Capital & Class. - 1989. - Issue 39 issue 39

Stephen Bach

Health services after the White Paper

CO

Despite the rupturing of the Keynesian welfare state and attempts to open up new spheres of the economy to capital accumulation, there have been marked disparities in the pace with which the Conservative Government has attempted to restructure the public sector . The NHS has remained relatively unscathed compared with the market orientated reforms unleashed on education, housing and most recently broadcasting . The overwhelming public support for the NHS, a system of comprehensive health care free at the point of delivery, made the Government cautious to apply the Thatcher treatment to the NHS . Although a number of reviews were carried out within the Whitehall machine and Conservative thinktanks which examined switching to a private insurance system of funding, political expediency and Treasury opposition lead to their rejection . However, after a year-long review

7

Capital & Class

8

of the NHS, the Government unveiled radi-

post as Secretary of State for Health and

cal proposals to restructure the

in

Social Services in the summer of 1988 . This

January . This article examines the recent

reflected the lack of progress in finding

White

Patients'

feasible alternative methods of funding the

(DoH, 1989b) and its implications for the

NHS, with right wing proposals to introduce

future of health care in the UK .

vouchers or insurance-based systems being

Paper,

'Working

For

NHS

dismissed as too costly and impractical . The The establishment of the Review

strategy then shifted to the examination of alternative methods of providing health care

The manner in which the review of the

and, with Mrs Thatcher insisting that her

NHS emerged, and the White Paper itself,

radical instincts should prevail, the White

highlight three aspects of the Conservative

Paper 'Working For Patients' was duly

Government's approach . First, the Gov-

launched at the end of January 1989 . It

ernment's ideological obsession with inject-

proposes the commercialisation of the NHS,

ing competition and the discipline of the

with the establishment of trading relations

market into new spheres of the economy ;

between health authorities and the nascent

second,

privatisation of hospitals through opting-

its

opportunism

Government-induced

in

using

financial crisis

a to

out proposals .

drive through radical restructuring of the NHS ; and third, its authoritarianism, wit-

Health care under the conservatives

nessed in its decision not to consult with professional and other groups in the NHS in

The Government's approach in 'Working

order not to be diverted by criticism of their

For Patients' provides a framework for the

proposals .

incorporation of earlier ad hoc initiatives to

The announcement of the Government review of the NHS emerged during an inter-

re-orientate the

NHS

along commercial

view with Mrs Thatcher in January 1988 .

lines, thereby blurring the division between the public and the private sector . It was

This was in the light of a developing

envisaged that this would enable a more

political crisis over the NHS triggered by bed

pluralistic health care system to evolve, with

closures and repeated criticism from within including groups of influential

a greater role being played by the private sector . The whole thrust of Government

consultants, that the NHS faced a financial

strategy has been couched in the language

crisis . This followed persistent Government

of the market place, with the emphasis on

under-funding of pay awards and a series of

efficiency, competition and the need to strengthen management .

the NHS,

efficiency measures which not only squeezed the NHS but, by increasing activity levels, exacerbated the difficult financial situation . The Government, exasperated by a chorus of criticism, instigated a secret review of the

The emphasis on raising efficiency has been used to legitimate under funding of the NHS

by arguing that increased efficiency

crisis . A group of hand-picked sympathisers

releases resources for other uses . However, more intensive use of resources will not release funds . Take the case of London . The

were employed to help formulate radical

Regional plans for the inner-London Districts

proposals .

required a revenue reduction of £109 million (12 .9 percent) in the period 1983/84 -

future of the NHS in order to defuse the

There were signs that this strategy had floundered, the most public manifestation being the dispatch of John Moore from his

1993/94 . Yet by 1987, although 1,100 local acute beds had been removed (74 per

Health after the White Paper

had only yielded £39 million or 34 .5 per

the NHS and placed on performance related pay and short term contracts, thus instilling

cent of the total . Consequently, three quar-

in them the need to meet centrally defined

ters of the bed reductions yielded only one

objectives . To help managers know if they

third of the revenue savings (King's Fund,

were fulfilling their objectives, performance

1987) . A series of critical reports from the

indicators were devised and a Regional

All Party Social Services Select Committee

Review system was introduced to monitor

have consistently stressed the cumulative under-funding of the NHS . The latest salvo

performance . The whole general management exercise was infused with a private

was launched by the National Association of

sector ethos and the Government antici-

Health Authorities which estimates underfunding £490 million for 1988/89, contri-

pated that many of the new general managers would be appointed from industry .

buting to a cumulative total of over £3

This would mirror the private sector leader-

cent of the planned total), these reductions

The Guardian,

9th March

ship which was appointed to head up the

1989) . UK expenditure on health care, at below 6 per cent of GDP, is below any other

new NHS Management Board placed at the apex of the new corporate style hierarchy .

major OECD country .

One difficulty remained, namely the need to

billion (quoted in

A series of initiatives have been launched

involve medical staff in the management

to contain costs . In 1983 mandatory competitive tendering was introduced for ancil-

process as it is doctors that commit resources at the hospital level . This strategy, the

lary services in the NHS . Although 80 per cent of contracts have been won in-house

Resource Management Initiative, has had

(Joint NHS Privatisation Unit, 1988), Gov-

suspicious that they are being used to admin-

ernment insistence that the lowest cost

ister a covert cost reduction policy .

tender be accepted has led to cost reductions by reduced specifications and poorer terms and conditions of employment . Other cost

The Government has also encouraged the growth of the private sector . In 1980 consultants' contracts were changed to enable

containment exercises have included the

them to undertake more private work with-

imposition of manpower targets, the establishment of income targets for health

out deductions from their NHS salary . In 1979/80 there was a 28 per cent increase in

authorities (as a substitute for increased

consultants on `maximum part timer' con-

revenue funding) and value-for-money scrutinies of various activities . Corporate plan-

tracts, the most advantageous contract for

ning has also increasingly been used as a mechanism to justify service reductions,

practice but remain within the NHS (Griffith

with the concentration of acute medical services on fewer larger sites .

only very partial success as doctors have been

consultants wishing to maximise private et al ., 1987) . This demonstrated the extent to which consultants were capitalising on the new arrangements .

Managers were

Linked to these initiatives and crucial to

encouraged to use the private sector to help

their chances of success, was the Govern-

reduce waiting lists and to take account of

ment's belief in the need to strengthen the

the availability of private hospital facilities when planning new NHS services . Similarly,

management function in the NHS and to weaken the professional ethos that pervades

planning restrictions on private hospital development were lifted, resulting in a

the NHS . To this end, following the recom-

situation where there was less regulation

(DHSS,

over the planning of private hospitals than

1983), general managers were appointed in

in the USA, where a Certificate of Need is

confer on it greater legitimacy in order to

mendations of the Griffiths inquiry

9

Capital & Class

10 required . The Government has therefore emphasised the need for the NHS to adopt a more commercial approach . As Kenneth Clarke stated at the 1988 Conservative conference : 'The NHS is not a business, but it has to be more business-like .' By encouraging the development of the private sector and its links with the NHS, the Government has attempted to blur the division between the two sectors and reorientate the NHS along private sector lines .

'Working for patients?' The Government has marketed its package of reforms through an elaborate publicity campaign involving an initial television link-up with the NHS, a video and a travelling road show . It has promoted its measures as a way of keeping the best aspects of the NHS but improving the delivery of care by the encouragement of internal competition and greater choice for patients . These claims owe much to right wing ideological fantasies and little to reality . The most audacious of the Government's claims is that patient choice will be increased . The Government's notion of consumer sovereignty is inherently flawed as, unlike a supermarket, it is GPs rather than 'consumers' who directly exercise choice over the goods and services they require . A central role of GPs has always been to act as gatekeepers rationing access to hospital treatment . Furthermore, as health-care will continue to be cash limited, the market place will be a phoney one as increased consumer demands will not be translated into increased health care provision . The claim of increased choice for patients rests on a puzzling interpretation of the contracts' system which argues that money will follow patients . Any choices that exist

in the new system will rest with managers and possibly GPs (if the decide to hold their own budgets), and will concern the placing of contracts for medical treatment . Money will therefore precede patients as they will be admitted to the hospital where a contract has been placed . GPs will also be pressurised to fall into line with these arrangements . The emphasis on individual choice and the introduction of an internal market enables the Government to abdicate from its responsibility to provide collective provision on the basis of need . The inequitable distribution of health services and their class bias has been well documented . (Townsend et al, 1982) . Yet the use of commercial criteria to decide on the distribution of services is likely to exacerbate problems of access . Patients may have to travel longer distances, which would penalise low income families, the elderly and the disabled who would bear the cost and inconvenience of travelling these distances . There is already a trend towards the centralisation of services and the anticipated mergers of smaller District Health Authorities will accelerate this process, as the proposed plans to eliminate one District in Birmingham and close at least six hospitals illustrates . The second claim is that the proposals will increase competition which will act as a spur to increased efficiency . The extent of competition, particularly outside urban areas, is likely to be low . The whole rationale of the planned development of hospital services has, since the inception of the NHS, been the development of a District General Hospital to serve a District Health Authority population of approximately a quarter of a million people, thus preventing the wasteful duplication of services . Consequently, most District General Hospitals have developed as monopolies . Competition is even more restricted for specialist services, such as Radiotherapy, which are' concentrated in one or two Regional centres .

Health after the White Paper A second constraint on the degree of competition is that health authorities may not wish to relinquish local services . Although they might be able to obtain services more cheaply from another authority, this could jeopardise the authorities ability to re-provide those services in the future . The loss of services will also tend to diminish the power and status of clinicians and managers alike, who will be reluctant to allow this to occur . Health authorities which are committed to providing local services may also not want their patients to travel long distances . The development of trading arrangements also assumes that resources can easily be switched to other activities . However, the existence, for example, of a number of orthopaedic surgeons represents an asset which is not easily transferred into other activities . The Government itself may not be willing to let an unfettered market develop . Concerns have been voiced that inner-city hospitals will be particularly hard hit as funding shifts to a system based predominantly on resident population rather than taking into account existing services . The level of reduction this would entail - up to 78 per cent in Bloomsbury's case - is clearly politically unacceptable and it is clear that the Government will cushion the effect of price competition . This was confirmed in the latest Working Paper on capital charges (DoH, 1989c) which acknowledged that, due to disparities in capital stock, it is not possible to move towards purely commercial arrangements for using capital stock in the short term . Other sources of competition could include the private sector . However, while the private sector, with approximately 7 per cent of all inpatient admissions in 1986 (Nicholl et al, 1989) is not insignificant, these hospitals tend to be concentrated in the South East (particularly London) and specialise in a small number of routine

operations, for example hernias, where NHS waiting lists are long . Although they could expand into more specialised work, they have neither the staff nor the back-up facilities such, as intensive care units, to undertake this work at present on a significant scale . It is for these reasons that the Government is putting so much store by the selfgoverning hospitals as the key element in the development of a competitive market . Yet even here the Government itself recognises difficulties : , the Secretary of State will need reserve powers to prevent a self-governing hospital with anything near to a local monopoly of service provision from exploiting its position .' (Department of Health, 1989a : 12) There are also dangers that any competition which does emerge will follow the pattern set by the competitive tendering exercise, with competition being over the price rather than the quality, leading to a slide in standards . Indeed, the likelihood of this is increased as the White Paper advocates an extension of competitive tendering into clinical areas . The mechanism which the Government favours to introduce competition is through the establishment of an internal market . This policy is associated with the us health economist Alain Enthoven (1985) . During a visit to the UK in 1985, Enthoven noted that the NHS enjoyed widespread support and produced a great deal of care for the money spent, but he was critical of the perverse incentives in the NHS which inhibited efficiency . He argued that efficiency could be increased by encouraging the development of trade between health authorities, which he termed the internal market . Yet even Alain Enthoven, the architect of these proposals, believed that they should be piloted as they were highly experimental . The Government has used

11

Capital & Class

12

this model as a starting point and also borrowed from another us concept, the

of government control . In a similar vein,

Health Maintenance Organisation (HMO)' in its proposals for GPs to hold budgets if they

authority

have over 11,000 patients . This small number of patients jeopardises the viability of

flexibility to set pay rates at local level,

the GP budget proposals because of the

force and undermine national negotiating

prospect of a small number of costly patients

machinery .

creating a deficit for the practice . This will encourage GPs to ensure their lists contain low cost patients - a process known as adverse selection' (Scheffler, 1989) .

local health authorities are to lose their local representatives .

Management

influence will be increased through greater which will further fragment a divided work-

A privatised health care system? The extent to which these proposals add

However, the relevance of the HMO concept is questionable . HMOs were established

up to a full scale attack on the NHS is not

in the USA to try and curb escalating medical

trojan horse quality about it, and no similar

costs which are associated with fee-forservice systems . Yet in the UK, a cash

situation exists anywhere in the world .

limited system has been very effective in

and the eight working papers, which were

containing expenditure and debate has

published shortly afterwards, are equally

focused on the desirability of increasing

vague and opaque . To a greater extent than

expenditure on health care . The most detailed evaluation of HMOs, a twelve year study by the Rand Corporation, painted a

other Government legislation, the impact

easy to gauge as the White Paper has a

Little can be gleaned from the White Paper

will depend on decisions made by managers, clinicians and other staff at local level .

mixed picture about their effectiveness and

The establishment of an internal market

concluded that HMOs, designed as they were to contain expenditure, had a tendency to

transposes the currency of the market place

under-treat patients . A pot pourri of other measures continues

into the NHS . In value terms the word 'internal' is irrelevant, as contractual relationships will be established which will enable

to place faith in a strengthened management

exchange values to be produced, replacing

function and tighter monitoring of perform-

the production of use values . It is this

ance as the way to find the Holy Grail of

increased scope for market relationships,

increased efficiency . The corporate manage-

and therefore the ability to produce surplus

ment approach adopted in the Griffiths

value, which will erode the purpose of the

proposals will be extended by revamping the

NHS to meet collective need on an equitable

Management Board at central government

basis regardless of the ability to pay .

level and bringing prominent industrialists on to the Board . The incorporation of the

The self-governing hospitals are a crucial factor in respect of the whole project . The

Family Practitioner Committees under the

Government emphasises that 'self-governing

Regional Health Authorities ensures that a

hospitals will remain firmly within the NHS'

clear chain of management command now runs from the centre to the local level, thus

(DoH, 1989a, p . 3) but this is disingenuous and obscures the reality that self-governing

reducing local autonomy. This reflects the

hospitals will be independent and outside

authoritarian tendencies of the Government,

the control of the NHS . They will be run

seen also in fact that the Secretary of State will chair the new NHS Policy Board . These

earning revenue from the services they sell

proposals amount to a further centralisation

and with the freedom to borrow money,

along business lines by a Board of Directors

Health after the White Paper build up reserves, retain surpluses and set their own wage levels . There are some

13

between District Health Authorities . The analogy with education is, however,

limits, and a requirement to provide some

misleading . First, education is a fairly uniform product with most pupils studying a

services to a local population where no

broadly similar range of subjects . By contrast,

alternative exists . The separation from the NHS is clear; they will play no part in the

patients enter hospital for a specific proce-

NHS planning system, only have to hold one

could follow the example of private hospitals

meeting a year in public and have to submit

and concentrate on particular specialities

an annual report to the Regional Health

which yield the greatest profit . Second, a

Authority, which will not be able to alter

school is self-contained, with pupils' needs

their plans . District Health Authorities,

being catered for predominantly within the

which will be the direct purchasers of the

school . A hospital, however, is part of an inter-dependent system linked to GPs for

modest restrictions on their borrowing

services of self-governing hospitals, will not even merit a copy of the annual report!

dure and this means self-governing hospitals

referrals and to the community after dis-

The Government has modelled its plans

charge for community nursing and other

for self-governing hospitals on its experience in education and has tried to plug the loop-

services . The self-governing hospitals lay the

hole that afflicted the education proposals,

foundations for a fragmented health care

where schools were coming forward to opt-

system with a return to a pre-NHS split

out simply to prevent closure . The White Paper warns that :

between municipal and voluntary hospitals

'the Secretary of State will need to satisfy himself that self-governing status is not being sought as an alternative to an unpalatable but necessary closure' (DoH, 1989b, p . 27) .

and the chaotic duplication of services this entailed. Indeed cynics at the Department of Health have dubbed the proposals 'Forward to the Forties' . The self-governing hospitals could become the target for management buy-outs or floated off as public companies . Private sector interest has

Nonetheless many hospitals seem to have

already been shown in Guys Hospital by Sir

put themselves forward just for this reason

Phillip Harris, former head of Queensway

(Phillips, 1989) and other health authorities have tried to gain the freedoms available

carpets . Could we be entering the era of the Queensway - Guys Hospital or even, more

under self-governing status while retaining

contentiously,

a comprehensive service by opting out as a

tobacco and brewing companies? The pros-

whole authority . These types of proposal run

pects for these hospital (with injections of

counter to the Government's aims and will not be approved . There is also emerging

private sector finance, freedom to concen-

conflict between health authorities which wish to retain a comprehensive service and hospital units, often spearheaded by the general manager, which wish to opt-out .

hospitals

sponsored

by

trate on profitable activities and pay attractive wages) will be good, and this will serve to further draw resources away from the rump of hospitals that remain . The prospects for the private sector have

Doctors are also divided . District Health

also been enhanced, although the White

Authorities are fearful that if hospitals opt-

Paper contains pitfalls for the unsuspecting .

out, it will make future planning almost impossible and will diminish their role,

The Government has given a boost to pri-

leading to a possible wave of mergers

on health premiums for the over 60s to

vate health insurance by allowing tax relief

Capital & Class

14

cushion the payments for those entering retirement . The impact of this measure is

of the population (DoH, 1989b). The other

likely to be modest as the elderly are not an

strand of Government policy has been to

attractive proposition to private health

restructure the NHS along commercial lines

insurers and premiums are still likely to be prohibitive for many elderly people .

with a strengthened management function, facilitating the development of links with

However, the concern must be that this will only be the first stage in the spread of tax

the private sector and introducing a range

relief on private health insurance, which

The White Paper takes this project a large step forward . By instituting an internal market in the NHS, the currency of the

could have a significant impact on the number of subscribers . The discrimination against poor risks, and other harmful side

now covers 5 .34 million people or 9 per cent

of value-for-money initiatives .

effects of insurance based systems, should

market place is being brought into the heart of the NHS . The diminishing resources allo-

also not be encouraged .'

cated on equitable principles to meet social

Private hospitals are pleased that a system of capital charges is being introduced into

need will be undermined by the vagaries of

the NHS, as one cause for complaint in the

the market place . The self-governing hospitals will be in the vanguard of this move-

past was that competition between the NHS

ment and that is why the Government is

and the private sector was unfair . They also have a great deal of spare capacity and

nurturing them so carefully . They will develop services against commercial criteria,

therefore, through the internal market more work will be passed their way, particularly

leaving health authorities to provide the rump of services . Although the edifice of the

in efforts to reduce waiting lists . There

NHS will remain, it will become an increas-

should also be new opportunities to develop

ingly fragmented hospital service which

joint ventures with the NHS . For example,

prevents the proper planning of services

in the grounds of Leighton Hospital, Crewe,

according to local need .

a new private South Cheshire Hospital is

There is considerable opposition to the

being developed, constituting the first fully

Government's plans . The gap between Gov-

fledged partnership between the two sec-

ernment rhetoric of choice and competition

tors . The only cloud on the horizon for the

and the reality of diminished choice and a

private hospitals is the potential competi-

fragmented health service is clear, as over-

tion from the new self-governing hospitals,

whelming public opposition to the pro-

but in the main they will not be competing

posals demonstrates . The Left needs to move

in the same market, as self-governing hospi-

beyond a policy of opposition to the White

tals will concentrate on more specialised

Paper and demands for increased funding of

high value added work, rather than the routine elective surgery which predominates

the NHS . It must also be wary of blindly supporting the stance of the medical profes-

in the private sector .

sion . Instead proposals need to be brought forward which are concerned to genuinely

Conclusion

increase the influence of users of the service, diminish the bias towards acute medicine

Since the Conservative Government came

and concentrate on the quality of patient

into office in 1979 it has presided over a

outcomes . It is only through the development of these types of strategies that the

massive increase in both the number of private hospitals and the number of people

long term health of the NHS can be safe-

covered by private health insurance, which

guarded .

Health after the White Paper

1.

A

(1983), NHS Management Inquiry, (The Griffiths Report), HMSO, London . DoH (1989a), Self-Governing Hospitals, Working Paper 1, HMSO, London . DoH (1989b), Working For Patients, cm 555, DHSS

Notes

NHMO

replaces the

USA

tee-tor-service

model of health care with a capitation fee for each member enroled and accepts responsibility to provide comprehensive health care services to its membership . They were established in the USA to contain spiralling medical expenditure . 2 . The arguments against health insurance have been rehearsed many times for a recent discussion see Culyer A .J ., Donaldson C ., Gerard K ., (1988), Working Paper No . 2, Alternatives for Funding Health Services in the UK, Institute of Health Services Management .

Bibliography Anonymous (1989), 'Opting Out Of The NHS', Financial Times, January 5th, 1989 . Anonymous (1989), 'Guys On The Carpet', The Guardian, April 27th, 1989 . Association of Community Health Councils for England and Wales (1989), Working for Patients? The Patients' View . Response To The Government's Review Of The NHS, Aschew, London . Brindle D . (1989), 'Health £490 million Underfunded', The Guardian, March 9th, 1989 . British Medical Association (1989), Special Report On The Government's White Paper, Working For Patients, BNA, London .

HMSO, London . DoH (1989c), Capital Charging Funding Issues Working Paper 9, HMSO, London . Enthoven A .L . (1985), Reflections On The Management Of The NHS, Nuffield Provincial Hospitals

Trust, London . Griffith B ., Iliffe S ., Rayner G . (1987), Banking On Sickness, Lawrence and Wishart, London . Joint NHS Privatisation Research Unit (1988), Contract Summary, March . King's Fund (1987), Planned Health Services for Inner-London . Back to Back Planning, King Edward's Hospital for London, London . Nicholl J .R ., Beeby N .R ., Williams B .T . (1989), 'Role Of The Private Sector In Elective Surgery In England And Wales 1986', British Medical Journal, January 28th, 1989 . Phillips M . (1989), 'A Whitehall Farce On The Operating Table', The Guardian, June 3rd, 1989 . Propper C . (1989), 'Buying Health Insurance', res Health Summary, vol . VI No . iii . Robinson R . (1989) 'New Health Care Market', British Medical Journal, February 18th, 1989. Scheffler R . (1989), 'Adverse Selection : The Achilles Head of the NHS Reforms', Lancet 99, 950-952 . Townsend P ., Davidson N . (1982), Inequalities in Health : The Black Report, Penguin, London.

15

Capital & Class

16

Scandinavian Journal of Development alternatives Order Now December 1989 Special Issue on "Nigeria : Some Selected Papers on Socio-economic Issues" and "Aids in Africa-the Present Crisis"

Olayiwola Abegunrin Namibia, Nigeria and Superpowers Daniel Mou Causes of Students Unrest in Nigeria : A Theoretical Exploration Chibuzo S . A. Ogbuagu Import Substitution Industrialization : What Lessons Have We Learned in Nigeria Tad Akin Aina Culture in the Development Process - The Nigerian Experience . S .Ogoh Alubo Crisis, Repression and the Prospects for Democracy in Nigeria . Olufemi Oludimu The Political Economy of Rural Savings Mobilisation . S .O .Okafor Political Unification and Transition Planning: Nigeria's Experience A .S .Aguda Mobilisation Approach to Rural Development in Nigeria : Constraints and Suggestions . Atare Otite Community-Rural Development and Self Reliance : The Issue of Food Production Under the Military . Eghosa E . Osaghae The Character of the State, Legitimacy Crisis and Social Mobilization in Africa : An Explanation of Form and Character Kayode Soremekun The International Environment of Nigeria's Petroleum Policy : Options for the Future Damien Ejigiri Deteriorating Economic Conditions in Developing/African Countries . A .I . Odebiyi and Franklin Vivekananda Aids in Africa: What are the Alternatives? Sara J . Talis and Scott T . Harris Aids in East Africa: A Regional Assessment. Olatund E. Okediji Acquired Immune Deficiency Syndrome and African Population: An Update Anselm Uba Aids in Africa: An Analysis . Amos K . Fabiyi Health Education Holds the Key to Controlling the Spread of Aids in Africa . A .I .Odebiyi Socio-cultural Factors and the Spread of Aids: the Need for Health Education G .N .Vukor-Quarshie Liability for Aids Infection Under the Criminal Law of Nigeria . Nwabueze H . Achime Health Sector in a Developing Economy : An Analysis of Primary Health Care Problems in Nigeria .

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Harry Cleaver

Close the IMF, abolish debt and end development : a class analysis of the international debt crisis 0

The left has responded to the international debt crisis in two ways : a reformist response which has, at best, called for debt relief and renewed lending, and a more radical response which has called for flat out cancellation of the debt . Unfortunately, the analyses upon which these positions have been based have contributed little to either a useful understanding of the crisis in terms of class relations or to the construction of appropriate working class political strategies to deal with it . Among the reformists, most of the critical commentaries written by those outside capitalist policy circles, however sincere their concern with the negative consequences of the crisis, have failed to understand it in terms of the changing relations of power between the working class and capital. In case after case the analysis reflects capital's point of view, most usually by accepting its own definitions of the relevant actors : private banks (and other forms of private capital), nation states or national governments, and international agencies (such as the IMF or the World Bank). To the degree that the working class makes an appearance at all, it is seen as the victim of capital's predations and blunders . ' For others, who have used Marxist analysis, the problem has been much the same : by

The political targets of this article are reformist understandings of international debt and development . Opposing theories which 'blame the victim', Cleaver construes international debt as 'a weapon against the working class', and the debt crisis as 'a product of working class power' . Repudiation of debt is accordingly the necessary Marxist political response .

Capital & Class fetishistically understanding capital's 'logic' without regard to the determining power of the working class, there is no analysis of that power which might provide a point of departure for an evaluation of useful strategy . Working class struggle appears in such treatments principally as a response to falling standards of living . (MacEwan 1985, 15-16, MacEwan 1986, 201-202, 206-207) . Such analyses have led directly to reformist politics : at best, calls for debt reduction and renewed - albeit more democratic - lending, at worst calls for the imposition of austerity which echo the policies of the IMF. In his book The Money Mandarins, Howard Wachtel (1986, 210-211) goes so far as to call for 'sacrifices by all parties,' and to argue that 'greater monetary stability has to be purchased at everyone's expense .' Similarly, in The Nation, I .F. Stone (1987) joined the attack on 'the biggest consumer binge of all time' and wrote 'The United States needs a dose of austerity as surely as do Argentina, Brazil and Mexico .' More recently, in Socialist Review, Lou Ferleger and Jay Mandle (1988, 108, 110) have also argued that 'Austerity, a reduction in imports, will be required ; the only question will be whose austerity .' All we can do, they say, is to distribute 'the burden of that austerity as fairly as possible .' With radicals like these who needs the IMF? We can have no hope of determining possibly fruitful directions of action for dealing with the debt crises that confront us unless we begin by rejecting all such solutions aimed at stabilizing capitalist finance and by identifying the nature and sources of working class power which have precipitated those crises . More interesting have been those more frankly radical responses which call for the cancellation of the debt . Less concerned with the viability of the financial system and more outraged at the costs to the people being exploited to pay the debt, a number of groups and authors have called for unilateral action to abrogate existing borrowing agreements . Notable among such groups are the Debt Crisis Network (DCN) in the United States and International Counter-Congress which met in Berlin in the Fall of 1988 to protest the Berlin meetings of the International Monetary Fund and World Bank - key managers of the global debt crisis . In its statement of principles the DCN declared its support for 'the call by some non-governmental organizations and governments in the south

International debt crisis to cancel payment of the debt ." In its September 24, 1988 declaration the Counter-Congress called not only for 'a global cancellation of debt' (rather than conditional cancellation or debt relief) but also for 'reparations' for past damage . While more radical in their conclusions, these groups' analyses of the debt crisis rejoin those of the reformists by focusing on the victimization of people (and of the environment) . To decide between reformist or more radical demands, as well as to discover the best strategies for achieving them, we need both to recognize how social struggles have precipitated and prolonged the crisis and to discuss how that power can be developed . This essay, therefore, outlines an analysis in terms of those powers of determination which the working class has exercised in the emergence and evolution of the crisis .' This approach recasts our understanding of the crisis as a crisis of capitalist power brought on and perpetuated by the ability of workers in various parts of the world to undermine capitalist planning and accumulation . This approach recasts our view of the relations among nationstates in terms of the class relationships within those nationstates as moments of a particular international composition of class relations.`` It recasts our understanding of the logic of capital as a system of rules which must be imposed and whose functioning is contingent upon the ability of capital to manage working class power. It does this by shifting the perspective of analysis from that of capital to that of the working class. There are three parts to this outline. The first, traces the origins of the crisis to an international cycle of working class struggles which ruptured global capital accumulation . The emphasis here is on the complementarity of struggles of workers in different countries and regions of the world and on the accumulation of debt as part of capital's attempts to deal with those struggles . The second part locates the continuation of the crisis in the failure of capital to overcome those struggles and to restore conditions for a new cycle of accumulation . Finally, the third part of this essay argues that existing working class power has been, to some degree, and should continue to be, at least partially, focused on the illegitimacy of the debt and organized to force its abolition. While the call for the abolition of the debt has been very much in tune with popular struggles in the debtor countries, a class analysis of

Capital & Class

those struggles and of others in the so-called 'creditor' countries is required to formulate appropriate strategies to achieve this end. The current emergence of debt crises in the United States - crises of federal debt, of the savings and loan industry, of family farm mortgages, of student loans - provide a golden opportunity for the coordination of working class struggles both North and South. Calls for overall IMF-style austerity policies in the us, for hundredbillion dollar bailouts of the s&L's, for the tracking down of student defaulters, all have in common the aim of reducing real income in favor of capitalist control. Analyzing the emergence of the debt crisis requires discovering how these financial problems constitute parts of the evolving structure of class relations - a process which involves situating the fetishized world of money and finance as moments of class struggle . On the surface, the debt crisis is a purely monetary and financial problem: how to manage international flows of capital so that the debtors of the Third and Second Worlds (and tomorrow, the United States in the First World) can repay their debts . Thus, the current literature on the debt crisis deals primarily with issues of liquidity vs solvency, the relations between private bank loans and official, especially IMF, sanctions, conditions of debt rescheduling and internal policy changes in the debtor countries. But, understanding these problems of liquidity, debt financing and adjustment in class terms requires analyzing two prior phenomena, both rooted in the changing structure of global class relations. The first of these is the build-up of the debt whose repayment has become an issue of conflict and crisis . Why did the businessmen and governments in the debtor countries take on hundreds of billions of dollars of international debt in the 1970s? Why were such large sums available to them at rates they thought they could handle? The second is the combination of the rapid rise in interest rates in the early 1980s that raised the cost of the debt to levels difficult to repay and the global recession in growth and in trade that made earning the foreign exchange necessary to repay the debt equally difficult . To understand these interrelated phenomena in class terms requires grasp of the state of the global class composition during the period in question, about 1970 to the explosion of the debt crisis in 1982 . Elsewhere, I and others have argued that this twelve year period was part of a somewhat longer

International debt crisis

period of crisis of the global capitalist order which has lasted from the mid-1960s to the present. 5 To make a long story short, let me just say here that we understand the onset of crisis to be founded in an international cycle of working class struggle which swept round the world in the second half of the 1960s, rupturing capital's global order West and East, North and South. That international cycle of struggles which escaped capital's ability to manage, and plunged the Keynesian era into a crisis to which capital has yet to discover an adequate response included rebellion both in production and in reproduction : in the United States : the civil rights and black power movements, the Chicano and Native American movements, the urban insurgencies that burned Watts, Newark, Detroit and other central cities, the student and anti-war movements, a wage offensive that ruptured the post-wwii productivity deals in the factories and, increasingly, the women's movement ; in the Third World: new insurgencies in South East Asia, South Asia, Latin America, and the last anti-colonial struggles in Africa ; in Western Europe : May 1968 in France, the revolt of Italian factory workers and students that led to Italy's hot Autumn of 1969, and an upsurge in the struggles of immigrant workers throughout Northern Europe ; in Eastern Europe : a spreading insurgency that erupted from Prague's Spring to the Polish explosion in 1970 ; in the heart of the socialist block, Russia and China: growing resistance to State organized exploitation that can be traced from the Moscow food riots in 1962 through the Cultural Revolution to the sympathy strikes in Russia at the time of the Polish upheaval . Not only did all these conflicts occur in the same period but they were often directly linked, as in the case of the circulation of rebellion from rice paddies and jungles of South East Asia to American campuses, as in the circulation of insubordination from the ghettos of America's central cities to her factories . The first economic signs of the extent and seriousness of the damage inflicted on the Keynesian order by these struggles included : at the national level: accelerating inflation, a grow ing productivity crisis, a decline in average corporate profit rates, and unmanageable government budget deficits ; at the international level: growing difficulties with trade patterns, exchange rates and speculative capital flows culminating in the

The crisis of the Keynesian era

Capital & Class American abandonment of the Bretton Woods system of fixed exchange rates in 1971 . The change from fixed to floating rates which took place between 1971 and 1973 constituted a de facto admission on the part of national governments that they no longer had the power to manage accumulation internally in ways compatible with global accumulation . This change also constituted a deft shift of terrain on the part of capital: from the concrete worlds of production and reproduction to the abstract and fetishized world of money, from the city streets, factories, college campuses and rice paddies in which the struggles of the 1960s were being fought to the obscure back rooms of central banks and distant markets for foreign exchange . The working class has taken years to grasp and respond to this shift. During those years, capital has lurched along from one crisis strategy to another ever seeking a formula which will restore its control . The path of this search has been largely determined by the pattern of struggles world wide . In terms of understanding the debt crisis, we have to look both at the individual struggles in various countries and at how capital has tried, and failed, to pit them against each other as the key to regaining control. This we must do to understand each aspect of the origins of the crisis mentioned above: the reasons for the heavy borrowing, how large amounts of capital became available, the source of the global recession that undermined the debtor countries ability to earn foreign exchange and the rise in interest rates which dramatically raised the cost of debt . let's look at these one by one. The desire and need to borrow

First, what were the reasons for the heavy borrowing? A complete answer to this question obviously requires a detailed analysis on a case by case basis of the class struggle in each of the 'debtor countries' and of why the actual debtors (capitalists, elected officials and generals) were willing to borrow enormous sums from their foreign counterparts . Although such analysis is obviously beyond the scope of this paper, nevertheless I think we can give something of a general characterization of this borrowing. In most cases, the local administrators of capital wanted to use the borrowed funds to finance both their short run response to local struggles, especially military/police control of the working class and their longer run response : local industrialization with all of its substantial investment attendant costs including

International debt crisis infrastructure . In the three largest debtor countries Mexico, Brazil and Argentina such development investment was clearly predicated on the political repression of local struggles, in two cases by military juntas . We should remember that the imposition of military rule in Brazil in 1964 came as a response to an upsurge in workers demands, that the background to Mexican borrowing included the massacre of students in 1968 and widespread repression of peasant land seizures in the late 1960s, and that the military in Argentina sought to build factories on the unmarked graves of the some 30,000 murdered insurgents . The borrowed money was a weapon in the reestablishment of accumulation after the local moments of the cycle of struggle mentioned above. The money was being drawn into these countries with the aim of turning it into capital by exploiting what were, at least temporarily, stabilized populations of workers .' In other parts of the Third World, such as the Sahel, where the working class was weaker and nature provided capital with an alternative weapon, the response to struggle was not development but underdevelopment as drought was turned into famine and starvation was wielded against insurgent nomadic populations . In those countries borrowing for productive investment was a secondary response to popular resistance to capital. (Cleaver 1977) In Eastern Europe, in Poland and Hungary especially, the heavy borrowing came after the failure to generate local surpluses and investment adequate to meet the growing demands of the working class . The violent rejection by the Polish people in December 1970 of government attempts to shift resources from consumption to investment by cutting food subsidies caused reverberations throughout Eastern Europe and the Soviet Union . With direct attacks on working class consumption ruled out by the level of militancy and organization, socialist managers were forced to resort increasingly to borrowed capital to finance the industrial restructuring they needed to meet local demands and to regain control over accumulation . This was by no means the only response the Soviets, for example, in 1972 faced with poor harvests also concluded the greatest grain pact in history with American grain companies to immediately increase food availability in the Soviet Union - but it was a common and important one.

