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The Long Depression and the Future of Capitalism

In this interview with Marxist economist Michael Roberts, he discusses the concepts in his new book, in which he argues that the world economy today remains in the grips of a “long depression” since the crisis of 2008.

Michael Roberts

April 18, 2016
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Michael Roberts is a Marxist author with one of the most prolific elaborations on the economic crisis that began in 2007. On his blog , he seeks to explain this crisis by using theoretical elements, as well as contemporary analyses and books on the subject. He debates with mainstream economists and is becoming an undeniable reference.

The title of your upcoming new book is The Long Depression. The book begins by stating that “the global economy remains in the throes of a depression.” Considering that most analysts of global economy speak of the “great recession” beginning in 2008 and ending in 2009 – followed by a period of extremely weak growth – what elements lead you to believe that the world economy is undergoing a “long depression”?

In my book, I try to make a distinction between a so-called ‘normal recession’ and a depression. Capitalist production does not expand in a harmonious way, with steady growth of investment, output, incomes and employment. It is subject to booms and slumps in a recurring and cyclical process. The cycle of boom and slump (when investment collapses and output and employment contracts) usually occurs every 8-10 years in modern economies. The degree of contraction varies.

However, in the history of modern industrial capitalism over the last 150 years, there are just a few times when the slump is very deep and long-lasting and the ‘recovery’ afterwards is so weak that the previous rates of growth in output and investment are never fully restored. These periods are what I define as ‘depressions’ in the book. Capitalism (and the rest of us) have suffered three depressions in the last 150 years. The depression of the late 19th century (1873-1890s); the Great Depression of the 1930s (1929-1942) and now what I call the Long Depression (2008-20??).

Recessions come along regularly because of what I call the cycle of profitability. What decides whether capitalist companies invest is whether the investment will make a profit. Companies do not invest or produce things or services in order to provide what people need. That is secondary. Capitalism is a money-making, profit- making mode of production. No profit, no investment, no production. This creates a fundamental contradiction in the capitalist process of investment and output.

Capitalists can only get profit by employing the blood, sweat and effort of workers who own nothing but their ability to work. And capitalists are competing against each other on the market to sell the products or services for the maximum profit. This forces them not only to try and squeeze wages to their lowest and make workers work as long and as hard as possible. Capitalists also try to introduce labor-saving machines that cut the size of the labor force while increasing the productivity of the remaining workers. Costs per hour is reduced and capitalists with the latest labor-saving technology can get a better profit than others on the market.

Companies do not invest or produce things or services in order to provide what people need. That is secondary. Capitalism is a money-making, profit- making mode of production.

But if everybody introduces the same technology, that means the labor force shrinks relative to the value of machinery being employed. On the one hand the productivity of the labor force is rising, but on the other hand, the value exploited from the labor force tends to shrink (relatively). Thus, there is a tendency for the overall rate of profit from investing in technology and the labor force to fall. This is the fundamental contradiction of capitalist production because it is production for profit, not needs. Capitalists invest more to boost profit; that boosts productivity and production, but after a while the profitability of invested capital starts to fall. At a certain point, more investment means less profit and capitalists stop investing and there is a slump. As I said, this seems to happen every 8-10 years or so.

But more than this, the tendency of the rate of profit to fall as capitalism develops across the world eventually leads to a long-term fall. The profitability of capital in all the major economies was much higher in the 19th century or at the end of WWII than it is now. That is a sign that capitalism has a limited shelf life in the history of human social organization. But profitability does not fall in a straight line. There are periods when the profitability of capital rises (for up to two decades) and then a period when it falls (for up to two decades). A depression happens (every 50-70 years or so) because of a set of contradictions: a down phase in profitability, falling product prices, the collapse of a credit bubble in finance and property; i.e. a number of things come together to turn a recession into a depression, as we have seen since 2008.

Following up on your response to the first question, what is your appraisal of the period of crisis ending the post-WWII economic boom and the recovery that took place beginning in the ’80s, often described by mainstream economist as the “Great Moderation”?

World War II allowed for a massive destruction of capital values (not just physical as in Europe and Japan), but also in value as in the US as well as a sharp rise in the rate of exploitation. Thus after the war, the rate of profit in the US and eventually elsewhere was very high and new technology developed during the war and massive supplies of surplus labor plus credit from US dollar finance laid the basis for a long boom (1946-65). But eventually, Marx’s law of profitability began to exert its influence and profitability fell sharply from 1965 culminating in two major recessions, 1974-5 and 1980-2.

