- Interview by
- Doug Henwood
For the last couple of decades, New Left Review (NLR) has been publishing articles diagnosing the capitalist system as suffering from long-term stagnation, chronic overcapacity, declining profitability, and sluggish growth.
The emphasis began with a 1998 paper by the historian Robert Brenner, “The economics of global turbulence,” an article that impressed and influenced many. Brenner focused on the decline in manufacturing in particular. As Europe and Japan finally caught up to the United States, he argued, capitalist competition became something of a zero-sum game that seemed to produce mostly losers (even if a string of negatives doesn’t usually add up to zero). Other NLR contributors have continued writing variations on this theme, among them the sociologist Aaron Benanav.
In a recent article for Jacobin, Seth Ackerman filed a vigorous dissent from the line; Benanav responded shortly afterward. In what follows, Benanav and Ackerman debate the question, with me moderating. You can find an audio version of the discussion on my program, Behind the News. (Subscribe to Jacobin Radio to keep up with it.)
Let’s start with you, Aaron. I’ve been struck, reading your stuff, that the point of comparison is typically with the 1950–73 period, the thirty or twenty-three “glorious years,” as the French say. But it really was an anomaly in the history of capitalism following fifteen years of depression and war. US growth rates now aren’t all that different from the last third of the nineteenth century. If we look at the employment- population ratio for the United States now, adjusted for population aging, it’s just a hair below its all-time high, in April 2000. Employers have been moaning about tight labor markets.
I just don’t see this all as the stuff of crisis. It’s not a golden age; we live in a fallen world. It also doesn’t seem like a form of chronic illness. So really, how sick is capitalism by historical standards?
That’s a great question. And it’s certainly true that when you compare the growth rate over the last forty years or something to the growth rate from 1870 to 1910, it’s not that different in most of the rich countries. I think there are two issues with that comparison. One is that, as I said in my book on automation, I think the last three decades of the nineteenth century were a period of really intense class struggle. It was a period of major conflict, the rise of socialism, endemic poverty, and unemployment. And, you know, it was a very turbulent time. And I think that all of the reform efforts that gave rise to the golden age, as exceptional as it was, were reactions to the difficulties that capitalism experienced in that period.
So I think if you want to call it normal capitalism, that’s totally fine. But then you should recognize that normal capitalism for a lot of people is a crisis, and that in the past that level of normal capitalism has generated a pretty intense social struggle. Now, of course, we haven’t seen intense social struggle over the last forty years. We’ve really seen the opposite. But I think things have started to change in the last ten years. Theories like Robert Brenner’s, or mine, are attempts to explain why that’s happening.
Seth, you have an argument in your piece about how this view of stagnation, overcapacity, the sense of pervasive crisis is really politically essential in driving the difference between reformists and revolutionaries. Could you lay out that argument?
Well, this is an argument that goes back to the “revisionist controversy” within Marxism in the 1890s, 1900s, and 1910s. Aaron makes a good point when he says normal capitalism has often involved a really intense degree of class struggle and apocalyptic perceptions of capitalism’s development. But that was precisely what happened with the outbreak of the revisionist controversy in the 1890s, which started when Eduard Bernstein, who was an important figure in the in the German and European socialist movements, a protege of [Karl] Marx and [Friedrich] Engels, came out with a sort of rethinking, where he advocated for a reformist path to socialism. He based a lot of that case on economic trends, and specifically the idea that crises were becoming less and less apocalyptic, the system was stabilizing, and the ups and downs were becoming less catastrophic.
When you read the texts from the revisionist controversy from today’s perspective, you might be expecting arguments about the nature of the state or something. And there was a lot of that. But really the bulk of it was people arguing about whether capitalism was headed for the kinds of massive turbulence again that it had experienced in the 1870s and 1880s. Bernstein’s point was that by the time you get to the 1890s and the 1900s, you can see this kind of restabilization happening where growth rates increased a bit during the pre-World War I Belle Epoque era. The premise was that if capitalism reached a certain degree of stability — it didn’t have to necessarily be nirvana — then that fundamentally altered the argument about revolutionary politics.
