by Michael Roberts
World leaders are meeting in Japan at the so-called G7 meeting of
top capitalist economies. The state of the global economy is the main
subject. There will be no agreement on what to do about sluggish
economic growth, still high unemployment in many countries, falling
average real incomes in many others and above all, for capitalism, low
productivity growth and dismal business investment.
The policy answers from the G7 leaders to this continued Long
Depression vary from “structural reform” (i.e. neo-liberal measures to
squeeze more surplus-value out of labour through reductions in labour
rights; hiring and firing; privatisation) to more monetary easing
(quantitative easing, negative interest rates) and then to fiscal
stimulus (more government spending). But nobody is agreed on common
action, so nothing will change on policy.
What is changing is
the further deterioration of the world capitalist economy. Global
industrial output growth continues to slow and in the case of the G7
economies (red line below), industrial production is now contracting.
And world trade, something that I have reported on before, is in
significant negative territory (red line below). This is partly due to
the collapse in energy and other industrial raw material prices. But
even when you strip out the impact of the deflation in prices, world
trade volume is basically static (blue line) and well below even the low
world GDP growth rate of around 2.5%. Countries with low domestic
demand can expect no compensation through exports.
The most worrying thing for global capitalism is that the US economy,
the best performer among the G7 since the end of the Great Recession in
2009, is also showing signs of fading. In previous posts, I have
argued that it would not be China that would pull down the world into a
new recession but what happened in the US, which remains the most
important capitalist economy, both in production and finance.
The latest survey of business activity among US companies, the
so-called purchasing manager index (PMI), made dismal reading. The PMI
surveys companies to see if they think they are increasing production or
not. Anything over 50 suggests expansion. The latest May figure shows
that the US economy, both industry and services, is barely growing,
with the PMI at just 50.8 (green line) compared to over 60 just two
And the prospects for a pick-up in growth ahead are not good. The US
Conference Board monitors the state of productivity around the world.
That’s the measure of output per worker (and per hour). Productivity
growth plus growth in the labour force constitutes the make-up of
long-term real GDP growth. Population and employment growth has been
slowing in the Long Depression, so productivity growth is even more
The latest data from the Conference Board are particularly shocking. Output
per person grew just 1.2 per cent across the world in 2015, down from
1.9 per cent in 2014. Productivity growth in the eurozone, measured by
gross domestic product per hour, is set to be a feeble 0.3 per cent and
barely better in Japan at 0.4 per cent. But the US slowed last year to
just 0.3 per cent from 0.5 per cent in 2014, well below the pace of 2.4
per cent in 1999 to 2006. Britain’s output per hour worked fell to an
average annual increase of only 0.2 per cent between 2007 and 2013 and
after a false dawn in 2015, is expected to show zero growth this year.
And now the Conference Board expects -0.2% for the US this year, the first contraction in three decades. “Last year it looked like we were entering into a productivity crisis: now we are right in it,” said Bart van Ark, the Conference Board’s chief economist. The Conference Board pleaded that “Companies
really need to invest seriously in innovation. It is time for companies
to move on the productivity agenda to turn this story around.”
But they are not. US business investment fell 0.4% in first quarter
of 2016 compared to the first quarter of 2015 and spending on equipment
fell for the first time since the Great Recession ended.
Why are companies in the G7 not rising to the occasion and investing
more and more in new technology to get productivity growth up? The
usual mainstream economics argument was repeated by Goldman Sachs CEO
Lloyd Blankfein recently. The notorious head of the world’s most
rapacious investment bank had one word to tie together everything
happening on Wall Street and in the global economy right now. “It all comes down to confidence”, he said at the firm’s annual meeting. Right now, Blankfein said, “we’re in a low-confidence environment.” But
Blankfein’s answer begs the question: why is there a ‘lack of
confidence” among companies to raise investment? I have answered this
question on numerous occasions in this blog. The latest is in this post. And see this by Jose Tapia Granados.
Corporate investment is stagnating or falling because profitability
remains low and total profits have stopped rising. Also corporate debt
burdens are beginning to weight down on ‘confidence’. Last year in the
US, Last year business debt, excluding off balance sheet liabilities,
rose $793 billion, while total gross private domestic investment (which
includes fixed and inventory investment) rose only $93 billion.
More than 70 corporate borrowers have defaulted globally so far this
year, piling up at the fastest pace since 2009 and closing in on the 113
issuers that defaulted in 2015, according to Standard Poor’s.
It’s true that most of these are in the hard-hit energy and mining
sectors. the energy and resources sector accounted for more than half
of the overall 72 issuers that have defaulted so far in 2016. Within
this, 29 have been in the oil and gas industry, 12 were in metals,
mining and steel and one was a utility company.
But the S&P is concerned that defaults could spread to other sectors: “So
far, there has been little spillover effect into other sectors, but we
are not ruling this out in the coming quarters. We also expect this
stress on many U.S. oil and gas companies to persist with continued low
oil prices, ongoing cash flow deficits as a result of declining prices,
more limited debt-funding sources (including credit facilities and bank
lending), and potentially limited benefits from plans to further cut
capital expenditures.” Corporate defaults are heading back up to territory last seen in 2009, when the financial crisis hit bottom.
So while the G7 leaders ponder the state of the world, far from
corporations taking up the challenge of boosting productivity through
more investment and R&D, they are holding back. And a missing
‘confidence fairy’ is not the reason.
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