We know there is a crisis going on, but how to understand it? The article quoted here from the Monthly Review by is a tremendous analysis of what is going on - the Great Stagnation of the advanced economies (US, Euope and Japan). It is by leftwing economists and so apologies to non-economists. The writers predicted a crisis caused by a bursting housing bubble as early as 2002. Essentially the analysis boils down to the long-term decline in production as a portion of economic activity in the Triad (advanced) economies, the growth of financialisation of the economy (asset bubbles) and the declining share in national income going to wages. The libertarian right believe that a 'free market' economy, as existed in the early 19th century can somehow be recreated. The left should have no such illusions because such an economy requires extremely primitive social conditions and very low wages. It would also require the abolition of corporations, which, seems highly improbable - although Occupy are demanding the end of corporate personhood, which would be a vital step to undermining corporate power.
Being able to describe what is happening is not the same as offering a solution, which this article does not do. But starting from an accurate understanding of reality is necessary if one is going to find a way to a better place. The writers conclude that a new system is needed - but what?
Here are some nuggets of insight that I have extracted:
Being able to describe what is happening is not the same as offering a solution, which this article does not do. But starting from an accurate understanding of reality is necessary if one is going to find a way to a better place. The writers conclude that a new system is needed - but what?
Here are some nuggets of insight that I have extracted:
Neoclassical economists and mainstream social science generally have long abandoned any meaningful historical analysis. Their abstract models, geared more to legitimizing the system than to understanding its laws of motion, have become increasingly other-worldly—constructed around such unreal assumptions as perfect and pure competition, perfect information, perfect rationality (or rational expectations), and the market efficiency hypothesis. The elegant mathematical models developed on the basis of these rarefied constructions often have more to do with beauty in the sense of ideal perfection, than with the messy world of material reality.
As Paul Krugman put it, “the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth.”
“The normal state of the monopoly capitalist economy,” Magdoff and Sweezy declared, “is stagnation.” According to this argument, the rise of the giant monopolistic (or oligopolistic) corporations had led to a tendency for the actual and potential investment-seeking surplus in society to rise. The very conditions of exploitation (or high price markups on unit labor costs) meant both that inequality in society increased and that more and more surplus capital tended to accumulate actually and potentially within the giant firms and in the hands of wealthy investors, who were unable to find profitable investment outlets sufficient to absorb all of the investment-seeking surplus.
...Stagnation theory, in this sense, did not mean that strong economic growth for a time was impossible in mature capitalist economies—simply that stagnation was the normal case and that robust growth had to be explained as the result of special historical factors. This reversed the logic characteristic of neoclassical economics, which assumed that rapid growth was natural under capitalism, except when outside forces, such as the state or trade unions, interfered with the smooth operation of the market. Stagnation also did not necessarily mean deep downturns with negative growth, but rather a slowing down of the trend-rate of growth due to overaccumulation. Net investment atrophied, since with rising productivity what little investment was called for could be met through depreciation funds alone. Stagnation thus assumed steady technological progress and rising productivity as its basis. It was not that the economy was not productive enough; rather it was too productive to absorb the entire investment-seeking surplus generated within production.
...Since the 1960s West Germany, France, the United Kingdom, Italy, and Japan have all seen even larger declines, when compared to the United States, in their trend-rates of growth of industrial production. In the case of Japan industrial production rose by 16.7 percent in 1960–70 and by a mere 0.04 percent in 1990–2010. The story shown... is one of deepening stagnation of production—already emphasized by Sweezy and Magdoff in the 1970s and ‘80s. ...this led—especially from the 1980s on—to a shift in the economy from production to speculative finance as the main stimulus to growth. Thus the FIRE (finance, insurance, and real estate) portion of national income expanded from 35 percent of the goods-production share in the early 1980s to over 65 percent in recent years. ...The dramatic rise in the share of income associated with finance relative to goods production industries has not, however, been accompanied by an equally dramatic rise of the share of jobs in financial services as opposed to industrial production. Thus employment in FIRE as a percentage of employment in goods production over the last two decades has remained flat at about 22 percent. This suggests that the big increase in income associated with finance when compared to production has resulted in outsized gains for a relatively few income recipients rather than a corresponding increase in jobs.
...A central cause of this stagnation tendency is the high, and today rapidly increasing, price markups of monopolistic corporations, giving rise to growing problems of surplus capital absorption. Taking the nonfarm business sector as a whole, the price markup on unit labor costs (the ratio of prices to unit labor costs) for the U.S. economy over the entire post-Second World War period averaged 1.57, with a low of around 1.50 in the late 1940s. However, from the late 1990s to the present the markup on unit labor costs—what the great Polish economist Michal Kalecki referred to as the “degree of monopoly”—has climbed sharply, to 1.75 in the final quarter of 2011. As stated in The Economic Report of the President, 2012: “The markup has now risen to its highest level in post-World War II history, with much of that increase taking place over the past four years. Because the markup of prices over unit labor costs is the inverse of the labor share of output, saying that an increase in the price markup is the highest in postwar history is equivalent to saying that the labor share of output has fallen to its lowest level.”
....the last few decades have seen the intensification of a growing trend today towards monopolization in the U.S. and global economies, reflected in: (1) concentration and centralization of capital on a world scale, (2) growth of monopoly power and profits, (3) the developing global supply chains of multinational corporations, and (4) the rise of monopolistic finance. The total annual revenue of the five hundred largest corporations in the world (known as the Global 500) was equal in 2004–08 to around 40 percent of world income, with sharp increases since the 1990s.50 This strong monopolization tendency, however, is scarcely perceived today in the face of what is characterized in the conventional wisdom as ever-greater competition between firms, workers, and states.
...The theory of the multinational corporation, as developed by Stephen Hymer, saw the rise of these globe-trotting firms as the product of the growth of the concentration and centralization of capital and monopoly power worldwide. Rather than a competitive market structure, as envisioned in orthodox economics, what was emerging was a system of global oligopolistic rivalry for the domination of world production by a smaller and smaller number of global corporations. Hymer went on to connect this to Marx’s theory of the industrial reserve army of the unemployed, explaining that the monopolistic multinational corporations were in the process of creating a new international division of labor based on the formation of a global reserve army, and the exploitation of wage differentials worldwide (or the global labor arbitrage). This global restructuring of production adopted a divide and rule approach to labor worldwide.
...The biggest question mark generated by this new phase of accumulation today is the rapid growth of a few large emerging economies, particularly China and India. The vagaries of an accumulation system in these countries based on the exploitation of massive reserve armies of workers (in China a “floating population” of peasants) in the hundreds of millions, which cannot be absorbed internally through the standard industrialization process, makes the future of the new Asia uncertain. The imperial rent exacted by multinationals, who also control the global supply chains, means that emerging economies face what may appear to be an open door to the world market, but must proceed along paths controlled from outside. The vast inequality built into a model of export-oriented development based on low-wage labor creates internal fault lines for emerging economies. China is now the site of continual mass protests, occurring on a scale of hundreds of thousands annually.
No comments:
Post a Comment