Posted by: Doug Henwood | September 20, 2013

On Panitch & Gindin and American decline

These are comments I delivered at a panel on The Making of Global Capitalismby Leo Panitch and Sam Gindin, at the Rethinking Marxism conference, held at the University of Massachusetts–Amherst, on September 20, 2013. I interviewed them about the book here.

I want to start by saying that I greatly admire this book, and pretty much everything these two guys have done over the years. Unusually for the genre, I meant every word of the blurb I supplied for it. A while back, I was on a panel with Radikha Desai, on which she argued that the U.S. empire was not really much of a success compared to its British predecessor, which made me wonder what planet she’d been living on. (Given the stars of this panel, it can’t be her residence in Canada that led to this strange conclusion.) The thing has been incredibly successful on its own terms, and Leo and Sam are excellent at pointing out some of the mechanisms of its success, like the skillful incorporation of the second tier powers like Western Europe and Japan (I could say Canada as well, but it’s something of a special case). They have a high standard of living, and can even ride a moral high horse now and then while the U.S. military does the dirty work of imperial policing. Of course, life in the third and fourth tiers of the empire is another story—one of debt and profit extraction and the occasional CIA-sponsored coup.

And the ability of the U.S. planning elite to transcend immediate national interests to promote the health of the global system has been extremely impressive. Just to pick one example of something I found profoundly clarifying, I never really understood U.S. strategy around Middle Eastern oil. Noam Chomsky likes to quote a 1940s planning document on what a strategic prize control of that oil is, but once the producing countries nationalized that oil in the 1970s, it didn’t seem like the U.S. derived any great economic or strategic advantage from its influence and power in the region. After all, we produce far more hydrocarbons domestically than most of the second tier countries, and our immediate neighbors produce plenty as well. Leo and Sam offer a much more satisfying explanation: the U.S. interest is in the free flow of oil for the health of the global system.

And then there was support for the rebuilding of Japan and Europe after World War II—and in more recent decades, the encouragement of European unification. Narrow self-interest would have viewed these actions as the nurturing of potential competitors to U.S. business—and it’s turned out that way, they are. But again, the health of the global system demanded it, and the planners rose to the occasion.

Of course, I had to come to the “but” part of this little commentary, and here it is. You may have noticed that at the beginning I said the U.S. empire “has been” very successful on its own terms. And I said the planners “rose” to the occasion. The choice of verb tenses gives a clue to where I’m going: are the best days of the American empire behind us? I’m phrasing this as a question because I’m not fully sure of the answer. The claim was made without a question mark in the 1970s and 1980s, and ended up looking foolish in the 1990s. More recently, a lot of analysts used the financial crisis of 2008—it’s a little hard to believe that Lehman Bros. collapsed five years ago, and, as Martin Wolf pointed out in the Financial Times the other day, we still live in Lehman’s shadow, making it at once old news and a current event—to pronounce the death of neoliberalism, but the thing soldiers on. Enormous state resources were successfully mobilized to keep the banks not merely afloat, but dominant. Neoliberalism lives, at least for now. One should be on guard against publishing premature obituaries, both for empires and regimes of accumulation.

But I do want to list some reasons why I think the empire has entered a decadent phase. A couple of years ago, word reached Leo that I’d given a talk in Ottawa that sounded declininst, and he was alarmed. Until then, we’d seen pretty much eye to eye on the incorrectness of the declinist line, and he was concerned that I was embracing unsound doctrine. Sorry, Leo, I’m going to be unsound for a bit.

Several things strike me as signs of rather profound rot. Let’s start with the narrowly economic—specifically investment.

(If I had time I could talk about the rise in U.S. foreign debt, a trend that survived the Great Recession. Some argue that the continue ability of the U.S. to sell its debt is a sign of strength—which it is, until someday, foreigners decide not to buy any more, and then it isn’t anymore. Remember that Alan Greenspan said during the housing bubble that there was no reason to worry because things were going well so far. But back to investment.)