Capital & Class When violence erupted again in Poland in 1976, this process was accelerated and even the Soviets felt forced to revise their 1976-1980 five year plan to increase the production of consumption goods. (Cleaver 1977) The availability of Capital

Second, lets examine the question of how large amounts of capital became available. The superficial answer to this is well known: the bulk of the capital loaned during this period came from the Eurodollar market, at first from deposits that found no takers in crisis-frought Western Europe and then from the enormous dollar surpluses generated by the OPEC countries through their nationalizations and quadrupling of the the price of crude oil in 1974 . While part of those surpluses were used to import the goods required for development at home, the largest part of it, which exceeded their 'absorptive capacity' in the short term, was deposited in Western financial institutions, especially American banks. Those banks then found themselves with huge new resources available for loans - loans which we have seen to be both desired and needed by a wide variety of borrowers . But while this story is well known, we need to pause here and look behind the surface flows of dollars ; we need to penetrate the fetishism of money and question the changes in class relations that underlay these rearrangements of world capital flows. To do that means first and foremost recognizing that the rise of OPEC and its extractions of petrodollars from the rest of the world was not simply an affair of governments and nation state competition, not in the OPEC countries, especially those in the Middle East, nor in the relations between the OPEC governments and the governments of the `oil importing countries.' In the first place, the motivations of the OPEC governments lay not alone in simple greed, as they were popularly depicted in the West, nor even in justified repayment for decades of exploitation as some of their apologists have argued .' Rather, the need for control over oil production, higher oil prices and balance of payments surpluses was dictated by the growing, uncontainable demands of the workers and peasants in those countries. To show this as clearly as it should be shown would require, once again, a detailed examination of each case . I will discuss only a couple of examples .

international debt crisis The most obvious case, and one central to the story of the debt crisis is that of Iran - whose government under the Shah at that time was attempting to carry out two simultaneous projects : development at home and becoming a major military power in the region . Both were costly, requiring a lot of money, and both were reflections of popular struggle in the area . With respect to development at home, the situation in Iran was similar to that in Latin American debtor countries rising popular demands were met by a combination of police state repression and investment . The Iranian counterpart of the Brazilian `miracle' of accumulation based on repression, was the Shah as Modernizer who undertook a vast project of nation building backed by the torture chambers of Savak, the secret police . With respect to the situation in the region well, it is obviously a complicated story but suffice it to say, in this context, that every government in the Middle East fights a daily Orwellian battle to manage populations constantly threatening to escape control, and the most volatile and catalytic part of those populations, throughout most of the region are the Palestinians . The Shah's project of becoming the primary regional power clearly required dealing with those dispossessed and constantly insurgent people . A second example of OPEC motivation, taken from outside the Middle East, is that of Nigeria in West Africa . The history of Nigeria since decolonialization is one of constant battle between the efforts of its neo-colonial governments to go on managing the structure of exploitation put in place by the British and the struggles of its workers and peasants to escape or reduce that exploitation . Time after time, the Nigerian government responded to popular demands by formulating multi-year development plans of accumulation only to see each one of them in turn undermined by popular resistance and upheaval . The culmination of one such cycle of struggle was the Nigerian civil war from 1967 to 1970 . It involved a terrible cost for substantial sectors of the working class (especially in Biafra) but was eventually followed by the reemergence of growing class conflict . With a tradition inherited from the British of drawing surplus value from workers primarily through the manipulation of export prices - buying cheaply from Nigerian producers and selling at higher prices in world markets - the Nigerian government saw in OPEC and high oil prices a vital new source of capital

Capital Pi Class to impose its development plans on both peasants and workers. It needed those external resources to restructure class relations at home in such a manner that more surplus value could be generated internally with less dependence on both volatile world markets and the workers who produced for them . To sum up this part of the argument : the immediate source of the money which financed the build up of debt derived from OPEC government responses to the struggles of people in their own countries and region . II At the same time, we also know that the original source of the OPEC surpluses was the consumption income of workers in the oil importing countries as the higher prices for crude oil were passed on by capital to the final prices of everything from gasoline to football helmets. The question must be why did Western policy makers allow OPEC to carry out this gigantic process of surplus value transferal to the oil exporting countries? We know from past Western intervention in the Middle East - from the CIA overthrow of the government in Iran in 1953 through the British and French invasion of Egypt in 1956 and the American military intervention in Lebanon in 1958, to more recent support for the Shah and Saudi governments in the stabilization of the Persian Gulf - that Western governments have never felt helpless or reluctant to influence the evolution of politics either in the region or in particular countries . We also know, now, from those who were involved that despite the official condemnation of the `extortionary' quadrupling of oil prices, and Kissinger's sending of the Marines into the Mohave to practice intervention into desert regions, that the us negotiators quietly let the OPEC countries know that the us government would not oppose oil price increases (Oppenheim 1976r-77) . Why did those policy makers look upon those increases with such tolerance? European commentators' cynical interpretations turn around the view that the price increases hit Europe harder than the us and the inflation would undercut European competi tiveness with American goods . There may be some truth to this but we can root even this understanding which explains things in terms of nation state competition in the changing class relations in both Europe and the United States . It is certainly true that the American trade balance went into deficit in early 1971 for the first time in decades, and that the devaluations of the dollar in 1971 and 1973, were aimed

International debt crisir partly at correcting this imbalance - to some degree at the expense of Europe . But, we must also recognize that the source of declining American competitiveness lay not only in the accelerating inflation which was pricing American goods out of world markets, but that inflation itself was a manifestation of working class insurgency at home and abroad - from American factories where workers were pushing wages up faster than productivity, through the riot torn streets of American cities where the programs of the Great Society were trying to regain control, to the rice fields of Asia where the vast expenditures of the war against Vietnam were fueling 12 inflation at home and around the world. Against this background, which had precipitated the crisis in the first place, American policy makers saw a great opportunity in the OPEC price increases which went beyond any competition with Europe . That opportunity lay in the combination of a reduction of working class income in the United States, through further price increases, and the necessary recycling of the petrodollars which would make them available for the capital investment which was widely understood to be necessary to undercut working class power and restore productivity and accumulation, not only in the us but also in Europe and elsewhere. The Western tolerance for OPEC, stemmed, at least in part, from a vision as to how OPEC could be used as a financial intermediary to transfer value from Western consumers to Western capital - something that is The Keynesian management had failed to accomplish . emergence of the petrodollar surpluses which would fuel the debt crisis can thus be seen to have been a worked out compromise among various national managers of capital seeking to deal with working class insurgency in both the oil exporting and oil importing countries . Now, the success of the project of using petrodollars to finance development investment in the oil importing countries, especially the us and other OECD countries, but also the Third World, depended on the ability of capital to convert higher oil prices into a reduction in the real wage, i .e ., in holding nominal wage increases below oil boosted inflation. In terms of international trade accounts this would translate into reductions in consumption imports to offset the higher costs of oil imports. As we now know, despite the global recession of 1974-75 and substantially increased unemploy-

Capital & Class 28

ment this strategy failed to a considerable degree . Faced with the joint assault (of higher unemployment and accelerated inflation) on their standard of living, workers in the United States (on the average) were able to mobilize the power necessary to force increases in nominal wages enough to offset the additional inflation ."' As this had the simultaneous effect of further undermining the profitability of investment in the us, petrodollars were diverted toward speculative rather than productive enterprise . Everywhere this happened around the world, to whatever degree, the result was a failure to limit non-oil consumption imports and the emergence of new or augmented trade deficits whose financing could only be accomplished through IMF coordinated action (the Special Oil Facility) and through the diversion of petrodollars away from investment loans by the private international banking system . These deficits and this diversion not only added to the growing burden of debt but also undercut the use of debt to finance productive investment . Interest rates and recession

Let us now turn to the third essential moment of the emergence of the debt crisis in 1982 : the global recession that undermined the debtors ability to earn foreign exchange and the rise in interest rates which dramatically raised the cost of debt . Once again, we can situate these events as moments of the changing pattern of class conflict around the world . We know the policy changes that caused both the rapid rise in interest rates and the recessions of 1980 and 1981-82 : the anti-inflationary shift in American monetary policies managed by Fed Chairman Paul Volcker which began under Carter and continued under Reagan . We should also know, by now, that throughout the 1970s 'anti-inflationary policy' was increasingly a euphemism for 'anti-wage policy .' Throughout at least the second half of the decade many, including most notably the IMF, had been calling, in increasingly urgent and strident terms, for a globally coordinated attack on inflation that would include not only tight money but also demand reduction measures (e .g ., cuts in social welfare expenditures) and the breaking of'structural rigidities' in labor markets (e .g ., trade unions and wage indexation) . In the United States, and later in Europe, those monetarist policies were accompanied by an explicitly supply-side effort to shift resources from workers to capital . i s Those were policy

International debt critic recommendations whose class meaning should be recognized : direct and indirect attacks on a working class whose struggles have escaped control and whose behavior must be brought back into line with accumulation . This shift in monetary policy, which had the direct effects of 1) dramatically raising interest rates, first in the United States, and then in all major financial markets, and, 2) in conjunction with an initially mild fiscal stimulus (from tax cuts and increased defence expenditures - partially offset by reduced social expenditure), of precipitating the Reagan Recession, constituted another major moment, after the shift to floating exchange rates and the recycling of debt, in the capitalist manipulation of money to regain control in the class struggle . This was the means by which, at last, the highest unemployment since the Great Depression coupled with reductions in income support for those losing their jobs was able to bring about substantial reductions in average real wages in the United States . To the degree that this occurred, the Carter-Volcker-Reagan monetarist attack on the working class succeeded, not only in the United States but elsewhere as real wages slumped and wage hierarchies were restructured around the world. Thus the dramatic rise in interest rates which raised the cost of debt service so substantially, as well as the global recession which increased the difficulty of earning foreign exchange for those who had borrowed during the 1970s, must be understood as another phase in a decade long effort by capital to turn the crisis against the workers who had precipitated it . In this case, the focal point was conflict with workers in the United States, but the size and centrality of the American moment of global accumulation meant the rapid circulation of this new phase in the conflict to all parts of the world. In the case of the other creditor nations, such as Europe and Japan, the effect would be to cause a similar monetary tightening and parallel attacks on the working class through high unemployment . In the case of the debtor nations, both East and West the result was to dramatically increase the pressure on local managers to resolve their local difficulties with workers. The increased cost and difficulty of servicing the debt would be the proximate cause of the explosion of the crisis in August 1982 when Mexican capital declared its inability to cope and demanded a rescheduling of the debt in line with more realistic prospects of gaining control over accumulation .

Capital & Class

2 Having located the origins of the debt crisis in an international cycle of working class struggle, I now want to argue that the continuation of the crisis in the ability of borrowers to repay that debt lies in the failure of capital to overcome those struggles and to restore conditions for a new cycle of accumulation . The major characteristics of the last six years of debt crisis have been the dramatic reversal in net capital flows from the debtor countries to the creditor countries and the continual wrangling over the schedule of debt repayment and the conditions for debt financing - i .e ., of new loans to cover repayment of old debt . In this wrangling the IMF has played a central role as broker between creditors and debtors and as global enforcer of the capitalist rules of the game . Meeting the `conditions' set out by the IMF quickly became a requirement for gaining new loans, and those conditions are essentially policies of austerity designed to increase the availability of foreign exchange (for repayment purposes) primarily by cutting imports and government expenditures . To the degree that local debtors are willing to make a serious attempt to follow IMF guidelines, they have been able to obtain the new loans necessary to roll over their debt . Where they have refused to meet those guidelines, they have been cut off not only from private loans but from IMF money as well . This central role for the IMF did not begin with the debt crisis, of course, it began in the mid-1970s as first the demands for debt began to accelerate and then as repayment difficulties began to emerge in the late 1970s . But, it was precisely that experience and the approaches worked out during that period that were brought to bear in the crisis phase that began in 1982 . The debate over debt

Within this context a wide ranging debate has sprung up between the architects and defenders of the IMF led bank approach to managing the crisis and critics who argue for other approaches . For the most part the debate has been between the IMF position that austerity, improved balance of payments and continued debt service are prerequisites to renewed growth and the critics' assertions that because growth is a better guarantor of both debt service and future growth, the current

International debt crisis debt service load should be reduced and stimulative rather than contractionary policies pursued within the debtor countries . The IMF approach has been hardnosed and insistent . Its austerity programs demand the shortest possible path to the restoration of debt service, trade balance, profitability and growth . That path is steep, rugged and painful. When we examine the typical IMF prescriptions we can see that they are aimed directly and self-consciously against those policies and institutions which are manifestations of working class power to resist exploitation in the debtor countries . For example, the almost universal IMF demand for cuts in government expenditures to reduce budget deficits is commonly aimed at cutting those expenditures which subsidize consumption, either directly through programs which provide cheap basic food goods, or indirectly through cuts in state and parastatal wages and employment . Such attacks have also been accompanied by pressure for denationalization or privatization to break the workers leverage with the state . Similarly, the common demand for the devaluation of local currencies also strikes directly at working class consumption of imported goods which in many countries includes basic subsistence goods . The IMF's critics, more impressed with its failures than its successes, and sometimes tempered with an humanitarian sympathy for those hardest hit by austerity have sought to find easier paths to adjustment . The two most common critical responses to the typical IMF policy demands are first, that such policies don't work to restore growth (the major liberal argument) and second, that the IMF is placing the cost of resolving a crisis of capitalist development on the victims of that crisis rather than on those responsible (the major leftist complaint) . The first response involves such arguments as the following: the universal imposition of austerity, devaluation and import reductions to generate foreign exchange can't work because while it is possible for large numbers of countries to become poor, it is impossible for everyone to devalue simultaneously or for everyone both to cut imports and still think they can continue to earn foreign exchange by holding their exports steady or expanding them . A related argument is that the cuts in government expenditures and imports brought on by devaluations have not differentiated adequately between

Capital & Class unnecessary consumption imports and the necessary importation of raw and intermediary industrial goods . As a result, the drop in consumption has been accompanied by a parallel drop in investment and production instead of the hoped for expansion. 16 The second response, the blaming the victim critique, involves either a mechanical Marxist analysis that the debt crisis is an inevitable manifestation of capital's internal laws a view in which the working class always appears as victim or the view that the origins of the crisis lie in capital's incompetence and mismanagement : in corruption and capital flight and with greedy bankers who recklessly pushed loans without regard to risk, of the central bankers in the imperialist countries whose misguided monetary policies precipitated the crisis in the first place and of the IMF whose approach has made matters worse. (Moffitt 1983, Watkins 1986) . In either the first or second responses, the prescription is for some kind of debt relief which would shift the burden of adjustment from the debtors to the creditors and from the working class to capital. Typically the alternatives include such things as : debt consolidation, stretching out the debt, reducing interest rates, or even writing off part of the debt to force the banking system to absorb losses and thus share the cost of adjustment . For some debt relief is explicitly sought to undercut more radical demands for total cancellation . (Sachs 1989) More generally, the basic idea is by reducing the burden on the debtor countries and by pursuing growth oriented policies to stimulate investment, production and demand, this will generate greater capacity to repay whatever part of the debt is not written off. Against the INIF's mailed fist of austerity, these critics propose the velvet glove of development . (Debt Crisis Network) What we need to recognize when we examine the many sides of these debates is the common goal that runs through the various proposals and counterproposals : the restoration of accumulation . However the assorted prescriptions distribute the burden of adjustment, the ultimate object of all concerned is the reestablishment of the conditions and actuality of growth . In class terms this means nothing less that the overcoming of working class resistance and the launching of a new period of sustained capitalist exploitation . Implicit in this common goal is the understanding that the current period

International debt crisis constitutes a crisis of capital's ability to manage working class struggle in such a manner as to generate expanded reproduction . What this embrace of the development alternative ignores is that the struggles which led to the debt crisis were revolts against development, against precisely that accumulation of capital the humanitarians want to promulgate . To go beyond this blindness requires learning to see in the demands and struggles of people around the world not only what they are struggling against, but also how what they are struggling for are often self-defined paths of self-valorization which move in a wide variety of directions . 17 The persistence of the debates over the best method to proceed is itself the result of the failure of past attempts to achieve this goal of a return to development . Similarly, the repeated reschedulings of debt, under whatever conditions, are the result of the failure of past methods. Those reschedulings periodize the attempts and failures by capital to regain control over the working class - when control means not merely the power to repress but also the power to extract surplus value. Let us examine briefly a series of examples characteristic of the difficulties in enforcing conditionality and reestablish development . Among the earliest examples, in the OPEC-debt era, of the failure to impose creditor dictated austerity is the almost paradigmatic case of Egypt in 1976-77 . Hard pressed to manage its working class the Egyptian government turned to the IMF and to its Arab bankers for new loans. They in turn demanded the implementation of what would become typical austerity policies, especially the reduction of government subsidies for basic foods to finance an increase in agricultural prices . When his creditors insisted on these changes despite Sadat's warnings of possible consequences, the subsidies were cut . The result was a dramatic, overnight explosion of popular anger throughout the major cities of the country - an explosion which resembled, more than anything else, the similar eruption in Poland that same year . Within 24 hours Sadat was forced to rescind the cuts and the creditors supplied the loans without the previous conditions being met. The history of struggles in Brazil, after the military coup in 1964, has been mixed . The military did prove able to

33

The continuing crisis

Capital

f7

Class oversee a period of heavy investment, intense exploitation and rapid growth - the Brazilian 'Miracle' - but with remarkable rapidity the Brazilian working class reorganized itself and at the very moment of the attempt to move from tight military control to a more open and flexible system launched a new cycle of struggle . That cycle was largely responsible for the repeated failure of the Brazilian government to implement its agreements with the 1MF, especially those concerning the control of wages . Time after time the government would pass a wage directive limiting wage indexation to less than inflation only to have massive demonstrations force the parliament into refusing to turn the directive into law. (Dudley 1988) In this situation it is not surprising that well known economists like Celso Furtado have become outspoken opponents of IMF austerity and passionate advocates of a growth solution to the debt program . (Furtado 1984) In neighboring Argentina, the tremendous debt piled up by the military, first in its war against its own people and then in the war with Britain over the Malvinas/Falkland Islands, brought an end to military rule and a return to civilian government . But even with this shift to a more legitimate government, capital has been unable to manage the legitimization and repayment of the accumulated debt . In neither the Argentinian middle class nor in the Peronist led working class has there been a willingness to accept the austerity demanded by the IMF . In Argentina, as in Brazil, the call for growth solutions have been widespread and Alfonsin has wavered between resistance and austerity. The recent defeat of his party and the election of a Peronist president together with widespread insurgency against rising food prices mark the continuation of the crisis for capital in Argentina. In Eastern Europe the most dramatic case has been that Poland of . Following the upheavals of 1970 and 1976 and the constant build-up of debt during the decade of the 1970s, came the uprisings of 1980 and the birth of Solidarity - the most important rebellion in Eastern Europe since the Hungarian Revolution of 1956 . Not a member of the IMF but accumulating substantial debt to Western Banks, the collapse of Polish government development strategy for dealing with growing working class demands led to the imposition of martial law, the outlawing of Solidarity and, shortly thereafter, to an official Polish demand for admission to the IMF . As we can see

International debt crisis from Ronnie Phillips' paper on debt and class struggle in Poland, the strategy of the Polish government closely resembles those of other debtor governments in the West . (1987) Affiliation with the IMF was sought both for the access it would give to increased Western loans to roll over its debt, and for the extra external legitimacy the IMF would provide for the imposition of austerity . This crisis in Poland not only saw a dramatic collapse in investment but a government forced to allow the money supply to expand to accommodate dramatic increases in nominal wages (and in consumer prices) as it fought to maintain social stability while outlawing the primary expression of working class power. In order to obtain debt refinancing and membership in the IMF the government renewed its attack on working class income in 1986 through food price increases and cuts in consumption subsidies. The inadequacies of those measures were made obvious in November of 1987 both by the governments' introduction of a national referendum on austerity and economic reform and by the defeat of the government proposals . The subsequent legalization of Solidarity and the government's acquiesense to the overwhelming success of Solidarity candidates in recent elections both measure the growing desperation of the State. Its plan seems to be to harness Solidarity's popularity to the cause of austerity and reform . But even as some of Solidarity's top leadership have indicated their willingness to play such a game, rank and file workers have begun to resist autonomously . The debt crisis in the East continues . American policy makers, it will be recalled, adopted monetary restraint and increased unemployment in the period after late 1978 as anti-inflationary/anti-wage weapons aimed at a supply-side shift of resources from the consumption of the American working class to the investment of the capitalist class. However, despite the contribution of these policies (along with deregulation, attacks on unions and cuts in social programs) to the depression of working class income and despite other policies aimed at raising business profits (tax cuts, deregulation and the give-away of public lands and resources) to stimulate investment, by mid-1982 not only had business investment not expanded to offset the depression of consumption but as a result the increased unemployment had grown into a major global recession. By the time Mexico

Capitalist policy and class struggle in the USA

Capital & Class declared its inability to repay its debt in August of 1982, the Reagan White House was involved in bitter disputation not only with a wide variety of groups whose resistance had effectively blocked further attacks on the social wage (after the initial reductions gained in the summer of 1981), but also with the business community over proper strategy . When, in the fall of 1982 under pressure both at home and abroad, Volcker reversed the key monetary policy from restraint to expansion to bring down interest rates, especially for consumers, he was effectively abandoning a central strand of the White House program. The subsequent recovery that dates from 1983 to the present represented a major failure in capitalist policy . It was a failure because despite the fall in real wages and the class decomposition of a number of industries through deregulation, the successes achieved by the beneficiaries of social and entitlement programs in blocking further reductions coupled with ongoing resistance (both at home and abroad) to industrial restructuring prevented either a sufficient rise in profit rates on productive investment or the generation of state surpluses to induce or finance a new cycle of investment . Instead, the recovery was consumption led - a return to the working class led growth of the Keynesian era - with most new investment to expand productive capacity being that induced by the expansion of consumption." Subsequently, and for the last five years, capital in the United States has opted for speculation over productive investment, fueling real estate bubbles, takeover mania and the long bull market on Wall Street - what even Business Week has called 'the casino society .' 19 Yet, however many Wall Street traders have struck it rich in these years of almost 19th Century like capitalist greed and speculation, we must not lose sight of the fact that it all represented a tremendous avoidance of real investment, a gigantic capitalist aversion to precisely the supply side launching of accumulation which the Reagan White House had tried to induce . Moreover, we should not confuse ourselves by thinking that the avoidance and aversion were irrational acts . We should instead see in them responses to the failure of both recent and past attempts to decompose the working class into a profitably malleable labor force. Long were the discussions during this period of the weaknesses of American management, especially vis a vis the Japanese . Few were the imaginative attempts to formulate new approaches to

International debt crisis labor control." What restructuring investment there was during this period mostly followed old paths, either continued automation, as in the automobile industry, or geographical displacement of existing technology into new pools of foreign labor as in the electronics industry or union-busting industrial reorganization as in the deregulated airline industry . Two by-products of the failure of the Reagan strategy were the constantly ballooning Federal budget deficit and an expanding trade deficit fed by the resurgence of consumption. Both of these deficits had to be increasingly financed by overseas borrowing. To attract the money necessary for that financing, the Fed, under both Volcker and Greenspan, has had to maintain enough monetary restriction to keep American interest rates attractive to foreign investors. That in turn has limited their ability to use lower interest rates to stimulate domestic productive investment . This they might well have done, given the drop in the inflation rate brought on by the global recession induced drop in oil prices together with the successful attack on real wages at home . The continuing failure to eliminate, or even substantially reduce, the budget and trade deficits makes major reductions in interest rates impossible, however, and has forced American policy makers to seek a coordinated international solution to the problem by demanding that the other major Western countries, especially Japan and West Germany cooperate to bring down the value of the dollar and pursue stimulative policies, including monetary expansions to cut interest rates . All these measures are aimed at improving the trade deficit (by raising the cost of American imports, further undercutting the real wage, and by cheapening American exports) while allowing the Fed to further lower interest rates in the us . Japanese and especially West German resistance to these American demands have stemmed from their belief that the us government should put its own class relations in order, i .e ., cut consumption fat out of the budget deficit and out of working class income, rather than undermining its allies' projects for maintaining control at home . The German Bundesbank's constant fear of inflation, which it always cites as a reason for limiting stimulative measures, despite unemployment at an historically high eight per cent, clearly reflects an underlying fear of a resurgence in German working class wage struggles . Within this context, debtor country demands for major interest rate reductions to ease

Capital Pi Class their problems of imposing austerity will continue to encounter stiff resistance from monetary authorities in the creditor countries who need high rates for their own class purposes .

Today, not only does the debt crisis continue as a symptom of the continuing crisis in capitalist control and of the continuing power of the working class to resist decompo sition, but it has spread from the Second and Third World to the First. The foreign financing of the American federal budget deficit together with private borrowing of foreign capital add up to some $400 billion and make the United States the world's larger debtor nation . As a result we are now witnessing the beginnings of a debate over this debt which strikingly resembles the ongoing debates about other countries debt crises . The litany is familiar . Americans are living beyond their means, consuming the world's wealth with borrowed money. Farmers have bought too much land and machinery by irresponsibly borrowing too much . Students have been financing their own education by borrowing and are now reneging on their loans . The build-up of federal debt is accelerating ; it may reach $1 trillion by the end of the Century unless something is done . The solution? As always : a more or less severe constriction of consumption and a shift of resources toward savings and investment to generate the wherewithal to repay the federal debt . (Businessweek 1987, Petersen 1987) Inefficient farmers should give up their farms and go into other lines of work . Students should be tracked down and made to pay off their debts. Sound familiar?

3

Having seen how international debt has been a weapon against the working class and its crisis a product of working class power, we can now evaluate the alternative responses which have been put forward on the left .

Debt relief versus default

On the basis of the class politics of the situation, there seems to be a good case for siding with the radical demand for debt cancellation as opposed to the reformist demand for debt relief . We have seen how the build up of debt was itself a double

International debt crisis crime, against those from whom the money was stolen (via OPEC) and against those to be used and abused with it . The acquisition of the debt can in no way be viewed as a legitimate process. The elites in the Third World who did the borrowing were neither democratically elected nor representative of the working class whom they now want to repay the debt . Moreover, the uses to which they have put the borrowed money have been, on the whole, antithetical to the interests of workers . While the use of the borrowed money to create jobs and wages may not have been as painful as that used to finance repression and murder, it was nevertheless used for the purposes of exploitation and the pacification of working class struggles. Domination's velvet glove may be less oppressive than its mailed fist, but it is no more desirable for all that . A first conclusion, therefore, is that, at the very least, we can and should carry on a campaign to delegitimize the debt itself. It is not enough to argue that its cost has been to high or that it has already been repaid many times over in absolute terms - that is true of every home mortgage ever paid off. We need to tell the story of its origins and its purposes and attack the IMF and the banks' arguments that a contract is a contract and fair play requires paying back money you have borrowed . Once we accept the argument that the debt is not a legitimate burden acquired by the bulk of the people in any country, then there is clearly no moral or ethical reason for continuing to repay it . The political case for repudiating the debt is also obvious, once you accept a working class perspective . The borrowing was done by capital, for capital and against workers. A second conclusion, therefore, is that we should not only denounce the debt but we should fight for its repudiation . However, along side, the moral, ethical and political cases for repudiating the debt, we must also confront the strategic issue . Many who call for debt relief are undoubtedly convinced that any repayment, however reduced, is unjust but are also convinced that default would either do more harm than good or is impossible . Would not the repudiation of international debt result in the isolation of any country daring to carry it out, a cut off of any further access to international finance, the collapse in trade and production, rising domestic unemployment and further drops in living standards? Clearly if all lending, including official trade and development finance

Capital & Class were terminated such results are imaginable . The threat of such cut offs have been used both by creditors to discourage default and by local governments to explain to their people why they have repeatedly given in to IMF conditionality . Under such circumstances doesn't it make more sense to renegotiate debt relief - perhaps through a debtors cartel and continuing repaying a reduced debt in exchange for new development financing? Wouldn't such an approach reduce the burden on the poor and achieve rising standards of living through growth? The answer depends on whether we think these threats are likely to be carried out . Given that net private capital flows are already negative, the real issue is whether creditor country governments and international development banks would respond to default by cutting trade and development project finance. For individual countries, especially small countries, the example of Chile under Allende and Nicaragua under the Sandinistas suggests a high likelihood that they would . For a debtor cartel made up of the largest debtor countries the probability seems much lower. A cut-off of us and European trade and finance with Latin America, for example, would cause serious damage to the North Atlantic economy and to us and European multinational corporations - as was been clearly demonstrated during the trade collapse of the 1980s. The size of such trade and investment interests of the creditor countries together with the need for future borrowing by debtor governments for social control and accumulation, makes it likely that the response to large scale collective default would be negotiation of future economic relations rather than destructive retribution . 2 1 Moreover, whether the response to default will be retaliation or negotiation will depend in part on the circumstances under which collective default occurs . Past experience (e .g ., Egypt in 1976, Venezuela in 1989) suggests that if default were to be perceived by creditors as a last ditch effort by debtor governments to retain power in the face of popular upheaval, retaliation is much less likely because it would undercut the ability of the local states to maintain capitalist order. The necessity of such political economic calculation has been drummed into the heads of central bankers and government leaders by periodic worker explosions strong enough to force the abrogation of miscalculated agreements . International discussions of the debt and of future finan-

cial and trade relations would take place against the background of the socio-political crises which brought on default . At such a point, the class struggle would shift from the refusal of austerity to contestation over possible new relationships . For those who are interested in development, debate would ensue over which strategies of both domestic investment and international linkages would best produce growth . They would seek to orient such negotiations toward the restoration of flows of credit to finance accumulation ." Working class interests, however, demand the subordination of investment to the meeting of peoples' needs, outside and against accumulation . The pressures that produced default would have to be reoriented toward the creation of spaces free of outside control within which various parts of the working class can elaborate their own alternative visions and social projects . At this point the arguments of those such as Susan George and the Berlin Counter-Conference that beyond default lies the issue of development come to the fore . It is here that a serious debate must be engaged over the issues of development and selfvalorization . To accept the desirability of development, as I have argued elsewhere, is to remain bound within the project of accumulation and to be limited to disputing its form and the class origins of its managers . (Cleaver 1988) We can do better than this . All around the world are people in communities who have been elaborating social projects of self-valorization, ways of being and interacting which go beyond the workcentered, sexist, racist, alienated existence offered by capitalist development. These projects provide points of departure for alternative paths of social evolution. What is needed are the spaces and opportunities for their expansion. Either we believe in our ability to craft a new world, or we do not . Those of us who are convinced that we, collectively, have this ability can not accept being limited to some variation of accumulation . To summarize the political agenda so far: we should attack the legitimacy of the debt, we should demand its repudiation and we should oppose any future acquisition of debt which would bind us within accumulation . To achieve these ends we need to 1) build and dissiminate the case against the debt and its repayment, 2) organize a popular mobilization with sufficient power to force a collective repudiation of the debt on a broad enough scale to minimize the chances of retaliation, and 3) prepare for shifting the focus of struggle

International debt crisis

Capital & Class 42

from default to the opening of spaces of self-valorization outside and against accumulation . Forms of organization.

