The six-hour work day comes to Sweden

Why do we work so many hours? I mean beyond the obvious answer that the dictatorial employment relationships of capitalism force us to on pain of unemployment. Working hours declined from the inhuman work weeks of the industrial revolution until the mid-20th century, when the hours we work leveled off; in more recent years work hours have been increasing.

It certainly isn’t because productivity has plateaued. On the contrary, advances in machinery and computerization make us more productive than ever before. So why do we still work an eight-hour day after all these decades? (Or more than eight hours in many cases, and not necessarily with extra pay for office workers receiving a flat salary.) An eight-hour day was an outstanding achievement of social movements from the 19th century, when work days lasted 10 and 12 hours.

With the advancements in productivity over the years, we could certainly work fewer hours and still provide all that is necessary. Why not a six-hour day? Or less? In Sweden, there are ongoing experiments with six-hour work days, which so far have met with success. Not surprisingly, given the one-sidedness of workplace relations, these experiments are being done in the name of “greater productivity.” In other words, the standard is to be: Will this be good for the boss’ profits? That it might be good for the workers is part of the equation, but even this is commingled with the idea that rested workers will be more productive workers and thus more profitable for bosses.

Gothenburg, Sweden

Gothenburg, Sweden

Let’s first examine six-hour work days on these capitalist terms. The issue of how much productivity can be extracted out of workers, interestingly, is more explicitly stated in a test case of public workers than it is for private employers, in part due to right-wing opposition. In Gothenburg, Sweden’s second-largest city, two groups of municipal workers are part of a test in which one set will work six-hour days with full pay and the other set continues to work a standard eight-hour day. The hope is that a shorter day will reduce sick leave, boost efficiency and ultimately save money, according to a report in the Stockholm newspaper The Local. A Gothenburg deputy mayor, Mats Pilhem of the Left Party, said:

“We’ll compare the two afterwards and see how they differ. We hope to get the staff members taking fewer sick days and feeling better mentally and physically after they’ve worked shorter days.”

One group of public workers on six-hour days are nurses at an elder-care facility. This experiment is to continue until the end of 2016. Fourteen new staff members were hired to cover the lost hours, but a consultant told The Guardian that the nurses “are less stressed and have more time for the residents.” The city government is closely monitoring the experiment to see if the quality of service is higher with the six-hour work day. Nurses report having more energy at work because they are no longer exhausted from longer days of work, and a Left Party member of the Gothenburg council said quality of life for the employees should also be a consideration. He said:

“Not everything is about making things cheaper and more efficient, but about making them better. Under the Conservative-led coalition government in Sweden from 2005 to 2014 we spoke only about working more, and more efficiently — but now we want to discuss how to survive a long working life so we don’t destroy our bodies by the time we are 60.”

Not an unreasonable thought.

Private employers see benefits to shorter day

In the private sector, a Toyota service center in Gothenburg switched to a six-hour work day in 2002, with no cut in pay, and reports that its profits are up thanks to more efficient use of the center’s machinery. The Swedish Internet company Brath reports strong growth in revenue and profits using a six-hour work day. The company’s chief executive officer, Maria Bråth, believes that employees with time for the rest of their lives are more productive employees:

“That we have shorter days is not the main reason people stay with us, they are the symptom of the reason. The reason is that we actually care about our employees, we care enough to prioritize their time with the family, cooking or doing something else they love doing. … Another big benefit is that our employees produce more than similar companies do. We obviously measure this. It hasn’t happened by itself, we’ve been working on this from the start. Today we get more done in 6 hours than comparable companies do in 8. We believe it comes with the high level of creativity demanded in this line of work. We believe nobody can be creative and productive in 8 hours straight. 6 hours is more reasonable, even though we too, of course, check Facebook or the news at times.”

At the other extreme, working more than 40 hours per week is detrimental to physical and mental health. A study published earlier this year in The Lancet found that people working 55 hours per week had a 33 percent greater risk of a stroke than those who worked 35 to 40 hours per week and a higher risk of heart disease. This study analyzed more than 600,000 individuals, through data drawn from 20 studies, in several countries.

Studies conducted in the early 20th century, as the working day was progressively shortening toward the eight-hour norm, that productivity was actually greater with a shorter day. For example, the 1913 book Psychology and Industrial Efficiency by Hugo Münsterberg, regarded as a pioneer in applied psychology, summarizing the results of various factory studies, stated:

“It was found that everywhere, even abstracting from all other cultural and social interests, a moderate shortening of the working day did not involve loss, but brought a direct gain. The German pioneer in the movement for the shortening of the workingman’s day, Ernst Abbé, the head of one of the greatest German factories, wrote many years ago that the shortening from nine to eight hours, that is, a cutting-down of more than 10 per cent, did not involve a reduction of the day’s product, but an increase, and that this increase did not result from any supplementary efforts by which the intensity of the work would be reinforced in an unhygienic way. This conviction of Abbé still seems to hold true after millions of experiments over the whole globe.”

It is hardly a revelation that a tired workforce is going to make more mistakes and be subject to more accidents. The common belief by bosses that it is cheaper to force overtime on current workers, even in those cases where it must be paid when employment laws or union contracts can’t be evaded, than to hire new workers to handle increasing workloads isn’t necessarily true. Beyond the benefits to productivity or employer satisfaction, working fewer hours would be a partial compensation for pay that has badly lagged increases in productivity since the 1970s.

We produce more but don’t earn more

This pattern is persistent throughout the world. It has been in place since the early 1970s in the United States and although a more recent phenomenon elsewhere in the world’s advanced capitalist countries, workers everywhere suffer from stagnant wages while producing more. U.S. workers on average earn nearly 12 dollars per hour less than they would if wages had kept pace with productivity gains since 1973. Canadian workers earn on average 11,000 dollars per year less then they would if if wages had kept pace with productivity gains since 1980. Other studies demonstrate lags in wages versus productivity in Britain, France, Germany, Italy and Japan.

The bottom line is that we work more hours because bosses can extract more from us, even if they don’t extract as much as they believe they do when we are pushed beyond an eight-hour day. That a handful of bosses have the foresight to see that more profits can come from shorter work days does nothing to change that basic capitalist equation. Profits ultimately derive from the difference between what we are paid and the value of what we produce — the drive to increase this difference underlies both the stagnant pay of recent decades and the accelerating shifting of production, both manual and office work, to locations with ever lower wages and weaker regulations.

Graphic courtesy of Economic Policy Institute

Graphic courtesy of Economic Policy Institute

What if we worked for ourselves instead? If shorter work days are beneficial to working people — and reduce unemployment by requiring more workers to carry out necessary work — why shouldn’t this be widely implemented? So far, the discussion around the length of the working day has centered around what is best for bosses, as would be expected under capitalism. (And, make no mistake, Sweden is a capitalist country, albeit one that ameliorates some of capitalism’s harshness more than most others countries.) What if the workers ran the company themselves, or managed a public enterprise themselves?

