Several weeks ago, I published a series of blog posts on profitability and investment in Canada since the financial crisis of 2007-8. These were republished as a single long article on Socialist Project and given the title, “Canada’s Profitability and Stagnation Puzzle”. Since them, Sam Gindin has published a reply to my piece, “Puzzle or Misreading? Stagnation, Austerity and Left Politics”. Gindin challenges me on a number of fronts, most generally for misreading the current predicament in terms of a static formula that treats all capitalist crises ahistorically. This critique has ramifications for how Gindin sees not only my empirical account of present trends, but also my theoretical background and thoughts on strategies for resistance and alternatives.
Despite what appear to be many points of dispute, I think Gindin and I actually agree on a great many things, both in terms of the diagnosis of the current crisis and strategies for overcoming it. There are quibbles about statistics and wording, and I want to deal with a couple of these here, but I think we share much on broader theoretical and strategic matters. I want to primarily focus on the agreements behind our recent Socialist Project-facilitated interaction.
Let us get the quibbles out of the way. First, another look at some statistics on investment. Gindin focuses on the real growth rate of investment to dispute my claims that investment has lagged. While it is the case that the past few years have seen investment grow in real terms, this has been more to make up for the very significant drop in the direct aftermath of the crisis. In addition, since spiking in 2010, investment growth has evidenced a downward trend.
In the quarter century between 1988 and 2012 (dates chosen based on the Statistics Canada profit series), the real average annual growth rate of private non-residential investment was 3.4%; at the same time, real GDP grew at an average annual rate of 2.4%. In one sense then, investment has indeed not faltered very significantly as its growth has still, on average, outpaced GDP. Profits, however, grew on average by nearly 4% per year in real terms during this same period.
There is a contrast between this recent average growth rate of investment when compared for example to even the first post-“Golden Age” decade between 1971 and 1980, which saw investment growing at an average real annual rate of over 10%, or almost triple its average growth rate since. A chart from Gindin and Leo Panitch’s own The Making of Global Capitalism (page 136), which shows a decline in output per unit of investment over the course of the 1960s and early 70s (this is for the US but likely represents global trends) provides some explanation. Rapidly expanding the capital stock stopped making sense when doing so produced large loses in efficiency. Rather than subject themselves to a profit squeeze, companies found new ways of maintaining profits. Although investment remained important, capitalism experienced profound changes over the neoliberal era, which necessitated a search for new strategies to maintain and expand profits. This is the disjoint I explored in my initial article.
In terms of wording, I want to pick up on the word “puzzle”, my use of which Gindin highlights. On the one hand, perhaps using it to describe the current economic situation was too much of an easy stylistic grab. I agree with Gindin that we need to find historically-specific ways of understanding each capitalist crisis – lest we risk reducing our analysis of capitalism to a static artefact increasingly divorced from reality. In another sense, however, there is indeed an important puzzle to be solved: what is it that is unique about this crisis? A long-term relationship between profitability and investment has slowly broken down and new ways of making profits have superseded investment-led growth.
While I pointed out that some radical economists have used the notion of extended crisis, I did not claim that the neoliberal era is one long crisis. The point was to show how the current situation has led more moderate economists into the doom and gloom camp – until recently the sole reserve of the far-left. I agree with Gindin that it is too easy to trivialize the very notion of “crisis” if one is seen around every corner or located in any downward trend in a key economic variable. Rather than crisis-hunting, a more relevant task for left economic analysis is to track the trajectory of capitalist transformation, seeking openings for resistance and transformative change. To hope to go beyond capitalism requires understanding it as it is.
As such, I do not want to re-ignite old debates about long-term capitalist decline or lack thereof. The focus should be on the present conjuncture and the particular possibilities for resistance it furnishes. It is possible to simultaneously affirm the dynamism of capitalism as well as expose its potential weaknesses. My emphasis on the slowdown in investment is compatible with Gindin’s assertion that there has been no slowdown in the dynamism of capitalism.
