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Marxism still the most compelling

Decline of US dominance, the rise of China and a lot of hype. Michael Roberts reports on a recent conference of left economists

The annual conference of the International Initiative for the Promotion of Political Economy took place last week in Madrid. The IIPPE brings together leftist economists - mainly post-Keynesians and Marxists - from around the world to present papers and panels on a range of subjects. Most of this year’s near 400 attendees are academics, students, researchers or lecturers. Given that the conference was in Madrid, there was a large turnout of Spanish and Portuguese speakers, as well as papers on issues in Latin America.

I was unable to attend at the last minute. Nevertheless, I did participate by Zoom in a session and have compiled a number of papers that looked interesting and important to me. So I think there is much that I can convey from the debates on many subjects of interest to readers.

Let me start first with the subject and debate in the session that I participated in. The session was called ‘Imperialism, hegemony and the next war’ - a grand and ambitious title. I was first in with a short slide presentation, entitled ‘Profitability and waves of globalisation’.1

I argued that globalisation - defined as the expansion of trade and capital flows globally - took place in waves: ie, periods of fast-expanding trade and capital globally and then periods where trade and capital flows fall off and countries revert to trade and capital barriers. I reckoned that we could distinguish three waves of globalisation, from about 1850-80; then around 1944-70; and the largest from the mid-1980s to end of the 20th century.

What drives these waves? I argued that they could be tied to a change in the profitability of capital. In each of the periods before these waves, the profitability of capital in the major economies fell significantly. In order to counteract this fall in national profit rates, the leading capitalist economies looked to expand foreign trade and capital exports in order to gain extra profit from the less technologically developed and cheaper labour economies of what we now call, in shorthand, the ‘global south’.

Marx had included foreign trade as one of the counteracting factors to his law of the tendency of the rate of profit to fall in capitalist production. And, as Henryk Grossman accurately showed,2 the fall in profitability during the late 19th century depression was one reason why the major capitalist economies began a significant expansion of capital exports. This boosted the rate of profit, but only for a while, because Marx’s law would eventually override the counteracting factors (as Al Campbell at the session prompted me to explain). So, in the decades leading up to World War I, inter-imperialist rivalry hotted up.

This is also the situation in the late 20th century. The wave of globalisation from the mid-1980s was in response to the big fall in the profitability of capital in the major economies from the late 1960s to the early 1980s. Globalisation (among other factors) boosted profitability through the decades of the 1980s and 1990s. But (especially after the great recession of 2008-09), the globalisation wave eventually petered out, as profitability fell back. Now we have entered a period of trade barriers, protectionism and dangerous rivalry between the major economic powers, especially the US and China.

And the decline of the hegemonic US economy relative to the rising economies of China, India and east Asia has increased.3 This relative decline was taken up in the next paper by Maria Ivanova (Goldsmiths University). She pointed out that the US runs a significant and long-lasting trade deficit with the rest of the world. It is only able to pay for this because of its monopoly issuance of the US dollar, which is the major transaction and reserve currency in the world. However, the dollar’s hegemony is gradually weakening and now there are attempts by other economic powers, like the Brics group (increasing in size), to reduce their reliance on the dollar and replace it with alternatives.4

Sergio Camera from the Metropolitan Autonomous University in Mexico presented us with a battery of data and analysis to show that the US economy is in a structural crisis - still gradual maybe, but nevertheless showing clear signs that US capital’s ability to expand the productive resources and to sustain profitability is declining. This explains its intensified effort to strangle and contain China’s rising economic strength and so maintain its hegemony in the world economic order.

Golden age

Sergio’s data showed “a prolonged stagnation” of the US rate of profit in the 21st century. The general rate was 19.3% in the ‘golden age’ of US supremacy in the 1950s and 1960s, but then fell to an average 15.4% in the 1970s; the neoliberal recovery (coinciding with a new globalisation wave), pushed that rate back up to 16.2% in the 1990s. But in the two decades of this century the average rate dropped to just 14.3% - an historic low. That has led to lower investment and productivity growth (especially in the decade of what I have called the long depression of the 2010s5) so that, to use Sergio’s words, the US “economic base has been seriously debilitated”. This is weakening the hegemonic position of US capitalism in the world.

