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Faced with the financial crisis that began in 2007 some economic commentators began to talk of 'zombie banks', financial...

Author: Chris Harman

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Faced with the financial crisis that began in 2007 some economic commentators began to talk of 'zombie banks', financial institutions that were in an 'undead' state incapable of fulfilling any positive function but representing a threat to everything else. However 21st century capitalism as a whole is a zombie system dead to achieving human goals and responding to human feelings but capable of sudden spurts of activity that cause chaos all around. Chris Harman shows how Marx's understanding of capitalism is essential for any explanation of how this world emerged and developed over the last century and a half. He shows that the roots of the crisis today lie not in financial speculation but much deeper in a crisis of profitability which 30 years of the neoliberal offensive have failed to reverse. The future of the system will not be a return to steady growth but repeated instability and upheaval, together with a rising ecological crisis. Finally he looks the force in society capable of ending the rule of capital —the global working class.

"A powerful, comprehensive and accessible critique of capitalism from one of the world's pre-eminent Marxist economists. This book needs to be read far and wide. It is a clear, incisive warning of the massive dangers posed by a 'runaway system' and the threat it poses for the future of humanity." Graham Turner, author of Credit Crunch: Housing Globalisation and the Worldwide Economic Crisis

Bubbles,

"Both essential reading for anyone who wants to understand the present crisis and its place in the history of < ipiijlif.m and an important cont'lbution to Marxist politic .si w onomy. " Alex Callinicoi, I ' r o f n t t o r of F.uropoan Studies. King'* College London

CHRIS HARMAN /IIH >i of A Peoples History of t h e W o r l d

W A S H E

; i; I». 1. '_VJ lAthr^ii

< .I OBAL CRISIS AND m i RFLEVANCE OF MARX

Z o m b i e Capitalism: Global crisis and the relcvance of M a r x

Chris Harmatt First published in July 2009 by Bookmarks Publications Copyright O Bookmarks Publications ISBN 9781905192533 Cover design by Noel Douglas Typeset bv Bookmarks Publications Printed by Information Press

Contents

Introduction Part O n e : U n d e r s t a n d i n g the system: M a r x a n d B e y o n d 1

Marx's Concepts

21

2

M a r x a n d his Critics

41

3

T h e D y n a m i c s o f the System

55

4

B e y o n d M a r x : M o n o p o l y , W a r a n d the State

87

5

State S p e n d i n g a n d the System

121

P a n T w o : C a p i t a l i s m in the 2 0 t h C e n t u r y 6 8

The Great Slump

143

The Long B o o m

161

T h e end o f the g o l d e n age

191

Part Three: T h e N e w A g e o f G l o b a l Instability 9

T h e Years o f D e l u s i o n

229

10

G l o b a l C a p i t a l in the N e w Age

255

11

F i n a n c i a l i s a t i o n a n d the Bubbles that Burst

277

Part F o u r : T h e R u n a w a y System 12

The N e w Limits o f Capital

307

13

T h e R u n a w a y System a n d the Future for H u m a n i t y

325

14

W h o Can Overcome?

329

Notes

353

Glossary

393

Index

403

A b o u t the A u t h o r C h r i s H a r m a n is a leading m e m b e r o f the Socialist W o r k e r s Party ( w w w . s w p . o r g . u k ) . H e is the a u t h o r o f n u m e r o u s h o o k s i n c l u d i n g A Peoples

History

2 0 0 S ) , Revolution Fire Last Revolution:

Time:

of the

World

in the list 1968

Germany

e d i t o r o f International

and

(Bookmarks

Century

After

1999 a n d

Verso

( B o o k m a r k s 2 0 0 7 ) , The

( B o o k m a r k s 1 9 8 8 ) , The

Lost

1918 to 1923 ( B o o k m a r k s 1982). H e is the Socialism,

a quarterly journal o f M a r x i s t

theory ( w w w . i s j . o r g . u k ) . The Socialist W o r k e r s Party is linked t o a n i n t e r n a t i o n a l n e t w o r k o f o r g a n i s a t i o n s , for further i n f o r m a t i o n g o t o w v w . s w p . o r g . u k / international, p h p

Introduction

An unstable world . W e live in a n unstable w o r l d , a n d the instability is g o i n g to increase. It is a w o r l d w h e r e a billion people feel h u n g r y every day, a n d the hunger is g o i n g t o increase. It is a w o r l d w h i c h is destroying its o w n e n v i r o n m e n t , a n d the destruction is g o i n g t o increase. It is a violent w o r l d , a n d the violence is g o i n g to increase. It is a w o r l d w h e r e people are less h a p p y , even in the industrially a d v a n c e d countries, t h a n they used t o be,1 a n d the u n h a p p i n e s s is g o i n g t o increase. Even the m o s t craven a p o l o g i s t s for c a p i t a l i s m find it h a r d t o deny this reality a n y longer, as the w o r s t e c o n o m i c crisis since the Second W o r l d W a r c o n t i n u e s t o deepen as 1 write. T h e world's best k n o w n b a n k s have o n l y been saved f r o m g o i n g bust by vast g o v e r n m e n t bail-outs. T h o u s a n d s o f factories, stores and

offices

are c l o s i n g

Unemployment

across

Europe

and

North

America.

is s h o o t i n g u p w a r d s . T w e n t y m i l l i o n

Chinese

workers have been t o l d they have to return t o the villages because there are n o jobs for t h e m in the cities. A n I n d i a n employers' t h i n k t a n k w a r n s t h a t ten m i l l i o n o f their employees face the sack. A h u n d r e d m i l l i o n o f the w o r l d ' s people in the G l o b a l S o u t h are still threatened w i t h h u n g e r because o f last year's d o u b l i n g o f grain prices, w h i l e in the richest c o u n t r y i n the w o r l d , the U n i t e d States, three m i l l i o n families have been dispossessed f r o m their h o m e s in 18 m o n t h s . Yet just t w o years a g o , w h e n I began this b o o k , the message was very different: " R e c e n t high levels o f g r o w t h will c o n t i n u e , g l o b a l inflation w i l l stay q u i t e s u b d u e d , a n d g l o b a l current a c c o u n t imbalances will g r a d u a l l y m o d e r a t e , " w a s the " c o n s e n s u s " a m o n g mainstream

economists,

reported

the

Bank

Settlements. T h e p o l i t i c i a n s , industrialists,

ot

International

financiers

a n d com-

m e n t a t o r s all agreed. T h e y toasted the w o n d e r s o f free m a r k e t s 7

a n d rejoiced that " e n t r e p r e n e u r i a l g e n i u s " h a d been

liberated

f r o m r e g u l a t i o n . It w a s w o n d e r f u l , they told us, that the rich were getting richer because that p r o v i d e d the incentives w h i c h m a d e the system so b o u n t i f u l . Trade w a s g o i n g to obliterate h u n g e r in A f r i c a .

Economic

g r o w t h w a s d r a i n i n g the vast p o o l s ol poverty in Asia. T h e crises o f the 1970s, SOs, 90s a n d 2001-2 were m e m o r i e s w e c o u l d

put

b e h i n d us. There m i g h t be horrors in the w o r l d , w a r s in the M i d d l e East, civil w a r s in Africa, b u t these were to be b l a m e d on the shortsightedness o f essentially honest p o l i t i c i a n s in W a s h i n g t o n

and

L o n d o n w h o m a v have m a d e mistakes but whose h u m a n i t a r i a n in4

tervention was still needed to deal w i t h psychopathic maniacs. The w o r d s of those w h o saw things differently were i g n o r e d , as the media p o u r e d o u t candyfloss layers o f celebrity culture, u p p e r m i d d l e class self-congratulation a n d senseless nationalist e u p h o r i a over sporting events. T h e n in m i d - A u g u s t 2 0 0 7 s o m e t h i n g h a p p e n e d w h i c h began to sweep the candyfloss a w a y t o p r o v i d e a glimpse o f the u n d e r l y i n g reality. A n u m b e r o f b a n k s suddenly discovered thev c o u l d n o t bal•

4

4

ance their b o o k s a n d s t o p p e d l e n d i n g t o each other. T h e w o r l d ' s financial turned

system began g r i n d i n g to a halt w i t h a credit c r u n c h t h a t i n t o a crash o f the w h o l e system

in O c t o b e r

2008.

Capitalist c o m p l a c e n c y t u r n e d to capitalist p a n i c , e u p h o r i a to desperation. Yesterday's heroes became t o d a y s swindlers. F r o m those w h o h a d assured us of the w o n d e r s o f the system there n o w c a m e one message: " W e d o n ' t k n o w w h a t has g o n e w r o n g a n d we d o n ' t k n o w w h a t t o d o . " The m a n w h o n o t l o n g before been treated as the s u p r e m e genius overseeing the US e c o n o m i c system, A l a n G r e e n s p a n , o f the Federal Reserve, a d m i t t e d to the US C o n g r e s s t h a t h e still d i d " n o t fully u n d e r s t a n d w h a t w e n t w r o n g in w h a t he t h o u g h t were self-governing m a r k e t s V G o v e r n m e n t s have been t h r o w i n g h u n d r e d s o f billions t o those w h o r u n the b a n k s — a n d tens o f b i l l i o n s t o those w h o run the m u l t i n a t i o n a l car

firms—in

the h o p e that this w i l l s o m e h o w stop

the crisis. But they c a n n o t agree a m o n g themselves h o w t o d o this a n d even w h e t h e r it will w o r k or n o t . Yet o n e t h i n g is certain. T h e m o m e n t a n y part o f the g l o b a l e c o n o m y begins to stabilise they will forget the h u n d r e d s o f millions of lives that have been shattered by the crisis. A f e w m o n t h s w h e n b a n k s are n o t c o l l a p s i n g a n d profits are n o t falling t h r o u g h the floor a n d the apologists w i l l be p u m p i n g o u t candyfloss o n c e 7

Introduction

a g a i n . T h e i r futures will seern better a n d rhey will generalise this to the w o r l d at large w i t h renewed talk a b o u t the w o n d e r s o f capitalism a n d the i m p o s s i b i l i t y o f a n y a l t e r n a t i v e — u n t i l crisis hits a g a i n a n d t h r o w s them i n t o a n o t h e r p a n i c . Bur crises are n o t s o m e n e w feature o f the system. They have occurred at longer or shorter intervals ever since the

industrial

r e v o l u t i o n established the m o d e r n f o r m o f c a p i t a l i s m in Britain fully at the b e g i n n i n g o f the 19th century.

