Productivity Weakness and the Puzzle of Economic Growth Contradiction

1. Productivity weakness: puzzle or real contradiction? Colòquio A duzentosanos do nascimento de Marx: heranças e perspectivas - Universidade de Évora, 18 de outubro de 2018 Maurizio Donato mdonato@unite.it

2. Summary • The development of the productive forces and the (non-infinite) growth of productivity represent a real contradiction which appears in the form of a tendential fall in the rate of economic growth. • The economic growth depends on productivity and on hours worked, in terms of duration and intensity. • Productivity - in itself - increases the mass of goods, its volume, not its value.. • Increasing exploitation is a countertendency, but it is not enough to a sustainable growth of capitalism.

3. A sketch of reasoning in fivepropositions • The main concern for the world economy is too low growth • Labourproductivityhashistoricallybeen the maindeterminant of the growth • Productivity has not increased - for many years - satisfactorily; has it reached or is it reaching its limit? • The historical trend to reduce working hours seems to have stopped or at least slowed down • Working hours and productivity are imperfect substitutes

4. «A modestcyclical recovery» OECD Economic Outlook, 2017 Consumer and business confidence Global industrial production growth

5. .. notyet,.. stillpresent,.. willnotsuffice… • While world economic growth is accelerating a bit, the OECD reckons that "on a per capita basis, growth will fall short of pre-crisis norm in the majority of OECD and non-OECD economies." So the world economy is still not yet out of the Long Depression that started in 2009. • The OECD went on: "Whilst the near-term cyclical improvement is welcome, it remains modest compared with the standards of past recoveries. Moreover, the prospects for continuing the global growth up-tick through 2019 and securing the foundations for higher potential output and more resilient and inclusive growth do not yet appear to be in place. The lingering effects of prolonged sub-par growth after the financial crisis are still present in investment, trade, productivity and wage developments. Some improvement is projected in 2018 and 2019, […] but this will not suffice to fully offset past shortfalls, and thus productivity gains will remain limited."

6. NominalGdPgrowthGlobal, Advanced Economies, EmergentEconomies

7. Real GdPgrowth 2007-17 Global, Advanced Economies, EmergentEconomies

8. The seculardecline of the interest rate: monetary policy .. doesnot work

9. Gross fixedinvestment-GdP ratio

10. Neoclassical growth theory and productivity • According to the neoclassical theory of economic growth Y = A KαH1-α • The level of income - production (Y) depends on the capital (K), the hours worked (H) and the level of productivity (A). The total hours worked depend, in turn, on how many people work (L), and for how many hours (h) - apart from the intensity -

11. Productivity Growth in the G-7 countries 1970-2015

12. Productivity puzzle, Solowparadox • Productivity, which historically represented the main component of the growth, after having grown enormously for about a century (from the 80s of the nineteenth century to the '70s of the' 900, with an impressive acceleration after World War II), stopped growing, dragging down the growth of GDP. • Yet, it would seem a golden age for technological innovations (it would be enough to think about the results achieved by the Artificial Intelligence): it is the 'Solow paradox', a real contradiction. "You can see the computer age everywhere but in the productivity statistics."

13. The productivity fall

17. There is a contradiction between the pace of technological innovations, the dynamics of productivity and stagnant growth: arealcontradiction Three main explanations have been provided for the 'paradox' of productivity: • measurement problems, • the 'secular stagnation’ hypothesis, • the role of the technological innovations which, having exhausted their 'revolutionary' effect, no longer translate into productivity growth. For R. Gordon [2000] “The fundamental limitation on the contribution to productivity of computers in general and the Internet in particular occurs because of the tension between rapid exponential growth in computer speed and memory on the one hand and the fixed endowment of human time”. Warning: we must not confuse the rates of change (positive or negative) with absolute levels. Generally speaking, in the natural world, we stop growing when we have reached a very high level.

18. Productivity levels (at constant prices)

19. Output per hour worked (rate of change) source: http://blogs.ft.com/gavyndavies/files/2014/10/ftblog7121.png

20. Productivity, employment and working hours Three comments: A) With regard to labor productivity growth rates, their decrease in almost all OECD countries began in the early 1970s; between the mid-1990s and 2004 there was a limited recovery in the US, after which the decline restarts; It is interesting to note that this dynamic replicates with considerable precision those of the reduction in the profitability of invested capital. • B) As for the levels, there has been convergence (something like the realization of an average level of productivity), but downwards: currently the two most 'efficient' European countries (France and Germany) have a level of GDP for hour worked quite close to that of the USA. • C) The residual difference in per capita income depends on the hours worked (leaving aside the intensity of labor).

21. Employment and hours worked,EU and USA Two more observations: • despite the tendency to reduce working hours has also been interrupted, in Europe we still work less than in the USA, both in terms of employment and in terms of hours. • there is a negative correlation between hours worked and productivity.

23. Hours of work per year and per capita (source: Piketty, 2017)

24. Productivity ↓, Hours worked ↑ • From the post-war period until the mid-1990s, labor productivity grew more in Europe (in Italy in particular) than in the USA; since the second half of the 90s the relation has been reversed. • It is important to note that, in some – but not in all - countries, together with the drop in productivity, the hours worked per capita have increased, and have increased more in those countries where productivity has declined the most.

25. Flexibility and precariousness • In those same years, in many European countries, labor policies have been implemented aimed at increasing flexibility and precariousness. • Today, in European countries, those who work, do it in conditions of greater exploitation (more hours a day, more years during the course of life) and this increase in exploitation (duration and intensity of work) is accompanied by a still stagnant productivity. • Over time, and in conjunction with the slowdown in productivity, the growth component due to the degree of use of factors (capital and labor) has become increasingly important, has grown in weight.

26. Tav. 1 Growth in Output per Hour, Hours per Capita, and Output per Capitabefore the crisissource: GCDC Total Economy Database, except BEA for the USA; Dew-Becker and Gordon (2012), tab. 1, page 9

27. EU, USA; Portugal and Italy • With regard to labor productivity (Y/H), the difference between the two periods in the two different currency areas is evident: while in the USA there was a recovery, in Europe the rate of growth decreased; the European country where productivity has decreased the most is Italy, while the country in which it has decreased less is Portugal. • As for the hours worked per capita (H/N), the dynamic is exactly the opposite: while in the US the tendency to increase the hours decreases even if slightly, in Europe it is reversed, with the sole exception of Portugal; in this case too, the country where the hours worked grow the most is Italy, that is the country where productivity has decreased more. • As a general effect of these two trends, the rate of growth of the per capita product-income (Y / N) is slightly higher in the US, while it appears to be slightly down in Europe, with a tendency towards convergence in rates. In this case, the country with the biggest negative difference in growth rates is Portugal, followed by Italy. Portugal, which is the only European country where the hours worked decreased, is the one with the worst growth, despite the relatively better productivity performance.

28. Tav. 2 Growth in Output per Hour, Hours per Capita, and Output per Capita after the crisis (author’s elaboration, data OECD)

29. Germany, Portugal, Italy • The country that has grown the most (GERMANY) is the one with less working hours and the highest rate of productivity growth. • The two countries that have grown less (PORTUGAL and ITALY) are those with more working hours and the lowest rate of productivity growth.

30. Conclusions • If / when productivity does not increase enough, the absolute surplus value method returns. • Increasing exploitation is a powerful countertendency, but not enough to further growth of capitalism.