Could neoliberalism have continued forever? A genuine end to history where “universal mediocrity” is the most sacred law and bourgeois society is allowed to extend endlessly as a relationship of pure domination without all the incredible leaps in technology, growth and living standards that characterized it before. The Kalecki profit equations have shown, after all, that profit can exist without growth. Perhaps, but perhaps not. The political coalition of the neoliberal establishment has been collapsing in slow motion since 2008, however there has been no model of political economy in the west to undo the neoliberal softening of budgets1 and decline of investment rates2 no matter how populist the government has become. The earthly suffering of the Bourgeoisie hangs over every government like a sword of Damocles.
In order to go beyond neoliberalism, an encounter with its outside is required. This encounter took hold in China where global capitalism collided with the extremely high investment rates of the former communist system . If we look at global investment rates with and without China, it’s clear that China is what’s pushing the recovery in global rates since 2008. To understand just how dramatic Chinese investment rates are, consider that in 2019 gross fixed capital formation as a share of gross profit was 42% compared to the US rate of 9% and a global average of 14% according to Penn World Table (PWT data)3.
What this means is that the neoliberal system of declining investment rates from softer budgets is alive and well everywhere except China. It’s notable that China didn’t accomplish this global increase in investment rates via significantly increasing its investment rates, but rather by simply increasing its global share of GDP. China always had high investment rates due to pressure from planning authorities to shift resources towards rapid industrialization, a trait shared with most of the communist bloc and many other developing countries. Few countries, however, are able to sustain the rapid growth that China has with this strategy. Investment can easily be wasted, such as through corruption, inefficient national champions, or simply not utilized due to bad incentives as in the Soviet Union. After mastering basic, lower value add manufacturing, China’s industrial policy solved these problems by applying the discipline of capitalist competition in a novel way: in areas of high state-led investment multiple firms were supported by various state appendages, such as municipal governments, sector based subsidies, state owned banks or other existing state enterprises. This leads to extreme competition within Chinese industry, forcing the investment to be utilized for production which is relatively low on the global cost curve. Whereas industrial policy before Chinese industrialization focused on protecting infant industries from competition, and often failed or stalled out after catching up globally, Chinese industrial policy uses domestic competition to achieve higher productivity in the sectors targeted by industrial policy4. In principle this technique can be applied to any industry or technology, although the associated monetary costs may vary.
Some commentators of a more neoliberal bent criticize this practice for its predictable negative effect on Chinese profit rates5. These commentators suggest that Chinese policymakers will simply keep subsidizing unprofitable industries to keep employment high, ignoring that the huge sectoral push by the state and party away from real estate to manufacturing itself was an example of cutting off subsidies to wasteful industries and increasing unemployment. These commentators do not realize that low competition and low investment rates and high profit rates in the west are the aberration, rather than the high competition, high investment rates and low profit rates in China.
One of the best predictors of a country’s labor productivity (it’s ratio of real gdp to hours worked) is it’s level of capital intensity (the ratio of its capital stock to hours worked)6. These two variables have essentially a linear relationship. If we look at where China, the US and the UK compare in terms of this relationship, this normalcy of China and aberration of the US and UK becomes clear.
The US has abnormally low capital intensity relative to its real GDP to hours worked ratio, as did the UK up until the 2008 Great Financial Crisis, at which point a decade of stalled productivity gains forced the UK to return to the mean. In that sense, the UK may be a window into the future of the US economy, a perfectly avoidable but suddenly inescapable catastrophe. My hypothesis is that both the US and the UK benefitted from the role their currency plays in the international financial system, and therefore, by being the creators and controllers of that currency, they could play the same role that capitalists play in the circulation of commodities on the scale of the global economy.
