Can Capitalists Afford Recovery? Three Views on Economic Policy in Times of Crisis
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Nitzan, Jonathan; Bichler, Shimshon Article — Published Version Can Capitalists Afford Recovery? Three Views on Economic Policy in Times of Crisis Review of Capital as Power Provided in Cooperation with: The Bichler & Nitzan Archives Suggested Citation: Nitzan, Jonathan; Bichler, Shimshon (2014) : Can Capitalists Afford Recovery? Three Views on Economic Policy in Times of Crisis, Review of Capital as Power, Forum on Capital As Power - Toward a New Cosmology of Capitalism, s.l., Vol. 1, Iss. 1, pp. 110-155, http://bnarchives.yorku.ca/414/ This Version is available at: https://hdl.handle.net/10419/157913 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc-nd/4.0/
110 CANCAPITALISTSAFFORDRECOVERY? Suggestedcitation: JonthanNitzanandShimshonBichler(2014),‘CanCapitalistsAffordRecovery?ThreeViewsonEconomicPolicyinTimesof Crisis’,ReviewofCapitalasPower,Vol.1,No.1,pp.110‐155. CanCapitalistsAffordRecovery? ThreeViewsonEconomicPolicyinTimesofCrisis1 JONATHANNITZANANDSHIMSHONBICHLER Abstract Economic,financialandsocialcommentatorsfromalldirectionsandofvariouspersuasions areobsessedwiththeprospectofrecovery.Theworldremainsmiredinadeep,prolonged crisis,andthekeyquestionseemstobehowtogetoutofit.Thepurposeofourpaperisto askaverydifferentquestionthatfewifanyseemconcernedwith: cancapitalistsafford recoveryinthefirstplace?Thearticlecontextualizesandexaminesthisquestionfromthe viewpointofeconomicpolicy.Theanalysisisdividedintothreeparts.Thefirstpartdeals withthemainstreammacroeconomicperspective.Thisapproachclaimstohavealready solvedallthetheoreticalriddles,sothemainemphasishereisonthepracticalquestionof howtoengineerarecovery.ThesecondpartdealswiththeMarxistview.Marxistsstressthe inherentcontradictionsofaccumulation,sothequestionforthemistheverypossibilityof sustainedgrowth.Thethirdandfinalparttakestheviewofcapitalaspower.Capitalized powerhingesnotongrowth,buton strategic sabotage. So from this viewpoint, the key questionisnothowcapitalistscanachieveandsustainarecovery,butwhethertheycan affordittostartwith. Keywords.capitalistcrisis;incomedistribution;mainstreameconomics;Marxism;capital aspower;dominantcapital 1 *ThispaperwasfirstpresentedinSurplus,Solidarity,Sufficiency,TheEighthInternationalRethinkingMarxism Conference,UniversityofMassachusettsatAmherst,September19–22,2013.JonathanNitzanteachespolitical economy at York University in Toronto ([email protected]). Shimshon Bichler teaches political economy in collegesanduniversitiesinIsrael([email protected]).AlltheirpublicationsareavailablefromTheBichler& NitzanArchives(http://bnarchives.net).ResearchforthispaperwaspartlysupportedbytheSocialSciencesand ResearchCouncilofCanada.
111 CANCAPITALISTSAFFORDRECOVERY? conomic, financial and social commentators from all directions and of various persuasionsareobsessedwiththeprospectofrecovery.Theworldremainsmiredina deep, prolonged crisis, and the key question seems to be how togetoutofit.The purposeofourpaperistoaskaverydifferentquestionthatfewifanyseemconcerned with:cancapitalistsaffordrecoveryinthefirstplace? Ourstartingpointisverydifferentfromtheconventionalcreed, both mainstream and heterodox(NitzanandBichler2009a;BichlerandNitzan2012b).LiberalsandMarxistssee capitalasaneconomicentityandcapitalismasamodeofproductionandconsumption,sofor them,theaccumulationcrisisisanchoredintheeconomicsofproductionandconsumption. Bycontrast,weseecapitalasasymbolicrepresentationofpowerandcapitalismasamodeof power, so for us, the crisis of accumulation is a crisis of capitalized power. Furthermore, whereas the economic viewpoint, particularly the Marxist, sees the current crisis as the symptom and culmination of a long process of weakening accumulation, for us it is the consequence of capital having reached unprecedented strength (Bichler and Nitzan 2008, 2009;NitzanandBichler2009b;BichlerandNitzan2010;Kliman,Bichler,andNitzan2011). Accordingtoourresearch,theaccumulationofcapital‐read‐powermightbeapproachingits asymptotes, or limits (Bichler andNitzan2012a).Theclosercapitalized power is to its asymptotes,themoredifficultitistoaugmentitfurther.Capitalists,though,havenochoice. Theyareconditionedandcompelledtoincreasetheircapitalizedpowerwithoutend,andthat relentlessdrivebreedsconflict.Itforcescapitaliststo increasetheir threats,escalatetheir sabotageandintensifytheiruseofforce–andthisintensificationisinturnboundtotrigger strongerresistance,contestations,uprisingsandmore. Bytheearly2000s,capitalistsbegantorealizetheunfoldingofthisasymptoticscenario.They startedtosensethattheirpowerisnearingitslimitsandthataccumulationisbecomingever moredifficulttoachieveandmightbereversed.Andgiventhat capitalization is forwardlooking,theresulthasbeenamajorbearmarket.Measuredinconstantdollars,stockprices arestillbelowtheirpeaklevelsoffifteenyearsago:inAugust2014,theDatastreamWorld Indexwasstill2percentshyofits1999level,whiletheU.S.S&P500was14percentlower. Thepresentpapercontextualizesandexaminesthisprocessfromtheviewpointofeconomic policy. Thematically, the analysis is divided into three parts.Thefirstpartdealswiththe mainstreammacroeconomicperspective.Thisapproachclaimstohavealreadysolvedthekey theoreticalriddles,sothemainemphasishereisonthepracticalquestionofhowtoengineer a recovery. The answer to this question, though, remains elusive. The recent crisis has underminedtheself‐confidenceofpolicymakers:theyarenolongercertainoftheirtheoretical models,theymistrusttheirpolicy‐tools,andtheyfeelincreasinglyshortonpolicyammunition. ThesecondpartexaminestheMarxistview.Marxistsstresstheinherentcontradictionsof E
112 CANCAPITALISTSAFFORDRECOVERY? accumulation, so the question for them is the verypossibility of sustained growth. This approachoffersveryimportantinsights, but its application to contemporary capitalism is hamperedbyconceptualquandariesandempiricalinconsistencies.MainstreamandMarxist economicsobviouslyareverydifferentfromeachotherinframeworkandgoals.Nonetheless, they share a common premise: they both consider capitalism a modeofproductionand consumption.Fromthiscommonviewpoint,crises,althoughsometimestriggedandfurther complicatedbyfinancial,politicalandsocietalfactors,areultimatelyaboutthe‘realeconomy’. Thethirdandfinalpartchallengesthiscommonpremisebytakingtheviewthatcapitalisnot a ‘real’ productive entity but commodified power, and that capitalism is not a mode of productionandconsumptionbutamodeofpower.Capitalizedpower,weargue,hingesnoton growth,butonstrategicsabotage.Sofromthisviewpoint,thekeyquestiontoaskisnothow capitalistscanachieveandsustainarecovery,butwhethertheycanaffordittostartwith.Our answertothisquestionisnegative,atleastfortheUnitedStates.Weshowthat,contraryto popularconviction,overthepastcenturytheU.S.capitalistincomeshare‐read‐powerthrived notonprosperityandthegrowthofemploymentbutoncrisisandrisingunemployment.U.S. policymakersthereforearelockedintoaconceptualandpracticalcorner:iftheyactontheir conventionalbeliefandboostthecapitalistincomesharetotriggereconomicgrowth,they wouldachievetheveryoppositeresult;andiftheymanagetorekindlegrowth,theywouldend upunderminingtheaccumulation‐read‐powerofcapitalists. MainstreamMacroeconomics Thestockmarketcrashof2008andtheensuingGreatRecessionheightedthesystemicfearof therulingclass–thesensethatcapitalismitselfmightbeindangerandthatthey,therulers, mightbelosingtheirgripoverthesituation(BichlerandNitzan2010;Kliman,Bichler,and Nitzan2011).ThequotesinBox1suggestthatthisfearcontinuesunabated.In2008,former FedChairpersonAlanGreenspanspokeofhimselfandhislikebeinginastateof‘shocked disbelief’aftertheir‘wholeintellectualedifice’hadcollapsed,whilejournalistGillianTettof the FinancialTimesdescribed a sense of total confusion, as capitalists, policymakers and smaller investors realized that their ‘intellectual compass’ hadbeenbroken.Thenextfive yearshavedonelittletoeasethissystemicfear.In2013,centralbankersadmittedquiteopenly thattheyhavenoclueastowhatisgoingon–or,intheirownwords,thattheyarein ‘unchartedterritory’whichtheydonot‘fullyunderstand’,andthattheyare‘flyingblindwhen steeringtheireconomies’.Inthatsameyear,LawrenceSummers,aformerTreasurySecretary and until recently a keen promoter of neoliberalism, wondered whether stagnation might provetobethe‘newnormal’,whilein2014,NobelLaureateEdmundPhelps,anunrelenting proponentoffreemarkets,conjuredupthespectreof‘regulation’and‘corporatistvalues’to explainwhy,despiteneoliberalism,capitalismhaslostits‘pastdynamism’.