T h e poverty o f e c o n o m i c s The m a i n s t r e a m e c o n o m i c s t h a t is t a u g h t in schools a n d universities has proved c o m p l e t e l y u n a b l e t o c o m e t o terms w i t h such things. T h e Bank o f I n t e r n a t i o n a l Settlements recognises that: V i r t u a l l y n o o n e foresaw the G r e a t Depression o t the 1930s, or t h e crises w h i c h affected J a p a n a n d S o u t h Hast Asia in rhe early a n d late 1990s, respectively. In fact, each d o w n t u r n w a s preceded

by a

period

of non-inflationary

growth

exuberant

e n o u g h t o lead m a n y c o m m e n t a t o r s to suggest t h a t a " n e w e r a " had arrived.' N o t h i n g s u m s u p the i n c o m p r e h e n s i o n o f those w h o defend capitalism as m u c h as their i n a b i l i t y t o e x p l a i n the m o s t significant e c o n o m i c episode in the 2 0 t h c e n t u r y — t h e s l u m p of the 1930s. Ben Bernanke, the present head o f the US Federal Reserve a n d supposedly o n e o f m a i n s t r e a m e c o n o m i c s ' m o s t respected experts o n e c o n o m i c crises, a d m i t s that " u n d e r s t a n d i n g the Great Depression is the H o l v G r a i l o f m a c r o e c o n o m i c s ' " 4 — i n other w o r d s , he c a n find n o e x p l a n a t i o n for it. N o b e l e c o n o m i c laureate F d w a r d

C

Frescort describes it as " a . . . p a t h o l o g i c a l episode a n d it defies exp l a n a t i o n by s t a n d a r d e c o n o m i c s " . 5 For R o b e r t Lucas, a n o t h e r N o b e l L a u r e a t e " i t takes a real effort o f will t o a d m i t you d o n ' r k n o w w h a t the hell is g o i n g o n in s o m e areas"." These are n o t accidental failings. They are built i n t o the very ass u m p t i o n s o f the " n e o c l a s s i c a l " or " m a r g i n a l i s t " school t h a t has d o m i n a t e d m a i n s t r e a m e c o n o m i c s for a century a n d a quarter. Its founders

set themselves

rhe

task

of

showing

how

markets

" c l e a r " — t h a t is, h o w all the g o o d s in them will find buyers. But that assumes in a d v a n c e t h a t crises are n o t possible. 9 Introduction

T h e implausibility o f the neoclassical m o d e l in the face o f some o f the most o b v i o u s features o f capitalism has led to recurrent attempts w i t h i n the m a i n s t r e a m t o bolt extra elements o n t o it in an ad hoc way. N o n e o f these a d d i t i o n s , however, alter the basic belief t h a t the system will return to e q u i l i b r i u m — p r o v i d i n g prices, a n d especially wages, adjust t o m a r k e t pressures w i t h o u t h i n d r a n c e . Even J o h n M a y n a r d Keynes, w h o w e n t further t h a n a n y o n e else in the m a i n s t r e a m in q u e s t i o n i n g the e q u i l i b r i u m m o d e l , still assumed it c o u l d be m a d e to w o r k w i t h a degree o f g o v e r n m e n t intervention. There

were

always

challenges

to

such

complacency.

The

A u s t r i a n e c o n o m i s t Schumpeter derided any idea o f e q u i l i b r i u m as i n c o m p a t i b l e w i t h w h a t he s a w as the great positive virtue o f capi t a l i s m , its d y n a m i s m . S o m e o f Keynes's disciples w e n t further t h a n

he did in b r e a k i n g w i t h neoclassical

much

orthodoxy.

C a m b r i d g e e c o n o m i s t s tore a p a r t the theoretical basis o f the neoclassical school. Yet the o r t h o d o x y is as strongly entrenched in the universities a n d schools as ever, p u m p i n g i n t o the heads o f each n e w generation a picture o f the e c o n o m i c system that bears little r e l a t i o n s h i p to reality. T h e pressure o n students t o study the b o o k s p u t t i n g f o r w a r d such views as if they were scientific texts has led to Samuelson's Positive

Economics

Economics

and

Lipsey's

An

Introduction

to

selling m i l l i o n s o f copies.

It is h a r d l y surprising t h a t the e c o n o m i c s profession has difficulty c o m i n g t o terms w i t h those aspects o f the capitalist system t h a t have the greatest i m p a c t o n the mass o f people w h o live w i t h i n it. T h e o b t u s e t h e o r e m s t h a t fill e c o n o m i c t e x t b o o k s a n d a c a d e m i c j o u r n a l s , w i t h their successive algebraic c a l c u l a t i o n s a n d g e o m e t r i c figures, assume stability a n d e q u i l i b r i u m , a n d so have little t o say t o people w o r r i e d by the system's p r o p e n s i t y t o crisis. O n e o f the f o u n d e r s o f the neoclassical school, M a r s h a l l , observed nearly a century a g o that the e c o n o m i c theory he believed in w a s o f little use in practice a n d t h a t " a m a n is likely t o be a better economist if he trusts his c o m m o n sense a n d practical i n s t i n c t s " . ' Yet w h a t is involved is n o t just abstract a c a d e m i c scholasticism. T h e o r t h o d o x y is a n ideological p r o d u c t in the sense that it operates f r o m the s t a n d p o i n t o f those w h o p r o f i t f r o m the m a r k e t system. It presents their profiteering as the s u p r e m e w a y o f cont r i b u t i n g t o the c o m m o n g o o d , w h i l e a b s o l v i n g them o f a n y t h i n g t h a t goes w r o n g . A n d it rules o u r a n y f u n d a m e n t a l critique o f the present system, in a w a y t h a t suits those w i t h c o m m a n d i n g posit i o n s in e d u c a t i o n a l structures, c o n n e c t e d as they are to all the 10

Introduction

other

structures

of

capitalism.

The

radical

Keynesian

Joan

R o b i n s o n s u m m e d u p the situation: T h e radicals h a v e rhe easier case t o m a k e . They h a v e o n l y t o p o i n t t o the discrepancies between the o p e r a t i o n o f the m o d e r n e c o n o m y a n d rhe ideas by w h i c h it is s u p p o s e d t o be j u d g e d , w h i l e the conservatives have the well nigh i m p o s s i b l e task o f d e m o n s t r a t i n g that this is rhe best o f all possible w o r l d s . For the s a m e reason, however, the conservatives are c o m p e n s a t e d by o c c u p y i n g positions o f power, w h i c h they can use to keep criticism in c h e c k . . . T h e conservatives d o n o t feel obliged t o answer radical criticisms o n their merits a n d the a r g u m e n t is never fairly j o i n e d / But even m m t o f the " r a d i c a l s " usually start by t a k i n g the existing system for g r a n t e d . T h e a r g u m e n t s o f the radical Keynesians like J o a n R o b i n s o n h a v e always been in terms o f a m e n d m e n t s t o the system, t h r o u g h greater state intervention t h a n t h a t envisaged by the m a i n s t r e a m . T h e y h a v e n o t seen the system itself as driven by a n inner d y n a m i c w h o s e destructive effects are n o t restricted t o purely e c o n o m i c p h e n o m e n a . In the 21st century it is p r o d u c i n g wars, h u n g e r a n d c l i m a t e c h a n g e as well as e c o n o m i c crises, a n d d o i n g so in w a y s w h i c h threatens the very basis o f h u m a n life. C a p i t a l i s m t r a n s f o r m s society in its entirety as its sucks p e o p l e by rhe billions i n t o l a b o u r i n g for it. It c h a n g e s the w h o l e pattern by w h i c h h u m a n i t y lives, r e m o u l d i n g h u m a n n a t u r e itself. It gives a n e w character ro o l d oppressions a n d t h r o w s u p completely newones. It creates drives t o w a r a n d ecological d e s t r u c t i o n . It seems t o act like a force o f n a t u r e , creating c h a o s a n d d e v a s t a t i o n o n a scale m u c h greater t h a n a n y e a r t h q u a k e , h u r r i c a n e or t s u n a m i . Yet the system is n o t a p r o d u c t o f n a t u r e , b u t o f h u m a n activity, h u m a n activity t h a t has s o m e h o w escaped f r o m h u m a n c o n t r o l a n d t a k e n o n a life o f its o w n . E c o n o m i s t s write t h a t " t h e m a r k e t does t h i s " o r " t h e m a r k e t d e m a n d s t h a t " . But the m a r k e t is o n l y the c o m i n g together o f the p r o d u c t s o f m a n y d i s p a r a t e acts o f h u m a n creative activity, l a b o u r . W h a t the economists* talk disguises is that s o m e h o w these h a v e t u r n e d i n t o a m a c h i n e t h a t d o m i n a t e s the h u m a n s t h a t u n d e r t a k e such activity, h u r l i n g the w o r l d in a d i r e c t i o n t h a t few p e o p l e in their r i g h t m i n d w o u l d w a n t . Faced w i t h the f i n a n c i a l crisis t h a t began in 2 0 0 " , s o m e e c o n o m i c c o m m e n t a t o r s d i d begin t o t a l k o f " z o m b i e b a n k s " — 10 Introduction

f i n a n c i a l i n s t i t u t i o n s t h a t were in the " u n d e a d s t a t e " a n d incap a b l e of fulfilling a n y positive f u n c t i o n , but representing a threat t o e v e r y t h i n g else. W h a t they d o n o t recognise is t h a t 21st century c a p i t a l i s m as a w h o l e is a z o m b i e system, seemingly d e a d when

it c o m e s t o a c h i e v i n g h u m a n g o a l s a n d r e s p o n d i n g

to

h u m a n feelings, b u t c a p a b l e o f s u d d e n spurts o f activity t h a t cause c h a o s all a r o u n d .

A w o r l d turned against ourselves There has o n l y been o n e serious t r a d i t i o n o f analysis t o a t t e m p t to p r o v i d e an a c c o u n t o f the system in these terms. It is t h a t w h i c h o r i g i n a t e d in the w r i t i n g s o f K a r l M a r x a n d his long-time colleague Frederick Engels. M a r x c a m e t o a d u l t h o o d in the early 1840s, just as i n d u s t r i a l c a p i t a l i s m began t o m a k e its first, l i m i t e d , i m p a c t o n s o u t h e r n G e r m a n y w h e r e he w a s b o r n . Engels w a s sent by his father t o help m a n a g e a factory in M a n c h e s t e r , where t h e n e w system w a s already f l o u r i s h i n g . T h e y shared w i t h a l m o s t the w h o l e o f their g e n e r a t i o n o f G e r m a n intellectual y o u t h a desire t o o v e r t h r o w the oppressive Prussian feudal system o f class rule presided over by a m o n a r c h w i t h despotic powers. But they soon began to grasp t h a t the i n d u s t r i a l c a p i t a l i s m that w a s s u p p l e m e n t i n g f e u d a l i s m contained

oppressive

features

of

its

own.

