In her introduction for Japan's Secular Stagnation and Beyond, Radhika Desai concludes, “Each of the writers suggests that a resolution would require a significant paradigm change. All of these imply some sort of socialism.”
Considering this topic’s importance, we organized international symposiums on secular stagnation as a new great depression. Because of the time differences, the symposiums were divided into two parts, with speakers in Japan and North America on March 26, 2023, and speakers in Europe and Asia on May 27, 2023. This special issue is based on the Symposium on Secular Stagnation as a New Great Depression, Part One.
This introduction includes (1) the Musashi International Symposium on Secular Stagnation as a New Great Depression, (2) an introduction to the JPE special issue on secular stagnation as a new great depression, and (3) an obituary of Professor Makoto Itoh, one of the editors of Japan’s Secular Stagnation and Beyond and organizers of the symposium.
(1) The Musashi International Symposium on Secular Stagnation as a New Great Depression
The symposiums revisited the phenomenon of Japanese capitalism in light of the fate of the North Atlantic and developing economies and placed it in a longer historical political and geopolitical economy of capitalism from a variety of political and disciplinary perspectives, including Marxian, Keynesian, regulation, and world system theories.
The presentations dealt with three topics at the heart of secular stagnation.
Japanese capitalism was once an admired model of miraculous growth, with a relatively egalitarian distribution of income, fell into secular stagnation in the early 1990s. The phenomenon has since fascinated observers; provoked debates; provided policy advocates elsewhere with much grist for their policy mills, yielding a range of policy proposals, some of them mutually contradictory; and, most importantly, burdened an entire population, particularly its young.
Japan’s secular stagnation has raised new questions about policy difficulties on a range of fronts—dramatically lowered growth rate, deteriorating labor conditions, rising class and gender inequality, a profound and many-faceted crisis of social reproduction, and a deepening fiscal crisis of the state—all of which have critical international ramifications.
2. Interest in and the importance of Japan’s secular stagnation grew rapidly after 2008, as many have sought to understand the economic malaise of the Northern economies by analogy and comparison with all or parts of the Japanese condition, particularly its monetary policy.
3. Are the term secular stagnation and Japan’s experience relevant to understanding the deteriorating condition of capitalism in its homelands today? Are we facing a severe crisis like the Great Depression in the 1930s?
Secular stagnation as a new great depression: Part One. Japan and beyond
There were five speakers and three discussants in the symposium, Part One.
Speakers included:
Robert Gordon (Northwestern University), “Sources of secular stagnation in the United States.”
Minqi Li (the University of Utah), “Secular stagnation and fiscal crisis in the United States and China.”
Hiroshi Nishi (Hannan University), “Is Japan still suffering from Baumol’s disease?”
Thomas Palley (Former Senior Economic Adviser to the AFL-CIO), “Keynes’s denial of conflict: Why the General Theory is a misleading guide to capitalism and stagnation.”
David Kotz (University of Massachusetts Amherst), “A social structure of accumulation theory of secular stagnation.”
Discussants were James Kenneth Galbraith (University of Texas), Myles Carroll (Ochanomizu University), and Alan Freeman (University of Manitoba).
Nobuharu Yokokawa (Musashi University) and Radhika Desai (University of Manitoba) moderated the symposium, Part One.
Secular stagnation as a new great depression: Part Two. Europe and Asia
There are six speakers in the symposium, Part Two.
Prabhat Patnaik (Jawaharlal Nehru University), “Neo-liberal capitalism at a dead-end.”
Costas Lapavitsas and Matteo Giordano (SOAS, University of London), “Hegemony in Europe: Allowing the EMU to tick over.”
Michael Landesmann (wiiw and Johannes Kepler University Linz), “Europe haltingly adjusting to a new geopolitical and geo-economic environment.”
Tomoo Marukawa (University of Tokyo), “China’s premature demographic transition.”
Sébastien Lechevalier (EHESS), “Beyond Society 5.0 and new capitalism: how and why a care-led innovation model in Japan can help overcoming secular stagnation”
Hugh Whittaker (Oxford University), “Three spirits of Japanese capitalism.”
Discussants included Jomo Kwame Sundaram (KRI) and Hajime Sato (Nanzan University).
Nobuharu Yokokawa and Jayati Ghosh (University of Massachusetts) moderated the symposium.
(2) Introduction to the special issue on secular stagnation as a new great depression
This special issue includes four articles from the symposium, Part One.