113 CANCAPITALISTSAFFORDRECOVERY? Box1 SystemicFear AlanGreenspan: Thewholeintellectualedifice...collapsedinthesummeroflastyear....[T]hoseofus whohavelookedtotheself‐interestoflendinginstitutionstoprotectshareholder’sequity (myselfespecially)areinastateofshockeddisbelief.Suchcounterpartysurveillanceisa centralpillarofourfinancialmarkets’stateofbalance.Ifitfails,asoccurredthisyear,market stabilityisundermined(Andrews2008;U.S.Congress2008,emphasesadded). FinancialTimesEditorial: Uncertaintyistheonlycertainthinginthiscrisis....adensefogofconfusionhas... descended,obscuringwhereweare–fallingfast,slowly,bumpingalongthebottom,orfinally turningthecorner....Economiesarebehavingunpredictablyandwillcontinuetodoso.The instabilityisbothcauseandconsequenceofthegreatuncertaintythathasbeenspreadingout fromthefinancialmarkets.Fearfulandconfused,peoplereacterraticallytochangingnews, reinforcing confused market behaviour. It doesn’t help that our economic theories were constructedforadifferentworld.Mostmodelsdepicteconomiesclosetoequilibrium....And unlikewhatmostmodelsassume,pricesarenotproperlyclearingallmarkets....(Editors 2009,emphasisadded). GillianTett: [T]hepillarsoffaithonwhichthisnewfinancialcapitalismwerebuilthaveallbutcollapsed, andthatcollapsehaslefteveryonefromfinanceministerorcentralbankertosmallinvestor or pension holder bereftofanintellectualcompass,dazedandconfused (Tett 2009, emphasisadded). ChrisGiles: [Some]oftheleadingfiguresincentralbankingconcededtheywere flyingblindwhen steeringtheireconomies. Lorenzo Bini Smaghi, the former member of the European CentralBank’sexecutiveboard,capturedthemoodattheIMF’sspringmeeting,saying:‘We don’tfullyunderstandwhatishappeninginadvancedeconomies’.Inthisenvironment ofuncertaintyaboutthewayeconomiesworkandhowtoinfluencerecoverieswithpolicy, SirMervynKing,theoutgoinggovernoroftheBankofEngland,saidthat‘thereistheriskof appearingtopromisetoomuchorallowingtoomuchtobeexpectedofus’....Thecentral bankerswereclearthattheyhadgotitwrongbeforethecrisis,allowingthemselvestobe
114 CANCAPITALISTSAFFORDRECOVERY? lulled,bystableinflation,intothinkingtheyhadeliminatedfinancialvulnerabilities....The questionnowwaswhethercentralbankersaremakingthesamemistakeintheireffortsto securearecovery.Mighttheybestoringupfinancialdistortionsthatwillbiteinthe future?....‘Putsimply,weareinunchartedterritory’,said[vicechairmanoftheFederal Reserve]MrViñals....TheproblemoutlinedbySirMervynwasthattheuncertaintyisso pervasivethatnoonecanbesurethattheexpansionarymonetarypolicyisappropriateina worldwherenationsarelearningtheyarepoorerthantheyexpected,butarenotsureby howmuch.Howcanwebesure‘wereallyare[not]runningtherisk of reigniting the problemsthatledtothefinancialcrisisinthefirstplace?’MrBeanaskedtheIMFpanel(Giles 2013,emphasesadded). LawrenceSummers: Whystagnationmightprovetobethenewnormal:Inthepastdecade,beforethecrisis, bubblesandloosecreditwereonlysufficienttodrivemoderategrowth....Isitpossible thattheUSandothermajorglobaleconomiesmightnotreturntofullemploymentand stronggrowthwithoutthehelpofunconventionalpolicysupport?. . . . [T]he presumptionthatnormaleconomicandpolicyconditionswillreturnatsomepointcannot bemaintained(Summers2013,emphasesadded). EdmundPhelps: Lethargic growth, widespread job dissatisfaction and staggering debt – such is life in a westernworldthatseemstohavelostthehabitofinnovationthatenergiseditformorethan acentury....Itisurgentthatthesenationsfindawaybacktotheirpastdynamism....The blameforthelossesofinnovationbehindslowdownsinproductivitylieswiththe spreadofcorporatistvalues,particularlysolidarity,securityandstability.Politicians have introduced regulation that stifles competition; patronised interest groups through pork‐barrelcontracts;andlentdirectiontotheeconomythroughindustrialpolicy.Inthe process they have impeded those who would innovate or reduce their incentives to try (Phelps2014,emphasisadded). TheGreatSlide Whatunderpinsthissystemicfear?Whydoestherulingclassfeel‘bereftofanintellectual compass’?Whydopolicymakersadmitthattheyare‘flyingblind’?Whydotheideologuesof neoliberalism resign themselves to the ‘new normal’ of secular stagnation and lost ‘dynamism’?
