Introduction: Is secular stagnation in Japan and the world the beginning of a new great depression?

Hansen (1939) coined the term “secular stagnation” in 1938 to describe the depression of the US economy during the Great Depression (Radhika Desai 2021 JPE 47-1). He defined secular stagnation as “sick recoveries which die in their infancy and depressions which feed on themselves and leave a hard and seemingly immovable core of unemployment” (Hansen 1939, 333). In the first section of this introduction, we examine Hansen’s secular stagnation thesis from a long-wave theory point of view. We follow the development of the long-wave theory and summarize Hansen’s secular stagnation thesis. The second and third sections introduce discussions from parts one and two of the symposia.

Secular stagnation in long-waves of capitalist world system

The theory of long waves has developed since Kondratiev (1984) observed the 1920s an increase in prices and low interest rates in the ascendant phase of long economic waves and a decrease in prices and high interest rates in the declining phase. Schumpeter (1939) identified these waves as “Kondratieff waves” and argued that long waves of expansion started with clustering innovation and then declined with their maturity. Schumpeterian long-wave theory has been further developed by Perez (2003), who argued that introducing new dynamic industries was not smooth, involving the creative destruction of old institutions (a structural crisis) and creating new institutions—a techno-economic paradigm. The long-wave theory has been developed both in Marxian and Keynesian traditions.

Marxian long-wave theory

Marxian long-wave theory is based on Marx’s concepts of mode of production, a specific combination of material forces and relations of production. Marx (1859) describes the ascendant and the declining phases of long economic waves in a mode of production.

1. Formation. “In the social production of their existence, men inevitably enter into definite relations, namely relations of production appropriate to a given stage in the development of their material forces of production.”

2. Development. Relations of production develop the productive forces.

3. Conflict. “At a certain stage of development, the material productive forces of society come into conflict with the existing relations of production.”

4. Revolution. “From forms of development of the productive forces, these relations turn into their fetters. Then an era of social revolution begins.”

Marx observed three cycles of the mode of production: Asiatic, feudal, and capitalist modes of production. Marx predicted a fourth cycle, the socialist mode of production. Marx’s historical and theoretical political economy was established on the premise that all capitalist economies eventually converge to the most developed British capitalism. He did not distinguish between “economic laws” in the capitalist economy in general and those in mid-nineteenth-century Britain, such as the immiseration of workers. He predicted that when the impoverished workers became the majority of the society, they would eventually start a socialist revolution.

When capitalism had evolved into a new stage at the turn of the century, Bernstein (1917) criticized Marx. Although Marx had predicted the impoverishment of workers, productivity growth, labor unions, and social policy had improved their living standards (Bernstein 1917, 213). As a result, Marx’s prediction had not materialized. Facing Bernstein’s criticism, Hilferding and Lenin developed a stages theory of capitalist development. They postulated a specific combination of material forces and relations of production at the turn of the century that constituted a new stage of capitalist development. This new stage they called “imperialism.”

Hilferding introduced the idea of a leading or most dynamic industry and constructed a business cycle theory based on the dynamic industry’s accumulation pattern. “Since capital flows into those sections which have the highest profit, the new capital which is being accumulated will be largely diverted into them … This explains why crises are most severe in those branches of production which are technologically most advanced: for example, in the textile industry at an earlier time, and subsequently in heavy industry” (Hilferding 1981, 263). Hilferding also introduced exogenous factors as the origin of the business cycle. “Every business cycle begins with an expansion of production, the causes of which vary according to particular historical circumstances but which in general can be attributed to the opening of new markets, the establishment of new branches of production, the introduction of new technology, and the expansion of needs resulting from population growth” (Hilferding 1981, 258).

Lenin introduced three important concepts to the stages theory (Lenin 1996). First, Lenin saw capitalism as a world system, describing the “main purpose” of his book, Imperialism, as “a composite picture of the world capitalist system in its international relationships at the beginning of the twentieth century” (Lenin 1996, 9). Second, Lenin created the theory of uneven development and argued that a structural crisis occurred in Britain when the leading industry shifted from cotton to heavy industry. The center of production also shifted from Britain to Germany and the USA: “Its unevenness also manifests itself, in particular, in the decay of the states which are richest in the capital (Britain)” (Lenin 1996, 125). Third, Lenin defined imperialism as the highest stage of development of capitalism and predicted a secular stagnation after that (Lenin 1996, 59). In arguing that imperialism was the highest state of capitalism, Lenin replaced Marx’s doctrine of increasing workers’ poverty as the final antithesis of human history with the concept of imperialism as the highest stage of capitalism.