Thomas Palley, “Keynes’ denial of conflict: Why the General Theory is a misleading guide to capitalism and stagnation.”
Palley argues that Keynes’s (1936) General Theory was a huge step forward relative to classical economics. Still, it was also a step backward in its denial of the conflictual nature of capitalism.
Keynes identified the core mechanism of modern capitalism: Effective demand determines the level of economic activity. He also discredited the classical loanable funds theory of interest, provided a new liquidity preference theory of interest rates, and explained why the interest rate mechanism was unlikely to ensure full employment.
On the other hand, Keynes had a flawed view of capitalism. He denied the conflictual nature of capitalism and remained attached to the classical “mutually beneficial production and exchange” characterization of capitalism.
Palley argues that the conflictual nature of capitalist economies has driven changes in income distribution, economic organization, and economic policy, which are the root causes of the problematic stagnation. Therefore Keynes’s economics is unable to explain the current proclivity to stagnation. Palley further argues that Keynes’s mutually beneficial exchange view of capitalism also underlies neoliberalism, and Keynes would have been comfortable with “third way” politics, which means he can reasonably be viewed as a compassionate neoliberal.
Minqi Li, “Secular stagnation and fiscal crisis in the United States and China.”
Li investigates possible developments of fiscal crises in the United States and China, the two largest economies in the world. Since the global economic crisis of 2008–2009, all advanced capitalist economies and China have experienced sharp declines in economic growth. Whereas fiscal revenue stagnates as the growth rate declines, fiscal expenditures continue to rise in response to social obligations as well as requirements of macroeconomic stabilization. The combination of slow growth and structural fiscal deficits implies unsustainable trends for government debt. Using projections of future economic growth and plausible assumptions about primary government deficits and real interest rates, he projects that, under the “reference case” scenario, the United States and China government debt-to-GDP ratios rise to unsustainable levels. He argues that, in the past, major empires have collapsed under the burden of fiscal crisis. The state’s failures to finance its fiscal obligations triggered some of the greatest revolutions in modern times. He concludes that inability to resolve the fiscal crisis in the leading capitalist countries could be one of the symptoms indicating that the existing social system is approaching its historical limit.
Hiroshi Nishi, “Revisiting Baumol’s growth disease in Japan.”
Nishi revisits the sources of aggregate labor productivity dynamics in Japan (1995–2018) and investigates the extent to which Japanese economic performance has been affected by Baumol’s growth disease (BGD).
He uses three methods and obtains the following results:
“The Center for the Study of Living Standards decomposition” to detect the primary sources of aggregate labor productivity growth rate every five years shows that BGD silently undermined the Japanese economy of 1995–2018, albeit as a secondary effect.
Fixed share growth analysis to identify the effects of structural change on the sectoral and aggregate labor productivity growth rate shows that a considerable decline in industry’s productivity growth is found in Japan
Transitional probability matrix characterizing the nature of BGD shows that BGD has a durable and infectious character.
He concludes that the primary cause of long-run stagnation in Japan is that labor productivity growth was more sluggish in many industries than before (1970–1995). In this vein, Japan suffers from Baumol’s growth disease, which is durable rather than curable because it is persistent once a sector undergoes BGD. It is also infectious because, even when one sector experiences a non-BGD state, it is more likely to fall into a BGD state in the next period.
Alan Freeman, “The sixty-year downward trend of economic growth in the industrialized countries of the world.”
Freeman documents a long-term declining trend of growth rates in the Global North since the 1960s. The trend is confirmed by many measures of GDP and growth, and a range of methods for aggregating data from different countries. It applies to all countries of the North, especially since the great slump of 1974.
Contemporary accounts, especially from the IMF, miss this trend by failing to take a historical view based on all postwar data. Freeman also questions the long wave approach, which anticipates an upturn that has not occurred. After the start of the present alleged “Kondratieff downswing” in 1974, there is no sign of any upswing. So-called Kondratieff upswings should therefore be treated as the exogenous result of major geopolitical events outside the sphere of the autonomous activity of the market. Finally, the article warns against imposing artificial phases of growth derived from preconceived theoretical perspectives. The article examines average annual growth rate over the duration of the business cycle and shows that this confirms the long-term decline.