These slumps weakened the working class and gave an opportunity for the ruling class to impose neo-liberal policies of anti-labor laws, government spending cuts, tax cuts for corporations, relaxation of regulations on finance and business etc. Profitability rose from 1980s to the late 1990s; globalization of capital spread and we had the Great Moderation. This could not last, however, and Marx’s law began to dominate again from the late 1990s, leading eventually to the Great Recession.

On your blog , you point out that the U.S. economy is likely to enter a recession next year. What are the structural contradictions you observe in US economy, and how are they related to the possibility of a recession in 2017?

To be more careful in forecasting (a difficult and some say impossible task), I said that another recession or slump is likely within one to three years. Say there is a 20% chance in 2016, but a 75% chance by 2018. I think this will happen because capitalist investment globally remains too weak to restore output growth and employment globally. Indeed, every month, the international economic agencies like the IMF or the OECD or the World Bank lower their estimates for global GDP growth for the next year or so. Even the US economy, which has made a better relative recovery since the Great Recession of 2008-9, is growing in real terms by little more than 2% a year, compared to its long-term average of 3.3% a year. Europe is hardly growing above 1% as is Japan. China, the great growth miracle of the last 30 years with double-digit annual growth, is struggling to grow at more than 5-6% a year, while the other major ’emerging economies’ of Brazil, Russia, South Africa are in recessions.

So capitalism is in a state of low profitability and investment and high debt. That’s the combination for a weak recovery.

The failure to recover is due mainly to two structural contradictions. The first is that the profitability of capital has not been restored to its previous levels before the Great Recession. And even then, profitability in the major economies was in a downwave from a peak in the late 1990s and is now well below the level of profitability achieved in the so-called Golden Age of post-war capitalism (1948-1965). That keeps investment low and thus productivity growth is very weak and there is no full employment. Capitalism can break out of this low profitability in only one way – by cutting the cost of capital. But that means closing down old plants and equipment, letting weaker capitalist companies go bust, mopping up their assets cheaply and laying off workers (in other words, another slump).

Second, one of the major triggers or causes of the Great Recession was the huge expansion of credit and speculation in property and financial instruments before the global financial crash in 2007-8. This was a response of capitalists to the falling profitability of productive capital outlined above. Investors looked to better returns in financial speculation or in what Marx called ‘fictitious capital’, the ownership in stocks and bonds of a portion in what productive capital might make in profit. When the banks collapsed because this fictitious capital turned out to be just that – fictitious -, governments had to step in and bail them out. The alternative would have been an even deeper slump. But that meant governments had to issue more debt and raise more revenue in taxes and cuts in government spending and services.

Capitalism was saved (although it is still crawling along) by huge injections of money and credit by governments and central banks. As a result, overall debt (private and public sector) has not fallen globally; on the contrary, it has risen even more.

So capitalism is in a state of low profitability and investment and high debt. That’s the combination for a weak recovery. All the attempts of the central banks and governments to get economies going have failed. The depression can only be broken by another slump that gets rid of ‘unproductive’ capital and reduces the debt burden through debt defaults. There is worse to come!

When it comes to the recovery of the US economy since 2008/09, there appears to be a sharp contrast between the recovery in service sectors (including finance) and the production of industrial goods, the latter being somewhat weaker. What is your assessment of the situation?

Yes, in each of the major economies, the so-called domestic service sectors are doing a bit better than the industrial and manufacturing sectors. That’s because households and consumers can still borrow at very low rates of interest and so can spend more even though wage growth is feeble. That helps retail, services, construction, property etc.

But the key manufacturing sector growth is very weak and even falling: there is limited investment here and world trade has ground to halt. Will the services sectors get the industrial sectors going or vice versa? The latter are smaller as a share of GDP but the latter are the most important for driving investment in productive assets and productivity. Investment there is what matters, not the consumers going to the shops.

What is your opinion of the debate on secular stagnation?

Secular stagnation is an explanation of the current Long Depression from the Keynesian wing of mainstream economics. I have covered this in detail in various posts on my blog. It is a return to the idea that what is wrong with capitalism right now is that it is suffering from a lack of demand for goods and is caught in a ‘liquidity trap’ where even low or zero interest rates cannot get the economy going because investment is being held back.

The proponents of this theory claim that under secular (long term) stagnation, continual injections of money or lower interest rates will just cause more credit bubbles in the stock market and not achieve any real recovery. What is needed is fiscal stimulus and investment. That is correct, but secular stagnation theorists do not explain why there is stagnation (it just has happened). The reason is as I explained in the previous answers: low profitability and high debt. Also, stagnation implies some slow and unending pace due to low productivity and slowing population growth. There is no understanding of the role of profit and how it affects investment in the theory.