That premise was basically accepted by all sides. And the argument then was about the facts. Has capitalism, in fact, stabilized in the way that Bernstein claimed? Robert Brenner very much stands in the tradition of that kind of argument within Marxist crisis theory. He’s argued quite clearly, along with a lot of those who follow him, that if you buy into his global stagnation thesis, that has strong implications for socialist politics. It’s unclear to me how exactly Brenner separates the reformist from the revolutionary approach in practical terms, and I guess that’s a hard question to answer in general. But clearly, Brenner believes his theory grounds the revolutionary position.
Of course, we had a socialist revolution in 1917. Britain had a depression in the 1920s. The United States and the rest of the world had one in the 1930. So capitalism wasn’t exactly stable or hunky-dory a few decades after Bernstein was writing.
When World War I and then the Depression happened, that was taken by the more orthodox Marxists as proof that Bernstein had spoken too soon. But of course, the notion that those catastrophic events disproved Bernstein’s claims depended on an expectation that the travails of capitalism would lead to the triumph of socialism. And obviously, in the long run, it didn’t work out quite that way.
Aaron, the notion that, as you put it in your most recent piece in New Left Review, “capitalism is running out of steam” — how essential is that to your politics? Is what Seth is pointing to relevant to your worldview? If capitalism is not running out of steam, what does that do for us?
Well, here I’d like to respond to some more specific points and kind of build on the question you raised about the aftermath of the revisionist controversy and the fact that it was followed by not a stabilization of the system, but two world wars and the Depression. If you look at Robert Brenner’s work and try to situate it with respect to the Marxist tradition, I would just say that Seth gets the genealogy wrong here in a really important way, because in my view, Brenner is part of a group of postwar Marxists who were maybe something more like neo-Schumpeterians. The whole point was that they were theorizing those long waves that we’re talking about.
They’re theorizing this alternation between periods of capitalist high growth — with the capacity to accept reforms and for working-class organizations to win gains through class-collaboration type strategies — and periods of capitalist slow growth, which hide competition and conflict, and change the character of working-class politics and how it can achieve success. And we can definitely talk about that more.
I just want to point out that among the long-wave theorists, what distinguishes Brenner is that he discovered secular stagnation in the course of his work. But I think it’s very important to say that he arrived at that view through a confrontation with the length and persistence of the downturn. But that comes out of this larger tradition that he’s a part of, which I think of as a kind of neo-Schumpeterian Marxism. You can also just think of it as long-wave theory. All the long-wave theories, of which Brenner’s is a part, are trying to place us with respect to those longer cycles.
How essential is crisis to your politics?
Stagnation is essential. That idea of living in a trough of a wave has implications for politics — that’s just something that we can recognize around us right now. Look what’s happening with the United Auto Workers (UAW), right? We’ve lived through forty years of long-term, working-class defeat. That defeat hasn’t only been at the hands of an onslaught of capitalists, though I think it’s well-noted. And a big part of that is the observation, which I don’t think Seth talks about at all in his piece, that a big feature of the last forty years has been a major rise in the capital share of income and the decline of the labor share of income, and that working-class unions and social democratic parties all around the world have organized that defeat. They haven’t fought against it — they’ve organized and participated in it. That has a lot to do with the loss of legitimacy of those organs.
It also explains why in the contemporary period, we’re seeing not only a rising curve of social unrest, but also efforts on the part of political groups and groups of workers to break free of those preexisting organs and try to find new forms of organization that would be more combative. I think it’s hard to understand both the fight for democratic unionism in the UAW — and its success and the fact that it immediately issued a much more combative stance on the part of the autoworkers — without placing it within this long-wave perspective.
I’m not a long-wave theorist. I have an idea about why this wave is more of a secular stagnation type wave than the long-wave theorists imagined it would be. But I do think that these perspectives are pretty essential for understanding not just my politics, but the politics of the moment.
Seth, a response?
First of all, I agree — and I think it’s true that this is not an aspect that I talked about a lot in my piece — that there is this Schumpeterian long-wave aspect of Brenner’s work, and it does relate to the politics of it. And this is an idea that one hears a lot — not just on the Left, actually, but often from a mainstream perspective — that periods of strong growth, a booming economy, “golden-age” type conditions are conducive for, or at least more permissive for reform, social democratic, egalitarian types of politics; and in periods with slower growth or more economic turbulence that’s less the case.