115 CANCAPITALISTSAFFORDRECOVERY? www.bnarchives.net Figure1 AnnualGDPGrowth 2000‐2013 NOTE:Seriesshowquarterlydata,measuringtheyear‐on‐year growthratesofGDP‘volumes’.Thelastdatapointsare2013:Q4 forthedeveloping&emergingcountriesandfortheworldasa whole,and2014:Q2fortheadvancedcountries. SOURCE:IMFInternationalFinancialStatisticsthroughGlobal Insight(seriescodes:L99BP&X@C001forworldGDPgrowth, L99BP&X@C110forGDPgrowthoftheadvancedcountries,and L99BP&X@C200forGDPgrowthofthedeveloping&emerging countries). Figure1providesthebroadcontext.Thechartisasnapshotofthe‘stateoftheworldeconomy’ sincethebeginningofthesystemiccrisisintheearly2000s.Thefigureshowsthreeannual GDPgrowthrates:(1)thedottedredlineisfortheadvancedcountries,(2)thedashedlineis forthedevelopingworld,and(3)thesolidlineisfortheworldasawhole.Wecanseethefirst downturnin2000‐2002.Thedevelopingworldandemergingmarketsrecoveredbrisklyfrom thisdecline,buttheadvancedcountriesshowedaveryfeeblerecovery.Thencamethe2008‐ 9drop.Thisdownturnwasmuchmoreserious(–5percentforthedevelopedworldand–3 percentfortheworldasawhole),andtherecoveryfromitlimitedandbrief.By2010,both regions–andtheworldaswhole–begantodeceleraterapidly. Policymakerslookingatthischartmustgettheshivers.Despitemassivepolicyintervention –includingunorthodoxmeasuresthatonlyafewyearsbackwouldhavebeenconsidered unthinkable – the world economy has been largely unresponsive. In2013,theadvanced
116 CANCAPITALISTSAFFORDRECOVERY? countriesshowedamodestuptick,butgrowthsoondecelerated,andmanynowfearthe uptickwasa‘deadcatbounce’. TheReal/NominalDichotomy Tounderstand thegravityofthe situationfor policymakers,andfortherulingclassmore broadly, it is useful to provide some theoretical background. Consider the simple decompositionofferedinEquation1: 1. deflatorGDPnominalGDPrealGDPnominal or, PQY Theequationstartswiththetotaldollarvalue,ornominalvalueofGDP(whichwecallY).This valueistheproductoftwocomponents:thequantityofcommoditiesbeingproduced,which economistscall‘real’GDP(denotedasQintheequation),andtheaveragenominalordollar price of those commodities, which is given by the GDP deflator (and marked by Pin the equation). Thisdecomposition,whichgoesbacktoDavidHume’sclassicaldichotomybetweenthe‘real’ andthe‘nominal’spheresofeconomiclife,underliesthenationalaccountseverywhere.We considerthisbifurcationtobedeeplyproblematic,boththeoreticallyandempirically(Nitzan 1989;NitzanandBichler2009a:Ch.8).Butsincemostifnotalleconomists,bothmainstream andheterodox,seemtoacceptthereal/nominaldualityasanarticleoffaith,andgiventhatwe areconcernedherewiththeirviews,notours,weshalluseitinthispaperwithoutfurther qualification. TheKeynesianRevolution Until the 1930s, the conventional liberal dogma was that government intervention was unnecessary and harmful: it wasunnecessarybecausethemarketmechanism was selfcorrecting,which,intoday’slingo,meansthatrealGDPtendstooscillatenearitsoptimal,fullemploymentvaluetobeginwith;anditwasharmfulbecauseitledtodistortions,misallocation andundueinflationordeflation.Now,althoughthepre‐1930seconomistsdidnotthinkin explicitly macroeconomic terms, wecanuseEquation1totranslate their argument into contemporaryjargon.Inanutshell,theirclaimwasthatgovernmentinterventioncannotraise realGDP(Q),whichisalreadyatitsmaximallevel(althoughitcertainlycanlowerit).This
117 CANCAPITALISTSAFFORDRECOVERY? inabilitymeansthatanyinterventioncanonlyinflateordeflatenominalGDP(Y)byraisingor loweringprices(P).Parenthetically,weshouldaddherethatthisviewwasalsosharedby Marx,whothoughtthatalargestatewouldundermineaccumulationbytaxingawaypartof thesurplusvalue(BaranandSweezy1966:142‐143). Thecrisisofthe1930sshatteredthisbelief.Alargechunkofthelabourforcewasunemployed, productivecapacitywaslyingidleandtheinvisiblehanddidnothingtoputthembacktowork. Thismuchwasobvioustoanyonewhocouldsee.Buttheeconomistscouldseeonlythrough theirtheory,andthattheoryassertedthatpersistentunemploymentwasimpossible. And that is where Keynes came intothepicture.Hisgreatachievementwastopersuade economists(1)thattherealeconomycangetstuckatlessthanfullemployment;and(2)that, intermsofEquation1,thegovernmentcanremedythesituationbecauseitcanimpactnot onlythenominalpricelevel(P),butalsothereallevelofoutput(Q). Keynesidentifiedtwokeyproblems,bothanchoredinbaseinstincts.Thefirstproblemwasa mismatchofinvestmentandsavings.Associetygrowsricher,heargued,thepropensityto investdeclineswhilethepropensitytosaverises.Andsincesavingandinvestmentdecisions aremadebydifferentagents,theresultofthismismatchis‘deficientdemand’andatendency forstagnationandunemployment.Thesecondproblemwasthatinvestmentdecisionsare governedbythehighlyerraticandlargelyunpredictable‘animalspirits’ofinvestors,which makecapitalisminherentlyunstable. Now,giventhatcapitalismtendstostagnationandinstability,andgiventhatthegovernment canaffecttherealeconomyaswellasprices,itmadesenseforgovernmentstointervenein ordertosavecapitalists–andcapitalismmoregenerally–fromtheirownfolly. TheKeynesianRecord Thehistoricalrecordseemstoconfirmthisview.Figure2showstheU.S.rateofunemployment andGDPgrowthsincethelate1880s.Unemploymentisplottedagainsttheright‐handscale andGDPgrowthagainsttheleft‐handscale.Thedataaredividedintotwosub‐periods:until 1946andfrom1946onward. Toexplainwhatwehavedonehere,considertherateofunemployment.Wehavetakenthe period until 1946, and for this period we have computed the series mean and standard deviation.Thetopdashedredlineisequaltothemeanoftheseries plus one standard deviation(which,inthiscase,addsupto11.4percent),whilethebottomdashedlineisequal tothemeanminusonestandarddeviation(2.4percent).Accordingtothestatisticians,the9 percentrangebetweenthesetwolines,equivalenttotwostandarddeviations,shouldcontain
124 CANCAPITALISTSAFFORDRECOVERY? www.bnarchives.net Figure5 TheMonetaryBase 2000‐2014 NOTE:Seriesshowmonthlydata.Originaldataareinlocal currencies,rebasedtoJanuary2008=100.0.Thelastdatapoints areMarch2014fortheU.S.andApril2014fortheEUandJapan. SOURCE:IMFInternationalFinancialStatisticsthroughGlobal Insight(seriescodes:L19MA@C111fortheU.S.monetarybase); BankofJapanthroughGlobalInsight(seriescode:JPNVM0001for Japan’smonetarybase);EuropeanCentralBank(seriescode: ILM.M.U2.C.LT01.Z5.EURforEuroareabasemoney,changing composition). Thewatershedis2008.Before2008,theexpansionofthemoneysupplywasrelativelyorderly, particularlyintheEuropeanUnionandtheUnitedStates.Thispatternchangeddrastically afterthecrash,withtheUnitedStatesleadingtheway.Since2008,theU.S.Fedhasnearly quintupledthemoneysupply.TheEuropeanCentralBankquicklyfollowed–though comparedtotheAmerican‘bullinachinastore’,ittrodcarefully,choosingfine‐tuningover indiscriminateprinting.TheJapanese,whowerefirsttotoywiththispolicyintheearly2000s, areonlynowre‐joiningthebandwagon:inearly2013theyannouncedplanstodoubletheir monetarybaseintwoyears,atargettheyaresoontoachieve. Thismassivemoneyprintingisremarkableprimarilybecauseitseemstohavehadlittleorno effect,nominalorreal.Beginwiththenominalside.FromaKeynesianperspective,thedeep crisis of 2008‐9, should have produced deflation, while, from a monetarist viewpoint, the massive quantitative easing should have generated hyperinflation. Yet neither of these
125 CANCAPITALISTSAFFORDRECOVERY? www.bnarchives.net outcomeshasmaterialized.Overthepastdecade,coreinflationinthedevelopedcountries– thatis,inflationexcludingchangesinfoodandenergyprices–hasremainedremarkablystable ataround1‐2percent.5 Andthepictureisequallyembarrassingontherealside.Keynesianshadhopedthatmaking money cheaper would boost investment andkick‐starttheeconomy. However, that hasn’t happened.Sincethebeginningofthecrisis,green‐fieldinvestmentasashareofGDPinthe OECDcountrieshasplummetedtoitslowestlevelin50years:thissharestoodat25percent intheearly1970s;itfellto21percentin2007anditcurrentlystandson18percent(World BankOnline). Figure6 Long‐TermGovernmentBondYields 1953‐2013 NOTE:Seriesshowannualdata.ForJapan,datapriorto1966are measuredbytheprimelendingrate.Thelastdatapointsarefor 2013. SOURCE:IMFInternationalFinancialStatisticsthroughGlobal Insight(L60P@C158forJapan’sprimelendingrate,L61@C158for Japan’sgovernmentbondyield,L61@C111forU.S.government bondyieldandL61@C134forGermany’sgovernmentbondyield). 5Onecouldofcoursearguethatquantitativeeasinghelpedpreventdepressionanddeflationandtherefore vindicated both the Keynesian and monetarist positions. Such counterfactual claims, though, although appeasingtothepolicymakers,areinherentlyirrefutable.