Uno (1954) developed Lenin’s theory of imperialism as the theory of stages of development of the capitalist world system. Uno distinguished three stages of development in the capitalist world system: mercantilism, liberalism, and imperialism, describing three specific combinations of material forces and relations of production at each stage. Uno took these stages corresponding to capitalism’s formation, establishment, and deterioration. Uno argued that capitalism purged itself of the pre-capitalist residue and reached its purest form in liberalism, moving away from it in imperialism because of oligopoly, labor unionization, government intervention, etc. Imperialism represented a deterioration of capitalism because capitalism could no longer organize and coordinate social production with capitalist institutions, such as markets and capitalist firms alone. He concluded that capitalism after the Russian Revolution in 1917 did not form a new developmental stage of capitalism; instead, he viewed it as a transitional period toward a socialist mode of production. Although Uno considered imperialism and secular stagnation in the 1930s the end of capitalism itself, it was the end of the British hegemonic capitalist world system, and capitalism revived after World War II with a new US hegemonic capitalist world system.

Itoh (1990) introduced two important concepts to the Unoist stage theory. First, he distinguished structural crises of capital accumulation structure in the 1970s from cyclical crises. Itoh argued that an underlying cause of the end of high post-World War II economic growth and 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. He emphasized that the main feature was a structural crisis that occurred during the breakdown of the Bretton Woods international monetary system, as opposed to the classic cyclical crisis.

Second, he introduced a countercurrent hypothesis to describe a new stage after the depression in the 1970s. He argued that the advances in information technology that accompanied creation of a new capital accumulation structure after the structural crisis in the 1970s induced 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. Adding two stages of capitalist development after the Russian Revolution, Itoh introduced the hegemonic capitalist world system into the Unoist stage theory.

Interest in Marxian long-wave theory was rehabilitated when Mandel (1995) built a capital accumulation structure to explain long-waves (Mandel 1995, 113). He applied Hilferding’s theory of exogenous origins of the business cycle to the long-wave theory. Investing “a correlation between the long-term rhythm of capital accumulation and the long-term rhythm of the research-invention-innovation cycle” (Mandel 1995, 31), he found that “there is no symmetry between the turn from long expansion into long depression and the turn from long depression into long expansion.” The turn from long expansion into long depression is endogenous, but the turn from long depression into long expansion is not endogenous and requires “systemic shocks” from outside.

Wallerstein (1997) further developed Marxian long-wave theory as a hegemonic capitalist world systems theory. He distinguishes two long waves in the capitalist world system. “The two most important cyclical rhythms are the 50–60 year Kondratieff cycles, in which the primary sources of profit alternate between the sphere of production and the financial area, and the 100–150 year hegemonic cycles, consisting of the rise and decline of successive guarantors of global order, each one with its particular pattern of control.”

Wallerstein incorporated historical systems like Marx’s modes of production into his theory. “The modern world system, like all systems, is finite in duration and will come to an end when its secular trends reach a point such that the fluctuations of the system become sufficiently wide and erratic that they can no longer ensure the renewed viability of the system’s institutions. When this point is reached, a bifurcation will occur, and via a period of (chaotic) transition, the system will be replaced by one or several other systems.”

Wallerstein predicted two scenarios when a world system suffers secular stagnation (269). “The world system can continue more or less as before and enter into another set of cyclical changes. Or the world system has reached a point of crisis and therefore will see drastic structural change, an explosion or an implosion, that will end with the constitution of some new kind of historical system.”

Following Wallerstein, Arrighi (1994) argued that the decline of American hegemony would lead to long-term stagnation. Li (2009), following Arrighi, argues that none of the other major powers would be the next hegemon and that the only way to avoid the inevitable collapse of civilization is to adopt a socialist world government by the mid-21st century.

The Marxian hegemonic capitalist world system theory may be summarized as follows (Yokokawa 2020, 2021). A capitalist world system formed around a hegemonic power is called a hegemonic capitalist world system.　Hegemonic capitalist world systems followed two stages of development: diversification and establishment. The diversification stage is a formation and deterioration stage from the point of view of new and old hegemons, respectively. It is important to distinguish a cyclical crisis of a business cycle, a structural crisis of a capital accumulation structure, and a systemic crisis of a hegemonic capitalist world system. Secular stagnation occurs in a systemic crisis, and a period of (chaotic) transition or an interregnum follows before a new world system is established.

