Get the fat boys of business back to work

Tue 15 Dec, 2009

Today’s recession is not the result of ‘risky investment’, in fact it follows a thirty-year decline in real productive activity. The business class needs to stop whining and get back to work, says JASON WALSH

THE CAPITALIST class is suffering from a very particular form of deficit – an attention deficit. As Ireland’s deflated economy trundles-on, more and more people are recognising that the emperors of industry are not only stark naked, they are also acting like frightened little girls. We knew they enjoyed being considered hard-headed but it turns out this was an overestimation – they were just thick-headed.

During boom times it’s not like this. Business-leaders are lauded like prophets, their every word is taken like the gospel according to St Ayn Rand. The titans of industry bestride the earth bending matter to their wills and spreading wealth and power as they move. They were the wealth-makers, not just for themselves, but for the rest of us great unwashed too. We were to be thankful for working in their offices, shops and (assuming anyone still does) factories.

To hell with the idea that labour creates value, everyone knows it’s the risk-taking entrepreneur and his venture capitalist backers that create value, don’t they? Well, as it turns out, everyone knows a lot things but few of them bear scrutiny.

Everyone knows that GDP has tumbled due to the global recession. Everyone also knows that before the recession, GDP was skyrocketing as industry produced and sold more and more goods.

In reality, nothing of the sort was happening – even in the United States, home of the brave free market warriors GDP has been virtually stagnant for thirty years.

Between 1975 and 1979 US annual GDP growth averaged 4.6 per cent. (1) These were the years of president Jimmy Carter, widely ridiculed as ‘stagflationary’. Carter himself gave a speech in 1979 in response to the oil crisis saying as much, though it doesn’t actually use the word, and it went down in history as the “malaise speech”. (2) (3) A year later the freebooting former actor and governor of California Ronald Reagan was elected to replace Carter. Reagan, a divisive figure during his presidency, is now lauded as the man who put America back on the map with a commitment to curb public spending and deliver economic growth. Unfortunately, the numbers don’t add up. Reagan was in office from 1980 until 1988. Between 1982 and 1990, the closest comparable period covered by the Survey of Current Business US average annual GDP growth fell from the 4.6 per cent of the Carter Years to just 3.6 per cent. (4) From 1991 until 1998, a period that saw both Reagan’s vice president George HW Bush and ‘New’ Democrat Bill Clinton in office, average annual GDP growth fell again to just 3.1 per cent. (5)

In fact, the fact that the United States did not see a significant recession during the late twentieth century is actually because this torpid growth rate postponed the traditional signs of an overheated economy occurring outside the inflated financial sector.

GDP growth isn’t the only economic indicator that shows the US economy lacking dynamism. US productivity growth peaked between 1958 and 1965 at 3.1 per cent – this coincides with the height of the post-war boom. By 1990 it was just one per cent. Even during the period of 1990 to 1999, which includes the dot com boom and a number of other much-ballyhooed economic events, productivity growth was a mere 1.5 per cent. (6) (7)

In fact, between 1979 and 1999, overall growth rates in US jobs and net capital stock both declines, as did US business investment as a percentage of GDP. Whatever booms were going on were not a result of industrial activity.

As private business continues to suck on the teat of government intervention, whether through bailouts and Nama in Ireland, stimulus handouts in the US and Germany or the introduction of the private sector into policing in Britain (8) the essential lesson is being lost. Public fury at the greed of businessmen and ‘fat cat’ bankers is papering over the fact that the cupboards are bare not because of ‘risky’ investments, but because investment in productive activity has declined to historic lows as business instead seeks to profit from financial instruments, rent-seeking and the actual act of deinustrialisation as pioneered by the high-yield bond (also known as the ‘junk bond’) kings and corporate raiders of the 1980s.

In Ireland today there is a lot of talk about industrial unrest but between banks that won’t lend and businesses that won’t invest the real issue is that capitalists are refusing to come off their thirty-year-long ‘work to rule’, hoping to get back into financial speculation as soon as Ireland is dragged back above the surface by the rest of the world economies.

Bashing the bankers for paying themselves huge salaries makes for good headlines but the real problem is that the entire capitalist class today is pathetically risk-averse.

(1) See: Survey of Current Business, United States Bureau of Economic Analysis
(2) See: Text of the “Crisis of Confidence” speech, delivered by US president Jimmy Carter, July 15, 1979
(3) People & Events: Carter’s “Crisis of Confidence” Speech, American Experience, WGBH Television (Public Broadcasting System), 1991–2001
(4) Op Cit. Survey of Current Business
(5) Ibid
See: Dynamic Forces in Capitalist Development: a Long-Run Comparative View, Angus Maddison, 1991
(7) United States Department of Labor Labor Productivity and Costs web site
(8) Unease as security groups take police roles, James Boxell, Financial Times, December 14, 2009