Just like how capitalists can access their own consumption goods by putting their money to use buying the means of production and labor power required to produce those consumption goods, the US and UK could facilitate global trade by using their own currency and thereby cutting a significant chunk of that trade for themselves without having to worry about exports or Government deficits. After the notorious basket case Greece, the two countries with the largest debt to GDP ratio that also have trade deficits in 2023 are the UK and US7. Keep in mind the usual reason to have reserves in a country’s currency is to be able to buy their exports, which doesn’t apply to the US and UK as net trade deficit countries.
The UK and US achieved this spectacular distinction in part by being home to the two largest financial hubs in the world, New York and London, and using their banks and financial services to facilitate global trade through making derivative contracts to manage foreign exchange risks, as well as generally facilitating the movement of money capital around the world. But there is also an important political factor here as well, the historic role that the US and UK played within global bourgeois society. There is, of course, their noble mythology of being much more liberal and therefore pure expressions of capitalism than what was found in continental Europe, or Asia, much less Latin America or Africa, evidenced in the Glorious Revolution, industrial revolution, the open frontier, etc. But more recently, of course, is the founding myth of neoliberalism, the iron hands of Reagan, Thatcher and central bankers dispatching trade unions to save the economy. This was the last great political articulation of the global Bourgeoisie, and made the stability of the anglo-american economy basic economic wisdom as a result. Indeed, its not just a myth but a fact that so long as the independent central banks maintain their mandate for stable prices, the Dollar and Pound have potential to maintain their role as global reserve currencies alongside the Euro and Japanese Yen despite Europe and Japan maintaining trade surpluses and China and India having economies just about as large. The stable domestic inflation means that Dollars and Pounds can be used as a store of value internationally, and their role in international finance ensures have they can be used to manage the foreign exchange rate of the domestic currency.
We’ve seen the slow deterioration of the reputation of the US and UK among the global bourgeois the past decade, however. Brexit and the Liz Truss boondoggle in the UK, and Trump’s trade wars and threats against Fed independence in the US. In both cases, there has been a startling wake up to the precarity of this situation in bond and foreign exchange markets. For decades the global financial system had relied on certain correlations in the prices of US assets, for example an anti-correlation between stocks and bonds, but the sell off prompted by Trump’s “liberation day” tariffs was in all US assets, stocks, bonds, currency8. Bonds and Dollars, the traditional safe haven investment were suddenly a hot potato. Had the sell off not been interrupted by an abrupt about face in policy it could have seriously endangered the balance sheets of major financial institutions and ordinary companies across the globe.
It seems that many people underestimate the extent to which that once confidence is lost in the dollar just how deeply the US economy would be screwed. The US current account deficit was about 5% of GDP9 in Q1 of 2025, which, in the grand scheme of things like the Great Depression’s 26% decline in real GDP might not seem like a big deal. But keep in mind imports are not just final consumption goods, they’re also intermediate goods and raw materials used by American businesses. A sudden decline in imports could mean an inability to produce crucial export commodities that give the US foreign currency, leading to a vicious feedback loop of declining imports and exports that ultimately crashes the economy, something not dissimilar to what Cuba is going through as the collapse of tourism during COVID led to an inability to import energy goods that only further hurt exports and snowballed into a severe crisis. While the US is no longer so dependent on foreign countries for energy, we are dependent on the world market for machinery and electronics10. And just as it would raise costs for businesses, a sudden decline in the dollar would also hurt American consumers and workers with higher prices for many goods.