New means of expansion and growth
One of the most significant aspects of the disjoint between profitability and investment in Canada is what this brings to light about current global trends in capitalist development. While profitability and investment have fallen in tandem in some countries most affected by the fallout from the 2007-8 crisis, countries like Canada, where profitability has remained high despite a fall in investment can reveal much about some of the deep changes to the capitalist economy. Indeed, the current model of growth is qualitatively different from the investment-led growth of the post-war “Golden Age” of capitalism.
Accumulation in the neoliberal era has not been as focused on investment as it was during the great post-war boom. While the roots of the present crisis stretch back over those 30 long years during which Western economies have been radically reconfigured, a big part of this reconfiguration is a change in the nature of accumulation and profitability. At least temporarily, investment need not be the key to maintaining profit rates – and recent Canadian experience has borne this out. Things are “the same but different”. On the side of the same are the underlying mechanisms of capitalism, notably the drive for expansion and growth manifested in the need to maintain the profitability of capitalist enterprise. On the side of the different are the concrete ways in which profitability is ensured.
In a planned follow-up series to my posts on profitability and investment, I will be looking more closely at how capital has managed to maintain healthy profits despite the fall-off in investment. I will deal with several prominent factors that have contributed to profits, some also highlighted by Gindin: the explosion of household and consumer debt, restructuring in the labour market and the introduction of increased flexibility across many aspects of work, government austerity programs and the role of finance and new financial instruments.
All of these are mechanisms for capital accumulation as well as concomitant wealth and income transfer from the bottom to the top. Despite the lesser importance of investment, capitalism has certainly found new strategies of expansion. The open question is one about the extent to which these new means of profit-making are sustainable – that is, do they represent fundamental change – already a kind of “creative destruction” – or are they a temporary cover while capital waits for the next round of more direct destruction that clears away the old once and for all?
Regardless of the answer, there remains no shortage of new areas into which the capitalist logic can encroach (see also). Growth can happen via two fundamental channels: expanding existing value or drawing new sources of value into the web of capitalist relations – giving things prices, creating markets where they can be bought and sold. In short, turning new aspects of life into commodities. For example, there is an entire “new economy” based on technological innovations in communications and electronics that was barely imaginable only decades ago and which has led to the commodification of vast swathes of information, which has now become an important source of value. Indeed, entire companies are bought and sold at astronomical prices only for the databases they possess – the key is not their plant, their equipment, the expertise of their workers or their location in a production network, but the bits and bytes stored on their servers.
While technology advocates often overstate the importance of IT to the current economy and the extent to which the value of information actually impacts on overall system-wide profitability remains to be seen, the point is that this is but one of the areas where capitalism has shown its amazing ability to turn water into wine, thin air into dollar signs. Finally, new technology offers a link between two means of maintaining profits and finding expansionary potential during a crisis. Not only is new technology productive of yet untapped sources of value, it also has potential for further disciplining workers. Information technology is transforming work across a number of fields, making tasks easier to structure and measure, workers more isolated and more elastic.
The waiting game and finance
While Canadian companies have been able to ensure profitability in the aftermath of crisis, the continuing weakness of consumer spending and government austerity has meant that they are playing a waiting game with the resulting money profits. Like their counterparts across the globe, they are stashing record amounts of cash in the face of a still-uncertain investment climate. There is disagreement about the exact extent of excess capacity in the Canadian private sector, but this variable is notoriously hard to measure. The rough data that there is and anecdotal evidence from the business press point to at least some significant amount of slack in capacity. This will impact on the exact role that “old-school” investment will play in the exit from the crisis and the amount of destruction of old capital required for profit rates to be maintained across manufacturing sectors like auto, household durables and so on.
In the meantime, growing corporate cash stocks play an important role in the continuing financial transformation of global capitalism. I do not deny the increasing influence of finance over the global capitalist economy over the past several decades and I am not certain if I have much in the way of disagreement with Gindin on the exact role that finance plays. I do count myself among those economists, even some radical economists, who see finance as isolated from the “real” economy, forming a false dichotomy between speculation and production.