(3) Obituary
An obituary of Professor Makoto Itoh, written by Professor Bob Rowthorn
Professor Makoto Itoh died from a heart attack on February 7, 2023, at the age of 86. With his death, Japan has lost a leading Marxian economist. During his lifetime, he published 24 books, of which six are available in English, and five have been translated into Chinese. After his retirement from the University of Tokyo, he taught at Kokugakuin University in Tokyo
Itoh started his academic career with his doctoral research on the business cycle and crisis. He worked out the formation of Marx’s crisis theory mainly by comparing Grundrisse, Theories of Surplus Value, and Capital. He demonstrated that Marx’s over-accumulation theory of crisis appears for the first time in Capital. This theory asserts that a crisis occurs when capital accumulation outstrips the available supply of labor power. The credit system also plays an important role in the gestation and progression of crises. Itoh’s doctoral dissertation was published in 1973 as Credit and Crisis and was highly acclaimed in Japan.
A turning point in his career came when he had an opportunity to undertake research in 1974–75 in the United Kingdom and the United States. A renaissance in the study of Marxian economics had been under way in these countries and in Europe since the late 1960s; however, this renaissance was little known to Japanese economists. At the same time, the numerous Japanese contributions to Marxian economics were little-known to Western colleagues. Itoh made a great effort to remedy this situation and to build connections between Western and Japanese political economy. In his attempts to bridge the Western and Japanese traditions, he helped to expand the scope and depth of scholarly exchange among Marxian scholars.
Among his own scholarly achievements, his contributions in the following areas should be mentioned.
In his earlier works, Itoh contributed to the theory of value and the theory of credit and crisis (Value and Crisis, Monthly Review, and Pluto, 1980; and The Basic Theory of Capitalism, Macmillan, 1988). On value theory, following Kozo Uno, Itoh argued that prices of production are a specific form of value that is conceptually distinct from the labor–time embodied in commodities as the substance of value. His three-tables approach to the transformation problem starts from the first table on the substance of produced value. From this table, a second table containing prices of production is derived. Finally, in the third table it is shown how the substance of value is redistributed through the prices of production. Itoh then argued that Marx’s propositions of equality between total value and total prices, as well as between total surplus value and total profit, should be understood as concerning the relations between the first and the third tables, not between the first and the second. This is an important insight. He also presented new interpretations of negative value and negative surplus value, and of complex labor.
Writing on the theory of credit and crisis, Itoh clarified the relationship between Marxian political economy of money and finance and the theory of crisis, emphasizing the increasing role of speculative trading and the credit mechanism in bringing about the end of prosperity. Among his later writings on this topic is a well-informed and insightful article on the subprime crisis.
Writing on contemporary events in his book, The World Economic Crisis and Japanese Capitalism (Palgrave MacMillan, 2000), Itoh argued that an underlying cause of the end of high post-World War II economic growth, and of the 1973–1975 economic crisis that followed it, was the over-accumulation of capital in relation to an inelastic supply of both labor power and primary products. As this occurred during the breakdown of the Bretton Woods international monetary system, the main feature was an inflationary crisis as opposed to the classic cyclical crisis.
Looking to the future, Itoh suggested that the advances in information technology that accompanied the process of restructuring were inducing three reversals in the historical pattern of capitalist development that had prevailed during the 20th century: (1) Capital investment was becoming lighter and flexibly mobile, thus intensifying competition and globalization; (2) trade unions were being weakened as workers were more flexibly (and irregularly) employed; (3) the role of the state was being reduced, as the era of neoliberalism emerged.
Finally, Itoh applied his theory of value and crisis to the basic issues of socialism in Political Economy for Socialism (Macmillan, 1995). Adopting his theory of the transformation problem, he argued that if Lange’s trial-and-error method can be used to achieve equilibrium prices in a socialist economy, then the relationship between embodied labor–time and socialist prices can be fully specified. He also argued that his theory of money and finance could be applied to a socialist economy. Building a stages theory of socialist development, Itoh argued that a single model of socialism should not be defined as the uniquely correct scientific path to be followed; various possibilities for socialism might be chosen by people according to their social and historical conditions. He reiterated this view many years later in his Youtube contribution to the debate following the launch of “Through Pluripolarity to Socialism—A Manifesto” (2021), in which he argued that democracy and decentralization are fundamental to modern socialism. He took a rather skeptical view of the Chinese model.
Makoto Itoh was a fine scholar with a global reputation. He was also a person of great integrity and remained loyal to his democratic socialist beliefs throughout his adult life. He was widely admired, not just for the quality of his scholarship, but also for his nonsectarian and modest demeanor. He will be greatly missed.