Sean Starrs from Kings College, London then provided a refreshing counter-balance to the hype that both US imperialism and the dollar are about to lose their dominance in the world economy. In his presentation, he pointed out that most of China’s key exports were made by foreign companies (70%), not Chinese companies; and that most of the profits from China’s exports were realised in the imperialist bloc, not in China (this is something that Guglielmo Carchedi and I also found in our work on the economics of modern imperialism6).

Moreover, China is not yet a serious contender to the US in the technology industries globally, despite the hype. The US remains the dominant techno power and also holds most of the personal wealth in the world (45% - unchanged in the last two decades).

The discussion in the session revolved round how to balance these trends. Is the US losing its hegemonic power or not? Are the Brics+ in a position to replace US hegemony in the next decade or so? Will these rivalries lead to major military conflicts?

In my view, while there has been a relative decline in US economic and political hegemony since the golden days of the 1950s and 60s, from the 1970s onwards that decline has been gradual and possible challenges to US hegemony - eg, Japan in the 1970s, Europe in the 1990s and now China (plus Brics) - have not and will not succeed in replacing it.

I used the analogy of the decline and collapse of the ancient Roman empire in the third century CE. Some scholars argue that it collapsed because of outside forces - ie, invasions and rising contender states (like Brics today?) - but others contend, rightly in my view, that the real cause was the economic disintegration of the dominant slave economy within Rome. Roman conquests had ended in the late second century and there were not enough slaves to sustain the economy, so that productivity dropped off and eventually weakened financial support for the military. Rising and extreme inequality in Rome was a symptom of this decline and eventual collapse.

In the 21st century, globalisation has fallen away and regionalisation is emerging. Inequality of wealth and income in the US and the G7 is extreme. But, above all, the profitability of capital in the imperialist bloc is near all-time lows. The collapse of the Roman empire also ended the dominance of the slave-owning mode of production, to be eventually replaced by a feudal system. The increased internal disintegration of the US economy could not only end its global hegemony, but also usher in a new mode of production.


Let us now turn to other sessions I found interesting, including papers where I was able to obtain the presentations from the authors.

Firstly, there was China. Before the conference proper, the China Working Group within IIPPE organised a special series of sessions on China. Professor Dic Lo of SOAS University in London reflected on how China coped with the Covid pandemic and what lessons could be drawn from that.7

Elias Jabbour - once an advisor to the former president of Brazil, Dilma Rousseff, who is now head of the New Development Bank in Beijing - discussed the possibilities of greater trade and investment integration between Brazil and China. Then Salam Alshareef from the University of Grenoble discussed whether China’s Belt and Road initiative to fund and build projects in countries across the globe has been successful: whether it increased alternatives to traditional western funding sources like the World Bank; and whether it represented a shift in the global balance of power from the US to ‘contender states’.

In the main IIPPE conference there were other presentations on China - I will single out just two. The first was again by professor Dic Lo, called ‘The political economy of China’s “new normal”’. This dealt with a key question being posed in the western media - namely is China’s recent economic slowdown permanent or - even worse - is it a signal of China’s imminent demise? Prof Lo considers whether the slowdown is due to a lack of domestic demand, as many Keynesian experts on China like Michael Pettis claim,8 or is it due to falling profitability of capital in China, as Marxists might suggest? Lo tends to argue for the latter as the main cause. Indeed I find the same in my own study of this.9

But Lo points out that industrial-sector profitability remains high; it is the profitability of unproductive sectors like real estate and the stock market that has fallen back - and we know that China is facing a real-estate crisis. Also profitability has fallen because of a rising share of wages in value added (unlike in the west) and a rise in the organic composition of capital, following Marxist theory.

For me, Lo’s paper poses the major contradiction in China’s weird, hybrid economy. If the profitability of capital falls, that reduces investment and productivity growth in the capitalist sector. For me, that increases the need for China to expand its state sector to make the economy not so dependent on profitability, particularly in technology, education and housing.

In another session, Grzegorz Kwiatkowski and David Luebeck of the Berlin School of Economics looked at the degree of state control over companies in China. Of the 100 largest Chinese enterprises, there are 78 state-owned companies. The dominance of these is much greater than in most other countries, reflecting the unique role they play in China’s economic system.