A cooperative enterprise could similarly reduce the work day or possibly even more since it wouldn’t have to generate a large profit for a boss or, in the case of larger enterprises, for the top executives and shareholders. The steady increase in inequality, the immense fortunes held by the world’s billionaires that are far beyond any reasonable possibility of useful investment, the trillions of dollars stockpiled by multi-national corporations, and the immense waste of advertising and planned obsolescence attest to the fact that we work beyond what is necessary to meet human need.

If the economy were organized on the basis of an economic democracy — in which production is oriented toward human, community and social need rather than private accumulation of capital — the work day could reasonably be well less than eight hours. Economic democracy can be defined as where everybody who contributes to production earns a share of the proceeds — in wages and whatever other form is appropriate — and everybody is entitled to have a say in what is produced, how it is produced and how it is distributed, and that these collective decisions are made in the context of the broader community and in quantities sufficient to meet needs, and that pricing and other decisions are not made outside the community or without input from suppliers, distributors and buyers.

By no means is anything written in this article intended to be an argument against shorter, more humane working hours or higher pay today. But as such struggles intensify, as they must, they can help us move beyond reforms that somewhat lessen our exploitation to ending exploitation. If a six-hour work day is better for us, why not have more of the benefits accrue to those who do the work and to the community that supports that work?

Federal Reserve says your wages are too high

The Federal Reserve has declared that the reason for ongoing economic weakness is because wages have not fallen enough. Wages have been stagnant for four decades while productivity has soared, but nonetheless orthodox economists believe the collapse of 2008 has been a missed opportunity.

A paper prepared by two senior researchers with the San Francisco branch of the U.S. Federal Reserve Bank attempts to explain the lack of wage growth experienced as unemployment has fallen over the past couple of years this way:

“One explanation for this pattern is the hesitancy of employers to reduce wages and the reluctance of workers to accept wage cuts, even during recessions, a behavior known as downward nominal wage rigidity.”

The two Federal Reserve researchers, Mary Daly and Bart Hobijn, based their argument on the standard ideology of orthodox economists, writing:

“Downward rigidities prevent businesses from reducing wages as much as they would like following a negative shock to the economy. This keeps wages from falling, but it also further reduces the demand for workers, contributing to the rise in unemployment. Accordingly, the higher wages come with more unemployment than would occur if wages were flexible and could be fully reduced.”

A food line in Toronto in 1931; falling wages didn't work out during the Great Depression.

A food line in Toronto in 1931; falling wages didn’t work out during the Great Depression.

The “problem” of wages stubbornly refusing to drop as much as corporate executives and financiers would like is referred to as the “sticky wages” problem in orthodox economics. Simply put, this “problem” is one that orthodox economists, themselves not necessarily subject to the market forces they wish to impose on others, have long struggled to “solve.” You perhaps will not be surprised to hear that “government” is the problem. Consider this remarkable passage published on the web site of the Mises Institute, an advocate of the Austrian school of economics:

“Much of the alleged ‘stickiness’ of wages is due to government policies. … [T]he trouble stems from workers not being willing to take pay cuts. When the demand from employers drops, at the old wage rate there is now surplus labor — a.k.a. unemployment. Only when market wages drop to a lower level, so that demand once again matches supply, will equilibrium be restored in the labor market.”

Collapsing wages in the Great Depression didn’t help

According to this author, Robert P. Murphy, an “associated scholar” of the Mises Institute, failing to drive down wages is such a big mistake that it caused the Great Depression. He writes:

“After the 1929 crash, Herbert Hoover gathered the nation’s leading businessmen for a conference in Washington and urged them to allow profits and dividends to take the hit, but to spare workers’ paychecks. Rather than cut wages, businesses were supposed to implement spread-the-work schemes where workers would cut back their hours. The rationale for Hoover’s high-wage policy was that the worker supposedly needed to be paid ‘enough to buy back the product.’ … The idea was that wage cuts would just cause workers to cut their spending, which would in turn lead to another round of wage cuts in a vicious downward spiral.”

Herbert Hoover was not vicious enough! Although it was Hoover’s Treasury secretary, Andrew Mellon, who advocated the government “liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate” so as to “purge the rottenness out of the system,” and not Hoover himself, the president did take hard-line right-wing positions. Michael Parenti, in discussing Hoover in his book History as Mystery, wrote:

“Like so many conservatives then and now, Hoover preached the virtues of self-reliance, opposed the taxation of overseas corporate earnings, sought to reduce income taxes for the highest brackets, and was against a veterans’ bonus and aid to drought sufferers. He repeatedly warned that public assistance programs were the beginning of ‘state socialism.’ Toward business, however, he suffered from no such ‘inflexibility’ and could spend generously. He supported multimillion-dollar federal subsidies to shipping interests and agribusiness, and his Reconstruction Finance Corporation doled out about $2 billion to banks and corporations.” [page 261]

Hoover’s concern for working people was demonstrated when his troops fired on veterans demanding payments owed to them and burned their camps. His laissez-faire policies led to manufacturing wages falling 34 percent and unemployment rising to about 25 percent by 1933. That collapse in wages did not bring better times; only the massive government spending to wage World War II put an end to the Depression. Such wage declines, in the real world, actually make the economy worse, argues Keynesian economist Paul Krugman:

“[Y]ou could argue that a sufficiently large fall in wages could restore full employment now — but it would have to be a very large wage decline, and the positive effects would kick in only after deflation had first driven just about every debtor in the economy into bankruptcy.”

How many formulae can be written on the head of a pin?

Although orthodox economics is often nothing more than ideology in the service of capitalist elites, its practitioners like to believe themselves scientific because they base their theories on mathematical models. Unfortunately, these formulae are divorced from the real, physical world; the economy and the human behavior that animates it are not reducible to mathematics.

Robert Kuttner, a heterodox economist, explored these shortcomings in an article originally published in Atlantic Monthly. He wrote:

“The [prevailing] method of practicing economic science creates a professional ethic of studied myopia. Apprentice economists are relieved of the need to learn much about the complexities of human motivation, the messy universe of economic institutions, or the real dynamics of technological change. Those who have real empirical curiosity and insight about the workings of banks, corporations, production technologies, trade unions, economic history or individual behavior are dismissed as casual empiricists, literary historians or sociologists, and marginalized within the profession. In their place departments are graduating a generation of idiots savants, brilliant at esoteric mathematics yet innocent of  actual economic life.”

That was written in 1985; little if anything has changed since and arguably has gotten worse. Professor Kuttner points out that the very fact of persistent unemployment contradicts the basic theses of orthodox neoclassical economics. If the belief that markets automatically reach equilibrium were true, then wages would automatically fall until everybody had a job. Rather than acknowledge the real world, orthodox economists simply declare involuntary unemployment an “illusion,” or claim “government interference” with the market is the culprit. “Business cycles were around long before trade unions or big-spending governments were,” Professor Kuttner noted.

