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Decline And The Art Of No Economic Growth

Economics / Economic Theory Jun 01, 2014 - 01:04 PM GMT

By: Andrew_McKillop

Economics

The Oxymoron of Permanent Growth
One of the starkest non-surprises is that economic growth declines as well as advances. Why this should be “extraordinary” and a shock to civilization is hard to understand – for normal persons. Taking the case of Japan and the Asian Tigers, their miracle growth epochs or eras lasted about 30 – 40 years and then it was over. Taking the case of China and India, their period of extreme high annual growth lasted less than 20 years. In the case of the US and western European economies, high growth was commonplace for about 25 years.


All of them petered out and eventually slowed down. Growth declined to a "normal rate” like early exuberance gives way to maturity but this brings in the value-word loaded term of “normal”. On a multi-century basis before the 18th century, the “normal rate” of economic growth was possibly 0.25% a year, if that. During Jean Fourastie's “Trente Glorieuse” of about 1948-1973 most European countries averaged 4% a year, Japan was nearer 6% a year, and the US was not far behind. During the epic period of high growth for China and India of about 1995-2010 China often averaged 9% a year. This was abnormal and today, these would be science-fiction rates of growth.

The real problem is that when economies contract, in “subzero growth” (another oxymoron) this has rapid spillover collateral damage on politics and social behavior. 

Almost everywhere in the West, growth has steadily declined since 1980 making it easy to argue this process itself helped trigger political change towards “free market principles”. The false solutions of neoliberalism, deindustrialisation, financialization, mass unemployment, massive income and wealth inequality, state indebtedness, and so on, became New Normal.

Declinists however argue that the 1980s political-economic ideology shift only reflected History in the making. It was inevitable and had to happen. This was No Alternative, even if that was a mindless neoliberal political slogan of the 1980s. As we know, both the extremes of Keynesianism (state borrowing, budget deficits) and the extremes of neo-liberalism (crony capitalism) are applied, in a pot pourri attempt to “restore growth”. The opposite is certain.

Decline Paradigm 2014
By the end of the first quarter falling household spending, house and car sales, manufacturing activity, business activity, investment and economic growth were the rule in nearly all major economies. In the US, even in late May, Goldman Sachs and other forecasters however still clung to the “bad weather” theme to explain this “surprise decline” and to forecast a rebound, to the science fiction rate of 3.5% on an annualized base. The long and cold winter had depressed the economy, but in Europe this excuse wasn't possible due to one of the warmest winters in decades. The ECB chief Mario Draghi used the explanation of lower household energy spending as another reason why inflation was falling!

Cold winters are bad for the economy. Warm winters are bad for the economy.

Former IMF chief economist and the present head of India's central bank, Raghuram Rajan earlier this year accused the G7 countries of simply using his country and other emerging economies as “disposable adjustment mechanisms”. Once vaunted by political and business leaders in the developed countries as the Asian Locomotive of global growth, the emerging economies were no longer of interest to them, as they wrestled with their own economic decline. It was a classic example of “devil take the hindmost” as economic trends and the outlook for the rest of 2014 retreated to 2009 levels, at the depths of the post-2008 crisis.

Decline also spreads in the political domain. “The west”, meaning the US and several of its EU28 allies, faced off but did not face down Russia's Vladimir Putin for the shaky prize of an economically ruined Ukraine needing massive bailouts. The elephant in the closet, China's banking, finance, economic and real estate crisis continued to threaten global economic stability. Japan's economic decline intensified and accelerated, like Europe's decline.

Decline Psychosis
Relatively soon, different strands of the decline paradigm will be dusted off and reassembled. Normally concerning the USA or the West, the BRICS now also fit the “unexpected and surprising” economic decline paradigm, with its linked political stress and social instability.

The theory has existed for a long time and one way or another always sets the agonizing question – Are we on the wrong side of history?  Is decline fatal?

We can identify an almost-cyclic recrudescence of declinism, but what was arguably a Western-only psychosis has certainly globalized. The economy and its decline are the usual start point for the syndrome or paradigm of decline. One reason is because the economy seems more quantifiable and measurable than other forms and types of this widespread syndrome but because the economy is “a numbers game” however, it is also easier to trick out with fake statistics.

Decline psychosis underlaid the 10-year-long set of debates, discussions and diatribes sparked by the 1992 book of Francis Fukuyama “The Death of History”. Fukuyama had claimed that the neoliberal economic reforms of the 1980s had “fundamentally changed the economy and society”, banishing any possibility of decline. He was wrong and said so himself.

The enduring but mutating strands of “The War on Terror” which started in 2001 is another example where the anguish of decline was transformed and mutated to national security or its avatar of well-being and safety. Somewhat like esperanto is the avatar of sanskrit or cod's roe is caviar avatar.

In Europe, the tortured and mutating strands of “the European federal project” is another example where an ill-defined but diffuse fear – in Europe of another war spanning the entire continent – is used to create an illusion of peace, brotherhood and tranquility in an always-growing economy. The European elections of end-May 2014 dealt a serious blow to this shaky paradigm, as the European countries accelerated into decline.