The British hegemonic capitalist world system followed three stages of development in the capitalist world system: mercantilism, liberalism, and imperialism, corresponding respectively to the formation, establishment, and deterioration of the British hegemonic capitalist world system.

As Lenin argued, the formation stage started with uneven development. Britain began its industrialization in the woolen industry at the end of the eighteenth century, following the Low Countries on the European continent. The mechanization of cotton industries led to diversification. The establishment stage started with a specific combination of forces and relations of production. Mechanized cotton industries and steam power became Britain’s new dynamic industries in the early nineteenth century. Britain’s capital accumulation structure depended on an international free trade regime as the country imported raw cotton, other raw materials, and food from all over the world and exported cotton and other manufactured products. Britain established the first hegemonic capitalist world system when it created an international free trade regime as the relation of production after the Napoleonic Wars. As the British cotton and other manufacturing industries developed, and their total value increased with foreign demand as the engine of demand growth, the maturity of the dynamic industries reduced the productivity growth rate, and the diffusion of the dynamic industries to catch-up countries reduced the value added to the products. Higher wage rates compared to catch-up countries decreased the British industries’ international competitiveness, causing a crisis of this capital accumulation structure in the 1870s (the Long Depression). After the structural crisis, the locus of dynamism shifted to heavy and chemical industries, and the diversification stage started. As Lenin explained, the USA and Germany created new capital accumulation structures with monopoly and protectionism more successfully than Britain. The center of economic growth shifted from the UK to the USA and Germany.

A political interregnum occurred in the 1920s when Britain, the old hegemon, lost the economic and military powers to organize the hegemonic capitalist world system. As the rising hegemon, the USA did not have the will or ability to create a new hegemonic capitalist world system. This interregnum was a stage of discontinuity in the social order and was accompanied by widespread unrest, wars, and power vacuums. The structural crisis in the USA, beginning in 1929, developed into the systemic crisis of the British hegemonic capitalist world system—the Great Depression. It finally destroyed the first hegemonic capitalist system in the 1930s. The interregnum continued for three decades, from 1914 to 1945, before the USA established a new hegemonic capitalist world system.

The diversification and systemic crisis of the British hegemonic capitalist world system overlapped with the formation stage of a new hegemonic capitalist world system. The Great Depression provided the creative destruction that allowed the USA to create a new hegemonic capitalist world system. After World War II, the USA established a new hegemonic capitalist world system, with the mass production system in the new dynamic industries and the Bretton Woods system and embedded liberalism as the relation of production. The capital accumulation structure established a mutually reinforcing mechanism between productivity growth and demand growth, with wages as the engine of demand growth. It resulted in the long-lasting prosperity of the 1950s–1960s with occasional recessions.

The long-lasting high capital accumulation rate in advanced countries made further accumulation difficult by the 1970s. There were two reasons for this. First, the rapid growth of the capital stock encouraged by plentiful supplies of relatively cheap labor and new US-developed technologies and management practices eroded the productivity gap between US manufacturing and that in Europe and Japan. Uneven development reduced the relative strength of US capitalism and led to the collapse of the Bretton Woods system. Second, productivity growth in dynamic industries was eventually reduced, while long-lasting capital accumulation exhausted advanced countries’ available industrial reserve armies. Increases in wages under declining productivity growth squeezed profits and led to the structural crisis in the 1970s.

After the structural crisis in the 1970s, the Anglo-US neo-liberal accumulation regime reshaped the capitalist world system. Neo-liberalism is the stage of diversification of the US hegemonic capitalist world system, which shares four characteristics with imperialism: demand constraints, finance-led economy, globalization, and shifting of the center of economic growth. The neoliberal capital accumulation structure increased profits with increasing inequality, financial institutions’ risky behavior, and asset bubbles, enabling long periods of capital accumulation. However, this process gave rise to unstable trends, rising household and financial debt ratios, and the spread of risky asset-backed securities throughout the global financial system (Kotz, Symposium 1).

Keynesian long-wave theory

Hansen (1939) developed a Keynesian long-wave theory to analyze secular stagnation in the 1930s. He argued that a long wave started with “(a) inventions, (b) the discovery and development of new territory and new resources, and (c) the growth of population. Each of these in turn, severally and in combination, has opened investment outlets and caused a rapid growth of capital formation” (332). He added, quoting Spitohoff, “which in turn was the progenitor of depression” (332).

