06 October 2011

The dysfunctions of neoliberalism: Productivity


In an earlier post, I put forward an outline of the underlying causes of the crisis of neoliberalism in the United States. I argued that, in order to maintain healthy profit levels, neoliberalism has required an increasing level of exploitation of the workforce, leaving wages stagnant despite increasing productivity. The outcome was a widening gap between the output of the economy and the purchasing power of consumers, a gap that was for many years bridged by rising levels of consumer and government debt. It was only a matter of time, however, before this transparently unsustainable fix to the insoluble contradictions of neoliberalism came crashing down, which it finally did with the collapse of the housing bubble in 2008. Subsequent attempts to revive the economy have failed to address any of the underlying dysfunctions of neoliberalism, and we now face either gradual or abrupt economic decline — stagnation or renewed crisis.

Curiously, an earlier configuration of capitalism — that of postwar Fordism — seems not to have suffered from this contradiction between maintaining profits and paying workers enough to purchase the output of the economy.
We can rest assured that this is not because capitalists were more generous in the 1950s and ’60s — it was the institutionalization of union strength and a government broadly sympathetic to labor that ensured wages would rise alongside productivity.

But it’s not enough to focus exclusively on the power relations that divide up the wealth created by the economy, a common approach in left critiques that highlight the decline of organized labor, the hostility of the neoliberal state, and the rapacity of capital. The solution these critiques offer to the problems we now face is a return to the more balanced power relations among business, workers, and government that characterized Fordism and a more even distribution of the wealth that society produces. This neglects an examination of the conditions that make the production of wealth possible in the first place and how these processes shape business behavior. Specifically, we must answer the question of why capital and the state were willing to tolerate, even embrace, rising wages under Fordism but not under neoliberalism.

The story of how the bureaucratic monoliths employing an army of domestic factory hands in the 1950s became today’s entrepreneurial brand engines with an overseas network of sweatshop suppliers is far too complex to present here, but a few graphs can give us an idea of the underlying forces that reshaped the nature of demands on the capitalist across this divide. Perhaps the most significant difference between Fordism (seen in the first bar) and neoliberalism is the high sustained rates of rising productivity in the former and the much lower rates under the latter.
Productivity growth: Source

It must be noted here that speculative bubbles distort productivity figures (output per labor hour) by incorporating fictitious value into the total output. That is, though the last three bars on the graph make it seem as if neoliberalism were approaching Fordist levels of productivity increase, in fact the late-1990s dotcom bubble, the mid-’00s housing bubble, and the multiple bubbles of the false recovery have respectively inflated these figures. Since the final shakeout of accumulated fictitious value is nowhere in sight, the distortions in these figures could be truly massive. Needless to say, the Fordist period was free of speculative bubbles that might have similarly padded its numbers.

Of more interest to us here, though, is the crisis decade of the 1970s and the decade of neoliberalism’s consolidation, the 1980s. This is when the new patterns of income distribution were established by new forms of business conduct, and when new types of subjectivity emerged that were broadly supportive of increasing exploitation and inequality. Even if productivity improvements really had returned to Fordist levels by the ’00s, ingrained neoliberal forms would have frustrated any return to Fordist patterns.

Why is productivity so important? Because rapid productivity increases allow capitalist firms to simultaneously maintain healthy profits and distribute increasing amounts of wealth to their workforce in the form of wages. As long as high rates of productivity are sustained, the increasing output generated by reinvestment of profits in production capacity can be realized through sale to higher-earning employees. A happy byproduct is that this also allows the population to be safely incorporated into the system via consumerism. This entire complex is what sustained the unprecedented rates of growth, equality, and rising standards of living under Fordism.