I don’t want to put words in Brenner’s mouth on this point, but I think anybody who’s been on the Left especially since 2008, knows that in the ambient discourse of the Left, there is a familiar stock pattern of argument that basically stops any discussion of whatever types of reforms you want to discuss with the idea that we live in an era of stagnation or of crisis or whatever you want to call it, and that rules out reforms. The system can’t give these reforms that you want — that sort of argument. Which, in my view, just doesn’t really describe the nature of the problem that we’re facing.
I never quite understood that argument, because can’t you prod the system into doing it? That’s what the state, at least in theory, has the potential to do.
The conceptualization of capitalism in that view is one where anything that happens is at the pleasure of or ultimately at the decision of capital. And capital is more open-handed when growth rates are high and when profits are high. Therefore, any reforms that we have gotten are because they were ultimately acceptable to capital, but they’re not acceptable now. I think that really misreads how we got the reforms that we did get.
There’s a lot of talk about growth without making an important distinction. Growth in GDP can be divided into two parts: the growth of employment on the one hand and the growth of productivity, in other words output per worker, on the other. And that’s a really important distinction because if growth, let’s say, slows, and the slowdown is due to a slowdown in employment growth and the result is that there’s a lot of people who need jobs, want jobs, but can’t find them, then that, first of all, is just pure waste. And that indicates a clear failure of the system and a failure of public policy. There’s no justification for a system that allows a lot of people to be idle when they don’t want to be, when they could be contributing to society.
And in addition to that, it has tremendous effects on the tone of politics, and class politics in particular. Obviously, in periods of mass unemployment, the working class is on the defensive, whereas it has a much stronger position in periods of boom. And in that respect, this suggests sort of the opposite conclusion from the idea that periods of strong growth and high profits are periods when the ruling class is more willing to give. It’s actually sort of the opposite: periods of strong growth are periods when the competitive nature of the system means that capitalists are much more dependent on the working class in the sense of being always short of workers, short of labor, and that gives workers a greater ability to extract concessions that capitalists would not otherwise be willing to grant.
But if the slowdown in growth is not about a slowdown in employment, if it’s not about rising unemployment, mass unemployment, people being idle, weak labor markets — if it’s instead a slowdown in the rate of productivity growth, and especially productivity growth in the richest countries, the countries where the level of productivity is already the highest in the world, I think the meaning of that, politically and economically, is completely different and a little bit ambiguous.
Right now, as Doug noted, the level of employment in the United States is very, very high. The employment rate is about as high as it’s ever been. To the extent that there is a slowdown in growth, it’s because the average worker is producing a quantity of output that’s growing at a slower rate than it did, in, let’s say, the postwar era, but starting from a level that’s far, far higher.
So, at the peak of the golden age, in the early 1960s, the level of per capita income in the United States was like a third of what it is now in real terms. Now, let’s take the forecasts of Robert J. Gordon, a source Aaron has mentioned a bunch of times in his writings, a very mainstream macroeconomist with a sort of gloomy interpretation of economic growth and its prospects, given the technological realities and the profile of productivity. He had a paper recently where he forecast what he thought the most likely path of labor productivity growth in the United States in the long-term future. And he cast this forecast as a very pessimistic view. It was, I think, 1.2 percent per year. So 1.2 percent per year means that the level of productivity and per capita income doubles in like sixty years — starting from a level that’s already three times as high as it was at the peak of the postwar era.
It’s one thing to talk about productivity in poor countries where there’s a need to catch up. But the idea that the economy doubling in sixty years, instead of, say, tripling, in the countries where it’s already at its highest level — to me, that seems like one of the least important aspects of where capitalism is failing.
Yeah, we should all have such problems. Aaron, a response to that?
I’m very glad Seth brought that up, because I do think that gets to the nub of the issue. And just to state my views concisely, I think the point is that the decline in the profit rate that Brenner identified in the 1970s and 1980s, his whole profit rate analysis, was about saying that the reasons for this decline in profitability came from a decline in capital productivity: a decrease in the additions you can get to income for each additional unit of capital you bring in, not a rise in the wage share of income or the labor share of income. It wasn’t the success of workers fighting. But this other thing, the falling capital productivity, that was an issue.