Declinism will migrate from the economy to the cultural and psychological domains and declinists will soon ask the stock question. If Western liberal democracy and its market economy are not on the right side of history  - are they at the wrong end of their own history? 

Heroic Remedies

Declinism during the long depression of the 1930s was heavily influenced by Nihilism and “the heroic philosophies” - which ran from Christian redemption to Soviet techno-philosophy The extreme mix and mingle invited declinist-genre material to be openly anti-democratic and pessimist, while proposing Salvation Remedies also called Shock Therapy.

In the 1930s, western intellectuals rushed to find greatness in Stalin, Hitler or Mussolini and their shock regimes.

Today, we should not be surprised to hear the vastly un-serious claim by some economists that the West “needs Chinese-type market communism”, or various types of despotic centralism and authoritarian modernity, if only to get the economy back to life. Sacrificing “democratic freedom” which arguably does not exist, for the illusion of economic recovery is the supposed big deal.

Interest rates on savings would be sharply negative to force people to spend. Interest rates for businesses and investors would be rigorously set at zero. Cash would be eliminated from the economy and banned “to prevent crime, fraud and tax evasion”, the economy would be controlled, and so on.

The sure to intensify decline of the Chinese economy will remove any figleaf trappings of rationality for advocating “Chinese state capitalism” as the salvation model, but continuing economic decline will certainly stoke the Culture War of declinism versus liberal democracy.

This liberal model, as we know, is theoretically defined as having free markets, bottom up political power, the rule of law, checks and balances on corporate power, freedom of information and speech, concern for the environment, gender and age equality, anti-racist multiculturalism – and so on.

When all of them become tainted with doubt, the logical alternatives include despotism among other things. Using the example of declinism in the 1930s, the other things can include straight Nihilism and the ideological retreat to claiming that “nothing exists”.

Ultimate Oxymorons

Declinism of the 1930s was surely and certainly linked with internationalism - or what we call globalization today. In the 1930s, this internationalism especially included belief that the nation state was doomed to extinction, at the time by Nazism, Fascism and Stalinism. Nation states would be swept away by either capitalist despotism or communist despotism. We can call this globalist nihilism.

Agenda 21 and the Bilderberg Conspiracy could be called today's extremely-diluted, muppet versions of the same globalist nihilism, but this in fact is the ultimate oxymoron. Tyranny and despotism need all and every trapping of the national police state - but globalist nihilism declares that no nation states exist! The ultimate police state with no state is an oxymoron as absurd as “State capitalism” which has  never existed because it can't exist.

One very simple proof that China is not state capitalist but is something else – is its decline!

The liberal whine about “Chinese state capitalism”, which was going to save us all by playing Asian Locomotive, only tells us that the spectacular rise and emerging fall of China, and the crisis of liberal democracies are interwoven. Never openly admitted by any western politician or approved economist or intellectual, China's growth may have been one root cause of the west's economic decline, outproducing the west's industries and driving up energy and commodity prices by its intensive growth - but now both China and the West are in decline. What was previously a zero sum game for the west-only, is now a global zero sum game. Lose-lose went global.

Western “nombrilism” or an obsession with studying its own belly button or warts ignores the Eastern paradigm of First In-First Out. Japan's economic, social, political and cultural plight is hard to ignore and the newer, more recent Asian Tigers like Korea, Taiwan, Thailand, Malaysia and Singapore are also spinning slower and slower. They can quite easily be called “not-liberal democracies”  – at least not Western type Lib Dems. Their economic miracle stories can be called top-down capitalist, paternalist, or even Corporate Capitalist. But not State Capitalist - and the important thing is they are all declining.

 Japan was first in and is first out.

Japan can be called the Role Model for the West's economic decline. That is general economic decline that endures so long it finally penetrates and breaks up society and politics. In Japan as well as the west, the storyline of “Everybody says it can't go on like this” had its perfect counterpart of nobody doing anything about it – for decades.  Declinism thrives on apathy.

Level Down and Out

Since the early 1980s the West has had a 30-year-long process of decline. Entire nations declined, for example the yearly shrinkage of the national populations of Germany and Japan. In the former communist countries, their political entirely systems collapsed. The USSR disappeared.

Inverting the paradigm of Historic growth is totally logical, well known and well described. Countries progress from agriculture and handcrafts to urban industrial manufacturing and then to a service sector and knowledge-based economy. The historical process draws on previous seemingly-limitless reservoirs of cheap labor in country districts, but as fixed investment rises, its marginal return declines. Each new unit of capital generates less output growth than the preceding one – as Marx gleefully pointed out, and Ricardo before him balefully pointed out.

Diminishing returns have their counterpart for the Declinists in the law of declining nations and states.

Declinists use economic cycle theory for their big picture. Since at latest 2008, they claim, the world entered a long cycle of decline which started with a leveling-down across the older industrialized economies, that in the Trente Glorieuse were leveling-up. The poster children for this were Japan and West Germany. After World War II their economies climbed skyward, overshot, and then went into decline over a 30 or 40-year timeframe. For Japan this is proven, but Germany's coming economic decline to zero growth in 2014 will (of course) be treated as a shock and surprise.

