The Need for Crowding out Capitalism and Collective Capital

a relatively high use of net profits for new net investment which led to a period of full employment. However, with maturating capitalism it became more profitable ...
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The Need for Crowding out Capitalism and Collective Capital Formation Klaus Hagendorf [email protected] Université Paris Ouest – Nanterre, La Défense, April 2011

Figure 1: The Need for Crowding out Capitalism

The Need for Crowding out Capitalism Net-Investment as % of Net Profits : Germany 1950-2010 Net-Investment as % of Net Profits

Unemployment as % of Civilian Employees

90,00%

12,00%

80,00% 10,00%

60,00%

8,00%

50,00% 6,00% 40,00% 30,00%

4,00%

Unemployment Rate

Net-Investment/Net-Profits

70,00%

20,00% 2,00% 10,00% 0,00% 1950

1960

1970

1980

1990

2000

0,00% 2010

Year

Source: OECD and Federal Statistical Office, own calculations. The Figure 1 above shows the typical pattern of financial capitalism for the case of Germany. After WWII and the currency reform of 1948 there was - after an adjustment period of a couple of years a relatively high use of net profits for new net investment which led to a period of full employment. However, with maturating capitalism it became more profitable to export capital instead of facing trade unions demanding economic democracy.

1

The decline of the percentage of net profits used for new investment is strongly negatively correlated with the increase of unemployment. The decisions of finance capital and the monetary authorities, in particular the German Central Bank led to severe recessions. The ups and downs of the red curve are not the results of the economic machine but are the decisions of the German finance capitalists. Rudolf Hilferding in his Finance Capital (1910) has brilliantly analysed these monopoly capitalistic strategies. The trend observed for Germany is typical for other European and Western Countries. It is the result of the high concentration of productive wealth in the hands of a few. The response of labour must be, to take over the control of the profits which are the results of labour. Those profits have to be reinvested in order to maintain and increase the productivity of labour and to prevent unemployment. The obligation for the labour movement is to create the democratic institutions to introduce collective capital formation via workers earnings investment funds and other means and to assure the control of investments in the economy. Figure 2: The Investment Gap as Part of the Compensation of Employees

Net-Investment as % of Net Profits Germany 1950-2010 Net-Investment as % of Net Profits Investment Gap as % of Compensation of Employees 100,00%

Net-Investment/Net-Profits

90,00% 80,00% 70,00% 60,00% 50,00% 40,00% 30,00% 20,00% 10,00% 0,00% 1950

1960

1970

1980

Year

2

1990

2000

2010

The second Figure shows that the investment gap (the part of net profits which is not reinvested) as part of the compensation of employees is increasing in the case of Germany for 40 years by now. It is high time that the labour movement takes action and that the left political parties recognize that it is not over-accumulation (over-investment) which creates the economic miseries but the misuse of the returns to capital for capitalist imperialist strategies and capitalist consumption instead of being used for the improvements of working conditions. The capitalist mode of production has to be overcome. Collective capital formation is the essential element in this as it breaks the ultima ratio of the capitalists, the supply of capital.

Further Evidence from other Western Economies The U.S. Economy 1970 – 2010

The Need for Crowding out Capitalism Net-Investment as % of Net Profits : U.S. 1970-2009 Net-Investment as % of Net Profits 50%

Unemployment as % of Civilian Employees 12% 10%

40% 35%

8%

30% 25%

6%

20% 4%

15% 10%

2%

5% 0% 1970

1975

1980

1985

1990

Year

Sources: OECD

3

1995

2000

2005

0% 2010

Unemployment Rate

Net-Investment/Net-Profits

45%

The UK Economy 1970 – 2010

The Need for Crowding out Capitalism Net-Investment as % of Net Profits : U.K. 1970-2009 Net-Investment as % of Net Profits Unemployment as % of Civilian Employees

14% 12%

50%

10%

40%

8% 30% 6% 20%

4%

10%

2%

0% 1970

1975

1980

1985

1990

Year

1995

2000

2005

Unemployment Rate

Net-Investment/Net-Profits

60%

0% 2010

The French Economy 1955 – 2010 When the French ratio of net investment/profits is somewhat above the average of Western countries this is due to a stronger growth of the labour force. The same is true for Canada.