Above

all

it

was

characterised by an i n h u m a n s u b o r d i n a t i o n o f the mass o f people to the w o r k they d i d . W h a t M a r x was b e g i n n i n g t o discover a b o u t the f u n c t i o n i n g o f this then-new system led h i m to u n d e r t a k e a critical r e a d i n g o f its m o s t e m i n e n t p r o p o n e n t s , p o l i t i c a l economists like A d a m S m i t h a n d D a v i d R i c a r d o . H i s c o n c l u s i o n w a s t h a t , a l t h o u g h the system vastly increased the a m o u n t o f w e a l t h h u m a n s c o u l d p r o d u c e , it also denied the m a j o r i t y o f t h e m the benefits o f this w e a l t h : T h e m o r e the w o r k e r p r o d u c e s , the less he has t o c o n s u m e . T h e m o r e values he creates, the m o r e valueless, the m o r e u n w o r t h y he b e c o m e s . . . [The system] replaces l a b o u r by m a c h i n e s , b u t it t h r o w s o n e section o f w o r k e r s back t o a b a r b a r o u s type o f labour, a n d it t u r n s the other section i n t o a m a c h i n e . . . It produces i n t e l l i g e n c e — b u t for the worker, s t u p i d i t y . . . It is true t h a t l a b o u r p r o d u c e s w o n d e r f u l things for the r i c h — b u t for the 12

Introduction

w o r k e r it p r o d u c e s p r i v a t i o n . It p r o d u c e s p a l a c e s — b u t for the worker, hovels. It p r o d u c e s b e a u t y — b u t for the worker, deform i t y . . . T h e w o r k e r o n l y feels h i m s e l f outside his w o r k , a n d in /

.

¥

'

his w o r k feels outside himself. H e feels at h o m e w h e n he is n o t w o r k i n g ; w h e n he is w o r k i n g he does n o t feel at h o m e . In his early w r i t i n g s M a r x called w h a t w a s h a p p e n i n g "alienation",

taking

up

a

philosophical

term

developed

by

the

p h i l o s o p h e r Hegel. M a r x ' s c o n t e m p o r a r y Feuerbach h a d used the term to describe religion. It w a s , he a r g u e d , a h u m a n creation that people had allowed-to d o m i n a t e their lives. M a r x n o w saw capitalism in the same way. It w a s h u m a n l a b o u r t h a t p r o d u c e d n e w w e a l t h . But u n d e r c a p i t a l i s m that w e a l t h was turned i n t o a monster d o m i n a t i n g t h e m , d e m a n d i n g t o be fed by ever m o r e labour. The object t h a t l a b o u r produces, its p r o d u c t , stands o p p o s e d t o it as s o m e t h i n g alien, as a p o w e r i n d e p e n d e n t of the producer. T h e m o r e the w o r k e r exerts h i m s e l f in his w o r k , the m o r e powerful the alien, objective w o r l d becomes w h i c h he brings i n t o being over a g a i n s t himself, the p o o r e r he a n d his inner w o r l d b e c o m e , a n d the less they b e l o n g to h i m . . . T h e w o r k e r places his life in the object; b u t n o w it n o longer belongs to h i m , b u t t o the object... 1 0 As M a r x p u t it in his n o t e b o o k s for Capital

in the early 1860s:

T h e rule o f the capitalist over the w o r k e r is the rule o f the object over the h u m a n , o f d e a d l a b o u r over living, o f the p r o d u c t over the producer, since in fact the c o m m o d i t i e s w h i c h b e c o m e the m e a n s o f d o m i n a t i o n over the w o r k e r are... the p r o d u c t s o f the p r o d u c t i o n process... It is the a l i e n a t i o n process o f his o w n social l a b o u r . " But M a r x d i d n o t s i m p l y record this state o f affairs. O t h e r s h a d d o n e so before h i m , a n d m a n y were to c o n t i n u e t o d o so long after he w a s d e a d . Fie also set o u t , t h r o u g h a q u a r t e r o f a century o f g r i n d i n g intellectual labour, t o try to u n d e r s t a n d h o w the system h a d c o m e i n t o b e i n g a n d h o w it created forces o p p o s e d t o itself. H i s w o r k s were n o t just w o r k s o f economics, but a " c r i t i q u e o f political e c o n o m y " , o f the system w h i c h other schools o f economics t o o k for g r a n t e d . H i s starting p o i n t w a s t h a t c a p i t a l i s m is a 13 Introduction

historical p r o d u c t , arriving w h e r e he f o u n d it as a result o f a dyn a m i c w h i c h drove it ever o n w a r d s in a process o f endless c h a n g e w i t h " c o n s t a n t revolutionising o f p r o d u c t i o n , u n i n t e r r u p t e d dist u r b a n c e o f all social c o n d i t i o n s , everlasting uncertainty

and

a g i t a t i o n " . 1 2 T h e e c o n o m i c studies o f the m a t u r e M a r x a i m e d to grasp the nature o f this d y n a m i c , a n d w i t h it the trends in the develo p m e n t o f the system. They are the indispensable starting p o i n t for a n y o n e w h o w a n t s to try t o grasp where the w o r l d is g o i n g today. H i s m e t h o d w a s t o analyse the system at different levels o f ab•

4

straction. In the first v o l u m e o f Capital

h e set o u t t o delineate the

m o s t general u n d e r l y i n g features o f capitalist p r o d u c t i o n . The second v o l u m e

deals w i t h the w a y i n w h i c h c a p i t a l , c o m m o d i t i e s

a n d m o n e y circulate w i t h i n the system, a n d the third v o l u m e 1 1 integrates the process o f p r o d u c t i o n a n d c i r c u l a t i o n to p r o v i d e m o r e concrete a c c o u n t s o f t h i n g s like profit rates, the crisis, the credit system a n d rent. M a r x s o r i g i n a l i n t e n t i o n h a d been to p r o d u c e further v o l u m e s , d e a l i n g a m o n g other t h i n g s w i t h the state, foreign trade a n d w o r l d markets. H e w a s u n a b l e t o c o m p l e t e these, a l t h o u g h s o m e o f his w o r k t o w a r d s them is c o n t a i n e d in various n o t e b o o k s by h i m . " Capital

w a s , t h e n , a n unfinished w o r k in

s o m e respects. But it w a s an unfinished w o r k t h a t a c c o m p l i s h e d the goal o f u n v e i l i n g the basic processes o f the system, integrating i n t o its a c c o u n t the very t h i n g s ignored by the static e q u i l i b r i u m analysis o f the neoclassical m a i n s t r e a m : technical a d v a n c e , accum u l a t i o n , recurrent crises a n d the g r o w t h o f poverty a l o n g s i d e the growth of wealth.

Using M a r x today For these reasons, a n y a c c o u n t o f the w o r l d system t o d a y has to begin w i t h basic concepts developed by M a r x . I try t o o u t l i n e these in the first three chapters o f this b o o k . S o m e readers f r o m a M a r x i s t b a c k g r o u n d m i g h t regard the a c c o u n t as r e d u n d a n t . But the concepts have often been m i s u n d e r s t o o d w i t h i n the M a r x i s t c a m p as well as outside it. T h e y have been seen as c o m p e t i n g w i t h the neoclassical to p r o v i d e a n e q u i l i b r i u m a c c o u n t o f price formation a n d then faulted for failing to d o so. ,ft O n e reaction has been t o d r o p key elements in M a r x s

own

analysis, keeping it o n l y as an a c c o u n t o f e x p l o i t a t i o n a n d o f the a n a r c h y o f c o m p e t i t i o n . A n o t h e r , a p p a r e n t l y o p p o s e d , reaction 14

Introduction

has been a n a l m o s t scholastic a p p r o a c h in w h i c h c o m p e t i n g interp r e t a t i o n s p o r e over texts by M a r x a n d Hegel. It is often as if M a r x i s t theory h a d been a m b u s h e d by its o p p o n e n t s a n d retreated i n t o a theoretical b u n k e r o f its o w n , just as detached as they are f r o m the real w o r l d . For this reason I have felt it necessary t o exp o u n d the basic concepts in a w a y w h i c h is (I hope) easy t o follow, s h o w i n g h o w they describe the interaction o f the u n d e r l y i n g forces t h a t determine the direction o f capitalist d e v e l o p m e n t . 1 have left detailed discussion o f other interpretations t o footnores. I have, however, felt it necessary to deal w i t h the m o s t c o m m o n objections t o M a r x s a c c o u n t f r o m m a i n s t r e a m e c o n o m i s t s in C h a p t e r T w o , since a n y o n e w h o studies e c o n o m i c s at school or university w i l l have their viewrs inflicted o n t h e m . Readers w h o have been lucky e n o u g h t o escape t h a t fate arc w e l c o m e to skip this chapter. W h e r e tlfb incomplerencss o f M a r x ' s o w n a c c o u n t does matter is in c o m i n g t o terms w i t h changes in c a p i t a l i s m since his d e a t h . T h i n g s he o n l y refers to in passing in Capital—the

g r o w t h o f mo-

n o p o l i e s , the i n t e r v e n t i o n by states in capitalist p r o d u c t i o n a n d m a r k e t s , the p r o v i s i o n of w e l f a r e services, w a r as a n e c o n o m i c w e a p o n — h a v e b e c o m e massively i m p o r t a n t . M a r x i s t s in the Hrst decades o f rhe 2 0 t h c e n t u r y were forced by circumstances

to

debate s o m e o f these matters, a n d there was a n e w burst o f creative t h i n k i n g in rhe 1960s a n d early 1970s. 1 a t t e m p t t o d r a w from such discussions the concepts needed to " g o b e y o n d

Capital"

a n d fill in gaps in M a r x s o w n a c c o u n t o f the system ( C h a p t e r s Four a n d Five). T h e rest o f the b o o k then tries to c o m e t o terms w i t h rhe d e v e l o p m e n t o f capitalism over the last 80 years, f r o m the great s l u m p o f rhe inter-war years to the crisis c a u s i n g t u r m o i l across the w o r l d as I w r i t e . T h e a c c o u n t m u s t be n o t s i m p l y one of e c o n o m i c processes, b u t ar every stage o f h o w the i n t e r a c t i o n o f c a p i t a l s a n d states o n a w o r l d scale gives rise t o w a r s a n d civil w a r s , h u n g e r a n d e n v i r o n m e n t a l disaster, as well as b o o m s a n d s l u m p s . N u c l e a r w e a p o n s a n d g r e e n h o u s e gases are as m u c h a p r o d u c t o f alienated l a b o u r as car factories a n d coal mines.

A n o t e o n the b o o k T h e instability o f rhe capitalist e c o n o m y has h a d its i m p a c t o n the w r i t i n g o f this b o o k . I set a b o u t w r i t i n g the first d r a f t w h e n w h a t I call " t h e great d e l u s i o n " — t h e belief t h a t the c a p i t a l i s m 15 Introduction

had

f o u n d a n e w w a y of e x p a n d i n g w i t h o u t c r i s e s — w a s at its height in late 2 0 0 6 . i viewed a n o t h e r e c o n o m i c crisis as i n e v i t a b l e , in m u c h the s a m e w a y t h a t s o m e o n e living in a city b u i l t o n a seism i c f a u l t line k n o w s

it is at s o m e p o i n t g o i n g t o suffer

an

e a r t h q u a k e . Bur I did n o t pretend to be a b l e t o predict w h e n this w o u l d h a p p e n , o r h o w destructive it w o u l d be. M y a i m , rather, w a s t o u p d a t e m y Explaining

the Crisis o f 2 5 years a g o , t a k i n g

i n t o a c c o u n t changes in the system since, b u t repeating the basic c o n c l u s i o n t h a t its b l i n d rush f o r w a r d w o u l d h a v e d e v a s t a t i n g repercussions for people's lives t h r o u g h the rest o f this century, creating i m m e n s e social a n d p o l i t i c a l crises w i t h p o t e n t i a l l y revolutionary implications. But one o f these blind rushes h a d its effect as I w a s finishing a 1 5 0 , 0 0 0 - w o r d d r a f t . T h e credit c r u n c h o f A u g u s t 2 0 0 7 turned i n t o the great crash o f September-October 2 0 0 8 , leading o n e apologist f o r the system, W i l l e m c a p i t a l i s m as we k n e w i t " .