And Brenner made the argument about the ’70s that he thought this was due to overcapacity. Once he made that argument, he said that because he thought that countries like Germany and Japan had so much further to go, they hadn’t caught up to the United States in productivity terms. So that’s why he said he couldn’t attribute this to a kind of exhaustion or arrival of the technological frontier.
My account is that he put too much emphasis on that argument because over time, and here again I’m agreeing with Robert J. Gordon, although more with Dietrich Vollrath, saying it’s less about product innovations and process innovations, it’s more about deindustrialization and the rise of the service sector than about some general technological exhaustion.
But the point is that over the long run, the reason for that decline in capital productivity is more to do with declining labor productivity, and that’s something we can observe directly. We don’t need to try to make an argument based on profit rates. And I also think that that’s why most secular stagnationists like Gordon or Vollrath don’t make their argument by reference to profit rates, but they are talking about a vanishing of investment opportunity in that sense. It’s just one that we can observe directly this way.
Now, why is that a problem? If all we were talking about were a system oscillating between 3 percent growth and 1 percent growth and averaging out to 2 percent over time, then I don’t see why there would be any reason to complain. I think that’s not an unreasonable argument. But I don’t think it captures the reality. And I think that that’s where this issue of the rise in the capital share really becomes important. And I think it’s something that Seth doesn’t pay enough attention to, because the whole point here is that capitalists responded to a decline in their own incomes in the 1970s, with falling profit rates, by starting to make this really intense battle on working-class living standards.
And they were obviously more successful in some places than others. But the effect has been to radically transform our institutions, the welfare state, the character of workers’ insecurity. I mean, certainly we live in a period of high employment right now, but I’m not alone in thinking that that might be a temporary condition. And certainly it’s not the record of the last forty years. It would be a very strange analysis of the period since the ’70s to just say, well, everything continued more or less as it was. It was just that the rate of growth of incomes slowed. And so I think that the issue that we’re facing now is whether we can, through stimulus, raise the productivity growth rate, because a lot of these kinds of more radical Keynesian solutions depend on accumulations of debt having the effect of raising the growth rate. And I think those things are in question.
Right now, one of the big discussions around these issues is that for the past forty years, efforts to stimulate the economy have generated less and less investment and have just lined elite pockets through stock buybacks — and other strategies that privilege increasing the wealth of the elite, their personal wealth and their personal spending, over investment in building out the infrastructure that society constructed.
If we’re only going to grow at 1 percent, a rational society might say, let’s use this to make sure we have enough hospitals in case there’s a pandemic. That isn’t what happens. And I think that it gets at this exact point, which is that struggles under these conditions of low productivity growth in a class-based society are really intense struggles over what happens with that small surplus. And so far it’s been very hard, even for the Biden administration, for anyone, to really imagine a hard enough struggle that would shift the terms of the class character of society away from elite income and consumption and towards actually investing in the things that we need in order to improve our lives.
Let’s talk a bit about, as they say around New Left Review, the current conjuncture. We’ve seen recent inflation — quite a surprising inflation to most people. It’s ebbing now, but it’s not gone. It was caused by the opposite of overcapacity. It showed a productive system that was really stretched to its limit with just-in-time inventories outsourcing halfway around the globe. Add to that the “stimmy” checks and enforced leisure, which meant that people weren’t spending money on restaurants, but instead were spending it on durable goods. We saw profit rates rise, which contradicted the falling rate of profit stories. So it didn’t look anything like this image of chronic stagnation.
Was this just some weird — to quote a line from Wallace Stevens — “blaze of summer straw in winter’s nick”? Was it just some weird moment that’s going to go away? Or is there something that this tells us about more structural issues?