126 CANCAPITALISTSAFFORDRECOVERY? Moreover,lookingatFigure6,itishardtoseewhyKeynesiansshouldhaveexpectedmonetary policytoreversethisdowntrend.Thechartshowslong‐termgovernmentbondyieldsinthe threeleadingOECDcountries.Theserateswerealreadyverylowwhenthecrisisstarted,and now, at close tozero, they are lower than atany other time since the 1950s. Inthis case, printingmoremoneyislike‘pushingonastring’,asKeynesreputedlyputit.Itshouldhave littleornoeffectoninterestratesandthereforenoneonrealinvestment. Thisbriefexpositionshouldmakeitclearwhytherulingclassfeelsbereftofanintellectual compassandwhyitspolicymakersadmitthattheyareflyingblind when stirring their economies.Theirdogmahascollapsed.Notonlydidtheyabandonthisdogmainapanicwhen the2008crisisstruck,buttheirmakeshiftsolutionshavefailedtogeneratemeaningfulresults, letalonetheexpectedones.Moreover,theyseemtohaverunoutofammunition.Withmassive debt, further fiscal expansion becomes impossible; and with interest rates close to zero, monetaryexpansionisuseless.Anothercrisistodaywouldfindthememptyhanded. TheMarxistPerspective For the Marxists, the key question is not how to bring about a recovery, but whether sustainedgrowthispossibletobeginwith.AccordingtoMarx,theanswertothisquestionis negative.Accumulationforhimisrootedinandgeneratedthroughclassconflict,andthis conflictmakescapitalisminherentlyunstable,pronetocrisisand,eventually,destinedfor breakdown. Marxhimselfdidnotofferacoherenttheoryofcrisis.Hedidgenerate,however,severalkey principlesthatinhisviewwerecrucialforunderstandingtheinherentcrisistendenciesof capitalism.TheseinsightslatergaverisetoahugeMarxistliteratureoncrises,towhichwe cannotdojusticehere.Ourpurpose,rather,issimplytohighlightsomeofMarx’sinsights,as wellasthedifficultiestheygiveriseto.Wefocusonthreetheories,whichwewillexaminein turn:(1)thetendencyoftherateofprofittofall;(2)theinteractionbetweenthereserve armyoftheunemployedandtherealwage;and(3)underconsumption(forcriticalreviews andoverviewsofMarxistcrisistheories,see,forexample,Sweezy 1942:Part III;Wright 1977;Shaikh1978;Weisskopf1978,1991;Laibman1999‐2000;Agnoletto2013). TheTendencyoftheRateofProfittoFall ProfitforMarxisthesourceofaccumulation.Asaclass,capitalistscanonlyreinvestwhat theyappropriateinprofit;soiftherateofprofittendstofall,somustthemaximumrateat whichcapitalcanaccumulate.Now,accordingtoMarx,andherewecometothefirsttheory, thisdownwardtendencyisbuiltintotheverylogicofcapitalism.
127 CANCAPITALISTSAFFORDRECOVERY? Toseewhythisisso,letusreviewthebasicMarxistaccountinginEquations2‐8below.Begin withc,vands,whicharemeasuredintermsofsociallynecessaryabstractlabourtime.Ifwe denoteconstantcapitalbyc,variablecapitalbyvandsurplusvaluebys,wecanexpressthe followingthreerelationships.Theorganiccompositionofcapitalθistheratioofc/v;therate ofsurplusvalueξistheratioofs/v;andtherateofprofitπistheratioofs/(c+v).Ifwenow dividethenumeratoranddenominatoroftherateofprofitbyv,wecanexpresstherateof profitπasaratiobetweentherateofsurplusvalueξandtheorganiccompositionofcapital θplus1.6 2. c=constantcapital 3. v=variablecapital 4. s=surplusvalue 5. v c =organiccompositionofcapital 6. v s =rateofsurplusvalue 7. vc s =rateofprofit 8. 111 capitalofncompositioorganic valuesurplusofrate vc vs vc s Thisframework,saysMarx,enablesustounderstandoneofthekeybuilt‐inlimitationsof capitalism.Competitioncompelsprofit‐maximizingcapitaliststoconstantlymechanizetheir production,andthisrelentlessprocesscausestheorganiccompositiontoriseovertime. Capitalistsarealsodriventoraisetherateofsurplusvalue(althoughitisnotentirelyclear why,undercompetitiveconditions,theyshouldsucceedindoingso).InMarx’sopinion– whichhehimselfwasnevercompletelyconvincedof–theorganiccompositiontendstorise, andittendstorisefasterthantherateofsurplusvalue,assuming that this rate trends upwardaswell(onMarx'slife‐longattempttograpplewiththisprocess,seeHeinrich2013; for contesting views, see Heinrichetal. 2013). The progressive growth of the organic compositionisoffsetbycounter‐tendencies;butaccordingtoMarx,overthelonger‐haulthe formerprocessisstronger,causingtherateofprofittotrenddownward.Overtime, 6ThereisadebateamongMarxistsonwhethertheproperdefinitionofCintheseequationsshouldinclude(1) the entire stock of constant capital being advanced, or (2) only the part that is used up in producing the commodity. In our presentation, we bypass this debate by defining the commodity to comprise the gross nationalproductandthesomewhatdepreciatedconstantcapitalthatremainsattheendoftheproduction cycle,soCsatisfiesbothdefinitions(weareindebtedtoMoshéMachoverforremindingusofthisissue).
128 CANCAPITALISTSAFFORDRECOVERY? therefore,accumulationtendstodecelerate,crisesmultiplyandcapitalismbecomesever moredifficulttosustain. Theproblemswiththesepropositionsarelegion,andherewehighlightthree(foramore detailedaccount,seeNitzanandBichler2009a,Chs.6‐8).Thefirstproblemiswiththeunit of measurement. Labour values, which Marx’s variables are denominated in, cannot be observedorexamineddirectly,makingtheirempiricalinquirydifficultifnotimpossible.The secondproblemisthatmechanizationpersecantellusnothingaboutlabourvalues.Evenif we accept Marx’s value scheme, it is entirely possible for technical change to devalue constantcapitalfasterthantherateatwhichcapitalistsaugmenttheir‘physicalmachinery’ (howevermeasured).Ifthathappens,theorganiccompositionwillfallratherthanrise.Third andfinally,forMarx,theeconomyisbifurcatedintoproductiveandunproductiveactivity. Theformerproducessurplusvalue,whilethelatterusesit–yetthereisnoobjectivebasis todecidingwhicheconomicactivityisproductiveandwhichisnot. TheconsequencesofthislastproblemareillustratedinFigures7and8,whichpertaintothe UnitedStates.Sincelabourvaluescannotbeobserved,inbothchartsweassume–asmost Marxistsdointheirempiricalanalysis–thatthesevaluesaremoreorlessequaltomarket prices. Of course, if this assumption is incorrect, the estimates we present here are meaningless. Figure7takesanaïveperspective.Itisnaïvebecauseinthischartwedonotpretendtobe abletodistinguishproductivefromunproductivelabour,andinsteadassume,contraryto most Marxists, that all economic activity is productiveof surplus value. The dashed line approximatestheorganiccompositionofcapital.Itisestimatedbytakingtheratiobetween thecurrent(replacement)dollarcostofallnon‐residentialfixedassetsandthedollarvalue ofemployeecompensation.ThesolidlinemeasurestheMarxistrateofprofit,computedas the ratio of net operating surplus (which is net domestic product less employee compensation) and the sum of the current dollar cost of fixed assetsandemployee compensation.7 7WeshouldnoteherethatMarxistsremaindividedonwhether‘capital’intherateofprofitshouldinclude boththephysicalcapitalstockandthewagebill,soπ=s/(c+v),oronlythephysicalcapitalstock,soπ=s/c. HereweremaintruetoMarx’soriginalformulation(theformer),althoughusingthelatterwouldyieldthesame conclusions.FortheUnitedStates,thetworate‐of‐profitformulasresultindifferentmagnitudes,butthese magnitudescorrelatetightlyintheirlong‐termtrendsandshort‐termfluctuations.