To date the organizational forms that have been developed in the struggle against the debt have often been obscure, or limited, or unproven . Most important and effective, at least in some instances, have been the popular upheavals in the debtor countries against austerity measures aimed at workers. Prototypical were the insurgencies in Egypt which forced the cancellation of food subsidy cuts and those in Brazil which countered the austerity wage decrees. Unfortunately, not only have the results of such uprisings have been mixed - some have failed with considerable loss of life - but their internal organizational dynamics have remained largely unknown to those not immediately involved . There is no doubt that a variety of intellectuals, politicians, union leaders and cartoonists have contributed to the deligitimazation of the debt in those countries, but we know little about the dynamics of struggle in the working class communities where the explosions have originated . Given the importance of such popular upheavals, any effort to build a movement against the debt should include careful study of these explosive processes of class recomposition to learn how they can be linked in an international movement . More limited but easier to grasp have been the efforts in the creditor countries to oppose IMF austerity and debt repayment. These include short-term, concentrated efforts such as the September 1988 Berlin Counter-Conference and longer term efforts such as the Washington-based Debt Crisis Network. Berlin militants led five days of protest and attack against the annual meetings of the IMF and the World Bank . What is interesting about those Berlin protests was the way in which a variety of autonomous struggles were woven into a unified effort . The call for debt repudiation was a central demand, but it was also a vehicle for the discussion of a wide range of issues (feminist, environmental, squatter, youth, peace) at the center of the crisis of class relations in Germany as well as in the world as a whole. (Interview 1988, Autonomic 1989) Future meetings could also provide occasions for other cooperative attacks on the IMF and for discussions of how to build the struggle internationally. The emergence of the United States as a prominent member of the league of debtor countries creates a unique

International debt crisis possibility . Given that most of the largest multinational banks holding outstanding debt are based in the United States and are subject to governmental regulation, an international struggle for the repudiation of the debt might come to include the demands of American citizens that its government take action against the debt and for the protection of debtors from possible reprisal . The strength of such demands could be an important determinant of the outcome of a conflict . The question is could a powerful enough class coalition be built in the United States to exert such pressure? The possibility of creating such a coalition, perhaps even more comprehensive than the one in Germany, has grown in recent years because of the proliferation of several kinds of debt crises in the us . For example, since the early 1980s a series of financial changes which have attacked working people's income and reduced their access to consumer credit have certainly contributed to a declining since of obligation toward financial institutions . These include: the elimination of most state anti-usury laws, the dramatic rise in the cost of consumer credit, the huge jump in the cost of homeownership, together with the scandel of Savings & Loan Banks (s&Ls) diverting their deposits from home loans to fraud and speculation, and now the attempt by the government to bail out the bankrupt s&L industry using taxpayer money. Such circumstances should make it possible for those concerned with international debt to enter into debate with reformist groups such as the 'Financial Democracy Campaign' recently created in the us in response to the s&L crisis . Indeed the Debt Crisis Network published the FDC's Statement of Principles in its newsletter . (DCN 1989) More broadly, as Patrick Bond of the DCN has argued, there are a wide variety of anti-bank and anticorporate campaigns in the us, Britain and Western Europe whose members could recognize, and mobilize around, the linkages between their struggles and those in the debtor countries. (Bond 1989a, 19896) Establishing and strengthening such linkages is what builds a movement . It is the kind of on-going struggle to which the Debt Crisis Network in the us has dedicated itself. Concerned not only with the struggle against debt but also with issues of popular self-determination, the DCN represents a response which is similar to but more sustained than the Berlin Counter-Conference . The only hope for sufficient coor-

Capital & Class

dination and cooperation to force default and then limit the ability of capital to retaliate lies in the power of working class refusal. Capital's attack is global in scope, and comprehensive in its use of money and financial mechanisms against the working class. Our response must therefore also be global and comprehensive. What we need is an international debt crisis network that by making connections among those being attacked by debt, recomposes the global class structure and undermines capital's mechanisms of domination . The capitalist management of the debt crisis has taught us, once more, that the key to its success is divide and conquer. The IMF and the banks have divided the world into creditor and debtor countries and insisted in dealing with debtor countries one by one - even though the creditor countries are full of debtors being attacked by the same banks. Ultimately our only possibility of effective response to this strategy is to overcome the divisions through the international organization of popular struggle against the debt and against development .

To build such a movement means linking many people around many issues . What Marxists can bring to such an effort is a class analysis of the genesis and dynamics of both the international debt crisis and its connections with other aspects of the general crisis of this period . The widespread use of money and financial mechanisms against the working class provides us with great opportunities to elaborate critiques of both the money form of social domination and of the possibilities for social organization beyond exchange value. In this perspective, our agenda for struggle should include not only attacks on the debt and its managers but also a more general challenge to banks and the debt they wield to control us . It is a time to fight the rescue of s&L's, to shift discussion from financial regulation to that of financial abolition, to critique both the price and money forms and to open discussion on how to reorganize the genesis and distribution of wealth in society without debt or money. Others will stop short of such discussion and fall into the Proudhonist trap of monetary reformism - such is the case of those calling for the democratization of banking and monetary policy . (Financial Democracy Campaign 1989, Epstein 1985) We should remind them of the reasons for Marx's rejection of the 19th Century socialist schemes for the democratization of credit . Credit and debt, he showed, again and again, perhaps

International debt crisis most forcefully in the Grundrisse, can not be appropriated by the working class, but must be destroyed. Capital, even without the capitalists, is still capital and needs to be abolished. In all his commentaries, Marx showed a clear awareness of the class nature of credit and of debt, of the way capital sought to use both against workers, and of the importance of the attack on both for the advance of working class struggle . (Ricciardi 1985, 1987) When there is no chance to destroy money and credit, it makes sense to attempt to use it for our own purposes - as Marx argued against Weston with respect to wages, and as we do with respect to wages, social welfare expenditures, school scholarships, strike funds and even credit . But in a period of profound financial crisis, when we have achieved the power to precipitate crisis and capital is struggling to restore its control, then the opportunities opened call for the clearist presentation of maximalist demand for the end of debt as one step to the abolition of capital itself.

One well known example of an analysis which deals with the crisis 1. primarily in terms of capital's own categories, is Cheryl Payer's work . While careful in tracing and critiquing the actions and interactions of the capitalist players in the debt story, Payer hardly recognizes the working class as a substantive actor. For example, in her article (1987) we learn much about the actions of private banks, the us government, and various international agencies (such as the IMF) . Of workers and their power we learn almost nothing: workers in the developed countries can be threatened by debtor country exports (pp. 199, 203) and 'poor people' (presumably at least some of these are considered workers) have been hurt by the debt crisis . In such analyses we lose the ability to view the situation, past or present, from our own point of view and thus to find strategies most appropriate to our goals. See also the articles by Wood (1985, 1988). Further examples of this kind of loss can be found in two other radical books on the current crisis : Watkins (1986) and Wachtel (1986) . It was partly frustration with the complete lack of a working class perspective in these books which prompted me to write

this essay. 2. The cx a's position on this issue has fluctuated from the radical to the reformist. While its Statement of Principles calls for debt cancellation, its more comprehensive booklet From Debt to Development: Alternative to the International Debt Crisis is more reformist calling only for debt forgiveness to the poorest debtors and for debt relief and democratization of lending for

others . 3. This approach to the analysis of the debt crisis is rooted in the

Notes

Capital Pi Class tradition of what I call, for lack of a better title, autonomist Marxism. For an introduction to that tradition see the introduction to my book Reading Capital Politically . Previous work on international monetary and debt crises within this tradition include : Marazzi (1977), Phillips (1980), Ricciardi (1985), Marazzi (1986) and Dudley (1988). 4. For a brief discussion of the concept of claw composition see the introduction to the first issue of the journal Zerowork (1975), or for a more extensive discussion see Moulier (1986) . 5. The most comprehensive statement of this interpretation was set out in the two issues of Zerowork (1975, 1977). Parallel analyses of the European crisis were developed earlier in Italy by the theoreticians of Autonomia and at about the same time in France and Germany by like-minded Marxists . See, for example, the Italian articles from the early 1970s translated and published in Red Notes (1979). 6. 1 don't want to ignore the more private but all too common motives of borrowers : the corrupt practice of skimming personal wealth off the edges of the massive loans and, often, depositing that wealth in foreign banks. Muckrakers have had a neverending source of dirt in this regard, but given the amounts that have actually been spent on investment in social control, I see no reason to think this is a prime motivation . Regardless of thepercentages diverted into capital flight, be they high or low, the real issue in such flight is the reason for the export of capital - and that reason is to be found in the exporters' perception of high risk in their own countries as a result of intense class struggle - the same perception that motivated the official borrowing in the first place. The successful utilization of borrowed money to finance accumulation 7. is not a 'gain' to be recognized and defended by the Left, as Wood (1985) claims in an otherwise interesting article, but rather simply another case of the putting to work and exploitation of people - the standard capitalist method of social control, whether carried out by private or state capitalists . When Wood quotes Peter Kilborn of The New York Times that 'few Brazilians would undo much of the work of the technocrats . . . networks of roads, banking, telecommunications and electric power . . . a widely diversified industrial base,' he shows little empathy with the mass of the Brazilian people whose virtual forced labor created these wonderful byproducts of development and whose lives continue to be rendered miserable by them . Do we have to repeat endlessly the case against roads built for the rape of a country and its people, against banks whose only purpose is ripping off a share of surplus value, against telecommunications which serve primarily to facilitate social control and against electric power, 90 per cent of which is used for exploitation and pollutes rather than improves peoples' lives, against 'diversified industry' which in Brazil not only exploits people and nature but produces

mainly for the rich and foreign markets. The argument that OPec acted to stem a decades long drain of wealth, 8. and was especially motivated to do so after the decade of the 1960s which saw a steady decline in the terms of trade between oil and Western manufactured goods is undoubtedly true . But this explanation does little to explain the timing of shift in policy (which began well before the 7 days war) nor the uses to which the money was put. 9. It is normal to attribute development projects to the benevolence of farsighted rulers and policy makers . Certainly, this was the case with the

International debt crisis American portrayal of the Shah as a forward looking modernizer in the midst of Mediaeval backwardness . Yet, from time to time commentators have recognized the underlying social pressures to which the Shah and his state were reacting . One example is Moran (1976-77) which shows how those pressures were prompting Iran to demand ever higher prices within OPEC negotiations . 10 . In a remarkable work that analyses the entire history of Nigeria from colonialism through to the 1980s, Izielen Agbon (1985) has delineated, in considerable detail, the cycle of struggle that led up to the Civil War and the one that has followed it . 11 . Thus we can see the applicability of Midnight Note's analysis of the energy crisis (as a crisis in capitalist ability to impose work rooted in high working class entropy) in the OPEC countries as well as elsewhere. See: Midnight Notes Collective (1980) . 12 . Economists have traditionally treated these class forces in terms of either a cost-push (the excess of wage increases over productivity increases) or demand-pull (Great Society and Vietnam War) inflation . Some Marxists prefer to see it as a 'profit squeeze' inflation . All are correct but the point is to see how, each characterization reflects the same underlying phenomena : working class struggle which has ruptured the managerial abilities of capital. Competitiveness is always a question of the relative ability of capitalists to harness working class energy - to put it to work productively . Those capitalists who are best at this harnessing generally win the competitive battle . Thus the preoccupation of American capitalists these last years in learning the managerial techniques used in Japan whose manufactured products have been successfully invading us markets. 13 . At least two parts of the economic discussions of the early 1970s have to be combined to see this clearly. The first is made up of the preoccupations with a 'capital shortage' - Martin Feldstein's work is a good example of this . The second is associated with the Trilateral Commission whose study groups on the international monetary crisis and the energy crisis were among the first to see the opportunities in the new situation . (Campbell et . a l 1974a, 19746. Together this material illustrates capital's own view of what Midnight Notes has called the neo-ricardian strategy of manipulating the prices of basic goods to undermine wages and shift value to capital . (Midnight Notes Collective 1980). 14 . This maintenance of average real wages, however, was bought at the price of a substantial widening in the differentials between those with the power to maintain or increase their real wage and those who could not. Such widening differentials tended, ceteris paribus, to decompose previous structures of power in the working class in favor of capitalist control. For a more detailed treatment of supply side economics and capitalist 15 . strategy in this period, along the lines of the argument of this essay, see: Cleaver (1981) . (English original is available from the author .) 16 . One of the statements of an emerging liberal consensus around a critique of the ibtF along these lines was a report by the Institute for International Economics (1982) and signed by twenty six prominant economists . Signers of the document included Richard Cooper, C. Fred Bergsten,

William Cline and Lester Thurow . 17 . For an example of a recent, articulate expression of the refusal of development see: Esteva (1984) and Esteva (1985) . The term 'self-

Capital & Class 48

valorization, which denotes the positive side of working class struggle to go beyond capitalist valorization and found new self-determined directions, is Toni Negri's (1984) . For a discussion of the applicability of this concept in the Third World see Cleaver (1988). 18 . For a more extensive discussion of this collapse of the Reagan offensive, see Cleaver (1986) . Given the Reagan administration's success in attacking average real wages, and the methods it used to do so (unemployment, union busting, deregulation, and industrial restructuring), the expansion in consumption of this most recent period has clearly been based on a different structure of demand than earlier periods . 19 . To some degree, it has been argued that at least some of the spate of takeovers and mergers of these last years, have been aimed at an industrial restructuring designed to give management more control over the labor force, lower costs and in general higher efficiency . To the degree that this is so, such changes must be considered part and parcel of the process of decomposition capital has been attempting in order to regain control. 20 . During this period of reassessment of managerial style and methods, capital has had some openness to experimentations with worker participation in profits and in management . Increased attention has been paid to various forms of worker participation in Scandinavia and to co-determination in Germany. We have seen some movement in this direction from ESOPs to worker buy outs and takeovers of firms in trouble. This attention has been encouraged by a burgeoning socialist literature on economic democracy and workers' control. 21 . What of a spontaneous collapse of the global financial system that might achieve the same result as an intentional cut-off of finance? Given the way in which the creditor banks have been able to increase their loan reserves and reduce their exposure in the last few years, together with the ability of the Fed and other central banks to respond to default with an compensatory expansion of liquidity (as they did during the stock market crash of 1987) collective default would probably not produce a generalized financial collapse . As some have argued the crisis (as threat of collapse) is already over for the banks; it persists only for the debtors and for the system as a whole. 22 . An exception to this rule among critics of the debt crisis and its management is Susan George (1988), who in her book suggested that debt monies (either that of repayment or new loans) should be placed in special funds which could be used to finance local projects democratically selected by grassroots organizations . Unfortunately, there seems little reason to believe that any ruling class or capitalist institution (including the IMF which she wants to use) would be willing to acquiesce to any such operations if it was truly devoted to building alternative social structures and bases of popular power.

References

Agbon, Solomon Izielen (1985) Class Struggle and Economic Development in Nigeria: 1900-1980, Ph .D . Dissertation, University of Texas at Austin . Autonomia, 'Contro Il Fondo Monetario Internazionale (Berlino),' Autonomia, (Padova) No . 43, 1988 . Bond, Patrick (1989a) 'Crisis in High Finance : The Limits of Orthodoxy, and a Corresponding Populist Strategy,' in Debt Crisis Network (1989), pp . 5-14 .

International debt crisis Bond, Patrick (1989b) 'Financial Capital and Social Change in the U .S .,' (typescript) Businessweek, 'Its Time for America To Wake Up,' BusinessWeek, November 16, 1987 . Campbell, John C, de Carmoy, Guy and Kondo, Shinchi (1974a) Energy : The Imperative for a Trilateral Approach, New York : Trilateral Commission . Campbell, John C, de Carmoy, Guy and Kondo, Shinchi (1974b) Energy : A Strategy for International Action, New York : Trilateral Commission . Cherry, Robert, et .al, (eds), (1987) The Imperiled Economy, The Union For

Radical Political Economics, New York . Cleaver, Harry (1977) 'Food, Famine and the International Crisis,' Zerowork #2 . Cleaver, Harry (1981) 'Supply-side economics: Splendori e miserie,' Metropoli, 7, Anon 3, Numero 7, Dicembre, pp . 32-48. Cleaver, Harry (1986) 'Reaganisme et rapports de classe aux Etats-Unis,' in Marie-Blanche Taboo et Andre Corten (eds) (1986) . Cleaver, Harry (1988) 'From Development to Autonomy?' (typescript) . Darity, William and Horn, Bobbie (1988) The Debt Pushers, Debt Crisis Network, (no date) From Debt to Development Alternatives to the

International Debt Crisis, Washington D.C . Debt Crisis Network (1989) U .S . Debt Crisis Network Newsletter, Vol. 4, No . 1, January/February . Dudley, Nathan S. (1988) Worker Struggle and Wage Compression: The Rise and Fall of Indexation in Brazil, M.A . Thesis, University of Texas at Austin . Gardner, Richard N., Okita, Saburo and Udink, B.J . (1975) OPEc, The Trilateral World, and the Developing Countries : New Arrangements For Cooperation, 1976-1980, New York : Trilateral Commission . Epstein, Gerald (1985) 'The Triple Debt Crisis,' World Policy, Vol. II, No .

4, Fall . Esteva, Gustavo (1984) 'Mexico's State and Political Regime as seen from the Perspectives of Grass Roots Movements,' (typescript) . Esteva, Gustavo (1985) 'Cease Aid and Stop Development : An Answer to Hunger,' (typescript) . Ferleger, Lou and Mandle, Jay R. (1988) 'Managing the Next Economy,' Socialist Review, Vol. 18, No . 1, January-March, pp . 108, 110. Financial Democracy Campaign (1989) 'The s&L Crisis : A Call to Action,' and 'A Statement of Principles : How to Resolve the S&L Crisis,' in Debt Crisis Network (1989), pp . 15-16. Furtado, Celso (1984) No to Recession and Unemployment : An examination of the Brazilian Economic Crisis, London, Third World Foundation . George, Susan (1988) A Fate Worse Than Debt., The World Financial Crisis and the Poor, New York : Grove Press . Institute for International Economics (1982) Promoting World Recovery : A Statement on Global Economic Strategy, Washington D.C ., December . Interview, 'The Protest against the World Bank/thtF Meeting in Berlin,' Common Sense, (Scotland) No . 6, November 1988, pp . 14-23 . MacEwan, Arthur (1985) 'The Current Crisis in Latin America and the International Economy,' Monthly Review, Vol. 36, No . 9, February, pp . 15-16. MacEwan, Arthur (1986) 'International Debt and Banking: Rising Instability Within The General Crisis,' Science & Society, Vol . L, No . 2, Summer, pp . 201-202, 206-207.

Capital & Class Marazzi, Christian (1977) 'Money in the World Crisis : The New Basis of Capitalist Power,' Zerowork #2, pp .91-112. Marazzi, Christian 'Aspects internationaux de la recomposition de classe,' in Marie-Blanche Taboo et Andre Corten (eds) (1986) . Moffitt, Michael (1983) 'Global Banking Goes for Broke,' The Progressive, February . Midnight Notes Collective (1980) The WorklEnergy Crisis and the Apocolypse, Jamaica Plain. Moran, T.H . (197(r77) 'Why Oil Prices Go Up : OPEC wants them,' in Foreign Policy #25, Winter . Moulier, Yann (1986) 'L'Operaisme italien: organisation-representationideologie, ou la composition de classe revisitee,' in Marie-Blanche Taboo et Andrt' Cotten, (1986) .

Negri, A. (1984) Marx beyond Marx, Bergin and Garvey . Oppenheim, V .H . (1976-77) 'Why Oil Prices Go Up : We Pushed Them,' Foreign Policy #25, Winter . Payer, Cheryl, 'Causes of the Debt Crisis,' in Cherry, Robert, et .al, (eds), (1987), pp . 197-204 'The Two Faces of Third World Debt : A Fragile Financial Environment and Debt Enslavement,' Monthly Review, Vol. 35, No . 8, January 1984, p. 7. Petersen, Peter G. (1987) 'The Morning After,' The Atlantic, October, pp. 43-69. Phillips, Ronnie J. (1980) Global Austerity : The Evolution of the International Monetary System and World Capitalist Development, 1945-1978, Ph .D. Dissertation, University of Texas at Austin . Phillips, Ronnie J. (1987) 'Debt, Class Struggle and the IMF in Eastern Europe,' (typescript) . Red Notes and the CSE, (1979) Working ClassAutonomy and the Crisis, London : Red Notes and the Conference of Socialist Economists . Ricciardi, Joseph (1985) Essays on the Role of Money and Finance in Economic Development, Ph .D . Dissertation, University of Texas. Ricciardi, Joseph (1987) 'Rereading Marx on the Role of Money and Finance in Economic Development : Political Perspectives on Credit from the 1840s and 1850s,' Research in Political Economy, Vol . 10, pp . 61-81. Sachs, Jeffrey D. (ed) (1989) Developing Country Debt and the World Economy, Chicago: University of Chicago Press, p. 28 . Stone, 1. F. (1987) 'Binge : End of a Profligate Era,' The Nation, October 31,

1987 . Taboo, Marie-Blanche et Corten, Andre (1986) L'Italie: le philosophe et le gendarme, VLB Editeut . Watkins, Al (1986) Til Debt Do Us Part: Who Wins, Who Loses, and Who Pays for the International Debt Crisis, New York, University Press of America. Wachtel, Howard (1986) The Money Mandarins: The Making of a Supranational Economic Order, New York, Pantheon. Wood, Robin E. (1985) 'Making Sense of the Debt Crisis : A Primer for Socialists,' Socialist Review, #81, Vol. 15, No . 3, MayJune, pp . 7-33 . Wood, Robin E. (1988) 'Debt Crisis Update : 1988,' Socialist Review #8813, Vol. 18, No . 3, July-September, pp . 103-115 . Zerowork #1 (1975) . Zerowork #2 (1977) .

Patricia Howard Borjas Perspectives on the Central American crisis : 'Reactionary despotism' or monopoly capital?

• With the resolutions taken at the Presidential Conference held in San Salvador in February, 1989, a virtual end to the regional war in Central America was proclaimed . Only a few hours later, the winners and losers were already being pronounced . The contra were dead, as they well perceived, claiming that the resolution was a capitulation to the Sandinistas . The Bush administration expressed its typical cynicism, but its hands were virtually tied . Central American governors and international observers cautiously referred to a Central American victory . The Sandinistas claimed that Nicaragua defeated the imperialist initiative . Who won and who lost is obviously related to how one views the Central American crisis . It is clear, despite rhetoric to the contrary, that the Reagan Administration and ultraconservative forces backing it, can claim a substantial, if partial, victory . When the Reagan Administration came to power, the Sandinistas enjoyed great popular support both nationally and internationally, whilst the revolutionary forces in El Salvador had the upper hand . The Nicaraguan economy was experiencing the highest growth rate in Central America in spite of heavy war damages, while the remainder of Central America was plunging into a deep recession . El Salvador was

This article critically assesses the analysis put forward by John Weeks that the Central American crisis is due to 'reactionary despotism' . Borjas proposes that the crisis has its roots in monopoly capital .

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suffering massive economic sabotage and capital flight . At the end of eight years of war, however, the Nicaraguan economy was in a shambles, international and national support for the Sandinistas had eroded, Salvadorean peasants were being spoon-fed by USAID relief, the guerillas were seeking to lay down their arms in favour of political participation, while the ultra-right ring had won an electoral victory . Incipient guerilla movements in Honduras and Guatemala had nearly disappeared - 'democracy' had been installed . The Reagan Administration's perceptions of the source of crisis in Central America (Soviet-Cuban influence) were unequivocal, though misplaced . However, this does not mean that it was incapable of developing a policy which would achieve its immediate objectives - crippling the Nicaraguan model of democratic socialism, impeding the revolution in El Salvador, 'stabilizing' Guatemala and Honduras . It cannot be denied that the Left in Central America has suffered serious setbacks and has had to rescind many of its radical economic and political objectives . The Reagan Administration's policies, after all, achieved many of their stated goals in what amounted to international class warfare . What cannot be claimed is that the crisis in Central America, which gave way to overt class struggle and armed intervention, has been resolved . Central Americans were the real losers in the war . Tens of thousands lost their lives to the Contra, the right-wing death squads and the bombing raids - the majority of whom were civilians . Hundreds of thousands lost their homes and their livelihoods, probably permanently, driven out either by war or by the poverty war creates . The economic and psychological toll affected millions who were already wracked by material deprivation and political uncertainty . The economic damages caused will require decades to overcome - Central America will have to be 're-constructed' . Democracy, which was supposed to be the real victor in Central America, hardly came through unscathed . So-called democratic regimes in Central America which emerged under us sponsorship in the '80s, are little more than highly orchestrated pantomimes, shored up by us economic and military aid . Nevertheless, great expectations were created . Central Americans, who initially welcomed their first 'democratic' governments, have grown increasingly skeptical . The military, which was supposed to take a back seat, was

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strengthened as never before . Repression took on unprecedented dimensions and nearly all opposition forces were relentlessly persecuted . Income distribution - already extreme at the end of the 1970's - is worsening . Food imports are required to fulfil even the below-subsistence demands of the population, and malnutrition is increasing as salaries become eroded . Environmental destruction begins to take its toll in floods, droughts and decreasing yields . Migratory flows become inabsorbable as people flee the minefields sown by economic and political crisis . National sovereignty has been severely compromised . Few believe that elections alter the balance of power - and if that balance is not changed, democracy will continue to be a facade . Interestingly enough, the only two countries in the region which might be able to claim with reasonable justification that their political systems are participatory are Costa Rica and Nicaragua, both of which emerged principally out of internal struggle . Central America, everyone agrees, will have to be 'bailed out' . Some estimate that $10 billion will be needed over the next five years just to keep things afloat . The region will be invaded by armies of scientists and technocrats proposing instantaneous solutions to social, economic and political problems that have been decades or centuries in developing . The Left must develop a whole new set of strategies and indeed, a new set of objectives . How effective these efforts are depends upon how well they perceive the origins of the Central American crisis . Notwithstanding the current need for an in-depth understanding of the roots of crisis in Central America and the attention focused on the region in the past decade, comprehensive analysis has yet to emerge . At the end of the '70s, at the moment of the Sandinista overthrow of Somoza and the escalation of the popular struggles in El Salvador and Guatemala, the limitations of dependency and world systems theories (the main theoretical instruments used by the Left to explain crisis in 'underdeveloped' regions), also became apparent . These were not up to the tasks at hand, being unable to offer adequate explanations for political class struggle or revolution, and having limited utility as tools for change . This made their application in the region particularly problematic . More recent analyses recognize that the crisis is intimately tied to the nature of internal development . Analysis of class

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and politics emerged forcefully in the decade of the '80s, and practice proved the situation to be far more complex than originally contemplated . These perspectives locate the primordial source of crisis not in the international sphere, but rather in the historical shaping of the region's classes and the political expressions of the contradictions inherent therein, presenting a significant advance in comparison with earlier, more unilateral, visions . I If any apparent consensus is emerging within the Left z it is that the crisis is attributable to the extreme backwardness of the region, which in turn has its roots largely in internal class relations . 'Backwardness' stems from archaic social structures, repressive regimes, the overwhelming centralization of wealth and the 'openness', and hence vulnerability, of the economies . While there is dispute as to the form of capitalist development occurring, especially after World War II, political economists, liberal and leftist, point out that it was capable of generating high rates of accumulation for at least a decade and a half (from the '60s to the mid '70s) . Most analysts also conclude that this form of accumulation generated seemingly unsurpassable obstacles to the sustained development of the, productive forces, thus engendering crisis . For most authors, the political aspects of the crisis have their basis in economic and class structures, although continual and escalating us intervention is cited as a critical factor . Analysts generally hold that there has been a failure to 'modernize' political apparatuses, reforms having been systematically blocked by the interests of a tiny minority commonly referred to as a 'traditional oligarchy .' This blockage gives way to widespread repression and polarization of social forces, where popular sectors are forced to adopt new forms of mass organization and political struggle, including an 'armed critique' of the old order . The us reinforces and protects the oligarchy, blocking reforms to assure the continued subordination of the states in the region to us interests .' Analysts relate the agrarian dimensions of the crisis to export growth over the past few decades . This violently displaced traditional peasant agriculture, leading to a very slow growth in productivity and the production of food staples, hence the current food deficits and rural poverty . Land tenancy has undergone no significant transformation in spite of diversification and growth, and remains the basis for

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despotic landholders . There is significant divergence of opinion with respect to the significance and role of class differentiation ; whether the peasantry represents a 'pre-capitalist' obstacle to development, or an important basis for transformation in the region ; whether there is a 'national' bourgeoisie and which, if any, fraction is hegemonic . In general, however, there is consensus among political economists that, without the ability to respond to the agrarian question, no government, domestic or imposed, will have a stable basis for survival . While it may appear that a broad consensus on the origins of the crisis prevails among Leftist analysts, a closer examination reveals that this is not the case . While differences of opinion should lead to fruitful debate, in many respects analysis is too partial, failing to link theory and history . Most authors investigating the crisis do not deal explicitly with the theory of capitalist development . Empirical categories predominate which permit neither generalization nor precision with respect to the changes in the political and economic structures of the past few decades . While some of the most salient points of the work of several Central American scholars are reviewed, the focus is on the work of John Weeks, who has contributed substantially to the critique of dependency theories and whose work on Central America is influential, especially in the us . But critique is not sufficient . This article seeks to stimulate genuine exchange and theoretical reflection, contrasting current positions with largely hypothetical, but plausible alternative explanations . Moreover, it proposes a set of theses which interpret the crisis in the light of the theory of monopoly capitalism, 4 and reflect upon the options available to popular forces in the current conjuncture . In a recent article, Weeks summarized the basic elements underlying the crisis as 'reactionary despotism'", a concept he uses to characterize a form of class rule stemming from a social and economic structure dominated by a landed elite . The essence of 'reactionary despotism' is found in the region's archaic social structure and imperialist intervention : 'Twentieth-century Central American history has turned on two axes : the power of landed property and domination by the us government' (1986 : 32) . Despotism is a function of the conservatism of a landed elite shored up by us intervention . The us was able to intervene systematically and mediate or

'Reactionary despotism' and the Central American crisis

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directly decide the outcome of political conflicts over the past century, essentially due to the historical weakness of the local despots who were engaged in extended internal rivalries . Elites became dependent upon the us as a basis of political power, feeling 'little pressure to accommodate the demands of the middle and lower classes for reform or even nominal political participation' (1986 : 35) . The continued dominance of the landed elite has not permitted a modernizing, 'liberal' political reform, in spite of the emergence of supposedly liberal regimes toward the end of the 19th century . Weeks' basic argument is based upon the supposition that landholders are a hegemonic political and economic force . In his recent book, he asserts that ' . . . the most important cause of . . . underdevelopment is the region's land tenure system, a legacy from colonial times which has been repeatedly adapted to changing conditions, but neither transformed nor reformed' (1985 : 4) . The strength of the landed ruling class also permitted them to maintain coercive 'pre-capitalist forms of labour control' which have prohibited 'modernization' up to the present : [other than in Costa Rica} the landed oligarchy used its power to maintain pre-capitalist labour systems within which the agro-export economies developed . The result was a process of economic growth without political or social modernization . The lack of political modernization reflected the anti-democratic character of politics . Social modernization was blocked by the coercive labour systems in the countryside (1986 : 41) . For Weeks, the post-World War II period of export diversification and import substitution did virtually nothing to undermine the power of the landed oligarchy or displace coercive labour systems : 'When commercialization of economic life occurred, it did so not through the transformation of archaic land-tenure patterns and labour control systems, but within or alongside them' (1985 : 35) . Economic development arose 'on top' of the old order, and new domestic capital emerging in the period of the Central American Common Market (cACM) was 'always . . . a junior partner to foreign capital,' so that in the '80s, there was 'a virtual absence of a class of large domestic capitalists - excluding agriculturally based industry, such as sugar refining' (1985 : 132) . The