As this graph indicates, the end of the Golden Age of Capitalism was not caused by the conscious repudiation of the Fordist social compact by capital:


Even after the high rates of productivity growth of the Fordist period proper (1947-1973) had collapsed, compensation still kept pace with productivity growth during the crisis decade of the 1970s. It was the disintegration of the Fordist system that led to the desperate experiments of the 1970s in new forms of economic organization, eventually giving rise to neoliberalism as a viable new regime of accumulation. Business’s turn to extreme exploitation and the state’s open hostility to labor emerged from this process, they didn’t cause it. The graph above shows the outcome, in the uncoupling of productivity and compensation during the 1980s (though the extensive conflict and human suffering that was required before the two could be torn asunder is left invisible).

Why did productivity growth falter so badly? First, manufacturing reached extremely high levels of productivity and seemed incapable of pushing beyond them. Labor that was no longer needed in the factories moved into services in search of jobs. But, as Gopal Balakrishnan has argued (citing an IMF Working Paper), the transition to a primarily services-based economy has hobbled the advance of productivity because it is much more difficult to standardize and mechanize many of the tasks involved in the services sector than those in manufacturing.

This was no problem as long as debt could substitute for the rising wages that capital now appropriated to sustain its own expansion. A crisis in the realm of production that began in the 1970s was thus displaced into the realm of consumption, buying capitalism a few extra decades. Now the reckoning is at hand.

One possible solution would be an end to capitalism, allowing us to escape the necessity of a perpetual increase in productivity as the only way of reconciling profits with consumer demand and of defusing popular dissatisfaction through consumerism. Sadly — perhaps catastrophically — we are not yet ready for this step.

The only other solution would have to involve a new regime of accumulation that could secure, at least for a time, a return to much higher levels of productivity growth. Given the Scylla of fully mechanized factories and the Charybdis of service work that can’t be mechanized, it’s not even clear that this is possible in the long run, it surely is not. My hope is that a way can be found to revive productivity growth in the short term that facilitates the preparation for a real attempt at that first solution.

13 comments:

  1. We either need new gains in productivity or new areas for capital accumulation (eg. new industries). The practical problem one might anticipate is precisely what has been a chorus of the Tea Party: that any attempt to regulate capital increases its costs. Surely any revival of accumulation that can prepare the way for capital's overcoming -- that is, any regime of accumulation that would be democratic, fair, and not ecologically disastrous -- would entail "transaction costs" for capital. So are you imagining that productivity gains would be enough to create the necessary incentives for capital deployment even with such transaction costs? Is this really feasible given, as you have pointed out, the struggle of neoliberalism to approach the productivity of the Fordist era? Also, I would be interested in whether you have compared the costs of regulation to business in the Fordist and neo-liberal periods and whether these are balanced out by declining real wages. In other words, do the costs of regulation change our sense of what the productivity problem is? How can we address the potential claim that the revival of accumulation should necessarily lessen the regulations and constraints on capital?

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  2. My sense is that productivity gains, at this point, will be a consequence of the dramatic reduction in the cost of labor. The introduction of new technologies is getting higher and higher on the asymtotic curve in terms of its ability to create new gains in productivity that significantly increase value production.

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  3. The idea that regulating capital necessarily increases costs is just ideology. Sometimes it does, sometimes it lowers costs by securing the conditions for expanding value at a systemic level. Fordism is the obvious example, in which regulations were much more robust but profits, growth, and productivity increases were all higher. As a result there was precious little anti-regulatory dogma under Fordism.

    Right now capital is at an impasse - primarily because of ideology, individual capitalists are unable to act in such a way that could revitalize the engine of value production. As a result, their capital sits idle or expands itself in speculation. Regulation has a key role to play in forcing capital into more productive directions.

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  4. We are, however, at a decisively different point in the history of capitalism. We are saddled with the successes of Fordism and its consequences to the organic composition of capital. Fordism did not work globally-- even when it was tried-- before 1945. It benefited, in part, from one of the largest destructions of fixed capital in human history aka WWII. Then we had a (forcibly) deindustrialized Europe and Japan, now we have an industrialized N. America, Central America, Brazil, Argentina, Europe, S. Africa, South Asia, South East Asia, and East Asia.