Using innovation, Hansen describes four phases of a long-wave: (1) innovation, (2) deployment, (3) maturity, and (4) stagnation: “(1) when a revolutionary new industry like the railroad or the automobile (2) after having initiated in its youth powerful upward surge of investment activity (3) reaches maturity and ceases to grow, (4) as all industries finally must, the whole economy must experience a profound stagnation, unless indeed new developments take its place.” (339) A new cycle of a long-wave requires “a large outlay on new investment, and this awaits the development of great new industries and new techniques.” (340)

The second and third sources to start new cycles of a long wave are (b) “the discovery and development of new territory and new resources” and (c) “the growth of population.” Despite Malthus’ view, Hansen added that “during the greater part of the nineteenth century, population growth itself facilitated mass production methods and accelerated the progress of technique” (337). He emphasized, “the opening of new territory and the growth of population were together responsible for a very large fraction—possibly somewhere near one-half—of the total volume of new capital formation in the nineteenth century.” (338)

Hansen argued that these three factors stopped working in the 1930s. As a result, stagnation continued, and a new long wave did not start. First, he observed “the failure of any really important innovations of a magnitude sufficient to absorb large capital outlays’ (340). Second, he observed the decline of the second source, “there are no important areas left for exploitation and settlement… foreign investment will in the next fifty years play an incomparably smaller role than was the case in the nineteenth century.” (338) Third, he predicted the decline of population growth and decreased capital formation. “And now, with the rapid cessation of population growth, even the (capital) widening process may slow down.” (336)

Hansen added two causes in state-market relations that induced secular stagnation. The first is market structure, which changed from perfect competition to oligopolistic competition. “The growing power of trade unions and trade associations, the development of monopolistic competition, of rivalry for the market through expensive persuasions and advertising, instead of through price competition, are factors which have rightly of late commanded much attention among economists. There is, moreover, the tendency to block the advance of technical progress by the shelving of patents” (340). The second is the limits imposed by democracy on the ability of a democratic society to extend a program of public expenditures, “how far such a program can be carried out in a democratic society without raising the cost structure to a level which prevents full employment. Thus, a challenge is presented to all those countries which have not as yet submitted to the yoke of political dictatorship.” (341–342)

Hansen’s secular stagnation thesis soon lost influence. “The demands of the war economy in the years following Hansen’s address took care of the employment problem, and the immediate postwar decades brought the stimuli of pent-up consumer demand, an outpouring of technological innovations, a reopening of the economic frontier produced by a more liberal trade regime, and. also, an acceleration of population growth. The result was rapid overall economic growth and increasing per capita income levels.” (330)

Interest in the secular stagnation thesis reemerged when Japan fell into depression in the 1990s and increased after 2008 when the depression spread to the North Atlantic.

Symposium on secular stagnation as a new great depression

After the global financial crisis of 2008 and the following secular stagnation, we face the interregnum of the second hegemonic capitalist world system. Old hegemons, namely the USA and the EU, have started to lose control: (1) international monetary systems and regional monetary systems tend to cause bubbles and busts; (2) trade wars have started between the USA and China; (3) anti-establishment movements, such as populism, have become strong; and (4) wars started. On the other hand, potential new hegemons, such as China (and possibly India), are not ready to establish a new world system.

The presentations at the symposia deal with the heart of secular stagnation and the second interregnum.

Musashi University Online International Symposium on secular stagnation as a new great depression: Part I Japan and beyond

Moderator: Nobuharu Yokokawa and Radhika Desai.

Full recording with English subtitles is available. https://www.youtube.com/watch?v=EB1MNxzA0eE

1. Robert Gordon, “Sources of Secular Stagnation in the United States.”

   Gordon examined “six headwinds” (inequality, education, demographics, fiscal debt, social behavior, and climate change) that exacerbate long-term economic stagnation (Gordon 2012, 2014). However, he concentrated on showing the slowdown in technological progress due to the end of the second and third industrial revolutions as a cause of secular stagnation at the symposium.

2. Minqi Li (2023 JPE 49-1) “Secular Stagnation and Fiscal Crisis in US and China”

   Li calculates the long-term ratio of government debt to GDP, predicts the Fiscal Crisis in the US and China, and shows that the decline of American hegemony would lead to long-term stagnation and that China would not be the next hegemony.

3. Hiroshi Nishi (2023 JPE 49-1) “Is Japan Still Suffering from Baumol’s Disease?”

   Nishi examines 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.