Wages are not as flexible as orthodox ideology suggests because within an enterprise preference is ordinarily given to existing workers to fill job openings, thereby buffering wages from external market forces, writes another heterodox economist, Herbert Gintis. In an essay originally appearing in Review of Radical Political Economics, he wrote:

“In particular, there is a tendency for the number of individuals qualified for a position to exceed the number of jobs available, in which case seniority and other administrative rules are used to determine promotion. Hardly do workers compete for the job by bidding down its wage.”

In almost all cases, employees do not even know what wages their co-workers are earning. This top-down secrecy facilitates the disparity in wages, whereby, for example, women earn less than men. If everybody earned what they were worth, there would no such wage disparity. The very fact of disparities between the genders or among races and ethnicities demonstrates the ideological basis of orthodox economics, which assumes that employees who do the work of production are in their jobs due to personal choice and wages are based only on individual achievement independent of race, gender and other differences.

You produce more but don’t earn more

Back in the real world, wages have significantly lagged productivity for four decades; thus, wages, examined against this benchmark, have significantly declined for those four decades. A study by the Economic Policy Institute, written by heterodox economist Elise Gould, reports:

“Between 1979 and 2013, productivity [in the U.S.] grew 64.9 percent, while hourly compensation of production and nonsupervisory workers, who comprise over 80 percent of the private-sector workforce, grew just 8.0 percent. Productivity thus grew eight times faster than typical worker compensation.” [page 4]

(Graphic by Economic Policy Institute)

(Graphic by Economic Policy Institute)

Middle-class U.S. households earn $18,000 less than they would had wages kept pace with productivity, Dr. Gould calculates. Nor is that unique to the U.S.: Wages in Canada, Europe and Japan have also fallen well short of productivity gains. Canadian workers, for example, are paid at least $15,000 per year less than they would be had their wages kept pace.

To circle back to the San Francisco Federal Reserve paper that began this discussion, the authors claim that wage stagnation will persist until markets “return to normal.” They assert:

“[T]he accumulated stockpile of pent-up wage cuts remains and must be worked off to put the labor market back in balance. In response, businesses hold back wage increases and wait for inflation and productivity growth to bring wages closer to their desired level.”

But as we can plainly see, and as those of us living in the real world experience, wages cuts have been the norm for a long time. The caveat at the end of the paper that it does not necessarily reflect the views of the Fed board of governors should be noted, but the paper was issued as part of a regular series by the San Francisco Fed and the authors are senior members of it, so it is not likely to be at variance with opinions there. It certainly does reflect orthodox economic ideology. Similarly, the argument by the Austrian School’s Mises Institute, stripped of its academic-sounding veneer, is a call to eliminate the minimum wage.

Stagnation, declining wages and the ability of capitalists to shift production around the globe in a search for the lowest wages and lowest safety standards — completely ignored in the orthodox hunt for economic scapegoats — are the norm. Our need to sell our labor, the resulting reduction of human beings’ labor power to a commodity, and the endless competitive pressures on capitalists to boost profits underlie the present economic difficulties.

Collective bargaining through unions and the needs of capitalists to retain their employees can be brakes against the race to the bottom — what the orthodox economists at the Fed and elsewhere are arguing is that these remaining brakes be removed and wages driven down to starvation levels. That is what global capitalism has to offer.

The lag in wages vs. productivity costs you hundreds of dollars per week

Working harder and making less isn’t a great deal for you, although it certainly is good for corporate profits. The ongoing pattern of stagnant pay as worker productivity increases, having raged unabated since the 1970s, now costs an average United States household $18,000 per year in lost income.

By no means a pattern limited to the U.S., the average Canadian household is short at least $10,000 per year because of pay lagging productivity gains. Wages have begun to decline in Britain, as well as elsewhere.

By now, studies demonstrating these trends risk finding themselves in the category of “the Sun will rise in the east tomorrow.” But although the Earth’s rotation is an immutable phenomenon of nature, getting screwed at the workplace need not be. For now we are, and for North Americans in particular this has gone on for more than three decades. A new study by the Economic Policy Institute, written by economist Elise Gould, reports:

“Between 1979 and 2013, productivity [in the U.S.] grew 64.9 percent, while hourly compensation of production and nonsupervisory workers, who comprise over 80 percent of the private-sector workforce, grew just 8.0 percent. Productivity thus grew eight times faster than typical worker compensation.” [page 4]

As a result of that under-compensation, according to the Economic Policy Institute study:

“By 2007, the growing wedge between economy-wide average income growth and income growth of the broad middle class (households between the 20th and 80th percentiles) reduced middle-class incomes by nearly $18,000 annually. In other words, if inequality had not risen between 1979 and 2007, middle-class incomes would have been nearly $18,000 higher in 2007.” [page 3]

Might your personal finances be easier with that extra money?

(Graphic by Economic Policy Institute)

(Graphic by Economic Policy Institute)

Another way of conceptualizing this trend is the share of wages and salaries as a percentage of gross domestic product. Fred Magdoff and John Bellamy Foster, writing in the March 2013 edition of Monthly Review, calculate that wages and salaries constituted 53 percent of U.S. GDP at the start of the 1970s but only 44 percent in 2011. The authors, however, caution that even that statistic understates the decline in wages because it includes the salaries of chief executive officers and other high-level executives, whose compensation has risen. They write:

“Thus, although the wage share of income has sharply dropped in the U.S. economy, this decline has not been shared equally, and applies mainly to what is properly called the working class, i.e., the bottom 80 percent or so of wage and salary workers.” [page 7]

The problem is bigger than your degree

The canard that an “education gap” is responsible for rising inequality — perhaps the favorite excuse of Right-wing commentators, simply isn’t true. The Economic Policy Institute study reports real (inflation-adjusted) hourly wages for workers with a college degree has increased all of 1.6 percent from 2000 to 2013. As a result:

“[T]he gap between the wages near the top of the wage distribution and the middle … has grown much faster since 1995 than has the wage gap between those with a four-year college degree and those with a high school degree.” [page 21]

It’s not as if there is no money for raises: U.S. publicly traded companies are sitting on $5 trillion in cash, five times the total during held during the mid-1990s.

(Graphic by Economic Policy Institute)

(Graphic by Economic Policy Institute)

Canadian workers have fared little better. A Canadian Centre for Policy Alternatives paper found that, although Canadian wages are flat since 1991, the average weekly wage would be $200 per week higher if wages had kept up with gains in productivity. That adds up to about $10,000 per year. As in the U.S., low-wage workers fared the worst, the paper said:

“After adjusting for inflation, the average provincial minimum wage has decreased from $9.14 to $7.32 between 1976 and 2006 in terms of 2006 dollars.” [page 8]

Wage decay is a more recent pattern in Britain, but wages there have suffered what the London School of Economics and Political Science calls “unprecedented falls.” A school study, lamenting that “the long US experience of stagnant real wages might be viewed as a warning sign for the UK,” found that British wage growth has lagged productivity growth for more than a decade. The study, released earlier this year, says:

“The real wages of the typical (median) worker have fallen by around 8-10% — or around 2% a year behind inflation — since 2008. Such falls have occurred across the wage distribution, generating falls in living standards for most people, with the exception of those at the very top.”

