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Stagnation as a Trend-Life with Satiated Markets, Stagnating Economies and Reduced Work
by Norbert Reuter
Monday Sep 26th, 2011 5:25 AM
45 years ago JKGalbraith was shocked at the public squalor alongside privgate affluence. in 2008-10 trillions were given to banks and Wall St so private losses became public losses. By relieving corporations of wage costs, non-wage labor costs and taxes, neoliberal supply strategy worsened growth and employment. The growth phase moves into a stagnation phase. Stagnation cannot be annulled, only mitigated by increasing wages, mass demand and purchasing power. Reducing working hours is central to fulfill the productive and reproductive functions.

By Norbert Reuter

[This 2009 study published by the Rosa Luxemburg foundation is translated from the German on the Internet, Norbert Reuter is an economist and advisor to Attac Germany.]

Economic growth still has a central importance in economic theory and policy. Returning to the highest possible growth path is the declared goal even in the latest economic- and financial market crisis. A decade-long trend of declining growth rates in all developed industrial countries is ignored. At the same time the actual economic output lags behind the possible output. This is a stagnating trend. This development can be explained with endogenous growth, limits triggered by increasing satiation tendencies and changes in preferences. In the short term, growth reserves could be mobilized through redistribution from “top to bottom” to support the largely unsatisfied mass demand and increased public spending. But in the long term, unemployment must be countered with reduced working hours. Then more prosperity will go along with more leisure time, not with increasing consumption.

The present crisis is marked by a dramatic decline of economic growth. Japan and Germany lead the worldwide scale with a shriveled gross domestic product of six percent and more. This recent development is only noteworthy in its extent, not in its basic direction. Since the 1950s, the growth rates of all developed industrial countries have shown a downward trend – despite all proclaimed growth policy.


The current worldwide growth collapse ensures the continuing slow down of the growth trend. Including the concrete growth collapse, most industrial countries showed an average annual growth of zero or near zero in the first years of the new millennium. Germany’s economic development is symptomatic.

Neoliberal economists see the present worldwide economic collapse primarily as a result of the continuing low interest policy in the US since the times of Federal Reserve chairman Alan Greenspan. They assume the industrial world will return sooner or later to a growth path. Until then “bridges over the crisis” should be built as German chancellor Angela Merkel formulated. However that the whole worldwide development in the last years was connected with a rise of global imbalances is completely overlooked. The growth of the great export nations Germany, China and Japan was only possible because other countries – especially the US – became massively indebted. This development was anything but sustainable and cannot continue after the present crisis is overcome.

In addition, the extensive deregulations carried out in almost all countries in the last years under the worldwide battle-cry “More market – Less state” have not changed the long term trend of a flattening growth. This discovery along with the intensifying ecological problems and the dramatically collapsing growth should be occasion enough to question the traditional growth thinking and to search for the causes of the decreasing long term growth rates in developed industrial countries.


The naivety that assumes a restoration of high growth rates after mastery of the present crisis is astonishing because a well-founded reason for the claimed possibility of increasing and permanently higher growth rates, that is of increasing absolute growth, is completely absent. Neoliberal or neoclassical approaches are hardly distinguished from alternative or leftist approaches. From the demand- and supply-side views, two assumptions make further concern with endogenous growth limits seemingly obsolete:

1. Demand side: An unlimited demand making possible and necessary an increasing gross domestic product follows inevitably from unlimited needs irrespective of individual income. From this view, human nature forces permanent growth.

2. Supply side: The possibilities for inventions and their conversion into marketable products (innovations) are unlimited and the same in all times. Expansion limits are excluded from the supply side.

These axioms only undergird the assumption of unlimited growth on first view. They suit a time when shortage was all-pervasive and were doubtlessly valid then. However progressive industrial societies are not shortage societies. These premises do not have any supra-historical validity. In progressive (“developed”) industrial societies, ever-greater financial, institutional, technical and organizational expenses are necessary to successfully market additional products.

