America: from progressive to rentier

US capitalism is no longer a progressive force in the development of productive forces.  What do I mean?  An economy is ‘progressive’ in the sense that it develops more and new things that people can use to improve their living standards and reduce their hours of toil.  Capitalism is a social mode of production that has been progressive in that sense.  ‘Progressive’ does not mean that the capitalist system is fair, equal or just, just that it has raised the production of things we use and need to new heights.

But US capitalism has now got old and less and less progressive.  The US capitalist economy now has more sectors of its economy that act as a parasites on the productive sectors of the economy, living off the value generated there.  These parasitic sectors do not produce value but merely usurp or extract that value from the productive sectors, indeed to the point where they seem more profitable.  These unproductive sectors include finance, real estate, insurance (called FIRE), wholesale merchanting, advertising and marketing and government.   Many of them may be necessary to capitalism in lubricating the system with credit or providing a healthy and educated workforce.  But they are at a cost to the productive sectors, like manufacturing, agriculture, mining, utilities, transport and communications.

For US capitalism to be progressive then, these productive sectors must be dominant.  They are no longer.

I looked at data going back to 1799 (see the Historical Statistics of the United States 1799-1945, published by the US Bureau of Census).  Back in 1799, agriculture was the dominant sector in the US economy with 40% of output followed by transport at 24%.  Manufacturing was just 5% of output.  Just before the start of the second world war in 1937, manufacturing was the dominant sector peaking at 31% of GDP compared to 12% for agriculture by then (transport was more or less the same share).   The US did not become a predominantly industrial capitalist economy until 1900, when manufacturing share’s finally surpassed that of agriculture at around 20% of GDP.

It really took off in the interwar period as the US became the greatest manufacturing nation in the world (which by the way it is still is – China has not quite surpassed it yet in billions of dollars of value, although it is about to) .

But by 1937, the productive sectors of the US economy were predominant, contributing nearly 60% of annual output.  The really parasitic parts of the economy (FIRE) were still little more than 10% of annual output.

But that was the peak.  After 1945, US manufacturing became less and less the dominant sector in the economy, dropping from 28% in 1950 to just 11% of GDP now.  At the same time, FIRE’s share rose from 11% to just under 22% now, a  doubling.  The services sector, especially government, also grew significantly in size and the productive sectors of the capitalist economy are now in a minority.

The key tipping point was when FIRE’s share of national output exceeded manufacturing in 1985.  From then on, US capitalism has become increasingly a rentier economy – more value now comes from interest, rents and dividends than from manufacturing.  FIRE’s share of added value has been hived off from the productive sectors (both those within the US and from abroad).

It is well documented that financial sector profits have risen sharply compared with non-financial profits in the US economy, at one point reaching over 40% of all domestic profits.  But there has also been an even more significant rise in profits from overseas.  That’s nearly quadrupled since 1950, while financial profits have just doubled as a share.  US non-financial domestic profits have dropped by one-third.  Domestic non-financial profits still constitute the biggest share but we are close to the point when profits from the financial and overseas sectors will contribute more than half of all US corporate profits.

That would make the US truly an imperialist rentier economy.  America is no longer the progressive force in the world but a parasite on other capitalist economies.

5 Responses to “America: from progressive to rentier”

  1. Imported from Detroit « Louis Proyect: The Unrepentant Marxist Says:

    […] Marxist economist Michael Roberts thinks not. On his blog he asserted that “US capitalism is no longer a progressive force in the development of […]

  2. Matt Says:

    Michael Hudson states that greater than 50% of asset values in the US are locked up in landed property. It would be interesting to see this documented.

    -Matt

  3. purple Says:

    No doubt there are financial and non-financial aspects to overseas profits. I just see the category as an expression of the non G7 world’s growth since about 1980. I don’t think it is strictly rentier. The growth does show the US internal market, the bulwark of U.S. imperialism*, is much less of a factor than it used to be.

    *(Consider that the U.S. bought off Japan and much of East Asia in the Cold War by allowing unfettered access to its markets.)

    • michael roberts Says:

      Purple
      I agree that rising overseas profits represent a shift of US accumulated capital overseas (ie foreign direct investment) away from domestic investment. What I was trying to say that US capitalism no longer develops the productive forces in the US – it’s increasingly imperialist in orientation.

  4. steve307a Says:

    The US has indeed become a rentier state through the increasing dominence of finance. This change from being a manufacturing economy to one based on financial and finance related industries like insurance and real estate was the effect of neo-liberal, free market economic strategies that offshored US manufacturing to low wage countries and financed the importation of cheap goods by recycling the trade surpluses of our trade partners through US capital markets, especially bonds, to suppress interest rates and keep consumer loans affordable. The fed no longer controls monetary policy to the extent that it once did; global capital markets shift more money across borders every day than all the large capitalist nations’ central banks have in reserve combined!! According to the BIS in mid-2008, over $4 trillion in daily FOREX trading alone takes place!! The US and global economies are certainly financialized as the growth of the real economy of goods and services shrinks by comparison. Much of this has to do with the stagnation of real wage growth.

    The redistribution of wealth upwards for the past thirty years has created global economic stagnation and consequent financialization as workers and governments borrow to meet expenses rather than rely on real wage growth and progressive taxation, respectively. This has swelled the financial sector which became the driver of the western capitalist economies. According to reports in the financial press, the top five US banks collectively awarded about $95 billion just in bonuses at all levels of management in an industry which, according to NAICs, has higher average salaries than in non-financial industries. If only this money would have been added to the fiscal stimulus plan! THe financial industry is flush with cash and won’t lend it due to excessive risk in the unstable real economy and because financing rapid economic growth and full employment will ultimately raise wages and lower the profits of capital.

    The only way to reverse this trend is to redistribute income back downward. Federal government job creation programs in good paying green jobs and the legal defense of collective bargaining for workers is a good start on the long road to economic justice and stability.

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