U.S. corporations are highly profitable and flush with cash. At last count (Z,1 Release) , U.S. nonfinancial corporations had nearly $16 trillion in financial assets on their balance sheets, almost as much as they have in tangible assets. The gap between internal funds available for investment and actual capital expenditures—what’s called free cash flow—is very wide at around 2% of GDP. That’s down from the high of 3% set a couple of years ago, but still higher than at any point before 2005. Instead of investing—and remember, profitability is quite high—corporations are shoveling cash out to their shareholders. Through takeovers, buybacks, and traditional dividends, nonfinancial corporations are transferring an amount equal to 5% of GDP to their shareholders these days—again, down some from recent highs, but very high by historical standards. This reflects the victory of the shareholder revolution, a crucial component of the neoliberal era of the last three decades, which established the fact that making shareholders happy is the principal reason for a public corporation’s existence. And that happiness is measured over the very short term: more money, now. The future, well, we can worry about that some other time. Alfred Marshall famously defined interest as the reward for waiting, but American capital has lost all patience (not that interest rates these days offer much of a reward).

The lack of interest in investing for the long term is visible in the national income accounts as well as corporate accounts. What matters for the accumulation of real capital is net investment—the gross amount invested every year less the depreciation of the existing capital stock. We’ve just gotten numbers for 2012, and they’re remarkably low. (See tables 5.2.5 and 5.2.6 here.) Private sector net nonresidential fixed investment (as a percent of net domestic product, or NDP) fell below 1% in 2009. It’s recovered some, to just over 2% last year, but that’s half the 1950–2000 average, and lower than any year between 1945 and 2009. We won’t have 2013 numbers until August of next year, but it’s looking like they’ll stay in this depressed neighborhood. Two things are responsible for this: low levels of gross investment to start with, and a skew of investment towards short-lived, quick return goods.

Public investment is even weaker. Net investment by all levels of government was just under 1% of NDP in 2012, the lowest since 1949 (following the postwar demobilization). Federal net investment was very close to 0% of NDP. Though state and local net investment was positive, but at the lowest level it’s been since the late 1940s.

When measured in real dollars, the trajectory of net investment has to be described as a collapse from which we’ve barely recovered. Net domestic fixed investment of all kinds in 2012 was 54% below its 2005 peak. Public investment was down 43% from its 2004 peak. Residential investment was down 89% from its 2005 peak. Private nonresidential fixed investment was 32% below its 2008 peak. In most cases, real net investment is at late 1970s/early 1980s levels—that, even though real GDP has more than doubled over the last three decades.

I suppose we could talk for hours about the differences and commonalities between an owning class and a ruling class, but what this net investment story tells me is that we have an elite interested in nothing other than short-term enrichment. At that, it’s been very successful. As we learned the other day, 95% of the growth in income between the end of the recession in 2009 and last year went to the richest 1% of the population. But it looks like it’s taking the money and running. It doesn’t seem to have much faith in the future.

Which takes me to the political, and then the psychological, sphere. It is amazing to watch the U.S. Congress seriously flirt with defaulting on Treasury debt. It makes you have to rethink everything you thought about capitalist power and the state. I doubt they’ll actually default—there will be some last second deal to raise the debt ceiling, temporarily, but we’ll probably be back here again soon. It’s something of a mystery to me whom the current Republican party represents—surely it’s not classical Wall Street interests, because they wouldn’t be playing chicken with the status of Treasury bonds. But those Wall Street interests, and their friends in the Fortune 500, don’t seem to be sitting the back-benchers down for a lecture on their class duty. (Or if they are, the back-benchers aren’t listening.) The contrast with the planning elite that came out of World War II that Leo and Sam write about is stark.

And now onto the psychological realm. I’ve been thinking lately about what we might call the neoliberal self. Gone seems to be the classically bourgeois executive ego, a relatively stable, if sometimes anal-retentive structure to guide the subject through life. In its place is a much more fragmented thing, adaptable to a world of unstable employment and volatile financial markets—but unable to think seriously about long-term things like social cohesion or, god save us, climate change.