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centralization of production in the hands of a few landed capitals 'both reflects and produces the extreme income inequalities in the region' (1985 : 76) . On the other hand, however, Weeks asserts that agriculture underwent a process of modernization which tended to provoke changes in the agrarian structure : 'The trend toward large-scale capitalist agriculture has tended to modernize rural Central America and break down the almost feudal labour-land relationship inherited from the colonial past' (1985 : 6) . He attributes this change especially to the development of cotton production, which 'lay the basis for the capitalist transformation of Central America' through the incorporation of modern inputs, the need for landless wage labourers and the creation of a 'new landed class' of planters . One way Weeks attempts to ameliorate this ambiguity between the historical continuity of the old landed oligarchy and the emergence of capitalist relations in agriculture, is as follows : . . . the land question continues to dominate the politics and economics of Central America to an extent which is no longer the case in South America . . . Economic development in the region, rather than diminishing the importance of this issue, has intensified it . Agribusiness has given the landed oligarchy a new and growing base of economic and political power, so that land ownership still determines the relationship between the privileged and underprivileged (1985 : 34-35) . He later argues that it is not strictly land ownership, but rather the form of land tenure, which acts as a barrier to capitalist development : 'The shift from rent-in-kind to monetary rent is basic to the capitalist development of agriculture, since it forces the peasant family to sell at least part of its production . This, in turn, makes the peasant subject to the fluctuations in prices, creating the possibility of indebtedness and loss of land through forced sale to creditors' (Ibid . : 121) . In his book, Weeks elaborates upon other elements which constitute the immediate causes of crisis : the openness and hence vulnerability of the economies to external events, and the extreme social and economic inequalities prevailing . These

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create 'structural imbalances' in trade and obstacles to further growth . Weeks shows that Central American economies are small and extremely open to the international market, both quantitatively and qualitatively . Central America exported a quarter of its gross national product (GNP) in 1970 and 1975, compared with an average of around 10 % for the rest of Latin America and the Caribbean . This share increased over time, whereas in the rest of the region it decreased . Central American economies are also predominantly agricultural, where crops and livestock represent around 20% of GNP, in comparison with around 10 % for other countries in the region, manufacture accounts for only around 14% of total GNP . Nevertheless, Central America experienced some of the highest growth rates in production of all the countries of Latin America over the period 1960-1980 . Agricultural growth exceeded the regional average by around 1 % per year . Growth was concentrated in agro-export crops produced for extraregional trade . Productivity increases and favorable prices for raw materials or semi-processed agricultural goods permitted export growth, but this was detrimental to internal market production . Productivity and agricultural land area increases for internal food production were very slow in comparison with export sectors . In manufacturing, growth was also high, but most products were destined either for domestic consumption or for intra-regional trade through the CACM, and consisted mainly of final consumption goods rather than intermediary goods or machinery . Manufacturing is characterized by very low use of installed capacity, high use of imported inputs, and overall high costs of production (Weeks, 1985 : chpts . 3, 4 and 5) . Weeks offers interesting insights into industrial concentration, which he notes is probably the highest in Latin America . External competition in regional trade is blocked by tariff restrictions, and excess capacity prohibits the entry of new firms . Competition in international markets reduces the number of firms which can participate to a minimum . As with land concentration, industrial concentration 'helps to explain the weakness of nationalism and liberalism in Central America, which thrive among the middle classes and small to mediumsized capitalists' (1985 : 144) . For Weeks, growth in Central America has always been a function of export performance, which in turn is dependent



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upon 'complementary imports .' Therefore, disturbances in growth can be directly traced to foreign exchange problems . Over the past few decades, the region's economies were able to expand in spite of a growing balance-of-trade deficit due to net capital inflows . This came to a halt with the increase in petroleum prices, the fall in export prices, and political turmoil leading to capital flight :

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The current economic crisis of Central America is basically the result of regional and world economic and political changes which transformed trade deficits from being sustainable characteristics of growth into unmanageable, structural burdens which had to be eliminated (1985 : 179) . Without the ability to finance imports and expand exports, Central America entered into a crisis which is irresolvable given the current economic structure, and can only lead to greater levels of deprivation for the majority . Weeks' analysis pivots on two axes : the persistence of archaic social structures and the openness of the economies which leads to their vulnerability vis a vis external phenomena . Both of these conceptualizations over-simplify the social and economic changes of the past few decades, and obscure very important processes which play a determinant role in the genesis of crisis . Landholders, who Weeks posits as the principal protagonists in the crisis, have been greatly debilitated as a class in Central America. As he admits, most have been transformed into landholding capitalists . This implies that their interests have also substantially altered, although a basic concern is still to maintain monopoly control over land . To this extent it can be asserted that landed capital is powerful . It is also certain that coercive labour systems have historically played an important role in the subordination of the region's productive classes . But overall, Weeks' analysis of class and political structures is particularly relevant only up through World War II . After the war, growth and diversification triggered substantial changes in class structure, in the forms of accumulation and distribution of surplus . Weeks' analysis of the process of bourgeois diversification and of the forces and consequences of capitalist development in agriculture is specious, conceived in terms of the simple superimposition of capitalist

Mis-interpretations of the crisis

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relations 'on top' of an archaic semi-feudal economic structure, which leads to a series of vague generalizations with respect to the process of social class differentiation under specific forms of capitalist development . Weeks' theses with respect to the 'reactionary despotism' of a landed oligarchy underestimates the degree of differentiation and heterogeneity within the bourgeoisie . When he asserts that it is a landed oligarchy which plays a hegemonic role, he eliminates what to Central American authors is one of the basic pillars for understanding the rise and fall of 'reformist' regimes after the war, and for the analysis of political crisis in general ; namely, inter rivalries . The problem is reflected in the empirical categories he employs : the terms 'oligarchy' or 'landed elite' and 'reactionary despotism' lack rigor both with respect to class composition and to the political forms arising within a context of convulsive capitalist development, qualitative and quantitative changes in the state bureaucracy, the emergence of parliamentary apparatuses, regional institutions and the formation of a military elite with its specific interests . On the other hand, the process of social differentiation in agriculture is framed in terms of the co-existence of 'precapitalist' and 'capitalist' relations, where 'pre-capitalist' relations are seen to be those which do not conform strictly to a capitalist archetype . These arguments place the locus of analysis at the level of the unit of production, instead of at the level of social formation . Yet it is virtually impossible to maintain that, in Central America, peasant production is not fully regulated by markets for goods and labour, a fact which alters the nature of this production form so dramatically that references to feudalism or pre-capitalism are quite dubious . Central American social formations, we must deduce from Weeks' arguments, are not fully capitalist, and this is the primary reason for their backwardness . Weeks asserts that tenancy patterns in Central America are much more regressive than in other Latin American countries, so that the problem of land ownership is therefore much more politicized . However it is doubtful whether, even if the assertion were empirically sustainable, this could explain the specificity of the Central American crisis . It would have been helpful had he elaborated upon the implications of the centralization of land ownership for surplus distribution . This

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would be a central element in a regional political economy if it could be shown that indeed, landed property acts as an obstacle to capitalist accumulation . Other shortcomings in Weeks' analysis have to do with the immediate causes of the crisis . The arguments he advances are heavily dependent upon Newtonian categories such as 'small' and 'open .' The obvious objections that must be posed are with respect to their theoretical content and legitimacy as tools for explaining underdevelopment . 'Smallness' is certainly not a sufficient condition for underdevelopment, nor is 'openness .' He assumes that, due to the 'smallness' of the Central American economies and their relative 'openness' to international market influences, the external market was naturally the only available motor of economic development . The reasons for the lack of development of an internal market, and especially for insufficient demand, are not elaborated upon, whereas other important elements, such as the underutilization of installed industrial capacity, are mentioned but not incorporated into a general explanation . The current economic crisis is defined exclusively in terms of balance-of-trade deficits and capital flight . This highlights the fact that Weeks' treatment of the problem of accumulation is empirical and centred on external determinations of the rate of accumulation . Surplus distribution likewise receives little attention, although many relevant indicators are presented which could be used to construct, at the minimum, a series of hypotheses . With respect to the economic structure of Central America and its current crisis, there are few elements advanced which are not virtually identical to those which characterize most Latin American countries . Moreover, with respect to the region's balance-of-payments problems, most other Latin American nations are facing similar situations, without leading to the same degree of economic collapse .' The political explanation put forth, that of net capital flight due to investment uncertainties stimulated by political upheaval, can only be speculative . The basis of net capital flight, at least from countries such as Honduras, Guatemala and Costa Rica, may well be more economic than political . There are also important political perils in Weeks' analysis . First, one could deduce that reforms which diminish the power of landholders and strengthen the industrial and petty bourgeoisie would eventually lead to democratization and

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economic development . Even so, Weeks does not consider the possibilities for reform or revolution, does not point to any possible alternative other than increased misery . The possible agents and means of change are nowhere highlighted : stark pessimism predominates . These are unfortunate conclusions, based most probably on Weeks' insistence upon using undefined categories such as 'modernization' within the context of capitalist development, and the lack of analysis of popular movements and struggles which seek to develop democratic non-capitalist alternatives . Central American authors, none of whom are cited by Weeks, go beyond his analysis in several important areas . They tend to concur on three major factors which contributed to the growing economic and political crisis : 1) crises of hegemony within the bourgeoisie ; 2) growth with increasing inequality which terminated in stagnation ; and 3) decreasing control over the popular masses, which intensify their struggles for democratic and anti-imperialist alternatives . Most Central American authors emphasize the diversification of the bourgeoisie which Weeks tends to ignore . They agree with Torres Rivas that, in the '60s and '70s, Central America underwent 'the most important period of growth and economic differentiation in its history' (1906 : 46) . Indeed, it can be asserted that capitalism became the fully regulating mode of production in Central America only after World War II, and that it did so in a space of only thirty years . Differentiation of the bourgeoisie occurred through the emergence of new industrial, finance and commercial interests . These represented in part the diversification of investments by the post-colonial oligarchy, 'primitive accumulation' by bureaucrats and the military elite and the growing strength of commercial capital with its increasing ties with (often foreign) financial, real estate and industrial interests . While foreign investment grew tremendously, so did the power of local capitalists who diversified investments regionally through the CALM and growing export markets, forming a species of Central American-based multinational capital . 9 Richter points out that the economies of Central America became increasingly integrated and their crises as well became shared . The new interests that arose in these decades were often infra-regional, industrial or commercial, tied to agro-industries and exports, and monopolistic (1982 : 88) . For Torres Rivas, 'the

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bourgeoisie does not constitute anywhere a homogeneous class, and even less in its few moments of expansion such as those which Central America passed through after the fifties .' That these groups, both old and new, attained 'undisputed monopoly over power and wealth,' is not to be doubted (Torres Rivas, 1982 : 51) . Whilst this does not imply homogeneity, it does, however, imply that land ownership became less and less a prerequisite for political and economic power . 10 With increasing bourgeois differentiation came conflicts over control of the state apparatus and surplus distribution . Jimenez maintains that no hegemonic class emerged in the post-war period : the power of the landed elite was challenged and largely dissipated, but no single fraction of the new bourgeoisie had the strength to take its place (1982 : 82) . In Nicaragua, the downfall of the Somoza dictatorship cannot be explained without reference to the antagonisms between national monopoly capitalists over investment territory and state privileges (Zamorra, 1982 : 101) . Nor can the 'reformist' period in Guatemala (1944-1954), or the coup of March 23rd, be understood without reference to the emergence of new propertied interests (Poitevin, 1984) . 11 According to these perspectives, part of the explanation for the resurgence of military regimes is found in political and economic rivalries dividing the bourgeoisie : the military became the only institution capable of suppressing these divisions in order to permit the dominant classes to present a unified front against popular forces . 12 The weakening of the landed elite is clearest in the cases of Honduras, Costa Rica and Nicaragua (in the last case it is known that, to the surprise of the Sandinistas, Somocistas controlled only some 20 % of the land), but even in Guatemala and El Salvador, regimes have emerged that tend to be antagonistic to landholders . Still, the land struggle continues unabated . It emerged strongly after the Second World War (Arbenz in Guatemala, civil war in Costa Rica, worker takeover of banana company lands in Honduras) precisely due to changes in the agrarian structure . New waves of investment and land centralization began to increase the organic composition of capital, expel peasants, and trigger migratory flows while at the same time increasing the number of small landholders . These changes are attributable to the capitalist development of agriculture and not to the persistence of feudal-like

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structures : export markets gave landowners and others a reason to invest in agriculture, which included the incorporation of large numbers of small and medium petty commodity producers in export production . Weeks underestimates the impact of these changes and attributes them to the expansion of cotton production . Cotton production did have many of the effects he mentions, but it was far from being the major force behind rural land centralization and population displacement, involving only several thousand hectares of land in total . It was the expansion of cattle ranching which paved the way for the 'agrarian transition' (and indeed, for the capitalist transition) in Central America . Petty commodity production, far from being destroyed by changes in the agrarian structure, was in many senses reinforced . But these producers and agrarian capitalists often found their interests subordinated to new monopolistically organized agroindustrial and commercial capitals, which is one of the most important elements contributing to the erosion of the power of the landed bourgeoisie (Ballard, 1987) . Growth did not give rise to an improved distribution of surplus . According to Torres Rivas, the partial destruction of the 'traditional subsistence economy' produced effects particularly favorable for capital, since it permitted increases in absolute surplus generation from increases in productivity not remunerated to labour (the rate of exploitation rose) . Wealth was increasingly concentrated into a few sectors protected by the state, which was prejudicial to craftsmen and the majority of the population . Dada points out that depeasantization did not result in proletarianization : there were too few means to absorb the expelled rural population in productive activities and demand eroded, converting economic growth to stagnation and instability (1982 : 71) . Richter proclaims a breakdown of the 'old mode of accumulation' in the region . According to him, the particular form of accumulation resulted in insufficient generation of value relative to the increase in demand for surplus accompanying the accumulation process . The result was an increase in the rate of exploitation and the denationalization of Central American economies, which has also given rise to a crisis of bourgeois hegemony and the search for new investment possibilities, especially outside the region . Several of these authors emphasize that national and foreign monopoly capital's interests were protected and subsidized by the state to a greater extent than elsewhere in Latin

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America, a position which they share with Weeks . Likewise, the brunt of the crisis is accepted by the state, which socializes the costs of capital and passes them onto the working classes . This socialization of the costs of capital serves as a basis for increasing balance-of-trade deficits, foreign debt, higher taxes and reduced workers' income . In this respect, Central American authors give greater attention to the social composition of state budgetary expenditures, an area Weeks disregards . Still, most Central American authors tend to agree with Weeks insofar as they attribute the political crisis in Central America to the 'old oligarchic tradition' of authoritarian rule, which is destabilized as civil participation increases . Class conflict emerges as popular sectors reach an ideological rupture with repressive regimes backed by modern us counterinsurgency policies, which are not willing to negotiate reforms . New forms of organization and class struggle have emerged which incorporate essentially marginalized strata of the working class and peasantry, whilst bourgeois reformist parties have also met with counter-insurgency tactics (Torres Rivas, Ibid .) . Central American authors, like Weeks, depend heavily on empirical categories and have difficulty blending their analysis of changes in the class and political structures into a coherent explanation of the crisis . This is in part rooted in their failure to grapple with overall questions of uneven development . This is surprising in the case of Weeks, who has made important contributions to the critique of dependency theory . He and Dore (1979), note that 'uneven development' refers to the diversity of degrees of development of the productive forces between societies . However, there are two broad contradictory explanations for differential development : one whose locus lies in the sphere of international circulation, based upon the transfer of surplus from 'underdeveloped' areas to 'developed' areas, and one whose locus lies in the sphere of production within 'backward' societies, where class relations are primordial . Dore and Weeks argue that Marxist theory starts from the analysis of social relations and the mode of production, and not from relations of circulation . They logically deduce that the 'under-developmentalist' argument that surplus transfers occur between countries is incorrect, since 'countries' do not engage in social relations of production, and 'inequality

Alternative theses on the origins of the crisis

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among countries is the consequence of class exploitation in backward countries and the reproduction of this class exploitation through imperialism' (1979 : 62-63) . The analysis of 'backwardness,' therefore, must be situated in the relations of production which give rise to the relative lack of development of the productive forces . Dore and Weeks' critique of dependency theory is quite valid . However, there are several critical elements lacking in their analysis which are also absent in Weeks' later work on the Central American crisis . In the 1979 article, there is little indication of the concrete direction which the analysis of 'backward' social formations or international class relations should take . They do not go into any depth in their theoretical discussion with respect to the types of social relations of production and exchange which can lead to a form of capitalism unable to overcome uneven development . Nor does Weeks address this in his analysis of the Central American economies, where 'backwardness' is seen to be the principal cause of the crisis . 'Backwardness' appears to stem from the persistence of pre-capitalist relations, which both appeals to a theoretical framework linked with dependency theory and eliminates any serious discussion of capitalist crisis . Further, if international surplus transfers occur, and these are not a function of relations between 'countries' but rather between classes, how can they be characterized? This question is of great importance not only to the analysis of 'backwardness' : but also to the debate on the 'peasant' question . An element which must be central to the response, and one which Dore and Weeks do not address, is the relation between relations of production and relations of exchange, or, even more generically, the relation between propertied classes . Dore and Weeks present the problem as one of a choice between 'relations of production' and 'circulation' without discussing the links between the two . In Marxist theory, the link between the two spheres is materialized in the distribution of surplus, which is rooted both in the relations of production within different units of production and in the overall conditions of capitalist exchange . Dore and Weeks point out that one of the principal mechanisms of surplus distribution arises from the differences in the organic composition of capital (different individual labour times) between firms in the same branch of production . But

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Marx showed that at least two other types of surplus transfer exist : land rent (where the monopoly over land acts as a barrier to the mobility of capital), and monopoly rent (a surplus arising from barriers to the mobility of capital) . 13 Further, surplus distribution cannot be posed simply as a problem of the sphere of circulation : it depends upon the organization of the different propertied classes involved and their internal relations of production (petty commodity production, monopoly capital, competitive capital), and the type of capitals involved (merchant, industrial, landed, finance) . 14 The problem of uneven development, however, cannot be posited simply in terms of surplus transfers . What is equally important is the ultimate distribution of surplus, that is, its social composition and geographical distribution . Social composition refers not only to Departments I and II : it also refers to the distribution of surplus toward unproductive activities (overhead, commerce, state expenditures) or waste, 15 which also has a spatial dimension . It is critical to the understanding of 'backwardness' and crisis where capital is invested (why here, why not there), when capital is invested (why then, not now), and how it is invested (in productive or unproductive activities) . The most immediate explanations of crisis and uneven development must always be concerned with the reasons for which capital is not invested locally in productive activities . The roots of this problem lie in the social relations of production and the distribution of surplus between propertied classes . 16 The principal limitation of the explanations posed is that they fail to link the internal dynamics of accumulation with changes in class and productive structures . Moreover they fail to link these changes to the distribution of surplus derived from a period of high growth . In this respect, authors such as Dada, Torres Rivas and Richter go beyond Weeks and emphasize these links, although it is difficult to say that they bring together these elements into a coherent theoretical framework . They essentially beg the question of what type of capitalist development and crisis predominate in Central America and what its logic might be . The most important aspects of the current crisis are posited here in twelve theses which are not contradicted by the empirical analysis contained in the works cited . 17 These theses do not pretend to explain the totality of the region's

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economic formations : rather they seek to explain the particular form of accumulation which has predominated since World War II, with emphasis on the links between class structure, rate of accumulation, surplus distribution and crisis . The theory of monopoly capital, that is, of the domination of the economic structure by large capitals capable of eliminating price competition and redistributing surplus, has great relevance for the interpretation of the Central American crisis . Capitalist development in Central America arose out of a post-colonial structure which concentrated the means of production and wealth in very few hands (the landed oligarchy and foreign capital) . Rapid post-war accumulation and the generalization of commodity relations which accompanied it, altered the class structure, creating new, highly centralized capitals, diversifying the old, and multiplying petty commodity production without redistributing income . Central America became a monopoly capitalist economy without ever having experienced a phase of competitive capitalist development . L8 Growth occurred without any significant redistribution of surplus which would have accompanied higher wages or the large-scale creation of small capitalist firms . The monopolistic nature of capitalist relations in the spheres of production and exchange, and the protection and services which the state renders to monopoly capital, continually redistribute surplus away from those sectors which have the potential of becoming sustainable motors of capitalist development and concentrate it in the hands of local and foreign monopoly capital, which share common accumulation strategies . 19 1 . The most substantial mass of means of production is still concentrated in agriculture . The distribution of these means continued to be centralized over the period 1950-1980, establishing the material basis for a distribution of surplus which is unfavorable to the majority of rural producers, severely limiting effective demand for rural wage and capital goods . In spite of relatively high growth rates, agriculture was far less developed at the beginning of the post-war period than in other, slower growing, Latin American countries . While high productivity increases and growth rates were evident in export agriculture, the vast majority of agricultural production experienced very low growth, most of which was attributable to new areas in cultivation . By the '80s, the possibilities for

Central America

increasing farm land were practically eliminated due to the `saturation' of agricultural frontiers, evidenced by the occupation of the poorest soils and environmental degradation . In great part, these processes are tied to the expansion of extensive cattle ranching (Williams, 1986 ; Ballard, Ibid .) which became the principal source of rent for landowners, 20 and in general blocked more intensive forms of capital investment . Due in part to the predominance of this rent generating activity, most of rural Central America still produces relatively little value, which helps to account for its general inability to act as a sustainable basis for accumulation . 2 . The need for coercive 'pre-capitalist' labour systems ended in the decades of the '50s and '60s with the expansion of export agriculture, especially of cattle production for beef . This expansion set off the first massive expulsion of the peasantry in Central American history (Ballard, Ibid .) . Over most of the region, the increase in the organic composition of capital which accompanied the expansion of export production raised productivity at the same time as ranching expansion in employment from new land blocked growth incorporation . 2 1 The result was the creation of an enormous reserve army and the emergence of belligerent land struggles (Williams, Ibid .) . 3 . Petty commodity producers became integrated into capitalist markets for internal and export products, but under conditions of physical marginalization and subordination to landed, commercial and agro-industrial monopoly capital, so that possibilities for increased income, accumulation and expanded output on the part of these producers were low . 22 In the internal market for wage-goods, where petty commodity producers predominate, the low level of development of the productive forces resulting from these limitations and the prevailing monopoly relations, gave rise to high-cost production and even higher prices for wage goods which were often ultimately established by the state and monopoly capital . The numbers of petty commodity producers increased as markets for their produce expanded, but their land access did not increase proportionately . High-value exports permitted land rent to increase and pushed low productivity internal market producers onto poorer soils or into the agricultural frontiers, destroying at the same time the viability of traditional slash-and-burn agriculture, which depends upon the availability

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of land in fallow . Because of these disadvantages and the subordination to monopoly capital in most circuits of exchange, productivity increases were very slow and production became deficient, leading to food shortages, price speculation and rural poverty . 4 . Multinational agro-industrial and commercial monopoly capital came increasingly to dominate export branches, 23 where control over producer prices was the major means to realize extraordinary profits and maintain margins in the face of international price fluctuations . This implied the subordination of landed capital . The rhythm of development of the productive forces and accumulation in these sectors was tied to the production and marketing strategies of exporters, which increased productivity tremendously in some branches and left others in relative backwardness . 24 New markets for agro-exports are dominated by large foreign and national capitals which seek to keep prices for raw materials to a minimum through monopoly . 25 To the degree that large landholders can form or buy into these firms, their privileges in the market are maintained . However, the majority of medium and large landed capitalists became subordinated to monopoly capital and their interests grew antagonistic, giving rise to numerous conflicts which the state was forced to mediate . The expansion of agro-export markets, which was the only viable route for expanded reproduction given this form of monopoly capitalist development, generated most growth in agricultural production, but this growth was dependent upon rising demand and prices in the world market for specific exports . Moreover, the surplus to be derived was increasingly centralized under monopoly capitalist control, which was decreasingly tied to direct land ownership . 5 . The repression of labour movements, an increasing organic composition of capital, and the increasing size of the relative surplus population generated by slow growth in rural employment were the major elements regulating the internal price of labour . These processes and strategies proved extremely effective in increasing the rate of exploitation by depressing wages . The unemployed and underemployed frequently turn to petty commodity production which is crowded into highly competitive formal and informal sectors with poverty-level remuneration . 26 6 . Given the control which monopoly capital exercises

Central America

over wages and the price of wage goods, effective demand has stagnated and material conditions of reproduction of the labour force have eroded substantially, severely limiting possibilities for accumulation based upon internal demand . Competitive capital and petty commodity producers (in agriculture, industrial and tertiary activities) also pay through high prices for monopolistically produced or monopolistically controlled imported inputs, controlled prices for their output, restricted markets, subsequent high costs of production and low average rates of profit, all of which restrict investment capacity, rates of accumulation and demand for intermediary goods . 7 . The problem of underutilized capacity 27 must be related to monopoly, which seeks to protect its extraordinary profits by reducing capacity utilization rather than lowering prices . 28 Underutilized capacity reduces international competitiveness and blocks entry for new capitals . For a short period (1960-1974), import substitution and the creation of the CACM generated high levels of foreign and national capital investment, but this process occurred through the formation of highly protected monopolies which are dependent upon imports . 29 Protection and import substitution gave these monopolies a limited regional market for final consumption goods and permitted extraordinary profits, but led to inefficient production, high consumer prices and vulnerability to increases in import costs . Therefore, monopoly capital which supplies the regional market is generally uncompetitive at the international level . Competitive capital, with its low rate of profit, has difficulty investing in, and has few incentives to upgrade, its means of production, which reduces its international competitiveness . The lack of multiplier effects in the internal economy is due both to this lack of competitiveness of regional production and markets for capital goods, which are restricted essentially by these same demand factors . 8 . The possibilities for internal accumulation are severely restricted by monopoly capital, which permits the generation of extraordinary profits and at the same time blocks internal investment outlets . Investment possibilities are restricted by state protection of monopoly capital, excess installed capacity, competitive conditions on the world market, and very restricted levels of internal demand . Restricted investment opportunities for capitalists who have access to extraordinary profits mean increasing intra-bourgeois rivalries over state spoils and

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economic terrain, as well as massive capital flight and increasing stagnation . 9. The crisis can be posited as one of over-accumulation or under-consumption (which are two sides of the same coin) ." Over-accumulation occurs when the extraordinary profits earned by monopoly capital cannot be invested within the region, and under-consumption, combined with the general depression of export markets, represents the principal obstacle to regional investment, which often appears as underutilized capacity and also takes the form of waste . ; 10 . Monopoly capitalist development in Central America provides a material basis for overt class conflict . First, even the immediate aspirations of the working classes are unrealizable due to the control exercised by monopoly capital and the state with respect to the price of labour, which has dropped to a below subsistence level ; second, even the immediate interests of petty commodity and petty bourgeois producers (to maintain control over the means of production) are threatened, since their continued existence depends essentially upon the levels of reproduction of the working classes or on the continued expansion of monopoly capital which they supply ; third, rivalries between monopoly capitals over economic terrain and state power continue unabated . The expression of these immediate interests threaten the basis of monopoly capitalist accumulation . 11 . Possibilities for economic development depend upon the success of new forms of economic organization and political activity which seek to eliminate the power of monopoly capital, increase employment and output and redistribute surplus . The essential feature of Central American social relations is monopoly : land, agro-industrial and commercial monopoly . The logic of monopoly capitalist development determines the distribution of the limited value produced . This particular distribution drains surplus away from smaller propertied classes as a function of transfers which occur in the sphere of circulation but which are based upon relations of production . The overall low levels of value produced in agriculture cannot be attributed to the particular environmental characteristics of the region and are only partially due to the interests of landed property . The possibilities which continue to exist for agricultural production to become a sustained motor of development

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(through internal accumulation based upon agricultural output, employment generation and increased rural incomes) are very substantial . However, these depend upon the intensification of labour and land use . This in turn depends upon fundamental changes in agrarian social relations, especially those which generate land rent and subordinate producers to monopolistically organized capital, precisely the objects of current agrarian struggles . Several of these theses are already implicit in the work of Central American authors . Indeed, some are also implicit in Weeks' work . However, his approach to the theory of monopoly capitalist development is one of the elements which contributes to the lack of coherence in his interpretation of Central American reality . i 2 Week's scholarly research remains an impressive and valuable contribution to the understanding of Central American economic formations and many of his observations are lucid and undogmatic . However, if there is any lesson which may be derived from the reality which he interprets, it is that the role that the landed oligarchy once played in Central America has been assumed by monopoly capital . Prognoses which forecast either gloom and doom or facile remedies for the Central American crisis are unaware of the role of either the working classes or of monopoly capital as well as the options available to each . The working classes are slowly undergoing an almost complete revision of their goals and strategies within the changing political and economic environment . The possibilities for initiating a series of reforms or for proposing non-capitalist alternatives and establishing lasting peace in Central America depend upon how well these forces and their international allies understand the crisis . Monopoly is not simply a form of organization which can be treated empirically : it is a form of capitalist development which responds to its own particular logic and requires different assumptions for its analysis . 33 Its possibilities for reform or abolition depend entirely upon grasping these facts and changing the relative balance of power . This last point requires giving special emphasis to the role of popular organizations (peasant and workers unions, neighbourhood associations, cooperatives, feminist groups, professional and student organizations) and to the opposition

Optimism or pessimism? The changing role of the popular forces

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parties . The economic crisis and, especially, the fiscal deficit, is rapidly eroding popular power because it restricts economistic demands and concessions to those which are purely cosmetic . The popular sectors cannot push hard for particularistic goals without running the risk of being accused of conspiracy against the rickety economy . This situation compromises the traditional aims of most popular organizations, that is, of liberal reformism . It does not, however, give a green light to any rival strategy . Popular armed struggle has also become less and less viable under actual circumstances . i 4 There is a generalized clamour for peace in Central America, which practically eliminates popular support for any armed strategy . What alternatives are there then for the popular movement in confronting capital and imperialism? The return to civilian government is an irreversible phenomena over the entire continent . Yet the political system over most of Central America remains clientelist, based upon the portioning out of favors and monetary rewards . The stimulus to political participation in the traditional machinery is that it provides the only welfare system available, the only protection against economic disaster and political persecution . 35 Institutions which are not subject to popular referendum, such as the armed forces, continue to retain the privilege of deciding civilian issues . In the final decade of the century, the economic crisis and erosion of legitimacy of the state foreshadow a sharpening of political disorder . The power structure continues to be dominated by the military and solutions proposed by the us embassy, the IMF and the World Bank . But it is generally perceived that these are incapable of ameliorating the crisis . Moreover, their counter-reformist and anti-nationalist postures make them targets of the worst popular accusations . The incestuous relations between the military, monopoly capital and the traditional parties eliminate the possibilities for the latter to become vanguards of the structural reforms which are essential to alleviate the crisis . 36 At the same time as the traditional parties annul their own potential as reformist forces, a space is opened for the strengthening of opposition parties, traditionally weak due to the lack of a social base, economic resources and autonomous programmes . To the degree that the economic crisis continues to deepen, not only for the majority (sharpened by structural

Central America

adjustment), but also for petty commodity producers and the competitive sector, opposition to the current economic structure will continue to increase . To the degree that the systems manifest their anti-democratic nature, the clamour for political reforms will increase . At least this has been the pattern up to the present . The bitter harvest of the present situation once again makes proposals for economic growth with redistribution attractive to petty bourgeois and petty commodity producers and workers, on the understanding that redistribution is oriented not only to improving the situation of the poorest, but also to reinforcing those sectors which are disposed to competitive risk, productive innovation and a just distribution of benefits, such as agricultural, craft and service cooperatives . This sector will grow with sufficient force only if the political will exists to destroy land, commercial and industrial monopolies . This means experimenting with an intelligent combination of competition and state intervention, which promotes employment generation and income redistribution, giving priority to productive over speculative activities and fomenting internal integration (especially industry/agriculture), instead of opening the economies still further to the world market . To give priority to internal integration does not mean ignoring external market regulation . Instead it means making the latter work for the development of the internal market . As part of this historical rectification, Central American economic integration would emerge once again as a dignified strategy . The prospects for this type of amelioration of the crisis depend, above all, on the consolidation of popular political power . Popular organizations are beginning to adapt to the changes in the political and economic spheres provoked by the crisis and the war . Discourse is beginning to centre on a series of macrosocial reforms . The crisis has discredited most of the official strategies, formerly so self-sufficient in their prescriptions, thus creating a terrain for demonstratively viable alternative proposals . Popular organizations and opposition parties can gain authority in this terrain, especially if they are able to develop concrete and immediate proposals for employment, wages, health, housing, education, production and distribution of food-stuffs, and land and credit redistribution . Good examples in this respect arise from the cooperative

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movement and from certain peasant enterprises . The cooperative movement has developed its own initiatives to provide housing, credit and education to its associates with far greater success than the state and private sectors . This has frequently been with the support of international and national nongovernmental organizations, demonstrating the viability of non-capitalist and non-state dependent alternatives . These experiences pave the way for a more participatory economic democracy . First, they generate solutions from below to collective problems, and secondly, they are schools of popular formation in self-management . Duly developed, popular organnizations can generate a leadership which recognizes the value of initiative from below and of the innovative and creative forces of the people . Much, therefore, depends on the capacity of the popular organizations and opposition parties to understand the current challenge and respond to it with relevant programmes and proposals . Sooner or later, they will necessarily have to unify forces to defeat electorally the traditional parties . This will require sufficient national and international support to confront, in addition, the national and international military forces which surely will be called upon to return to their respective barracks . Monopoly capital will present itself as the most formidable enemy of these populist objectives . It is the struggle against this force which will maintain the radical orientation of the political movements which aim to bring this system down by one means or another . Revolution in Central America will have to wait, probably decades . The historical forces will be regrouping and training in a new school - the school of alternative political and economic development . They will perhaps be far better prepared to confront the challenges of the transition from backward monopoly capitalism to socialism than their counterparts . The author would like to thank Ron Chilcote, Hazel Johnson, Ian Walker and Rafael del Cid for their insightful comments .



