Martin Wolf (‘An economic future that may never brighten’ FT 15th April) rarely fails to hit a nail on its head, but maybe misses just how far capitalism is screwed. The principal cause he cites for the secular decline in potential economic growth – and hence what can be expected of actual growth – is the decline in the growth of ‘total factor productivity’ or TFP. TFP assigns most realised growth neither to inputs of capital nor labour, but to a ‘black box’ of technologies, of which the Internet is clearly one. The problem with this conceptualization, which arose from a need to add some meaning to the error term in the regression equations, is that growth becomes disembodied, as either endogenous or exogenous, but without further explanation. This may suffice for exogenous shocks, such as oil price hikes or collapses – depending upon whether the country is an exporter or importer – but for endogenous growth models it is no more than an indirect way of talking about the factors that raise or lower the productivity of labour or capital, or what Marx terms indirect or dead labour.
From this perspective anything that does not require either direct or indirect labour inputs does not constitute part of the social product; they have no imputed ‘value’. For example, following Adam Smith, nature provides apple trees and the apples are ‘free’ unless someone builds a fence around them and charges a price for them. Prices become a supply and demand overlay on values, some prices below, some above and some coincidental with value, but repeatedly brought back down to earth by them.
Why might the approach of Marx be still relevant? Because if the growth in the direct and indirect productivity of labour is in decline, secular stagnation of value production follows. This becomes apparent in a fall in the return on productive capital, that is capital used in value production. Capital seeks other, less risky rates of return by seeking refuge in the financial markets, where high profitability is a redistribution and a cost, not an addition, to social value. When financial sandcastles collapse, washed away by unrealizable debts, even negative interest rates cannot be a sufficient incentive to restart the investment cycle. The classic boom and slump process returns, but this time very much at the global level, with booms from innovation and demand stimulation ever shorter, and post-bubble slumps longer. In this setting, the countervailing influence of the BRICS already looks unreliable.
This approach aims to go beneath the usual descriptive statistical analysis of the supply-siders and the demand-siders who are constantly at odds over which comes first, the investment chicken or the demand egg. On the contrary, it suggests a common economic causation, a decline in what Marx terms the general rate of profit, or total surplus value/total social capital. What are the implications of this paradigm? First, if capital accumulation stagnates, absolutely or relatively, so does capitalism, whether it is in the state corporatist West or the state capitalist East. Second, austerity triumphs over public investment because the latter can only win converts if expectations of the future are bullish. This is why there is little room left for the Left. Third, the utopian visions of socialism can only keep touch with reality if it is built not on unlimited growth but on limited consumption. That is a difficult sell, as the Greens will vouch for sure.
Associate Professor and Director, TRP,
University of Hong Kong
[This letter was sent to but unpublished by the Financial Times on 16th April 2015]