There is no doubt that, eight years after the crash of 2008, the world economy continues to stagnate. The problem of slow growth is confirmed by Joseph Stiglitz [ht: ja], who bases his argument on the latest report from the United Nations, World Economic Situation and Prospects 2016 (pdf). Thus, for example, the growth rate of developed economies, which averaged only 0.8 percent over the 2007-2014 period, was projected for 2015 to be 24 percent less than before the crash (and forecast to still be less than in 2007 for at least the next two years). For other groups of countries, the decline is even worse: 54 percent for developing countries and 132 percent for economies in transition.
A few days ago, I argued that slow growth was a fundamental problem for capitalism. The question is, why?
To be clear, there’s a reasonable argument to be made that we would all be better off with less or no growth. That’s certainly true for our natural environment, in terms of issues such as global warming, pollution, and so on. Fewer resources would be extracted; less energy would be needed, thus lowering the level of greenhouse gasses; and, in general, less environmental damage might be caused by our economic activities.
My argument, however, is about the predominant economic system in the world today. It is capitalism that has a slow-growth problem. And that’s because growth is both a premise and promise of a particularly capitalist way of organizing our economic activities.
It is a premise in the sense that capitalists—the capitalist class as a whole, not necessarily individual capitalists in one enterprise or another—can collect and utilize for their own purposes more surplus-value when capitalism is growing—when productivity is high, when more commodities are being produced, when the economy as a whole is growing. There’s more surplus available, even if workers’ wages are rising, and each member of the capitalist class can get their aliquot share of that growing surplus.
Of course, capitalists can get more surplus even when the economy is not growing, or growing only slowly. But that requires additional measures, such as keeping wages low. If, for whatever reason, they’re able to keep workers’ wages from growing, then the difference between the value those workers produce and what they receive in income can still grow.
And, as it turns out, capitalism has a way of keeping workers’ wages from rising: unemployment. According to the United Nations, just in the OECD countries, 44 million workers were unemployed in 2015, about 12 million more than in 2007. And one third of unemployed individuals were out of work for 12 months or more in the last quarter of 2014—a 77.2 percent increase in the number of long-term unemployed since the financial crisis hit.
One of the key premises of capitalism is that it provide sufficient jobs to employ everyone who wants to (and, of course, needs to) work. Clearly it hasn’t been able to do that in the years since the crash—and slow growth in the foreseeable future will maintain or even increase the existing “employment gap.”
But, of course, the existence of a large number of unemployed workers has had the desired effect: real wages declined from 2008 onward and, even as they began to increase in 2015, they’re still far below what they were before the crash.
And while the decline in real wages certainly serves to increase profitability in the short run, it has also undermined the ability of workers to buy back the commodities they produce. That undercuts the consumption contribution to growth. In turn, capitalists have been hesitant to continue to invest, which is lowering investment, another key component of growth.
What this means is we can expect little economic growth now and in the years to come. And, as I have shown, slow growth undermines both the premise and promise of capitalism.