New Zealand Economics/Marxism

Introduction
“Capitalist production, therefore, develops technology, and the combining together of various processes into a social whole, only by sapping the original sources of all wealth - the soil and the labourer.” - Karl Marx

The key difference between Marxism and the two previously discussed approaches is that whilst monetarism and Keynesianism diverge over how the economy should be managed, Marxian economic thought considers the independent variables to be endogenous to the economy. Consequently, capitalism’s intrinsic tendency to generate crisis, characterised by growing unemployment and economic stagnation, will render state policy ineffective, regardless of which is chosen. From a Marxist perspective, therefore, exogenous shocks or government action were not considered to be the cause of the post-1973 economic deceleration.

Marxist Interpretation: 1945-1973
The principal determinant of economic growth, in Marxian economic theory, is the general level of profitability, as this largely establishes the overall intensity of productive investment. Accordingly, many scholars consider a global crisis of deficient investment and subsequent diminishing profitability as the basis for the prolonged economic slowdown of the NZ economy. The economy’s comparatively poor performance is credited to NZ’s specific economic context in the global economic arena, and the consequent reduction in terms of trade. The Marxian law of the tendency of the rate of profit to fall (TRPF), “because the organic composition of capital has a tendency to rise faster than the rate of surplus-value” is central to the Marxist interpretation of economics: Marx himself considered it “the most important law of modern political economy”. Strong empirical evidence disproves the criticism that the Marxian TRPF theorem is empirically unfounded and acknowledges that, by both orthodox and Marxian measures, there has been a unambiguous empirical trend of declining general profitability since 1945. This is evident in NZ, where the rate of capital return fell from an average of 16.2 percent (1967-74) to 10.3 percent (1975-84), and declining agricultural profitability. This cooling of the world economy consequently explains the weakening demand for agricultural commodities.

Three empirical studies that draw upon different sources of data (Pearce, 1986; Cochrane, 1997; Cronin, 2001) confirm the post-war decline in the rate of profit in NZ, supporting the fundamental concept that the declining general rate of profit was the fundamental cause of sluggish economic performance and elevated unemployment. Pearce’s study verifies that the key Marxian aggregates in NZ did correlate with those integral to Marxist theory, and provides a lucid explanation for the post-war boom and the evolution of structural preconditions necessary for the post-1973 prolonged crisis of capital accumulation.

The post-war rise in profit was the consequence of two main elements: the pre-war decline in the organic composition of capital, facilitating an increase in the rate of profit from 9.3 percent to 21.2 percent from 1932 to 1943 ; and the increasing rate of surplus value from 1938 to 1951 caused by strict governmental control of wages, with the compliance of the higher echelons of trade union bureaucracy. The high rate of profit from these combined factors led to increased investment in fixed capital, increased productivity of labour, and an elevated level of economic growth, sustained by technological developments in capital equipment.

Simultaneously, the technological revolution increased labour productivity and rate of surplus value, diminishing capital value. Thus the technological advances, through widespread capitalisation and mechanisation of production, increased the organic composition of capital and counteracted TRPF. Sustained increases in the rate of surplus value were ensured by labour productivity gains exceeding those in real wages. In addition, improvements in communications and transportation, historically high prices for NZ’s agricultural produce, and supportive Keynesian policies helped sustain the high rates of growth.

However, the same features responsible for the increase in the general rate of profit were responsible for undermining the long-term rate of profit: the process was internally contradictory. Whilst initially the increases in the organic composition were offset by those in the rate of surplus value, from the mid-1960s the increases became unbalanced: the rate of surplus value reached an apex, levelled, and, with the major upsurge in class struggle in the late-1960s and early 1970s, began to fall. In addition, post-war allocation of labour to non-productive roles (with respect to surplus value) in the state sector was a drain on aggregate surplus value, and contributed to depressing the rate of profit.

The afore-described account was observed globally, however, and NZ’s precipitous fall was unique amongst similarly developed countries. Other Marxist scholars suggest NZ’s highly efficient pastoral production and its capitalist development in the international division of labour are relevant, whilst others elucidate NZ’s development through the application of the Marxian theory of differential ground rent. Simply explained, it suggests that due to the comparative advantage in agricultural productivity there was a net inflow of surplus money into the NZ economy. When productivity and output growth plateaued in the mid-1960s the flow of differential rent into the economy declined, diminishing the general rate of profit and leading to the comparatively deleterious economic stagnation. Cronin argues that increased direct foreign investment and its corresponding net outflow of investment revenue and surplus value exacerbated this trend.

Marxist Interpretation: 1974-2005
Marxists tend to agree with Keynesian critiques of neoliberal/monetarist reforms, but disagree that these policies were the principal cause of NZ’s post-1984 economic failings. The sole difference between booms and prolonged capitalist crises (such as that from 1974 to the present) is the magnitude of the cyclical recessions and recoveries. A necessary condition for prolonged high economic growth rates is a sustained increase in the general rate of profit, which is then stimulated and maintained by a wave of investment in fixed capital. This in turn generates qualitative progress in labour productivity and technological development.

The ‘structural adjustments’ since 1984 have successfully increased the rate of surplus value and somewhat devalorised unprofitable fixed capital, thus increasing the general rate of profit, and explain the 1993-96 and 1999-2005 recoveries. However, the vulnerability of these recoveries are emphasised by a lack of evidence that the high profit rates of the 1950s have been re-attained. Thus, the Marxist forecast is for growth and unemployment rates similar to those experienced from 1973 to the present, significantly inferior to those between 1945 and 1973.