How Monopoly-Finance Capital Leads to Economic Stagnation

Who’s harmed when monopoly-finance capital outpaces real production? Find out why, under the resulting economic stagnation, everyone suffers.

| October 2012

  • The Endless Crisis
    This incisive and timely book traces the origins of economic stagnation and explains what it means for a clear understanding of our current situation — an endless crisis. John Bellamy Foster and Robert W. McChesney point out that increasing monopolization of the economy — when a handful of large firms dominate one or several industries — leads to an over-abundance of capital and too few profitable investment opportunities, with economic stagnation as the result.
    Cover Courtesy Monthly Review Press
  • Triad Economy Slowdown Graph
    This shows the declining real growth rates of the Triad economies in the decades from the 1960s to the present. The slowdowns were sharpest in Japan and Europe. But the United States too experienced a huge drop in economic growth after the 1960s, and was unable to regain its earlier trend-rate of growth despite the massive stimuli offered by military-spending increases, financial bubbles, a growing sales effort, and continuing exploitation of the privileged position of the dollar as the hegemonic currency.
    Illustration Courtesy Monthly Review Press
  • Deepening Stagnation Graph
    The deepening effects of stagnation in the U.S. economy can be seen here, showing the long-run downward trend in the growth rate of industrial production in the United States. The authors argue that a central worldwide economic policy remains overaccumulation within the Triad, where the United States, despite its declining hegemony, still constitutes the trend-setting force in the world system of accumulation.
    Illustration Courtesy Monthly Review Press
  • Growth Rate of Real Investment In Manufacturing Structures Graph
    The stimulus provided by financialization has not prevented a multi-decade decline in the role of investment in the U.S. economy. Private nonresidential fixed investment dropped from 4 percent of GDP in the 1970s to 3.8 percent in the ’80s, 3 percent in the ’90s, and 2.4 percent in 2000–2010.
    Illustration Courtesy Monthly Review Press
  • GDP Going To Finance, Insurance, And Real Estate Portion Of National Income As A Percentage of Total Goods-Producing Industries Share Graph
    Stagnation led to a shift in the economy from production to speculative finance as the main stimulus to growth. Thus the FIRE (finance, insurance, and real estate) portion of national income expanded from 35 percent of the goods-production share in the early 1980s to over 90 percent in recent years. The so-called economic booms of the 1980s and ’90s were powered by the rapid growth of financial speculation leveraged by increasing debt, primarily in the private sector.
    Illustration Courtesy Monthly Review Press
  • U.S. Current Account Balance As Percentage of GDP Graph
    During the last thirty years the United States has turned into the world’s largest borrower, exploiting its position of financial hegemony and drawing in surplus capital from the rest of the world — while ultimately compounding its underlying problem of overaccumulation.
    Illustration Courtesy Monthly Review Press
  • Manufacturing Capacity Ultization Graph
    Even with declining rates of investment growth, productivity increases in industry have continued, leading to the expansion of excess productive capacity (an indication of the overaccumulation of capital). This chart shows the long-term slide in capacity utilization in manufacturing. High and rising levels of unused (or excess) capacity have a negative effect on investment since corporations are naturally reluctant to invest in industries where a large portion of the existing capacity is standing idle.
    Illustration Courtesy Monthly Review Press

  • The Endless Crisis
  • Triad Economy Slowdown Graph
  • Deepening Stagnation Graph
  • Growth Rate of Real Investment In Manufacturing Structures Graph
  • GDP Going To Finance, Insurance, And Real Estate Portion Of National Income As A Percentage of Total Goods-Producing Industries Share Graph
  • U.S. Current Account Balance As Percentage of GDP Graph
  • Manufacturing Capacity Ultization Graph

The increasing trend of monolithic companies taking over large shares of industry has created a “financialization-stagnation trap” that’s negatively affecting economies across the world, particularly in the Global South. That’s John Bellamy Foster and Robert W. McChesney’s argument in The Endless Crisis: How Monopoly-Finance Capital Produces Stagnation and Upheaval from the USA to China (Monthly Review Press, 2012). In this excerpt from the book’s introduction, Foster and McChesney explain how understanding the rise of financialization stagnation is essential to understanding global class struggle.  