I can’t predict the future — I mean, in the current moment, there’s a lot of talk about what kind of stimulus the economy can bear and where it should be directed. But I do think that the dislocations of the COVID era were due to the COVID era. I don’t think anyone believes that the breakdown of supply chains and the inability of people to import all these things that are being produced abroad were the sign of a long-term transformation in the capacities of the system. It was a crisis moment, and it called for intense and combative measures. I think a really sad feature of the present is obviously that most of the welfare measures that were implemented at that time have been rolled back. I don’t think we’ve made any kind of permanent advances through this temporary increase in the generousness of the welfare state.
I think there’s something to the concern that this might end up being a temporary situation and that the long-term productivity growth rate of the economy probably isn’t changing because of the investments in manufacturing — which are great for the United States’ military conflicts and chest-beating about trade wars and whatever other kind of wars with China. Manufacturing just isn’t such a big part of the economy anymore, and even a major stimulus to that sector isn’t going to have a huge effect on our productivity growth rates or the economy as a whole.
So I think that the idea that stagnation might come back is warranted as a thesis. I think the fact that it’s such a mainstream view and it’s influencing a lot of policymakers and efforts to think about what the future might look like is also something that we ignore at our peril. Trying to attribute this view to Robert Brenner is like going into a burning house and trying to find the candle and turn it back over. I mean, these are very widespread mainstream views about the limitations of the future. And I’m not saying that we on the Left should feel ourselves limited by them, I think that’s a longer and more complex story. But these are serious issues to think about.
Seth, any thoughts on this?
Well, I think there’s a real slippage in Aaron’s argument when he goes from pointing out the concerns of people like Larry Summers or Robert J. Gordon or Olivier Blanchard about growth rates, and the revival of secular stagnation theory — and I always thought Larry Summers was quite sensible about this, that he was right about it — and then pointing to that as an indication that what Robert Brenner’s saying can’t be so crazy, because look at all these very levelheaded people making the same argument. It’s not at all the same argument.
The whole point of Larry Summers’s reintroduction of secular stagnation theory was to say that there has been inadequate fiscal stimulus. Whether you agree with him or not, his argument is that there’s been inadequate fiscal stimulus over the last thirty or forty years because population growth trends and other long-term structural factors have reduced the natural demand for investment, for private investment, and this has pushed the burden of adjustment entirely onto monetary policy, so it forced interest rates down further and further until they eventually got to zero. That’s the argument. And his upshot is the government needs to spend lots more money, and when it spends lots more money, it should probably focus on investment — things that will actually increase the productive capacity of the economy — and if we do that, that’ll work. You can make what you will of that argument, but that’s 180 degrees the opposite of what Brenner has always been hammering away at, which is the idea that the so-called stagnation that we’ve been experiencing is something that cannot be addressed by the government spending more money. Those are two separate arguments that are important to keep separate.
On the inflation that we saw in the last few years, my view is that it was almost certainly temporary and it’s going away and it will go away. There are arguments from sensible people like Charles Goodhart, who has pointed to long-term demographic trends and made the argument that the forces that made for secular stagnation in the last few decades are slowly going into reverse and that you’re going to start seeing an upswing in the sort of natural rate of demand for investment over time. And that’s going to lead to demand pressures, and you’re going to start getting inflation being a problem again. You know, maybe that’s true. I don’t really know. I haven’t looked into it.
But all of this is an important reminder that a big part of the story — and for me, the central part of the story of what happened since the 1970s — was about money, wages, and inflation. The workers’ movement in the postwar era became very strong. There was full employment. And there is a natural incompatibility — not necessarily an absolute incompatibility, but it is difficult to reconcile full employment and stable money. And the crisis that happened in the ’70s around the value of money and inflation ended up causing a whole series of huge institutional reorganizations, most clearly observable in Europe, but in different ways all over the world. That had a huge effect on all of the issues we’re talking about, including and especially the issue of the disempowerment of the working class in the last few decades.
Because it became a matter of public policy day in and day out in the central banks to make sure that the rate of job growth didn’t get too low, but also didn’t get too high. In recent years that has become less of a focus because of secular stagnation, the zero lower bound on interest rates that made them get increasingly worried about employment growth being too slow. But, you know, for most of the last several decades, we have had a deliberate policy objective on the part of the most powerful policy institutions of the rich country governments, the central banks, to target rates of unemployment that were higher certainly than what was otherwise achievable. And I think without seeing the centrality of that, you can’t really understand how we got into a situation with the working class so disempowered and growth rates unusually low.