Contra the prediction of many economists that Chinese investment rates would need to decline to more “normal” levels11, the ongoing crisis of the British economy and the impending crisis of the American economy suggest that it will instead be the rest of the world that will need to adopt Chinese levels of investment. China still has decades before its capital intensity and labor productivity catch up to the developed world, and in the meantime it is bringing down the global cost curve in many leading industries such as solar panels, batteries, drones and EVs. Some countries may resist the pull of these cheap imports but many have little alternative but to take what is effectively major upgrades to standards of living. Perhaps the US could pre-emptively boost investment, as the Biden administration’s abortive Build Back Better agenda attempted to do, but most policy proposals are meager compared to the task and there is little political will to sacrifice capitalist consumption. One option which, as of writing is being flirted with by the Trump administration, is simply surrendering to Chinese capital and letting their investment flow in freely12, which would also effectively mean a final victory for the China model. It is much more likely that the US and other developed countries will be forcibly disciplined by international markets to respond to the rise of China at last, with currency devaluations and debt crises which up until now they had restricted to weaker developing countries. This was the fate of much of the Communist Bloc in the 20th century, after all, which had grown structurally dependent on Western capital but was unable to produce goods at low enough costs or high enough quality to get the foreign currency to maintain a stable relationship13. Should Trump and Xi continue to play hardball in trade negotiations, this discipline of international markets will hit the US economy with a suddenness and force not dissimilar to a pallet of bricks dropped from 100 feet onto a hapless rube.
It is remarkable that China has been able to pull off something that effectively no other country has been able to, sustaining these levels of investment while 1) not wasting the investment, and 2) doing so within a capitalist economy. This was made possible through the specific political situation within China, where the Communist Party as an institution whose legitimacy resides in economic development reigns rather than the capitalist class, as in most bourgeois states. For the CCP, the tradeoff between investment and capitalist consumption is an easy one, they don’t care about capitalist consumption at all but do care about the economic development from investment a great deal. And any attempt for the capitalist class to organize politically to undermine this dynamic is immediately shut down, for example Jack Ma’s (founder of Alibaba, the 24th largest company in the world by market cap) forced disappearance from public life after he made comments critical of the government on behalf of typical capitalist interests14.
The collapse of state capitalism in the West through the rise of neoliberalism can equally be pinned to these sort of political factors. Despite centuries of pitched class struggle and strong trade unions, bourgeois state first and foremost responsibility remained to the preservation of the capitalist class. “Bourgeois socialism” as some have called state capitalism with bourgeois states is structurally incapable of moving beyond this developmental regime15, and thus, when faced with the inevitable contradictions of that regime these states decided to go backwards rather than forwards, ensuring that investment rates fell and with them global economic growth outside of China. Real GDP per capita has doubled for the US and UK from 1980 to 2019, it’s tripled for the world excluding China, quadrupled for the world including China, and grown 8 fold for China itself.
Of course, one should expect higher real GDP per capita growth for developing countries, and yet, even for the US itself we can see that the postwar growth rate from 1947 to 1980 was 3.8% in real GDP per capita, and 2.6% from 1981 to 2025 under neoliberalism16. If the US had remained close to the mean of the relationship between capital intensity and labor productivity, this neoliberal growth rate would be far worse, indeed our present capital intensity suggests that our real GDP per capita should be about 30% lower than it is. Unless a crisis is horribly mismanaged, however, such a 30% decline is improbable. As we’ve seen in the UK, it’s more likely that the US will experience a prolonged stall in growth of labor productivity and GDP per capita as capital intensity catches up than a direct decline in labor productivity. In either case, rising investment rates will be the only means of achieving long term growth, and the growth model of the US and UK can only appear as a foolish aberration in hindsight.
Regardless of the form of reckoning which comes for the neoliberal world and the US economy, it is coming. The cat, as they say, is out of the bag. Capitalist markets cannot help but impose discipline on those laggards who cannot compare favorably to the most efficient methods of production or are incapable of revolutionizing the instruments of production. The global capitalist class can not delay the impending catastrophe of their reproduction much longer.
The systemic rise in public and private debt since 1980 indicates a softening of budgets through a variety of mechanisms. Schularick, Moritz. 2014. “Public and Private Debt: The Historical Record (1870–2010).” German Economic Review 15 (1): 191–207. https://doi.org/10.1111/geer.12031.
