between capital and the middle classes in metropolitan countries is breaking down.  The middle classes are being decimated, and all the gains are going to the top 1%.

The other factor, it seems to me, which delayed the crises is unprecedentedly rapid technological change, which enabled productivity increases to continue even as working hours reduced, and gave first mover advantage to the middle classes in metropolitan countries - an advantage which is now gradually being eroded.

Finally, I see no mention of "Corpocracy", the way in which globalization has enabled the rise of global conglomerates with far more power than most nation states, and which indeed can play off nation states against each other - fomenting wars to both weaken the nations states involved - and to force them to buy military and other hardware, and also encouraging a "race to the bottom" in terms of corporate taxation and regulation and reinforcing the power of corporates vs. democracies.

The Citizens United and other rulings by the SCOTUS has now formalised corpocracy by ascribing to corporates the rights of free speech and religious observance and reducing citizens to employees and supplicants.  What previously would have been seen as bribery, corruption and religious oppression is now legitimated as the divine right of corporates which over-rides those of citizenship.

What we see is not so much a "capital strike" as an overwhelming victory by capital in the class war, with democracy merely the cloak which adds a little respectability to the naked greed and exploitation of 99% of people and the planet.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Aug 15th, 2014 at 01:46:40 PM EST
America is repeating the cycle of 'divine entitlement' exorcised in many countries by abolishing the monarchies.

Ordinary people gradually evolved monarchies through intelligence put into service to guile and brutish bullying, with the goal of monopolising power over the many into the hands of the few.

Through devotion to the god of money, a similar division of destinies is being applied. Those who have it are increasingly blessed by that fact, those who don't increasingly cursed.

It will have -and is having- the similar bloody results, as more and more people observe the social pact they were conditioned to accept along with their mother's milk smashed into fragments.

The only still-existent monarchies have succeeded in surviving by rendering themselves largely symbolic in power. If finance can reduce its influence in a similar way, then maybe it can survive too.

Right now it's running rampant over humanity's chance of a future at all.

European Tribune - Buying time : Where now for capitalism and democracy? [Part 1]

was to have considered capital as a resource, more or less biddable and accountable to democracy. Of course, as they should have known, capital is an actor,

This could stand some fleshing out... anyone volunteer?

It seems historically that Capital has always been an actor, one might surmise that the myths of religion and patriotism were invented to try and mask that fact, or at least dress it for public consumption.

With the efficacy of such quaint methods much reduced compared to before, Capital is showing its true face, namely a search for maximum efficiency of reproduction through social triage.

People, tempted and coddled by the images used to sell them on various ideologies in the past, now have all voids filled by the incessant bombarf-ment of skilled liars twisting all possible motivations into one monetary rope, to better string humanity up on a gibbet of profit.

The hologram is perfect in every respect save one, its abject inauthenticity with regard to human betterment. Reduced to gaudy admonishments to imitate the rich, the moral void at the heart of the process reveals itself to be content-free, visible in arms sales, global strife fomentation and the reaction to nonviolent protest, from Tahir Square to Ferguson.

Our leaders will not go down without a fight, and they have millions of well-trained goons to do their dirty work for the living it offers, the real price being the dehumanisation of those mercenaries, who will take much healing to forget their pain.

Until they get it, we can expect the pattern to continue...

Can social media such as ET produce new answers to old question about social justice, can we open-source new forms of self-government and the by sheer force of numbers invert the present tendency?

Other than a benign race of aliens landing to take our wartoys away, I can't see any hope on the horizon. The way out of hell is the same road we entered it by, and the name of that road is Technology, (whether infernal combustions, nuke plants and weapons, fracking, mega-dams, industrial Ag, you name it on one side, or the many wondrous gizmos that are improving communications and the ability to spread unitarily life-affirming memes on the other.)

If life is a race between extinction and knowledge, we are in the final sprint now, the two neck and neck.

Nice diary Eurogreen, thanks!

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Fri Aug 15th, 2014 at 07:55:45 PM EST
[ Parent ]


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