by From Jim Stanford However it is explained in economic theory, the fundamentally productive, entrepreneurial role of capitalist investment is essential to the political and social legitimacy of the elites who lead the system – and who own and profit from the bulk of its wealth. Indeed, the thriftiness of the early capitalists, and their willingness to plough their savings back into growth, accumulation, and innovation, is precisely what endeared this dynamic new class to the classical economists. Smith, Ricardo, and their colleagues celebrated the productive leadership of capitalists, and developed policy recommendations which consistently favoured that class accordingly: everything from tariff reduction on imported food (to reduce real wage bills) to the expansive enshrinement of property rights. Anything that granted more money and certainty to productive, ambitious investors would be good for the economy, and the rest of society would benefit accordingly. That core idea (albeit perverted by the analytical twists and inconsistencies of neoclassical theory) lives on in the “trickle-down” policy vision which defined neoliberalism from the outset. Neoliberalism was a response to the deceleration of private accumulation after the long postwar boom.
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from Jim Stanford
However it is explained in economic theory, the fundamentally productive, entrepreneurial role of capitalist investment is essential to the political and social legitimacy of the elites who lead the system – and who own and profit from the bulk of its wealth. Indeed, the thriftiness of the early capitalists, and their willingness to plough their savings back into growth, accumulation, and innovation, is precisely what endeared this dynamic new class to the classical economists. Smith, Ricardo, and their colleagues celebrated the productive leadership of capitalists, and developed policy recommendations which consistently favoured that class accordingly: everything from tariff reduction on imported food (to reduce real wage bills) to the expansive enshrinement of property rights. Anything that granted more money and certainty to productive, ambitious investors would be good for the economy, and the rest of society would benefit accordingly. That core idea (albeit perverted by the analytical twists and inconsistencies of neoclassical theory) lives on in the “trickle-down” policy vision which defined neoliberalism from the outset. Neoliberalism was a response to the deceleration of private accumulation after the long postwar boom. That slowdown was due in part to constraints on business imposed by workers, governments, and liberation movements in the former colonies.
The goal of neoliberalism was to restore the all-round power and legitimacy of private business; to free companies from the inconveniences of intrusive regulations, pushy unions, and taxes; and to pro-actively create and expand new investment opportunities (through globalization, privatization, and market-creation). The social hardship associated with these policies was always justified on grounds that they would unleash the dynamic impulses of accumulation, to the benefit of workers and others who depend on business investment to play this productive, leading role.
Neoliberalism certainly succeeded in strengthening profit conditions, which have improved substantially in the U.S. and most other developed economies since the 1980s. But the second part of the equation – a restoration of capital accumulation as the driving force of growth and prosperity, with widespread benefits that spread through the rest of society – was never realized. Perhaps it was never actually part of the plan: it can be argued convincingly that neoliberalism has been more interested in re-dividing the pie than growing it, and more interested in controlling growth than unleashing it. But the continued sluggishness of real accumulation (and hence of GDP, employment, and incomes) is a glaring problem for neoliberal legitimacy. Profits have been restored, incomes are flowing more strongly to corporations and their owners, but business investment has weakened under neoliberalism, not strengthened. Measured as a share of GDP, net fixed capital investment in OECD countries (after deprecation) has declined from an average of 12 percent in the 1970s, to just 4 percent since 2010.[1] The U.S. experience has been even worse (as documented below). Years of stagnation and austerity since the global financial crisis have exacerbated the problem, politically as well as economically. The contrast between fat bonuses, strong profits, and luxury consumption at the top, and the continued stagnation of work and living standards for most of society, must inevitably provoke a crisis of legitimacy. After all, it is supposed to be their willingness and capacity to plough economic surplus back into accumulation and innovation that is the raison d’être of the capitalist class, and the core engine that drives the system forward. If the wealthy are capturing a larger surplus than ever, but consuming or wasting it rather than reinvesting it,[2] the political stability of the system, in addition to its economic vitality, will be threatened. As Ruccio (2017) puts it succinctly, “The machine is broken.”
This makes it all the more ironic that the politician who most successfully mobilized the anger and alienation of the workers and communities who have suffered from stagnation, now promises to repair the top-down logic of the system with more of the same, painful medicine. Donald Trump has certainly placed the failure of business investment at the center of his policy program. Proposals for facilitating, encouraging, and even browbeating business to invest more in America constitute a running and consistent theme throughout his plan. But his ideas for “making America great again” through restored business leadership and investment are not novel at all: he is repeating exactly the same script that has guided neoliberal policy for over three decades – and which has manifestly failed to revitalize private capital investment. Trump’s proposals may elicit spurts of new business activity in certain sectors of the U.S. economy – led by petroleum companies taking advantage of his aggressive deregulation of environmental protections, and military contractors lining up for a share of coming defense spending. But that will not restore the general vibrancy of private capital accumulation, growth, and employment on any sustained basis. Trump’s program, like other incarnations of trickle-down policy, does not tackle the deeper structural problems which explain the continuing slowdown in business activity, despite enhanced business power and profitability.
[1] Author’s calculations from OECD National Accounts Statistics; unweighted average.
[2] My estimations suggest that less than one-tenth of the surplus generated in the U.S. economy is reinvested in new capital accumulation; most of the rest is consumed. See Stanford (2015), p.78.
U.S. private capital accumulation and Trump’s economic program