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1 . This is not to say that the dependency perspective is dead or now exercises little influence in Central America . See, for example, Daniel Camacho's interpretation of the crisis (1984 : 11-19) . Good reviews and critiques of conservative interpretations of the crisis 2. can be found in Maira (1983) Barry and Perez (n .d .), and Escobar (1984) . It must be noted, however, that the us has also been seen to play a 3. role which consolidates certain bourgeois democratic reforms, especially through mild land reform and the strengthening of the petty bourgeoisie . It is in the context of these attempts especially that the 'liberal' perspective on the crisis has arisen . Here I refer to the theory of monopoly capitalist development (see 4. especially Hilferding, 1985 ; Baran and Sweezy, 1966 ; Sweezy, 1972 ; Szlajfer and Bellamy Foster, 1984 ; and Bellamy Foster, Ibid .), which has not been developed explicitly to explain the implications of monopoly within 'backward' regions : work in this area must still be considered 'pioneer' . My own research has focused on changes in the agrarian structures of Nicaragua and Honduras . This concept was first developed by a Spanish sociologist, Salvador 5. Giner, and later taken up and elaborated by liberal us academics from the University of North Carolina in a report made to the us State Department under the Carter Administration (Federico G . Gil, Enrique A . Baloyra and Lars Schoultz, The Deterioration and Breakdown of Reactionary Despotism in Central America) . See Maira (1983) . See, for example, Gibbons and Neocosmsos (1985) and Bernstein 6. (n .d .) . Weeks is certainly not alone when he applies these categories . See, 7. for example, Cohen and Rosenthal of the CEPAL school, 1983, and CRIES, 1983, which share many of the same perspectives . Indeed, several authors argue that, due essentially to the political 8. situation in Central America, these countries have received special and preferential treatment which has eased their balance of payments and debt problems in comparison with most other Latin American countries . See, for example, Rivera Urrutia (1986) . 9. An explicit objective of the regional integration project was the 'formation of Central American multinational firms' (CEPAL, cited in PREALC, 1986 : 38) . Weeks makes the argument that Central American multinationals were the principal beneficiaries of the CACM . Indeed, the emergence of production contracting and the partial 10 . dissolution of the latifundia and plantations owned by foreign capital (especially banana companies) were partly responsible for the creation of new capitals in agriculture in Central America . Poitevin points out that, currently in Guatemala, 'The old oligarchy 11 . . . . is in an advanced process of dissolution, although its political influence is still very important . . . from the structural point of view now it is not only the totality of old landed families dedicated principally to coffee cultivation ; these subsist with their particular relations of production in some regions, but the majority have recently emerged from other branches of production' (1984 : 60) . This is not to say that similar divisions have not arisen within the 12 . military itself due to alliances established with different fractions of the bourgeoisie, ideological differences, and battles over state and international

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spoils . For instance, in Honduras over the period 1984-1987 there were three technical coups within the military hierarchy . 13 . Marx assumed that this type of surplus would always be impermanent . Therefore it was only briefly discussed (1967, III : 764-765). 14 . This point has been well made by Goodman and Redclift (1982) . See Baran and Sweezy, ibid . . 15 . 16 . My own work (Ballard, Ibid.) attempts to develop such a perspective, bringing together class analysis and economic theory . It is informed both by recent contributions around petty commodity production as a generic form of capitalism (Bernstein, Ibid . ; Gibbon and Neocosmos, Ibid . ; Friedmann, 1980), and by the theory of monopoly capitalist development . 17 . 1 tend to agree with Weeks' assessment of the us role in Central America, and therefore do not include additional theses around it . 18 . It could be argued that development in Costa Rica deviates precisely because of the emergence of a relatively strong competitive capitalist sector in that country . 19 . Indeed, even USAiD has begun to recognize the sources of economic crisis in Central America, which is evidenced by the sudden interest in the work of ideologues such as Peruvian De Soto, large investments in 'microfirms' ($40,000,000 in Honduras alone in 1987-88), and reports which attack the 'inefficiency' of large firms and state protection, extolling the virtues of petty capital (see, for example, Development Alternatives, Ibid .) . Several of the 'structural adjustment' policies promoted by the IMF and the World Bank are likewise oriented toward reducing protectionism and increasing the efficiency of large firms . 20 . Pastures in 1980 accounted for 76% of all agricultural land use in Costa Rica, 71 % in Nicaragua, 75 % in Honduras, 47 % in El Salvador, and 41 10, in Guatemala . In Honduras, where data are available, over 90 % of all farms over 50 has, are cattle ranches (CEPAL, 1984 and Ballard, Ibid . : 469) . 21 . In cattle ranching, the requirements for labour do not in general exceed 6 man-days per hectare per year (Warnken, 1975 ; Aguilar, et .al ., 1980 ; Place, 1981) . The expansion of cattle ranching is highly correlated with rural emigration (Kramer, 1986 ; Ballard, Ibid .), land struggles and even guerilla activities (Williams, Ibid .) . 22 . Monopoly capital can extract surplus from these producers due to their lack of a profit requirement (see Ballard, Ibid .) . 23 . While my analysis focused upon monopoly relations in beef cattle production, these lessons can equally be derived from the Central American experience with bananas and coffee, the two other principal export activities in the region . 24 . Fruit production is an example of the former, and beef production is an example of the latter . This appears to be especially true where international prices are substantially higher than national production prices . Over the decades of the '60s and '70s, foreign firms withdrew in large 25 . part of primary production, leaving this to local producers, as a result of land conflicts and as a means to reduce risks . In the past decade and a half, the crisis has been expressed not only 26 . in the increase in the urban informal sector, but as well in the appearance of an informal sector in rural areas and by increasing rates of female participation



Central America

in the labour force, which is also crowded into the informal sectors . See, for example, PREALC, Ibid . . Utilized capacity is currently estimated by the World Bank at around 27 . 35 % of installed capacity . See the excellent discussion of this problem in Bellamy Foster, Ibid . 28 . In Honduras, for example, industry provides around 20% of GNP and 29 . absorbs 80% of import value (BCH, 1987) . This thesis is precisely the contrary of that presented by Richter, 30 . (Richter, Ibid .) . It is also worth clarifying here that over-accumulation is manifest in under-investment, precisely due to the lack of investment opportunities within the region . The tendency to under-invest throughout the expansionary period is pointed out by PREALC . In spite of the increase in investment in Central America (from 12 .6% in 1950 to 19 .4% of GDP), this remained 'below the Latin American average, which between 1960-80 oscillated between 20 and 25%' (Ibid . :32) . This corollary to this figure is presented by the rate of external savings, which in the 1980's 'represents almost 40 per cent of the total savings of the Isthmus,' up from around 10% in the 1970's (Ibid . : 36) . 31 . Waste is especially notable in the number of ill-conceived development projects, high levels of corruption, high military budgets and large expenditures on luxury imports, whose contribution to the balance of payment deficits and national debts are not mentioned frequently in the literature . See the critique of Weeks' position in Bellamy Foster, Ibid . . 32 . For a good discussion, see Bellamy Foster, Ibid . 33 . This does not, however, exclude the possibility of defensive armed 34 . struggle against the type of genocidal tactics used, for example, in Argentina and El Salvador . The resurgence of this struggle is foreseeable if repression of popular movements becomes the dominant strategy in defense of monopoly capital . A popular saying in Central America captures the essence of this 35 . phenomenon: 'Plata para los amigos, plomo para los enemigos, y patadas para los no-decididos' (Money for your friends, bullets for you enemies, and punches for those who aren't decided) . Several of these observations and those that follow, are anticipated in 36 . an article published with Rafael del Cid in Nueva Sociedad, entitles 'Honduras en la antesala del 2000 . Desafios y opciones a una sociedad en crisis .' Forthcoming, November, 1989 .

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Aguilar M ., Reynalda, Reyes G ., Melba, and Vigil, Carlos 1980 'Empleo rural, estado y politicas publicas en Honduras .' Tegucigalpa : CSUCA-IDRC . Ballard (Howard-Borjas), Patricia 1987 From Banana Republic to Cattle Republic : Agrarian Roots of the Crisis in Honduras, Doctoral Thesis, Ann Arbor : University Microfilms . Banco Central de Honduras 1988 'Cuentas nacionales de Honduras, 19801985,' Tegucigalpa: BCH . Baran, Paul and Sweezy, Paul 1966 Monopoly Capital, New York : Monthly Review Press . Barry, Deborah and Sol Perez, Jorge n .d . 'El debate norteamericano : cinco propuestas sobre Centroamerica,' Managua: CRIES . Bellamy Foster, John 1986 The Theory of Monopoly Capitalism, New York : Monthly Review Press . Bellamy Foster, John and Slafjer, Henrick (eds .) 1984 The Faltering Economy: The Problem of Accumulacion under Monopoly Capitalism, New York : Monthly Review Press . Bernstein, Henry 1986 'Is there a Concept of Petty Commodity Production Generic to Capitalism?' Mimeo . Camacho, Daniel and Rojas B ., Manuel (eds .) 1984 La crisis centroamericana, San Jose : EDUCA . Cohen, Isaac and Rosenthal, Gert 1983 'Las dimensiones del espacio de la politica economica en Centroamerica,' in Pellicer and Fagen (eds .) Centroamerica : futuro y opciones, 185-202 . 1983 'An Alternative Policy for Central America and the Caribbean,' The Hague : Institute of Social Studies . Dada, Hectoe 1985 'Comentario de Hector Dada,' In CECADE (ed .), Centroamerica : crisis y politica internacional, 7 1-76 . Development Alternatives, Inc . 1988 The Effect of Policy Upon Small Industry Development in Honduras, USAID Contract DAN-5426-c-00-4098-0 . Washington: Development Alternatives, 1987 . CRIES

Dore, Elizabeth and Weeks, John 1979 'International Exchange and the Causes of Backwardness,' Latin American Perspectives, 6 (2), 62-87 . Escobar, Francisco 1984 'Hacia una interpretation cientifico-social de Centroamerica,' in Camacho and Rojas (eds.), La crisis centroamericana, 236-272 . Friedmann, Harriet 1980 'Household Production and the National Economy : Concepts for the Analysis of Agrarian Formations,' in Journal of Peasant Studies 7 (2) : 158-168 . Gibbon P . and Neocosmos, M. 1985 'Some Problems in the Political Economy of "African Socialism"' . In Bernstein and Campbell (eds .), Contradictions of Accumulation in Africa . Studies in Economy and State, 153-206 . Goodman, David and Redclift, Michael 1981 From Peasant to Proletarian, Oxford : Basil Blackwell . Hilferding, Rudolf 1985 Finance Capital. London : Routledge & Kegan Paul . Jimenez Veiga, Danilo 1985 'Comentario de Danilo Jimenez Vieja .' In CECADE (ed .), Centroamerica .• crisis y politica international, 85-92 . Kramer, Frank 1986 'The Impact of External Markets on the Structure of Peasant Agriculture in Southern Honduras .' Paper presented at the XIII International Congress of the Latin American Studies Association, Boston, Massachusetts, October 23 . Maira, Luis 1983 'La crisis centroamericana y el debate sobre sus raices en los

Central America

Estados Unidos,' in Pellicgr and Fagen (eds .), Centroamerica : futuro y options, 23-52 . Marx, Karl 1967 Capital. 3 Vols . New York : International Publishers . Pellicer, Olga and Fagen, Richaro (eds .) 1983 Centroamerica : futuro y opciones, Mexico, D .F . : Fondo de Cultura Economica . Place, Susan 1981 Ecological and Social Consequences of Export Beef Production in Guanacaste Province, Costa Rica, Doctoral Thesis, University of California Los Angeles, Ann Arbor, Michigan : University Microfilms . Poitevin, Rene 1984 'La crisis en Guatemala,' in Camacho and Rojas (eds .), La crisis centroamericana, 52-70 . PREALC 1986 Cambio polarization ocupacional en Centroamerica, San Jose : EDUCA . Richter, Ernesto 1985 'Comentario de Ernesto Richter,' In CECADE (ed .), Centroamerica.• crisis y politica international, 85-92 . Rivera Urrutia, Eugenio 1986 'Deuda externa y asistencia financiers : el caso centroamericano,' Latin American and Cartibbean Center Occasional Paper Series, 17 . Rosenthal, Gert 1982 'Principales rasgos de la evolution de las economias centroamericanas desde la posguerra,' in CECADE (ed .), Centroamerica : crisis y politica international, 19-38 . Sweezy, Paul 1972 Modern Capitalism, New York : Monthly Review Press . Torres Rivas, Edelberto 1982 'Notas para comprender la crisis politica centroamericana,' In CECADE, (ed .) Centroamerica: crisis y politica internacional, 39-70. 1986 'Centroamerica : guerra, transition y democracia,' paper presented to the VII Congreso Centroamericano de Sociologia, Tegucigalpa, D .C ., November 2-7 . Torres Rivas, Edelberto and Gallardo, Maria 1985 Para entender Centroamerica : Resumen bibliogrdfco 1960-84, San Jose : ICADIS . Weeks, John 1985 The Economies of Central America, New York : Holmes and Meier . 1986 'An Interpretation of the Central American Crisis,' Latin American Research Review, 21 (3), 31-53 . Williams, Robert 1986 Export Agriculture and the Crisis in Central America, Chapel Hill : University of North Carolina Press . Zamorra, Oscar 1985 'Comentario de Oscar Zamorra,' In CECADE (ed .), Centroamirica : crisis y politica international, 85-92 .

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Cyrus Bina

Some controversies in the development of rent theory : the nature of oil rent

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Bina's article is both a contribution to the theory of rent and an attempt to explain the `oil crisis' of the 1970s . Addressing classical and modern debates, the author argues that bourgeois economics fails to theorise the specificity of rent in capitalist societies and its relation to production and the structure of property relations . By applying Marx's theory of rent to the us oil industry, Bina seeks to provide a coherent explanation of the oil price rises of the early 1970s .

0 Our primary objective is to develop a theory of rent for the oil industry from the standpoint of the historical significance of landed property (and lease ownership) and its structural relationship with the production process . Prior to the development of a specific theory of rent for oil, however, we need to proceed from a study of the specificity of the notion of rent in developed capitalism and particularity of rent in a rent-collecting industry . The phenomenon of economic rent has a multiplicity of applications that are not adequately dealt with by the dominant orthodoxy, other than imposition of external or monopoly conditions . What is forcing the majority of theorists to speak of rent presently seems to be none other than `practical necessity' that is loosely connected with a consistent theoretical foundation . It is in this connection that we will attempt to evaluate the prevailing conceptions of rent in general, and the phenomenon of oil rent in particular . This of course, among other things, leads us to a brief evaluation of a selected number of rent theories which were developed historically in conjunction with agricultural production . (Ricardo, 1976, Ch . 2 ; Marx, 1981, Part 6) . The development of the notion of ground rent in econo-



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mic literature has its origin long before the emergence of the classical school of political economy . With the development of classical economics, ground rent became an integral component of the economic theory of this period and produced a great deal of controversy whenever it was applied to the economic and social conditions of the time . During this period, from concern over the fluctuation of corn prices, which was initiated by James Anderson (1777, 1797) and exclusive analysis of Adam Smith (1977, Ch . 11) during the late 18th century, to the extensive debates of Ricardo and his contemporaries on the nature and consequence of the corn laws during the early 19th century in England, the importance of rent and the significance of the analysis of landed property in political economy seem undisputable (Ricardo, 1976, Chs . 2, 24, 32 ; Malthus, 1815, Torrens, 1815, Ch . 8 ; West, 1815) . Karl Marx's engagement in the study of political economy too, which is substantially centered around his fundamental critique in Capital, could not remain indifferent on the matter of ground rent, as he devoted a substantial portion of his analysis to an examination of the impact of landed property on the value and prices of agricultural commodities, (Marx, 1968 and 1981, Part 6) . Toward the end of the 19th Century the debates over rent theory in the United States were influenced by Henry George (1938), and his followers, who did not fundamentally depart from his classical predecessors, and who boldly proposed a system of single tax on land as the main source of state revenue . Meanwhile, with the development of the 'marginalist school' that has gone through decades of debate over the nature of rent, this question still has not been dealt with adequately (Brown, 1941 ; Fine, 1983) . For instance, since the advent of 'general equilibrium' analysis, the notion of rent has been either excluded from the models, or recognized only in exceptional cases, such as monopoly conditions in which there is a deviation from the 'norm', given the existing realities . 'If all land had the same properties, if it were unlimited in quantity, and uniform in quality,' Ricardo pointed out, 'no charge could be made for its use, unless where it possessed peculiar advantages of situation' (Ricardo, 1976, p . 35, emphasis added) . Clearly, both limited quantity and heterogeneity of land

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are factors that led Ricardo to develop his version of rent theory in agriculture . He argued that as the margin of cultivation is extended to use land of inferior quality, cultivation on the land of higher quality results in rent . The rent of this type is called differential rent by Ricardo . Moreover, this differential rent reflects the difference between the quality of 'marginal' and that of 'intra-marginal' land as cultivation is extended . Another way to perceive such a rent is by noting the limited quantity or scarcity of land . That is why Marshall, who did not quite abandon his classical orientation, in evaluating Ricardo's conception of rent, pointed out that, 'In a sense, all rents are scarcity rents, and all rents are differential rents' (Marshall, 1961, p . 144) . The origin of rent, as Ricardo saw it, is due to the physical characteristics of nature, which are perceived to be universal no matter what the character of production might be . As a result, this same concept is applicable to all periods of history . In fact, the consequence of such an analysis is that the phenomenon of rent, as it relates to modern landed property, is not unique to capitalism . Ricardo attempted to make a distinction between rent and profit as part of a more general theoretical development, i .e ., the laws which regulate the realm of distribution of 'the produce of the earth' among the 'three classes of community, namely, the proprietor of the land, the owner of the stock or capital necessary for its cultivation, and the laborers by whose industry it is cultivated' (Ricardo, 1976, p . 3) . It is not surprising at all, therefore, that the genesis of rent, in Ricardo is more in tune with physical or technical considerations rather than social necessity . The cause of rent here is seen in the extension of cultivation instead of the monopolization of nature, and attempts by capital to overcome it, which necessarily leads to the development of a particular structure of property relations in agriculatural production ; even though Ricardo was against the landlords as he readily recognized the extent of their political influence through his own practical legislative experience in the British Parliament early in the 19th Century .

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Marshall's intermediary position

As Marshall's theory of rent is halfway between the Ricardian and neoclassical conceptions of rent, reference to his theory is necessary . 'While man has no power of creating matter,'

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Marshall maintained, 'he creates utilities by putting things into useful form ; and the utilities made by him can be increased in supply if there is an increased demand for them : they have a supply price' (Marshall, 1961, p . 144) . Marshall went on to say that although land is among the objects of utilities, one cannot simply exercise any control over it due to the fixity of the supply of nature . Therefore, land has no particular price the same way as any other articles of utility . Marshall thus made a clear distinction between land and the products of land, when he stated that `the fundamental attribute of land is its extension' (Marshall, 1961, p . 147, emphasis added) . It should be noted that the similarity between the Marshallian conception of rent and its counterpart in the Ricardian tradition is not only due to the emphasis on the extension of cultivation . Marshall, like Ricardo, considered the 'Inherent properties, which the land derives from nature . . . It is chiefly from them that the ownership of agricultural land derives its peculiar significance, and the Theory of Rent its special character' (Marshall, 1961, p . 147) . However, there are striking dissimilarities between the Marshallian and Ricardian theories of rent : Ricardo, following Smith, attempted to make a distinction between rent and profit, while Marshall tried to do exactly the opposite . Marshall remarked that : . . . the full rent of a farm in an old country is made up of three elements : the first being due to the value of the soil as it was made by nature ; the second to improvements made in it by man ; and the third, which is often the most important of all, to the growth of a dense and rich population, and to facilities of communication by public roads, railroads, etc . (Marshall, 1961, p . 156, emphasis added) . It seems evident from the above passage that, first of all, the concept of rent is the immediate result of nature . Second, rent is necessarily a universal concept and as such does not require to be specifically dealt with through the analysis of modern landed property, unique to capitalism . Third, the contradiction against the expansion of capital imposed by private ownership of land and monopolization of nature is taken for granted . Fourth, the growth of mass communication

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and transportation as the source of one form of rent is heedlessly mixed up with ground rent . Finally, as the above passage indicates, not only is there no clear distinction between rent and profit in Marshall as can be found in the works of Smith and Ricardo, but Marshall has often misunderstood the implications of the theoretical contributions of his classical predecessors, even though he did not entirely break with their tradition . Despite these differences, the notion of rent formulated by Marshall gives rise to a concept which is not modified by the characteristics and social necessities of different historical epochs . Rent becomes a universal concept in Marshall's theory as well as in Ricardo's .

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Marx's approach : Historical specificity of capitalism

The formulation of Marx's theory of rent in agriculture is a direct consequence of his critique of political economy . Marx argues that the concept of capitalist ground-rent relates to the social conditions of the development of capital in agriculture . Thus the concept of modern rent has to be perceived within the capitalist mode of production alone, rather than as a universal phenomenon that is relevant to all history (Marx, 1981, pp . 751-52) . The basis of capitalist rent in Marx's sense lies in the production of exchange-value, in contrast with rent in the Middle Ages which is connected to the physical entity of the product and its use-value . Thus, the notion of capitalist rent as opposed to rent in pre-capitalist production does not have its origin in nature . As Marx pointed out, An erroneous concept of the nature of rent is based upon that rent in kind . . . has been dragged over into modern times from the natural economy of the middle ages, completely in contradiction to the conditions of capitalist mode of production . It thereby creates the impression that rent does not arise from the price of the agricultural products, but from its mass, thus not from social conditions, but from the earth (Marx, 1981, pp . 787-88) . According to Marx, in order to discover the genesis of capitalist ground rent, one needs to look into the relations of use-value and exchange-value in the production of commodities . It is quite true that without the production of use-value there is no possibility of producing exchange-value . But,

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accordingly, in order to be able to make a distinction between the capitalist mode of production and all the other precapitalist social formations one needs to look for differences and not similarities . Moreover, it is only under capitalist social relations of production that fundamentally the productions of exchange-value intertwine with the exchange of the commodity labor power. In this connection, commodities have two different aspects : (1) value in use, and (2) value in exchange . A bottle of wine produced within capitalism and a very similar bottle of wine produced within pre-capitalist social relations cannot possibly be distinguished in appearance, and from the standpoint of its end use it is not known beforehand under what social relations each one has been produced . Likewise, if the conditions of production of these two bottles of wine were totally abstracted from, one has no way of knowing about the respective social institutions from which they were actually originated . The resolution of the above problem is of paramount necessity for those institutional approaches which are basing their entire theoretical structure on such a distinction . Thus, in order to be able to make a clear distinction between a specific period of history, i .e ., capitalism, and other historical epochs, one has to abstract from the similarities by concentrating on the differences . While the utilization of nature is common to all human societies in history, the act of utilization of nature in capitalist production, as opposed to all the previous modes of production, is not an end in itself . It is rather a medium through which the social relations among people are regularly transformed into fetishized relations among things . Thus, an interest in the institutional characteristic of a specific historical epoch requires an analysis of social relations . By the same token, according to Marx, the genesis of capitalist rent is not due to the physical attributes of nature, for these physical aspects by themselves do not automatically lead to the reality of rent . What gives rise to this notion is rather the constitution of those historically specific social relations which would utilize nature in the production of value . The monopolization of a natural sphere, on the one hand, and the expansion of capital into it, on the other, leads to the distribution of surplus-value into rent and profit . Consequently, the above processes, i .e ., both the monopolization of nature by landed property (or any other type of property

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relations which would monopolize the condition of labor) and the expansion of capital, do not have their origins in the physical characteristics of nature, since these processes are rather the results of the existing social relations and not their cause in our epoch . Historically, according to Marx, during the transition from the feudal (natural economy) to the capitalist mode of production, a dual transformation of (1) separation of the peasantry from the land and the transformation of this class into a class of wage laborers, and (2) dissolution of the collective ownership of land (owned by the landlords) and its transformation into monopolized private property, emerged . The transformation of nature into private property is initiated by capital itself which, in turn, comes to stand against its own self-expansion and accumulation in the form of rent . Thus, the contemporary notion of rent is itself a direct dialectical consequence of the rule of capital, and its social origin has nothing to do with the physical characteristics of nature . The notion of rent under the capitalist mode of production is the phenomenal form, a mere reflection of the established norms of capital that manifest themselves in the material form of nature . The nature of the above simultaneous transformations is carefully detected by Marx, where he states : The determination of the market-value of products, including, therefore, agricultural products, is a social act, albeit a socially unconscious and unintentional one . It is based upon the exchange-value of the product, not upon the soil and the difference in its fertility (Marx, 1981, p . 661, emphasis added) .

Theory of resource rent: exhaustible and renewable

The genesis of capitalist rent created the social conditions under which a capitalist rentier class came into existence . This process, as we have seen, gave rise to the phenomenon that Marx called capitalist ground rent . We have also realized that modern capitalist rent is the direct consequence of the private appropriation or the monopolization vis-a-vis the expansion of capital, resulting from the institution of private property in the means of production, which is specific to capitalist societies . Such an understanding is a precondition for any serious analysis which deals with the utilization of nature, from the standpoint of Marx's rent theory ; thus, accordingly,

Rent theory starting with nature in its particular physical form, i .e ., exhaustible or renewable takes us back to the realm of commodity fetishism (Gray, 1914 ; Hotelling, 1931 ; Symposium on Exhaustible Resources, 1974) . Contrary to Ricardo's, Marx's rent theory is not caused by the differential quality of intra-marginal and marginal land, but is the manifestation of a specific social relation . The quality of 'marginal land', in association with the assumption of zero rent advanced by Ricardo, is not necessarily in tune with the institutional origin of rent, because it tends to assume away the barrier of rent and the process of overcoming this barrier by capital . Unable to explain the origin of rent, Ricardo has developed a special case of differential rent through the arbitrary assumption of moving from better to worse land . Methodologically, from the standpoint of Marxian theory, this type of differential rent, as a theoretical category, is devoid of social and historical significance since it is not adequately grounded in production conditions that are socially unique to the capitalist mode of production . Thus, if rent is considered to be a phenomenal manifestation of the interaction of the structure of accumulation and the structure landed property, it must be (1) a social category, and (2) a category that is historically unique and specific to the capitalist mode of production . This Marxian criticism can be extended to the modern literature on 'exhaustible' and 'renewable' resources . From the standpoint of capital-in-general such a division is devoid of meaning and entirely arbitrary . This approach, in addition to having a firm foundation in commodity fetishism, neglects the cause of rent ; the analysis is ahistorical . Under the capitalist mode of production, capital is self-expanding value . It expands into every facet of life, including the realm of nature for further accumulation . An element of nature, such as an oil pool, which did not have an exchange value based upon the generalized system of exchange in previous historical epochs, has now been transformed into an instrument of the expansion of capital . Therefore the significance of nature and, for that matter, natural resources, is not merely in their use-value form . Their importance rather is due to their utilization for the production of surplus value .

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90 Marx's theory of rent

As we have pointed out, the notion of rent from Ricardo's viewpoint relates to the existing differential qualities of land in agricultural production or, for that matter, in mining . According to Ricardo, the order of utilization starts from the best land and gradually extends to the worst land as the demand for the product of land increases . This is also true for Sraffa and the Sraffian notion of scarcity rent (Sraffa, 1960, Ch . 11) . Since the price of corn is determined by the conditions of production associated with the worst land paying zero rent, the production from more productive land will result in a surplus over and above normal profit . That is the reason why Ricardo argues that 'corn is not high because a rent is paid, but a rent is paid because corn is high . . .' (Ricardo, 1976, p . 38) . Accordingly, as the demand for agricultural products increases and the quality of land under cultivation deteriorates, the price of corn will be necessarily increased . Such an increase will also be accompanied by a higher and higher amount of rent over time . Even though Ricardo correctly recognized the notion of differential rent in agriculture at the level of distribution, he essentially missed its significance in the production process and its relation to accumulation by accepting the Malthusian theory of population and its implication for the inevitable scarcity of agricultural products and food . In fact, the key to the conceptual presumption of the simultaneous increase in prices and rents is the assumption of relative scarcity in conjunction with the extension of cultivation from better to worse lands . Contrary to Ricardo's presumption, however, the development of the productive forces in agriculture is such that neither the best nor the worst land will always remain the same . An a priori assumption of the extension of cultivation from better to worse lands is not only conceptually false, but also historically without any empirical support . In contrast to Ricardo, Marx approaches the phenomenon of rent by rejecting Ricardo's arbitrary assumption . The precondition for such a rejection was the concrete study of the actual direction of movement in the price of corn and the rent of land under cultivation during the first part of the nineteenth century in Britain . Pertaining to the above context, in his letter of January 7, 1851, Marx writes to Engels : I am writing to you today in order to lay a little question



Rent theory of theory before you . . . 1. There is no doubt that as civilization progresses poorer and poorer kinds of land are brought under cultivation . But there is also no doubt that, as a result of the progress of science and industry, these poorer types of land are relatively good in comparison with the former good types . 2. Since 1815 the price of corn dropped . . . Rent [nevertheless) has continually risen . In every country we find, as Petty [Sir William) 3. already noticed, that when the price of corn drops the total rental of the country rises (Marx and Engels, 1975, pp . 47-48 .) .* The recognition of the above historical facts in conjunction with adequate knowledge about the work of his predecessors would seem to be among the factors that contributed to Marx's understanding of the subject and his distinction between (1) the equal application of capital upon land of unequal quality, and (2) the unequal application of capital upon land of equal quality . In addition to these findings in volume III of Capital, the above distinction can be clearly seen in Theories of Surplus Value : With a given capital investment, the variation in the amount of rent is only to be explained by the varying fertility of the land . The variation in the amount of rent, given equal fertility, can only be explained by the varying amount of capital invested (Marx, 1968, pp . 42-43) . The above conditions are referred to by Marx as differential rent of the first type (DRI) and differential rent of the second type (DRII) . It should be apparent that in the actual situation these two types of differential rents are formed jointly, in the presence of each other . In other words, the formation of social value is the result of the unequal applications of capital to unequal qualities of land through competition . Moreover, DRI and DRII are not in actuality formed independently of each other . The production conditions which lead to changes in the level of one form of differential rent do not necessarily leave the other form unchanged . Ben Fine summarizes the above problem in the following manner : For

DRI,

there is the problem of determining the worst

* I owe Anwar Shaikh of New School for Social Research for bringing this correspondence to my attention .