On principle, there is no falling marginal utility for economic growth to growth protagonists. Growth has the same great importance in shortage- and surplus societies. It is just as necessary, urgent and possible in developed industrial societies as it was before the Industrial Revolution. Early on, this position was criticized by the American economist John Kenneth Galbraith (1970). From the demand side, no growth restrictions could exist. According to that logic, low growth with simultaneous unemployment is always a consequence of overly strong, overly weak or misguided interventions of the state. This way of looking at things has a long tradition in economics. Several years ago, the Austrian economist Helmut Steiner summarized the criticism of this interpretation: “The atavistic behavior pattern of distress continues in the surplus” (Steiner 1999). The political scientist Elmar Altvater criticized similarly: “People do not want to see that economic growth is linear, not geometric and approaches zero with time like a natural law” (Altvater 2006).

The assumption of a possible and necessary continuous exponential growth contradicts the empirical development. Given the more or less high unemployment and reduced working hours in the past, a growing chasm between the actual and the potential domestic product would result with full employment of all production factors. This situation can be understood as relative stagnation. The actual domestic product remains behind the possible potential product. Figure 3 (see original German) illustrates this. An exponential growth of four percent was assumed as potential growth. If this expansion path regarded as normal and necessary in the 1970s (Biederkopf 2009) in relation to the actual growth is promoted, the dominant stagnation tendency is clear. According to this assumption, zero growth represents an extreme form of stagnation but is in no way a synonym for stagnation. Thus growth and stagnation do not exclude one another. The system remains below its production possibilities.

Why is a stagnation tendency marked in all progressive industrial societies despite very different political initiatives? In a memorandum published in 1943, the English economist John Maynard Keynes gaining renown today presented a long-term prognosis that foresaw the empirical course of economic development (Keynes 1943). The reasons cited by Keynes are helpful today in explaining the development.


During the war, rounds of experts discussed economic problems of postwar development on the urging of the English ministry of finance. With a memorandum devoted to the problem of future unemployment, Keynes reacted to articles that in his view insufficiently distinguished between short- and long-term demands. The quintessence of his long-term theoretical-economic and political-economic findings is found in this document published three years before his death. In a condensed form, it sketches his conception of capitalism’s phases of development. Keynes identified three separate phases for the time after the war:

1st phase: A considerable need for investments exists here to cover the high demand resulting from rebuilding, the catch-up need and shortage of basic goods. In this phase, the necessary investment volume is clearly above the austerity level. Profits are continuously invested in new production facilities whether in expanding existing capacities or bringing new products on the market for which there is a high receptivity since households are inadequately supplied with goods. The optimistic sales- and profit-expectations (high “marginal efficiency of capital”) are fulfilled on account of the dynamic demand so profits are invested again in a capacity-effective way. The “accumulation carousel,” the sequence of profit-expectation, investments and profits, gets underway initiated in a market-endogenous way and leading to a continuous building of capacities. The high growth rates make possible high profits for entrepreneurs and enable increasing employment. Higher real incomes give the state growing tax revenue that can be used to increase the collective welfare, develop the infrastructure, ensure and expand the social security systems and so on.

To repress inflationary tendencies, an economic policy is needed in this phase according to Keynes that on one side regulates the height of investment volumes by proper controls and on the other side does not shrink from rationing measures to control consumption and promote savings and investment. The most urgent task of investment policy in this phase is helping cover the high capital need for investments. This period can be described as the investment- and growth-phase of (postwar-) capitalism.

2nd phase: The second phase marks the transition to a fundamentally changed investment regime. The necessary investment largely corresponds to the aggregate economic savings rate. On one side, the readiness for investment decreases with the decline of profit-bearing investment opportunities so a slackening free enterprise capital need occurs. On the other side, the most pressing requirements are increasingly satisfied resulting in a higher saving-capacity.