Buiter, t o w r i t e o f " t h e e n d

of

M a n y details a b o u t the system w h i c h

I treated as part of the present were s u d d e n l y in the past, a n d everywhere there was an urgent d e m a n d for a n e x p l a n a t i o n as to w h a t b r o u g h t this crisis a b o u t . 1 had n o choice b u t to u p d a t e a n d restructure w h a t I h a d w r i t t e n , s h i f t i n g the e m p h a s i s in s o m e o f the chapters t o w a r d s the e n d o f the b o o k f r o m w h a t was g o i n g to h a p p e n over the decades t o c o m e , t o w h a t w a s h a p p e n i n g in the here a n d n o w . In the process I cut a b o u t a third o f the w o r d s o u t o f the d r a f t , r e m o v i n g a g o o d deal o f e m p i r i c a l detail in a n effort t o m a k e rhc w h o l e

book

m o r e accessible. A n v o n e

interested

in

greater derail c a n find s o m e in the 15 articles o n e c o n o m i c s I have w r i t t e n for the j o u r n a l International

Socialism

over the last t w o

decades, w h i l e s o m e o f the theorerical a r g u m e n t s are a r t i c u l a t e d m o r e fully in Explaining

the

Crisis.

Acknowledgements 1 o w e t h a n k s for reading a n d m a k i n g c o m m e n t s o n m y excessively long a n d disorganised draft to Tobias B r i n k , J o s e p h C h o o n a r a , Alex C a l l i n i c o s , N e i l D a v i d s o n , J a n e H a r d y , M i k e H a y n e s , Rick K u h n , M a t t Nichrer a n d M a r k T h o m a s . T h a n k s are also d u e for c o m m e n t s o n s o m e o f the preparatory material t h a t a p p e a r e d in International

Socialism

t o T o m Bramble, S a m F r i e d m a n , M e h m e t

U f u k T u t a n , Thomas Weiss a n d others, a n d f o r i n f o r m a t i o n o n 16

Introduction

profit rates t o R o b e r t Brenner a n d A n d r e w K l i m a n . 1 also have a huge intellectual debt t o m a n y other people. Pride o f place goes to w h a t I learnt i n m y y o u t h f r o m M i k e K i d r o n a n d T o n y Cliff. A l o n g with that there has been the stimulus over the years f r o m the w o r k s m

o f dozens o f others w h o have m a i n t a i n e d the tradition o f M a r x i s t e c o n o m i c analysis f r o m rhe late 1960s to the p r e s e n t — R i c c a r d o Bellofiore, H e n r y Bernstein, D i c k Bryan, Terry Bvers, G u g l i e m o C a r c h c d i , Francois C h e s n a i s , Francois D u m e n i l , A l f r e d o Saad F i l h o , Ben Fine, J o h n Bellamy Foster, A l a n Freeman, D a v i d Harvey, Peter G o w a n , C l a u d i o K a t z , J i m K i n c a i d , Costas Lapavitsas, Istvan Meszaros, Fred Moseley, Geert R e u t c n , A n w a r S h a i k h , a n d manyothers. S o m e I have been able t o listen to a n d discuss w i t h , most I have never met, a n d a few I disagree w i t h strongly. But all in o n e w a y or another have helped shape m y conclusions.

A note o n figures a n d terms A n y o n e a t t e m p t i n g t o e x p l a i n e c o n o m i c changes has little choice b u t t o use the statistical i n f o r m a t i o n p r o v i d e d by g o v e r n m e n t s , business o r g a n i s a t i o n s

and

international

institutions

like

O F C D , U N C T A D , the W o r l d Trade O r g a n i s a t i o n , rhe

rhe

World

Bank a n d the I M F . T h i s b o o k is n o exception. But readers s h o u l d be w a r n e d that s o m e o f the m o s t c o m m o n l y used figures can be m i s l e a d i n g in i m p o r t a n t respects. Figures for e c o n o m i c g r o w t h , in particular, are n o t as clear cut as they s o m e t i m e s seem. T h e g r o w t h they usually m e a s u r e is o f m a r k e t e d o u t p u t . But a lot o f the h u m a n l a b o u r t h a t a d d s to people s well-being is n o t m a r k e t e d . T h i s is true of the d o m e s t i c l a b o u r o f w o m e n a n d , t o a considerably lesser extent, m e n . It has also been true historically o f m u c h o f the f a m i l y l a b o u r on peasant l a n d . T h e result is t h a t there is a false impression o f increasing w e a l t h as h o u s e h o l d s begin to pay for things they used t o p r o d u c e outside the m a r k e t — w h e n a h o u s e w i f e gets a j o b a n d buys ready t o c o o k meals, or w h e n a peasant f a m i l y pays s o m e o n e else t o b u i l d a shed o n their l a n d w h e r e previously they w o u l d have d o n e the j o b themselves. Such changes lead the usually p r o v i d e d figures to give a n increasingly distorted p i c t u r e w i t h g r o w i n g m a r k e t i s a t i o n a n d the f e m i n i s a t i o n o f p a i d l a b o u r in recent decades. T h e officially provided figures also exaggerate the real rate of g r o w t h o f the things 17 Introduction

t h a t satisfy h u m a n need by c o u n t i n g in o u t p u t things like financial services w h i c h merely m o v e w e a l t h f r o m o n e pocket t o a n o t h e r — a g a i n a p a r t i c u l a r l y m a r k e d p h e n o m e n o n in recent decades. 1 * Finally m e a s u r e m e n t s o f o u t p u t per h e a d c a n n o t be e q u a t e d , as they are all t o o frequently, w i t h h u m a n welfare, since the o u t p u t is a l w a y s unevenly distributed between classes. Nevertheless, for w a n t of a n y t h i n g better, I h a v e h a d t o use such

figures.

A brief e x p l a n a t i o n o f s o m e o f the terms I use. G e n e r a l l y " W e s t " a n d " F a s t " are used in the w a y they were in the C o l d W a r decades o f the last century, w i t h " t h e W e s t " i n c l u d i n g J a p a n . " Third W o r l d " a n d " G l o b a l S o u t h " refer to the poorer parts of the w o r l d w h i c h were relatively u n i n d u s t r i a l i s e d for m o s t o f the 2 0 t h century, as d o the phrases " d e v e l o p i n g " or " u n d e r d e v e l o p e d c o u n t r i e s " used w i t h s o m e o f the statistics. T h e

"Communist

c o u n t r i e s " are those w i t h systems s i m i l a r t o t h a t o f the U S S R before 1 9 9 1 . " P r o d u c t i v e c a p i t a l " is t h a t e m p l o y e d i n i n d u s t r y or agriculture, as o p p o s e d to t h a t in finance a n d c o m m e r c e . Finally, capitalists are a s s u m e d t o be m a l e , since 9 9 . 9 9 percent o f t h e m were until o n l y a c o u p l e o f decades ago, w h i l e the workers they exp l o i t h a v e always been o f b o t h genders. I p r o v i d e a glossary in a n a t t e m p t t o m a k e the material m o r e accessible b o t h t o those fortunate e n o u g h n o t t o have studied m a i n s t r e a m e c o n o m i c s a n d t o those w h o are n o t yet f a m i l i a r w i t h M a r x i s t w r i t i n g s .

18

Introduction

Part O n e

UNDERSTANDING THE SYSTEM: MARX AND BEYOND

CHAPTER ONh

Marx's concepts

A world of commodities T h e m o s t o b v i o u s feature o f the e c o n o m i c system in w h i c h w e live is t h a t it is centred a r o u n d the b u y i n g a n d selling o f g o o d s o f all sorts. W e h a v e t o pay for f o o d , shelter, c l o t h i n g , energy t o light a n d heat o u r homes, transport to m o v e a r o u n d , everything we need t o keep ourselves a n d o u r families alive. A n d in o r d e r t o b u y w e have t o sell, even if all w e h a v e t o sell is o u r c a p a c i t y t o w o r k for others. O u r very lives d e p e n d o n the m o v e m e n t s o f c o m m o d i ties. H e n c e M a r x ' s starting p o i n t in

Capital:

T h e w e a l t h o f those societies in w h i c h the c a p i t a l i s t m o d e o f p r o d u c t i o n prevails, presents itself as a n i m m e n s e a c c u m u l a t i o n of commodities. M a r x w a s w r i t i n g at a t i m e w h e n m a r k e t r e l a t i o n s h a d still n o t p e n e t r a t e d large p a r t s o f t h e w o r l d . T h e r e were still societies in w h i c h all p r o d u c t i o n w a s for p e o p l e s i m m e d i a t e needs, w h e t h e r in " p r i m i t i v e c o m m u n i s t " societies based o n h u n t e r - g a t h e r i n g o r light a g r i c u l t u r e , 1 w h e r e p e o p l e agreed freely a m o n g themselves h o w a n d w h a t t o p r o d u c e , o r in p e a s a n t societies w h e r e a local lord o r ruler d i c t a t e d t o t h e m f r o m a b o v e . Even in m o s t o f t h e societies w h e r e the m a r k e t a l r e a d y e x i s t e d , the m a j o r i t y o f t h e p o p u l a t i o n wTere still subsistence f a r m e r s , p r o d u c i n g m o s t o f the i h i n g s they needed t o keep their f a m i l i e s alive, w i t h o n l y a s m a l l p r o p o r t i o n b o u g h t o r sold. T o d a y w e c a n e x t e n d M a r x ' s w o r d s t o say t h a t " t h e w e a l t h o f t h e w h o l e w o r l d , w i t h a f e w e x c e p t i o n s , presents itself as a mass o f c o m m o d i t i e s " . A n d the e x c e p t i o n s — t h e p r o v i s i o n , for i n s t a n c e , o f free h e a l t h a n d e d u c a t i o n

in a

n u m b e r o f a d v a n c e d c o u n t r i e s — a r e i n c r e a s i n g l y subject t o forces seeking t o c o m m o d i f y t h e m . T h i s n e a r u n i v e r s a l i t y o f c o m m o d i t y 21

p r o d u c t i o n m a r k s society t o d a y o f f f r o m a n y t h i n g t h a t has ever h a p p e n e d before. T o u n d e r s t a n d w h a t is h a p p e n i n g t o the w o r l d we h a v e t o begin by u n d e r s t a n d i n g the w o r k i n g s o f c o m m o d i t y production. M a r x w a s n o t the first to try to u n d e r s t a n d such w o r k i n g s . H e w a s preceded by the classical political e c o n o m i s t s — e a r l y supporters of capitalism w h o tried t o u n d e r s t a n d its basic d y n a m i c s as it struggled

t o break

through,

in a E u r o p e still d o m i n a t e d

by

l a n d o w n i n g classes. T w o were of special i m p o r t a n c e : A d a m S m i t h , w h o w r o t e in the 1 7 ~ 0 s at the t i m e w h e n the first m o d e r n factory, a s p i n n i n g m i l l , w a s o p e n i n g at C r o m f o r d in Derbyshire; a n d D a v i d R i c a r d o , w h o defended the interests o f the early industrialists against the big l a n d o w n e r s 4 0 years later in the a f t e r m a t h o f the N a p o l e o n i c wars.