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  5. Industrialism does exist in all those places, but I think it would be hard to argue that the market for manufactures is saturated. In China and India alone, there are about a billion people who are economically either completely outside the circuits of capital or only tenuously involved. Now add in most of Africa and significant parts of the Middle East and Latin America, and potential demand for factory production is enormous.

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  6. It is not so much the existence of a market as the capacity of the system to create surplus value that matters. If it is too difficult to create surplus value then wide swaths of the earth will be (and are) suffering through a famine of commodities.

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  7. Then the problem that would need to be resolved to begin accumulation again is how the 3-4 billion people currently excluded from the circuits of capital could be reconstituted as workers and consumers. In principle that should be possible. The obstacle is existing structures and subjectivities, but of course crisis tends to undo existing structures and subjectivities.

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  8. I think it would be nice if it were merely a matter of subjectivity, but I don't think it is. Given the current organic compostision of capital, two options seem likely to me: 1. destruction or abandonment of huge ammounts of machinery to as to extend the absolute surplus value or 2. to produce more with the same machinery and fewer people, expanding the relative surplus value. The latter explains the dramatic increases in productivity that companies are experiencing within the present crisis. I think that this is a real and objective limit to capital and not something that can be worked around through changing people's minds. I am not clear what you mean by existing structures, so I am not taking up that part of your comment. Could you clarify?

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  9. The "solution" (ie, to restart accumulation) I've been considering since Earl's post on "shared value" is that the huge amounts of idle and speculative capital now floating around could be invested in the vast marginal populations of the world to constitute them as workers and consumers. The obstacles are enormous, but it seems viable in principle.

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  10. Andrew Kliman, of the Marxist-Humanist Initiative and author of _Reclaiming Marx’s “Capital”_, offers his thoughts on the goal of restarting capitalist growth in a way that benefits the poor, here: http://marxisthumanistinitiative.org/oldsite/2009/05/05/how-not-to-respond-to-the-economic-crisis/

    He offers an interpretation quite different than the one on this site: "So downward redistribution of income will tend to destabilize the system even further. It is very dangerous to sow illusions that a fairer division of the pie will solve the crisis. What if the pie does get divided more fairly, and the actual effect of this is to reduce profitability further, send the economy into a depression, and trigger renewed panic in the worlds’ financial markets? The stage will have been set for a virulent reaction, perhaps even fascism. Working people need to be prepared to confront that, but they will not be prepared if they’ve been led to believe the trickle-up notion that what’s good for the working class is good for capitalist America.’"

    I would be curious as to your thoughts.

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  11. The quote is not at all out of line with the argument I've been laying out. At another point in the post, Kliman criticizes "underconsumptionism" as a theory of the crisis, which I have drawn on in my own explanation. His dismissal is brief and doesn't even begin to address the arguments that have been made on that point (see also Harvey, Shaikh, Balakrishnan). But in any case, as my subsequent posts have made clear (especially this one itself), underconsumptionism only accounts for one aspect of the crisis, namely the deep problems in the realm of realizing value.

    I agree with the upshot of the quote, though the invocation of fascism is overdone and unsupported. As this post and the discussion in these comments should have already made clear, reviving accumulation would require significant changes in the distribution system, but that alone would merely address difficulties of realizing value and leave untouched the fundamental issue of producing value. I haven't yet spelled out what a solution to that might look like, but it's indicated in the comments above.

    Kliman's preferred approach seems to be convincing "working people" that redistribution is inadequate and then persuading them to support socialism. This is not a politics, it's a utopian dream: materialism of the intellect, idealism of the will. What we need to figure out is what kind of society would generate popular subjectivities capable of making those connections. Until then, the best analyses in the world will fall on deaf ears.

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  12. My new book, _The Failure of Capitalist Production: Underlying Causes of the great Recession_ contains a chapter (about 10K words) on the fatal empirical and theoretical flaws of underconsumptionism.

    The chapter that follows discusses my "preferred approach," which isn't what Walker speculates it is. It does, however, involve fighting efforts to make working people believe that's what's good for them is good for capitalist America.

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  13. This comment has been removed by a blog administrator.

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