The material basis of this transformation looks to be the replacement of the relationship by the transaction, to steal the language of corporate governance. Workers are told to run their lives like little entrepreneurs, moving from one ill-paying short-term job to another, or maybe holding two or three at a time. And at the top of the society, we see the erosion of the planning function, and any rationality beyond the most crudely instrumental. It’s been a long time since I read Polanyi, but this seems to me a perspective on the social rot produced by market-regulated societies, from the macro level of investment down to the socially shaped psychology of how we think and feel. I don’t see how the imperium can long survive this sort of pervasive rot.

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Responses

  1. Reblogged this on Parchment in the Fire.

  2. The “ability of the U.S. planning elite to transcend immediate national interests” was exercised when the Communist bloc was a real problem for them. The workers of western Europe noted who fought fascism, and they saw a society next door with broad social welfare supports in place. The colonial people found inspiration, strategy, and tactics in Leninism and Mao Zedong’s revolutionary methods. In response, the U.S. offered the Marshall plan, guarantees of energy supplies, permission and help for Japanese industrial revival, and aid and military protection for the “tigers” around China.

    As the Soviet bloc rotted and the Asian colonial liberation struggles finally concluded, the U.S. imperialists saw they had problems were their “immediate national interests.”

  3. The unaffordability of upper education is part of this. It’s up to the individual and whether or not the society has high levels of education is deemed unimportant. Education is part of long-term investment.

  4. Seems the ruling class is cannibalising its own system of exploitation.

  5. As to whom the Republicans represent, it’s a big economy and finance is under 10% of what goes on here. Hence a big problem with naming a movement Occupy Wall Street. And there is a wide agreement in the ruling classes that the social safety is too large, that working class Americans must be lowered to the level of a developing world shanty town (without the community or local markets). If a government shutdown can destroy the safety net, what’s not to like ? If some foreigners get temporarily stiffed on bond payments, where else are they going to go ?

  6. Doug:

    An excellent and highly informative piece, even by your high standards, you Krazy Brooklyn Kommie, you.

    Best,

    Greg

  7. The Cold War always pitted “capitalism in general” as capitalism was understood in Washington, London and Bonn against any alternative. The alternative did not need to be motivated by socialism or capitalism. Third World nationalism was also considered a threat.

    The political matter today is not one of profit extraction by Western Oil companies from the sale of Middle East. Washington now pursues narrow imperial goals therein because it no longer has the economic and political clout to dominate the world without the threat of violence. The political-military power the United States is meant to keep it the only Superpower in the world. System integration remains an American goal, as it was a goal for the Cold War elite. But the United States now defends its political-military position, not the prevalence of capitalism around the world.

  8. Reblogged this on All Tied Up and Nowhere to Go.

  9. It’s something of a mystery to me whom the current Republican party represents—surely it’s not classical Wall Street interests, because they wouldn’t be playing chicken with the status of Treasury bonds. But those Wall Street interests, and their friends in the Fortune 500, don’t seem to be sitting the back-benchers down for a lecture on their class duty.

    There’s not much they can threaten the Tea Party Republicans with that can outweigh the risks they might already face from angry Republicans in Republican primary elections. At worst, they can cut off the money – but they’re loathe to do that, since giving money to these types of things is their main method of influence.

    It’s been a long time since I read Polanyi, but this seems to me a perspective on the social rot produced by market-regulated societies, from the macro level of investment down to the socially shaped psychology of how we think and feel.

    The “shareholder revolution” is just a major trend in corporate governance, and I think it will eventually fade off in time. We’re already seeing push-back from the CEOs of new major corporations, with most of the major Silicon Valley and Digital Economy corporations being under the control of particular CEOs (the exception being Apple, which has now turned into the “dispense money to share-holders” method of business unfortunately). When Zuckerberg took Facebook public, he structured the stock sale so that nobody could wrest control of the company away from him.

