Productivity, deflation and depression

Global productivity growth slowed for the third year in a row, according the US Conference Board stats.  The Board reckons that output per person employed grew just 1.7% in 2013, down from 1.8% in 2012, 2.6% in 2011 and 3.9% in 2010. Growth has only slowed in two previous years in the recessions of 2001 and the Great Recession of 2008. And these figures include all the previously fast-growing emerging capitalist economies of India and China.

This slowdown seems to me another signal that the world economy (or at least the advanced capitalist economies) is struggling with a depression.  It also shows that increasingly world capitalism is failing to provide dynamic growth
(see my post,  I delved into the Conference Board data and calculated productivity growth in the advanced economies since the 1960s.  This is the graph of what I found.

AE annual productivity growth

In the next graph, you can see that the dynamism of the advanced economies has been waning decade by decade.

AE annual productivity growth

Globalisation and the hi-tech revolution of the 1990s reversed the productivity growth decline in the 1990s, but in this century productivity growth in the advanced economies has headed towards stagnation.  Only productivity growth in the emerging economies has enabled world productivity growth to stay near 2% a year – and, as the Conference Board data show, it has not stopped productivity growth slowing in the last three years.

Real GDP growth can be considered as made up with two components: productivity growth and employment growth.  The first shows the change in new value per worker employed and second shows the number of extra workers employed.  The mainstream neoclassical economics view is that these components are independent of each other and are exogenous to the economy.  Technological advances and population growth are independent variables to the processes of the capitalist mode of production.

The Marxist view is the opposite: that they are endogenous.  In Marxist economics, employment growth does not depend on population growth as such but on the demand for labour by the capitalist sector of the economy.  Capitalist investment is the determining variable and employment is the dependent one.  Capital accumulation can be positive for employment as investment grows, but it can also be negative as machines, technology (robots) replace labour (see my post  Similarly, productivity growth is really the flipside of the growth in investment.  Capital accumulation aims to raise profitability by the introduction of new techniques that raise productivity and relative surplus-value.  No new technique is introduced unless the individual capitalist reckons it will deliver more value than otherwise.

The flaw in the capitalist productivity process is that the drive for more productivity to undercut rival capitalists leads to a tendency of the rate of profit to fall that, over time, exerts itself over the rise in the rate of surplus value and other counteracting factors to that tendency (see my post, This leads to a crisis of profitability that can only be resolved by a slump and the devaluation of the existing capital employed in order to start the process of accumulation and growth again.

What the productivity growth figures show is that the ability of capitalism (or at least the advanced capitalist economies) to generate better productivity is waning.  Thus capitalists have squeezed the share of new value going to labour and raised the profit share to compensate.  But above all, they have cut back on the rate of capital accumulation in the ‘real economy’, increasingly trying to find extra profit in financial and property speculation. Look at the growth in the accumulated stock of capital in the advanced capitalist economies.

average annual capital stock(5)

So we have productivity growth of under 2% a year in the world – that’s about 3% in emerging economies and under 1% for the advanced economies, which currently represent 52% of world GDP (the forecast for that share is a slip to 48% by 2025).


As the Conference Board put it: “Emerging markets, and especially China, account for the bulk of world’s productivity growth.  But the years of rapid, easy improvement appear to be over. Since these countries remain significantly less productive than mature economies in US dollar terms, the ongoing shift of economic activity away from the latter adds to the global productivity slowdown.”

The story for productivity is repeated for employment growth in the advanced economies. Employment growth is way less than 1% a year in the 21st century.

AE employment growth

If you add (to productivity growth) an employment growth rate globally of just 1% a year, then global growth is going to be little more than 3% a year for the next decade (and a maximum of just 2% a year for the advanced economies), unless this ‘depression’ rate of growth and employment is simply a cyclical downturn that will swing up as the world economy recovers. The evidence of the data suggests that it is not and the dynamism of world capitalism is waning.  Marxist economics would say that is because investment growth is waning and that is because profitability remains low by the standards of the golden age of the 1960s and below levels even in the 1990s.

Neoclassical economics likes to use a more sophisticated measure of productivity called total factor productivity.  This measures not just the productivity of labour employed, but also the productivity achieved from innovations. Actually it is just a residual from the gap between real GDP growth and the productivity of labour and ‘capital’ inputs.  So it is really a rather bogus figure. But taking it as face value, the Conference Board finds that total factor productivity dropped below zero for the global economy in 2013 indicating “stalling efficiency in the optimal allocation and use of resources.”