Aaron, Seth raised the point in his piece, which also occurred to me as I was reading your stuff: How can you have chronic overcapacity and chronic underinvestment at the same time? Wouldn’t the excess capacity just rot away with time?
This is a good opportunity to reply to something else Seth said about secular stagnation. My explanation of this is just that it does make sense once you realize that we’re talking about deindustrialization. We’re not talking about what industry looked like in the nineteenth century or even in the 1950s. We’re not talking about a period of industrialization or a rising industry share of GDP. We’re talking about a sector of the economy that’s seeing its share of GDP fall, and that limits the extent to which income-growth issues and an increase in the size of the market in industry and across all of these different fields has resulted in a situation of a slow and persistent exit. That, to me, isn’t that different from what happened in agriculture, if you take a really bird’s eye view.
Of course, in actual fact it’s much more complicated, in part because the fate of industry has such huge geopolitical implications that governments intervened in all kinds of ways to try to modify and transform the deindustrialization pathway and also to push the consequences it had on other countries by moving currency values around or by other forms of state investment or protection. If you think like Brenner, that this is a story about the economy as a whole, then it is hard to explain it in terms of overcapacity. But if you think about it in the context of deindustrialization, like deagrarianization, then it’s pretty easy to understand how this can happen.
And that’s why, again, what I said is that my view is that the Brenner story about overcapacity does apply in the 1970s and ’80s, but increasingly over time, the reason for low capital productivity is just low labor productivity. And that’s where the story converges in my account — more with William Baumol and Vollrath than with Gordon. But it’s the same basic idea that since the ’70s, the growth potential of the economy as given by productivity growth rates has fallen, and the period of the major increase in women’s labor force participation rates and the continued effects of the baby boom to some extent hid this by increasing total hours, or the rate of growth of hours. So even if productivity wasn’t growing as quickly, working hours were.
But now we’re at the end of that phase, and the transition to services has become much more extreme over time. I mean, countries like Germany and Japan have achieved economy-wide productivity growth rates on the order of less than 1 percent per year for the last twenty years. And these are countries that are now going into population decline. So these are the reasons why I think that there’s a long-term problem. And I don’t know what Larry Summers thinks today, but I don’t think the explanation that this is just too high of a savings problem and not a lack of investment opportunities problem makes sense. I mean, the very idea that we need public investment suggests that there’s some problem in translating savings into investment that should be interrogated more closely and I think leads pretty directly into these Gordon/Vollrath–type explanations of why that’s the case.
So I think that that sets the tone for thinking about the future. And obviously saying that doesn’t mean that we should resign ourselves to a situation of working-class income stagnation and elite rapaciousness and fail to make an adequate transition to the Green New Deal. And that’s also why in my work, I’ve really paid attention to the radicalization of Keynesians and the claim all of the sudden, after seventy years, that the solution to these problems is not to stimulate consumption — which over the last seventy years is mostly issued in elite income growth instead of more investment — but rather through a coordinated campaign of public investment.
And that’s why in the book I’m writing now I talk about the dangers of technocracy and why we should be supportive of a transition to a public economy while also being skeptical of the capacities of Keynesians to actually turn that economy in a humane direction. The worries about saber-rattling are not irrelevant here as well.
[John Maynard] Keynes did have that bit at the end of The General Theory when he talked about the somewhat comprehensive socialization of investment. He was very vague in what he meant by that, but it seemed like it meant elite people like him should take over investment and take it away from the capitalists. But that control of investment angle got lost in all the attention to regulating the business cycle and boosting consumption.
Yeah, and that was a very reasonable response, I think, to what happened during the great boom. I think you can’t really talk about that without talking about the defeat of working-class activity in the immediate aftermath of World War II and the kind of shunting from any relevance of more radical Keynesians, which also happened very quickly.
The whole point of this is that that version of Keynesianism made Keynesianism really ill-equipped to handle the crises of the ’70s, and the battles for a more radical public economy were lost at that time. And that’s how we got where we are today. I mean, it’s a class story, right? In the end, the story Seth was telling about higher unemployment rates since the 1970s and the movements of the central banks, that is a story about class conflict, right?
