While neoclassical economics explain growth based on the supply of the factors of production and keynesian economics as the result of effective demand, marxist theory understand the economic sytem as both political and physical. Instead of giving exact conditions, the theory provide a dialectic description of a new system that does not need to expand.
On top of the supply of factors and the effective demand, the competition and ownership setting is key to explain the development of the economic process. Marxist theory provide a valuable framework to explain the growth mandate and the last economic crises with competitive capitalism. Production expansion is required to increase profits with economies of scale and keep employment. Crisis are regularly happening as the capital intensive expansion of production leads to excessive supply and weak demand. On the negative side those theories consider profits as the only source of investment, which have little support in economies where the creation of money via loans is the norm.
A common treat in marxian theories state that without ownership and state structural change (from capitalist to collective or central planned economy), a steady state macroeconomic system is not possible. The main reason is that profit seeking and competition will necessary lead to increased production, particularly when economies of scale are present.
Competition of any sort requires technological development to push down costs. This is mainly focused on labor demand reduction instead of energy/resources use, as the first is the most expensive input at the moment. Regulations to favor resource/energy efficiency,renewable energy use , distribution of work and surplus, would alleviate increases in unemployment and the decay of wages.
This regulations are not likely to happen due to the direct conflict with the oligarchy and the great enterprise interest, who owns the capital, and pursue its accumulation and growth. Without an strong aligment between the labor class and the social movements, this necessary conditions for an steady state economy are not going to be implemented any time soon. It is only the 99% that wants to moderate economies of scale, the centralization of energy and power, and a more "balanced" distribution of the economic surplus.
Competitive capitalism
In competitive capitalism, there is a tendency to compete in prices and pursue increases in profit. The only way to do that is by reducing costs, leveraging technological progress, wage reduction or economies of scale.
As a result of this, productivity and total production grow (if economies of scale are present), but purchasing power of the working class is dampened due to lower wages and lower labor demand, as production become more capital and energy intensive. The net demand of labor force is unclear when there is output growth and labor-saving technological change at the same time.
The technological progress has been focused on reducing labor costs and not so much on energy use. The economies on the steady state will have to reshape ownership at smaller scales (and reducing economies of scale via progressive taxation or transport taxes) and drive innovation to reduce fossil fuel use. For this to happen fossil fuel use must be made more expensive via taxation, and therefore keeping productivity and labor demand constant, in detriment of energy consumption over time.
In that setting, competition is reduced, as far reaching firms have no economic incentive to enter local markets or local firms to expand its operation due to diseconomies of scale. Innovation remains, but to reduce energy induced costs and not labor savings as before, keeping labor demand high and profitability low as all surplus goes to wages, in the new ownership setup.
Monopolistic capitalism
Large companies are able to set up prices above the surplus value. This companies are able to reduce costs via labor saving technology that is energy and capital intensive. For this to remain cheap and versatile forms of energy such as coal or oil are leveraged.
This setting leads to stagnation, as little investment is done in technology, production peaks to the amount where profits are maximized and wages and labor demand are too low to create sufficient effective demand.
An increasing share of the profits are use for the "sale effort", which is creating demand that cover the excess production capacity (as labour decay cannot consume all the output). Effective demand is estimulated via advertising, programmed obsolescence, debt and public expenditure, mainly in defense and the military, instead of social spending.
To avoid that excessive output size with poor wellfare, collectivization of the poverty is suggested, together with energy saving technological change, to reduce environmental damage. The reorentation of firms surpluses to wages will increase purchasing power and regulation on energy will incentivize capital and energy saving investments.
A regulation against certain sales effort should take place, such as advertisement limitation, the prohibition of programmed obsolescence.
If more surplus is going to wages, effective demand could rise and therefore production. To avoid that, ina steady state economy diseconomies of scale have to be in place (via progressive taxation, fossil fuel taxes), or incentives to work time reductions when productivity grow.
As a result of this measures output will be held constant, unemployment will be low given that labor saving technology is disinvested and there is a reduction working hours to distribute better paid work.
The Political economy
Applying those measures in either economy will be politically challenging, as that clashes directly with the current owners of capital and the oligarchy, and in some cases with the working class. Massives changes in ownership, taxation and regulation will not be implemented easily as we have seen little or no change in social or environmental spending worlwide in the last decades, despite the continous economic crisis and the stagnation of the so called middle class.
Keeping the ownership as it is but reducing economies of scale and sales effort regulation could already have significant impacts with moderate opposition. Increased taxation on fossil fuels use will makelocal production and labor intensive production relatively cheaper and give enough price signals for a local and renovable based economy.
If productivity and total surplus keeps growing, the state should absorve a growing share of that surplus to keep production constant. Instead of keeping the historical growth of destructive public spending, particularly on military and the arms race, that surplus should be reallocated to more social non productive activities such as health, education, culture, biodiversity protection....
In any case, a strong social union should take place between those concern on labor, environment, human rights challenges...the 99% is still dramatically fragmented.
While the steady state economies related here are clearly better for the environment and inequality moderation, the ultimate purchasing power is not clear. As fossil fuel intensive products become less abundant and more expensive, without a clear renewable based substitutor, the consumer supluses could be reduced. The extent to which more distribution of income will compensate higher prices of certains products remains a question.
Concerns about the instability of that steady state economy should be analyzed in the context of current unstable capitalist economies, where production and pollution is too high, while poverty and unemployment remains despite continuous growth. The new steady state economy would keep labor demand and wages at sufficient levels, and ultimately effective demand.
All in all, it is clear that the steady state economy will require a change in the current set up of competitive or monopolistic capitalism. That could mean a dramatic change in ownership, or in a moderate setting, including several reforms to reduce economies of scale, sales and labor saving efforts, and fossil fuel use.
Concluding remarks
Marxian theory offers valuable insights on why growth and economic crisis happens in a competitive and monopolistic capitalism. This understanding is key to propose the conditions for a steady economy, that breaks with the contradictions of capitalism (too much production and pollution but little demand).
While the collectivization of the ownership of firms would lead, together with regulations in sales and technological efforts to a solid equilibria, there are two great pitfalls in that theory. The first one is the lack of formalization in the theory, making hard to estimate tradeoffs or some net impacts as the resulting product prices or effects in monetary measurements.
The second challenge is the enourmous reform required to fully implemented the suggested changes, and the likely tensions between those who currently own the capital and the working class. Historically central planning economies have dubious democratic settings and did not deliver anything close to a steady state economy, and normally have been worse in any wellbeing kpi. On the other hand the implementation of cooperatives and horizontal own firms have several successfull examples like Mondragon, even in the context of economies of scale. Other forms of ownership and manager are possible and in line with a steady state economy, withing the marxist framework.
While competitive capitalism and monopolistic capitalism makes workers worse off as we as the environment, it is growth the only "apparently feasible leverage" that seems to be available in the working class discourse to increase labor demand. A reform intented to pursue a steady state economy and dampen growth will also face opposition from that social group.
While there are many "softer" versions that could lead to significant improvements in wages, employment and renwable energy use, there are engineering and informational gaps to implement them globally. Renewable energy limitations, carbon leakage and global markets dependency are key challenges that a single country or region will not likely fix alone.
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