One of the main themes of this year’s annual conference of the American Economics Association, ASSA 2017, was whether capitalism was slowing down. Was the productivity of labour (output per ASSAworker or per hours worked) no longer growing at previous trend rates and indeed capitalism was entering some level of permanent stagnation?
If capitalism could no longer develop the productive forces effectively, then its historical raison d’etre disappears. Of course, the ASSA assembly of 13,000 economics professors and graduate students, mainly from American universities, to hear hundreds of economics papers did not see the ‘productivity puzzle’, as it has been called, like that.
In the largest hall, the leading mainstream economists of our time debated the issue of slowing productivity growth, confirmed by all the measures, and what this meant. Olivier Blanchard, former chief economist at the IMF, doubted that productivity was being measured properly at all. Barry Eichengreen from Berkeley University was more confident of measurement, but argued that there was nothing particularly strange about the current slowdown, as such “decelerations” are “ubiquitous” in many countries at different times. Productivity slowdowns are usually the result of too little investment in the skills of the workforce and wasteful investment in means of production; or caused by special ‘shocks’ like a sharp oil price rise. Eventually, the slowdowns end.
Kenneth Rogoff of Harvard University (infamous for the past juggling of his debt data) was even more optimistic. The productivity growth slowdown now being experienced was temporary. Karl Marx claimed that capitalism would grind to a halt “as the first industrial revolution was fading” but it didn’t. Keynesian Alvin Hansen (father of the ‘secular stagnation’ thesis) reckoned something similar “at the Great Depression” and he was wrong too. Rogoff reckoned the current slowdown was caused by a huge ‘debt crisis’ that remains after 2007, but that will subside and the productivity slowdown will “eventually come to an end”. Marty Feldstein, former economics adviser to the Bush presidency, was very buoyant. The US economy may have slower productivity growth than before but it was doing better than anywhere else because of its wonderful “entrepreneurial culture and financial system” (!) and a labour market not encumbered with “barriers created by large labor unions, state-owned enterprises and very high tax rates.”
Amid this paean of praise for capitalism in its ‘temporary’ moment of slowdown, the data provided by Dale Jorgensen from Harvard offered a more realistic picture. Jorgensen reckoned that there were clear signs that, while recovery from the current crisis was likely, “a longer-term trend toward slower economic growth will be re-established.” Jorgensen broke down the composition of economic growth globally and found that the real driver of growth was not ‘innovation’ or even investment in new technology (as measured in neoclassical terms as total factor productivity – TFP), but mainly more and more investment in existing technology and materials.
This conclusion had also been reached by John Ross in his study of Jorgensen’s work before. “What is crucial is that the role of different forms of capital, i.e. intermediate products/circulating capital and fixed investment/fixed capital, is the overwhelming force driving US economic growth. Taking the two together 76% of US sectoral output growth is due to fixed and circulating capital, 15% due to labour, and only 9% due TFP.” (Ross).
It means that capitalism mainly grows by relatively more investment in means of production, namely fixed capital with existing technology and material inputs (what Marx called constant capital) relative to investment in labour hours (or variable capital). The impact of ‘innovation’ and new technology is small. And Jorgensen reckons that the contribution of the latter will get smaller in the next decade.
In a way, this is another confirmation of Marx’s law of capital accumulation, a long-term tendency for the organic composition of capital to rise. Marx’s law of the tendency of the rate of profit to fall is the other side of the coin. To some extent, this tendency will be counteracted by an increase in the exploitation of labour through more people entering the workforce globally and by increased hours of work – but not decisively over the long term.
The other big issue relevant both to future productivity and inequality is the advent of robots and AI. The ASSA conference collected the main mainstream researchers on this subject. Daron Acemoglu from MIT argued that automation would actually create as many jobs as it would lose for human beings and the economy would be “self-correcting” in terms of employment and inequality. William Nordhaus of Yale University presented six reasons why robots and AI would not lead to ‘singularity’ (exponential replacement of humans in production) in this century. And so all is well with the advent of robotic automation in 21st century capitalism. Fear of extreme inequality and mass unemployment can be dismissed.
At the same time as the big hitters in mainstream economics debated global productivity and stagnation, in a much smaller room, radical economists, under the auspices of the Union of Radical Political Economics (URPE), were having a similar discussion. Interestingly, nobody on the panel there though that capitalism was in some ‘secular stagnation’, as formulated by Keynesians like Larry Summers, Paul Krugman or Robert J Gordon, at previous ASSAs.