Seth, in your piece you argue that because we mismeasure depreciation — specifically, the US authorities mismeasure depreciation — the capital stock is actually lower than it is, which makes the profit rate higher. So all these stories of a declining rate of profit are the product of misleading statistics. But if that’s true, if the profit rate really is higher than we think it is, why aren’t investment rates higher than they are?
I think there’s a pretty straightforward answer to that question. There was a great paper recently, and I’ll probably write something about it soon, by a couple of economists at the University of Chicago. “Corporate Discount Rates” was the boring title of the paper, but it was on a subject dear to your heart, Doug, thinking about your book, Wall Street. Here, I think that there’s a real disjunction with the view that says that to the extent there’s been a growth slowdown, it’s because firms see fewer investment opportunities.
So what these economists did is they went through thousands of transcripts of earnings calls where executives explain to investors, shareholders, and asset managers what they’re doing and what they’re thinking. And very often in these calls, the CEOs will explain what they currently use as their hurdle rate of investment, which for some reason the economists who wrote this paper call the “discount rate”: what rate of return they require, when they’re considering which investment projects to undertake or not undertake, to convince them to go ahead with the project.
These economists were not the first people to notice that hurdle rates for a corporate investment have experienced this very peculiar trajectory. Because supposedly, according to textbook economics, a corporation ought to invest in any kind of project that prospectively offers a rate of return that’s higher than what the company or its shareholders could get elsewhere. There are different ways of estimating what your alternative rate of return is — whether that’s the S&P 500 average rate of return, or it could be the risk-free interest rate plus adding some risk factor or whatever.
But the point is that as capital becomes cheaper, which it absolutely has in financial terms over the last thirty, forty years, for exactly these secular stagnation kinds of reasons, interest rates have fallen massively and real interest rates have also fallen, not just nominal. So you should see a decline in the hurdle rate that corporations use. They should say, well, if the average rate of return in the economy is 5 or 6 percent instead of 9 or 10 percent, then that means we should be willing to invest in projects that have a little bit lower prospective rates of return.
But that hasn’t happened. There have been surveys of chief financial officers — Duke University has been doing such a survey for many, many years — asking them what their hurdle rate is. And the hurdle rate has not moved at all. It’s been completely insensitive to the massive decline in interest rates. So what you have is a situation in which increasingly corporations are rejecting more and more prospectively profitable projects. And what these economists did is they went through the transcripts of these earnings calls, and they made a database of what the hurdle rates of these companies were. They traced them over time. And what they found, first of all, is that, yes, there’s been a much less than proportional decline in hurdle rate, so that as capital has gotten cheaper, corporations have not been proportionally more willing to invest.
So they asked the question — why? And they’re a little bit vague about answering that, but they’re very clear that from the transcripts, it’s obvious that CFOs believe that shareholders and asset managers like it when they abstain from investing in projects that are profitable but not profitable enough. They like it because it’s a signal. It signals that these executives are not empire-building, wasting money on grandiose projects. They’re returning funds to the corporation’s owners, the shareholders — all this kind of ideology that’s suffused the financial markets since the 1980s. Doug wrote about it extensively in Wall Street.
And along with the revolution in macroeconomic policy, this revolution in corporate finance and the managerial ideology that’s embedded in the institutional structures of corporations — I think those two things probably jointly can explain most of the shifts that we’ve seen, including the decline in aggregate growth rates.
Now, that’s a big statement to make. But these are big trends that have happened. So this, I think, is another example of the important role of money and finance. There’s a long tradition in Marxism of sort of denigrating the importance of money and finance; there’s also an alternative tradition of emphasizing that it’s important. But the idea that these are superficial features of the economy, and that the real reality underneath is the abode of production, can often distract us from how centrally important this kind of financial stuff is. That would be my best guess about why investment has been slower than what you would expect.
So let me ask one final question of both of you. Whenever I talk about growth, I get emails from people who say growth is killing us, we need to degrow. I’m not necessarily in agreement with that, but that is a question these days. So why should we worry about growth? Is it something we should try to get beyond?