Since the relatively decreasing consumptive demand corresponds to a relative decline of free enterprise investment activity, Keynes assumes a considerable part of all investments must either produce public jobs or at least be influenced by them in this phase of maintaining high employment. Keynes sees the calming down of strong economic fluctuations as a possible side-effect of a successive transition from a free enterprise to a public investment regime oriented in aggregate economics. “When two-thirds or three-fourths of all investments occur or are influenced by public authorities, a solid long-term program should keep the possible swings in narrower limits than when a smaller share of investments was under public control and tended to follow the fluctuations in the strictly private sector of the economy instead of correcting them” (Keynes 1943). This period can be termed a transitional phase from the growth- to the stagnation stage.

3rd phase: This period is marked by a higher savings level compared to the investment-volumes (on the full employment level) as an expression of a falling attractiveness of consumption because of a higher supply of household goods. Satiation-tendencies in a large number of markets make clear “demand signals” increasingly vague, varied and inconsistent so that the certain calculations of earlier times is lacking for investors. For the individual entrepreneur, uncertainty about possibilities and directions of future sales increases so free enterprise investments lose dynamic.

Unlike the first stage, economic policy in this stage must ensure a high and more “meaningful” consumption and counteract a tendency to high savings. Keynes only saw limited possibilities here. Rather he assumed the volume of investment activity would decrease so much that it could only be financed by write-offs. Keynes used the picture of a society that increasingly falls behind its endogenous production possibilities, producing and accumulating less than it could produce and accumulate. On the background of advancing productivity, this makes a successive reduction of working hours absolutely necessary and allows more freedom. The characterization of this phase as a “golden age” (Keynes 1943) is based on this development prognosis. On the horizon, Keynes saw the outlines of a society emerging without further growth.

Reducing Keynesianism to a technique of “anti-cyclical fiscal policy” as occurs in economic textbooks is a serious misinterpretation. Such an anti-cyclical policy is only important in an earlier phase of development. In the long-term, Keynesianism represents a “stagnation theory of the long-term” (Zinn 1994; Reuter 2000; Reuter 2004).


As this perspective seems far-sighted from a contemporary view, the exact reasons that moved Keynes to his long-term stagnation prognoses remain vague. Keynes started from a distinction between absolute (or unconditional) and relative (or conditional) needs. The former needs – like the need for food – are doubtlessly subject to satiation. On the other hand, relative needs – like the need for recognition and luxury – cannot be satiated. But with view to the latter, Keynes said that these would play an ever-decreasing role in the course of the developing affluent society. The increasing satiation of absolute needs can be compensated less and less through the satisfaction of relative needs. As a result, growth is increasingly curbed. A point may soon be reached when we all become conscious that we would rather devote our strength to non-economic goals” (Keynes 1930).

A normative substantiation of declining demand in the long-term and a subsequent declining growth are not free of problems. Therefore declining growth rates or economic stagnation in developed industrial societies is not a normative prerequisite. Contrary to widespread opinion, unlimited needs and endogenous limits of growth do not represent a contradiction. The most important aspects of an endogenous “turn to the good” can be briefly outlined as follows (Reuter 2000).

1. Every need does not lead automatically to an economic need. The need for sleep should not involve an economic need. One and the same need – like relaxation – can be satisfied in different ways – through idling away one’s life and through expensive holiday trips. In contrast to the second, the first case of need satisfaction makes no or only trifling claims on production factors – like the satisfaction through savings – and has no or only marginal effects on the gross national product. Thus an ever-greater demand for economic performance does not automatically result from unlimited needs. How needs are articulated in concrete examples in the historical development is crucial. This can but need not lead to a greater demand for economic goods (Maslow 1954, 1978).

2. Human action is institutionally connected. A growth of three or four percent per year regarded as “normal” – an exponential growth development – would make necessary a rapid change of consumption and ways of life within a few decades on account of the enormous rise of absolute growth.