Use value a n d e x c h a n g e value S m i t h is often treated as the p a t r o n saint o f present d a y c a p i t a l i s m a n d o f its neoclassical e c o n o m i c theorists. But he m a d e a n important

point,

developed

further

by

Ricardo,

which

has

been

c o m p l e t e l y obliterated by nearly all those m a i n s t r e a m e c o n o m i s t s w h o c l a i m t o f o l l o w in his footsteps. H e noted that once society is based o n p r o d u c t i o n for the m a r k e t , every c o m m o d i t y can be seen f r o m t w o completely different p o i n t s o f view: T h e w o r d v a l u e . . . h a s t w o different m e a n i n g s , a n d s o m e t i m e s expresses the utility o f s o m e p a r t i c u l a r o b j e c t , a n d s o m e t i m e s the p o w e r o f p u r c h a s i n g o t h e r g o o d s w h i c h the possession o f that object conveys. T h e o n e m a y be called " v a l u e in u s e " ; the other, " v a l u e in e x c h a n g e

T h e t h i n g s w h i c h h a v e the greatest

value in use h a v e frequently little or n o value in exchange; a n d o n the contrary, those w h i c h have the greatest value in exchange have frequently little or n o value in use. N o t h i n g is m o r e useful t h a n water: b u t it will purchase scarce a n y t h i n g ; scarce a n y t h i n g c a n be h a d in exchange for it. A d i a m o n d , o n the contrary, has scarce a n y value in use; b u t a very great q u a n t i t y o f other g o o d s m a y frequently be h a d in exchange for it. 2 M a r x ' s Capital

t o o k u p a n d developed this insight, r e m o v i n g cer-

tain a m b i g u i t i e s f o u n d in Smith's w o r k : 22

Understanding the System: Marx and Ik-yond

T h e utility o f a t h i n g m a k e s it a use v a l u e . . . Being l i m i t e d by the physical properties o f the c o m m o d i t y , it has n o existence a p a r t f r o m t h a t c o m m o d i t y . A c o m m o d i t y , such as i r o n , c o r n , or a d i a m o n d , is therefore, so far as it is a material t h i n g , a use v a l u e , s o m e t h i n g useful. T h i s property o f a c o m m o d i t y is indep e n d e n t o f the a m o u n t o f l a b o u r required t o a p p r o p r i a t e its useful qualities. But c o m m o d i t i e s are also: the material depositories o f e x c h a n g e v a l u e [which| presents itself as a q u a n t i t a t i v e r e l a t i o n , as the p r o p o r t i o n in w h i c h values i n use o f o n e sort are e x c h a n g e d for those o f a n o t h e r sort, a relation c o n s t a n t l y c h a n g i n g w i t h t i m e a n d place. T h i s distinction is n o t m a d e by t o d a y s m a i n s t r e a m

neoclassical

e c o n o m i s t s / T h e o n l y sort o f value they see is " m a r g i n a l u t i l i t y " , based o n people's subjective a p p r e c i a t i o n o f use values. N o r is it m a d e by s o m e o f those dissident economists w h o claim to be in the t r a d i t i o n o f R i c a r d o (the so-called " S r a f f i a n s " ) .

Their m o d e l is

based o n the inputs a n d o u t p u t s o f physical objects, in other w o r d s , again o n use values. Finally there are s o m e present d a y M a r x i s t s w h o argue the distinction is n o t relevant, since the i m p o r t a n t p o i n t M a r x was m a k i n g was a b o u t e x p l o i t a t i o n , n o t value. 6 In erasing the distinction m a d e by S m i t h , R i c a r d o a n d M a r x , all such theories miss s o m e t h i n g essential t o a system based o n comm o d i t y p r o d u c t i o n : everything that h a p p e n s in it is subject to t w o different sets o f scientific laws. O n the o n e side there are the l a w s o f the physical w o r l d — o f physics, chemistry, b i o l o g y , g e o l o g y a n d so o n . It is these w h i c h d e t e r m i n e the w a y s in w h i c h different things have t o be c o m b i n e d to p r o d u c e g o o d s (the different c o m p o n e n t s o f a m a c h i n e , the material structure o f a factory, t h e t e c h n i q u e s used in a surgical o p e r a t i o n a n d so o n ) a n d a l s o the usefulness o f those g o o d s t o those w h o f i n a l l y c o n s u m e t h e m (the n u t r i t i o n a l v a l u e o f f o o d , the w a r m t h p r o v i d e d by fuels a n d electricity, the n u m b e r o f children w h o can be a c c o m m o d a t e d

in a school or p a t i e n t s in a

h o s p i t a l , etc). O n the other side, there is the w a y things relate t o each other as exchange values. These often behave in a very different w a y t o use values. T h e e x c h a n g e v a l u e o f s o m e t h i n g c a n fall w h i l e its use Mrtrx's Concepts

23

value r e m a i n s unaltered. This has h a p p e n e d t o the price o f computers in recent years—the c o m p u t e r I used to w r i t e m y last b o o k w a s twice the price o f the m u c h m o r e p o w e r f u l o n e I a m using n o w . W h a t is m o r e , e x c h a n g e values are infinitely divisible w h i l e use values are usually n o t ; you m i g h t say t h a t a bicycle is w o r t h o n e twentieth o f a car, but if y o u cut a car u p i n t o twenty parts it is o f nil use t o a n y o n e . T h i s matters i m m e n s e l y w h e n it c o m e s to m

0

things w h i c h are i m p o r t a n t for m o d e r n c a p i t a l i s m like factories, oil wells, airliners, schools a n d hospitals. T h e m a r k e t treats these as exchange values t h a t c a n be infinitely d i v i d e d i n t o parts ( w o r t h so m a n y p o u n d s , pence, etc); b u t they have a physical existence t h a t c a n n o t usuallv be d i v i d e d in that wav. 0

•

The e x c h a n g e values o f c o m m o d i t i e s are also infinitely fluid. In the f o r m o f m o n e y thev can m o v e f r o m o n e part of the e c o n o m y t o another, f r o m o n e part o f the w o r l d t o another, be spent o n o n e item or any other o f the s a m e price. Bur the fluidity o f use values, like their divisibility, is restricted by their physical m a k e u p . Y o u can m o v e £ 1 0 0 m i l l i o n in cash from Britain to India overnight, b u t you c a n n o t m o v e a factory w o r t h i 100 m i l l i o n at a n y t h i n g like the s a m e speed. Use values a n d exchange values operate a c c o r d i n g to different, often contradictory, logics a n d a failure to see this leads to a failure to u n d e r s t a n d the most basic t h i n g a b o u t a c o m m o d i t y p r o d u c i n g e c o n o m y . It does n o t operate s m o o t h l y , just t h r o u g h the flow o f e x c h a n g e values, b u t is always subject to b u m p s , t o stopp i n g a n d s t a r t i n g , d u e to the e m b o d i m e n t o f e x c h a n g e values in use values w i t h physical properties t h a t limit their fluidity.

Labour and money S m i t h a n d R i c a r d o were n o t c o n t e n t just w i t h seeing the d o u b l e n a t u r e of c o m m o d i t i e s . They w e n t o n to a r g u e t h a t it w a s o n l y possible t o ascribe exchange values to objects w i t h very different physical properties because they have o n e t h i n g in c o m m o n — t h e y are all p r o d u c t s o f h u m a n labour. As S m i t h wrote: T h e real price o f every t h i n g , w h a t every t h i n g really costs to the m a n w h o w a n t s to acquire it, is the toil a n d trouble o f a c q u i r i n g it. W h a t every t h i n g is really w o r t h to the m a n w h o has acq u i r e d it, a n d w h o w a n t s t o dispose o f it or e x c h a n g e it for 24

Understanding the System: Marx and Ik-yond

s o m e t h i n g else, is the toil a n d t r o u b l e w h i c h it can save t o himself, a n d w h i c h it c a n i m p o s e u p o n o t h e r people. W h a t is b o u g h t w i t h m o n e y o r w i t h g o o d s is p u r c h a s e d b y labour, as m u c h as w h a t w e a c q u i r e by the toil o f o u r o w n b o d y . . . They c o n t a i n the value o f a certain q u a n t i t y o f l a b o u r w h i c h w e exc h a n g e for w h a t is s u p p o s e d at the t i m e t o c o n t a i n the value o f an equal quantity. L a b o u r w a s the first price, the original purchase-money that w a s p a i d for all things. It w a s n o t by g o l d or by silver, b u t by labour, t h a t all the wealth o f the w o r l d w a s originally purchased; a n d its value, to those w h o possess it, a n d w h o w a n t to exchange it for s o m e new p r o d u c t i o n s , is precisely equal to the q u a n t i t y o f l a b o u r w h i c h it can enable them t o purchase or c o m m a n d . " T h i s u n d e r s t a n d i n g M a r x also i n c o r p o r a t e d i n t o his o w n analysis: T h e e x c h a n g e values o f c o m m o d i t i e s m u s t be c a p a b l e o f being expressed in terms o f s o m e t h i n g c o m m o n t o t h e m all, of w h i c h t h i n g they represent a greater o r less q u a n t i t y . T h i s c o m m o n " s o m e t h i n g " c a n n o t be a g e o m e t r i c a l , a c h e m i c a l , or any other n a t u r a l property o f c o m m o d i t i e s . . . If then w e leave our o f consideration the use v a l u e o f c o m m o d i t i e s , they h a v e o n l y o n e c o m m o n property left, t h a t o f being p r o d u c t s o f labour. But M a r x refined the analysis o f S m i t h a n d R i c a r d o in a very imp o r t a n t way. It w a s nor the particular concrete exertions o f l a b o u r as such that d e t e r m i n e d e x c h a n g e value. For different people w i t h different skills take different a m o u n t s o f t i m e a n d use different a m o u n t s o f effort t o p r o d u c e p a r t i c u l a r c o m m o d i t i e s : S o m e people m i g h t t h i n k that if the value o f a c o m m o d i t y is determined by the q u a n t i t y o f l a b o u r spent o n it, the m o r e idle a n d u n s k i l f u l the labourer, the m o r e v a l u a b l e w o u l d his c o m m o d i t y be, because m o r e t i m e w o u l d be required in its p r o d u c t i o n . " R a t h e r the e x c h a n g e v a l u e o f a c o m m o d i t y d e p e n d s o n the "socially necessary l a b o u r t i m e " : t h a t is required to p r o d u c e an article u n d e r the n o r m a l condit i o n s o f p r o d u c t i o n , a n d w i t h the average degree o f skill a n d intensity prevalent at the t i m e . . . Mrtrx's Concepts