There is no returning to a Keynesian past

It’s not uncommon for those angered or depressed by the neoliberal onslaught of recent decades to advocate a return to Keynesianism. Alas, it is not so simple to do that, nor would it actually provide a solution to today’s economic crises. For one thing, it is not a matter of a leader somewhere decreeing that we shall now have neoliberalism instead of Keynesianism, or that another leader can simply reverse the policies.

The mid-20th century Keynesian moment was a product of a particular set of circumstances that can’t be repeated. The New Deal and the rising wages following World War II were the products of mass movements — communist, socialist and union — that simply do not exist today.

Mid-20th century Keynesianism depended on an industrial base and expanding markets. A repeat of history isn’t possible because the industrial base of the advanced capitalist countries has been hollowed out, transferred to low-wage developing countries, and there is almost no place remaining to which to expand. U.S. capitalists could tolerate rising wages then because of enormous export opportunities in the wake of the destruction of European and East Asian industry due to World War II and because of long pent-up domestic demand that couldn’t be fulfilled during the Great Depression and the war.

The rest of the world eventually got on its feet, increasing competition, and eventually profit rates began to come under pressure. The neoliberalism that began to take hold in the 1970s, and the accompanying financialization of the economy, were a response by capitalists to what, for them, were deteriorating conditions. Margaret Thatcher and Ronald Reagan may have ushered in the age of neoliberalism, but they were the political instruments of corporate offensives. In the U.S., neoliberalism could be said to have begun during the Carter administration, when then Federal Reserve chairman Paul Volcker unilaterally began to raise interest rates sky high, inducing the deep recession of the early 1980s.

We are living in very different times than the post-war years; the neoliberal offensive is the natural development of capitalism and the manic competition that mandates capitalists to grow or die. Even were it possible to bring back Keynesianism through legislation, it would at best be a temporary balm; the capitalists who are saved through such policies re-gain the power to again impose their preferred policies. There is no salvation in attempting to “stabilize” what is inherently unstable nor any realistic prospect that what is structurally unfair and unequal can be made just.

The advances that are the fruits of the 20th century’s mass movements have largely been erased, with no end to the race to the bottom. This century’s mass movements will have to aim much higher than mere reforms.

Federal Reserve talks jobs, but (in)action speaks louder than words

If you haven’t gotten a pay raise lately, you are not alone. The percentage of U.S. workers reporting no change in their renumeration remains near its all-time high, according to statistics kept by the San Francisco branch of the Federal Reserve.

The San Francisco Fed’s “wage rigidity meter” — the percentage of “job stayers” who report receiving the same pay as one year earlier, rose above 15 percent in 2010 and has remained there since. For comparison, that figure was 11 percent in 2008, at the start of the global economic downturn and about six percent in the early 1980s, when this statistic first began to be tracked. For hourly workers, not surprisingly, conditions are even worse: More than 20 percent report no increase in pay, about triple the number in the early 1980s.

That is merely one additional piece of evidence — if any more be needed — that inequality is on the rise. Reuters reports that there is some discussion within the Federal Reserve to temporarily tolerate higher inflation as a “tradeoff” to encourage growth in wages and an accompanying boost to full-time employment. How serious this talk actually is might be signaled by this paragraph in the same Reuters report:

“Fed staff economists accepted in 2010 that labor’s share of annual U.S. output, which over a decade had dropped to around 56 percent from its long-term average of around 62 percent, was unlikely to recover.”

In other words, the Federal Reserve says inequality is here to stay. So perhaps tinkering with policy that possibly could make a marginal difference — even the Fed has to keep up appearances sometimes — is the most that might be expected. Contrast that with the enthusiasm with which the Fed has shoveled money into its “quantitative easing” programs — measures that have primarily acted to inflate a new stock-market bubble with a small secondary effect of re-animating real estate prices.

(Graphic by the U.S. Bureau of Labor Statistics)

(Graphic by the U.S. Bureau of Labor Statistics)

“Quantitative easing” is the technical name for a central bank going on an asset buying spree. In conjunction with setting low interest rates, it is a theoretical attempt to stimulate the economy by encouraging investment. The Federal Reserve’s program buys U.S. government debt and mortgage-backed securities in massive amounts.

Through the end of June 2014, the Fed poured about US$4.1 trillion into three quantitative-easing programs since December 2008. The Bank of England had committed £375 billion to its Q.E. program as of the end of 2013.

Prior to the economic downturn, the Fed held between $700 billion and $800 billion of U.S. Treasury notes on its balance sheet, but, because of its quantitative-easing programs, it now holds more than $4 trillion. The Fed is in the process of winding down its buying spree with an intent to finish it in October. Instability is likely to occur when the Fed tries to unload its bloated piles of assets, and many of the world’s other central banks will seek to unload their assets as well.

The latest stock-market bubble, then, will burst as all others before it, with high debt loads dropping another anchor on the economy. A commentary in Forbes calculates that the level of borrowing used to buy stocks is already higher than it ever was during the 1990s stock-market bubble or the run-up before the 2008 crash as measured in inflation-adjusted dollars or as a ratio with the S&P 500 stock index.

What could the world’s governments have done with this massive amount of money had it instead gone to socially useful programs? Instead, trillions of dollars were spent to inflate another stock-market bubble. One more way the world’s wealthiest have gotten fatter while the sacrifices are borne by the rest of us.

And that is merely one way that inequality not only continues to grow, but is accelerating. From 2000 to 2009, labor productivity rose an average of 2.5 percent annually while real hourly wages rose only 1.1 percent, according to U.S. Bureau of Labor Statistics calculations — the biggest gap it has yet measured, going back to the late 1940s.

(Graphic by the U.S. Bureau of Labor Statistics)

(Graphic by the U.S. Bureau of Labor Statistics)

More recent figures, according to Reuters, indicate the gap continues to grow — from 2007 to today, average hourly wages have risen a total of 1.5 percent while productivity has increased by 11.4 percent. Nor is that a phenomenon limited to the United States. The International Labour Organisation calculates that wages in the world’s developed countries increased six percent from 1999 to 2011 while labor productivity increased about 15 percent.

If the employees are not receiving the benefits from their increased productivity, then it is the bosses and speculators who are grabbing it. Thus it is no surprise that the gap in wealth has increased more sharply than have incomes. A research paper written by Fabian T. Pfeffer, Sheldon Danziger and Robert F. Schoeni found that accumulated wealth has decreased for the majority of people since 1984. The median level of net worth — that is, the 50th percentile or the point where the number of people with more is equal to the number with less — has decreased by about 20 percent since 1984. By contrast, those at the 95th percentile have nearly doubled their net worth since 1984.

