The UK’s productivity problem continues. Output per worker has barely grown since the beginning of the financial crisis in 2008. Why is this a problem? Because if we want rising living standards, we must have rising productivity over time.
In theory, rising productivity in our economy gives us choices between increased income and increased leisure time. We can choose on a spectrum between more income for the same hours worked and the same income for fewer hours worked, in other words, more leisure time. Depending on how we in society value work and leisure, increased productivity should make possible increases in human welfare.
Today, output per hour worked in the US is at a similar level to that in France and Germany. However, total hours worked per head in the US have tended to outstrip those in the latter two countries, meaning that output per head remains higher there.
Americans are on average richer (although greater inequality means that many of them are not), but they achieve these greater riches by working longer, while their French and German counterparts have more leisure time, including a shorter working day and longer holidays. This is down to collective economic and social choices, although these are also necessarily political in nature, and far away from simple choices freely made by individuals, as some might choose to believe. Continue reading →
Another brief video from the School of Life Political Theory series, this time on Adam Smith, widely thought of as the founder of modern economics. Smith is included in the school of classical political economy, employing an interdisciplinary analysis, and focusing on class and the role of government among other elements of the emerging industrial economy.
Nowadays he is often co-opted by the right in order to make the case for free markets and individualism as the source of wealth creation.
Interestingly, the video does not mention either. It does focus on another important idea, that of specialisation in production, also known as the increasing division of labour. On the one hand, this is a source of growth in productivity and wealth, but also leads to reduced meaning in the lives of ordinary workers.
Smith’s two most famous works are The Wealth of Nations and The Theory of Moral Sentiments. The latter is often neglected in discussions of Smith, but it made the case for man as a complex social being as much as one interested in personal gain. A clear idea of both sides of humanity are required in considerations of how to achieve the greater good.
The video seems to leave a great deal out, particularly in terms of economics, but also includes political and philosophical ideas that I had not really considered, so it is worth taking a few minutes to watch.
I refer to the work of Michael Pettis quite often on this blog. He strikes me as a highly original thinker, combining macroeconomics, finance, development, political economy and economic history in a way which provides a deep understanding of world economic events.
He recently posted here about what he sees as the two main models of economic development which nations have used to transform their economies at certain times in history: the high wages model, and the high savings model.
Models of development can be described as a set of policies and institutions which aim to develop the economy and achieve sustained rises in productivity and output via industrialisation and the advancement of technology.
For Pettis, both models aim to raise wages and productivity, but they are distinct from one another in how they drive the investment which makes this possible. Continue reading →
An interesting take on the reasons for the continued weakness of investment and growth in the aftermath of the Great Recession. For Marxist Michael Roberts, it is mostly about the failure of the rate of profit to recover to pre-recession levels. The link to his post is below.
Recently, Larry Elliott, the economics correspondent of the British liberal newspaper, The Guardian raised again the puzzle of the gap between rising corporate profits and stagnant corporate investment in the major capitalist economies. Elliott put it “The multinational companies that bankroll the WEF’s annual meeting in Davos are awash with cash. Profits are strong. The return on […]
This quote is taken from a footnote to Marx’s Capital Volume II (p. 391 in the Penguin edition). The volume was put together after Marx’s death by his friend and collaborator Engels, drawing on extensive notes. The quote provides inspiration for the analysis of one particular contradiction in the dynamics of capitalism :
“Contradiction in the capitalist mode of production. The workers are important for the market as buyers of commodities. But as sellers of their commodity – labour-power – capitalist society has the tendency to restrict them to their minimum price. Further contradiction: the periods in which capitalist production exerts all its forces regularly show themselves to be periods of over-production; because the limit to the application of the productive powers is not simply the production of value, but also its realization. However, the sale of commodities, the realization of commodity capital, and thus of surplus-value as well, is restricted not by the consumer needs of society in general, but by the consumer needs of a society in which the great majority are always poor and must always remain poor.” (my emphasis)
It is important not to take this quote out of context. In addition, despite significant inequality and poverty, Marx was clearly wrong about the majority always remaining poor under capitalism. However, the contradiction described here between the production of surplus value and its realization upon sale, has given rise to plenty of debate among left economists. Continue reading →
Profitability in a capitalist economy provides both the motive for investment, and the source of it via companies’ retained earnings.
Keynesian policies to expand demand can work to increase growth, but in Marxist terms they are limited by their effects on the rate of profit.
Austerity could perversely raise the growth rate over the medium run by restoring private sector profitability, even if it dampens growth initially.
If this idea is right, one can see that capitalism is often not a ‘nice’ system. It may be unrivaled in its capacity for wealth creation, but this is typically done so unevenly and often unfairly. Intervention can mitigate some of this, but within limits.
A series of interesting short videos featuring Anwar Shaikh of the New School, an economist I greatly admire, where he discusses his influences and aspects of his life’s work.
His magnum opus, Capitalism, was published last year, and I have written on parts of it several times on this blog.
For those who don’t want to go through them all, I can recommend as a taster video number nine (of eleven), ‘Keynes and Classical Economics’, where he discusses the links he makes between the ideas of Keynes on aggregate demand, and competition and profitability in the work of Marx and the Classical economists. To reach this, press play, then skip forward between videos using the player controls.