4. Thomas Palley (2023 JPE 49-1) “Keynes’ denial of conflict: Why The General Theory is a misleading guide to capitalism and stagnation.”

   Palley criticizes mainstream Keynesians who argue that a lack of demand leads to sluggish production and employment growth (Hansen 1939; Krugman 2013, Summers 2013). Palley argues that Keynes’s General Theory (1936) 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.

5. David Kotz “A Social Structure of Accumulation Theory of Secular Stagnation”

   Kotz further develops Hansen’s state-market relation. Kotz distinguishes two types of Social Structure of Accumulation: regulated and liberal SSAs. He shows that the structural crisis phase of a liberal SSA (1929–1937 and 2007–present) gives rise to secular stagnation.

6. Round table: James Kenneth Galbraith, Myles Carroll, and Alan Freeman

Musashi University Online International Symposium on secular stagnation as a new great depression: Part II Europe and Asia

Moderator: Nobuharu Yokokawa and Jayati Ghosh.

Full recording with English subtitles is available.

Session 1: Europe and World https://www.youtube.com/watch?v=TPw6hrqXI9A

1. Prabhat Patnaik (JPE 49-4 in this issue), “Neo-liberal Capitalism at a Dead-end.”

   Patnaik argues that Neo-liberal capitalism brings about a de-segmentation of the world economy whereby wages in the “north” remain subdued by being linked to the massive labor reserves of the “south,” even while these reserves themselves swell despite the relocation of activities from the “north” to the “south.” At the same time, labor productivity rises everywhere; the net result is a rise in the share of surplus in total output in the world as a whole, which creates an ex ante tendency toward over-production. This tendency has now manifested itself in the form of a secular stagnation of the world economy, which cannot be overcome within the neo-liberal regime itself.

2. Costas Lapavitsas and Matteo Giordano (2023 JPE 49-4 in this issue) “Hegemony in Europe: Allowing the EMU to tick over.”

   Costas Lapavitsas and Matteo Giordano argue that the institutional change in the Eurozone is driven by the need to ensure the immediate survival of the euro rather than confronting the structural weaknesses of the common currency. The system allows the euro to survive but also facilitates the rise of intra-EMU imbalances, as is reflected in divergent claims and liabilities of member states, leading Germany to accumulate intra-EMU claims on others. Instability thus becomes entrenched in the Union, while Germany maintains a hegemonic position.

3. Michael Landesmann “Europe haltingly adjusting to a new geopolitical and geo-economic environment.”

   Landesmann applies a structural-political economy framework to study centrifugal and centripetal forces in three crises that impacted the European integration process: the financial crisis of 2008/9 and its aftermath, the COVID-19 crisis, and the Russia-Ukraine war. It emphasizes that the cumulative impact of these three crises forces shifts in interest positions of important political actors (countries, sectors, social constituencies) to address issues of “systemic instability” at the EU level.

   Discussant: Jomo Kwame Sundaram

   Session 2: China and Japan https://www.youtube.com/watch?v=uGhDmXYwE2E

• 4. Tomoo Marukawa “China’s Premature Demographic Transition.”

  Marukawa shows that policy change and encouragement have not raised the total fertility rate in China. China has entered the stage of an “aged society,” with the aged population accounting for 14.2 percent of the total population in 2021. With a rapid decrease in labor supply, China may get old before getting rich.

• 5. Sébastien Lechevalier “How could the Society 5.0 vision lead to a well-being-centered growth model and why will “New capitalism” be unable to achieve it?”

  Lechevalier argues that although the Silicon Valley model has been the best set of institutions to promote innovation in the new technological environment of neoliberalism, it is costly and unequal. He looks for new ways of thinking about the nature of innovation processes, their relation to markets, and how they contribute to social well-being.

• 6. Hugh Whittaker (2021 JPE 47-3) “Three Spirits of Japanese Capitalism.”

  Whittaker questions if the 1990s mark the onset of the crisis in Japan with a growing lack of institutional coherence, is there any evidence for the emergence of a new institutional coherence and a new “spirit” of Japanese capitalism amidst the flurry of initiatives (new capitalism, DX, GX, Society 5.0, etc.)? He argues that Japan may become a post-neoliberal frontrunner with three spirits: financialized capitalism, return of the developmental state/state capitalism, and communitarian capitalism.

Discussants: Hajime Sato

Round Table: https://www.youtube.com/watch?v=wW1j68gQg2Q

Disclosure statement

No potential conflict of interest was reported by the author(s).