Innovation and Accumulation
The crux is highlighted by Paul, explaining the low level of investment, since the 1970's, when he says,
“... in the neoliberal system, firms use profits to pay dividends rather than to reinvest.” (p 71)
But, this is only partially correct. In the stagnation phase of the long wave, such as 1873-90, 1927-39, 1987-99, its typical for investment to appear low; that's a large part of what leads to growth being low, during such periods. But, the other factor that contributes to that, and which starts at the latter part of the crisis phase, is the fact that the investment is characterised as intensive rather than extensive accumulation. In other words, a new machine is introduced, but it is a machine that replaces previous machines, not a machine additional to them. It does not add to output, it simply enables the existing output to be produced more cheaply, i.e. it is more productive, and requires less labour.
In addition, during this period, low levels of demand mean that raw material prices fall, and new technologies introduce new materials, and more efficient ways of using existing materials and energy etc. So, not only is the value of fixed capital slashed, and the existing fixed capital stock depreciated, but the value of circulating constant capital is slashed too. This is the other driver of the rise in the rate of profit, along with the rise in the rate of surplus value. So, on the one hand, actual physical growth of capital is restrained, for the reasons described, but the unit value of the accumulated capital is also reduced, so this gives the appearance of an even greater lack of investment. Yet, the actual reality is indicated by the explosion in the volume, and range of use values produced, particularly from the mid 1990's on. In the stagnation phase, its typical that the gross product/gross value grows by a smaller proportion than the net product/surplus value, which is the basis for the rise in the rate of profit.
But, as I've indicated, the fact of the rise in the proportion of profits going to dividends, having risen from 10% in the 1970's to around 70% today, is an important feature. I will deal with it in relation to Chapter 4, rather than here. I would, however, say that Paul's comment about share buybacks etc.,
“They are minimising their exposure to being financially exploited, and maximising their own ability to play in the financial markets”,
is uncharacteristically naïve. The problem these companies face, as socialised capitals, is that control over their capital is exercised by non-owners of that capital. The executives that exercise that control are there to represent the interests of shareholders, of whom they are frequently themselves a component, if not initially then subsequently, as a result of entitlement to share options etc. In other words, they are there to ensure that the firm is financially exploited, in the short-term interests of the owners of fictitious capital, even where that undermines the long-term interests of the company and thereby the owners of fictitious capital too. As Haldane puts it, it is an example of capital eating itself.
And, so whilst Paul is right that the 2008 crisis is an indication of something bigger and more structural than merely the usual fall in the rate of profit that would be expected around that stage of the long wave cycle, I don't think he has grasped exactly what that is. What it is is a manifestation, in a different form, of the problem that manifested itself in the 1970's. It is the division of interest between socialised capital, as productive-capital, and of fictitious capital as interest bearing capital, which leeches off the former. It is the fact that, economically, the latter is dependent on the former, and subordinated to it, and yet, because the latter is owned by, and, and represents the concentrated political and social power of the dominant section of the capitalist class, in the form of company shares, they exercise control over property they do not own, on the basis of their personal short-term financial interests, and not the longer-term interests of capital. But, they can only do so for so long, until the laws of economics impose themselves, and a financial crash results.
Paul, like many others, does not seem to realise that 2008 was a financial crisis, not an economic crisis, and that is why he is also led to awkwardly, and unconvincingly, extend the 4th wave from the late 1940's to 2008, with the downtrend starting in 1973, so that it would last for 35 years, and yet within which Paul has a new wave commencing in the 1990's. Moreover, in describing the conditions of what Paul describes as a disruption of the wave that leads to this extension, he seems to forget that the period after 1973 is actually the downtrend of the wave, whilst he describes conditions such as the opening up of the Eastern Bloc, etc., which would facilitate a prolongation of an upswing!
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