25

It is social l a b o u r that has transformed nature to create the means that h u m a n s depend o n for a livelihood. So it is the a m o u n t o f social labour incorporated in it that constitutes the underlying value o f a c o m m o d i t y . T h e concrete l a b o u r o f i n d i v i d u a l s is transformed t h r o u g h exchange in a c o m m o d i t y - p r o d u c i n g society into a proportionate'" part o f " h o m o g e n o u s " , " s o c i a l " l a b o u r — o r

"abstract

l a b o u r " . M a r x calls this abstract l a b o u r the "substance of v a l u e " . It finds expression in exchange value a n d determines the level a r o u n d w h i c h the c o m m o d i t y ' s price will fluctuate o n the market: Every c h i l d k n o w s that a n y n a t i o n that s t o p p e d w o r k i n g , n o t f o r a year, b u t let us say, just for a few weeks, w o u l d perish. A n d every c h i l d k n o w s , t o o , t h a t the a m o u n t s o f p r o d u c t s corres p o n d i n g t o the d i f f e r i n g a m o u n t s o f needs d e m a n d differing a n d q u a n t i t a t i v e l y d e t e r m i n e d a m o u n t s o f society's aggregate l a b o u r . . . A n d the f o r m in w h i c h this p r o p o r t i o n a l d i s t r i b u t i o n o f l a b o u r asserts itself in a state o f society in w h i c h the interconnection

o f social

l a b o u r expresses itself as the

private

e x c h a n g e o f the i n d i v i d u a l p r o d u c t s o f l a b o u r , is precisely the e x c h a n g e value o f these products. 1 1 A l l the different k i n d s o f private

labour,

which

arc carried

on

independently

of

each

o t h e r . . . a r e c o n t i n u a l l y being reduced to the q u a n t i t a t i v e prop o r t i o n s in w h i c h society requires them. 1 2 Neoclassical e c o n o m i s t s tried t o develop a n o t i o n o f value o u r o f people's subjective j u d g e m e n t s , w i t h s o m e even trying to incorporate l a b o u r as " d i s u t i l i t y " .

Marx,

by c o n t r a s t , s a w v a l u e as

s o m e t h i n g objective, as i n d i c a t i n g the p r o p o r t i o n o f total social l a b o u r " e m b o d i e d " n in it. B u t w h a t t h a t value is o n l y c o m e s t o light as a result o f the c o n t i n u a l , b l i n d , interaction o f c o m m o d i t i e s o n the market. 1 4 T h e system as a w h o l e forces its i n d i v i d u a l comp o n e n t s t o w o r r y a b o u t h o w the i n d i v i d u a l l a b o u r they e m p l o y relates to l a b o u r elsewhere.' 5 H e calls this process the o p e r a t i o n o f "the law of value". Values, however, are n o t u n c h a n g i n g . A l l the t i m e there is the i n t r o d u c t i o n o f n e w techniques or n e w m e t h o d s s o m e w h e r e in the system. T h i s results in a c h a n g e in the a m o u n t o f socially necessary l a b o u r needed t o p r o d u c e certain c o m m o d i t i e s — a n d t h a t changes their exchange value. T h e use values o f objects r e m a i n fixed until n a t u r a l processes o f wear, tear a n d decay d a m a g e t h e m . But the exchange value o f t h i n g s — t h e value t h a t matters for the system as 26

Understanding the System: Marx and Ik-yond

a w h o l e — d e c l i n e s every t i m e the technical a d v a n c e s o m e w h e r e in the system decreases the a m o u n t o f l a b o u r required t o m a k e t h e m . T h i s leads M a r x t o a " c o u n t e r - i n t u i t i v e " c o n c l u s i o n w h i c h distinguishes his a c c o u n t o f the s y s t e m — a n d it is o n e w h i c h even s o m e M a r x i s t s have difficulties c o m i n g t o terms w i t h . A rise in p r o d u c t i v i t y reduces the value at w h i c h things exchange. It seems a b s u r d o n the face o f it. Yet there are n u m e r o u s e x a m p l e s o f increased p r o d u c t i v i t y c a u s i n g s o m e g o o d s t o fall in price c o m p a r e d to others. M a r x p r o v i d e d o n e f r o m his o w n time: T h e i n t r o d u c t i o n o f power-looms i n t o E n g l a n d p r o b a b l y reduced by one-half the l a b o u r required t o weave a given q u a n t i t y o f yarn i n t o c l o t h . T h e h a n d - l o o m weavers, as a m a t t e r o f fact, c o n t i n u e d t o require the s a m e t i m e as before; b u t for all t h a t , the p r o d u c t o f o n e h o u r o f their l a b o u r represented after the c h a n g e o n l y h a l f a n hour's social l a b o u r a n d consequently fell t o one-half its f o r m e r value. " T h o u s a n d s m o r e e x a m p l e s c o u l d be given today. For we are living in a p e r i o d in w h i c h technical a d v a n c e is m u c h faster in s o m e industries (especially those i n v o l v i n g microprocessors) t h a n others, a n d so the prices o f things like D V D s , televisions a n d c o m p u t e r s p r o d u c e d by industries using the m o s t t e c h n o l o g i c a l l y a d v a n c e d e q u i p m e n t are t e n d i n g t o fall w h i l e those in other industries using older techniques r e m a i n fixed or tend t o rise. T h i s is s o m e t h i n g o f central i m p o r t a n c e as w e shall see later w h e n w e discuss the dyn a m i c s o f 21 st c e n t u r y c a p i t a l i s m . O n c e c o m m o d i t y p r o d u c t i o n is generalised across a society, o n e p a r t i c u l a r g o o d c o m e s t o be used t o represent the value o f all others—money

( M a r x calls it " t h e universal e q u i v a l e n t " ) .

In

M a r x ' s d a y it w a s u s u a l l y in the f o r m o f g o l d (or s o m e t i m e s silver), a n d a certain q u a n t i t y o f g o l d (say a n o u n c e ) , p r o d u c e d by a certain a m o u n t o f average l a b o u r rime, c o u l d act as a measure o f the v a l u e for all the other g o o d s t h a t were b o u g h t a n d s o l d . As c a p i t a l i s m d e v e l o p e d as a system, b a n k s a n d t h e n g o v e r n m e n t s f o u n d t h a t they c o u l d use p a p e r notes ro stand in for g o l d in m a n y transactions a n d eventually to dispense w i t h reliance o n it at all, so l o n g as p e o p l e believed others w o u l d ( k n o w n t e c h n i c a l l y as " f i a t m o n e y " )

accept those

notes

for g o o d s . C r e d i t

from

b a n k s c o u l d also f u n c t i o n in the s a m e w a y , so l o n g as p e o p l e continued to trust the b a n k s . Mrtrx's Concepts

27

The development of commodity production had one important effect. It systematically distorted people's u n d e r s t a n d i n g o f reality t h r o u g h w h a t M a r x called the "fetishism o f c o m m o d i t i e s " : T h e . . . r e l a t i o n o f the p r o d u c e r s t o the s u m total o f their o w n l a b o u r is presented to them as a social relarion, existing n o t between themselves, bur between the products o f their l a b o u r . . . A definite social relation between m e n assumes, in their eyes, the fantastic f o r m o f a relation between things. In order to find an a n a l o g y , w e m u s t have recourse t o the mist-enveloped regions o f t h e religious w o r l d . In t h a t w o r l d the p r o d u c t i o n s o f the h u m a n b r a i n a p p e a r as i n d e p e n d e n t beings e n d o w e d w i t h life, a n d entering i n t o relation b o t h w i t h o n e a n o t h e r a n d the h u m a n race. So it is in the w o r l d o f c o m m o d i t i e s w i t h the p r o d u c t s o f men's hands. 1 " People speak o f " t h e p o w e r o f m o n e y " , as if its p o w e r d i d n o t c o m e f r o m the h u m a n l a b o u r for w h i c h it is a t o k e n ; or o f the " n e e d s o f the m a r k e t " , as if the m a r k e t w a s a n y t h i n g m o r e t h a n a n a r r a n g e m e n t for l i n k i n g together the concrete acts o f l a b o u r o f different h u m a n beings. Such mystical attitudes lead people to ascribe social ills t o t h i n g s b e y o n d h u m a n c o n t r o l — t h e

process

w h i c h the y o u n g M a r x h a d called " a l i e n a t i o n " a n d w h i c h s o m e M a r x i s t s since M a r x

have called " r e i f i c a t i o n " . S i m p l y

seeing

t h r o u g h such mysticism does n o t in itself deal w i t h the social ills. As M a r x n o t e d , s i m p l y arriving at a scientific u n d e r s t a n d i n g o f the character o f existing society leaves it intact just as " a f t e r the discovery o f the c o m p o n e n t

gases o f air, the a t m o s p h e r e

itself

r e m a i n e d u n a l t e r e d " . ' " But w i t h o u t seeing t h r o u g h the fetishism, conscious action to transform society c a n n o t take place. H e n c e the i m p o r t a n c e o f g r a s p i n g the d i s t i n c t i o n between use value a n d exc h a n g e v a l u e a n d o f g r o u n d i n g value in socially necessary labour.

E x p l o i t a t i o n a n d surplus v a l u e W e d o n o t only live in a w o r l d o f c o m m o d i t y p r o d u c t i o n . W e live in a w o r l d where control of most o f t h a t p r o d u c t i o n is concentrated in relatively few hands. In 2 0 0 8 the sales o f the world's biggest 2 , 0 0 0 c o m p a n i e s equalled a b o u t half o f total w o r l d output. 1 " If we assume that a r o u n d ten directors sit o n the b o a r d o f each o f the multina28