You point out that we are going through a severe long depression. However, you don’t seem to discard the possibility that a recovery could happen after a very deep sinking. Isn’t a very extended destruction of capital value necessary to clear the path for a recovery? How do you consider this destruction could take place?

Nothing is permanent. There is no permanent crisis in capitalism or in any system. I argue that for global capitalism to get out of this long depression, there will have to be another slump that raises the profitability of capital and reduces the burden of debt. But then capitalists can start to increase investment, particularly in all the exciting new technologies like artificial intelligence, robots, genetic medicine, nano technology, 3D printers, driverless cars etc.

Capitalism could enter a period of upwave in profitability and growth that could last for 20 years. But yes, this is only possible after a further destruction of capital value of major proportions not seen since WWII (but not through war this time). And it is only possible if the working class in the major economies do nothing to replace the capitalist system through a class struggle.

Regarding the level of destruction of capital value that would require a recovery of world economy, how do you consider it feasible in the absence of a cataclysm like WWII? Considering that the question of war (especially among Great Powers) is an aspect of debate in Marxism today, why would you consider that an event of such magnitude is out of the picture?

Yes, I do think it is feasible for capitalism to recover to another ‘golden age’ without another world war (there are or course, wars everywhere every day under imperialism). The depression of the late 19th century came to an end without a world war, although the recovery in the 1890s onwards was based on a battle between imperialist powers for colonies that eventually led to WW1. But as I said previously, the current Long Depression will not end without another slump at least. If there is no action by the working class in the major economies, the ruling classes will be able to revive their economies again on the backs of the workers. However, the imperialist rivalry will intensify, with the conflict with China and India becoming key from the 2020s onwards. But the ruling class in the US and its allies would want to avoid a world war (it’s bad for business) and it could only happen if fascist or military regimes were to gain power in the US, Japan etc.

An important debate in recent times concerns the future of China, and whether it is on the way to transforming into a great power in every sense, or if it remains a dependent economy dominated by imperialism, no matter how big and central to the dynamic of world economy it has turned to be. How would you define the position of China in the world capitalist system? And related to that, what role do you consider China has played in sustaining economic growth from 2009 onwards?

I have been discussing this issue of the role of China and imperialism in general recently on my blog with many comments from various readers. China has been an economic miracle, growing faster for longer than any other economy in human history, taking hundreds of millions out of dire poverty since 1949. It is now the world’s largest manufacturer and the second largest economy in GDP (but not in income per head). This was made possible by the expropriation of the landlords and capitalist lackeys of imperialism in the revolution and civil war of 1946-9. A predominantly state-owned economy with a national plan for investment proved way more successful than capitalism could do in China. The opening-up of sections of the economy to foreign capitalist investment, while the state remained dominant, also took the economy forward from the 1980s.

If there is no action by the working class in the major economies, the ruling classes will be able to revive their economies again on the backs of the workers.

But further growth is hampered by an authoritarian regime that allows no democratic freedoms and toys with the idea of moving to outright capitalist domination of the economy with its leaders as billionaires.

The post-war development of China has been the result of the failure (so far) of imperialism to gain control of the Chinese economy. The state and the party bureaucrats still dominate investment, employment and trade, much to the chagrin of the economists and governments of the West. During this Long Depression, China’s predominantly state-owned and controlled economy has contributed the bulk of economic growth globally while the West has faltered. But the weakness of global growth and the increased influence of pro-capitalist policy makers in China has brought a major slowdown that threatens the future progress of the economy.

Do you believe there is any possibility for world capital to find some equivalent of the role China has played since the 80s as a provider of cheap labor?

Capitalism is always seeking new avenues for sucking value out of working people. The globalization of the labor force into the capitalist mode of production after the 1980s was a powerful factor in counteracting the fall in profitability of capital in the major imperialist economies suffered in the 1970s. Exploiting new sources of labor in Asia, Latin America, Africa and in the post-Soviet economies was significant.

But further growth [in China] is hampered by an authoritarian regime that allows no democratic freedoms and toys with the idea of moving to outright capitalist domination of the economy with its leaders as billionaires.

And the world’s reserve army of labor in peasants, rural laborers and under-employed urbanites is not yet exhausted. There is nothing like China’s labor force, but that could not be utilized fully for capitalist profit anyway. But there is still more value to extracted from India, Burma, Vietnam, Indonesia, Brazil, Africa etc.

Capitalism is not dead yet.

Interviewed by Paula Bach and Esteban Mercatante

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