So much money has flowed upward that industrialists and financiers, and the corporations they control, have more money than they can possibly find investment for — this money is diverted into increasingly risky speculation in an attempt to find higher returns. Working people were handed the bill for the previous bubbles, and before we can get back on our feet the bursting of another bubble looms. Class war is raging, and it’s clear what side is winning.

The 1 percent get richer thanks to you working harder

It is not your imagination — you are working harder and earning less. Despite significant productivity gains during the past four decades, wages have remained flat.

This is a global phenomenon, not one specific to any country. It is not a matter of the viciousness of this or that capitalist, nor the policy of this or that government. Rather, widening inequality flows naturally from the ideological construct that now dominates economic thinking. Consider Henry Giroux’s succinct definition of neoliberalism:

“[I]t construes profit-making as the essence of democracy, consuming as the only operable form of citizenship, and an irrational belief in the market to solve all problems and serve as a model for structuring all social relations.”

“Freedom” is reduced to the freedom of industrialists and financiers to extract the maximum possible profit with no regard for any other considerations and, for the rest of us, to choose whatever flavor of soda we wish to drink. Having wrested for themselves a great deal of “freedom,” the world’s capitalists have given themselves salaries, bonuses, stock options and golden parachutes beyond imagination while ever larger numbers of working people find themselves struggling to keep their heads above water.

Demonstrating for a $15 an hour minimum wage (Photo courtesy of Socialist Alternative)

Demonstrating for a $15 an hour minimum wage (Photo courtesy of Socialist Alternative)

On the one hand, U.S. chief executive officers earned 354 times more than the average worker in 2013. And even with the bloated pay of top executives and the money siphoned off by financiers, there was still plenty of cash on hand — U.S. publicly traded companies are sitting on a composite hoard of $5 trillion, five times the total during the mid-1990s.

Working harder without getting paid for it

On the other hand, there is the much different fortunes of working people. A study of four decades of wage trends in the United States, for example, revealed that the median hourly wage is less than two-thirds of what it would be had pay kept pace with productivity gains. Authors Lawrence Mishel and Kar-Fai Gee, writing for the Spring 2012 edition of the International Productivity Monitor, calculated the extraordinary mismatch between productivity gains and wages. Their study found:

“During the 1973 to 2011 period, the real median hourly wage in the United States increased 4.0 percent, yet labour productivity rose 80.4 percent. If the real median hourly wage had grown at the same rate as labour productivity, it would have been $27.87 in 2011 (2011 dollars), considerably more than the actual $16.07 (2011 dollars).” [page 31]

Almost every penny of the income generated by that extra work went into the pockets of high-level executives and financiers, not to the employees whose sweat produced it.

Working people in Canada have fared little better. Labor productivity increased 37.4 percent for the period 1980 to 2005, while the median wage of full-time workers rose a total of 1.3 percent in inflation-adjusted dollars, according to a Fall 2008 report in the International Productivity Monitor. The authors of this report, Andrew Sharpe, Jean-François Arsenault and Peter Harrison, provided caveats as to the direct comparability of productivity and wage statistics, but found the mismatch to be real as labor’s share of Canadian gross domestic product has shrunk. The authors note that, in Canada, almost all income gains have gone to the top one percent. They write:

“If median real earnings had grown at the same rate as labour productivity, the median Canadian full-time full-year worker would have earned $56,826 in 2005, considerably more than the actual $41,401 (2005 dollars).” [page 16]

Wage erosion is also at work in Europe. A Resolution Foundation paper found a differential between productivity and wage gains for British working people, although smaller than that of the United States. It also found that British workers did not lose as much ground as did French, German, Italian and Japanese workers. That conclusion is based on a finding that the share of gross domestic product going to wages in those countries has steeply declined since the mid-1970s.

That German workers also suffer from eroding wages might seem surprising. But it should not be — German export prowess has been built on suppressing domestic wages. In 2003, the then-chancellor, Social Democrat Gerhard Schröder, pushed through his “Agenda 2010” legislation, which cut business taxes while reducing unemployment pay and pensions. German unions allowed wages to decline in exchange for job security, which means purchasing power is slowly declining, reinforcing the trend toward Germany becoming overly dependent on exports.

Making a few calculations from International Labour Organization statistics on labor productivity and wages provided for individual countries, I found that average real wages in Germany declined 0.5 percent per year for the period of 2000 to 2008 while German labor productivity increased 1.3 percent per year. (The only years for which data is available for both.)

You can’t sell it if everybody is broke

Despite the overwhelming evidence of increasing hardship for so many people, economic orthodoxy insists we scream in horror at the very thought of raising wages. Such screaming is based on ideology, not on facts. Low-wage workers in the United States earn far less today than they did in 1968, despite their having a much higher level of education now as compared with then. The federal minimum wage is 23 percent lower than it was in 1968 when adjusted for inflation.

An Economic Policy Institute study by Heidi Shierholz, released in January 2014, found there are nearly three job seekers for every one open position. The lack of jobs reflects larger structural weaknesses, not a “lack of education” as orthodox economists, committed to austerity, continue to claim. She writes:

“Today’s labor market weakness is not due to skills mismatch or workers lacking skills for available jobs, but instead due to weak demand. If today’s high unemployment were a problem of skills mismatch, some sizable group or groups of workers would be now facing tight labor markets relative to 2007, before the recession started. Instead weak demand for workers is broad-based; job seekers dramatically outnumber job openings in every industry, and unemployment is significantly higher at every education level than in 2007.”

Household spending accounts for 69 percent of the U.S. gross domestic product; persistent unemployment and stagnant or falling wages can only lead to continuing economic weakness. Demand is what creates jobs. Raising wages, which in turn would stimulate demand, would, in a logical world, appear to be one route to ameliorating stagnation. In fact, a strong consensus exists that, contrary to what the one percent and their hired propagandists say, raising the minimum wage would be beneficial.

A Center for Economic Policy and Research paper surveying two decades of minimum-wage studies concludes:

“Economists have conducted hundreds of studies of the employment impact of the minimum wage. Summarizing those studies is a daunting task, but two recent meta-studies analyzing the research conducted since the early 1990s concludes that the minimum wage has little or no discernible effect on the employment prospects of low-wage workers. The most likely reason for this outcome is that the cost shock of the minimum wage is small relative to most firms’ overall costs and only modest relative to the wages paid to low-wage workers. … [P]robably the most important channel of adjustment is through reductions in labor turnover, which yield significant cost savings to employers.” [pages 22-23]

Similarly, the National Employment Law Project reports a strong consensus in favor of increasing the minimum wage:

“The opinion of the economics profession on the impact of the minimum wage has shifted significantly over the past fifteen years. Today, the most rigorous research shows little evidence of job reductions from a higher minimum wage. Indicative is a 2013 survey by the University of Chicago’s Booth School of Business in which leading economists agreed by a nearly 4 to 1 margin that the benefits of raising and indexing the minimum wage outweigh the costs. …

Two decades of rigorous economic research have found that raising the minimum wage does not result in job loss. While the simplistic theoretical model of supply and demand suggests that raising wages reduces jobs, the way the labor market functions in the real world is more complex. Researchers and businesses alike agree today that the weight of the evidence shows no reduction in employment resulting from minimum wage increases.”

