They claimed that the economy was increasingly dominated by giant monopolistic corporations. Such a system, they said:
tends to generate ever more surplus, yet it fails to provide the consumption and investment outlets required for the absorption of a rising surplus and hence for the smooth working of the system. Since surplus which cannot be absorbed will not be produced, it follows that the normal state of the monopoly capitalist economy is stagnation (p108).This might not be a bad outline of the present system.
First, there’s a tendency for profit margins to rise. On the one hand, this is because the massive reserve army of labour in India and China is holding down wages. On the other hand, though, one effect of the credit squeeze is to reduce competition between firms; this is partly because small and new firms can’t get the finance to expand and challenge incumbents, but also because firms are less able (or willing) to build up working capital - and being less able to expand, they are less willing to cut prices to attract new customers. One feature of recent months - in the US as well as UK - is that inflation hasn’t fallen as much as one would expect, given the savagery of the recession. This is consistent with a diminution in competitive pressures.
Secondly, there’s a tendency to under-spend the potential surplus. Even before the recession began, UK firms’ capital spending was falling relative to their profits - consistent with Ben Bernanke’s view that western economies suffer a dearth of investment opportunities. However, the fact that Asian economies are generating huge net savings suggests that there is under-investment there as well.
Of course, for many years the tendency to stagnation was offset, especially in the UK and US, by rising consumer spending fuelled by rising debt. However, this might have been only a step-shift (albeit over years) in response to credit deregulation. The process might now be over. Even if consumers want to take on more debt, banks might not supply it. If, as many expect, personal savings ratios are higher in the next few years than in the last few, there’ll be another tendency for stagnation.
All this matters for at least two reasons. First, because one of the ways in which Baran and Sweezy thought the surplus would be absorbed would be by ever-increasing government spending; this, they thought, would be necessary to maintain demand.
Seen from this perspective, budget deficits aren’t merely temporary effects of cyclical bad luck, but are instead the result of deep-seated structural tendencies.
Secondly, although Baran and Sweezy’s theory was in one respect - the tendency for the rate of profit to fall - a rejection of Marxist economics, it was in another respect a vindication of Marx. It showed that whilst capitalism had great productive potential, it was unable to systematically realize that potential for the benefit of all.
Now, I might be making an error here that I normally detest - call it the stockbroker‘s fallacy. I might be conflating temporary things - a credit squeeze and low investment - for longer term structural ones.
But mightn’t those who are calling for fiscal or monetary stimuli now be making the opposite mistake - of believing that the economy will do OK, if only we can come up with the right technocratic fixes to get us out of our allegedly temporary troubles?