Sooner or later exponential growth must run aground in this Conditio humana since institutions have a vitally necessary relief function enabling people to act in an ever-more complex world (Gehlin 1956, 1986). On the other hand, this means institutional behavior patterns, i.e. consumption habits, show a great sluggishness and perseverance (Scitovsky 1977). This problem has special urgency in an aging society that represents the reality of all developed industrial societies. That technical innovations are noticed less by the older generation is a well-known phenomenon. A “technology-aversion of many older persons” (Kaapke 2005) is clear. In aging societies, new technologies gain acceptance slowly and only by overarching the generations.

The fact that linear growth developments are characteristic for developed industrial countries instead of exponential courses corresponds to the described institutional development limits of growth. On the backdrop of this theoretical-institutional interpretation of growth processes, the growth rates generally decreasing in the European trend cannot be referred back to “growth weakness,’ “deficient innovation capacity,” “excessive cost burdens of the economy” or the like. Rather institutional behavior maxims seem reflected which are not subject or are hardly subject to control.

3. The distinction of needs on one side and needs connected historically and spatially on the other side opens up a relativistic view toward the growth-effect of innovations in the course of technical progress. On the background that a need can be satisfied in different ways, the view changed to technological innovations, the seemingly inexhaustible growth motor. Similar with needs, a growth-necessity does not inevitably follow from the notion that technical developments know no limits (Scharf 1990). As soon as new products substitute for old products, satisfying present needs “better” or “differently” than before, the growth effect is reduced to the balance of old and new production. If product innovation can satisfy a concrete need with less expense in production factors (labor and nature), the growth-effect is even negative in the long-term. As soon as a new product substitutes completely for an old product (for example, vinyl records by compact disks and compact disks by different forms of purely electronic storage in MP3 format0, an extensive reduction of production and employment occurs in the old production area sooner or later without dismantling the production and employment in the innovative area of production.

For that reason, product innovations are not necessarily a compensation for the effects of process innovations stabilizing growth in the long-term. A long-term increase of production and growth are only conceivable if savings arise through substitution- and rationalization effects that cannot be permanently cushioned by sales increases. New consumer durables can be created and sold without any repression of existing products.

The history of technology suggests that there are fewer and fewer innovations that can be termed “revolutionary.” Even identifying products that created new practical value in the recent past is hard. Rather the development of product-innovations on a high provision-level seems to confirm the conclusion of Gertrud Neuhauser that “old” needs are only satisfied in a new way – and often with lesser use of production factors (as a comparison of gramophone and MP3 players shows) (Neuhauser 1964).

4. The development of basically new products that could adequately counteract t the sectoral satiation – and global satiation effects is obviously not only limited from the supply-side. Consumer research should be emphasized here. The heterogeneity of consumer conduct increases with decreasing urgency of consumption and the rise of disposable income. Extensive market studies cannot grasp the escalating heterogeneity of the conduct of consumers (Wiswede 1990). The introduction of new products becomes an economic game of chance and the failure-rate increases immensely” (Eggert 1997).

The deterioration of the accumulation conditions of capital that can be seen in developed industrial societies owing to growing demand- and supply-side conditioned uncertainties can be judged as the irreversible reduction of entrepreneurial activity that was entirely unknown to entrepreneurs and investors of earlier epochs. Another growth-hurdle can be inferred here that is harder and harder to overcome. Keynes also made the moment of uncertainty into a foundation of his theory of investment because of increasing need-satiation and differentiation and undergirding of his stagnation prognosis (Zinn 1994; Reuter 2004).

5 The constant expansion of consumer goods offers possibilities as a necessary condition of growth but conflicts with limited available time as a definitively limiting factor.

Although needs never end, they are always limited with view to the factor time. For example, the need for food is basically unlimited but the need for food has a natural upper limit per unit of time. Consumption also takes time and entails opportunity costs. From a certain point, the benefits of an additional unit of consumption can not compensate any more the opportunity costs of paid work while leisure time for increasing individual well-being gains in attractiveness with the actual, perceived or threatened “time shortage” (Eggert 1997).

