Monopoly Capital redux

Is it time for a revival of interest in Baran and Sweezy’s Monopoly Capital? I ask because it’s possible that the lasting effect of the credit crisis will be to leave us with an economy rather like they described it in 1966.
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?

Comments

[Leigh Caldwell]

An interesting observation.

The essence of the market is that surplus goes to those who produce it: this is a stable situation because it gives the producer an incentive to produce more surplus. But perhaps modern economies of scale and scope lead naturally to ownership, or at least control, being concentrated in the hands of a small number of people: control can't be spread more broadly because of the rational ignorance of the crowd. Sharing a growing amount of wealth among a smaller number of people means that - as Baran and Sweezy suggest - those in control are no longer significantly incentivised by additional consumption, and may stop bothering to produce more.

Thus, the stable state which ensures continuing growth is for some of this surplus to be redistributed to those who do not own or control the means of production.

If enough of the surplus is redistributed, the capitalists are left with little enough that they do have an incentive to keep working to produce more.

In this model, high tax rates are not a disincentive to productivity but an incentive. How about that?!

[John Terry's Mum]

I think the crucial underlying fact is "the massive reserve army of labour in India and China is holding down wages".

A huge surplus of labour, (plus more efficient manufacturing, computerization etc) means that the global economy needs less and less human labour, to "create surplus which cannot be absorbed".

[Giles Wilkes]

Very interesting post - particularly the explanation for how profits have stayed up through a credit crunch. But in no particular order:

1. how the *** do you get time to read all this? I mean, seriously. I'm not the only one to wonder. I put a lot in the "isn't changing nappies" box, but that box is pretty full.

2. "the tendency to stagnation was offset, especially in the UK and US, by rising consumer spending fuelled by rising debt" I thought this was not true, and instead this is (from the Bank, http://www.bankofengland.co.uk/publications/workingpapers/wp379.pdf)

"the boom in house prices was not accompanied by a boom in consumption; but was instead accompanied by an accumulation of both financial assets and financial liabilities."

[Luis Enrique]

I do wonder how good the data on investment is, and whether as the service sector grows it is systematically underestimating investment. How well is investment that essentially takes the form of hiring labour to work on intangible assets, or simply to constitute an accumulated hired factor production (human capital), accounted for in all this data that tells us investment has been falling?

[kinglear]

Now I may be talking rot but I do feel ( despite protests) that the present government borrowing is effectively crowding out other people getting their hands on the moolah. As we all know, Governments are crap at spending money in any useful way, so much of what might be useful investment is effectively neutralised. Stop the government borrowing and there might be some left over for the rest of us - and I'm quite sure we would find good things to invest in.
I note that recently the FSA said they didn't want the banks to lend any money against property.The problem is they have so much tied up in unproductive assets that if they DON'T lend against property, they will never get it off their books, and will NEVER be able to lend productively again.Dean Baker rightly says the present malaise is nothing to do with Wall Street, greedy incompetent bankers ( which they are) etc etc,it's just because we've had a HUGE housing and property bubble. Which still has quite some way to go to unwind

[ad]

"They claimed that the economy was increasingly dominated by giant monopolistic corporations."

A monopolistic corporation is one that can prevent any competitor from arising.

So, which corporations can do that?

[phil jones]

"A monopolistic corporation is one that can prevent any competitor from arising.

So, which corporations can do that?"

For example : http://blogs.zdnet.com/BTL/?p=31734&tag=nl.e589