The dysfunctions of neoliberalism: Productivity

In an earlier post, I put forward an outline of the underlying causes of the crisis of neoliberalism in the United States. I argued that, in order to maintain healthy profit levels, neoliberalism has required an increasing level of exploitation of the workforce, leaving wages stagnant despite increasing productivity. The outcome was a widening gap between the output of the economy and the purchasing power of consumers, a gap that was for many years bridged by rising levels of consumer and government debt. It was only a matter of time, however, before this transparently unsustainable fix to the insoluble contradictions of neoliberalism came crashing down, which it finally did with the collapse of the housing bubble in 2008. Subsequent attempts to revive the economy have failed to address any of the underlying dysfunctions of neoliberalism, and we now face either gradual or abrupt economic decline — stagnation or renewed crisis.

Curiously, an earlier configuration of capitalism — that of postwar Fordism — seems not to have suffered from this contradiction between maintaining profits and paying workers enough to purchase the output of the economy.
We can rest assured that this is not because capitalists were more generous in the 1950s and ’60s — it was the institutionalization of union strength and a government broadly sympathetic to labor that ensured wages would rise alongside productivity.

But it’s not enough to focus exclusively on the power relations that divide up the wealth created by the economy, a common approach in left critiques that highlight the decline of organized labor, the hostility of the neoliberal state, and the rapacity of capital. The solution these critiques offer to the problems we now face is a return to the more balanced power relations among business, workers, and government that characterized Fordism and a more even distribution of the wealth that society produces. This neglects an examination of the conditions that make the production of wealth possible in the first place and how these processes shape business behavior. Specifically, we must answer the question of why capital and the state were willing to tolerate, even embrace, rising wages under Fordism but not under neoliberalism.

The story of how the bureaucratic monoliths employing an army of domestic factory hands in the 1950s became today’s entrepreneurial brand engines with an overseas network of sweatshop suppliers is far too complex to present here, but a few graphs can give us an idea of the underlying forces that reshaped the nature of demands on the capitalist across this divide. Perhaps the most significant difference between Fordism (seen in the first bar) and neoliberalism is the high sustained rates of rising productivity in the former and the much lower rates under the latter.

Productivity growth: Source

It must be noted here that speculative bubbles distort productivity figures (output per labor hour) by incorporating fictitious value into the total output. That is, though the last three bars on the graph make it seem as if neoliberalism were approaching Fordist levels of productivity increase, in fact the late-1990s dotcom bubble, the mid-’00s housing bubble, and the multiple bubbles of the false recovery have respectively inflated these figures. Since the final shakeout of accumulated fictitious value is nowhere in sight, the distortions in these figures could be truly massive. Needless to say, the Fordist period was free of speculative bubbles that might have similarly padded its numbers.

Of more interest to us here, though, is the crisis decade of the 1970s and the decade of neoliberalism’s consolidation, the 1980s. This is when the new patterns of income distribution were established by new forms of business conduct, and when new types of subjectivity emerged that were broadly supportive of increasing exploitation and inequality. Even if productivity improvements really had returned to Fordist levels by the ’00s, ingrained neoliberal forms would have frustrated any return to Fordist patterns.

Why is productivity so important? Because rapid productivity increases allow capitalist firms to simultaneously maintain healthy profits and distribute increasing amounts of wealth to their workforce in the form of wages. As long as high rates of productivity are sustained, the increasing output generated by reinvestment of profits in production capacity can be realized through sale to higher-earning employees. A happy byproduct is that this also allows the population to be safely incorporated into the system via consumerism. This entire complex is what sustained the unprecedented rates of growth, equality, and rising standards of living under Fordism.

As this graph indicates, the end of the Golden Age of Capitalism was not caused by the conscious repudiation of the Fordist social compact by capital:

Even after the high rates of productivity growth of the Fordist period proper (1947-1973) had collapsed, compensation still kept pace with productivity growth during the crisis decade of the 1970s. It was the disintegration of the Fordist system that led to the desperate experiments of the 1970s in new forms of economic organization, eventually giving rise to neoliberalism as a viable new regime of accumulation. Business’s turn to extreme exploitation and the state’s open hostility to labor emerged from this process, they didn’t cause it. The graph above shows the outcome, in the uncoupling of productivity and compensation during the 1980s (though the extensive conflict and human suffering that was required before the two could be torn asunder is left invisible).

Why did productivity growth falter so badly? First, manufacturing reached extremely high levels of productivity and seemed incapable of pushing beyond them. Labor that was no longer needed in the factories moved into services in search of jobs. But, as Gopal Balakrishnan has argued (citing an IMF Working Paper), the transition to a primarily services-based economy has hobbled the advance of productivity because it is much more difficult to standardize and mechanize many of the tasks involved in the services sector than those in manufacturing.

This was no problem as long as debt could substitute for the rising wages that capital now appropriated to sustain its own expansion. A crisis in the realm of production that began in the 1970s was thus displaced into the realm of consumption, buying capitalism a few extra decades. Now the reckoning is at hand.

One possible solution would be an end to capitalism, allowing us to escape the necessity of a perpetual increase in productivity as the only way of reconciling profits with consumer demand and of defusing popular dissatisfaction through consumerism. Sadly — perhaps catastrophically — we are not yet ready for this step.

The only other solution would have to involve a new regime of accumulation that could secure, at least for a time, a return to much higher levels of productivity growth. Given the Scylla of fully mechanized factories and the Charybdis of service work that can’t be mechanized, it’s not even clear that this is possible — in the long run, it surely is not. My hope is that a way can be found to revive productivity growth in the short term that facilitates the preparation for a real attempt at that first solution.