“Capital is a particular form of social wealth driven by the profit motive. With this incentive comes a corresponding drive for expansion, for the conversion of capital into more capital, of profit into more profit. Each individual capital operates under this imperative, colliding with others trying to do the same, sometimes succeeding, sometimes just surviving, and sometimes failing altogether. This is real competition, antagonistic by nature and turbulent in operation. It is as different form so-called perfect competition as war is from ballet.
…Real competition is the central regulating mechanism under capitalism. Competition within an industry forces individual producers to set prices with an eye on the market, just as it forces them continually to try to cut costs so that they can cut prices and expand market share. Cost-cutting can take place through wage reduction, increases in the length or intensity of the working day, and through technical change. The latter becomes the central means over the long run [my emphasis].
…The notion of competition as a form of warfare has important implications. Tactics, strategy, and resulting prospects for growth are central concerns of the competitive firm…In the battle of real competition, the mobility of capital is the movement from one terrain to another, the development and adoption of technology is the arms race, and the struggle for profit growth and market share is the battle itself.”
Anwar Shaikh (2016), Capitalism: Competition, Conflict, Crises, p.259-260
These remarks are from the introduction to Chapter 7, The Theory of Real Competition. The vision they outline draws on classical political economy and Marx, as well as the business literature. One idea that stands out is that competition gives strong incentives to firms to invest in new technology, at least over the long run, as a way of raising productivity, cutting unit costs, and from there being able cut prices in an attempt to increase their market share. Thus growth is an inherent part of the capitalist system over time, despite turbulent fluctuations and crises.
Monetary (interest rates) and fiscal (public spending and taxes) policies can still have an effect on the economy if there is substantial spare production capacity and unemployment. Thus they can potentially mitigate downturns. It may well be that leaving the adjustment process to work on its own is unacceptable in a modern democracy, as it can lead to social unrest and the rise of extremist politics, as took place in Europe in the wake of the Great Depression and as reflected today in the new populism in many countries.
The longer term effect of boosting aggregate demand in this way depends on the impact on the rate of profit of business. If it leads to wages at some point rising faster than productivity, profits will tend to be reduced, weakening investment and slowing growth. If additional policies are put in place, such as agreements with unions to limit wage rises to the rate of productivity growth plus inflation, profits will be maintained and growth can continue at the previous rate.
Alternatively, policies which promote labour market ‘flexibility’ by attacking unions and workplace rights, might also restrain wage growth, albeit with very different distributional consequences. This latter strategy was promoted by the Reagan and Thatcher governments in the 1980s, and has contributed to the rise of inequality in the US and the UK, and across the West since then.
Further to demand management, incomes policies and deregulation, policies which promote the process of industrial restructuring can also restore or sustain the rate of profit in a recession and lay the foundations for subsequent expansion. They can also try to manage the social consequences of economic change by providing support for worker retraining and relocation to new jobs. In practice, modern democratic governments of all stripes intervene heavily in the economy in a variety of ways. The modern debate is not really about if but how.
Thus Shaikh (via Marx and others) offers a powerful vision of competition, technical change and growth under capitalism. Despite this, Keynes teaches us that state intervention is necessary in order to maintain social stability as far as possible during inevitable periods of uneven change and dislocation, as well as severe crises.