Within the consumer sphere, there are time-conditioned limits of consumption activity with the constant increase of consumer goods offers. Opportunity costs must also be considered in the decision whether the limited time should be spent in a consumer-intensive way or not (Guggenberger 1989). In addition, every decision to acquire and use a product decreases the purchase and use of other consumer goods.

While the development of needs and demand necessarily leads to economic stagnation in the historical lapse of time, unlimited needs are not necessarily an impetus for unlimited economic growth. The complex multi-layered discussion of the need problematic brings to light endogenous development tendencies that point to growth-curbing or stagnating consequences for economics on a high production- and productivity level. Low or declining growth rates in developed industrial countries can be assessed differently on this background: as a result of preceding successful economic expansion, not as a failure of economic efficiency (Zinn 1994).

Capitalist development has another system-specific growth brake. The presupposition that economic need flows into commercial demand is financial purchasing power. However the tendency of an increasing polarizing income- and assets distribution lies in the free enterprise dynamic. This produces the phenomenon of relative satiation with simultaneously unfulfilled needs in one and the same society (Zinn 2006). Satiation tendencies and increasing savings in the top income layers lead to falling aggregate economic demand and cause a deficiency in purchasing power in the lower income layers which taken together contributes to a stagnating economic development lagging behind technical production possibilities. Keynes referred to this and used the term “predatory savings” in this context.

Through consistent redistribution policy, higher growth can be realized – depending on the extent of redistribution and the concentration of incomes and assets – through strengthening private demand for a transitional period. The trend line in Figure 2 (see German original) was shifted upwards. Stagnation tendencies can be deferred in this way through a redistribution policy from the sectors with high purchasing power but little need to the sectors with a high need but little purchasing power. However they cannot be permanently abolished.


The discovery that the secular growth decline should not be understood as an “industrial accident” – as a consequence of false economic steering, faulty political-economic setting of points, an “excessive” (social) state, extensive regulation and the like – but as a consequence of the development of the free enterprise process of consumption and investment demands an “economic turn of the times” (Steiner 1999) in economic theory and economic policy.

Smithian shortage- and Keynesian surplus societies should be distinguished on the theoretical plane. Economic growth has a central significance in countries that cannot cover their survival needs because of the development of productive forces. With regard to these societies, the question of the early (classical) national economy must be in the forefront, how the growth of the economy and the efficiency of human activities can be increased to the maximum through technological, institutional and organizational changes, how the “take off” stage (Walt W. Rostow) can be attained with subsequent economic expansion. In these societies, economic policy must be mainly growth policy directed to satisfaction of basic needs. Growth “successes” need not quickly result in a global environmental- and climate. High demands on the quality of this growth are raised today regarding the environmental compatibility of the growth path. This is different from Adam Smith’s time (Galtung 1985).

A firm growth policy has great importance with view to shortage-societies while the socio-economic foundations in developed industrial societies increasingly change. Growth policy must have a very different quality in the transitional phase from growth to stagnation. Whether growth can be generated in this phase depends increasingly on outfitting low income sectors with purchasing power since these have great unsatisfied needs and a high consumption rate. Securing a great supply of public goods is also very important for the end of the second phase as Keynes urged. In the first case, private consumption must be stimulated by a successful redistribution policy. In the second case, public economic and investment programs are necessary. Conventional neoliberal growth policy, the lack of successes in an ever –stronger spiral of deregulation and flexibility have increasingly counter-productive effects (over-production crises) or burden the collective well-being (pollution of the environment) and human development (Mishan 1967).

