I developed some of the themes of an earlier post here, “The Cultural Pseudomorph and Its Decay,” into a recent paper for Center for a Stateless Society: “The Decline and Fall of Sloanism.” This article is a condensed version of some of the same ideas, along with some other recent discussions on the P2P Research list.

An article by Richard Heinberg at The Oil Drum, “Temporary Recession or the End of Growth?“, suggests that the economic crisis is not simply a cyclical downturn, but a permanent structural change: We’ve reached a limit to growth. In so doing, he not only treats energy as “enabler of growth” but equates growth itself to the increased consumption of resources.

On the P2P Foundation email list, Michel Bauwens pointed out:

But it is only a particular kind of growth that has become impossible, the kind that neoliberalism and friedmanism promoted that refused to take into account any externalities. A steady state economy, that recognizes that any input has to recycled back into the system to the degree that it depletes physically limited resources, has tremendous “alternative growth” potential.

Compare this to Jeff Vail‘s excellent post on improved technics as the way to maintain or improve material standard of living in the face of reduced energy inputs.

The question of whether “growth” can continue is meaningless until the neoclassical conception of what “growth” itself means is pinned to the board for a thorough dissection.

Since conventional measures of economic output and GDP reflect primarily the economic value of inputs consumed, they are largely irrelevant. The GDP consists largely of the cost of Bastiat’s “broken windows” and of the cost of waste. The more superfluous steps are added to the Rube Goldberg mechanism of material production, and the more tribute we have to pay for proprietary design and content, the higher the GDP — even if we’re just working longer hours to pay for the same stuff.

By way of analogy, in the cost-plus culture that prevails under the standard GAAP accounting rules for inventory absorption in Sloanist mass-production industry (see The Rebirth of American Industry by William Waddell and Norman Bodek), all the inputs wastefully consumed are incorporated into the “value” of the goods that are “sold” to inventory. So all consumption of inputs is the creation of value, just like under a Soviet-era Five Year Plan.

A drastic reduction in inputs required per unit of output, and the disappearance of the price mechanism altogether for much of what we consume, would register in conventional econometric statistics as a catastrophic economic collapse. But it would be entirely compatible with a radical increase in actual material standard of living.

The growing irrelevance of conventional measures of economic output to our actual material conditions of living has been a recurring theme in recent years.

A good example is Michel Bauwens‘ work on the untenability of capturing value from the cognitive realm, and the failure of cognitive capitalism (the cognitive capitalist model is essentially what Tom Peters is celebrating, by the way, when he gushes — e.g. in The Tom Peters Seminar — that “intellect” and “ephemera” rather than parts and labor are some 90% of the price of his Minolta camera).

More recently, there has been speculation that the current “jobless recovery,” with its combination of stagnant total employment levels with rapidly rising levels of self-employment, represents a major shift toward value creation outside the cash nexus. (See my earlier discussion of the linked material in “Value Creation Outside the Cash Nexus.”)

Obviously, this reinforces the growing inability of the old corporate framework to capture value. As Rushkoff pointed out, when the prerequisites of production in the information realm become easily affordable to the individual, and even the tools of physical production are imploding in cost, venture capitalists find that nobody has any need for about ninety percent of the available investment funds they’re sitting on.

So corporate capitalism’s crisis of value realization reinforces the tendency toward overaccumulation and the shortage of profitable outlets for investment capital. The only way to circumvent these tendencies is through “intellectual property” and other forms of monopoly that artificially inflate the amount of capital that must be invested for a given unit of output, and protect high-cost and high-overhead producers from market competition. That is, it depends on protecting the large appliance manufacturers from small shops and open-source manufacturing networks mass-customizing modular accessories and generic replacement parts for their platforms, and from outsourced supplier networks deciding to produce the platforms themselves without the brand-name markup. As soon as enough small producers decide to ignore the “intellectual property” laws and become so dispersed as to be below the state’s enforcement radar, the corporate dinosaurs will sink beneath the tarpits.

Charles Hugh Smith, likewise, has associated the collapse of wage labor and the collapsing profitability of investment capital with the collapse of taxable value.

This was also a major theme of the first part of Cory Doctorow’s Makers, serialized a few years ago as Themepunks at Salon.Com (now being serialized again in anticipation of the novel’s late October release). I’ve got an advance review copy on the way, so expect more on this in coming weeks.

As best as I can recall from my printout of the Salon serialization (I just can’t force myself to sit hunched over a computer screen to read umpteen dozen installments, no matter how much I enjoyed the last reading) the exploding productivity of desktop manufacturing technology and the collapse of the proprietary information and technology business model meant that the Fortune 500 were bleeding red ink and headed for bankruptcy about as fast as, say, the Soviet Empire in 1990. A precipitous decline in average hours of employment at wage labor was accompanied by a massive shift of production to the basement and garage workshop (or rather, Fab Lab).

In the past, cyclical downturns in employment and industrial output led (as Michael Piore and Charles Sabel argued in The Second Industrial Divide) to the enlargement of the craft periphery at the expense of the old mass-production core.