All capital is speculative at the same as it is productive, simply to differing degrees of each. Firms speculate on demand for their products as much as the financial sector produces value and profits. This, however, is not to deny important tensions and conflicts within capitalism between industrial and financial capital, some especially relevant during the current crisis. As Gindin points out, speculation is not the cause of the crisis in the sense of something done by rogue traders later trotted out for public disapproval. One of the strengths of The Making of Global Capitalism is how it traces the continuities of financial transformation back to the 1960s and earlier, contesting the notion that neoliberalism was a clean break between an economy that was not significantly financialized and one that now is.
The long arc of capitalist development has made us all more complicit in finance and finance more integrated into all aspects of the economy. This is the horror and the beauty of contemporary capitalism as it expands into every greater sectors of our lives. Complicity was once more closely tied to the workplace: if the firm did well, so did the workers. Today, we have become increasingly invested – literally and figuratively – in the state of markets as finance has grown, whether providing consumer debt to fuel consumption, ensuring the growth of pension funds to fund benefits, pricing all sorts of risk and so on.
Indeed, finance is “real” also to the extent that it furnishes an increasingly large array of use-values, some of which Gindin briefly references. Financial instruments such as derivatives are not just a fictitious financial veil but have use-value as devices for commensurating other values across time and space and for measuring risk. Indeed, there is enormous potential to develop a Marxist value theory of modern financial capitalism – this task has been begun but is nowhere near complete…and much too large for any further thoughts here.
Possibilities for resistance
In looking at the present moment, Gindin appears to share my pessimism for traditional Keynesian demand stimulation. Keynesian remedies have limited application in the current situation and political economy is crucial to describing why this is so. Specifically, the past decades have witnessed attacks on working class organization as well as incredible transfers of income and wealth that have left workers less able to push for even a mildly progressive Keynesian agenda. In short, austerity has worked – not to the benefit of most but to maintain adequate capitalist profits, secure wealth held in financial assets and lay the groundwork for further transformation of the economy. Austerity is, for now, a crucial component of capitalist accumulation.
With profitability relatively safeguarded, the slow but steady erosion of economic and political power of workers can continue apace. This sad fact leads to a final point of fundamental agreement with Gindin: the need for active and militant strategies of resistance. I did not stress enough the extent to which this requires renewed class consciousness and mobilization. This is the fifth point of Gindin’s five alternatives, but it is the one that unites all the others.
While openly and honestly acknowledging the withering attacks to the working class over the past decades, there is yet space to build effective resistance. As capitalism has sought profits in ever wider areas of life, so too has it opened up ever wider spheres for possible struggle. In addition to the traditional means of work-site resistance and agitation for political power, there is space for new political organizations, alternative institutions, and community organizing. Every way in which capitalism has developed to maintain profitability – workplace restructuring, greater precarity, more developed finance and debt relations on a broader scale – has created new entry points for resistance and transformation. The expansion of capitalism at once makes change more difficult and more accessible.
Transformative change should be on the agenda even if the beginnings are modest. For this reason I mentioned taking over “failed” enterprises as co-ops – simply as an example of a small change that has the seeds of transformation within it. I wholeheartedly agree with Gindin that the goals should be broader: economic democracy in leading sectors of the economy, nationalized finance, social usefulness as a criterion for investment. In short, broad institutional and systemic change based in renewed working class activism. This is, I think, the most important point of agreement. As Gindin writes, “the problem we face is not just the threat of stagnation, but the nature of capitalism even when it is ‘prospering’”. Hear, hear.
Note: There was a problem with some of my data on investment when this article was originally posted (a series that was deflated when it should not have been). Thanks to Sam Gindin for pointing out the error. The article has been updated: the offending data has been corrected and charts based on it removed.