From a long-term perspective, the solution of economic problems in developed industrial societies can not only be dependent on high growth of the purely quantitative gross domestic product. This is especially true for fighting mass unemployment. Unemployment as a “scourge of humanity” can only be fought in the long-term with instruments that produce employment effects even without growth or with trifling growth. The trend of decreasing growth rates over decades can be controlled but not reversed through a successful redistribution policy and a massive expansion of public spending. These measures involve all the possibilities of another distribution of the present work volume in weekly reduced working hours, sabbaticals, low pension age and so on. Such strategies were followed up to the 1980s. A broad social consensus existed that the phenomenon of mass unemployment can be effectively countered through a better distribution of present work. Interestingly enough, there were and are more supporters of the necessity of reduced working hours as followers of the satiation thesis although both are directly connected. Whoever urges reduced working hours as a solution in combating unemployment automatically supports the satiation thesis – even if unacknowledged. Heiner Flassbeck and Friederika Spiecker recently remarked: “It is not clear to most advocates of reduced working hours as a means for fighting unemployment that they are really adherents of this growth-pessimism hindering us without referring to this logical consequence” (Flassbeck/ Spiecker 2007). This contradiction that is hardly seen much less thematicized shows the considerable need for discussion regarding necessary political-economic action possibilities in developed industrial societies.

In the meantime, the mainstream in politics and economics has not successfully carried out a complete turn on reduced working hours. Paradoxically, extended working hours are emphasized today for solving the labor market crisis and presumably will become more important in the current crisis.


Since the growth option is increasingly rejected as a simple solution, alternative possible solutions must be strongly emphasized against the economic mainstream. The key underlying question must be: How can “full” employment and income for the working population be produced with only trifling growth in developed industrial societies in the long-term without the necessity of an exponential increase of the annual gross national product?

Another important consequence of the growth limits is manifest in that a neoliberal supply strategy – relieving corporations from wage costs, non-wage labor costs and taxes, redistribution from the state budget and work income to the corporate winners – is the most unsuitable means for attaining more growth and less unemployment. Economic development slowed down on account of the weakening of mass income.

As long as the return to high growth rates is regarded as “possible” on principle under the conditions of developed industrial societies, the danger exists that low or declining growth rates may be interpreted as proof of an excessive burden of “the economy” with taxes, fees and state regulation preventing entrepreneurial initiative. This is a danger. In other words, pressure is applied for relief, flexibility and deregulation as long as the growth of the gross domestic product does not rise to a higher level. In this way, the relief spiral of tax-, labor costs- and fee cuts threatens to continue accelerating on one side weakening the domestic demand and on the other side permanently weakening the tax base and the state’s ability to act. (Eicker-Wolf/ Truger 2006) – without permanent compensating growth successes. Sooner or later this has a negative effect on the production conditions of the private economy – perhaps because of the absent or eroding infrastructure, poor education standards and deteriorating sales conditions – so the aggregate social effect is counter-productive in the long run from the view of entrepreneurs.


In the preceding, stagnation was defined and justified as an endogenous product of developed industrial societies. The basic long-term tendency and the early causation of stagnation were distinguished. Stagnation can be encountered by strengthening mass purchasing power through redistribution and greater state spending. But in the long term the stagnation trend cannot be broken because of the described basic tendency. This is a diagnosis of a successive “trend to enough,” not a “turn to less.”

Economics has the task of redefining the goals of economic activity in affluent societies. If “more and more” is legitimated as the ultimate meaning and as a natural consequence of satisfying human needs, the ecological problems are not negated. A connection of need satisfaction and economic growth is fabricated that does not exist. With increasing relative satiation tendencies, productivity advances have less and less growth effects and prosperity gains. On the contrary, productivity advances are reflected in growing unemployment. The future productivity gains must be used for different forms of reduced working hours and for a new dimension of prosperity, time prosperity. Keynes had this in mind when he wrote in 1943 (Keynes 1943): “Promoting sensible consumption, suppressing savings and absorbing a part of the undesired oversupply through increased leisure time, more vacation (a marvelously pleasant way to be rid of money) and shorter working hours will be necessary.”
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