But starting with the stagnation of the 1970s and 1980s, it has become a permanent, structural trend. The growth of local networked production in Emilia-Romagna arose in that environment. So did the networked lean production model of Toyota (in which increasing shares of production are undertaken by networked suppliers in small shops using general purpose machinery to switch between production runs) and the cruder Nike model (retaining control of finance and marketing and the brand name, and outsourcing everything else to a global archipelago of sweatshops). In both cases, actual production is increasingly carried out by a distributed network, and the corporate headquarters is just a redundant node to be bypassed.

Likewise, economic downturns of the past have always seen a partial shift of production from wage employment to the informal and household sectors, and a turn to barter organizations and cooperative arrangements for exchanging labor. That was reflected in the Owenites’ organization of production for barter by unemployed craftsmen in the depression of the 1830s, the many local currencies and barter networks (some of them, in California, hundreds of thousands strong) in the Great Depression, and the “hoarding of labor-power” and use of the household  as income-pooling unit described by James O’Connor in the ’80s in Accumulation Crisis. But with the increasing trend toward “jobless recoveries” over the past twenty years, the cyclical tendency has tended toward a structural change. And with what we’re experiencing likely to be the mother of all jobless recoveries, we can expect the total level of employment as a percentage of the population to remain at record lows indefinitely.

Regarding the prospects for employment specifically, in a recent discussion on the P2P Research email list Michel Bauwens put forth a relatively sanguine view of the near-term prospect for technological unemployment, compared to Paul Fernhout’s more catastrophic predictions. I think the truth lies somewhere in the middle.

There is extreme overcapacity of manufacturing industries, coupled with what will be permanently weak demand without a new debt bubble to restart it. The value of assets is declining as outlay costs for physical manufacturing plummet (the same thing that’s already rendered so much investment capital superfluous and with no outlet in the information and culture industries, according to Rushkoff).

Put the two together, and I think we will see something like what Alan Greenspan called “The Great Malaise” back in the ’80s (see Harry Magdoff and Paul Sweezy’s article “The Great Malaise,” in The Irreversible Crisis).

Greenspan, anticipating “Helicopter Ben” Bernanke, speculated that the tools available to the Fed meant there would never be another Great Depression on the pattern of the ’30s. After the ’29 crash, the Fed actually tightened money, which led to a snowballing series of deflationary collapses fueled by bankruptcies. A stock market collapse like that of 1929, or a banking collapse on the pattern of 1932, Greenspan contended, would be met with an emergency expansion of liquidity to prevent the kind of catastrophic deflationary spiral that happened in the last Depression. And in fact, that’s what actually happened after the stock market collapse of 1987 and the bank crisis of 2008. Had there not been monetary countermeasures by the Fed after the October 1987 crash, and had the government followed the same do-nothing approach it did in 1929, it probably would have led to another Great Depression.

What we will have in lieu of depressions, Greenspan said, is the Great Malaise:  long periods of economic stagnation and overcapacity, with unemployment never dipping below 8 or 9 percent. Interestingly, that sounds a lot like the permanent stagnation that seemed to have set in in the late 1930s, with unemployment reaching a stable floor of around 15%. Had not World War II “solved” the problem of overcapacity and insufficient demand by destroying most plant and equipment outside the U.S., that might have remained the pattern indefinitely.

Greenspan wrote that, by the way, before the series of “jobless recoveries” that began in the 1990s. [It’s also noteworthy that the average rate of annual growth in GDP, decade by decade, has been falling in the U.S. since the 1960s. The rate of increase in GDP in the ’90s and the 00s was at a record historical low since the 1930s. (Changed 9-8 — KC)]

I think the permanent overcapacity at present will result in just such a long-term stagnation, with employment figures never rebounding but with no sudden collapse either. Rather, employment rates will gradually decline over the next decade or two, and much of the decline will be concealed as underemployment. Meanwhile, increasingly underemployed workers will of necessity shift a growing portion of their value-creation outside the cash nexus and into direct production either for their own consumption or for the social economy in the informal sector. Expect to see a steady increase in such things as home gardening, participation in LETS systems, and the “do it yourself” ethos.

There will also be no significant increase in investment in the conventional corporate economy. Investment will see the same pattern of long-term stagnation as employment. The singularity in small-scale production technology, like Fab Labs with CNC machines and RepRap, is causing initial capital outlays for manufacturing to implode, with a factor 10 or more reduction in the need for all that superfluous investment capital. So conventional mass-production industry will follow the old strategy for economic downturns, but on steroids: They’ll let the old mass-production core stagnate and slowly decay, restricting investment to maintenance needs (if even that), while shifting more and more production to small shops in flexible manufacturing networks that require less and less capital to engage in production.

In the end, almost the entire manufacturing economy will be in small shops with entry costs in the low thousands of dollars and virtually zero overhead. Most value creation will be either through part-time employment in such industry or unmonetized production in the household/informal sector. The old corporate centers of mass production will have evaporated, first leaving a sector of decaying industry with massive overcapacity, then a legal shell of trademarks and advertising, and then (when the small flexible manufacturing networks take the final step of simply disregarding trademark and patent rights) nothing at all — much like the way the Cheshire Cat disappeared all but his smile, and then the smile itself vanished.

My hope is that this process will be fairly gradual and slow over a couple of decades, with no sudden dislocations or catastrophic collapse, and that despite the steady erosion of conventional economic metrics like employment and dollar output, when the trendlines finally bottom out most people will be living so comfortably they won’t really care.