Growth increase productivity?

In a commentary for the New Left Review this week, the sociologist Dylan Riley argues that the Biden administration’s attempts to promote decarbonization and green jobs through industrial policy are doomed to failure and that the same could be said of the “neo-Kautskyite” left’s more ambitious vision of a Green New Deal. After all, neither Biden nor reformist socialists “have a credible answer to the structural logic of capital.” Those who comprehend that logic know that “gradualism cannot work” and that the alternative course of action is straightforward: “The commanding heights of the economy — in this period, finance — must be seized at once.” Any other strategy, Riley explains, is doomed to failure.

Riley feels no responsibility to explain how, precisely, the infinitesimal segment of the U.S. population that regards Bernie Sanders as intolerably reactionary is to seize control of high finance, in defiance of the U.S. military, posthaste. In his (apparent) view, all that is required to establish the implausibility of any and all attempts at reform are a few tendentious theoretical premises; all that’s needed to establish the plausibility of revolution, by contrast, is nothing.

Riley’s fatalism about green industrial policy in general, and the Inflation Reduction Act in particular, is rooted in an abstruse theory of the post-1980s economic slowdown in the advanced industrial world. Specifically, it derives from the economic historian Robert Brenner’s account of late capitalism’s crisis of “overcapacity.”

Relative to the postwar decades, the past 40 years have brought low rates of growth in GDP, productivity, and wages in the western world, while the distribution of wealth and income has grown increasingly skewed toward the rich. Brenner attributes this “long downturn” to capitalism’s tendency toward “overcapacity,” which is to say, toward an excess of manufacturing production.

In Brenner’s account, the postwar golden age of American capitalism was made possible by U.S. dominance of world trade. With its industrial peers recovering from total war and the rest of the world still largely agrarian, U.S. firms and their junior partners abroad commanded a manufacturing oligopoly that ensured profitability by restricting competition. Beginning in the 1970s, however, this oligopoly broke down as European and Japanese producers became more formidable and industrialization spread beyond its initial core. An era of ruinous competition ensued.

The fundamental problem was that investments in manufacturing created huge sunk costs. When investors tie up their capital in a factory that specializes in a particular form of production, they are often unwilling to abandon it, even if the price of its produced goods plummets. Thus, as lower-cost producers entered the global manufacturing market, prices and profitability fell, but capacity did not contract in response. As a result, there is now a perennial glut of global manufacturing capacity. This in turn means that capitalists have little incentive to invest in new productive enterprises since the existing ones already yield more than markets can swallow.

For this reason, according to Brenner, the rate of profit in the advanced industrial world has been declining inexorably since the postwar golden age. For Brenner, a falling rate of profit ensures economic stagnation since high profit rates are necessary to induce capitalists to make new investments. And investment is necessary to generate demand for labor and gains in productivity. Thus, overcapacity begets a low rate of profit, which begets a low rate of investment, which begets a low rate of economic growth.

Proceeding from these premises, Brenner and Riley have argued that capitalism (as conventionally understood) has exhausted itself throughout the West. Opportunities for profitable investment are so constrained by overcapacity that the American political economy “does not hold out even the hope of growth” anymore. The pie can no longer be substantially grown, only divided in disparate ways. Capitalists have therefore found that their best bet for securing a return on their wealth is not through investments that increase aggregate prosperity but through political “rip-offs” that redistribute income upward. We have exited conventional capitalism and entered the vaguely “feudal” order of “political capitalism.”