The University of Chicago, the infamous incubator of the “Chicago School” ideology that provides the intellectual “justification” for neoliberalism, can hardly be described as a pro-labor bastion.

Catching up with the demands of 50 years ago

One of the demands of the March on Washington in 1963 was a minimum wage of $2 an hour. Adjusted for inflation, $2 an hour in 1963 would be worth $15.35 today. Yet the federal minimum wage in the United States is $7.25 an hour, and the highest minimum wage mandated by any state government is Washington’s $9.32.

The $10.10 an hour lately proposed by the Obama administration sounds like an improvement when compared with current rates, but in reality it is the usual crumbs on offer by the Democratic Party — the White House is proposing two-thirds of what was demanded 50 years ago!

Rather than settle for the Democrats’ “austerity lite,” a growing movement is demanding the minimum wage be increased to $15 an hour. When a broader perspective is used — drawing on historical demands and, as noted above, that the median hourly wage should be around $28 — the tired arguments that businesses “can’t afford” any raise to the minimum wage fall apart. Sarah White, an activist with Socialist Alternative, which has launched a national campaign for a $15 minimum, writes:

“To fight against the growing movement to raise the minimum wage, mega-corporations are trying to deflect attention from their super-profits by spending huge sums of money on publicity focusing on the ‘concerns of small business.’ Socialist Alternative is very open to helping small businesses — but not on the backs of the workers. Everyone working full-time deserves a decent living. Help for small businesses can be organized by taxes on big business (which are at historically low rates) and eliminating corporate welfare to subsidize small businesses, along with cutting the property tax burden on small businesses. … Raising the minimum wage will help small businesses by increasing the spending power of their potential customers.”

Exorbitant rent increases have forced countless small businesses to close in gentrifying neighborhoods across the country. Commercial rent control that would leave mom-and-pop businesses with a low enough overhead to survive, instead of them having to send all their money to landlords interested in nothing more than squeezing every dollar out of a neighborhood, would do vastly more good than any potential harm caused by a $15 minimum wage.

Close to 60 percent of families below 200 percent of the poverty line have a family member who works full-time, year-round and 47 million U.S. residents rely on food stamps. At the same time, the world’s 1,645 billionaires have an aggregate net worth of US$6.4 trillion, an increase of $1 trillion in just one year.

Individualistic ideology, promoting the idea of personal responsibility for unemployment, low wages and economic insecurity, is a crucial prop holding up the system that leads to such disastrous results. There are no individual solutions to structural inequality.

Producing more but earning less around the world

We are working more and earning less. Productivity is up, but paychecks don’t keep pace. Average wages have been stagnant for four decades as the one percent has enjoyed spectacular gains in wealth.

The disproportion between increases in worker productivity and wages is perhaps most pronounced in the United States and Germany, but is common among the world’s advanced capitalist countries. This upward flow of income has long-term implications because the mass of wealth concentrated into few hands has led to an increase in destabilizing financial speculation — there are not enough opportunities for productive investment and consumer spending erodes because working people have less to spend.

In turn, reduced spending means there is little or no incentive for capitalists to invest, leading them to plow more money into speculation and to move production to newer low-wage havens because their profit margins are squeezed. Round and round the world has gone as the global economic crisis has persisted for half a decade with no end in sight.

The U.S. economy is still the world’s largest and is the model that its powerful capitalists work to export around the world; moreover, the massive U.S. trade deficit means the U.S. is to some extent propping up the world economy. Yet unemployment remains stubbornly high in the U.S. (even if lower than in the European Union). The U.S. economy simply isn’t creating jobs fast enough — that is the conclusion of a February 1 report issued by the Economic Policy Institute. The report, written by Heidi Shierholz, says:

“The U.S. labor market started 2013 with fewer jobs than it had 7 years ago in January 2006, even though the potential workforce has since grown by more than 8 million. The jobs deficit is so large that at January’s growth rate, it would take until 2021 to return to the pre-recession unemployment rate.”

Apologists for austerity as the “solution” to economic downturn often claim that the problem is a mismatch between the skills of job seekers and the skills needed by businesses. It is true that unemployment is lower among more educated people and higher among lesser educated people, but the rate of the increase in unemployment since the economic crisis began has been similar among all groups; in fact it is slightly higher among those with some college or a college degree than those with high school or less.

Among workers age 25 or older who are not high school graduates unemployment has risen 1.7 times since 2007, the Economic Policy Institute reports, while for college graduates it has risen 1.9 times. Among all workers, the rate of long-term unemployed has more than doubled during the past six years. The report says:

“The fact that we still have large numbers of long-term unemployed is unsurprising given that the ratio of unemployed workers to job openings has been 3-to-1 or greater since September 2008.”

Job growth lags behind GDP growth

The economies of the advanced capitalist countries simply aren’t growing fast enough to generate jobs. Because of competitive pressures that lead to layoffs, plant shutterings and moves to locations with much lower wages, and the increasing sophistication of computers and machinery, capitalist economies only increase employment during periods of robust growth, when demand requires more production. Unemployment ordinarily decreases only when an economy grows at least three percent annually.

Fred Magdoff and John Bellamy Foster, authors of the book What Every Environmentalist Needs to Know About Capitalism, summarized this conundrum:

“Capitalism is a system that constantly generates a reserve of unemployed workers. Full employment is a rarity that occurs only at very high rates of growth, which are correspondingly dangerous to ecological sustainability. As Christina Romer, former chair of President Obama’s Council of Economic Advisers, tells us, ‘We need 2.5 percent growth just to keep the unemployment rate where it is. … If you want to get it down quickly, you need substantially stronger growth than that.’ … [I]t is clear that if the GDP growth rate isn’t substantially greater than the increase in the working population, people lose jobs.” [pages 56-58]

As competition for jobs steadily becomes more acute, the dynamics of capitalism dictate that wages will be buffeted by strong downward pressures. Over the long term, not only the past few years, that has happened. A study published in the Spring 2012 edition of the International Productivity Monitor demonstrates the extraordinary mismatch between productivity gains and wages. The authors, Lawrence Mishel and Kar-Fai Gee, write:

“During the 1973 to 2011 period, the real median hourly wage in the United States increased 4.0 percent, yet labour productivity rose 80.4 percent. If the real median hourly wage had grown at the same rate as labour productivity, it would have been $27.87 in 2011 (2011 dollars), considerably more than the actual $16.07 (2011 dollars).” [page 31]

Almost every penny of the income generated by that extra work went into the pockets of high-level executives and financiers, not to the workers whose sweat produced it.

Around the world, workers see little of the gains

Workers in other advanced capitalist countries did not fare quite as badly, but the general pattern is there.