Bill Lazonick reckoned that productivity growth had slumped because capital had switched from productive investment into rentier activities of financial speculation. “Companies don’t use the stock market to raise money, they support the stock market”. Anwar Shaikh reckoned that the Keynesian idea of secular stagnation was silly and that the core of the capitalist problem lay with profitability, not productivity as such. The key to investment was the profitability of enterprise (the profit rate after deducting interest, rent etc going to the capital of finance and circulation) and that was low. Until that rose, productivity and economic growth would remain low.
In another room, the ‘centrist’ wing of ASSA met. These are the more radical Keynesians who reckon that capitalism is failing because of wrong policies and regulations (or lack of them). If the politicians and rich elite adopted the right ones, then all would be well – or at least fairer and more productive. You see the problem is that the ‘rules of the game’ have been altered, as Nobel Prize winner and adviser to the leftist British Labour leadership, Joseph Stiglitz, puts it. The rules have been altered in favour of the rich, corrupt and in favour of finance over productive; in favour of monopoly over competition; in favour of rent over productive profit (see his book).
The panel here were convinced that if the rules in the labour market were changed to help unions organise, then inequality and poverty could be reduced. Lawrence Mishel reckoned that the “main driver of inequality was the lack of worker power and the globalisation which has led to trade agreements that hurt the incomes of the majority –something mainstream economists lie about”. Mishel listed the “staggering” number of “poor economic decisions” made in recent decades like austerity, deregulating financial markets, supply-side tax cuts, inadequate efforts to address climate change, the fight against the Affordable Care Act in many states and in Congress, etc.
Dean Baker at the Center for Economic and Policy Research, who also has a book out aptly called “Rigged”, highlighted the need to reverse rising inequality from excessive CEO pay, a bloated financial sector, patent and copyright protections and protections for highly paid professionals. He calculated that the “efficiency gains” from “reducing or eliminating these rents” would be worth over $3trn, to be used in other productive ways.
What was needed was to “restructure the market” to produce different outcomes because simple tax changes would not do the trick. Baker said this policy ‘rigging’ of the economy shows that the ‘free market’ does not operate. Here he seems to be implying that, if it did, then all would be well and fair. Because the market is ‘rigged’, not because a market economy exists, we need government to intervene to correct inequalities, injustices and apply policies for the majority not for the few.
Baker fails to explain how the market got ‘rigged’. Did this just happen? Why was the policy choice for the rich not the majority? Was it not ever thus? Baker is looking at the symptoms not the causes. Marxists like me would say the policies that led to rising inequality and the growth of finance capital came about because the Golden Age of capitalism, with its decent pensions, public services and benefits and full employment, could no longer be afforded by market capitalism as the profitability of capital plunged through the 1970s. So the ‘rigging of the rules’ was necessary for the saving of the capitalist market system.
In a later ASSA session, the mainstream, the radical and the liberal met to discuss “the future of growth” (in effect, the future of capitalism). The IMF’s Jonathan Ostrey (naturally) remained optimistic about the future. In contrast, Robert Gordon was there to tell us the story of his recent book: that capitalism was in for slow growth because the new technologies would have only limited impact. Anwar Shaikh presented the (Marxist?) argument that capitalism was subject to regular crises and was past it use-by date. And James Galbraith and Gerald Friedman presented the liberal Keynesian view as above.
There is no doubt that inequality of incomes and wealth has reached levels in some countries like the US or the UK not seen since the start of modern capitalism. In another session, Daniel Zucman, presented a paper from himself, Emmanuel Saez, Thomas Piketty (the former rock star economist) and the recently deceased Tony Atkinson, that offered the latest data on inequality of incomes in the major economies. It showed inequality of incomes was highest and still rising in the US; has risen sharply in China (although now tapering off) and was still relatively low (but still higher) in France.
But is high or rising inequality the fault-line of modern capitalism; is it the cause of low productivity growth and recurring crises of capitalist production? The left Keynesians think so. But I have argued that inequality is inherent in a class society including capitalism and that is a symptom rather than a cause of capitalist crises or stagnation. One paper at ASSA gave some support to that. The paper found that “the empirical evidence does not support the argument that inequality is a major drag on demand growth, except when offset by borrowing by lower income households. There does not appear to be a clear link between the rise in income inequality in recent decades, the financial crisis, or the slow recovery since then.”
In part 2 on ASSA 2017, I’ll discuss the state of modern mainstream economics as ASSA participants see it and the likely efficacy of economic policy in the new era of Trumponomics.