129 CANCAPITALISTSAFFORDRECOVERY? www.bnarchives.net Net Operating Surplus / (Fixed Assets + Labour Income) (left) Fixed Assets / Labour Income (right) Figure7 NaïveMarxistProxiesfortheU.S.RateofProfitand theOrganicCompositionofCapital 1929‐2012 NOTE:FixedAssetsisthereplacementcostofprivateand governmentalnetnon‐residentialfixedassets.Labourincomeis domesticcompensationofemployees.Netoperatingsurplusisnet domesticproductlessdomesticlabourincome.Thelastdatapoints arefor2012. SOURCE:U.S.BureauofEconomicAnalysisthroughGlobalInsight (seriescodes:FAPAGNREfornetfixedassets;NDPfornetdomestic product;YDCOMPfordomesticcompensationofemployees). Now,onthefaceofit,thecurrentcrisisseemsconsistentwithMarx’stheory.Wecanseethat, sincetheearly2000s,theorganiccompositionhasrisenandtherateofprofithasdropped. Moreover,thisinverserelationshipseemstohold–atleastcyclically–fortheentireperiod sincethe1930s. Technically,thisinversecyclicalityisnotentirelysurprising.Sincefixedassetsappearinthe numeratorofoneratio(theorganiccomposition)andthedenominatoroftheother(therate ofprofit),theirvariationswillcausethetworatiostomoveinversely,bydefinition. Thedifficultywiththisfigureliesinthelonger‐termtrends.Therateofprofitinthechart seemstotrenddownward,inlinewithMarx’stheory.Butthisdeclineissupposedtobe causedbyarisingorganiccompositionofcapital,whereasinthe chart this composition seemstohavefallenovertime.Inotherwords,thelong‐termdeclineintherateofprofit–
130 CANCAPITALISTSAFFORDRECOVERY? assumingweacceptitsdefinitionhere–musthavebeencausedbyfactorsotherthanthe organiccompositionofcapital. Now,adherentsofthefallingtendencytheorywouldlikelycontestournaïvetéhere.Inorder toproperlycomputetheorganiccompositionandtherateofprofit,theywouldargue,we must first differentiate between productive activity that produces surplus value and unproductiveactivitythatusessurplusvalue.This,though,iseasiersaidthandone.And sincenobodyknowsexactlywhichlabouractivityisproductiveandwhichisnot,Marxists takeashortcut.Theyidentifyentiresectorsthattheydeemtobeproductiveandseparate themfromallothersectors,whichtheyclassifyasunproductive(see,forexample,Shaikh andTonak1994;Carchedi2011). Figure8followsthisstandardMarxistpractice.Itidentifiesfoursectorsastheproductive core of the U.S. economy: agriculture, mining, construction and manufacturing.8The remaining sectors are considered unproductive. With this bifurcation, the organic compositionofcapitaliscalculatednotfortheeconomyasawhole,butonlyforthefour sectorsthatproducesurplusvalue.Partofthissurplusvalueisappropriatedbycapitalists intheseproductivesectors;therestisappropriatedbythecapitalistsandworkersofthe unproductivesectors.Tocalculatetheoverallsurplusvaluewesubtractfromnetdomestic incomethewagebilloftheproductivesectors.9Wethendividethissurplusvaluebythesum ofthefixedassetsandwagesoftheproductivesectors,togettherateofprofit. Now,unlikeinFigure7,inthischarttheorganiccompositiontrendsupward,asitshould– but,then,sodoestherateofprofit!InMarxistterms,thisrelationshipmeansthatthereare counter‐tendencies that more than offset the long‐term impact of the rising organic composition.Proponentsofthistheorymayagaincontestthatour particular choice of productiveandunproductivesectorsisinappropriate,andmaybetheyareright. Unfortunately,though,thereisnowaytoobjectivelydelineatethetwosectors,andthis inabilitycreatesthetemptationtochoosetheparticularbifurcationwhoseresultshappento beconsistentwiththetheory.Finally,weshouldreiteratethat(1)weareusingneoclassical pricedataratherthan(unavailable)Marxistlabourvalues,sowhatweseeinthesecharts mighthavenothingdowithMarx’stheorytobeginwith;and(2)sincelabourvaluesremain unknown,thereisnowaytoknowwhetherourfindingssupportor undermine Marx’s theory. 8Marxistscommonlyconsiderutilitiesasaproductivesector,buttheyoftenexcludeitfromtheirempirical analysisduetodataproblems.Wefollowthisconventionhere. 9 In their empirical analyses, some Marxists do not follow this proper method; instead, they approximate surplusvaluebysubtractingthewagebillfromtheincomenotofallsectors,butoftheproductivesectorsonly (seeforexample,Carchedi2011).Becausethiscomputationisanalyticallyincorrect,itsresultsaredifficultto interpret.
131 CANCAPITALISTSAFFORDRECOVERY? www.bnarchives.net Surplus Value / (Productive Assets + Productive Wages) (right) Productive Assets / Productive Wages (left) Figure8 RefinedMarxistProxiesfortheU.S.RateofProfitand theOrganicCompositionofCapital 1947‐2012 NOTE: Productive assets are estimated by the replacement cost of net fixed assets in agriculture, construction, mining and manufacturing. Productive wages are estimated by compensation of employees in agriculture, construction, mining and manufacturing. Surplus value is estimated by net domestic product less productive wages. The last data points are for 2012. SOURCE: U.S. Bureau of Economic Analysis through Global Insight (series codes: FAPNRM11, FAPNRM21, FAPCON and FAPM, for net fixed assets in agriculture, mining, construction and manufacturing, respectively; COMPDPNRM11, COMPDPNRM21, COMPDPCON and COMPDPM for compensation of employees in agriculture, mining, construction and manufacturing, respectively; NDP for net domestic product). TheReserveArmyoftheUnemployedandtheRealWage AnotherdriverofcrisisinMarxistherelationshipbetweenthereservearmyofunemployed andtherealwage.ForMarx,unemploymentistheregulatorymechanismthatascertainsthat wages gravitate toward their subsistence level. During a boom, the bargaining power of workersstrengthens,sotherealwagetendstoriseaboveitslabourvalue.Thisrisesqueezes profit,causingcapitaliststoinvestless.Acrisisthenensues,unemploymentrises,andthe realwageiscompressedbacktosubsistence.
