One of the over-arching problems that we see afflicting this “non-recovery” is that in spite of the fact that the financial industry (capital) was responsible for the near-destruction of American capitalism, it is now once again in complete control of the economy. The financial industry is NOT about creating value; it is all about extracting value.
The economy’s addiction to growth has been forced upon business by the financial industry. This has lead to short-term thinking by CEOs who amputate profitable subsidiaries in order to demonstrate growth (in capital), or spend money on share buy-backs that temporarily inflate share prices, or most damaging of all, lock-up hoards of cash instead of investing. None of these machinations create value or long-term prosperity; in fact, they extract the former, and stifle the latter.
Douglas Rushkoff in his latest book Throwing Rocks at the Google Bus, demonstrates the artificial need for businesses to grow when he writes about the effect on the fundamental nature of Twitter following its IPO (i.e. transfer of the company into the hands of the financial industry). He writes:
Having taken in this much new capital, however, Twitter now needs to produce. It must GROW. As of this writing, the $43 million Twitter PROFITED last quarter is considered an abject FAILURE by Wall Street. In 2015 Twitter investors complained that the company was too far from reaching its”100 x” GROWTH POTENTIAL and forced out the CEO…..Its not that Twitter is not successful; its’s just not successful enough to justify all the money investors have pumped into it……To do that, Twitter must grow into a corporation bigger than the economy of many entire nations. Isn’t that a bit much to ask of an app that sends out messages of 140 characters or less?
At some point, any market that a business is dependent on will get saturated, and further expenditures made in an attempt to continue to grow will result in diminishing returns for that business. The financial industry, however, does not take “no-growth” for an answer, even if a business is profitable. The overall economy, when measured most broadly by the GDP, is considered a failure if it doesn’t show accelerating growth rates.
Malthus, in the nineteenth century, showed that growth has limits, and these limits depend on a complex array of required resources. Technology can certainly extend these limits and increase the carrying capacity of systems, but no technology can accomplish this in perpetuity.
This is especially true when corporations find efficiencies by reducing the involvement of Human resources (jobs). This results in the extraction and transfer of value from the real economy itself and into that of the technology owners (shareholders). This deprives the foundational levels of the economic pyramid (labor) of the required purchasing power to keep the economy healthy (see chart below).
When the need for labor is diminished, the value of the labor that is left tends to diminish as well, creating the inability of labor to purchase the end products of the industrial production. What follows is that production capacity cannot be utilized and capital lies idle and un-invested; U.S Corporations are sitting on $1.9 trillion in liquid assets. Why?