Topics in Political Economy – Fordism: the internal crisis

By the end of the late 1960s, the majority of the OECD nations were experiencing a slowdown in their rate of productivity growth. More specifically, the USA’s productivity growth rates fell while their wage growth rates remained relatively stable, whereas in Europe and Japan, productivity growth rates fell less dramatically but wage growth rates increased much more. There have been a number of arguments put forward by Marglin & Schor (1990) for this general slowdown in productivity:

  1. Mature Economy Thesis – this argument was also put forward by De Vroey. They believed the exhaustion of the possibilities of technological progress and the saturation of markets throughout the OECD nations caused the productivity growth rates to fall.
  2. Limitations of Taylorism – the full employment situation during the late 1960s meant that the Fordist work-organisation production methods had no more workers to ‘Taylorise’. This was due to the lack of technological progress which exposed the limits of Taylorisation.
  3. Labour Militancy and the Resistance to Taylorisation – this came about because the cost of job-loss fell. This reduced the responsiveness of workers to accept efficient wages and to be supervised. Overall this led to increasing real wage demands from the workers.

Therefore one can see that the crisis of Fordism (and its failure) mainly arose from the particular form its system of production or capital-labour relations took and its eventual exhaustion.

The macroeconomic structure of the OECD nations was also affected by this slowdown in the rate of productivity growth and the acceleration in the rate of wage growth. This led to the ‘Full Employment Profit Squeeze’. The increased labour militancy and resistance to Taylorisation caused both productivity growth rates and profits to fall. However, at the time, wage growth continued to increase in the USA, Europe and Japan; this was mainly because of the full employment situation creating low (if any) unemployment, the strong trade unions, and the lowering of the cost of job losses due to the safety net provided for by the welfare state. In general this all led to increasing wage costs which in turn led to a profit squeeze, and an inevitable investment crisis (Lipietz; 1987; p38). Also, capital stock or accumulation fell because of this full employment profit squeeze.

The mode of regulation at that time was monopolistic. This caused the firms to mark up their prices because their profitability levels had fallen, which in turn led to an increase in the rate of inflation via a general increase in the price level and wages. For workers this meant lower real wages and hence the crisis of under consumption. This and the decline in the rate of investment caused an overall slowdown in economic growth of each of the advanced capitalist nations’ economies which eventually led to increasing unemployment. The social consensus of the Golden Age was thus coming under great stress, but the national governments continued to use Keynesian Demand Management policies, which led to the fiscal crisis; governments increased state expenditure via the social insurance system (or welfare state), which led to increasing government deficits. Therefore one could say that it was the Fordist crisis that induced the fiscal crisis.

The redistribution of income and wealth lie at the heart of inflation (Aglietta & Orlean; 1982). Under creeping inflation, as in the Golden Age period, these transfers were relatively small scale and their effects not immediately apparent (De Vroey; 1984; p58). However, these transfers were growth inducing and by the end of the period inflation became cumulative. It was this cumulative inflation effect that led to the breakdown of the Fordist Compromise. The national governments felt it was necessary to control this inflation problem and their immediate reaction was to initiate restrictive policies which only led to their economies deflating even further (De Vroey; 1984; p59).

By Mawdud Ehsan Choudhury

16 March 1998


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