Worse, as productivity growth slows, it seems that global inflation is also slowing with several key economies heading into a deflation of prices – another classic indicator of depression.  This is worrying the IMF and IMF chief, Christine Lagarde, appealed to central banks to act against this “ogre of deflation”.  We ordinary mortals may think that static or falling prices is good news for our cost of daily living, but for the  strategists of capital it means tighter profit margins, weaker investment growth and an end to ‘recovery’.  If people expect prices to fall, they hold back on spending until they do. And if there is no inflation, then those corporations or governments with large debts find no relief from any fall in the real value of debt. So they must find more of their taxes or profits to repay debt.

Slowing productivity and debt deflation – these are serious indicators of this depressionary era.

9 thoughts on “Productivity, deflation and depression

  1. Deflation is essentially a drop in the price of commodities and that is directly related to the drop in the value of commodities which in turn is related to the increasing productivity of the working class. Real wages peaked in the early 70s in the USA. Holding real wages down has helped solve the problems involved with the tendency of the rate of profit to fall. Problem is that workers are the market and to drive increased sales (after all read GDP is based on the total sales of commodities) workers would need rises in their real wages and that rise lower the rate of profit.

    Poor capitalists caught in a wage system of their own devise. Even with real wages stagnant the ‘deflation’ of prices of commodities necessary to live can be better coped with if they are falling.

    Never fear, me cappos, the State can come to the rescue by ‘deflating’ the currency.

  2. If that, “Problem is that workers are the market and to drive increased sales (after all read GDP is based on the total sales of commodities) workers would need rises in their real wages and that rise lower the rate of profit.” were indeed the problem then we would never be able to account for a recovery in profitability in both rate and mass during/after a recession, as occurred in the US,2003-2004, and has occurred since 2009

    1. Why not? The rise in profitability goes perfectly well with stagnating real wages and increasing productivity. Increased sales on a global scale can also be engineered through the lower prices which go along with the increased productivity. The steady decline in the price of the USD also helps both to drive down real wages and gain global market share. And then, there are the seemingly endless credit bubbles which give the appearance of value but only exist as price.

      1. Because you said that the “Problem is that workers are the market and to drive increased sales (after all read GDP is based on the total sales of commodities) workers would need rises in their real wages and that rise lower the rate of profit.”

        Recoveries are initiated with a decline in real wages, ala 2001-2003, 2009–?

        The items you list as mitigations are indeed mitigations, but they do not explain how, if the problem is that “the workers are the market” capitalist recovery, profitability and profit, is achieved at the expense of this market?

        The answer is quite simply that the workers are NOT “the market”– that “consumption” as such does not exist as a category outside the mechanisms of exchange; so the problem has to be between labor and the conditions of labor, of its exchange– i.e. value production.

      2. I see. BTW, I meant real (not read) GDP up there. I thought the ‘real GDP’ decline was the problem.

        I fail to see how 90% of the people (the ones who are dependent on selling their labour power for wages) aren’t the market for most of the commodities that they produce. The USA has a large internal market, although US capitalists do export some of the goods and services the own after paying wage labour, outside that internal market.

        Real wages have been declining in the USA since their peak in ’71. I’m sorry you got the impression that I was arguing that wages (or working conditions for that matter) are outside the social relation of Capital. Tantalizing to consider the notion that Capital has been in ‘recoveries’ since 1971.

      3. Capital hasn’t been in recovery since 1971; but the bourgeoisie have certainly been on the offensive since 1973– and that offensive has been a pretty steady assault on wages and compensation. Certainly we wouldn’t argue that the market for capitalist production, the accumulation of capital has declined, contracted steadily throughout the last 40 years.

        The flattening of wages in the US, and in the advanced countries in general occurs during periods of expansion and contraction. It is determined, but not determining.

      4. The stagnation in real wages does contribute to the capitalists’ ability to combat the tendency of their rate of profit to fall. I think it also backfires in terms of attempts to raise the real GDP because it cuts into the available cash in the market thus, contributing to sluggish sales of finished commodities.

  3. Aggregate demand isn’t only from workers’ wages and final consumption numbers include sales to non-workers. The massive growth in inequality has made this consumption even more significant. And of course there’s the investment element of demand.

    1. Point taken. The market also includes landlords, capitalists and sole traders (e.g. independent lawyers and prostitutes). It appears that the investment element of demand has to some extent been used for capital equipment and raw materials; but has largely been flowing toward debt instruments of various kinds and speculative trade in politically restricted markets e.g. real estate, which of course again blows up prices above value.

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