In Canada, for instance, labor productivity increased 37.4 percent for the period 1980 to 2005, while the median wage of full-time workers rose a total of 1.3 percent in inflation-adjusted dollars, according to a Fall 2008 report in the International Productivity Monitor. The authors of this report, Andrew Sharpe, Jean-François Arsenault and Peter Harrison, provided caveats as to the direct comparability of productivity and wage statistics, but find the mismatch to be real as labor’s share of Canadian gross domestic product has shrunk. The authors note that, in Canada, almost all income gains have gone to the top one percent. They write:

“If median real earnings had grown at the same rate as labour productivity, the median Canadian full-time full-year worker would have earned $56,826 in 2005, considerably more than the actual $41,401 (2005 dollars).” [page 16]

Wage erosion is also at work in Europe. Making a few calculations from International Labour Organization statistics on labor productivity and wages, provided for individual countries, I found that average real wages in Germany declined 0.5 percent per year for the period of 2000 to 2008 while German labor productivity increased 1.3 percent per year. (This was the only period for which I could find statistics for both categories.)

The prosperity of German manufacturers is built on the backs of German workers, who have absorbed a decade of pay cuts. Because the International Labour Organization uses average, rather than median, figures, the disparities are likely made to appear smaller than they might be because the wealthiest are increasing their share of income faster than anybody else, distorting the average. (“Average” is the halfway point between highest and lowest; an average will rise if the highest has risen while all others are stagnant. “Median” is the number representing someone at the 50th percentile, or the middle number if everybody was arranged in order, and thus is more representative.)

Using the ILO statistics, French workers’ average wages kept pace with productivity growth for the period 2000 to 2008 while Spanish workers lagged, earning 0.5 percent more in wages per year while productivity increased 0.9 percent per year. Income inequality has increased in France since the mid-1990s, an indication that growth in pay for the highest earners likely masks declines for most workers and therefore could account for the statistical stability in the French wage/productivity ratio.

By contrast, in Britain, a Resolution Foundation paper found a differential between productivity and wage gains, although smaller than that of the United States, but also that British workers did not lose as much ground as did French, German, Italian and Japanese workers. That conclusion is based on a finding that the share of gross domestic product going to wages in those countries has steeply declined since the mid-1970s.

What we have is a structural problem, not a problem confined to a particular country, caused by a government nor solvable by adopting a specific monetary policy. Nor is personal greed the underlying cause, regardless of the personal qualities of individual capitalists.

Intensified competition over private profits, and that “markets” should determine social outcomes, inexorably leads to a consolidation in which industries are dominated by a handful of giant corporations, and those corporations gain decisive power over governments and relentlessly reduce overhead (especially wages and benefits) in a scramble for survival. More inequality means less pay for employees, reducing demand and weakening economies, which leads to more unemployment and less leverage for employees in wage negotiations as corporations use any means necessary to maintain their profit margins.

That a new boom or bubble might occur in the future does not alter the overall picture; such a development would only be a temporary blip. If it is the structure that is the problem, then only a different structure can be the solution.

Can a no-growth future and capitalism be compatible?

Is the era of economic growth over for advanced capitalist countries? If stagnation is what is on offer for the future, what does that portend?

The first question, although limited to the United States, is the subject of an interesting paper by the economist Robert J. Gordon, in which he makes a case that the era of high growth that has persisted for the past two centuries is drawing to a close and that, by the end of the 21st century, the annual growth in gross domestic product per capita may be as low as 0.2 percent — the estimated rate of growth prior to the 18th century.

The paper provides a useful starting point for discussion. A central idea that the paper rests on is that nearly all of the dramatic gains in standards of living, GDP growth and life expectancy that have occurred since the dawn of the Industrial Revolution had already occurred by the 1970s, and that those earlier inventions had vastly more impact than the Internet/computer/dot-com boom that arose in the mid-1990s.

To illustrate this point, Professor Gordon provides a graphic of past, present and projected future growth that assumes the shape of a steep bell curve. British economic growth is represented from 1300 to 1906, estimated by historians for the first four hundred years and by actual figures from 1700 because it was then the leading capitalist power. After 1906, actual United States growth in GDP per capita is used to the present day (because it became the leading capitalist power), followed by the author’s estimates out to 2100. The graph rises sharply starting at around 1870 until about 1950, peaking at 2.5 percent. It’s been downhill since, a trend that is forecast to continue until the growth rate declines to the Medieval rate.

If such a pattern does materialize — and Professor Gordon is far from alone in such pessimistic projections — what would that mean for an economic order, capitalism, that is based on endless growth? That is a question well outside the scope of his paper, and there is no intention here to imply a criticism of a paper for not discussing something beyond its scope. But as this blog attempts to tackle big questions, we are free to ask at a moment when stagnation is already upon us: Can capitalism survive an extended period of essentially no growth?

The Industrial Revolution and continued industrial innovation has brought fantastic changes to humanity, with the most dramatic changes coming in the 20th century. Professor Gordon posits three periods of major inventions: 1750 to 1830, 1870 to 1900 and the recent period of computer innovation. He argues that the first two periods brought a rapid series of inventions that took upwards of a century to be fully realized, fueling long periods of growth that lasted until the mid-20th century. Starting with the steam engine and the cotton gin, products resulting from the inventions of these periods include television, air conditioning and modern expressway systems.

Another example is indoor plumbing, which eliminated much manual labor, Professor Gordon writes:

“Every drop of water for laundry, cooking, and indoor chamber pots had to be hauled in by the housewife, and wastewater hauled out. The average North Carolina housewife in 1885 had to walk 148 miles per year while carrying 35 tonnes of water. Coal or wood for open-hearth fires had to be carried in and ashes had to be collected and carried out.” [pages 4-5]

Motorized vehicles also had a dramatic effect on productivity and standards of living:

“The average horse produced 20 to 50 pounds of manure and a gallon of urine daily, applied without restraint to stables and streets. … The low standard of living reflected not just the small amount that people could purchase but also the amount of effort at the workplace and at home where they had to expend to perform ordinary tasks. … To maintain a horse every year cost approximately the same as buying a horse. Imagine today that for your $30,000 car you had to spend $30,000 every year on fuel and repairs. That’s an interesting measure of how much efficiency was gained from replacing the horses. Gone was the need for unsanitary and repulsive jobs of people who had to remove horse waste.” [page 5]

After 1970, a slowdown in productivity growth (output per hour) began because the “one-time-only” benefits accruing from the earlier inventions and their spinoffs “had occurred and could not happen again.” The years from 1996 to 2004 brought an uptick in productivity and economic growth, but that had passed even before the economic downturn set in. The rapid development of online commerce lasted only a decade, and the innovations from the widespread adoption of the Internet have already occurred. Moreover, Professor Gordon argues, this most recent period of innovation did not focus on labor-saving measures but rather on entertainment and communication devices rather than replacing human labor with machines.

I would add that the primary economic effect of the Internet has been to shift commerce from one merchant to another, not altogether different from the mania of the past two decades in the U.S. to build new sports stadiums and casinos, which do nothing but shift consumer spending from one entertainment option to another with the additional expense of massive public subsidies. Professor Gordon illustrates his point most effectively when offering a thought experiment: You can keep all the inventions made in 2002 or earlier but none since, or you can have all the products of the past decade but none resulting from the two earlier periods of inventions.