132 CANCAPITALISTSAFFORDRECOVERY? www.bnarchives.net (share of labour force, right) (annaul rate of change, left) Figure9 U.S.Unemploymentand‘Real’WageGrowth 1930‐2014 NOTE:Seriesareshownas5‐yeartrailingaverages.The‘real’ wagerateisthenominalhourlywageratedividedbytheimplicit GDPdeflator.Therateofchangeofthe‘real’wageconcatenates theratesofchangeforproductionworkersinmanufacturinguntil 1952andforworkersinthenonfarmbusinesssectorafterwards. Thelastdatapointsare2013forthe‘real’wagerateand2014for unemployment. SOURCE:U.S.BureauofEconomicAnalysisthroughGlobalInsight (seriescodes:PDIGDPfortheimplicitGDPdeflator);Historical StatisticsoftheUnitedStates,EarliestTimestothePresent: MillennialEdition(online)(seriescode: AllManufacturing_Hourly_Ba4361_Dollarsforhourlywagesof productionworkersinmanufacturing[till1938]);U.S.Bureauof EconomicAnalysisthroughGlobalInsight(seriescodes: AHPMFNSforhourlywagesofproductionworkersin manufacturing,computedasannualaveragesofmonthlydata [from1939onward];JRWSSNFEforhourlycompensationof employeesinthenonfarmbusinesssector,computedasannual averagesofquarterlydata[from1947onward]);Historical StatisticsoftheUnitedStates,EarliestTimestothePresent: MillennialEdition(online)(seriescode: Unemployed_AsPercentageOf_CivilianLaborForce_Ba475_Percent fortheunemploymentrate[till1947]);U.S.BureauofLabor StatisticsthroughGlobalInsight(seriescode:RUCforthe unemploymentrate,computedasannualaveragesofmonthly data[1948onward]).
133 CANCAPITALISTSAFFORDRECOVERY? Figure9examinesthisprocesswithrespecttotheUnitedStates.Thechartshowstwoseries. The rate of unemployment, represented by the dashed line, is plotted against the right logarithmicscale.Therateofchangeoftherealwageisshownbythesolidlineandisplotted againsttheleftinvertedscale.Theinversionmeansthatadownwardmovementofthisseries inthechartrepresentsariseintherateofgrowthoftherealwage.Notethatbothseriesare smoothedas5‐yeartrailingaverages. Thisrelationship,whichdoesnotdependonknowinglabourvalues,seemsconsistentwith thespiritofMarx’sclaimsandlookshighlyrobust.Wheneverunemploymentrises,therate ofchangeoftherealwagefalls–andviceversawhenunemploymentfalls.Bothseriesshow asignificantchangeintherun‐uptothecurrentcrisis:unemploymentfellsincetheearly 1980s, and particularly during the 1990s, while the rate of changeoftherealwage acceleratedintandemwiththisfall.Inlightofthesedevelopments,thecrisisofthe2000s couldbe interpreted,atleastinpart,as aclassicalMarxistbacklashsetinmotiontorid capitalistsofexcessivewagessqueezingtheirprofit.Andindeed,sincetheonsetofthecrisis, therateofunemploymenthassoaredandtherateofgrowthoftherealwagehasbeen reducedtoastandstill.Whetherthisprocessistheprincipaldriverofthecrisisofcourseis hardtotell,butitiscertainlyconsistentwithit. But the connection to Marx’s theory here, although intuitively appealing, is ultimately misleading.ForMarx,thesignificanceofthereservearmyliesinitsimpactnotontherateof changeoftherealwage,butonitsabsolutelevel.Figure10examinesthislatterimpact,and thepictureitdepictsisverydifferentfromthatofFigure9.Thechartshowstherateof unemploymentagainsttherightlogscaleandtherealwagelevelagainsttheleftlogscale. Weusetworeal‐wageseries–forproductionworkersinmanufacturingonlyandforall workersinthenonfarmbusinesssector.Bothseriesareexpressedasindices. UnlikeFigure9,thischartseemstopresentananomaly.Wecanseethat,asMarxmighthave expected,thelevelofrealwagesmovedinverselywithunemploymenttilltheearly1940s– yet, from then onward, the relationship inverted. Unemployment started to rise and continued to do so till the early 1980s; but the real wage, insteadoffallingoratleast stagnating, rose in tandem. Moreover, when unemployment stopped rising and even fell duringthe1990s,therealwage,insteadofrising,stagnated.Fromthisviewpoint,thereserve armyoftheunemployednolongerseemstoplaytherolethatMarxallottedtoitinthe nineteenthcentury,atleastnotinanyevidentway.Comparedtotheearlierpostwarera,the realwageduringthe1990sand2000shashardlychanged,soitisdifficulttoseeitasa‘profit squeezing’factorunderlyingthecurrentcrisis.
140 CANCAPITALISTSAFFORDRECOVERY? 5-year moving averages www.bnarchives.net 1950=100 Figure13 ‘Real’GDP,CapitalistIncomeandLabourIncome 1929‐2013 NOTE:‘Real’GDPisachain‐typequantityindex.Pretaxprofitand interestandcompensationofemployeesexcludeincomefrom therestoftheworld.‘Real’incomemeasuresarederivedby dividingthenominalseriesbytheimplicitpricedeflator.Thelast datapointsarefor2013. SOURCE:U.S.BureauofEconomicAnalysisthroughGlobalInsight (seriescodes:JQGDPRforGDP;ZBECONDfordomesticpretax profit;INTNETDBUSfordomesticinterestpayments;YDCOMP fordomesticcompensationofemployees;PDIGDPfortheimplicit GDPdeflator).
141 CANCAPITALISTSAFFORDRECOVERY? Thedifferencebetweenthetwoapproachesliesinthereasonstheygiveforthecrisisand whetherornotitcanbeaverted.Mainstreameconomistsrootcrises in imperfections, distortions and misguided intervention that can be solved or counteracted by adequate policy (primarily deregulatory), whereas Marxists claim that crises are built into the conflictual class logic of capitalism and therefore are difficult to fix and impossible to eliminate.Butbothagreeonwhatconstitutesacrisisinthefirstplace:asharpdeclineinreal economicactivityandincome. CapitalasPower ThetheoryofcapitalaspowerdiffersradicallyfrombothMarxism and mainstream economics(NitzanandBichler2009a;BichlerandNitzan2012b).Capital,itargues,isnotan economicentity,butaninstitutionofpower.So,atitscore,acrisisofaccumulationisnota crisisofproductionorconsumption,butacrisisofcapitalistpower(BichlerandNitzan2010; Kliman,Bichler,andNitzan2011;BichlerandNitzan2012a). Now,whatdowemeanbycapitalistpower?Followingtheexplicitly scientific notion of power, first articulated by Johannes Kepler in 1600, we see capitalist power not as a qualitative stand‐alone entity, but as a quantified relationship between entities. In capitalism, this quantitative relationship is manifested through the distributional grid of incomes and assets between capitalist and non‐capitalist classes, as well as among the capitaliststhemselves.Inotherwords,forcapitalists,redistributionisnotameanstoanend, buttheenditself. Basedonthisnotion,wesuggestedinthelate1990stwotentative conditions for what constitutesasustainedregimeofaccumulation(Nitzan1998).Thefirstandkeyconditionis non‐negativedifferentialaccumulation;inotherwords,thatthecapitalizationofdominant capitalrisesoratleastremainsstablerelativetothecapitalizationoftheaveragefirm.This conditionreflectsboththepowerdriveofaccumulationaswellasthenecessitytoexercise powerinordertobringsocietyundereffectivebusinesscontrol. Thesecondconditionisasteadyorrisingcapitalshareofincome.Thisconditionispartlyan indirectresultofthefirstcondition;however,italsoreflectstheoverallbalanceofpower betweencapitalistsandothersocietalgroups.Unlessthisconditionisfulfilled,the‘capitalist’ natureofthesystemcouldbeputintoquestion. Withinthiscontext,asignificantviolationofoneorbothcriteriabringsthethreatofamajor capitalistcrisis.
