How Monopoly-Finance Capital Leads to Economic Stagnation

The main key to understanding these developments, however, remains the Sweezy normal state. The long-term trends associated with economic growth, industrial production, investment, financialization, and capacity utilization (as shown in these charts) all point to the same phenomenon of a long-term economic slowdown in the U.S. and the other advanced industrial economies.

A central cause of this stagnation tendency is the high, and today rapidly increasing, price markups of monopolistic corporations, giving rise to growing problems of surplus capital absorption. Taking the nonfarm business sector as a whole, the price markup on unit labor costs (the ratio of prices to unit labor costs) for the U.S. economy over the entire post–Second World War period averaged 1.57, with a low of around 1.50 in the late 1940s. However, from the late 1990s to the present the markup on unit labor costs — what the great Polish economist Michal Kalecki referred to as the “degree of monopoly” — has climbed sharply, to 1.75 in the final quarter of 2011. As stated in The Economic Report of the President, 2012: “The markup has now risen to its highest level in post–World War II history, with much of that increase taking place over the past four years. Because the markup of prices over unit labor costs is the inverse of the labor share of output, saying that an increase in the price markup is the highest in postwar history is equivalent to saying that the labor share of output has fallen to its lowest level.” 

The Ambiguity of Global Competition

In line with the foregoing, the last few decades have seen the intensification of a growing trend today toward monopolization in the U.S. and global economies, reflected in: (1) concentration and centralization of capital on a world scale, (2) growth of monopoly power and profits, (3) the developing global supply chains of multinational corporations, and (4) the rise of monopolistic finance. The total annual revenue of the five hundred largest corporations in the world (known as the Global 500) was equal in 2004–08 to around 40 percent of world income, with sharp increases since the 1990s. This strong monopolization tendency, however, is scarcely perceived today in the face of what is characterized in the conventional wisdom as ever-greater competition between firms, workers, and states.

We call this problem of mistaken identity, in which growing monopolization is misconstrued as growing competition, the “ambiguity of competition.” From the days of Adam Smith to the present the development of monopoly power has always been seen as a constraint on free competition, particularly in the domain of price competition. As Smith put it in The Wealth of Nations, “The price of monopoly is upon every occasion the highest which can be got. The natural price, or the price of free competition, on the contrary, is the lowest which can be taken.” For classical political economists in the nineteenth century competition was only intense if there were numerous small firms. However, Karl Marx had already pointed in Capital to the concentration and centralization of capital, whereby bigger firms beat smaller ones and frequently absorb the latter through mergers and acquisitions. This led to a vast transformation of industry in the last quarter of the nineteenth century and the beginning of the twentieth century, as production came to be dominated by a relatively small number of giant corporations. As John Munkirs wrote in 1985 in The Transformation of American Capitalism, “The genesis of monopoly capitalism (1860s to 1920s) created a stark dichotomy between society’s professed belief in Smith’s competitive market structure capitalism and economic reality.”