“Option B is that you get everything invented in the past decade right up to Facebook, Twitter, and the iPad, but you have to give up running water and indoor toilets. You have to haul the water into your dwelling and carry out the waste. Even at 3 am on a rainy night, your only toilet option is a wet and perhaps muddy walk to the outhouse. Which option do you choose?

I have posed this imaginary choice to several audiences in speeches, and the usual reaction is a guffaw, a chuckle, because the preference for option A is so obvious. The audience realises that it has been trapped into recognition that just one of the many late 19th century inventions is more important than the portable electronic devices of the past decade on which they have become so dependent.” [page 5]

The author offers six “headwinds” that he believes will reduce the growth of U.S. GDP per capita to a snail’s pace: the mass of retiring baby boomers leaving the workforce will cause output per capita to grow more slowly than productivity; the decline in U.S. educational attainment and growth in higher-education costs; growing inequality; the outsourcing and wage pressure inherent in globalization; environmental damage; and debt and the reduction in growth that results from austerity imposed to reduce debt.

Other than the reference to globalization as one of the six “headwinds” that will increasingly buffet the U.S. economy, the paper too narrowly analyzes the U.S. economy as a closed system, a weakness perhaps unavoidable given its specific focus. It is in no way controversial to note that no country is immune from the problems of the rest of the world given the deeply interconnected state of the world capitalist economy.

The paper is valuable in that it provides a reminder that the era of rapid economic growth since the Industrial Revolution has been a unique period in human history, and that such a time might not continue. Capitalism is a system that requires constant growth, an often overlooked aspect that has asserted itself in dramatic form as the stagnation of recent years has inflicted so much economic misery in advanced capitalist countries, and elsewhere.

In previous posts on this blog, I have written that the Keynesian policies that fueled the long post-World War II boom in the U.S. economy rested on a pair of one-time occurrences that can’t be repeated because it depended on a strong industrial base and market expansion. A repeat of history isn’t possible because the industrial base of the advanced capitalist countries has been hollowed out, transferred to low-wage developing countries, and there is almost no place remaining to which to expand. Moreover, capitalists who are saved by Keynesian spending programs amass enough power to later impose their preferred neoliberal policies.

Those neoliberal polices are in the interests of the capitalists who impose them, but are not simply a “choice.” The competitive pressures of capitalism lead to globalization and austerity. Irresistible competitive pressures were foreseen by Karl Marx, who encapsulated some of these problems in his theory of the tendency of the rate of profit to fall. In order to maintain profitability and compete successfully, a capitalist must reduce the costs of production. (This can be more or less stressed at different times; for instance, during the 1990s, there was a Wall Street mania in which industrial companies regularly made public pronouncements proclaiming their intent to become the “lowest-cost producer” in their industry in an attempt to curry favor with speculators.)

Corporate globalization is a natural consequence of the pressure to reduce costs; moving production to countries with far lower wages and few enforceable labor laws is an obvious response under the logic of capitalism. Mechanization is another response — machines make labor more efficient and require fewer workers be employed. But, Marx argued, more advanced methods of production are more capital-intensive, and thus higher efficiency is offset by diminishing returns on capital. The Marxist economist Anwar Shaikh summarized this concept this way:

“[T]he … pattern implies that the more advanced methods tend to achieve a lower unit production cost at the expense of a lower rate of profit. Competition, nonetheless, forces capitalists to adopt these methods, because the capitalist with the lower unit costs can lower his prices and expand at the expense of his competitors — thus offsetting his lower rate of profit by means of a larger share of the market.”*

One way of visualizing this phenomenon is to think of a construction company. Where many workers are necessary when equipped with shovels, far fewer are needed for the same job when the company buys a truck in which one driver can excavate many times the amount of dirt as a worker with a shovel. The company can buy newer and bigger trucks, but the amount of gained efficiency will never be nearly as dramatic as the purchase of the first truck. If we’d like to carry this example further, we might imagine that some of the displaced workers, after turning in their shovels, go to work on the assembly line building the trucks. But competitive pressures eventually cause the truck manufacturer to move the assembly line overseas.

Countervailing factors can frequently reverse this tendency; cuts to wages, work speedups, layoffs, downturns in the prices of natural resources and shuttering of facilities can each buoy profit margins. Nonetheless, some economists argue that it is precisely a falling rate of profit that has caused the ongoing global economic slump. Marxist economist Andrew Kliman perhaps is the most forceful in arguing that the rate of profit has been falling since the 1970s, leading to sluggish investment and economic growth and mounting debt problems despite the adoption of “free-market” policies.

He is not alone in arguing that, unless there is a transcending of capitalism, the only way within capitalism to restore profitability is through a full-scale destruction of the value of existing capital assets — a process not nearly complete despite the harsh austerity imposed around the world since 2008. (Such a destruction happened in the closures of the Great Depression and the physical damage of World War II.)

The various theories discussed here are not necessarily incompatible; capitalism is undergoing a deep structural crisis — not one of its recurring cyclical downturns. This crisis is the culmination of multiple factors that affect one another, and complex analyses are necessary to understand it. Professor Kliman directly declares that stagnation and a crisis-prone economy is the “new normal” while Professor Gordon describes his paper as “intentionally provocative.” But, coming from different perspectives, they envision stagnation as the capitalist future (although the latter discusses only U.S. prospects), as do other perspectives.

What does it mean for a capitalist economy that no longer can grow? The route out of past crises has been expansion to new areas, but infinite expansion on a finite planet is impossible. U.S. capitalists tolerated high wages for a time after World War II because they could expand into overseas markets and thereby increase profits. Once intensified competition from rebuilt Europe and Japan, and the relative maturity of markets, put pressure on profits, the rise of neoliberalism ensued.

In the absence of new markets, the only way to increase or even maintain profits is to reduce costs, and ultimately that means cutting wages and benefits. Doing so, however, leads to a new set of problems — consumer spending in advanced capitalist countries tends to account for 60 to 70 percent of economic activity. When working people don’t have enough money to spend, consumer spending declines and depresses the economy, further squeezing profits. More austerity simply means more economic contraction, as many Europeans are experiencing first-hand.

Capitalist businesses must grow or die, and capitalism functions only if it is expanding. When it doesn’t, or can’t, crisis is the result. If so much money is concentrated into so few hands, those wealthy hands can’t possibly buy enough to offset the deprivation of everyone else, nor should that be a desirable way to run an economy.

If stagnation is the “new normal” of capitalism, then deprivation, pain and worsening inequality is all that it can offer, save for the occasional temporary uptick — a never-ending race to the bottom. Is such a system really the best humanity can do?

* “Falling rate of profit” entry in A Dictionary of Marxist Thought (Tom Bottomore, editor) [Harvard University Press, Cambridge, Massachusetts, 1983], page 159