IN THE STAGNATION TRAP:
PERSPECTIVES ON CAPITALIST DEVELOPMENT

By Klaus Steinitz

[This summary of a Social Policy forum held on December 16, 2005 by the Rosa Luxemburg Foundation in Berlin is translated from the German on the World Wide Web,  http://www.rosalux.de/cms/fileadmin/rls_uploads/pdfs/pp_Foren.pdf.]


The workshop was organized by the Rosa Luxemburg foundation in the framework of the Social Policy forum in Berlin.

Over 70 persons spoke in the lively, controversial discussions. The workshop was structured around three themes:

• In the stagnation trap – Capitalism in the long term and the actuality of Keynes, with an introductory address by Karl Georg Zinn and shorter contributions by Harry Nick and Klaus Steinitz
• Inequality, uncertainty and risks – The costs of unbridled finance markets, with an introductory address by Jorg Huffschmid
• Ways out of stagnation – Alternatives in economic-, labor market- and jobs policy, with an introductory address by Joachim Bischoff.

The introductory addresses were limited and problem-oriented. More than half the time was available for discussion.

Addresses and discussions gave the participants suggestions for study and material for further discussions and events, particularly the questions connected with need development and satiation tendencies. These problems are important for the continuing substantive clarification process within the left, especially the questions what economic conditions and problems must be faced in the long term, what kind of alternatives to neoliberal policy are needed and whether the study of Keynes can help. In the discussion, the different theoretical traditions of the East- and West German left were outlined and often led to misunderstandings in using certain terms and talking past one another.

IN THE STAGNATION TRAP

Karl Georg Zinn’s address on the first complex focused on the questions whether the long-term economic development of capitalism since the 1970s is marked by stagnation tendencies that will be crucial for the future, how these tendencies were explained in Keynes’ works and what conclusions Keynes drew for economic answers from the long-term tendencies of satiation and stagnation. Stagnation was understood by Zinn as a long-lasting decline of the growth rates of the gross domestic product (GDP) under the aggregate economic growth of labor productivity. Long-lasting means over several economic cycles. What is involved is a trend. The jobs threshold of growth cannot be reached any more so unemployment increases.

Zinn emphasized a vital distinction to the 1929/33 worldwide economic crisis given the effects of crisis and stagnation. Because of globalization policy, the consequences of crisis for capital exploitation are defused and even create more favorable conditions for higher profits than before the stagnation phase began. This statement was relativized in the discussion by Stefan Kruger who pointed out that empirical analyses on profit rates in recent years do not show any significant improvement. An increasing differentiation of profits between the mammoth, world market-oriented corporations with high, rapidly ascending profits and the multitude of small and medium-sized businesses is characteristic. Zinn stressed that essential consequences of lasting weak growth consist in intensified competition with a shift from growth- to repression competition and vigorous redistribution from bottom to the top.

Keynes connected the long-term stagnation with satiation processes, Zinn emphasized. The Keynesian theory is not in contradiction to Marxist over-accumulation theory but is weighted differently. The demand side in well-to-do capitalist societies is seen as an independent influence on crisis orientation. For mass demand, it makes a great different whether the development starts from a poverty level of society or whether a high prosperity-level is shared by a considerable part of society. The independence of demand in the crisis process does not contradict Marx’ perspective that demand problems first appear as a result of over-accumulation disturbances of the production process. In other words, circulation and distribution are determined from production.

Zinn sees relative satiation as a causative moment of stagnation and its long-term effective determinant. He stressed that relative satiation is overshadowed when growth weakening layoffs, losses in mass purchasing power and further demand reduction (and decreased demand-induced investments) combine to a downward spiral.. Zinn underscored three composite economic measures that Keynes considered necessary to reach full employment under conditions of stagnation. They aim at different distribution structures.

1. Expansion of “sensible” consumption and lowering the aggregate economic savings rate through income- or purchasing power leveling in the private sector.
2. Readjustment of spending in favor of public benefits. This requires a higher state or tax-rate – in the sense of the Wagner law.
3. Reduced working hours in different forms, in other words redistribution of work.

Keynes’ policy recommendations were only sporadically and partially converted in a few countries – for example in Sweden.

In his article, Harry Nick explained his idea of need development and polemicized against the ideas of need satiation underlined by Zinn and the long-term tendency of economic stagnation in present capitalism. Nick started from the idea that the thesis of the continuous satiation of human needs is the key argument for rejecting economic growth and explained the main reasons that a progressive satiation of human needs has not occurred.

Firstly, elementary needs of the majority of the world’s population are hardly satisfied, even in the rich countries. Almost everyone in Germany does not have enough.

Secondly, the necessary trend changes must be mainly overcome by satisfying new needs with new activities, by rearranging resource positions, new dimensions in using intellectual resources and progressive rearrangement of sources of material and energy to up-and-coming and solar sources.

Thirdly, technical progress expands the need horizons. Latent needs that slumber in the kingdom of fantasy are moved into the realm of the possible through that progress.

In the discussion, Norbert Reuter grappled with the theses of Nick on the question of need satiation and need development and his interpretation of the ideas of Keynes and Zinn. A basic misunderstanding occurs when a “reduced expectation” is imputed to the Keynesian theory. Rather, the Keynesian theory can be characterized as a “theory of enough.” An output-surplus results on account of a slackening consumption dynamic that lags behind production possibilities. Satiation does not mean – at least not necessarily – an upper limit in output but rather an increasing gulf between production- and sales possibilities.