142 CANCAPITALISTSAFFORDRECOVERY? Notethattheoperationaldefinitionsofthesetwoconditionsareopen‐ended.Tomakethem precise, we need to clearly delineate capital income, define the boundaries of dominant capital and its referential average, and set the relevant time periods for computing the trajectoriesofthedifferentmeasures.Theremainderofthissectionpresentsatentative, broad‐brush approximation of thesetwopowerprocesses,examines their politicaleconomicunderpinnings,andassesseswhattheymightmeanforpolicymakinginaworld wherecapitalispower. TheEvolutionofCapitalistPowerintheUnitedStates Figure14examinesthehistoricalevolutionofourtwocriteriaintheUnitedStates.Thechart, whichrevisesandupdatesresearchthatwefirstpresentedinthelate1990s(Nitzan1998), showstwocomprehensivemeasuresofcapitalistincome.Capitalistincomeisdefinedhere aspretaxprofitandnetinterest–orwhattheaccountantscallEBIT,anacronymfor‘earnings beforeinterestandtaxes’. Beginwiththetopdottedseries.Thisseries,plottedagainsttheleftarithmeticscale,shows theshareofpretaxprofitandnetinterestinoverallnationalincome.Theunmistakabletrend of the series is up. Since 1929, the relative power of capitalists, measured here by their income share, has risen by one third – from roughly 12 per cent to about 16 per cent. Furthermore,thevolatilityofthisshare,indicatedbythegradualconvergenceofthetopand bottomdashedlines,hasbeenreducedsignificantly.Andifwetakevolatilityasaproxyfor risk,wewouldconcludethattheriskfacingcapitalistshasdeclinedaswell. Thebottomseries,plottedagainsttherightlogscale,showsthedifferentialcapitalistincome ofthelargest200U.S.‐incorporatedfirms(weuseincomeratherthancapitalizationhere, sincethelattermeasureisunavailableformostfirms).ThisdifferentialshowstheEBITof an average corporation in the top 200 group relative to the EBIT of an average U.S. corporationandiscalculatedinthreesteps:(1)bycomputingtheaverageEBITofthelargest 200firms;(2)bycomputingthesumofpretaxprofitandnetinterestfortheaverageU.S. corporation;and(3)bydividingtheformerbythelatter. Heretoothepatternisremarkable.Sinceweareusingalogscale,theslopeofthelineis indicativeofitsrateofchange.Overall,thedifferentialincomeofthetop200U.S.‐basedfirms rosefromabout1,000intheearly1950stonearly18,000bythemid2000s,representingan averageannualdifferentialaccumulationofover4.5percent.10 10Theverysamepattern,althoughlesssteep,isdepictedbythedifferentialcapitalincomeofthetop0.01%of domesticallyincorporatedU.S.firms.Forfurtheranalysisofthislattergroup,seeBichlerandNitzan(2012a).
143 CANCAPITALISTSAFFORDRECOVERY? www.bnarchives.net Pretax Profit and Net Interest as a Share of National Income (left) Ratio of Pretax Profit and Net Interest per Firm Top 200 Corporations / All Corporations (right) 5,164 4,367 17,801 12,852 15,137 Figure14 CapitalistIncomeShareandDifferentialCapitalistIncome 1929‐2013 NOTE:Aggregateprofitispretaxandincludescapitalconsumption adjustment(CCAdj)andinventoryvaluationadjustment(IVA). Capitalistincomeforthetop200firms,rankedbymarketvalue,is estimatedbyEBIT(earningsbeforeinterestandtaxes).Thetop 200firmsareselectedfromU.S.‐incorporatedfirmsin Compustat’sNorthAmericandataset(excludingfirmswithno assets,thosereportingnoEBIT,andduplicates).Differential capitalistincomeistheaverageEBITforatop‐200corporation dividedbytheaveragepretaxprofitandnetinterestper corporation.Thenumbersnexttothebottomseriesdenoteits respectivevaluesin1980,1982,2007,2009and2013.Thelast datapointsarefor2013. SOURCE:U.S.BureauofEconomicAnalysisthroughGlobalInsight (seriescodes:ZBECONfordomesticpre‐taxprofitwithCCAdj& IVA;INTNETAMISCfornetinterest;YNfornationalincome);The numberofactivecorporationsisfromHistoricalStatisticsofthe UnitedStates,EarliestTimestothePresent:MillennialEdition (online)(seriescodes:Ch13,till1989)andtheIRS(for1990‐ 2011).Thenumbersfor2012‐13areextrapolatedusingthe averagegrowthratefor2002‐2011(1.3%).Compustat‘funda’file throughWRDS(seriescodesforCompustatcompanies:EBITfor earningsbeforeincomeandtaxes;CSHOfornumberof outstandingshares;PRCC_Cforclosingshareprice).
144 CANCAPITALISTSAFFORDRECOVERY? Notethataswemovefromviewingcapitalasaneconomicentitytoseeingitasrelationship ofpower,thepictureinverts.Whereaseconomicgrowth,theaccumulationofso‐calledfixed assetsandthegrowthofreallabourandcapitalincomehavealldeceleratedsincethe1960s, the differential power of capitalists in general and of dominant capital in particular has trendedupward. TheTwoCrisesofCapitalasPower Theincreaseindifferentialcapitalistincomesincethe1950shasbeenrelativelysmooth– withtwoexceptions:twobriefperiodsinwhichdominantcapitalexperienceddifferential decumulation.(1)Inthelate1970s,differentialaccumulationstartedtodecelerate,andby theearly1980s,itsufferedadeep,15percentdrop.However,withRonaldReaganinthe White House, monetarism back in the driver’s seat and neoliberalism in full swing, the increasequicklyresumedandlastedforanothertwentyyears.(2)Duringtheearly2000s, theprocessagainstartedtoslowdown,andin2007therewasamarkeddecline:inthe followingtwoyears,thetop200firmssawtheirdifferentialincomedropbynearly30per cent;andalthoughthedifferentialhassincerisen,its2013levelisstill15percentbelowits historicalpeak. Thelate2000sepisodeisdifferentfromtheoneintheearly1980sintworespects.First,in the 1980s, while dominant capital was suffering differential decumulation, the share of capitalinnationalincomewasactuallyrising.Bycontrast,inthelate2000s,bothdifferential accumulationandthecapitalistshareofincomewerefalling.Second,andperhapsmuch moreominouslyforcapitalists,nowadaysbothmeasuresofpowerareprobablymore difficulttoincreasethantheywereduringthe1980s. Withrespecttodifferentialaccumulation,thisgreaterdifficultyisevidentfromthemerefact thatthedifferentialEBITofthetop200corporationsisnowroughlythreetimeshigherthan itwasinthe1980s.Pushingthismagnitudeevenfurther–letalonehavingitgrowatits average historical rate of 4.5% – will require an avalanche of mergers and acquisitions commensuratewiththemammothsizeofdominantcapitaland/orintense measures to increasedifferentialmarkupsmoreandmore–analreadytallorderthatwillgroweven tallerwitheveryfurtherincreaseinthedifferentialsizeofdominantcapital(onstrategies andregimesofdifferentialaccumulation,seeNitzan2001;NitzanandBichler2009a:Chs. 15‐17).
145 CANCAPITALISTSAFFORDRECOVERY? CapitalasPowerandStrategicSabotage Tounderstandthelimitsontheoverallshareofcapitalinnationalincome,weturnnowto thetwolastchartsofthepaper–Figures15and16(fortheearliestpresentationofthis relationship,seeNitzanandBichler2000;forrecentcommentary,seeBichlerandNitzan 2014).Therelationshippresentedinthesefiguresmightseemcounter‐intuitive–butonlyif youtakeyourcuefromthe‘economic’ understanding of capitalism.Ifyoulookatthese relationshipsfromtheviewpointofcapitalaspower,thepuzzlequicklydisappears. Figure 15 shows the overall shareofcapitalindomesticincomealongwiththerateof unemployment.Thetoppaneldisplaysthelevelsofthetwovariables,bothsmoothedas5‐ yeartrailingaverages.Thesolidline,plottedagainsttheleftlogscale,showspretaxprofit andnetinterestasapercentofdomesticincome.Thedottedline,plottedagainsttheright logscale,showstherateofunemploymentthreeyearsearlier.Thebottompanelshowsthe annualratesofchangeofthetwotopvariablessince1940. Thesamerelationshipisdisplayed,somewhatdifferently,inFigure16.Thischartshowsthe twovariablesfromFigure15forthe1947‐2013period–butinsteadofplottingthemagainst time,itplotsthemagainsteachother(forananalysisoftheentire1929‐2013period,see Bichler and Nitzan 2014). The capitalistshare of domestic income is plotted against the verticalaxis,whiletherateofunemploymentthreeyearsearlier is plotted against the horizontalaxis.11 Thedirectionandtightnessofthisrelationshipleavelittletotheimagination.Ifweregress thecapitalistshareofdomesticincomeagainsttherateofunemploymentthreeyearsearlier, wefindthatforevery1percentincreaseinunemployment,thereis0.8percentincreasein thecapitalistshareofdomesticincomethreeyearslater(seethestraightOLSregressionline goingthroughtheobservations).TheR‐squaredoftheregressionindicatesthat,between 1947and2013changesintheunemploymentrateaccountedfor82percentofthesquared variationsofcapitalistincomethreeyearslater. 11Thethree‐yearlagbetweenchangesinunemploymentandchangesinthecapitalistincomesharesuggests that the redistributional impact of the underlying sabotage is notimmediate.Theprecisemappingofthis process,though,requiresfurtherinvestigation.
