Japan Shows that Capitalist Stagnation is Indeed Possible

[This is a letter I sent out to my “Hi everybody” email list on Feb. 8, 2001. —Scott H.]

Hi everybody,

      Sometimes we hear various Marxists (such as the RCP) say that theories of economic stagnation are “not Marxist”, and that Marx’s economic theory predicts not only crisis and recession (or depression), but also only a very short period of possible stagnation, followed by recovery and boom (before the whole cycle starts again). In particular, Paul Sweezy and the Monthly Review school have been attacked for arguing that stagnation is the natural state of capitalist economies in the imperialist era—unless special measures (such as Keynesian pump-priming) are used to keep things going.

      I’m not going to attempt an analysis of the Monthly Review school’s view here. I’ll just say that I think there is only partial validity to their view. But when you look at the Great Depression of the 1930s it seems to be hard to deny that the world capitalist economy of that period was indeed in quite a long period of depression and stagnation. (There were some limited ups and downs during the 1930s, but basically world capitalism was stuck pretty much at the bottom of the trough until World War II brought them out of it.)

      It is also a plain and simple fact that there have been periods of at least semi-stagnation in the U.S., Europe, and Japan since World War II. The economic growth in the U.S. for a 20-year period starting in the early 1970s was clearly one of near stagnation, especially in comparison with the post-WWII period up until the early 1970s.

      An even clearer case of stagnation has been the situation in Japan over the past decade and more. There have been several short (and comparatively shallow) recessions during this period, and also several short and extremely weak “recoveries”. And at present the Japanese economy certainly seems to be sinking into recession yet again. Overall, there is only one good word to describe this whole long period—STAGNATION. The Prime Minister of Japan recently admitted that the 1990s were Japan’s “lost decade”.

      The reason that long periods of stagnation have become possible—and, indeed, more and more likely, in the imperialist era, is that the crisis phase of the economic cycle is not being allowed to run its full course (in the short run). Government intervention (monetary and “fiscal” measures) is preventing the crisis from fully purging the system of its fundamental contradictions. Governments must do this, because otherwise the crisis phase would become so acute (as it did back in the 1930s), that the stability of the whole capitalist system might be threatened.

      Capitalist crises are crises of overproduction—and most fundamentally, the overproduction of capital. Thus the only way out of them, in the long run, is through the massive destruction of this excess capital, which allows the accumulation process to start again in a (relatively) unfettered way. (For a time!) However, there are expedients which capitalist governments can use to postpone the destruction of most of this surplus capital for quite a long while. The problem, however, is that since there is still an excess of capital, the accumulation process (which results in the generation of still more capital) is in fact fettered and weak. In short, government intervention in the economy is itself the real cause of capitalist economic stagnation in the modern era.

      Sometimes countries can come out of a period of stagnation for a time, at least to a degree and for a relatively short period. One way to do this is to arrange to shift many of your economic difficulties to other countries. (Which usually requires imperialist power over them, to some degree, and only makes their economic problems worse. This leads to revolutions, and in other ways rebounds against the imperialist center.) Another way is to allow a huge and qualitatively greater increase in consumer debt. (This is the primary method the U.S. has been successfully using for the past decade.) A third method is a qualitatively greater increase in Keynesian “pump priming”. All of these measures have their limits, and all eventually fail. When they do so, the stagnation returns—and sometimes not just stagnation, but a turn back into outright economic crisis, which the government is worse able to deal with than ever.

      The article below [Not included here: a Reuters report from 2/8/01 by Yoko Nishikawa entitled “BOJ feels political heat after GDP shrinks”] says that the Bank of Japan is under tremendous political heat, both to ward off this latest recession and to get Japan out of its long period of stagnation. But what can it do? Interest rates in Japan are already extremely low (near zero for the best borrowers!). So it can’t do much there. Increase the money supply? It’s been doing that. But it hasn’t had much effect, and won’t have much effect. (The long-term effect is to generate inflation—which will just add to present problems.)

      “Fiscal measures” (i.e., massive Keynesian spending and budget deficits) by the Japanese government are more effective, in general. But Japan has been trying this on and off over the past decade. It is probably the main explanation for why there have in fact been some short-term and limited recoveries. But Japanese government debt is now enormous, and it keeps getting riskier and riskier to expand it much further. So Japan is pretty much helpless in the face of the ecapitalist economic contradictions which continue to intensify.

      As for the U.S., it too will be returning to stagnation and possibly serious economic crisis eventually. Whether the present slowdown is the proximate indication of that, or just one of a series of early warning signs, it is still too early to say.


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