Stumbling and Mumbling: A capitalists' recovery

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September 06, 2013

A capitalists' recovery

"Whose recovery is this?" asks Polly. The answer, I fear is: capitalists'.

I say so because of two reasonable suppositions.

First, that, as Duncan says, labour productivity might well recover as the economy grows. This could be because hitherto under-employed workers work more intensively as demand picks up. Or it could (eventually!) be because a recovery in bank lending to firms permits a return of the external restructuring that has traditionally driven productivity in the past.

Secondly, it's likely that high unemployment will continue to hold real wages down for a while to come.

This combination means that productivity could will rise faster than real wages, which means - ceteris paribus - that capitalists' share of GDP will rise at the expense of labour's share.

In truth, this is not so much a forecast as a description of what normally happens in upturns. During the recoveries from the recessions of the early 80s and early 90s, productivity rose strongly and the share of wages in GDP fell. Indeed, since 1979 there has been a significant negative correlation (-0.43) between five-year changes in the wage share and in labour productivity; faster productivity growth is usually accompanied by a falling wage share.

What would be the political impact of this? I suspect it would increase the popularity of demands for higher real wages, be it a living wage or - better still - stronger collective bargaining. This would be especially true if rising profits and share prices lead to some high-profile pay rises for "fat cats". This might explain why even some Tories are considering supporting a higher minimum wage.

But what of the feasibility of such policies? Much, I suspect will depend upon the strength of the recovery in capital spending. If this does bounce back strongly, the capitalist lobby will claim that the rising profit share is facilitating the recovery and so should not be jeopardized. If, on the other hand, capital spending stays weak - and the recovery is fuelled by, say, debt-driven consumer spending - the intellectual case for wage-led growth will strengthen, as it becomes more apparent that the rising profit share isn't stimulating capitalists' spending.

I'm not sure how this will play out. But it could be that the next few years (the General Election and beyond) sees class conflict becoming more salient in politics. Which would be awkward for those anti-Marxist ideologues who want to downplay the importance of class.

September 06, 2013 | Permalink

Comments

I think Capitalism is getting a bad rep on this blog.

I believe in the transformative force of Capitalism. When I talk about Capitalism I don't mean the emotionally charged Guardian definition, I mean the real definition, I mean the private ownership of the means of production, individuals owning the means of creating wealth.

There is an industrial revolution taking place right now. For decades people have been 3d printing plastic parts in their garages, organs are now being 3d printed and before you know it people will be printing bacon cheese burgers. Molecular assemblers are on the horizon...individuals creating wealth.

In my opinion this is preferable to socialism, i.e. the collective ownership of the means of creating wealth. Would any rational individual subject themselves to the whim of the majority if they had the choice, the tyranny of the majority? What if the collective decided that they wanted to produce strawberry jam and you wanted raspberry jam, you'd say fuck you, I'll make my own jam.

Sure some die hards will want to live in communes, share their homes, share their wealth, share their wives, share their kids, share their jam, they will be the equivalent of the Amish....weirdo's, each to their own.

The only people who would insist on socialism would be power hungry control freaks, authoritarians, ideologues, bastards, Napoleons (Orwell reference). I hope you are not Napoleons, you'll be fighting against the tide and will have to be swept aside.

Posted by: Chad Sexington | September 06, 2013 at 10:07 PM

Yes, it is a capitalist's recovery, and it's been really good for me. Not so good for my neighbors, but you'll get no personal complaints from me.

Anyway, it would appear that there is enough unemployment that except for specialized workers we may see a persistent conversion of full-time shops to using multiple part-timers instead. Ironically, the new health insurance may help this along.

With ten-year rates approaching nominal GDP, it would seem these will present real investment competition to new real business investment and drag on growth from here. That is, without a policy to get rates down, investment in relatively low return projects (the only ones we have) may wane, and this economy in surplus may settle down into an equilibrium at something like 90% of potential output.

The difficulty for real capitalists is that their investment opportunities are meager and look to be for maybe the next ten years or so.

Meanwhile investment multiples expand. Free money to those who already have money.

I really don't understand why our leaders do not see this situation as a blazing national emergency.

Posted by: cfaman | September 07, 2013 at 01:27 PM

@Chad, re the promise of 3D printing, you'll need to pay a royalty for the right to print that bacon cheeseburger.

Just as the ownership of the means of production (and raw materials - i.e. land) has historically been concentrated in the hands of the few rather than the many, intellectual capital is similarly restricted. As production becomes more software than hardware, patent and copyright law amplifies this concentration.

You don't need anyone's permission to make your own jam today, but if the future involves Star Trek-style replicators, then you will end up paying a licence fee for the privilege.

The current "industrial revolution" will not make us all garage capitalists. It will actually lead to fewer, richer capitalists.

Anyway, must get back to commune, I've got a half-hour slot with the wife.

Posted by: FromArseToElbow | September 07, 2013 at 01:31 PM

"For decades people have been 3d printing plastic parts in their garages, organs are now being 3d printed and before you know it people will be printing bacon cheese burgers."

What planet do you spend most or your time on? 3-D printing has not existed for decades. At best it's been possible for three or four years. Nobody is printing organs. Not even pipe organs. And nobody is using those plastic organs to replace hearts, lungs, spleens, livers, etc. And if you're going to rely on printing your own bacon cheeseburgers, I think you've found the ideal replacement for Weight Watchers.

Finally, the definition of Capitalism is not, "...individuals owning the means of creating wealth." It is, "A few individuals owning the means p\of production and the great majority of people having nothing but their labor to sell."

Posted by: Procopius | September 08, 2013 at 04:06 PM

@Procopius, to be fair to Chad, 3-printing has in fact been around since the mid-80s, however it is only in recent years that the hardware and software has advanced to the point that the printers have become commoditised (and have moved in from the garage to the front room).

"Bioprinting" of tissue cells has also been proven in the lab, but printing entire organs is, like "molecular assemblers", still in the realms of SF (and many medical scientists think it will be sidelined by more effective stem cell culturing techniques).

Printing a chesseburger is also theoretically possible, but again this would be (with current technology) far less effective than "in vitro" culturing.

The key point is that whatever the technique, bioprinting or stem cell manipulation, it is subject to patent law and thus the extraction of economic rent.

Your definition of capitalism is spot on, but we need to understand that the "means of production" is increasingly made up of patents rather than printers.

Posted by: FromArseToElbow | September 08, 2013 at 04:59 PM

@Procopius. What FromArseToElbow said + your definition of Capitalism is something you read on the Guardian, try something less hysterical, may I suggest a dictionary.

@FromArseToElbow. They are having a great deal of trouble enforcing DRM so I would imagine they will have similar trouble enforcing rights over the design of a cheeseburger (not that I actually believe anybody has or ever will actually copyright a cheeseburger).

Thanks for the chat.

Posted by: Chad Sexington | September 09, 2013 at 09:12 PM