Understanding the System: Marx and Ik-yond

tionals, then che o u t of a world p o p u l a t i o n o f over six billion, a mere 2 0 , 0 0 0 people exercise decisive control over the creation o f w T ealth; in fact, the figure will be considerably lower than that because most o f the directors will sit o n the b o a r d s o f m o r e t h a n o n e Hrm. Production, o f course, is n o t carried o u t simply by the multinationals. A l o n g s i d e t h e m are a mass o f n a t i o n a l l y based medium-sized firms that have n o t achieved m u l t i n a t i o n a l status, a n d alongside them exist an even larger n u m b e r o f small firms, s o m e little m o r e than family operations e m p l o y i n g perhaps a c o u p l e o f people. But, even t a k i n g all these into consideration, only a small percentage o f the w o r l d s p o p u l a t i o n control the m e a n s o f p r o d u c t i o n responsible for p r o d u c i n g the m a j o r p o r t i o n o f its wealth. Those w h o d o n o t o w n a n d c o n t r o l such m e a n s o f p r o d u c t i o n have n o choice if they are t o m a k e a livelihood, b e y o n d the minim u m p r o v i d e d by welfare p r o g r a m m e s , other t h a n t o try to sell their ability t o w o r k to those t h a t d o . T h e y get p a i d a w a g e , w h i l e their l a b o u r p r o d u c e s g o o d s that are the p r o p e r t y o f those w h o c o n t r o l the m e a n s o f p r o d u c t i o n . S o m e of the value o f these g o o d s is used t o cover the wages o f the w o r k e r s , s o m e to pay for the materials used in p r o d u c t i o n , s o m e t o cover the w e a r a n d rear o f m e a n s o f p r o d u c t i o n . But s o m e f o r m s a n excess w h i c h is the basis o f the profits o f the o w n e r s — w h a t M a r x called " s u r p l u s v a l u e " a n d s o m e n o n - M a r x i s t economists s i m p l y call " t h e s u r p l u s " . A d a m S m i t h h a d already suggested w h e r e this s u r p l u s c a m e f r o m ( a l t h o u g h he did n o t stick consistently to this view): In the original stare o f things, w h i c h precedes b o t h the approp r i a t i o n o f l a n d a n d the a c c u m u l a t i o n o f s t o c k , the w h o l e p r o d u c t o f l a b o u r belonged to the l a b o u r e r . . . But as s o o n as the l a n d becomes private property, the l a n d o w n e r d e m a n d s a share o f the p r o d u c e . . . T h e p r o d u c e o f a l m o s t all o t h e r l a b o u r is liable t o the like d e d u c t i o n o f profit. In all arts a n d m a n u f a c tures the greater part o f the w o r k m e n stand in need o f a master t o a d v a n c e t h e m the m a t e r i a l s o f their w o r k , a n d their wages a n d m a i n t e n a n c e till it be c o m p l e t e d . H e shares in the p r o d u c e o f their l a b o u r , or in the value w h i c h it a d d s to the materials u p o n w h i c h it is bestowed; a n d in this share consists his profit.-10 Profit, then, arises w h e n the l a n d , tools a n d materials required for p r o d u c t i o n b e c o m e the private property o f o n e section o f society. T h i s section is then able t o get c o n t r o l o f the l a b o u r o f others. Mrtrx's Concepts

29

R i c a r d o t o o k u p a n d developed Smith's ideas. I n d o i n g so he p o i n t e d to a central a m b i g u i t y in Smith's o w n w r i t i n g s . S m i t h mixes w i t h the view that l a b o u r a l o n e creates value a n o t h e r app r o a c h , in w h i c h profits a n d rent as well as l a b o u r c o n t r i b u t e t o the final value o f goods. R i c a r d o rejected this latter view. Bur soon after his death in the 1820s it became the o r t h o d o x y a m o n g pro-capitalist economists. It w a s m u c h m o r e p a l a t a b l e to defenders o f the existing system t h a n i m p l y i n g that profits were parasitic o n labour. M a r x , however, s a w t h a t the d e v e l o p m e n t o f S m i t h s views by R i c a r d o c o u l d a l o n e p r o v i d e the basis for a scientific a c c o u n t o f h o w c a p i t a l i s m f u n c t i o n e d . Like R i c a r d o , he recognised it w a s a b s u r d t o say that profits s o m e h o w created value w h e n they were part o f value that h a d already been created. But he w e n t m u c h further t h a n R i c a r d o h a d in clarifying the issues a n d w o r k i n g o u t the i m p l i c a t i o n s o f the theory. The first i m p o r t a n t a d v a n c e he m a d e was to differentiate clearly t w o different m e a n i n g s given t o " t h e value o f l a b o u r " by S m i t h . O n the o n e h a n d it m e a n t the a m o u n t o f l a b o u r required t o keep the l a b o u r e r for the t i m e d u r i n g w h i c h he or she w o r k e d . A d a m S m i t h h a d argued: There is...a certain rate b e l o w w h i c h it seems i m p o s s i b l e t o reduce f o r a n y considerable time the o r d i n a r y wages o f even the lower species o f labour. A m a n m u s t a l w a y s live by his w o r k , a n d his wages m u s t at least be sufficient to m a i n t a i n h i m . T h e y m u s t even u p o n m o s t occasions be s o m e w h a t m o r e otherwise it w o u l d be impossible for h i m t o b r i n g u p a family, a n d the race o f such w o r k m e n w o u l d n o t last b e y o n d the first generation/ 1 ' F r o m this p o i n t o f view, the " v a l u e o f l a b o u r " was the v a l u e of the w a g e o f the labourer. But S m i t h also used the term " l a b o u r " to refer to the a m o u n t of l a b o u r actually performed by the worker. A n d , M a r x stressed, the t w o a m o u n t s were by n o means the same. L a b o u r , he pointed o u t , w a s like all other c o m m o d i t i e s in t h a t it was b o u g h t a n d sold. But it differed from them because it h a d the peculiar property that w h e n p u t t o use it performed m o r e l a b o u r t h a n required t o p r o d u c e it. In the 1850s he i n t r o d u c e d a n e w term designed t o m a k e the distinction between the t w o uses of the c o n c e p t o f l a b o u r in S m i t h a n d R i c a r d o ( a n d in his o w n earlier writings) absolutely clear. H e said t h a t w h a t the capitalist p a i d for w h e n he e m p l o y e d s o m e o n e 30

Understanding the System: Marx and Ik-yond

was n o t l a b o u r as such but " l a b o u r p o w e r " — t h e ability o f someone t o w o r k for a certain period o f time. T h e v a l u e o f l a b o u r power d e p e n d e d , like that o f any other c o m m o d i t y , o n the a m o u n t o f l a b o u r needed t o p r o d u c e it. W o r k e r s c o u l d n o t p r o v i d e l a b o u r p o w e r unless they h a d a d e q u a t e f o o d , c l o t h i n g , h o u s i n g , a certain a m o u n t o f r e l a x a t i o n , etc. These were their r e q u i r e m e n t s if they were to be fit a n d c a p a b l e of w o r k i n g . Their w a g e h a d to cover the cost o f these t h i n g s — t h a t is, t o c o r r e s p o n d t o the a m o u n t o f social l a b o u r needed t o p r o d u c e t h e m . T h i s d e t e r m i n e d the v a l u e o f l a b o u r power. It s h o u l d be noted t h a t M a r x did n o t see the m i n i m a l level o f subsistence a l o n e as d e t e r m i n i n g the value o f l a b o u r power. There was also the need to m a k e m i n i m a l provision for the u p b r i n g i n g o f the workers' children, since they w o u l d constitute the next generation o f l a b o u r power. A n d there was a " h i s t o r i c a l a n d

moral

element*' w h i c h depended o n the " h a b i t s a n d degree o f c o m f o r t " which the workers were accustomed to. W i t h o u t it they w o u l d n o t .ipply their full faculties to their l a b o u r a n d m i g h t even rebel against it. In this w a y the c u m u l a t i v e effect o f workers' struggles c o u l d influence the v a l u e o f l a b o u r

power. M a r x

w a s n o t , as he is

sometimes presented, a believer in an " i r o n l a w o f wages'' whereby only a fixed portion o f n a t i o n a l o u t p u t c o u l d g o to the w o r k e r s . " Be t h a t as it m a y , the l a b o u r people c o u l d p e r f o r m w a s greater t h a n the a m o u n t o f l a b o u r needed to p r o v i d e them w i t h at least a m i n i m a l l i v e l i h o o d — t o replenish their l a b o u r power. It m i g h t , for instance, take a n average o f o n l y four h o u r s w o r k a d a y t o p r o v i d e the level o f c o n s u m p t i o n necessary for s o m e o n e t o be able t o perf o r m a day's w o r k . But they c o u l d then p e r f o r m eight, nine or even ten hours w o r k a day. T h e extra l a b o u r w e n t t o the employer, so ih.it the value o f the g o o d s turned o u t by his factory w a s a l w a y s greater t h a n his investment. It w a s this w h i c h e n a b l e d h i m continually to get surplus value, w h i c h he c o u l d keep for himself or pass on to other m e m b e r s o f the capitalist class in the f o r m of interest nnd rent. I he relation between the e m p l o y e r a n d the w o r k e r h a d the appearance o f being between equals. T h e e m p l o y e r agreed t o give the wage a n d the w o r k e r his or her labour. N o coercion w a s involved. < )n the face o f it the s i t u a t i o n w a s very different to that between the slave o w n e r a n d the slave, or between the feudal lord a n d the serf. Ir w a s c o m p a t i b l e w i t h a juridical system based o n " t h e rights <>! m a n " , o f e q u a l i t y before the l a w o f all citizens. Even if actually Mrtrx's Concepts

31

existing bourgeois societies were tardy in g r a n t i n g this, it seemed engraved o n their structure. Yet the surface a p p e a r a n c e o f equality hid a deeper inequality. T h e e m p l o y e r possessed the prerequisites f o r the w o r k e r s e n g a g i n g in social p r o d u c t i o n a n d getting a livelih o o d . T h e workers were " f r e e " in the sense that they d o n o t have t o w o r k for a n y i n d i v i d u a l firm or capitalist. But they c o u l d n o t escape h a v i n g to try t o w o r k for s o m e o n e . As M a r x p u t it: the w o r k e r c a n leave the i n d i v i d u a l capitalist to w h o m he hires himself whenever he likes... But the worker, w h o s e sole source o f l i v e l i h o o d is the sale o f his l a b o u r , c a n n o t leave the w h o l e class o f purchasers, that is the capitalist class, w i t h o u t renouncing his exisrence. H e belongs n o t to this or that bourgeois, but to the bourgeois class.-* T h e difference between the v a l u e o f the w o r k e r ' s l a b o u r p o w e r a n d the value created by the l a b o u r d o n e w a s the source o f the s u r p l u s v a l u e . O n c e the e m p l o y e r h a d g o t this s u r p l u s v a l u e , it c o u l d be kept directly as profit, it c o u l d be used t o pay o f f interest o n a n y m o n e y b o r r o w e d t o b u i l d the factory, or as rent t o the o w n e r of the l a n d o n w h i c h the factorv s t o o d . But h o w e v e r sur0

plus value w a s d i v i d e d u p i n t o profits, interest a n d rent, its source r e m a i n e d the excess w o r k d o n e by the w o r k e r s — t h e e x p l o i t a t i o n by those w h o o w n e d the m e a n s o f p r o d u c t i o n o f those w h o d i d n o t . O n c e the o w n e r h a d g o t the p r o f i t , he c o u l d use it t o b u i l d new m e a n s o f p r o d u c t i o n , increasing still further his capacity t o b l a c k m a i l w o r k e r s i n t o l a b o u r i n g for h i m o n his terms if they were to get a l i v e l i h o o d . It w a s this process w h i c h m a d e the e m p l o y e r a capitalist. It also gave a special m e a n i n g t o the w o r d " c a p i t a l " . The w o r d is used by m a i n s t r e a m economists a n d in everyday life s i m p l y to m e a n longterm investment as o p p o s e d to i m m e d i a t e c o n s u m p t i o n . But it has a deeper significance o n c e the m e a n s o f p r o d u c t i o n are in the control o f o n e g r o u p o f society, c o m p e l l i n g others w h o w a n t

a

l i v e l i h o o d t o w o r k for t h e m . It is n o w a p r o d u c t o f past l a b o u r w h i c h is able to e x p a n d t h r o u g h the e x p l o i t a t i o n o f current labour. It is, as M a r x p u t it, n o t a t h i n g , b u t a relation: Value-creating a n d value-enhancing p o w e r belongs n o t t o the w o r k e r b u t t o the c a p i t a l i s t . . . A l l the d e v e l o p m e n t o f the productive forces o f l a b o u r is d e v e l o p m e n t o f the p r o d u c t i v e forces 32

Understanding the System: Marx and Ik-yond

o f c a p i t a l . By i n c o r p o r a t i n g i n t o itself this power, c a p i t a l c o m e s alive a n d begins t o w o r k " a s if its b o d y were by love possessed".