Again, this is something that I have outlined in my own work.10 Using the International Monetary Fund data on the size of the public sector for all countries, I found that, in 2017, China had a ‘public investment to GDP’ ratio more than three times that of any other comparable economy, with the others averaging around 3% of GDP. China had a ‘public capital stock to GDP’ ratio that was 30% higher than Japan and close to three times more than the others. And it had a public/private stock ratio nearly double that of India and Japan and three times that of the UK and US. But the private sector had been getting larger in China up to 2017 - which, in my view, if continued, was a risk to China’s state-run economy (indeed as the recent real-estate crisis shows).


You can see that I often revert to considering movements in the profitability of capital as a key indicator of trends in an economy - even in one like China, where state investment dominates. There were two papers at the IIPPE that provide support for the validity of Marx’s law of profitability and its relevance to crises in capitalist economies. The first is a ground-breaking analysis by Tomas Rotta of Goldsmiths, London and Rishi Kumar from University of Massachusetts, called ‘Was Marx right?’

Rotta and Kumar analyse the profitability of capital in 43 countries from 2000-14 using the World Input-Output Database for defined productive and unproductive sectors. They show the high ratio of productive capital stock in China compared to other countries and conversely the high ratio of unproductive capital in the US. And they compile a world profit rate, which declined over the period, mainly because the organic composition of capital rose faster than the rise in the rate of surplus value - as forecast by Marx’s law. Profit rates declined at the aggregate global level, between countries and within countries. They found that rich countries have lower profit rates because of the rise in the capital stock tied up in unproductive activity.

The problem with this data is that it only covers a short period in the 21st century and also is based on input-output tables which are not dynamic, but ‘snapshots’ of economic categories. Even so, their analysis gives further support to Marx’s law (and there is more to come on this from the authors).

The question of what constitutes productive and unproductive labour and sectors in capitalist economies is continually debated among Marxists. Costas Passas, senior fellow at the Centre of Planning and Economic Research (KEPE) in Greece, provided a clear explanation in his presentation.

According to Adam Smith, productive labour produces a profit and produces just tangible commodities. For Marx, the first part of this definition, the production of a profit, is correct, whereas the second is wrong. Marx “explicitly criticises Smith for mixing up a definition of productive labour based on [surplus] value with a definition based on the physical attributes of the commodity,” contended Passas. Servants are unproductive because they are not employed by capital, not because they do not produce external objects. And labour that supervises workers is unproductive. Unproductive sectors are those that do not produce new value, but instead get value and surplus value from new value-creating sectors. The former includes finance, real estate and government. As you might expect, in mature, advanced capitalist economies, the share of value going to unproductive sectors rises. Passas found this was the case in Greece.

The other paper on profitability was by Carlos Alberto and Duque Garcia (also from the AUM in Mexico) on the Distribution of profit rates in Colombia. The authors had already done great work on that, but their new paper estimated the distribution of profit rates among and within industries in Colombia by employing firm-level data. This is very technical, but they found that there was a significant dispersion in the firm-level profit rates, as well as in the average profit rates across industries. And around 15% of companies did not achieve a profit rate above the average cost of debt - in effect they were zombie firms.

Alberto and Garcia point out that the dispersion of profit rates is in line with Marx’s law of the tendency of profit rates to equalise due to competition. If you take a snapshot of profit rates in sectors and firms and find a wide range, it should not be concluded that the tendency of profit rates to equalise is not taking place, as some Marxists have argued.11 As Marx put it, the equalisation tendency of average profit rates across industries is, in itself, a dynamic, turbulent and stochastic process. As Marx put it, “with the whole of capitalist production, it is always only in a very intricate and approximate way, as an average of perpetual fluctuations which can never be firmly fixed, that the general law prevails as the dominant tendency”.12

Despite increasing evidence that Marx’s law of profitability is valid both theoretically and empirically13 and very relevant to explaining regular and recurring crises under capitalism, this is still denied by many. Indeed, the post-Keynesians thesis of financial crises continues to hold sway among many. The ‘financialisation hypothesis’ is that the cause of modern capitalist crises is to be found in the ‘financialisation’ of what used to be industrial capitalism; and this has caused rising inequality and capitalist crises, not falling profitability or increased exploitation in investment and production.