146 CANCAPITALISTSAFFORDRECOVERY? Three Years Earlier (right) Share of Domestic Income (left) www.bnarchives.net Figure15 U.S.Unemploymentandthe DomesticIncomeShareofCapital 1920‐2014 NOTE:Seriesshowannualdatasmoothedas5‐yeartrailing averages.Profitispre‐taxandincludescapitalconsumption adjustment(CCadj)andinventoryvaluationadjustment(IVA). Theunemploymentrateisexpressedasashareofthelabour force.Thelastdatapointsare2013forprofitandinterestand 2014forunemployment. SOURCE:U.S.BureauofEconomicAnalysisthroughGlobalInsight (seriescodes:GDYfordomesticincome;ZBECONDfordomestic pre‐taxprofitwithCCAdj&IVA;INTNETDBUSfordomesticnet interest);HistoricalStatisticsoftheUnitedStates,EarliestTimesto thePresent:MillennialEdition(online)(seriescode: Unemployed_AsPercentageOf_CivilianLaborForce_Ba475_Percent fortheunemploymentrate[till1947]);U.S.BureauofLabor StatisticsthroughGlobalInsight(seriescode:RUCforthe unemploymentrate,computedasannualaveragesofmonthlydata [1948onward]).
147 CANCAPITALISTSAFFORDRECOVERY? www.bnarchives.net Figure16 U.S.Unemploymentandthe DomesticIncomeShareofCapital 1947‐2013 NOTE:Seriesshowannualdatasmoothedas5‐yeartrailing averages.Profitispre‐taxandincludescapitalconsumption adjustment(CCAdj)andinventoryvaluationadjustment(IVA). Theunemploymentrateisexpressedasashareofthelabour force.Thelastdatapointsarefor2013. SOURCE:U.S.BureauofEconomicAnalysisthroughGlobalInsight (seriescodes:GDYfordomesticincome;ZBECONDfordomestic pre‐taxprofitwithCCAdj&IVA;INTNETDBUSfordomesticnet interest);HistoricalStatisticsoftheUnitedStates,EarliestTimesto thePresent:MillennialEdition(online)(seriescode: Unemployed_AsPercentageOf_CivilianLaborForce_Ba475_Percent fortheunemploymentrate[till1947]);U.S.BureauofLabor StatisticsthroughGlobalInsight(seriescode:RUCforthe unemploymentrate,computedasannualaveragesofmonthlydata [1948onward]). CanCapitalistsAffordRecovery? WhatdoFigures15and16tellus?Fromtheviewpointofbothmainstreameconomicsand Marxism, the relationships in these figures are highly counterintuitive (the conventional viewisthatthecapitalincomeshareispro‐cyclical–seeGiammariolietal.2002;Schneider 2011–exactlytheoppositeofwhatweseeinthefigures).Becauseaccumulationandgrowth areseenastwosidesofthesameprocess,unemploymentisgenerallyviewedasacursefor
148 CANCAPITALISTSAFFORDRECOVERY? bothcapitalistsandworkers.Asnoted,Marxwasprescientinidentifyingtheroleofrising unemploymentindiscipliningworkersandreducingtheirwagesbacktotheirlabourvalues. But this process is supposed to serve accumulation only for brief periods, particularly toward the peak of the business cycle. Over the longer haul, though, capitalists, just like workers, are interested in growth and therefore in low unemployment, not high unemployment. Figures15and16portrayacompletelydifferentprocess,withwide‐rangingimplications. Here,thedrivingforceofcapitalismisnotabsolutebutrelative:itisnoteconomicgrowth andtheaccumulationofproductivemachinesandstructuresthatcount,butthedifferential accumulation of capitalized power. Now, understood as a power process, differential accumulationrequiresstrategicsabotage,andthissabotagecantakedifferentforms.We haveexploredmanyoftheseformsinourpreviousworks,andthere are now young researcherswhoareextendingthisinquiryintonewfieldsandregions.12Butasthecharts vividly illustrate, of these many processes of sabotage, the threatandexerciseof unemploymentremainscentralandcrucial–notonlytemporarilyasMarxsuggested,but permanently. Thisclaimhassignificantimplicationsforeconomicpolicy.Asitturnsout,theproblemof policymakersisnotonlythattheirdogmahascollapsedandthattheirammunitionhasrun out,butalso,andmoreimportantly,thattheirverypolicygoalisself‐contradictory.Capitalist policyisgeared,firstandforemost,towardaccumulation.Ifaccumulationrecovers,argue bothMarxistsandliberals,economicgrowthwillrecoverintandem,andthetideofgrowth willthenhelpliftupallboats–includingthoseofworkers–byloweringunemploymentand raisingtherealwage. This logic, though, is premised on capital being a ‘real’ economic entity. However, if we insteadthinkofcapitalaspower,thereisnowayforpolicymakerstoachievebothgoals simultaneously, and for a simple reason: capitalistscannotaffordrecovery.Inorderfor policymakerstoboostthecapitalistshareofincome,theyneednottolowerunemployment, buttoraiseit. 12See,forexample,theeditedvolumeofTimDiMuzio(2013)onthecapitalistmodeofpower.Otherworks include Syed Ozair Ali (2011) on stagflation in Pakistan, Joseph Baines (2013) on food profit and malnourishment,JordanBrennan(2012)ondominantcapitalandincomeinequalityinCanada,D.T.Cochrane andJeffMonghan(2013)ondifferentialaccumulationandstrugglesinSouthAfrica’sApartheid,TimDiMuzio (2012) on the ecological limits of differential accumulation, Sandy Brian Hager (2013a, 2013b) on the centralizationofpublicdebtownership,JosephFrancis(2013)onregimesofdifferentialaccumulationinthe United States and United Kingdom, Suhail Malik and Phillips Andrea (2012) on the art business, James McMahon(2013)onHollywood’sriskreductionthroughstandardizationandHyeng‐JoonPark(2013b,2013a) ondifferentialaccumulationinthedevelopmentofmodernSouthKorea.
149 CANCAPITALISTSAFFORDRECOVERY? Withthesethoughtsinmind,thefinalquestiontoaskiswhatliesahead?Iftherelationship depictedinFigure15continuestohold,theshareofcapitalistsinU.S. domesticincome, expressedasafive‐yeartrailingaverage,issettorisefurtherinthecomingyears.Thecrisis has raised unemployment to its highest level since the 1930s, so looking forward, this increaseinstrategicsabotageshouldboostthepowerofcapitalandthereforeitsdistributive shareofincome. Butcapitalistsarenevercontentwiththestatusquo.Theirregimecompelsthemtoaugment theircapitalizedpowerfurtherandfurther,andthatmeansmorestrategicsabotageand thereforeevengreaterunemployment.Anditisthisneedforevergreatersabotage–andthe riskofbacklashthatrecordlevelsofsabotagemaytrigger–thatfuelsthelingeringsystemic fearofbothcapitalistsandtheirpolicymakers.