The Great Financial Crisis and the Great Recession arose in the United States in 2007 and quickly spread around the globe, marking what appears to be a turning point in world history. Although this was followed within two years by a recovery phase, the world economy five years after the onset of the crisis is still in the doldrums. The United States, Europe, and Japan remain caught in a condition of slow growth, high unemployment, and financial instability, with new economic tremors appearing all the time and the effects spreading globally. The one bright spot in the world economy, from a growth standpoint, has been the seemingly unstoppable expansion of a handful of emerging economies, particularly China. Yet the continuing stability of China is now also in question. Hence, the general consensus among informed economic observers is that the world capitalist economy is facing the threat of long-term economic stagnation (complicated by the prospect of further financial deleveraging), sometimes referred to as the problem of “lost decades.” It is this issue, of the stagnation of the capitalist economy, even more than that of financial crisis or recession, that has now emerged as the big question worldwide.

Within the United States dramatic examples of the shift in focus from financial crisis to economic stagnation are not difficult to find. Ben Bernanke, chairman of the Federal Reserve Board, began a 2011 speech in Jackson Hole, Wyoming, entitled “The Near- and Longer-Term Prospects for the U.S. Economy,” with the words: “The financial crisis and the subsequent slow recovery have caused some to question whether the United States…might not now be facing a prolonged period of stagnation, regardless of its public policy choices. Might not the very slow pace of economic expansion of the past few years, not only in the United States but also in a number of other advanced economies, morph into something far more long-lasting?” Bernanke responded that he thought such an outcome unlikely if the right actions were taken: “Notwithstanding the severe difficulties we currently face, I do not expect the long-run growth potential of the U.S. economy to be materially affected by the crisis and the recession if — and I stress if — our country takes the necessary steps to secure that outcome.” One would of course have expected such a declaration to be followed by a clear statement as to what those “necessary steps” were. Yet this was missing from his analysis; his biggest point simply being that the nation needs to get its fiscal house in order.

Robert E. Hall, then president of the American Economic Association (AEA), provided a different approach in an address to the AEA in January 2011, entitled “The Long Slump.” A “slump,” as Hall defined it, is the period of above-normal unemployment that begins with a sharp contraction of the economy and lasts until normal employment has been restored. The “worst slump in US history,” Hall stated, was “the Great Depression in which the economy contracted from 1929 to 1933 and failed to return to normal until the buildup for World War II.” Hall labeled the period of prolonged slow growth in which the U.S. economy is now trapped “The Great Slump.” With government seemingly unable to provide the economy with the needed stimulus, he observed, there was no visible way out: “The slump may last many years.”



In June 2010, Paul Krugman wrote that the advanced economies were currently caught in what he termed the “Third Depression” (the first two being the Long Depression following the Panic of 1873 and the Great Depression of the 1930s). The defining characteristic of such depressions was not negative economic growth, as in the trough of the business cycle, but rather protracted slow growth once economic recovery had commenced. In such a long, drawn-out recovery “episodes of improvement were never enough to undo the damage of the initial slump, and were followed by relapses.” In November 2011, Krugman referred to “The Return of Secular Stagnation,” resurrecting the secular stagnation hypothesis of the late 1930s to early ’50s (although in this case, according to Krugman, the excess savings inducing stagnation are global rather than national).

Books too have been appearing on the stagnation theme. In 2011, Tyler Cowen published The Great Stagnation, which quickly became a bestseller. For Cowen the U.S. economy has been characterized by a “a multi-decade stagnation…. Even before the financial crisis came along, there was no new net job creation in the last decade….