At the IIPPE we had one paper that lent further doubt to this view. Niall Reddy of the University of Witwatersrand in South Africa argued that the evidence did not show that that non-financial firms were engaged increasingly in financial investment over productive investment. Increases in cash holdings by such firms were more driven by tax advantages and the need to build funds for research. “Neither of these implies a substitution of financial for real investment, which calls into question an important mechanism thought to connect financialisation to secular stagnation and rising inequality,” he said.

I have written extensively on the financialisation thesis.14 But the most devastating refutation of the financialisation hypothesis (FH), both theoretically and empirically comes from a new paper not presented at the IIPPE, by Stavros Mavroudeas and Turan Subasat.15

On the theory, the authors say:

The Marxisant versions of the FH ultimately concur with the mainstreamers and the post-Keynesians that the unproductive capital dominates productive capital, and that the former acquires autonomous (from surplus value) sources of profit. Consequently, they converge to a great extent with the Keynesian theory of classes and consider industrialists and financiers as separate classes. For Keynesian analysis, this is not a problem, as it posits that different factors affect savings and investment. However, Marxism conceives interest is part of surplus value and financial profits depend upon the general rate of profit, Marxism does not elevate the distinctiveness of money-capital and productive capital to the point of being separate classes.

Finally, the Marxisant FH currents have a problematic crisis theory. Instead of a general theory of capitalist crisis, they opt for a conjunctural one … the FH eventually ascribes to a Keynesian possibility theory of the crisis which has well-known shortcomings. In conclusion, the FH variants fail to offer a realistic account of the rise of fictitious-capital activities during the recent period of weak profitability and increased overaccumulation of capital. Marxist theory “does so by realistically keeping the primacy of the production sphere over circulation and also the notion that interest is part of surplus-value extraction.”

And empirically: first, the claim that most of the largest multinational companies are financial is not true. Over the last 30 years the financial sector share in GDP has declined by 51.2% and the financial sector share in services declined by 65.9% of the countries in our study. “Although the rapid expansion in the financial sector observed in some countries before the 2008 crisis suggests that the financial sector may have played an important role in deindustrialisation, this situation seems to be cyclical when it comes to a wider time frame.”

Rather than look for crises based on too much debt, financial recklessness or Minsky-type financial instability,16 Marx’s law of profitability is still the most compelling explanation of crises.

Michael Roberts blogs at thenextrecession.wordpress.com.

  1. See thenextrecession.files.wordpress.com/2023/09/globalisation-waves-and-profitability-iippe-2023.pdf.↩︎

  2. www.marxists.org/archive/grossman/1929/breakdown/ch03.htm.↩︎

  3. See thenextrecession.wordpress.com/2021/08/17/the-relative-decline-of-us-imperialism.↩︎

  4. thenextrecession.wordpress.com/2023/08/24/brics-getting-bigger-but-is-it-any-stronger.↩︎

  5. thenextrecession.wordpress.com/2016/08/02/the-long-depression-an-interview.↩︎

  6. thenextrecession.wordpress.com/2019/11/14/hm2-the-economics-of-modern-imperialism.↩︎

  7. See thenextrecession.wordpress.com/2019/11/14/hm2-the-economics-of-modern-imperialism.↩︎

  8. carnegieendowment.org/chinafinancialmarkets/89466.↩︎

  9. See M Roberts and G Carchedi Capitalism in the 21st century London 2022, pp213-14.↩︎

  10. Ibid p214.↩︎

  11. See E Farjoun and M Machover, ‘Profitability, economics and the labour theory of value’: newleftreview.org/issues/i152/articles/emmanuel-farjoun-moshe-machover-probability-economics-and-the-labour-theory-of-value.↩︎

  12. K Marx Capital Vol 3.↩︎

  13. See M Roberts and G Carchedi (eds) World in crisis: a global analysis of Marx’s law of profitability Chicago 2018.↩︎

  14. See, for example, thenextrecession.wordpress.com/2018/11/27/financialisation-or-profitability.↩︎

  15. www.scienceopen.com/hosted-document?doi=10.13169/worlrevipoliecon.14.2.0204.↩︎

  16. www.academia.edu/40529541/The_Great_Recession_a_Marx_not_a_Minsky_moment.↩︎