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land in the presence of unequal application capital (DRII) . . . for DRit, there is the problem of determining the normal level of investment in the presence of differing lands (DR]) . . . These problems concern the simultaneous determination of worst land and normal capital in agriculture (Fine, 1979A) . In order to solve this problem, Marx analytically examines the formation of DRii in conjunction with DRI under changing prices of production . Moreover, instead of attempting to identify the simultaneous determination of worst land and normal capital directly, Marx let the prices of production decline, remain constant, and increase in order to capture the varying impact of capital investments . In other words, Marx successfully goes beyond the static distributional question of rent in order to address the question of the dynamics of capital accumulation in conjunction with the barrier of landed property in agriculture . At the same time, unlike Ricardo's, Marx's theory of differential rent is quite consistent with his theory of value, which is based on socially necessary labor time, as opposed to the labor-embodied varieties . Another aspect of Marx's critique of Ricardo's rent theory is the rejection of Ricardo's notion of differential rent based upon the margin of cultivation along the 'descending line .' Marx has shown that, depending upon the conditions of production, there can be movements toward the more productive or less productive lands . After giving extensive examples, he remarked that, 'In reality, the ascending and descending lines will cut across one another, the additional demand will sometimes be supplied by going over to more, sometimes to less fertile type of land, mine or natural agent' (Marx, 1968, p . 273) . On the contrary, Ricardo believed that the market value of agricultural commodities is always determined by the labor required on the no rent marginal land . The difference between Marx and Ricardo is great . Marx argues that, As soon as the additional supply surpasses the capacity of the market, as determined by the old market-value, each class naturally seeks to force the whole of its product onto the market to the exclusion of the product of the other classes . This can only be brought about through a fall in price, and moreover a fall to the level where the market

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can absorb all products . If this reduction in price is so great that the classes I, II, etc ., have to sell below their costs of production, they naturally have to with-draw [their capital from production] . . . But it is further clear that in these circumstances it is not the worst land, I and II, but the best, III and IV, which determines the market-value . . . (Marx, 1968, pp . 292-93) . The above statement is clearly different from that of Ricardo . The competitive struggle of capital invested in different 'classes' of land and the existence of specific market conditions can certainly lead to the formation of a market value different from the value of the product of marginal land . As a result, such a market value regulates the market by definition be below the value of the marginal producer . To illustrate the mechanism of differential rent, Marx assumes that the 'marginal land' has a zero rent . However, he insists that such an assumption of zero rent is not essentially necessary (Marx, 1981, ch . 45) . Furthermore, contrary to Ricardo, Marx notes that under the capitalist mode of production the formation of rent results from the development of landed property in agriculture . Ricardo, on the other hand, does not attempt to analyze the phenomenon of rent in association with the internal development of capitalist social relations . Instead, he tries to explain that rent is the result of differential fertility and other physical characteristics of land . Hence, the context of rent from Ricardo's viewpoint is natural and technical rather than social and historical . Consequently, it is hardly surprising that Ricardo's theory of rent becomes universal in character ; projecting the notion of scarcity regardless of the institutional characteristics of production (Ricardo, 1976, p . 39) . As we have seen, according to Marx, the precondition for the formation of differential rent is the existence of differential productivity and the resultant differential profitability through competition . However, it is due to the particularities of landed property that the differential profitability turns out to become permanent in agriculture . It is instructive to find out that in dealing with 'practical problems', modern orthodoxy which had so readily detached rent theory from its core, prefers from time to time to employ some sort of scarcity rent (often as 'user costs') when it tends to confront the situations such as the ones that have been

The significance of rent in neoclassical theory

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developed in the oil industry . But the concept of rent is a tricky one for those who have accepted the neoclassical general equilibrium . On the one hand, using the framework of general equilibrium (a simultaneous determination of factor incomes) one has to engage in the generalization of `rental income' for all the factors involved at the margin of production (Clark, 1891 ; Hobson, 1891) . Hence, methodologically, the same principle governs the distribution of the incomes of all the factors involved in production . These factors are labor, capital, land, and entrepreneurship with respective returns of wage, interest, rent, and profit . On the other hand, given the above approach, there is no possibility of treating particular factors, such as agricultural or urban land, oil fields, coal fields, etc ., specifically unless the above framework is replaced by that of partial equilibrium (Fine 1982A) . Within the context of partial equilibrium, it is possible to establish a causal relation for one factor independently of other factors, that can be specifically differentiated from the general principle of the formation of other factor incomes . For instance, taking the above approach, Marshall treated the notion of differential rent in association with lands of different quality in agriculture (Marshall, 1893) . In so doing his usage of the partial equilibrium framework was quite consistent with his treatment of rent as a price-determined factor income . This type of analysis, however, is not without problems of its own . Moreover, within this framework, one has to assume either a one commodity economy or, in the case of a multicommodity economy, constant prices for all other commodities . In a one-good world, rent would be price determined according to the differential productivity of better over marginal (no rent) land in use and a particular role could be assigned to land in causing differential productivity and hence rent as in Ricardian Theory (Fine, 1982A, p . 344) . Far from the heated debates that occurred among the contending factions of emerging neoclassical school at the turn of the century (and the early part of the 20th Century), a modern neoclassical economist of today, who is trained to think in terms of general equilibrium theory (hence, simultaneous determination of factor incomes), does not even begin to question the significance of the above trade-off as it pertains



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to the question of rent (see Krueger, 1974 ; Foster, 1981 ; Ng, 1983 ; Devarajan and Fisher, 1982 ; Wilson, 1979) . Confronting the real world, these 'modern theorists' would soon recognize that there are many unexplained elements left out of their standard competitive general equilibrium models . But, faced with the question of why rent has to be treated specifically (i .e . on a different footing, in accordance with its institutional underpinning), they often prefer to treat the matter externally (Miller, 1973 ; Brown, 1974) . Historically, given 'the conceptual specificity of rent . . . the debate over the rent theory [among the neoclassical economists) was a debate between partial and general equilibrium and to that extent a dialogue of the deaf (Fine 1982A, p . 344) . With the gradual dominance of the general equilibrium approach in neoclassical theory, a specific theory of rent became superflous, removing the feasibility of any dialogue (see also Wessel, 1967) . For those who tend to question the fundamental basis of neoclassical theory the subject of rent still remains troubling . But what is more troubling is the message of those who stand on the fence, ideally fantasizing as if they can reconcile the differences between neoclassical theory and its classical counterpart by means of methodological compromises that undoubtedly promotes nothing other than theoretical confusion . One such example can be seen in the treatment of oil rents by J .M . Chevalier (1976) . Chevalier starts out by defining 'the oil surplus as the difference between the market price of a ton of crude oil sold to consumers in form of finished products and the total average cost incurred in discovering, producing, transporting, refining and marketing this ton of crude' (Chevalier, 1976, p . 281) . At best, dealing with the notion of oil rents within the general equilibrium framework, he does not seem to realize that such a treatment tends to destroy the specificity of his rent theory at once . In addition, Chevalier maintains that due to the oligopolistic structure of oil production, and the lack of perfect mobility of capital in this industry, one has to distinguish two types of oil rents : (1) differential rents, and (2) monopoly rents (Chevalier, 1976, pp . 283-85) . Of course differential rents so defined are generated through differences in production tech-

Oil rent in the context of general equilibrium

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niques and natural qualities, whereas monopoly rents are said to be the result of the differential profit rate of oil relative to other industries (Chevalier, 1976, p . 285) . He then devises four different categories for differential oil rents : (1) quality rent, (2) position rent, (3) mining rent, and (4) technological rent (Chevalier, 1976, p . 286) . Finally, when Chevalier comes to evaluate the mechanism of price determination, he compares Smith, Ricardo, Marx, e tc . i n order to demonstrate that : None of these economists . . . paid any attention to the determining influence of the cost trend . The price of crude oils tends to be in line with the development cost of the most expensive deposit when costs are increasing, and with the development cost of the least expensive one when costs are decreasing (Chevalier, 1976, p . 298, footnote 44) . The above treatment of rent, is not only the reflection of methodological confusion about the meaning of rent, but also the result of careless and out-of-context imposition of Marshallian cost categories on the classical and Marxian concepts of value and production prices . First of all, by abstracting from the phenomenon of property relations in the oil production, the author scarcely realizes that within the framework of general equilibrium the causative determination of the least as well as the most expensive oil deposits cannot be distinguished from each other . For general equilibrium is a framework of simultaneous determination . Secondly, aside from the difficulties of general equilibrium framework, it is not clear why the price of oil should be either in line with the cost of the least or the most productive deposits alone (given the assumption of ascending or descending cost trend respectively), and not somewhere between the two . Besides, basing the price of oil on the lowest cost deposits a priori, one cannot help but wonder about the status of higher-cost deposits and the existing differential oil rents, both empirically and theoretically . Hence a troubling ambiguity in the origin of differential oil rent at the point of production . Here, formulation of 'quality rent', 'position rent', and 'mining rent' poses a formidable problem from the standpoint of identification of the origin of rent in the production process . The distinction of 'technical rents' from the above 'rents' is also unclear . More importantly, however, Chevalier's oil rents

Rent theory

cannot possibly assume the status of a social category for they all remain utterly devoid of social and property relations, and without any specificity . Hence, the choice here, other than going back to Ricardo, is wither Marshall or modern general equilibrium theory . That is why Fine's description of the status of modern rent suits this occasion : The passage to extinction of rent theory in neoclassical economics has meant that it has lived in the underworld of the profession, like a guilty conscience that is at its strongest when crime is committed but which fades with the passage of time only to reemerge sporadically and feebly . (Fine, 1982B, p . 99) What is also disturbing is the contagious influence of the neoclassical theory of competition (and likewise its theory of monopoly) on the remaining contemporary schools of economic thought, especially the ones that are seemingly opposed to the prevailing orthodoxy . (See Fine and Harris, 1979B ; Semmler, 1982 ; Shaikh, 1982 ; Weeks, 1981 ; Bina, 1985 .) As we have demonstrated, the general equilibrium approach to the determination of 'factor incomes' involves the treatment of all the factors on the same footing, so generalizing all the factor incomes as rents . The difficulty of this method is compounded by considering the formation of these rents in conjunction with market structures other than 'pure competition' (see Bina, 1985, Ch . 6) . Having dealt with an important aspect of Chevalier's treatment of oil rent, we have to remind the reader, that even within his own framework, Chevalier has failed to develop a specific theory of oil rent . The next step is to show that one cannot develop a viable theory of rent in the oil industry independent of the possible impact of the ownership of oil reserves and the condition of leases on the accumulation of capital in the oil industry (see Bina, 1985, Chs . 5 and 8) . In this connection, we have chosen to deal with Fitch's treatment of the oil rent (Fitch, 1982) . Even though Fitch correctly points out the shortcoming of neoclassical theory in dealing with such practical problems as the oil crisis of the early 1970's, he nevertheless fails to make a distinction between the nature of rent in classical political economy and its counterpart in Marx (Fitch, 1982, p . 20) . We have seen that Ricardo developed his theory of

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differential rent based on the differences in productivity that existed between lands of marginal and intramarginal qualities . Moreover, he maintained that the price of corn is always determined by production on marginal land, or land of inferior quality . Hence, Ricardian rent is price-determined rather than price-determining (Ricardo, 1976 Ch . 2 ; Bina, 1985 Chs . 3 and 5) . Unlike Marx, Ricardo rejects the notion of absolute rent and with it the impact of landed property on production in agriculture . Instead, his primary concern is the distribution of surplus among the social classes (for specific analysis see Fine, 1979A) . Therefore, Ricardo's theory of rent, being formed at the margin of cultivation, is independent of the structure of landed property in agriculture . Moreover, Ricardo's rent theory is not consistent with his labor-embodied value theory . Striving for specificity, Ricardo's rent can be conceptualized either in a one-commodity world or in a multicommodity world with the prices of other goods remaining constant . Although Fitch is critical of the 'conventional wisdom' he, nevertheless, takes a Ricardian approach perhaps without realizing it . Discussing the significance of the Classical/ Marxian theory of rent, Fitch maintains : By contrast, the Classical/Marxian theory accounts for the price of Persian Gulf oil without any recourse to such a dens ex machina . The cost of production is properly understood as unequal for all producers and the market price is regulated by the producers operating on the basis of the least favorable conditions who are able to clear the market at a market price equal to their marginal price of production . So the result here is that surplus profits tend to originate more in primary commodities than in manufactured commodities because the range of cost differential is greater (Fitch, 1982, p .20) . Clearly the above passage departs from Marx's method of analysis and his treatment of rent in agriculture . As we have demonstrated, contrary to the margin of cultivation thesis, Marx argues that any onesided movement from better to worse land is only a special case in agriculture (Marx, 1981, Part 6) . Even though Ricardo's treatment of rent is specific, it is valid only within a partial equilibrium framework . One has to remember



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that the concept of 'the margin of cultivation' in the Ricardian theory had been made more general by the emerging marginalist school, for the calculation of factor incomes, before its eventual replacement by general equilibrium (Fine, 1982A) . Methodologically, given the lack of consideration of the effects of landed property on the pattern of capital investment in agriculture, the Ricardian theory is caught in a dilemma of its own making : on the one hand, it loses its specificity if it departs from partial equilibrium ; on the other hand, it remains static, restrictive, and unrealistic if it does not . Theoretically, the above theory remains ahistorical and depends on axiomatic treatment, as it fails to account for the institution of landed property and its mutual relation with the pattern of capital investments (Fine, 1979A) . In this section, we intend to summarize our previous theoretical A theory of oil propositions in order to develop a theory of differential rent for rent : the nature the oil industry . The phenomenon of economic rent as a category of production distinguished from normal profits is neither original to Marx nor and property specific to classical political economy . However, what made Marx's theory of agricultural rent different from his predecessors' theories is 'the specificity of the analysis itself, not the category' (Shaikh, 1981) . The notion of oil rent in the oil industry is none other than the phenomenal form of the specific property relation that is unique to the oil industry . Historically, the separation of the ownership of hydrocarbon deposits from the ownership of the oil fields resulted in the emergence of this barrier within the accumulation process in the production of oil . In countries or regions where the ownership of the surface soil legally includes the subsoil, the owners of particular oil leases, i .e ., capitalist producers, are confronted with the obstacle of the ownership of the oil deposits . This relationship remains the same even if the state as a legal institutional form of landed property owns the oil lands ; owing to the establishment of capitalist institutions (Bina, 1985, Ch . 3) . The separation of ownership is part of an historical process which is realized legally through the act of lease contracts, concessions, etc . At the same time, theoretically, capital investments made by the owners of the subsoil are also subsumed under the separation of ownership of the subsoil from ownership of land . The owner of the land comes to

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appropriate rent, while the capitalist investor tends to appropriate normal profit . A study which was completed in the early 1970s concluded that there is a major distortion in the exploration of oil that primarily' . . . results from a widely divided ownership of land in the United States' (Miller, 1973, p . 415) . This situation stems from the fact that the oil fields are often larger than the corresponding us oil leases which belong to the firm that made the discovery . The result is that the full benefits will rarely go to the primary discoverer . In order to substantiate this point, Miller goes into a long discussion of the extent of fragmentation of oil leases through the examination of portions of profits received by the main discoverer of the field . As a first approximation, he uses the production share of the largest producer of a field as the proxy of the firm's profit share . From this empirical work, it was discovered that' . . . the percentage of the benefits from a well received by the discoverer declines with the size of the field' (Miller, 1973, p . 416) . Consequently the barrier of fragmentation of the pattern of land ownership tends to move the capitalist investors away from engagement in new and larger oil fields which often require the assembling of large tracts of land prior to exploration . The above study also demonstrates that the 'Fields under 500 acres accounted for 60 .73 per cent of the (oil) fields but for only 14 .43 per cent of the total area . It is again clear that most oil must lie in fields under more than one ownership' (Miller, 1973, pp . 417-18) . Another problem is the fragmentation of oil leases in connection with secondary and tertiary recovery methods, where the whole field needs to be put under the control of a single management, in order to eliminate waste and enhance the productivity of the extraction process . This is called unitization . It would seem obvious that having a number of leases in a particular oilfield undoubtedly works against production according to a predetermined schedule (Miller, 1973, p . 423) . The above condition demonstrates why the firms either move toward intensive exploration in the same areas, or simply concentrate on investing in the existing oilfields for further recovery . Even in the case of government-owned lands, due to the

Rent theory

existence of non-competitive leases (and at times the practice of granting inadequately-sized leases to individuals through a system of lottery) there is a great deal of speculative activity combined with a considerable fragmentation of ownership in the us oilfields . Confronting the above impediments to the production of oil, capital investments are either directed to exploration in the aged us oilfields, or aimed at further development of oil from existing oil wells, or canalized towards foreign oilfields . The comparison of the oil-well abandonment rate in the United States, during the periods of 1965-71 and 1971-74, reveals that there has been a tremendous decline in the rate of the abandonment of commercially exhausted oil wells in the latter period, even though the average life-span of oil wells declined, from 26 to 24 years, respectively (see Table 1) . This shows that although the average life-span of producing wells during the period leading up to the oil crisis (1973) was shorter than that of the crisis period, the oil wells were not abandoned as quickly as they used to be . This condition indicate§ that in the United States oil was largely produced through the successive investments of capital upon the already-producing us oilfields . However, it was not until the early 1970s that the us oil industry experienced a substantial decline in productivity, in terms of the average oil recovery per well, as these investments were further intensified (see Tables 2 and 3) . This can also be shown from the increase in the amount of development capital expenditures (per barrel), i .e . those investments that are made upon the older us oilfields, during the periods of 1966-70 and 1971-74 : an increase of 7176 as opposed to 261% increase, for the period leading up to the crisis (see Table 3) . Meanwhile, the investment in the realm of oil exploration shows an increase of about 8 % during the 1971-74 period . The intensification of capital investments within the existing oilfields is by and large the consequence of the impediment of the prevailing pattern of land and lease ownership in us oil production . In this context, the structure of landed property and the fragmentation of oil leases played an influential role in the direction of capital investments and the structure of accumulation in the us oil industry, long before the oil crisis of 1973-74, that set a new basis for the formation of market values, rents, and market prices at the

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global level . We have demonstrated elsewhere that, within the global context, the prices of all other sources of energy, including coal, natural gas, etc . are regulated by the value of oil produced from the aged us oilfields (Bina, 1989A) . Given the above property relations, the formation of social value involves a process of intra-industry competition . Depending upon the extent of differential productivity, there will be value transfers from one individual capital (individual production unit) to another that would manifest themselves as differential rent . The internationalization of oil production is the manifestation of this process at the global level . During the early period of the oil industry in the Middle East, and elsewhere in the Third World, the production of oil basically originated through the formal subsumption of labor under capital (Bina, 1985, Ch . 3) . However, as the material foundation of capitalism in these social formations and also within the international oil industry has further developed, the production of oil has gradually assumed the characteristic of the real subsumption of labor under capital at the global level . In this manner, a social value at the global level has emerged, that systematically intertwined with the formation of differential oil rents through global competition . Based on the analysis of the previous sections, the same distinction should be made between the Ricardian or neoRicardian notion of the value of marginal oil producer, and the notion of regulating market value in the Marxian sense . It is not always the case that market value may coincide with the marginal producer . At the empirical level, we were able to identify the us oilfields (lower 48 states) as the least productive region of the world (Bina, 1985, Chs . 7 and 8) . The us oilfields are also the most explored oil region of the globe . Since the effect of differential oil rent of the first type (DRI) cannot be separated from differential rent of the second type (DR11), determination of the least productive oil region, in connection with the identification of the normal size of capital investment, is an impossible statistical task . We have encountered the very same problem that Marx faced a little over a century ago in agriculture . Following Marx's method, we were able to identify the specific oilfields upon which the social value of the oil was formed (Bina, 1985, Ch . 7) . Due to the integration of oil production at the global level and the fact that us oil

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comes from the least productive oilfields, the social value associated with the above oilfields has become the social value of the entire international oil industry . Thus, it is through the decline in the productivity of the old us oilfields located in the lower 48 states (in 1970s), that the magnitude of the newly-formed social value has been restructured simultaneously with the reorganization of the entire oil industry through crisis. Having dealt with the historical development of the Middle Eastern oil elsewhere (see Bina, 1985, Ch . 3), we need here to demonstrate that, unlike the 'rule of capture' observed in the us oil industry, which signifies the existence of readilyestablished institution of private property together with an advanced form of capitalism, the early oil royalties and concessions in the Middle East and elsewhere were indicative of pre-capitalist, state ownership . This was associated with social relations that had to be transformed completely before the integration of those regions into the international economy became possible . In this connection, for instance, the fourfold increase in the 'posted price' of oil during the 1973 crisis cannot be systematically and fundamentally explained unless there is an understanding about the following three interrelated historical developments that together gave petroleum production a distinctive character . First is internationalization of the petroleum industry and unification of all the existing oil-producing regions of the world since the early 1970s . Second is the recognition of the characteristic of specific property relations (such as mineral rights and lease ownership) that are associated with the production of oil (regardless of their form, whether based on the 'rule of capture' or on state ownership), and that are conceptually functioning as the foundation of oil royalties and rents . Finally, one has to recognize the effect of the intensification of capital investments within the least productive oil regions (such as the us oil region) that together with the above conditions set the stage for determination of higher production price for the entire oil industry from the early 1970s onward . Thus, contrary to the prevailing opinion, a fourfold increase in the oil 'posted price' (a variable which is not the same as market or spot price) has been the reflection of all of the above determinations that objectively unified the industry through

OPEC, and the nature of oil rent

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increased competition among the existing oil regions, and resulted in market prices that are tendentially conforming to the high production cost of declining us oilfields rather than to the seemingly arbitrary decisions of OPEC . In other words, OPEC did what it did because the entire oil industry was at the threshold of a social transformation that practically revolutionized its institutional structure, and not the other way around . In fact, the unprecedented gesture of OPEC in the early 1970s (and beyond) itself is explicable through this transformation (see Bina, 1985, Ch . 9 ; 1989B) . We divide the entire history of the Middle Eastern oil and other early oil producing regions, such as Venezuela, Mexico, and Indonesia, into three episodes of (1) the early oil concessions (1901-1950), (2) the era of transition (19501970), and (3) the era of internationalization of production that completes the integration of oil-producing regions into the global oil structure and necessitates the formation of market values, differential oil rents, and market prices within the global industry . Historically, at the beginning of the century precapitalist social relations were still dominant in the Middle East, Latin America, and South East Asia . But the penetration of international capital, especially oil capital, into these particular regions was gradually gaining momentum . The outcome was the establishment of a system of oil concessions that laid the cornerstone of the oil industry in the Middle East and elsewhere . These concessions were made with more or less uniform principles for surrender of the oil property rights of the local authorities or of the states to a handful of powerful transnational oil companies or individuals from advanced capitalist countries interested in oil exploration in such regions (see Cattan, 1967 ; Bina, 1985, Ch . 3) . A quick glance at the Middle Eastern or Venezuelan concessionary agreements of this early period reveals that, without exception, all of these contracts were unusually long in duration and related to large areas often equal to the size of the countries involved . This system of oil leases, apart from the form of ownership, was qualitatively different from the lease contracts in the United States, which were usually concluded for a fairly short time and over a much smaller area, and with relatively larger royalties granted to landowners . The terms of the concessions, such as the size and

Rent theory

determination of oil royalties and additional payment to the contracting governments and ruling authorities, were also different from what we experience today . Royalty has been defined as a portion of oil extracted from the land which goes to the individual owner of subsoil or the contracting government . This portion in majority of cases is determined at 12 .5 percent . At the beginning, in practice, this royalty was calculated on the basis of a fixed amount of money per ton of oil (i .e ., shillings or cents per ton) . Thus, the fixity of payment and its lack of connection with the market price of oil are among the distinguishing features of the concessions of this period . It should be realized that even though there were `profit sharing' clauses in some concessionary agreements, they have never been honored in practice by the companies (Cattan, 1967 ; Ford, 1954, Mikdashi, 1966 ; Rouhani, 1971 ; Bina, 1985) . The characteristics of the above concessions stem primarily from the social dominance of pre-capitalist relations in the early years that in turn necessitated a rudimentary form of oil rent (Bina, 1985, Ch . 3) . In sum, the early development of oil in the Middle East and elsewhere saw a direct political domination by the international oil companies, in conjunction with moderate financial terms, a static (fixed) mechanism of royalty payment, and the lack of any relationship between the magnitude of oil prices and the amount of royalties . As international capital tended to further penetrate into the Middle Eastern oil and other regional oil structures, the corresponding institutions and social relations of modern civil society in this and other regions gradually began to develop accordingly . At the same time, the economic and political conditions that were conducive to the development of modern industry in general (since the post-War period), and to the growth of the Middle Eastern oil industry in particular (especially since the Marshall Plan was to benefit from cheap Middle Eastern oil), led to sharpened contradictions and the strengthening of capitalist social relations within the entire region . Accordingly, as the production of oil increased substantially, and the center of gravity of proven oil reserves gradually shifted to this region, given the primary insistence of Venezuela, the terms under which oil property rights were granted had to be revised . This era (1950-1970), that also saw

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the formation of OPEC, started with the abolition of the oil concessionary agreements and the establishment and spread of the regime of fifty/fifty profit-sharing . But in order to be able to implement this newly-devised system and determine profits without exposing the actual profit pictures, the international oil companies employed the allocative mechanism of a 'posted price', an as-if-price that had already been in use for the valuation of crude oil that was subject to internal transfer of multinational oil companies and their subsidiaries . In this manner, the 'posted price' has served as a variable basis (more or less sensitive to the market) for determination and calculation of oil revenues and other associated payments that are paid to the oil-exporting countries of the Middle East and elsewhere by the companies (Cattan, 1967 ; Rouhani, 1971 ; Bina, 1985) . By looking at the history of this period, i .e ., the period of 1950-1970, one can recognize an increasing tendency towards market-orientation within the atmosphere of increasing conflict between national and international capital . During this period, the rudimentary form of oil rent of the previous era in the Middle East, Venezuela, South East Asia, and elsewhere was gradually transformed into a much more developed concept of oil rent, responsive to the changes in the market values, spot prices, and the emerging market conditions that are compatible with contemporary capitalism . During this transitional period, the social relations of capitalism were perfected in the Middle Eastern oil industry and the oil industry in Venezuela and elsewhere . The extent of the socialization of production at the end of this period can be observed from the tendency toward global price formation and increased competition among the existing petroleum industries at the international level . This transformation was manifested in the formation of market prices based on the least productive region and in the formation of differential oil rents according to the existing differential productivity of the competing oil regions (Bina, 1985, Chs . 6 and 9) . Since 1970, the decline in the productivity of us oil production on the one hand, and progressive integration of oil production within the global economy on the other hand, resulted in a higher magnitude of value, an increased volume of differential oil rent, and higher market prices globally . Given an increased level of differential productivity and

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profitability within the Middle Eastern, North African, South East Asian, and Venezuelan oil regions that naturally translates into an increased amount of differential oil rents, it is not hard to understand why OPEC demanded a fourfold increase in the `posted price' of crude oil during the 1973 crisis (see Alnasrawi, 1985 ; Bina, 1985, Chs . 8 and 9) . The above analysis would also simultaneously account for the crude oil quality differentials and the transportation costs involved in global competition (Rifai, 1974 ; Bina, 1985) . We have shown that the notion of rent in political economy has been the subject of intense debates within the classical, Marxian, and neoclassical schools . It has been said that the Ricardian conception of rent has its origin in the technical conditions of production in agriculture (or other products of land) . Even though Ricardo was very much concerned about the distribution of surplus, he was less successful in treatment of the impact of landed property upon the production process . Unlike Ricardo's, Marx's concept of rent is historically specific, and strives to understand the role of landed property in agriculture and its barrier to accumulation . He successfully demonstrates that capital accumulation in the presence of landed property is faced with obstacles that may or may not be easily overcome in capitalist mode of production . Hence the need for concrete investigation . Marx also holds that modern rent is totally different from its medieval counterpart . Therefore, the significance of Marx's theory of rent is in its specificity . With the advent of the 'marginalist school', Ricardo's rent theory was taken to its logical conclusion, through the invention of such concepts as quasi-rent . This was due to Marshall whose method of partial equilibrium, at least methodologically, has left the door open for a specific interpretation of the conception of rent in political economy . Meanwhile, we have seen that even though the Marshallian theory is fundamentally cut from the same cloth as the rat of the neoclassical school, it nevertheless differs significantly from present-day general equilibrium analysis . One of Ricardo's major contributions is the distinction of rent from the category of profit . Marshall, however, blurred this distinction and thereby paved the way for his successors to eliminate it altogether from their theoretical models .

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This task has been accomplished through a gradual acceptance of the general equilibrium approach to the problem of distribution, which simply extends the characteristic of rent to all the categories of 'factor inputs' by putting them theoretically on the same footing . If the role of economic theory is to explain the nature and characteristic of economic and social institutions, one can only hope to grasp them in their complexity by uncovering their inner most fundamental relation rather than through the superimposition of ideal-types . Likewise, the treatment of rent independently of the effects of landed property misses the very essence of rent in capitalism by misplacing its cause . This is especially critical in the literature associated with energy and oil economics, since the majority of the authors in the modern literature use the attributes of scarcity or exhaustibility as the primary source of rent . By the same token, we argued that the claim of having a specific theory of oil or energy rent by these theorists is highly exaggerated . The majority of theorists have only superficially recognized the implication of oil rents, since their general equilibrium framework does not leave any room for a specific theoretical treatment of oil rents . As for others who have treated the notion of oil rent within the classical tradition, they failed to recognize the significance of oil rent from the standpoint of production, as they focused on distribution . Besides, for many writers oil rents emerge through monopoly and imperfection, whereas our concept of oil rent (especially from the 1970s onward) is consistent with increased competition . We have developed the theoretical basis of a theory of oil rent that has at its roots particular property relations that manifest themselves, in one form or the other, within the international oil industry .



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TABLE 1 US Oil well abandonment and the life span of oil wells (1965-1974)

Subject

1965-71

1971-74

26 .014

24 .25

+21 .38%

+6.18%

+3 .05%

+1 .54%

24,749 (wells)

17,187 (wells)

The Life Span of Oil Wells (years) Cumulative Abandonment Rate of Oil Wells Cumulative Abandonment Rate of Oil Wells Per Year Average Number of Oil Wells Abandoned Per Year

Source : Cyrus Bina, The Economics of the Oil Crisis (New York : St. Martin's Press, 1985) ; compiled by the author from API, Basic Petroleum Data Book, 1979 .

TABLE 2 Average oil recovery trend of US oil 1965-1974

Trend of Average Oil Recovery Per Well

1965-71

1971-74

+46 .6%

-11 .0%

+16 .1%

-17 .7%

+49 .2%

-14 .4%

+18.7%

-21 .3%

Trend of Average Oil Recovery Per Well Adjusted for MDF* Trend of Average Oil Recovery Per Well for all Major Producing States Except Texas Trend of Average Oil Recovery Per Well Producitivity Adjustment for MDF (Except Texas)

* MDF stands for Market Demand Factor . Source : Cyrus Bina, The Economics of the Oil Crisis (New York : St . Martin's Press, 1985) ; compiled by the author from Bureau of Mines, Information Circular 8362 and 8675 ; Department of Energy, DOE/EIA-0097 .

TABLE 3 The changes in the trend of the US capital expenditures per barrel and prices 1966-1975

Change in the average Percentage change

Percentage change

Average per

Average per

of the two periods

during 1966-70

during 1971-74

barrel 1966-71

barrel 1972-75

(1966-71 ;1972-75)

10% (decline)

8 .4% (increase)

$2 .98

$4 .03

35% (increase)

7% (increase)

261 % (increase)

1 .23

3 .63

195% (increase)

5% (increase)

211 % (increase)

1 .41

3.62

156% (increase)

10 .4% (increase)

199% (increase)

3 .07

7.36

140% (increase)

Exploration costs per barrel Development costs per barrel Total costs per barrel Wellhead oil price

Source : Cyrus Bina, The Economics of the Oil Crisis (London : The Merlin Press, 1985 ; New York: St . Martin's Press, 1985) .

Rent theory

Alnasrawi, A . (1985) OPEC in a Changing World Economy, Baltimore, John Hopkins University Press . Anderson, J . (1977) Observations on the Means of Exciting a Spirit of National Industry, Reprints of Economic classics, 1968 . New York, Augustus M . Kelley Publishers . Anderson, J . (1797) Essays Relating to Agriculture and Rural Affairs, Dublin, P . Wogan, P . Byrne, and J . Moore . Bina, C . (1985) The Economics of the Oil Crisis, London, The Merlin Press ; New York, St . Martins Press . Bina, C . (1989A) Competition, Control and Price Formation in the International Energy Industry, Energy Economics, July . Bina, C . (1989B) Limits of OPEC Pricing : OPEC Super Profits and the Nature of Global Oil Accumulation, May (Mimeo) . Brown, G . (1974) An Optimal Program for Managing Common Property Resources With Conjestion Externalities, Journal of Political Economy, Vol . 82(1) : 163-173 . Brown, H .G . (1941) Economic Rent : In What Sense a Surplus, American Economic Review, Vol . 31 : 833-5 . Cattan, H . (1967) The Law of Oil Concessions in the Middle East and North Africa, Dobbs Ferry, New York, Oceana Publications . Chevalier, J .M . (1976) Theoretical Elements for an Introduction to Petroleum Economics, in Market, Corporate Behavior, and the State, (eds), A .P . Jauemin and H .W . dejong . The Hague, Martinus Nijhoff . Clark, J .B . (1891) Distribution as Determined by a Law of Rent, Quarterly Journal of Economics, Vol . 5 : 289-318 . Devarajan, S . and A .C . Fisher . (1982) Exploration and Scarcity, Journal of Political Economy, Vol . 90(6): 1279-1290 . Fine, B . (1979A) On Marx's Theory of Agricultural Rent, Economy and Society, August, pp . 254-55 . Fine, B . and L . Harris . (1979B) Rereading Capital, London, Macmillan . Fine, B . (1982A) Landed Property and the Distinction Between Royalty and Rent, Land Economics, Vol . 58(3): 338-350 . Fine, B . (1982B) Theories of the Capitalist Economy, New York, Holmes & Meier Publisher . Fine, B . (1983) The Historical Approach to Rent and Price Theory Reconsidered, Australian Economic Papers, Vol . 22 (40): 132-143 . Fitch, B . (1982) OPEC: The Big Cartel That couldn't . . . Against the Current, Vol . 1(4) : 16-22 . Ford, A .W . (1954) The Anglo-Iranian Oil Dispute of 1951-52, Berkeley, University of California Press . Foster, E . (1981) The Treatment of Rents in Cost-Benefit Analysis, American Economic Review, Vol . 71(1) : 171-178 . George, H . (1939) Progress And Poverty, New York, Robert Schalkenbach Foundation . Gray, L.C . (1914) Rent Under the Assumption of Exhaustibility, Quarterly Journal of Economics, Vol . 28 : 466-89 . Hobson, J . A . (1891) The Laws of Three Rents, Quarterly Journal of Economics, Vol . 5 : 263-88 . Hotelling, H . (1931) The Economics of Exhaustible Resources, Journal of Political Economy, Vol 39 : 137-175 .