The Declinists go on to ask another question: Are wars and revolutions also cyclic?

China's Great Leap Forward under Mao was a giant leap backwards for the economy. Just before his strange political-economic modernization plan that left at least 25 million dead, China was growing at over 10% a year. Afterwards it was in decline at about 1% - 5% every year. Wars and revolutions add their own ravages to the economic and business cycle but more interesting, the fear of war or revolution may be so hard-wired into politicians' minds that they sabotage the economy, due to this fear.

Their fear of domestic turmoil is so intense, they bring about their worst forebodings. China is an example. After the Tiananmen Square massacre of 1989, double-digit growth collapsed and for nearly 10 years Chinese authorities obsessively looked at every civic disturbance through the Tiananmen slit window and tank turret, haunted by the fear that their days in power were numbered. After that, they launched the capitalist modernization program of China generating massive growth of the economy “to head off another Tiananmen”.

Guided Modernity

China is in no conceivable way a role model for the declining west but the Cult of the Tyrant, strong man, providential leader, technocrat or whatever – why not a star footballer who “goes political” - is very strong in very weak societies. Since the start of the 20th century, all Tyrants have promised economic rebirth and modernity. They preen themselves as hands-on engineers, specialists, technocrats, agronomists and scientists - not intellectuals, dreamers and thinkers. They are “pro-active”!

When the Strongman (or Strong woman like Hillary Clinton, (we can joke)) appears on the scene, the time to dump liberal democracy has arrived. Declinism says the liberal democratic system must toughen up its act – or go down the tube. Anyway, this is already happening. For conspiracy theorists the all-seeing, all-hacking NSA or GCHQ “new civil liberties” neo-democracy model is at most a whisper away from the East German Stasi police state – but they should add that exactly like East Germany, this model is born from economic failure. The police state has the totally unsurprising and exact same ally of low-or-no economic growth, malinvestment, corruption, incompetence.

 Fin de siecle, even if it is only the start of the 21st century.

Elite speak says that guiding the people, as well as the economy will now be the only way forward. The economy has underperformed. Society must not be allowed to also underperform.

The logical, historical and theoretical bases are dictatorial. The coming and new storyline will be that power can breed and restore economic growth. If it falters, this will be due to cyclic reasons, bad weather, bad luck, the Fates – or Vladimir Putin. While Russia arguably has its Providential Strongman, the “mature democracies” do not yet have their strongmen or strongwomen.

We only have laughable muppets who, basically, are jealous of Putin..

of declining expectations!

Guided modernity will be, and can only be a sure and certain failure. It sows the seeds of its own demise. At least in the “western democracies” it can only be crony capitalist and crony corporatist from Day 1, from the start. It empowers the same vested interests that took decades to emerge and seal themselves into power, and do harm. Guided modernity is by definition on the wrong side of History.

What Happens to the Sorceror's Apprentice

Francis Fukuyama himself used the example of the French revolution and what came before it as an explanation of what happens when democracies degenerate. In the French ancien régime: "The elites spent all of their time trying to capture public office in order to secure a rent for themselves". They dispensed with having even a mock-democracy – and they deeply regretted the results!

In other words, the previous game was converting public power into elite personal profit. China is not far away from that model, and other east Asian political economies can be compared and found similar. Always flying the flag of national advantage, the state favors selected industries and organized interests. These seek more power, as any Oligarch does. They build monopolies, draw subsidies, evade taxes, and increase their "rents". They suck the lifeblood out of the economy. Only for as long as there is economic growth can the party can stumble on. Not after.

The larger the state, the bigger the rents. The more centralized the state, the more it can ignore the economic performance of any activity, any enterprise. The Oligarchic state seals its own demise by and through dependence on the rent-takers and -seekers who are inevitably corrupt. Finally the economic growth process implodes, and from stagnation we morph into revolt. Modernity of the guided type cycles back into History.

The merest hint of another Tiananmen Square uprising would plunge China straight back into a Maoist police state – its already declining economic growth would instantly collapse. The fear of the Flash Mob is only very recent for the western Oligarchs and their glove puppet politicians, but China's official crystal ball has the 1989 Flash Mob uprising as an outlyer – and threat to China's elites. 

History is negative for “guided” modernity or authoritarian modernization in the exact same way that democracy, just like despotism, is in no way a guarantor and open sesame for economic growth. The time-processes of economy and society can also be very different and unsynchronized.

In the West today, the glove puppet “consumer democracy” act has long ceased amusing and fooling anybody with two working neurones to rub together. It is clearly in decline – to use a key term. The threat that Western-type democracy will now be "controlled and guided" is legitimately terrifying – but is above all laughable. How do you modernize a worn out sock or last year's Christmas wrappings?

What we do know is that State capitalism already exists in the West – we call it crony capitalism – and it does not work. Imagining that the Right Stuff will pop out the woodwork with the right combination of Keynesian mumbo jumbo and QE, and deliver a Happy Ending can only support the Declinist argument. As the Declinists say, when the elite become delirious and psychologically impaired, change is sure to come!

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2014 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisor.

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