Villarreal, Nicolas D. “A Sketch of a Revision to Orthodoxy.” Substack.com, Pre-History of an Encounter, 3 July 2025, nicolasdvillarreal.substack.com/p/a-sketch-of-a-revision-to-orthodoxy. Accessed 15 Oct. 2025.; ---. “The Tendency for the Rate of Profit to Fall, Crisis and Reformism.” Substack.com, Pre-History of an Encounter, 16 Sept. 2023, nicolasdvillarreal.substack.com/p/the-tendency-for-the-rate-of-profit.
All charts included in this post come from PWT data. Feenstra, Robert C., Robert Inklaar and Marcel P. Timmer (2015), “The Next Generation of the Penn World Table” American Economic Review, 105(10), 3150-3182, available for download at www.ggdc.net/pwt
Aghion, Philippe, Jing Cai, Mathias Dewatripont, Luosha Du, Ann Harrison, and Patrick Legros. 2015. “Industrial Policy and Competition.” American Economic Journal: Macroeconomics 7 (4): 1–32.
Smith, Noah. “China’s Industrial Policy Has an Unprofitability Problem.” Noahpinion.blog, Noahpinion, 20 June 2025, www.noahpinion.blog/p/chinas-industrial-policy-has-an-unprofitability. Accessed 15 Oct. 2025.
Bergeaud, A., Cette, G. and Lecat, R. (2016) – processed by Our World in Data. “Capital Intensity (Bergeaud, Cette, and Lecat (2016))” [dataset]. Bergeaud, A., Cette, G. and Lecat, R. (2016) [original data].
“World Bank Open Data.” World Bank Open Data, 2024, data.worldbank.org/indicator/NE.RSB.GNFS.ZS?view=map. Accessed 15 Oct. 2025.; “Central Government Debt, Total (% of GDP) | Data.” Data.worldbank.org, data.worldbank.org/indicator/GC.DOD.TOTL.GD.ZS.
Patterson, Rebecca. “Lessons from Financial Markets since Liberation Day.” Council on Foreign Relations, 2 July 2025, www.cfr.org/article/lessons-financial-markets-liberation-day.
U.S. Bureau of Economic Analysis. “Balance on Current Account.” FRED, Federal Reserve Bank of St. Louis, 1 Jan. 1999, fred.stlouisfed.org/series/IEABC.
Trading Economics. “United States Imports by Category.” Tradingeconomics.com, 2025, tradingeconomics.com/united-states/imports-by-category.
“Transcript: China’s Economy vs the World. With Michael Pettis.” @FinancialTimes, Financial Times, 24 Sept. 2025, www.ft.com/content/10cee454-d4c0-4421-9b64-e73684bbb27f. Accessed 15 Oct. 2025.
Donnan, Shawn. “Trade War Latest: China Plays to Trump’s Soft Spot for Investment.” Bloomberg.com, Bloomberg, 6 Oct. 2025, www.bloomberg.com/news/newsletters/2025-10-06/trade-war-latest-xxxxxxx. Accessed 15 Oct. 2025.
Bartel, Fritz. The Triumph of Broken Promises. Harvard University Press, 9 Aug. 2022.
Yuan, Li. “Why China Turned against Jack Ma.” New York Times, 24 Dec. 2020, www.nytimes.com/2020/12/24/technology/china-jack-ma-alibaba.html.
Burgis, Ben, et al. Flowers for Marx. Revol Press, 27 June 2025. “For a Muscular Maxism, or the Bourgeois Socialism of the Mexican Desarrollo”
Federal Reserve Bank of St. Louis. 2019. “Real Gross Domestic Product per Capita.” Stlouisfed.org. 2019. https://fred.stlouisfed.org/series/A939RX0Q048SBEA.
Great analysis. Many thanks! One niggle: "China has been able to pull off something that effectively no other country has been able to, sustaining these levels of investment while 1) not wasting the investment, and 2) doing so within a capitalist economy”.
It's a socialist market economy in which 60% of productive assets are collectively owned and 58% of GDP always goes to wages.
Very interesting analysis