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Krueger, A . (1974) The Political Economy of the Rent-Seeking Society, American Economic Review, Vol . 64(3): 291-303 . Malthus, T . R . (1815) An Enquiry into the Nature and Progress of Rent, Reprints of Economic Classics, no date . New York, Greenwood Press . Marshall, A . (1893) On Rent, Economic Journal, Vol . 3 : 74-90 . Marshall, A . (1961) Principles of Economics, 8th ed ., New York, Macmillan . Marx, K. (1968) Theories of Surplus Value, Vol . II, Moscow, Progress Publishers . Marx, K . and F . Englels . (1975) Selected Correspondence, Moscow, Progress Publishers . Marx, K . (1981) Capital, Vol . III New York, Vintage Books . Mikdashi Z . (1966) A Financial Analysis of Middle Eastern Oil Concessions : 1901-65, New York, Praeger Publishers . Miller, E . (1973) Some Implications of Land Ownership Patterns for Petroleum Policy, Land Economics, Vol. 49(4) : 414Ng, Y.K . (1983) Rents and Pecuniary Externalities in Cost-Benefit Analysis : Comment, American Economic Review Vol . 73(5) : 1163-1170 . Ricardo, D . (1976) . The Principles of Political Economy and Taxation, 3rd ed ., London, J .M . Dent & Sons Ltd . Rifai, T . (1974) The Pricing of Crude Oil, New York, Praeger Publishers . Rouhani, F . (1971) A History of O . P . E . C ., New York, Praeger Publishers . Semmler, W . (1982) Competition, Monopoly, and Differentials of Profit Rates : Theoretical Consideration and Empirical Evidence, Review of Radical Political Economics, Vol . 13(4) : 39-52 . Shaikh, A . (1981) Differential Rent, MIMEO, New York, New School for Social Research . Shaikh, A . (1982) Neo-Ricardian Economics : A Wealth of Algebra, A Poverty of Theory, Review of Radical Political Economics, Vol . 14(2) : 67-84 . Smith, A . (1977) The Wealth of Nations, New York, Penguin . Sraffa, P . (1960) Production of Commodities by Means of Commodities, Cambridge, Cambridge University Press . Symposium on Exhaustible Resources . (1974) Review of Economic Studies . Torrens, R . (1814) An Essay on the External Corn Trade, 1st ed . Reprints of Economic Classics, 1972 . New York, Augustus M . Kelley Publishers . Weeks, J . (1981) Capital and Exploitation, New Jersey Princeton University Press . West, Sir Edward . (1815) Essay on the Application of Capital to Land, reprinted in A Reprint of Economic Tracts, 1903 . Edited by J .H . Hollander, Baltimore . Wessel, R .H . (1967) A Note on Economic Rent, American Economic Review, Vol . 57 : 1221-26 . Wilson, T . (1979) The Price of Oil : A Case of Negative Marginal Revenue, Journal of Industrial Economics, Vol . 27(4) : 301-315 .

James Devine

What is 'simple labour'? A re-examination of the value-creating capacity of skilled labour

• In his seminal critique, Bohm-Bawerk (1896) dismissed Marx's reduction of the value-creating capacity (VCC) of skilled labour to that of unskilled labour as tautological . This 'reduction problem' threatens Marx's law of value at its core . But Hilferding's (1986) influential reply (treating the VCC of skilled labour as the sum of the unskilled labours done in the past to create skill) is itself doubtful : Harvey (1985), Itoh (1987), and others have demolished Hilferding's 'solution .' This paper aims to rethink the 'reduction,' to defend the law of value . First, in terms of method, the 'problem' is merely one of refining core concepts of value (see part 1) . So the issue turns out to be very simple : Bohm-Bawerk's critique, though accurate, is beside the point . So we can move on to using value (socially necessary abstract labour time or malt) to understand capitalism as a social system rather than to criticize definitions or calculate prices . Next, in part 2, Marx's writings are reexamined, especially those on 'simple labour .' His conflation of 'simple average' labour with 'unskilled' labour is one source of the problem of the reduction . Simple labour should be emphasized and treated as equivalent to snalt . Further, Marx's discussion indicates that differences in VCC are socially determined at the time of the product's sale . However, other

Examining the century-old controversy over the meaning of 'simple labour', the author argues for an approach which distinguishes between simple, average and marginal labour . These distinctions are used to shed light on relations within the working class under the accumulation process.

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measures of VCC turn out to be useful in understanding the dynamics of labour under capitalism . Finally, in part 3, the VCC is linked to the 'New Solution' to the transformation problem and this paper's conclusions are summarized . It should be stressed from the onset that the subject is not the value of labour-power (the capacity to work) but the use of that labour-power to create value . 1 Thus relative wages are not the issue . Rather, it is the core concepts of the law of value .

Two cheers for tautology!

The aversion to tautology and circular reasoning is hardly startling in this age of Popperian positivism . It is now common to reject a theory as tautological, i .e ., empirically or logically unfalsifiable . This 'scientific method' is an antidote to faith-based thinking, as with the Cambridge critique of neoclassical capital theory . Similarly, much of 'Chicago school' laissez-faire economics should be rejected as a seemingly seamless web of tautologies . However, we cannot take Popperian positivism too far . While appropriate for developed theories, it does not apply to basic concepts . As Lakatos (1970) argues, each 'scientific research program' has its 'hard core' concepts and axioms that are immune to falsification . Just as Marxists have basic value categories, neoclassicals have utility maximization . Indeed, falsificationism is itself a core concept, hardly subject to falsification . And to reject core concepts is to embark on the road to sterile empiricism or 'naive falsificationism .' A key difference between paradigms concerns the goals and uses of the various sets of tautologies . The Marxian value categories reflect an antithetical world-view to that of the neoclassicals . As Sweezy (1975 : xxii) argues, Bohm-Bawerk and the neoclassicals have a unhistorical and unsocial view ; they presume that Marx pursued the same aims as they, such as the derivation of prices . But Hilferding (as with other Marxists) had a social and historical perspective, seeing value as 'the bond uniting an atomized society' (1904 : 133) . Marxian analytical, philosophical, and political goals are clearly distinct from those of the neoclassicals . While core concepts are not verboten, the principle of parsimony must be applied : we should try to get as much as possible in the way of understanding, explanation, and even

Simple, average and marginal labour

prediction from core concepts . As much as possible of our theories should be subject to falsification . After all, having avoided the empiricist road, we do not want to become mired in pure rationalism, the leisure of the theory class (a 'degenerative research program') . The discussion of skill coefficients below may seem reminiscent of Chicago tautologies about 'human capital' : for that school, one worker is paid more than another despite equal education, IQ, etc ., because of unmeasurable elements of human capital such as 'character .' The employer (or the market) is the only judge of human capital : no independent scale such as measures of comparable worth can be used . So the theory is not falsifiable . The obvious distinction between that theory and ex post the skill coefficient calculus is that the latter is not a theory of wages . But more fundamentally, there is a difference of goals . The Chicago school aims to defend the 'free market,' against comparable worth and similar proposals . The skill coefficient calculus has an entirely different role . What, then, is this role? For Marx, the 'reduction' of skilled to simple labour - which, as seen below, is part of the theoretical isolation of snalt - was just the prelude of the law of value . Unlike the Ricardian system, this law is not primarily a price theory . 2 It is an accounting framework for understanding capitalism as a social system . Once snalt has been isolated, it is used to answer the following main questions : A . Where do profits come from? (exploitation) B . How are prices determined? Why do they deviate from values? (competition) C . How are prices connected to values, despite this deviation? (socialized production .) D . Why and how are profits distributed among capitalists? (individual appropriation and unequal exchange .) E . How is the class nature of capitalism obscured by the capitalists competition? (commodity fetishism .) F . What are the laws of motion of the system? (accumulation and the contradiction between socialized production and individual appropriation .) My use of the law of value to answer these questions appears elsewhere (Devine, 1989) . The present paper suggests further that the simple/skilled distinction helps us understand

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relations within the working class in the process of capitalist accumulation and class struggle, with other institutions such as the family . But as this paper aims only to refine core concepts, it can only be the prelude to science . This may help with explanation and other goals of political economy . But this is left for future papers and other authors . Simple labor and skill coefficients

To decipher the 'reduction problem,' three steps are needed . First, the nature of the basic unit is discovered : what is Marx's 'simple labour'? Second, a simple accounting framework relating skilled and simple labour is set up . Third, the determination of skill coefficients is discussed . What is Simple Labour? What, we must ask, is this creature that Marx called 'simple' labour? It is work 'which any average individual can be trained to do . . .' (Marx, 1970 : 31) . At first an image of some high-school student working at a fast food joint springs to mind . But then we realize that by the standards of five centuries ago that worker might be skilled, if such comparisons are possible, since the content of skills has changed so much . We thus agree with Marx's statement that 'Simple average labour . . . varies in character in different countries and at different times' (1967a : 44 ; cf. 1970 : 31) . Note also that the 'average individual' must be trained to do 'simple labour .' Thus, this labour is hardly an indivisible atom which forms a building block for the more exalted molecules of skilled labour . Nor is it 'zero-skill labour,' akin to 'zero-rent land .' A newborn infant, who has yet to be trained, is not a worker . These are vital strikes against Hilferding's embodiedlabour interpretation of skilled labour . The simple labour 'embodied' last year in today's skilled labour may be quite different in kind from simple labour done today, since societal standards have changed . Indeed, for Marx, 'Accidental circumstances . . . play such a large part that these two forms of labour [skilled and unskilled) sometimes change places' (1967a : 197-8n) . The disparity between today's simple labour and past simple labour is also one of magnitude : there is nothing to guarantee that the same number of hours of today's simple labour is needed to 'produce' a skilled prototype machinist as it took last year with the simple labour of the day . As with fixed capital valuation, current reproduction costs usually vary

Simple, average and marginal labour from historical costs . This issue cannot be assumed away, since capitalism is inherently dynamic, with skill content and requirements changing frequently and often unpredictably . We do not live in an equilibrium utopia such as that of the neoclassicals or the Sraffians . The trouble with a embodied-labour reading becomes clearer in the following : Skilled labour counts as simple labour intensified, or rather, as multiplied simple labour . . . The different proportions in which different sorts of labour are reduced to unskilled labour as their standard, are established by a social process that goes on behind the backs of producers . . . (Marx, 1967a : 44) 'Reduction' is a societal process appearing to be 'fixed by custom .' This is no historical story of the accumulation of simple labour into stocks of skill carried by skilled workers . So far, so good . But within the passage a crucial ambiguity arises with the slip of a single word . At first, simple labour was referred to as 'average' labour . But the passage ends by bringing in 'unskilled' labour . Later in Capital, the two are combined as 'simple unskilled labour of average quality' (1967a : 198) . Herein lies a problem that Bohm-Bawerk and later authors missed : unskilled labour is quite distinct from average labour . 3 This conflation is one basis for the confusion in this literature . 4 Diagram I contrasts average and 'unskilled' labour using a hypothetical frequency distribution .' As noted, 'unskilled' labour is not zero-skill labour but has at least a socially-determined minimum (SDM) of skill : a century ago children went to work for pay at a much earlier age than they do today ; in most of today's underdeveloped countries, the starting work age is still low . The SDM is determined historically by the vicissitudes of capitalist accumulation and class struggle, along with such organizations as the family . Though it changes over time, the SDM can be known with reasonable approximation in any period . 'Unskilled labour' might be identified with 'marginal' labour, at the SDM . Despite Marx, this clearly differs from the social average . In his time, it may have not been very wrong to equate marginal labour and average labour, if the frequency distribution was skewed to the left . He asserts that 'statistical

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Diagram 1 : Marginal vs . Average Skill Levels

Frequency

0

SDM

mean skill level

degree of skill

Simple, average and marginal labour data show' that the 'greater part of the labour performed in bourgeois society is simple labour' (1970 : 31) and predicts that labour will become more homogeneous and of lower skill (the famous de-skilling theory) . Either way, marginal and average labour are similar . It is not a gross error to combine them, and can be seen as a first approximation for some purposes . But it is an error all the same . No matter how skewed the distribution, marginal and average labour differ, except in the irrelevant case where all workers are at the SDM . Which of these should we use for comparison of degrees of skill? The average is suggested by its dominant role in Marx's method in Capital, volume I .' For example, he defines socially necessary labour-time as 'that required to produce an article under the normal conditions of production and with the average degree of skill and intensity of labour prevalent in the time' (1967a : 39) . Further, in his discussion of the labour process : . . . labour should be carried on under normal conditions . . . Then again, the labour-power itself must be of average efficacy . In the trade in which it is being employed, it must pocess the average skill, handiness and quickness prevalent in that trade . . . This power must be applied with the average amount of exertion and with the usual degree of intensity . . .' (1967a: 196) 8 The use of averages is part of Marx's study of the totality of capitalist production, by examining the typical microcosm . In volume I, he focuses on 'personifications of economic categories, embodiments of particular class-relations and classinterests' (1967a : 10) . The many differences between workers and the relations among segments of their class were left, it seems, for the never-written volume on Wage Labour . To Marx, relations within the working class, including those between skilled and unskilled workers, are not essential to understanding exploitation and the dynamics of capitalist accumulation and class conflict, the main topics of Capital . Not only is the method of averages preferred, but there is a clear link between simple labour and abstract labour . Marx's paragraph on the 'reduction problem' in Capital starts with abstract labour, 'the expenditure of human labour in general' or rather, 'expenditure of simple labour-power which, on average,

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apart from any special development, exists in the organism of every ordinary individual' (1967a : 44) . Again we see the emphasis on averages .' In sum, the so-called 'reduction problem' is part of Marx's distinction between abstract and concrete labour, the abstraction from all but the shared characteristics of the diverse labours (1967a : 44-45) . Crudely, simple labour is abstract labour . L0 More correctly, as seen below, simple labour is SNALT, defined ex post in exchange . An Accounting Framework . Next, we must break with Hilferding's additive approach in favor of Marx's multiplicative view ('Skilled labour counts only as . . . multiplied simple labour . . .') This suggests a different mathematical relationship than that presented before . II Marx's comment above that skilled labour is 'simple labour intensified' suggests that VCC is analogous to labour intensity . But there is a difference : intensity is defined in terms of labour done per hour of labour-power sold, the 'condensation of a greater mass of labour into a given period' (1967a : 410 ; cf. p . 524) . This refers to greater expenditure of human muscles, nerves, brain, etc ., per hour, similar to common notions of 'effort .' 12 On the other hand, VCC refers to the effectiveness of such effort . This distinction suggests the following equation for the value created (VC) by labour-power X : VC,, = VCC X

E.

LP x

(1)

where VCC is value-creation per hour of labour, E is intensity (hours of labour actually done per hour of labour-power hired), and LP is hours of labour-power X hired . 13 To Marx, intensity was relevant only if it differed from the average : 'The value created varies with the extent to which the intensity of labour deviates from its normal intensity in the society' (1967a : 524-5) . 'If the intensity of labour were to increase simultaneously and equally in every branch of industry, then the new and higher degree of intensity would become the normal degree for the society, and would therefore cease to be taken account of (1967a : 525) If so, the average worker's labour intensity should equal unity : Ea

= 1 so that VC, = VCC a LPa . 14



Simple, average and marginal labour Second, the value-creating capacity of an hour of labour X is VCC~

=

Qx VCC a

(2)

where VCCa is the VCC of an hour of the average worker's labourtime and the skill coefficient Qx is a pure number . Since there can be no negative skill, o',, > 0 . The skill coefficient for marginal labour is less than unity . 'Unskilled' labour might be defined as that labour for which Q < 1 . Similarly, 'skilled' labour might be defined as above-average labour . This fits the social determination of notions of skilled and unskilled . Combining (1) and (2) gives VC x

= (T x

VCCa E x LP,

(3)

Note that equation (2) implies that Qa = 1 . Thus, similar to intensity, only the deviations of Q from the norm are relevant ." Similarly, set VCCa equal to unity . 16 To understand the problem of different conceptions of skill coefficients, develop the formulae for the rate of surplusvalue . Assume that value of an hour of X's labour-power is W x malt per hour . So the rate of surplus value for worker X is defined as : RSV x = (VC . - Wx LP x)/W x LP,, = Wx)/W x

(E x

(rx (4)

Similarly, for the average worker, RSVa

=

(1 - Wa)/W a

(5)

Thus RSV x = RSV a if and only if Ex

Qx = W x/W a

(6)

Rates of surplus-value is equalized if and only if worker X's relative value of labour-power reflect that worker's intensity and skill relative to the average exactly . Adam Smith's theory of compensating differences must apply (as Marx assumed at one point (1967c : 142)) . Skill Coefficients . What, then, determines the skill coefficients of different labours? There are at least four options : historical cost (Hilferding) ; ex ante current labour cost of commodities ; relative wages or values of labour-power ; and ex post definition in exchange . Below I argue that the last fits Marx's view best but that the other options can be useful .

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Hilferding's historical-cost method is subject to Harvey's critique (1985 : 96-98) . Briefly, if historical costs determine both sides of equation (6), there is no reason for the equation to be true . In addition, we have the criticisms above . The second conception is the ex ante current-cost method of finding skill coefficients . Here, the value creation of a skilled worker's jour of labour-power (o E x ) is set equal to the value creation of the number of hours of average labourpower (LPa) needed to produce the same use-value . If the intensity of worker X's work (Ex) is known, then o', can be calculated using the following : Qx

= LPa/Ex

(7)

Even without this knowledge, Qx E x can be calculated . Ex ante skill coefficients are more consistant with the law of value than are historical-cost coefficients . A commodity's value is not the amount of labour-time actually used to produce it, the labour actually and literally 'embodied' in the product (as in the Ricardian tradition) . Labour's physical productivity may have changes since the object was made - so that less labour is now required to (re)produce it than before (Marx, 1967a : 39-40) . This contrast with 'embodied' training implies the case of 'supply-side' devalorization of skill : during the Industrial Revolution of the 19th century, for example, technical change allowed the replacement of skilled craftworkers by unskilled operatives . The skilled workers found that their value-creating capacity was decreased as a result . But this ex ante framework is deeply flawed : the VCC of workers producing Apple computers cannot be compared to that of those producing orange crates (different use-values are not quantitatively commensurable) . Further, the skill of a production engineer and an assembly line worker may be uncomparable since the former may be as poor on the line as the latter is at engineering . The ex ante method is more applicable to time-series comparisons in the same sector than in the cross-section . Even this falls apart as the nature or quality of the product changes over time . More fundamentally, this solution assumes that labour is 'directly social,' i .e ., that the extent of value creation can be known ex ante . Marx's critiques of notions of 'labour money' (1967a : 94n ; 1970 : 83-86 ; 1955 : 68n) suggest that we cannot know the VCC before commodities exchange . It is exchange

Simple, average and marginal labour that proves the value-creation . Marx put it in The Poverty of Philosophy : 'Is your hour's labour worth mine? That is a question which is decided by competition . Competition . . . determines how many days of simple labour are contained in one day's compound labour .' (1855 : 46) . In Capital, he equated the values created by different labours : 'A commodity may be the product of the most skilled labour, but its value, by equating it to the product of simple . . . labour, represents a definite quantity of the latter labour alone' (1967a : 44) . 17 So the ex ante method is fundamentally flawed . Sometimes relative values of labour-power (W.) or wages are used to define relative value-creating capacities . Using the former works only if we assume that the RSV is the same for all workers . Thus we can read equation (6) from right to left, with the relative value of labour-power defining E,, (T. . Using wages requires the further assumption that wages are proportional to the values of labour-power . Either way, there are several problems . First, there is no textual indication that Marx followed this solution, which in essence makes exalted value-creation an automatic result of being paid more . He discussed the 'reduction problem' far before wages or the value of labour-power were treated (cf . 1967a: 44 n2) . Second, this solution applies only when the theory of compensating differences applies ." Finally, as above, this assumes that labour is 'directly social .' Moreover, the fourth, ex post version, seems to fit Marx's view better . It is seldom noted that for Marx commodity demand has a role in making labour socially necessary . If the market 'cannot stomach' as much as labour produced, some labour turns out to be wasteful ex post and does not form part of value (1967a : 107) . So the VCC of a worker's time is not directly social but is only proven in the market-place . Though the production of use-value (concrete skill) is necessary to VCC, it is not sufficient . Further, though differences in skill appear to be determined by custom (as Marx points out), in reality, it is the market test which is decisive under capitalism . Thus, 'demand-side devalorization' of skill can occur . The market may not be sufficient to 'stomach' all of product of

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skilled makers of buggy-whips . More crudely, unemployed workers lack VCC until they are employed . Similarly, even the most skilled housewives are paid nothing for their products and thus create no value . Products must be sold for the workers to create value . The actual contribution of past training labour to the current VCC of labour depends on the final market test . As any teacher knows, much of the time spent training a future worker can be wasted, in the sense of not increasing a worker's ability to produce use-values . Moreover, even training that raises a worker's use-value productivity may not help boost the exchange-value productivity . It is not uncommon for a worker with an advanced degree to find that, despite long years of blood, tears, toil, and sweat, her or his product is valued by the market at a rate similar to that of a worker with less training . The workings of the ex post method are simple . Suppose that (i) the value of the product of LP, hours of average labourpower A equals that of the product of one hour of labour-power X ; (ii) the intensity of labour X is known ; and (iii) commodities trade at value . Then, we can use equation (7) . But here the commodities are assumed not identical in use-value but equal in exchange-value . Here skill can be expressed as a one-dimensional variable . As mentioned in note 5, unidimensionality is usually only assumed by the literature . But, as with 'intelligence,' skill in the production of use-values cannot be reduced to a single dimension . A basic fallacy of 'IQ,' with its cultural biases, is that intelligence is reduced to a single number instead of a vector (Gould, 1981) 19 Similarly, as Elster (1985 : 131) argues, 'non-producible skills,' such as natural talents or skills based on secret information, imply 'truly heterogeneous labour .' This heterogeneity is the normal dissimilarity of useful or concrete labour . However, if skill coefficients in the production of exchange-value are determined ex post in exchange, it makes sense to write of unidimensional skill . It is capitalism that reduces skill to a scalar quantity . At this point, we find an important limitation of this measure of skill coefficients . Most commodities are produced not individually but by collectives . If the skill coefficient is calculated by referring to exchanges of commodities, we often cannot measure the skill coefficients of individual workers .

Simple, average and marginal labour

The skills of the production engineer and line worker are merged together . This limitation does not seem severe, but instead appropriate, where exist synergy effects and externalities among the different labours . We should drop assumption (ii) . The intensity of labour is notably hard to pin down : no supervision technique is perfect, even with piece-wages, because product quality varies . So a skill coefficient may be impossible to measure . But there is no reason to despair : Qx Ex = LP, can be reinterpreted as saying that skill and intensity can be substitutes for each other in the creation of value ." Crudely, a less-skilled worker has to work harder than a skilled worker . Moreover, the actual measurement of skill coefficients is less important than the understanding of its role in the law of value . Assumption (iii) cannot avoid examination . Trading at value occurs in Marx's hypothetical world in volume I, where 'equal exchange' occurs between all traders . This might occur if there is no surplus-value production, no capital mobility between sectors, or no organic composition of capital (OCC) differences between sectors . In sum, equal exchange occurs if there is no capitalism . The concept of equal exchange - or rather, this high level of abstraction - allows a focus on class relations between workers and capitalists to the exclusion of relationships within classes . But in the real world of capitalism, prices and values differ . To understand the role of skill coefficients, consider the familiar deviations between prices and values arising from differences in the OCC . Caeteris paribus, a product with aboveaverage OCC sells for more than its value, while a product with below-average OCC sells for less than its value . But we cannot see mechanization as analogous to skill or intensity in 21 raising VCC, since to Marx, machines do not create value . Instead, mechanization is a substitute for intensity or skill as a basis for the ability to claim part of the aggregate surplus value : a capitalist with high-OCC production who receives prices in proportion to values will stop investing, allowing the capitalist a claim on the total surplus-value (Devine, 1989) . If values and prices differ, how are skill coefficients, or even intensities of labour, relevant? They relate to the production of value, which in turn represents an aggregate constraint on all of the individual claims on value . How are skills and intensities to be measured? They cannot be measured empiri-

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cally . Rather, they are core concepts that help us understand capitalism and to develop more complex hypotheses . 22 Even so, we can get a first approximation by using any of the other measures of skill coefficients . This should be adequate for many purposes . In the end, we do not have to choose between the four concepts of skill coefficients . All four have their role, for example, in a construction of Marx's never-written tome on Wage Labour . It might be possible to measure the historicalcost and ex ante concepts . The contrast between historical cost or 'old' ex ante VCC and current ex ante VCC gives us a notion of supply-purpose of value, unlike for Ricardo's labour theory of price (cf. Mohun, (1984-5) . Similarly, we must abandon Hilferding's embodied-labour interpretation of skill and reexamine the purpose of the whole enterprise . The VCC of skilled labour does not simply reflect the unskilled labours used to enhance the worker's skill . Rather, that capacity is socially determined at the time of sale of the labour's product . Second, the goal of analysis is not price derivation but the dissection of capitalism as a societal mode of production . Turn now to Harvey's more specific criticisms . First, in Hilferding's 'solution,' the VCC of skilled labour is totally dependent upon the training labour done while that of 'simple' (here meaning marginal) labour is independent of such labour . Above, this asymmetry disappears . All labour can create value only after training . A worker below the SDM would not survive . The only 'asymmetry' is that the VCC of skilled labour is defined relative to that of simple labour (i .e ., snalt) . This limited asymmetry arises because of Marx's focus on the social average . Second, in Hilferding's schema, a skilled worker's lifetime VCC is simply that of a simple worker (P) plus the total (T) of the simple labours spent on training of the worker . There is no labour-saving quality to skill . So why not hire P+T simple workers, since hiring the skilled worker would use the same amount of simple labour? Harvey (1985 : 90) suggests that its greater physical productivity differentiates skilled labour from simple labour . In most cases, this is true . But in the ex post solution to the 'reduction problem,' productivity in the making of use-values is only necessary to establishing valuecreating capacity . It is not sufficient . It is the relative ability to create exchange-value for the capitalist that establishes skill

Simple, average and marginal labour coefficients . Third, Harvey's 'Root of the Problem' (1985 : 94-5) is that 'when no determinate relationship exists between the value-creating capacities of various types of labour and the value . . . of the corresponding type of labour-power [as in Hilferding's solution], then the link between socially necessary labour [i .e ., value] and prices of production is completely broken' (1985 : 94) . This, in Harvey's view, makes values irrelevant . Instead of values, we should drop Ricardian conceptions of value and transformation, to embrace the 'New Solution' to the transformation problem ." This suggests that the price calculation from values is at best tangential to Marx's law of value : prices and values are determined simultaneously by realworld market processes, not by mathematical models . Instead, macro-societal relations between money claims on value (i .e ., prices net of intermediate materials costs) and the actual value creation becomes crucial . The equations 7-net prices = IS + V and 1profit = IS become conservation principles that organize the understanding of capitalism . 24 Much of the 'transformation problem' is thus resolved into a tautological accounting framework, in which deviations of prices from values are just as important as their resemblance : the difference between individual price claims on aggregate value and the contributions to this total is one way of stating the contradiction between individual appropriation and social production under capitalism, giving us a deeper understanding of crises and inflation (Devine, 1989) . Harvey's final problem is that in a world of commodities selling at value, capitalists hire workers on the basis of the difference between their VCC and the value of their labourpower (W) . If this gap is higher for skilled workers, as is quite possible since there is often no clear link between VCC and W, then the skilled workers will be hired . If it is lower for skilled workers, then the unskilled will be hired . But Harvey points out that this means that the value of the commodity depends not only on the VCC of the workers, but on relative values of labour-power . This is contrary to the received vision of Marx's law of value . Again, this can be answered by the New Solution . Of

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course, commodities do not trade at value . Capitalists do not care about the value of labour-power in making their decisions . Indeed, they do not care about values at all (Marx, 1967c : 873) . They do not see, nor can they act on, socialized production . Under capitalism, prices and values are determined simultaneously by market exchange, so that neither are derived from the other . Prices and values are linked at the macro level, with the latter limiting the former : individuals cannot claim more value than is produced . It is thus not the connection between VCC x and the individual value of labour-power (W x) that matters . Indeed, if there is some relation between W x and worker X's wage, there might well be a connection between W x and the price of the product of X's labour . Instead, to the New Solution, what is important is the link between the value-creation for all of society and the aggregate value of labour-power . To Marx, it is these aggregates that must differ, so that total value created by labour > total W . Of course, Marx often stated these social relations not in aggregate terms but with representative social averages . But it is seldom noticed that not only is 'simple labour' a social average (as argued above), but Marx defines the value of labourpower in terms that can only represent an average for the entire working class : 'the sum of the means of subsistence necessary for the production of labour-power must include the means necessary for the labourer's substitutes, i .e ., his children, in order that the race of peculiar commodity-owners [i .e ., the working class) may perpetuate its appearance in the market' (1967a : 172) . In these terms, the W is the snaltneeded to reproduce the 'race' as a whole, divided by the number of workers hired (or for the framework above, the hours of labour-power sold) . In sum, Harvey's objections apply very well to demolishing Hilferding's 'reduction' and Ricardian views of value but they do not contradict the view that simple labour is abstract labour and that skill coefficients are determined ex post . Nor does his analysis contradict the New Solution, which of course was crafted partly in response to similar objections to the Ricardian interpretation of value .



Simple, average and marginal labour This confusion is found even in the erudite work of Elster (1985 : 1. 130) . This paper makes some unsubstantiated assertions concerning Marx's 2. goals, methods, and conclusions . Though he is quoted at length, this is not a paper on 'what Marx (really) said .' The true 'reduction problem' is the reduction of theory to Marxology . Needed instead is the perfection and application of Marx's method and theories . Similarly, Rowthorn (1980 : 234) suggests that Marx used 'socially 3. necessary' to denote both the minimum and the average labour requirement . 4. In another translation of Capital (1977 : 135, 304-5), this conflation does not occur, except on page 305 . Nevertheless, both Bohm-Bawerk (1896 : 810 and Hilferding (1904 : 1360, who did not rely on translations of Marx, focus on unskilled labour . Assuming that the 1977 translation was erroneous, I focus on the 1967 translation and on Marx (1970) . Our analysis should get us beyond scholasticism and its dependence on translations, by relying on dialectics, logic, and empirical knowledge instead . Note that I have assumed, as in most of this debate, that 'skill' is 5. one-dimensional . I assume that the social average is the arithmetic mean, not some 6. other type of average . Also, it would be unreasonable to call the social average labour 'unskilled,' since that would imply that marginal labour has negative

skill. He does use the marginal criterion in the theory of rent . That criterion 7. seems pertinent to volume III, concerned with 'the ordinary consciousness of the agents of production' (1967c : 25) . The average is relevant to setting up a societal accounting framework . Marx's criterion that no materials be wasted which follows this quote 8. violates his usual use of the average . To be consistent, we might want to assume that there is a socially-average degree of waste . But Marx's inconsistency here fits with another theme of Capital: his critique applies to not only the real world of capitalism with monopoly, waste, and so forth but to ideal, competitive, capitalism . That is, he meets bourgeois economists on their own ground . 9.

Also, abstract labour ('human labour in general') is said to exist 'in the form of average labour which, in a given society, the average person can perform . . .' (1970 : 31) . 10 . Abstract labour is not some mental abstraction, but the shared characteristics of all concrete labours, i .e ., the 'productive expenditure of human brains, nerves, and muscles' (Marx, 1967a : 44). Anyone who uses the word 'labour' without qualification, rather than saying 'the billions of diverse labours' is implicitly using some concept of abstract labour. Marx's contribution was to clarify the concept . (N B . : in this context, 'productive' refers to creation of commodities, rather than production of surplus-value, as in Marx's more developed concept .) In addition, it is a mistake to conflate abstract labour with 'homogeneous' labour as Elster (1985 : 130) does . The use of the concept of abstract labour does not deny the importance of the almost infinite variations among useful labours . 11 . The exponential approach ('more complicated labour' is 'simple labour raised to a higher power' (1970 : 31)) seems merely metaphorical . 12 . But 'effort' has connotations of subjective willingness to work, while

Notes

129



Capital & Class

130

intensity is also affected by the objective conditions of work . Lipietz (1985 : 25) uses a similar formula . The units of these numbers 13 . are as follows : VC, are hours of SNALT, VCC, is hours of SNALT per hours of labour done by X, and E, is hours of labour done per hour of labour-power sold . 14 . Also, to make any sense, average intensity should equal the intensity of the average hour of labour-power . That is, EE x LP,/E LP, = 1 hour of labour/hour of labour-power . Assuming that 'labour done' equals E . LP„ this can be restated as total labour done = total labour-power hired . It may seem strange that the above-average work more than one hour per hour hired . This is an artifact of the normalization Ea = 1, which defines the units of labour done . 15 . Further, for the concept of average to make sense, the average valuecreating capacity per hour of all labour (AVCC) should equal the value-creating capacity of the average worker's labour (VCC,) . The former is

AVCC =

N N E VCC,/N = (E o',/N) x=1 x=1

VCC

where N = the total number of hours of labour done or hours of labour-power hired (1E LP = E LP) . Since AVCC should equal VCC,, the average of the skill coefficients (the number in parentheses in this equation), should equal unity . So the skill coefficients should add up to N . 16 . This assumption is needed for Foley's (1982) assumption that value created is proportional to hours of labour-power hired . 17 . The ellipsis replaces the word 'unskilled .' 18 . Himmelweit (1984) suggests that the RSV should be equal between sectors given equal organic compositions of capital and profit rates . This restricts us to a very high level of abstraction . A realistic picture allows technical differences and frictions in capital mobility . 19 . The same criticism might be leveled against unidimensional comparable worth (CW) measures of use-value-producing skill . But CW is not a measure of VCC . Rather, it is an independent measure of'human capital,' a way of testing and criticizing a theory of relative wages . Second, CW is a measure of factors necessary but not sufficient to value creation . 20 . The relationship may be more complex than in the equation, in that E may be a function of a' or vice-versa . 21 . Rather, the value of the machinery used up is transferred to the product . An individual capitalist can make a profit by buying a machine below value or by introducing new machinery that allows production below social value . But on the societal level, this only redistributes value . 22 . IfE,, o' ;, VCC;, = 1, as assumed, then the total value creation equals the total number of hours of labour-power hired . See Dumenil (1983-4, 1987) ; Foley (1982) ; Lipietz (1982, 1986) . 23 . 26. Values and prices are stated in different units (SNALT per unit and pesos per unit) . Here, the value of money (in SNALT per peso) is set equal to unity so that values and prices can be directly compared .

