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Economic Crisis: a Long-Wave Perspective Lecture by Persefoni Tsaliki Department of Economics Aristotle University of Thessaloniki Perspectives on the Euro(crisis) Sharing Perspectives Foundation October 2013 Economic Cycles and Crisis • All economic variables fluctuate through the years: – Long-run perspective of a variable → growth theory – Short-run perspective of a variable → theory of economic cycles The long-run tendency of a variable functions as its center of gravity • Economic Crisis → interruption of the reproduction of the economy • The Great depression in 1930s → questions on market mechanism – Keynes → state intervention – The Golden Age of Accumulation (post-war period – early 1970s) → triumph of Keynesian economics – The Silent Crisis of the 1970s-1980s gave rise to reconsider Keynesian economics – The New Golden Age of Accumulation → Neoliberal economics – The First Crisis of the Millennium → 2007 - ????? Fluctuations in Economics Regular fluctuations → pattern → internal forces → laws of motion • Neoclassical: any deviation is temporary and is caused by exogenous forces • Keynesian: deviations may be serious and through enhancement in effective demand the state can play a vital role • New-newclassical: deviations are ephemeral and caused by state intervention. A ‘free’ market brings the economy back to equilibrium • Classical/Marxian: fluctuations are regular and are caused by the way the capitalist mode of production functions. That is, it is in its nature to face fluctuations Categories of Economic Fluctuations Schumpeter (1935, p. 15) defines the following categories: • Kitchin or inventory or business cycle (3-5 years). • Jouglar or investment cycle (7-11 years) • Kuznets or construction cycle (15-25 years) • Kondratieff or long waves (45-55 years) Ideal presentation of a Long Wave y 0 Α B D C Interpretations of Long Waves • Orthodox economists → denial of Long-Wave perspective of economies → exceptions (Schumpeter, Rostow, Maddison, Forester and Samuelson) • Schumpeter → mass introduction of innovations → the role of entrepreneur → the ‘black’ future of capitalism • Social Structure of Accumulation → introduction of new institutions → contracts between various social groups • Classical/Marxian (Smith, Ricardo, Marx) → movement in fundamentals, such as rate of profit Economic Crisis interruption of the normal reproduction of the economy • Theoretical approaches to economic crisis – Self-regulated system • Neoclassical → invisible hand → no crisis • Keynesian → visible hand of state → no crisis – Incapable for its continuous self expansion • Exogenously: Under consumption (Luxemburg, Lenin, Sweezy) → increase in productive capacity and decrease in incomes → fall in effective demand → need for external markets (imperialism) → lack of them leads to crisis → focus on consumption • Endogenously: Inner nature of capitalism (Smith, Ricardo, Marx) → long-run falling rate of profit » Profit squeeze » Rise in organic composition of capital - mechanization Long-Run Falling Rate of Profit The most important law of political economy (Marx) » Rise in organic composition of capital – mechanization – Capital is a self expanding value – Accumulation – Competition: • Against workers • Against other capitals mechanization – Profit Rate in the long-run falls: π =Π / Κ » Profit squeeze - Rise in wage share leads to falling profitability Mechanization of Production Process (Greece 1960-2012) 300 250 200 K/Lp 150 K/L 100 50 0 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 Net Real Operating Surplus and Investment (Greece 1960-2012) 0.9 0.4 0.3 0.75 NOS(2005) 0.2 0.6 0.1 0.45 0 Net Investment (2005) 0.3 -0.1 0.15 -0.2 0 1959 -0.3 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 Productivity and Real Wage Products (Greece 1960-2013) 70 productivity CNA 60 50 productivity ONA 40 30 Real product wage 20 10 0 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 Long-Run Falling Rate of Profit (Greece 1960-2014) 0.32 0.24 Net Rate of Profit (no self-employment) General Rate of Profit 0.16 0.08 Net Rate of Profit (with Self-employment) 0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 Conclusions • Economic crisis is a stylized and systemic element of capitalist reproduction • Long wave approach is vindicated by historical data Prerequisites to overcome the crisis: Rise in Profitability – Increase profits – Devalue capital invested • • • • Innovations Mergers and acquisitions Privatization of state enterprises War bibliography • Bowles S., Gordon D. and T. Weiskopf. (1983) Beyond the Wasteland: A Democratic Alternative to Economic Decline . Garden City, NY: Doubleday. • Glyn A. and B. Sutcliffe. (1972). British Capitalism, Workers and the Profit Squeeze. London: Penguin Books. • Klein N. (2007). The Shock Doctrine: The Rise of Disaster Capitalism. New York: Metropolitan Books/Henry Holt and Company. • Shaikh A. (1978). An Introduction to the History of Crisis Theories. U.S. Capitalism in Crisis, U.R.P.E., New York • Shaikh A. (1989). The Current Economic Crisis: Causes and Implications. Detroit, MI: Against the Current Pamphlet. • Shaikh A. (1999). “Explaining the Global Economic Crisis: A Critique of Brenner,” Historical Materialism, 5. • Tsoulfidis L. (2010). Competing Schools of Economic Thought. Springer Thank you for your time and attention