The Need for Crowding out Capitalism Net-Investment as % of Net Profits : France 1955-2010 Net-Investment as % of Net Profits Unemployment as % of Civilian Employees

12%

60%

10%

50%

8%

40%

6%

30%

4%

20%

2%

10% 0% 1955

0% 1965

1975

1985

Year

4

1995

2005

Unemployment Rate

Net-Investment/Net-Profits

70%

The Canadian Economy 1970 – 2010

The Need for Crowding out Capitalism Net-Investment as % of Net Profits : Canada 1970-2009 Unemployment as % of Civilian Employees

60%

14%

50%

12% 10%

40%

8% 30% 6% 20%

4%

10% 0% 1970

Unemployment Rate

Net-Investment/Net-Profits

Net-Investment as % of Net Profits

2%

1975

1980

1985

1990

1995

2000

2005

0% 2010

Year

The Italian Economy 1970 – 2010

The Need for Crowding out Capitalism Net-Investment as % of Net Profits : Italy 1970-2009 Net-Investment as % of Net Profits Unemployment as % of Civilian Employees

14%

45%

12%

40% 35%

10%

30%

8%

25% 20%

6%

15%

4%

10%

2%

5% 0% 1970

1975

1980

1985

1990

Year

Sources: OECD 5

1995

2000

2005

0% 2010

Unemployment Rate

Net-Investment/Net-Profits

50%

The Japanese Economy 1970 – 2010

The Need for Crowding out Capitalism Net-Investment as % of Net Profits : Japan 1970-2009 Net-Investment as % of Net Profits Unemployment as % of Civilian Employees

6%

70%

5%

60% 4%

50% 40%

3%

30%

2%

20% 1%

10% 0% 1970

1975

1980

1985

1990

Year

1995

2000

2005

Unemployment Rate

Net-Investment/Net-Profits

80%

0% 2010

Sources: OECD

Some of the BRICS Economies In the BRICS economies the trend is quite different. Unfortunately the data is not very good. The Russian Economy 1989 – 2010

100%

Net-Investment as % of Net Profits Unemployment as % of Civilian Employees

14%

80%

12%

60%

10%

40%

8%

20%

6%

0% 1989 -20%

4% 1994

1999

-40%

2004

2009

2% 0%

Year Sources: OECD, UN, Worldbank 6

Unemployment Rate

Net-Investment/Net-Profits

The Need for Crowding out Capitalism Net-Investment as % of Net Profits : Russian Federation 1989-2009

The Indian Economy 1989 – 2010 The Need for Crowding out Capitalism Net-Investment as % of Net Profits : India 1981-2008

Net-Investment/Net-Profits

Unemployment as % of Civilian Employees 5%

45%

5%

40%

4%

35%

4%

30%

3%

25%

3%

20%

2%

15%

2%

10%

1%

5%

1%

0% 1981

Unemployment Rate

Net-Investment as % of Net Profits

50%

0% 1986

1991

1996

2001

2006

Year

The South African Economy 1970 – 2009

The Need for Crowding out Capitalism Net-Investment as % of Net Profits : South Africa 1970-2009 Unemployment as % of Civilian Employees

70%

35%

60%

30%

50%

25%

40%

20%

30%

15%

20%

10%

10%

5%

0% 1970

1975

1980

1985

1990

Year

Sources: OECD, UN, Worldbank Copyright © 2011, Klaus Hagendorf, Paris. 7

1995

2000

2005

0% 2010

Unemployment Rate

Net-Investment/Net-Profits

Net-Investment as % of Net Profits