Simple, average and marginal labour

Bohm-Bawerk, Eugen von . (1896) Karl Marx and the Close of His System, in Paul Sweezy, ed . (1975) . Devine, James, 1989 . The Utility of Value : the 'New Solution,' Unequal Exchange, and Crisis, Research in Political Economy, forthcoming . Dumenil, Gerard, (1983-4), Beyond the Transformation Riddle : A Labor Theory of Value, Science & Society, vol. 47, no . 4 . 1987, From Values to Prices of Production : A Reinterpretation of the Transformation Problem, mimeo . Elster, Jon, (1985) Making Sense of Marx, Cambridge : Cambridge University Press . Foley, Duncan, (1982) The Value of honey, the Value of Labor Power and the Marxian Transformation Problem, Review of Radical Political Economics, 14, Summer, pp . 37-47 . Gould, Stephen J . (1981) The Mismeasure of Man, New York: W . W . Norton . Harvey, Philip . (1985) The Value-Creating Capacity of Skilled Labor in Marxian Economics, Review of Radical Political Economics 17(1&2) Spring & Summer, pp . 83-102 . Hilferding, Rudolf, (1904) Bohm-Bawerk's Criticism of Marx, in Paul Sweezy, ed . (1875) . Himmelweit, Susan . (1984) Value Relations and Divisions Within the Working Class, Science & Society vol . 48, no . 3 (Fall), pp . 323-43 . Itoh, Makato . (1987) Skilled Labor in Value Theory, Capital & Class, no . 31 Spring, pp . 39-58 . Lakatos, Imre, (1970) Falsification and the Methodology of Scientific Research Programmes, in Lakatos and Musgrave, eds ., Criticism and the Growth of Knowledge, Cambridge : University Press, pp . 91-196 . Lipietz, Alain, (1982) The 'So-Called Transformation Problem' Revisited, Journal of Economic Theory, vol . 26, Feb ., pp . 59-88 . -(1985) TheEnchanted World: Inflation, Credit, and the World Crisis, London : Verso . Marx, Karl, 1955 . The Poverty of Philosophy Moscow : Progress Publishers . Marx, Karl, (1967 a,b,c) . Capital, 3 vols ., New York : International Publ . (1970) A Contribution to the Critique of Political Economy New York : International Publ . Maurice Dobb, ed . . London : New Left Books . Ben Fowkes, transl . (1977) Capital, vol . 1 Mohun, Simon . 1984-85 . Abstract Labor and Its Value Form, Science & Society vol . 48 no . 4 (Winter) pp . 388-406 . Rowthorn, Bob . (1980) Capitalism . Conflict and Inflation : Essays in Political Economy, London : Lawrence and Wishart . Steedman, Ian, (1977) Marx after Sraffa, London : Verso . Sweezy, Paul, ed . 1975 . Karl Marx and the Close of His System London : Merlin Press .

Bibliography

131



Capital & Class

132

After the crisis International Conference April 18-19-20,1990

• From 18-20 April 1990, the Department of International Relations and Public International Law of the University of Amsterdam organizes an international seminar under the title AFTER THE CRISIS : POLITICAL REGULATION AND THE CAPITALIST CLASS . The three main themes for the workshop are : • the formation of ruling class blocs and the political regulation of class conflict. • the determination of strategic conflicts within the ruling class in the regulation process . • the transnational nature of class formation, political regulation, and the strategic conflicts within the ruling class .

The seminar wilI bring together scholars from all continents active in the general field of research outlined by these three themes for three days of intensive exchange of views . It is hoped that one result of the seminar will be the establishment of a network of people actively interested in the study of international capitalist power . The Opening Address for the seminar will be delivered by Professor Robert W. Cox of York University (Toronto, Canada). The title of his address is "The global restructuring ofproduction and hegemony in the world system. "

The programme still leaves room for a limited number of contributions . Those interested in submitting a proposal for a paper should do so as soon as possible . When accepted, the final draft of the paper must be available no later than January 31, 1990 . Further information available from the secretariat or from the academic organisers Henk Overbeek and Kees ran derPgl at the Department of International Relations of the University of Amsterdam.

133

3 Andrew Gamble The Free Economy and the Strong State : the Politics of Thatcherism Macmillan Education, London, 1988, pbk, £7 .95, ISBN, 0-333-36311-6 .

Reviewed by Filio Diamanti Andrew Gamble's latest book on the politics of 'Thatcherism' is another attempt to explain the current state of affairs from a left point of view . His starting point is the

mm~d

0 O CO

breaking up of the post-war social democratic consensus and the setting up of a new hegemonic project, a right wing one . The book presents an account of the different interpretations of Thatcherism : as statecraft (a right wing analysis), as a class politics (a left wing analysis) and finally as a hegemonic project - with Gamble's clear preference for the latter position . Thatcherism' is seen as a hegemonic project which seeks to promote a 'free economy and a strong state' within a New Right

Capital & Class 134

ideological framework . The contradictory terms 'free' on the one hand and 'strong' state on the other dissolve into the very essence of the nature of the capitalist State . Gamble successfully shows that a market economy in order to operate 'freely' needs a set of institutions guaranteed by a strong authority, the State . According to his analysis this hegemonic project has not so far achieved hegemony but is only a means for the preparation of the way for the ruling elite to substantiate it in the future . Ms Thatcher's personality as a leader is stressed but not to the exclusion of politics . Gamble's reading of Gramsci's theory of hegemony as a complex of ideological, political and economic relations tries to eliminate the disadvantages of a one-sided interpretation and should be seen as a critique of Stuart Hall's thesis of 'Thatcherism' as 'authoritarian populism' (see : S . Hall, The Hard Road to Renewal, Verso, 1988) with all the stress on the moral and ideological aspects which this entails . It should be seen as a critique of the thesis of class politics which puts lot of stress on class struggle to the relative neglect of the issues of gender and race on the one hand and the politics of hegemony on the other . It meant also to be a critique of this variant of the accumulation strategy theory which places the emphasis on the economic reorganisation of the British capital under Thatcherism and the latter's impact on the different fractions of capital and on the restructuring of the existing regime of accumulation from fordism to post-fordism . The accumulation strategy thesis is being criticised for its emphasis on British crisis as a national crisis and also for its privileged handling of the industrial capital as the Thatcherite scapegoat which suffers from the present Government's favourable policies towards the City and the prominent role of the financial capital . Although Gamble's understanding of the hegemonic project in this multi-level

approach is useful on the one hand it is pregnant with the serious danger of neglecting the major preoccupation of capitalist states : that is, the organisation of the reproduction of the relations of production . A hegemonic project involves primarily the concept of moral leadership (ideological level) and subsequently economic and political leadership . Gramsci said that in order for a class to be dominant it should achieve hegemony on the moral ground first, i .e ., the dominated classes accept its leadership . This was a call to the working class in Fascist Italy to impose its popular culture . Gamble is placing the emphasis on the ruling class struggle to achieve hegemony a posteriori . . . But Thatcherite hegemonic project is not about a class striving for hegemony but about a class trying to achieve active consent for its policies . The New Right ideology is based on the politics of exclusion ; consensus politics are about inclusion based on compromise solutions . Does such a theme occur nowadays? This is one of the questions arising for the reader of Gamble's book . The next question is how useful is the concept of hegemony as such? If 'Thatcherism' tries to establish or, as Gamble argues : to open the way to a conservative hegemony which is new, this implies - although he seems to reject it - that Labourism had established a hegemony in the past . This is not true if one looks at what British SocialDemocracy represented for capitalism . Labourism achieved a consensus balanced on the edge of the sharp knife of capitalism . Corporatism and Keynesianism fail to keep the balance and achieve a stable consensus between the two-wings of industry . Labourist policies were in favour of capitalist accumulation rather than in favour of social reconstruction based on socialist politics. Then the social-democratic hegemony was not so social-democratic after all but business as usual . In this sense, the Thatcherite

Book reviews project should be seen not in terms of

moment of consent that is a stop-go

consensus but in terms of the restructuring

moment in the crisis circle leaving aside the

of British capitalism in order to be more

idea that crisis is not just only a moment in

profitable .

history but a continuous process .

If we go back to the original meaning of

Nevertheless the book's argument that

hegemony then we can stress the other

Thatcherism aims to restore the authority of

aspect of it which helps to cement the whole

the state and promote a free market eco-

concept : dictatorship . The state is according

nomy is a useful contribution in the analysis

hegemony +dictatorship, coercion+

of 'New Right' ideology . Also, Gamble's

If the one face of Janus fails to

account of Thatcherism before Thatcher, of

deliver then the other appears dominant . In

Thatcherism in opposition and of estab-

normal circumstances there is a balance

lished Thatcherism (its impact and its

between the two aspects of this contradic-

limits) provides a helpful account of the

tory entity . And it is contradictory precisely

British crisis and the way the Conservatives

because it is class based . Hegemony is not

try to overcome it . What is missing is the

primarily about economic and political lead-

role of the Left and their alternative - if any .

to Gramsci

consent .

'The Free Economy and the Strong

ership but about ideology . But ideology

Even so

involves economic and political domination

State' is

too . And this is one aspect that should be stressed . Gamble, by tring to amalgamate

British phenomenon of Thatcherism but

a book which should be read by everyone interested not only in the national

all the aspects at once makes the mistake

also in the international trends in the capi-

of over-emphasize the role of the State and

talist state's response to crisis .

by-passing the underline class struggle . So what is 'new' in Thatcherism? If it is not politics then we are left with personality which although important cannot serve as a serious argument for explaining the nature of the phenomenon . For example Gamble does not ask the question : what if Thatcher was not in power and, instead of her a

Michael Goldfield

Labour or Liberal administration was taking

The Decline of Organized Labor in the

charge of the state? Would things be different or not? Consequently the Thatcherite

United States

project is seen as a transitional phase only in

0226-301-028 £20 .75 .

University of Chicago Press, 1987, ISBN

the discussion of the potential failure of Thatcherism in extending market solutions

Reviewed by Christopher Schenk .

successfully .

to exclude the strength of the other part of

More important Gamble's analysis seems

In his carefully crafted book, Michael Goldfish examines the decline of trade unions in

the capital/labour relation that is : labour, in

the United States so as to facilitate an

overcoming or at least opposing the capital-

understanding of the conditions necessary

ist rule . This approach inevitably arises from his stress on the politics of hegemony and

for their resurgence . Most of this study, the first of two projected volumes, analyzes the

not on class politics . Class politics put the

weakened state of us unions with the aid of

emphasis on the nature of a crisis ridden

the latest statistical evidence and then criti-

society ; hegemonic

cally reviews the key explanations given for

politics

stress

the

135

Capital & Class 136

this state of affairs . It ends by raising the

After confronting former Secretary of

significance of this decline for societal

Labor John Dunlop's (1980) position, that

change in what is still the world's largest

us unions are still strong as their decline is

and most powerful advanced capitalist so-

not absolute as in the 1920's, Goldfield

ciety .

shows the percentage of us workers in

Goldfield's rationale is relevant for politi-

unions has fallen continuously since 1954,

cal economists and labour activists on both sides of the Atlantic : 'If workers are indeed

when over 34 percent of the workforce were

unwilling or incapable of forming elementary collective organizations for their own

percent today . This contrasts with other

self-defense, then the prospects for indepen-

density may undergo cyclical expansions and

dent working-class political organizations

contractions, but not decades-long decline .

and the development of a distinct socialist

A case in point, omitted from the text, is

class consciousness, not to mention the

Canada : which shares the same continent ;

establishment of a socialist society, are dim at best' (XV) . Put another way, a workers'

contains a similar labour market structure ;

movement must be able to defend or recon-

transnational

stitute its own basic defense organizations if

whose industrial relations system is compar-

it is ever to make new conquests .

able . Yet union membership as a percentage

Prior to and immediately after World War II, unions appeared to be well estab-

of non-agricultural work force has grown since 1954, reaching 40 percent in 1983-84 ;

lished in the United States with prospects

with a minor cyclical decline since then (Huxley, Kettler, Struthers, 1986) .

of growing stronger . Massive sit-down stri-

union members ; as opposed to about 15 developed capitalist societies where union

has considerable employment in the same manufacturing

firms ;

and

kes in the final years of the great depression

Goldfield cogently argues that many

led to the creation of industrial unionism in

widely accepted explanations for the decline

heavy industry . The war's aftermath saw a further upsurge . Goldfield cites Presis'

in union density, though seemingly plaus-

(1964) apt description of the 1945 strike

upon

wave as 'the greatest wage offensive in us

explanations are : changes in the structure

labour history .'

and composition of the workforce ; cyclical

In response, employers launched a powerful offensive of their own, beginning with

ible on the surface, prove unconvincing indepth examination .

Three key

socio-economic and political variables ; and the relation of class forces .

the passage of the Taft-Hartley Act in 1947 .

First, the structural explanation for us

This was quickly followed by the rise of

union decline posits a shift in the workforce

witch-hunt anti-communism,

known as

toward traditionally non-union occupations

McCarthyism . The major effect on labour of these developments was the internalization

(white collar), demographic groups (women, college graduates, visible minorities) econo-

of conflict and purges of leftists within the

mic sectors (trade, finance, service), and

trade union movement . The consequent

geographic regions (the South) . Contrary to

paralysis included the failure to extend

the popular perspective that compositional

unionization into the American South under

changes are the key explanatory variable,

'Operation Dixie .' Goldfield notes the con-

Goldfield concludes that such changes are

sequences of a still numerically strong, but

either potentially favourable to unions (race,

politically weakened, Afl-cio being region-

age, sex) or not highly significant (edu-

ally based in the northern and eastern parts

cation) . Surveys suggest that income level, rather than type of work, is a more accurate

of the country .

Book reviews

indicator of workers' openness to joining unions . Even changes in economic location, structure and consequent occupational changes, while admittedly having some immediate negative effects, were not found to be a primary cause of long-term union decline . The polls indicate that southern workers are just as likely to join unions as northern workers . Although Goldfield's clarity of argument and straightforward use of statistical evidence is useful, it is by no means the only critique of the structural approach . A number of current writers, for example, have utilized the Canadian comparison noted above . Second, cyclical trends provide one of the most widely accepted explanations amongst neoclassical economists and sociologists following the theories of John Commons, for long-term trends in union growth and organnizing . These theories root union membership growth and decline in economic factors such as unemployment and the business cycle or social and political cyclical phenomana such as variations in strike rates and changes in us labour legislation . With the aid of econometric models, Goldfield tests a series of hypotheses within this framework utilizing data such as that of the National Labour Relations Board (NLRB) certification and decertification elections . Certain political variables are found to be significant for long range trends, such as upholding the National Labour Relations Act (Wagner Act) in 1937 for union organizing successes and the passage of Taft-Hartley in 1947 for union density decline . Overall it is argued that while cyclical variations explain certain annual activities, they fail to illuminate decades-long decline . In Goldfield's language : 'Suspect number two is guilty of a misdemeanor, but not the main perpetrator of the felony itself (179) . Third, under the heading 'relation of class forces,' Goldfield examines a number of factors inclusive of worker attitudes, which

contrary to popular belief public opinion 137 poll data suggests is not a major impediment to unionization . Through the prism of this lens two factors are found to be of prime explanatory value : employer resistance and the role of American unions . The increased effectiveness of employer resistance to unionization is found to be a major reason for union decline . Not only is the large-scale offensive by capital reflected in state policies, but also in a range of tactics from legal to illegal, from traditional (blacklisting, spies) to contemporary (anti-labour - but 'friendly' - consulting firms) . The other major factor in union decline concerns labours' inability to respond to these attacks . Numerous authors in the post-World War II period, beginning with C . Wright Mills' New Men of Power, have postulated variations on the theme of American trade unions and their officials becoming overly bureaucratic, unaggressive and conservative - in short, business unions . By objectively assessing those unions which have a high success rate in organizing new units, Goldfield provides the reader with both detailed information based on hard data and insight into specific organizing activities and philosophical outlooks . Simply put, his evidence suggests that it is the more aggressive, militant unions with a social perspective - as opposed to a business unionist or Gomperist perspective - that have been most successful in combatting the general trend of declining union density . The primary task of The Decline of Organized Labour in the United States is to debunk popular, but largely facile, assumptions about the American labour movement in order to confront the more difficult question of what is to be done about it . Despite the lack of comparative analysis with Britain, continental Europe or Canada, Goldfield makes a highly valuable contribution in this text . But it is the answer to the latter question of how to reverse the decline, to be

138

taken up in the proposed second volume, that one awaits . References John Dunlop (1980) 'The Changing Character of Labor Markets' in the The American Economy in Transition, M . Feldstein Ed . (Chicago: University of Chicago) . C . Huxley, D . Kettler and J . Shuthers (1986) 'Is Canada's Experience "Especially Instructive"?' in Unions in Transition, Seymour Martin Lipset Ed . (San Franciso : ics Press). Art Presis (1972) Labor's Giant Step (New York : Pathfinder Press) .

John Solomos Black Youth, Racism and the State : the Politics of Ideology and Policy Cambridge, Cambridge University Press, 1988, £27 .50 (h/b) pp . 284, ISBN 0-52136019-6 . Reviewed by Bob Benewick There has been a marked inability to effectively theorize about the policy implications of institutionalized racism . This is not surprising given the methodological difficulties and the political and ethical problems involved . More particularly, despite a significant number of generalised accounts and case studies dealing with the crisis faced by young blacks, there has been little attempt to develop a framework for coherent analysis of the ideological and state contexts . Enter John Solomos .

He begins with a judicious, almost bland, review of the state of research on black youth in Britain . Although mindful of the pitfalls his critique is all the more devastating for its understatement : e .g . the relative neglect of politics from within the mainstream of the sociology of race relations and the neglect of 'race' from within political science has meant that there are few areas under the heading of the politics of racism which have received adequate attention .' What is needed is an analytical framework for a political analysis of racism which can account for the politicalisation of issues and influences affecting young blacks . This allows Solomos to investigate the processes by which black youth unemployment was placed on policy agendas, the role of youth training programmes, the impact of the urban protests of the 1980's on the ideological and social constructions of policies towards young blacks and a definition of black youth as the 'enemy within' . The analysis is inspired by the neoMarxist approaches to the study of the role of the state and more particularly a conception of the capitalist state as a set of institutions partly structured by, but also structuring, the relations of civil society . It is a study of the institutionalisation of racialism by which young blacks have been defined as a category, accepted as an economic, political and social problem and excluded from equal participation in British society . At the same time Solomos draws imaginatively upon Murray Edelman's suggestive work on political language and political symbols . A main theme which is emphasised throughout the book and is also applied directly to an analysis of the 1980's urban riots is that the racialisation of policies promotes contradictory perceptions of the problems . These ranged from the enemy within, to rebellions against injustice to concern for the socio-economic position of

Book reviews

139

young blacks . Solomos wisely refrains from predicting choices from among future options but he does offer three pointers as to what will influence which options are placed on the political agenda . The first is that rather than a positive national programme to tackle the discrimination and disadvantage against young blacks there have been symbolic promises of action . Second, the ideological perception of young blacks as an 'enemy within' has gather momentum over the present decade . Third, there has been a politicalisation of the question of public order particularly in localities which official ideologies define as problem areas' . Solomos argues that these developments are likely to promote further racialisation of aspects of unemployment, policing, youth, welfare and local government policies . The outcome of this spiraling racialisation of

Ruth Richardson Death, Dissection and the Destitute Routledge and Kegan Paul, 1988 Pelican Books, 1989, pp . 281 £5 .99 ISBN 0140228-624 .

public policy will be contingent upon the complex web of ideological, economic, political and social factions . It follows that

Reviewed by Adelaide Leslie

without fundamental change the prospects

This book deals with the corpse as com-

for those who are young and black in British

modity . In the eighteenth and nineteenth

society is grim indeed .

centuries the development of medical knowl-

What makes this case so convincing and sets it apart from the more generalised

edge demanded a regular supply of cadavers

literature is Solomos' ability to combine theoretical sophistication with empirical

hospitals, there were private anatomy schools throughout the country that needed corpses .

detail . This is particularly striking where he

The more plentiful the supply of corpses,

demonstrates the contradictory nature of

the more students who registered at a

ameliorative policies which not only further social control but contribute to spiraling

school, the more fees that could be pocketed by the surgeon-school proprietor . Wealthy

racialisation . A disappointment is that the 'high' I experienced in reading this book is

patients were reluctant to pay fees to

not matched by its political and policy

to be dissected . Apart from the large charity

surgeons who had not 'perfected' their skills in hacking, chopping, cutting and slicing .

recommendations . Although this reflects

To feed this need the trade of 'resurrec-

Solomos's well placed caution about the

tionist' or 'grave-robber' came into being .

contribution that critical research can make

As far as records are extant, resurrectionist

to the study of 'race', it leaves the reader unclear as to the intended audience .

were not actually members of the criminal class, usually they were either men associated with the burial/hospital business such as porters, gravediggers, sextons, or hospital gatekeepers, or they were unemployed men .

Capital & Class

140

Technically, it was not a crime to steal a dead body as it was not legally property . A point made at the time that although poaching, stealing the dead body of a wild animal was a capital of fence, stealing the dead body of a human was not punishable as a crime . Due to the social disapprobation towards their work, bodysnatchers worked at night under conditions of extreme secrecy replacing the earth on the grave to appear undisturbed . On the occasions when their handiwork was discovered in a particular graveyard, riots would ensued . Examples of this are at Paisley in 1832, and Great Yarmouth in 1827 . No class in society was safe . Some resurrectionists boasted of their ability to obtain corpses to order . The Select Committee on Dissection inaugurated in the Spring of 1828 heard evidence from Sir Astley Cooper who revealed that even he, famous surgeon of the day and surgeon to the King, would not be safe in his grave . Sir Robert Peel in Parliamentary debate commented that the revulsion against dissection was a 'vulgar prejudice . . . not against seeing bodies dissected, but against ourselves being dissected .' Inevitably though it was the 'poor' who suffered most from the attentions of the graverobbers . The very poor were buried in mass graves, the slightly better-off were buried in flimsy coffins . They could not afford to pay men to watch over their bodies until putrefaction set in and the cadaver would lose its value . Also, obviously the poor were the most numerous class in society and therefore produced more dead bodies . The Anatomy Act 1832 was passed in the same year as the Great Reform Act and two years before the New Poor Laws . The measures of 1832 pacified the middle classes at the expense of the working class . Under the Anatomy Act the free market in corpses was destroyed by guaranteeing a supply of

unclaimed paupers' . These were people whose relatives were too poor to afford a burial or friends whom the authorities refused to believe had a valid claim on the body . In the case of Mary Anne Chapman, 'handsome Poll', a twenty-two year old prostitute who drowned herself, the coroner refused to release her body to her friends . He insisted it was necessary to make Ms Chapman 'an example to prevent suicide among unfortunate women' . Burial clubs and 'industrial insurance' was the response of the indigent, and there was no greater fear than one's physical remains ending up on a dissection table, it was considered a fate worse than death . This was partly for religious reasons and partly on rumours of what happened in those places . Corpses were subjected to considerable disrespect, especially young women . Whether this did in fact happen or not and similar stories circulate about hospital mortuaries and embalmers even today) people believed they happened and had a dread of them . The alternatives to compulsory dissection were not seriously looked at by the Parliament of the day, and Dr Richardson's book is weak on this point . She says that the a supply could have been obtained of 'foreign' corpses, but that would surely have been as exploitative of the French or Irish poor . She does comment on the wastage of subjects . Students were given bodies to practice on when really there was no point in teaching them scanty surgical skills, it would have been far better to allow greater specialization and to have taught anatomy through plates and models which was how physicians learned it . The book is good in situating the Anatomy Act within the whole repressive apparatus of the state towards the poor, and she argues that the Anatomy Act was no more than an adjunct to the later New Poor Laws in 1834 . Working class activists at the time

Book reviews

did indeed take this view and were well aware of the spirit behind the Act . The objective of the New Poor Laws was to make the 'workhouse' a deterrent, to 'criminalise' poverty . The knowledge that if they died while in the poorhouse, was a further deterrent as the destitute knew they would finish up as slops in a bucket of quicklime . An interesting book with a wealth of anecdotal detail, rather elliptical in places but worthy of a read .

become more vociferous in the 1990s . The 141 bookshops are flooded with tomes proclaiming the end of ideology (once again), the terminal crisis of socialism, and the PostModern surpassing of the idea of progress . Such radicalism as survives in academia increasingly justifies it's alternative ways of looking at the world, and a commitment to changing it, by invoking Post-structuralist (and distinctly unradical) philosophers like Richard Rorty . Roy Bhaskar is one of the few contemporary philosophers who explicitly offers his work in support of the project of socialist transformation . In this collection he develops this claim more directly and accessibly than in his previous work . In a series of reprinted and revised essays, he takes on Rorty, post-structuralism, positivism, Habermas, the 'New Realism', and Marxist Fundamentalism, amongst other targets . His first chapter (based on a talk to the CSE

last year) shows why we should bother

Roy Bhaskar

with philosophy at all . Philosophy is there

Reclaiming Reality Verso 1989, £8 .95 ISBN 0-86091-95 1-X .

to 'underlabour' for science, and thence for practice, by drawing out the cognitive and practical implications of different ways of

Reviewed by John Lovering

looking at the world . The simpler claims are qualified in the closing chapter, and the two

It sometimes seems as if serious philosophi-

chapters together present the most succinct

cal debate on the Left stopped, or stopped

summary of transcendental or critical realism Bhaskar has yet published . Put simply,

mattering, when Thatcherism and Kinnockism appeared . Attention shifted rapidly from philosophical and metatheoretical

realism is the claim that the ultimate objects

questions to the apparently more urgent

of scientific inquiry exist independently of scientists and their activity (p . 12) . We all

ones of conjunctural description and stra-

act like this everyday, of course, but things

tegy (as a glance at back issues of Capital and Class will confirm) . In this book Roy

get tricky when we try to decide what exactly it is that exists independently of us .

Bhaskar argues that the Left needs to revive its interest in philosophical issues ; the diffi-

Positivism, as inculcated into most social

culties were not resolved in 1979 . A major theme is that much of the Left's current

held that the only reality science could know was that of 'constant conjunctures' . To be

disarray is rooted in a failure to be clear

scientific was to find laws of regularity . As

about the fundamental concepts of its think-

a result, social science was in general vir-

ing . There are signs that this demand will

tually impossible, since society tends not to

science students, offered one account . It

behave like molecules in a test tube . Bhas-

Capital & Class

142

kar is concerned both to extract the rational kernel in positivism, and to defend the

concepts .

possibility of social science . His project draws on the twin critiques

Bhaskar turns significantly to substantive

of positivism in the 1970s . Writers like

sciences ('I insist on a level of analysis of

Popper, Kukn and Lakatos stressed the

concrete historical particulars' p . 191) . He argues that the criterion of scientific advance

social character of science, and the difficulties of grasping any idea of a reality beyond

At this crucial stage in his argument arguments, drawn from the natural or social

the historically and culturally relative con-

is superior 'explanatory power' . This defines scientific progress in terms of the social

cepts of the theorist .

A contemporary

practice of scientists and the real properties

variant of this is the popular idea that there

of the worlds they investigate . It invokes the

is no reality beyond language we use to

idea that the claims thrown up by the

describe it (and thereby invent it) . Mean-

various sciences should be linked by some

while, positivism was also attacked by 'anti-

relationship of corroboration or compatibil-

deductivists' like Harre (Bhaskar's postgrad-

ity (a theory which explains sexual discrimi-

uate supervisor) who maintained that there

nation by reference to the characteristics of

must be some kind of reality which is

women would fail because it does not corrob-

irreducible to the 'regular occurrences' plot-

borate what we know about people from

ted by scientific observers . Otherwise the

other sciences like biology, psychology,

practice of building scientific models and theories would not be what it has been .

political-economy, sociology . . .) . This is a terse and partial summary, but

Bhaskar's achievement is to weave these two

it should be enough to show that Gunn's

themes together, differentiating the prob-

critique of critical realism in Capital and

lems of the former 'transitive' or epistemolo-

Class 39 is well off target . Gunn alleges that

gical dimension from those of the latter

Bhaskar proposes a 'philosophy' for Marxism which it does not need . Marxism has no problem in validating its own concepts for

'intransitive' or ontological dimension . He emphasises

the

ontological

distinction

between causal laws and the patterns in science has recognised this distinction in

provides a 'theory which is also metatheory' . Bhaskar on the other hand offers a 'philosophy in the sense of a pure

practice, despite the trendier philosophers .

and infinitely regressive metatheory' (Gunn

A 'naturalistic' social science is possible after

p . 95) . This is a gross misrepresentation of

all, partly because natural science has not

Bhaskars realism (it is also, I would argue,

been what those philosophers have said it is .

wildly over-optimistic about Marxism) .

The production of knowledge is a social

Bhaskar explicitly opposes the idea that

process, and involves the deployment of

philosophers can speculate their way to

existing

Bhaskar

truth, and philosophy can legitimate itself.

shows that this 'production of knowledge by

Gunn's alternative falls into precisely the

means of knowledge' is not self-contained,

trap that Bhaskarian realism warns us about ;

as those who believe that all science is

an obsession with epistemology to the detri-

socially-relative would argue . New theories

ment of ontology .

which they are manifested, arguing that

theoretical materials .

cannot be conjured out of old concepts

it

Gunn

advocates

'practically

reflexive

indiscriminately or ad infinitum . Science is

theorising' ; theorising that allows reflection

certainly a social process, but real structures in the world limit the possible outcomes of

upon the validity of its own categories, and

experiments and constrain the production of

world (p . 92) . This is to be achieved

recognises that it exists in a practical (social)

Book reviews through 'good conversation', which allows conversational partners to 'challenge one another and learn from one another in a way in which fashion which brings all things about each partner into play' p . 98) . Now this may or may not be a good way of interrogating one's own ideas and those of partners, although it is hard to see how it helps sort out which of the things about each partner really matter, is the colour of their socks relevant? But it is a strategy in Bhaskar's transitive dimension only, and hardly begins to address the ontological questions Bhaskar raises . For all his tirade against philosophical elitism, Gunn (like many supposedly radical Post-Moderns) ends up back in the academy, urging us to develop the art of conversation . Critical realism, on the other hand, would send us into the street, the workplace, the household, the laboratory ; wherever we need to go to test different theories . For Bhaskar, ontological realism implies epistemological relativism . He stresses the fallibility of truth claims, and the need for a diversity of research objects and strategies . Critical realism helps, across a variety of specific research programmes, because it asks us to think about the structures and mechanisms which could make possible the events we observe . This is because it reaches the parts other philosophies of science (or their surrogates, as in Gunn) fail to . Bhaskar shows the dominant obsession with epistemology to be archaic and incoherent, and he asks us to be explicit about ontology . He points out that in practice we all believe in some sort of 'realism', the question is, what sort and why? 'The crucial questions in philosophy are not whether to be a realist or an antirealist, but what sort of realist to be (an empirical, conceptual, transcendental, or

whatever realist), whether one explicitly 143 theorises or merely secretes one's realism, and whether and how one decides, arrives at or absorbs one's realism .' (p .153) . Bhaskar wants to 'Reclaim Reality' from those who would dissolve it into social convention, and those who would claim they alone possess it . This collection goes some way to demonstrating that this is possible . En route it also raises a number of claims which many will consider contentious, especially concerning the substantive social scientific and political implications of critical realism . We are still awaiting the appearance of explicitly Left applications of realism . Would it not be possible to produce a realist argument for conservatism? Bhaskars substantive model of society - the transformational model - is not without critics and perhaps not so different from that of Giddens (Callinicos 1989) . His predilection for marxist economic theory is, I believe, something of a hostage to fortune . But these observations can form issues for substantive debate within a framework informed by critical realism . The annual conference on Realism and the Human Sciences has been one of the less tortuous 'academic' conferences, and has reflected a wide variety of disciplinary interests, and a general commitment to the Left . Bhaskar's work has been stimulating and rewarding . But his previous books were not to be approached lightly . It would still be advisable to prepare for some chapters in 'Reclaiming Reality' with several cups of coffee and a dictionary, but many of the essays here are quite accessible . This is a valuable and important collection which will hopefully help extend the debate on philosophical fundamentals to a new readership .

Capital & Class

144

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