  10. You’ve got a lot of great observations here, and I had a question about some of them. You note that investment is very low, and profits are very high, and I agree with this. In the past, many saw a direct relationship between investment and profit; this relationship appears to be more or less defunct now. How do you account for this?

    Put another way, it appears that the owning elite have found a way to increased profits with reduced investment. Is this sustainable? Is it something that can run indefinitely? What is the mechanism for the success of this model (low investment with high profit), and what would cause it to fail? I think this is the bet the owners are making – that it can be sustained indefinitely. To me it looks like a false “perpetual motion machine” but I also would have thought that the global financial crisis would have given elites pause to reassess, rather than to resurrect zombie neoliberalism.

  11. I would add a very small caveat as to timeline here. Adam Smith said something on the lines of “A great nation has a great deal of ruin”, which meant that a great nation or great empire can act shortsightedly and self-destructive for quite a long time before destroying itself.

  12. @Charlie Baker

    You note that investment is very low, and profits are very high, and I agree with this. In the past, many saw a direct relationship between investment and profit; this relationship appears to be more or less defunct now. How do you account for this?

    You’d need to check global levels of investment. It’s possible that they have sustained high profits with lower levels of domestic investment because a greater share of their income is coming from foreign sources.

    I’d be curious to see what the actual level of profitability was for nonfinancial US corporations. Doug reports on the levels of assets and the spread between funds available for investment and investment levels, but I was under the impression that the profit levels were being dragged upward by the heavy profitability of the US financial sector disproportionate to how much of the US economy it actually made up..

  13. @Brett

    “You’d need to check global levels of investment. It’s possible that they have sustained high profits with lower levels of domestic investment because a greater share of their income is coming from foreign sources.”

    I do think that overseas investments are a factor, but I don’t know that they account fully for the high profitability. Nonetheless, I’m open to a model that demonstrates how the relationship of investment and profit remains in place on a global level.

    As to non-financial corporate profits, this chart from St. Louis Fed seems to indicate that they are very healthy indeed.

    http://research.stlouisfed.org/fred2/graph/?g=mEA

  14. @Charlie Baker

    As to non-financial corporate profits, this chart from St. Louis Fed seems to indicate that they are very healthy indeed.

    Indeed. That’s an interesting chart to read – corporate profits were apparently quite low during the entire Reagan Presidency, climbed back up during the 1990s, and then have shot back up despite the lowest ever level in the early 2000s (although they’re still not as high as they were in what looks like the early 1950s).

  15. @Brett

    I did a little paging through some of LBO News backpages, and found Doug Henwood’s estimate of nonfinancial profits. You can see his calculation and a somewhat different chart here:

    http://lbo-news.com/2012/06/26/profitability-high-and-maybe-past-its-peak/

    My simple chart from StL Fed was a simple calculation of nonfinancial profits divided by GDP. Doug laid out his calculation in the post, using tangible capital value as a factor. We both agree that corporate profits are very high now, by either measure.

  16. The Imperium may well have entered a decadent phase, but its rulers don’t need classic bourgeois executive egos and social stability to stay on top. All they need is egos and stability that are superior to those found in the BRIC competitors.

  17. The neoliberal order may be rotting from within, but what is the institutional force capable of demolishing this rotten structure? It may stay rotten for very long time, as history of past rotten empires show.

  18. I am afraid Italy, my country, has now slipped into the third tier…

    U

  19. […] U.S. views India as a huge untapped market, and with net investment at home at all-time lows, as Doug Henwood has pointed out, American corporations flush with cash are seeking avenues for investment in India, but on their […]

  20. Nice analysis, Doug. In the global picture, I’d say South America has gained some independence from imperialism as compared recent decades. The tea Republican whackiness might be a super-structural reflection of the decline or crisis of investment in the base you note.

  21. UC Santa Cruz Professor William C. Domhoff has a detailed article on the Council on Foreign Relations (CFR) that I believe buttresses Panitch and Gindin’s contentions:
    http://www2.ucsc.edu/whorulesamerica/power/postwar_foreign_policy.html


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