Keynes did not start from an absolute satiation but from a relative satiation that in no way excludes growth or increased production. The increasing gulf between production- and sales possibilities is crucial. For a transition, the output-surplus can be absorbed by incentives to increased private consumption, through increased private investment activity and increased public demand. For the long-term, Keynes saw the necessity of drastically reducing working hours to a 15-hour week. For Keynes, no tendencies to curb economic growth through political interventions exist. According to his thesis, economic growth runs successively and across generations in the course of capitalist development. Whether and how an economic policy is conceivable in capitalism or socialism that makes possible endless growth ad infinitum must be discussed.

In another contribution on the first complex, Klaus Steinitz focused on the tension of growth and sustainable development. The supply factors bound with natural resources and environmental conditions should be considered in discussing the long-term stagnation tendencies, he said. With the lengthened time period, the influence of related factors like energy, other raw materials and environmentally harmful emissions on growth has noticeably increased. The influence of piece-labor costs and piece-energy costs will shift to a higher weighting of the latter. In assessing growth perspectives, the conflicts between growth and the environment reached a new quality and dimension in the last third of the 20th century.

The long-term transition to a new type of economic development becomes more important in connection with the long-term tendencies of satiation and economic stagnation identified by Zinn. An improved quality of life, realization of the right to life-supporting work and social security are possible in industrial countries without additional material growth. The basic problem in relations between growth and ecological sustainability is the substance, quality and structure of growth and the whole reproduction process, not the speed of growth. Innovations, increased efficiency, structural changes and more consistent orientation in the needs of people are primary.

INEQUALITY, INSECURITY AND RISKS

In his address on the second complex, Jorg Huffschmid discussed the problems and disastrous effects of deregulated finance markets. He characterized the changes in economic life triggered by these finance markets:

(1) Their destabilizing and crisis-intensifying effects on economic development, particularly in third world countries,
(2) The negative consequences of orientation in maximum short-term profit and stock prices connected with the dominance of shareholder value without regard to the long-term perspectives of businesses and personnel and
(3) The use of their economic power to subjugate politics to their interests and carry out corresponding regulations.

Today the former mutual dependence on the state and the economy is increasingly superseded by the motto, either you support us in our demands – tax favors, deregulation of the labor market, lower non-wage labor costs – or we will go away and you will perish.

Huffschmid showed that the state and society are not helplessly handed over to the power and arbitrariness of the liberalized international finance markets. The Tobin tax, capital transaction controls explicitly allowed in the European Union constitution, levying a tax on business outsourcing abroad (“outsourcing tax”) and other measures reveal the unused possibilities of nation states and the EU.

The spirited discussion centered on possibilities of national economic policy, the question of an average international profit rate, the economic characterization of rising stock prices and changing the political hierarchies of power as a prerequisite for carrying out measures regulating finance markets. To Huffschmid, economic growth could be unblocked by a distribution- and working hours policy that strengthens the domestic market and creates jobs. In his opinion, no international equalization of the profit rates into an average rate of profit is possible. The considerable rise of stock prices and their uncoupling from the real economy is an expression of an intensely inflationary development.

WAYS OUT OF STAGNATION

Joachim Bischoff gave the introductory address on the third complex of the workshop. In the discussion of ways out of stagnation, the three complexes of measures named by Keynes and Zinn were highlighted. They must be supplemented by a fourth, the regulation of finance markets and property values.

In his address, Bischoff focused on the problematic of the relative unsuccessfulness of alternatives despite a long tradition of alternative economic proposals. The study group Alternative Economic Policy that presents an alternative economic memorandum every year recently celebrated its 30-year jubilee. Breaking out of the neoliberal hegemony is crucial.

The present problems of capitalism and economic stagnation are not old-age phenomena. In his opinion, we do not suffer in old age rheumatism. Rather we cannot cope with the speed of the changes. The tectonic changes implemented in the last decades are not clearly understood. Under the conditions of present capitalism, the high level of productivity, the economy of wealth and relative super-abundance lead to an increased gulf between the enormous productivity- and production potentials and their utilization in the human interest.

The following questions were central in the discussion:

The steep rise of assets and assets income despite trifling economic growth, the extraordinary high concentration of assets, the increasing polarization between the rich and the poor and the dismantling of the rights of dependent employees in jointly answering crucial questions about their future work and their life. Demands for a different distribution and redistribution, for economic democracy and social regulation opposing market radicalism must be in the foreground of wrestling with current neoliberal policy. Bischoff stressed that social security is closely connected with the demands for a new quality and dimension of ecological regulation. The real danger of destruction of society exists if the basic directions of economic development, distribution and use of production are not successfully regulated.

The workshop made clear there is a great need for discussion on these central themes. Clearly defining the terms to avoid misunderstanding and unnecessary polemic is constantly necessary. This includes terms that are contradictory or used differently like need and requirement, satiation, surplus, stagnation and growth.

In continuing discussions on these questions, the whole problematic of the environment and ecological sustainability, the global dimension, the North-South problematic and the problems inherent in the necessary changes should be considered more intensely.