My idea of a kind of convergence between long-wave Marxist theories and secular stagnation theories definitely leads me to have a view that I think the most radical of the radical Keynesians held and I think the best of the Marxists also held, which is that the goal isn’t just to unfetter the forces of production and imagine that due to some kink in the way that capitalists make investment decisions, a socialist society will just be able to achieve unheard-of growth rates and sail towards the stars.
I think if you ask Keynes or William Beveridge what the goal of this whole thing is, the better Marxist there would have said we should do one big last buildout and it should have a real public purpose. You know, like Beveridge said, just like the war really inspired people who were recently unemployed and depressed to get up every morning and do something to defend their families, we could organize public projects — not to make war on foreign people, but rather to make war on disease, ignorance, squalor, and poverty.
And that big public project of building out the fixed equipment, the equipment and machines that humanity needs today, looks like building hospitals and schools and all the rest of the things that Beveridge also imagined, with which many, many people in the world are massively underequipped. But in our time, it also means a big green transition, some huge effort to get us off fossil fuels. And I think, however we do that would have to be in line with science. And I’m not a scientist. I have no ability to judge what the proper pathway to an actually sustainable economy is. And I’d rather hear people who do know about that — hear them debate it out, and for people to decide on that basis.
But I agree with Keynes and Marx and W. E. B. Du Bois and the International Workers of the World (IWW) and everyone else that the long-term goal is to reduce the savings rate, reduce investment, increase working class consumption, and actually get to a world where there’s a much lower expectation of growth for the future. But that doesn’t mean a world without dynamism, real human dynamism and innovation across the wider spectrum of human possibilities and not only the economy. So I think that that is a kind of rational version of a degrowth future, but one that requires one last effort to raise the living standards of humanity in line with what’s sustainable. I think that that should be the goal that we’re fighting for.
Seth, a word for the degrowthers?
Well, that makes a lot of sense to me. It also occurred to me how there is an overlap between this discussion and the degrowth discussion, which has also been going on at the same time in the sense that the nature of what we’re talking about depends heavily on this construct, the statistical construct of GDP. Whenever we’re talking about stagnation or not-stagnation — there’s no way to talk about that in a coherent way without using some kind of statistical aggregation, because obviously when the economy produces stuff, it produces lots of different kinds of things, lots of different products. And how can you say if we were producing more today than we were last year without aggregating them in some way? And that means you have to add up all the monetary values, but then you have to figure out how much inflation there’s been.
And all of this stuff leads to, by necessity, a massive amount of guesswork about qualitative issues regarding products and services and to what extent they should be counted as indicating quantitative growth. It’s one thing when you talk about a poor country, but when you’re talking about countries at the frontier of productivity, I get the sense that increasingly you get to a point when growth rates of productivity depend on the judgments of statisticians at government agencies — who do the best job they can, and they do good work. But ultimately, more and more, the question of whether we’re producing more, whether output is expanding and by how much — I suspect that if we’re judging that by the kind of human criteria that all three of us think are important, the official statistics matter less and less, so it becomes less and less crucial to achieve any particular growth rate in countries where the level is already as high as it is in the rich countries.
But the problem is that capitalism doesn’t systemically live well with low growth rates necessarily. Or does it?
Well, I don’t know. If you go back to like 1970, a lot of people were saying that growth rates have been really high and this has led to a revolution of rising expectations and overcrowding in cities, generating revolutionary possibilities. Certainly if investment grinds to a halt and there’s no profits then something’s going to break. But that’s really not happening. What’s happening is that these things are increasing at a somewhat slower rate.
Any comment on that, Aaron?
That’s my point: capitalism does have a big problem with slow growth that has to do with the class character of the society. The hope for humanity is the hope for a transition to a public investment economy that does the green transition, that measures its success in these concrete terms, — not abstract growth terms but the real battle to improve the multiple conditions of social life. But I think that’s going to be a big struggle. It’s going to involve really breaking away from the organizations that have for a long time organized working-class defeat in the face of a capitalist onslaught. And that, again, helps us situate ourselves in the present moment and understand the character of the struggles that are going on and have been increasing in the last ten years.