Living

labour

thus

becomes

a

means

whereby

objectified l a b o u r is preserved a n d increased... 2 4 T h e fetishism o f c o m m o d i t i e s n o w takes the f o r m o f m a k i n g it seem t h a t creativity does n o t lie w i t h living h u m a n beings bur w i t h the p r o d u c t s o f their labour, so t h a t people talk o f capital creating wealth a n d employers " p r o v i d i n g people w i t h w o r k " , whereas in reality it is l a b o u r that a d d s to the v a l u e o f capital a n d the w o r k e r w h o provides l a b o u r to the employer.

A b s o l u t e a n d relative surplus value M a r x distinguished between t w o ways in w h i c h firms c o u l d raise the ratio o f surplus value t o wages. O n e was by the c r u d e m e t h o d of l e n g t h e n i n g the w o r k i n g day. H e called this " a b s o l u t e s u r p l u s v a l u e " . T h i s m e t h o d o f forcing u p profits w a s very widespread in the early days o f industrial c a p i t a l i s m , a n d M a r x in Capital

pro-

vides m a n y e x a m p l e s o f it. But M a r x also n o t e d in Capital

that

p r o l o n g i n g the w o r k i n g d a y over m u c h c o u l d be c o u n t e r p r o d u c tive for the capitalist: A p o i n t m u s t i n e v i t a b l y be reached, w h e r e extension ot the w o r k i n g day a n d intensity o f the l a b o u r m u t u a l l y exclude one another, in such a w a y t h a t l e n g t h e n i n g o f the w o r k i n g day bec o m e s c o m p a t i b l e o n l y w i t h a l o w e r degree o f intensity." So it w a s t h a t , after p u t t i n g u p massive o p p o s i t i o n to successive attempts t o p r o v i d e a legal l i m i t t o the w o r k i n g d a y for c h i l d r e n , m a j o r capitalist interests gave w a y t o w o r k i n g class p r e s s u r e — a n d sometimes f o u n d t h a t p r o d u c t i o n a c t u a l l y increased o n c e h o u r s were shorter. F o r m u c h o f the 2 0 t h c e n t u r y the m e t h o d o f prol o n g i n g the w o r k i n g day seemed to b e l o n g to the past. In t h e ulvanced i n d u s t r i a l c o u n t r i e s , at least, w o r k e r s ' resistance h a d lorced capitalists t o concede a shorter w o r k i n g week a n d h o l i d a y s sMth pay. The 7 2 - h o u r week ot V i c t o r i a n times h a d b e c o m e the IN h o u r week a n d then the 4 4 - h o u r week. But rhere w a s a n o t h e r range o f m e t h o d s for increasing the a m o u n t o f s u r p l u s value to be o b t a i n e d f r o m each worker, w h i c h Mrtrx's Concepts

33

M a r x called "relative surplus v a l u e " . It relied o n reducing rhe prop o r t i o n o f the w o r k t i m e that w e n t i n t o c o v e r i n g the cost o f replenishing worker's capacity to w o r k , t h a t is, their l a b o u r power. This t o o k three forms. The first w a s to i n t r o d u c e n e w machinery into the w o r k p l a c e , so as to increase p r o d u c t i v i t y a n d reduce t h e a m o u n t o f t i m e it t o o k for rhe w o r k e r s t o p r o d u c e g o o d s w h o s e sale w o u l d cover their wages. In effect, instead of, say, four h o u r s w o r k covering the cost o f their l a b o u r power, t w o hours w o u l d d o s o — w i t h t w o hours extra g o i n g t o p r o d u c e surplus value. M a r x s a w this as the m e t h o d o f increasing e x p l o i t a t i o n capitalists t u r n e d t o as they faced difficulties in e x t e n d i n g the w o r k i n g week a n y further in the m i d - l 9 t h century. T h e p r o d u c t i v i t y o f the w o r k f o r c e per h o u r became central, rather t h a n e x t e n d i n g the n u m b e r o f h o u r s w o r k e d . 2 6 Bur it w a s in itself o n l y a short-term e x p e d i e n t for the capitalist. T h e first capitalist t o i n t r o d u c e n e w m a c h i n e r y w o u l d be a b l e t o p r o d u c e the s a m e a m o u n t o f v a l u e w i t h less h o u r s o f labour. O n c e other capitalists also i n t r o d u c e d n e w m a c h i n e r y , rhe socially necessary t i m e needed for p r o d u c t i o n fell a n d w i t h it rhe v a l u e o f the g o o d s he sold a n d the excess surplus value he o b t a i n e d . I he second f o r m it t o o k was increased productivity in the cons u m e r g o o d s industries a n d agriculture. T h i s w o u l d reduce the a m o u n t o f l a b o u r t i m e needed to p r o d u c e their o u t p u t a n d the prices workers h a d to p a y for their m e a n s o f livelihood. This m e a n t t h a t the cost to the capitalists everywhere o f p r o v i d i n g workers w i t h their a c c u s t o m e d l i v i n g s t a n d a r d (of p a y i n g f o r their l a b o u r p o w e r ) fell, a n d the a m o u n t o f surplus value extracted c o u l d be increased w i t h o u t c u t t i n g real wages or e x t e n d i n g the w o r k i n g day. T h e t h i r d m e t h o d w a s t o intensify the pressure o n workers t o w o r k harder. As M a r x puts it, the o n l y w a y t o " c h a n g e the relative m a g n i t u d e s " of the w o r k i n g d a y g o i n g to the capitalist rather t h a n the w o r k e r w i t h o u t c u t t i n g real wages w a s to " c h a n g e either the p r o d u c t i v i t y o f l a b o u r or its i n t e n s i t y " . T h e r e w a s a drive t o i m p o s e " o n the w o r k m a n increased e x p e n d i t u r e o f l a b o u r in a given t i m e , heightened tension o f labour-power, a n d closer

filling

u p o f the pores o f rhe w o r k i n g - d a y . " ' " O r a g a i n , " W h a t is lost by s h o r t e n i n g rhe d u r a t i o n is g a i n e d by the increasing tension o f labour p o w e r " / ' T h e drive for increased p r o d u c t i v i t y b e c a m e a n obsession for big business, as w a s s h o w n by the m o v e m e n t for "scientific mana g e m e n t " f o u n d e d by the A m e r i c a n V W Taylor in the 1890s. 34

Understanding the System: Marx and Ik-yond

Taylor believed rhar every task d o n e in industry c o u l d be b r o k e n d o w n i n t o i n d i v i d u a l c o m p o n e n t s a n d t i m e d , so as t o d e t e r m i n e the m a x i m u m w h i c h workers c o u l d a c c o m p l i s h . In this way, a n y breaks in the t e m p o o f w o r k c o u l d be e l i m i n a t e d , w i t h Taylor c l a i m i n g he c o u l d increase the a m o u n t o f w o r k d o n e in a d a y bv as m u c h as 2 0 0 percent. " T a y l o r i s m " f o u n d its fullest expression w i t h the i n t r o d u c t i o n o f the assembly line in H e n r y Ford's car plants. T h e speed at w h i c h people w o r k e d n o w d e p e n d e d o n the speed at w h i c h the line m o v e d , rather t h a n their i n d i v i d u a l m o t i v a t i o n . I n other industries the s a m e pressure orr people t o w o r k flat o u t was achieved by increasing surveillance by supervisors, w i t h , for instance, mechanical counters o n m a c h i n e s i n d i c a t i n g the level o f w o r k achieved. A n d today a s i m i l a r a p p r o a c h is being a t t e m p t e d in a variety o f w h i t e collar o c c u p a t i o n s w i t h increased use o f assessment, a t t e m p t s at p a y m e n t by results, the use o f key stroke counters o n c o m p u t e r s , a n d so o n .

Accumulation and competition A w o r l d o f c o m m o d i t y p r o d u c t i o n is a w o r l d o f c o m p e t i t i o n between

producers.

It

is

this

element

of

competition

which

distinguishes a society based o n c o m m o d i t y p r o d u c t i o n a n d exc h a n g e value f r o m o n e w h e r e i n d i v i d u a l s or g r o u p s decide o n w h a t use values t o p r o d u c e f o r their o w n c o n s u m p t i o n . T h r o u g h e x c h a n g e the effort p u t in by those w o r k i n g in o n e u n i t o f production is linked to those o f m i l l i o n s o f o t h e r i n d i v i d u a l s in o t h e r units, but the link o n l y takes place t h r o u g h c o m p e t i t i o n between those t a k i n g the decisions a b o u t p r o d u c t i o n in the i n d i v i d u a l units. In F.ngels' phrase there is " s o c i a l p r o d u c t i o n b u t capitalist appropriation

.

T h e capitalist firm w h i c h exploits the w o r k e r is therefore, necessarily, in c o m p e t i t i o n w i t h o t h e r c a p i t a l i s t firms. If it c a n n o t o u t - c o m p e t e t h e m , e v e n t u a l l y it w i l l be forced o u t o f business. To o u t - c o m p e t e m e a n s k e e p i n g a h e a d in d e v e l o p i n g new, m o r e p r o d u c t i v e t e c h n i q u e s — o n l y in t h a t w a y can it ensure t h a t it is n o t g o i n g t o be d r i v e n o u t o f business by rivals p r o d u c i n g a n d selling g o o d s m o r e c h e a p l y t h a n it c a n . It c a n n o t g u a r a n t e e b e i n g able to a f f o r d n e w e q u i p m e n t u s i n g s u c h t e c h n i q u e s unless its profits are as h i g h as possible. But if it raises its p r o f i t s in o r d e r Mrtrx's Concepts

35

ro he able ro reinvest, so m u s t its rivals. T he fact t h a t each f i r m is i n v o l v e d in e x p l o i t i n g w a g e l a b o u r m e a n s t h a t n o n e o f t h e m dare rest o n its laurels. H o w e v e r successful a firm m a y have been in the past, it lives in fear of a rival firm investing profits in newer a n d m o r e m o d e r n plant a n d machinery. N o capitalist dare stand still for a n y length o f t i m e , for that w o u l d m e a n falling b e h i n d the c o m p e t i t o r s . A n d to fall b e h i n d is eventually t o g o bust. It is this w h i c h e x p l a i n s rhe d y n a m i s m ot c a p i t a l i s m . T h e pressure o n each capitalist t o keep a h e a d o f every other leads t o the c o n t i n u a l u p g r a d i n g o f p l a n t a n d machinery. /

S o it is t h a t c a p i t a l i s m becomes n o t merely a system o f exploiting

"free"

wage workers,

but

a c c u m u l a t i o n . T h e Communist

also a system Manifestos

of

compulsive

which M a r x

wrote

w i t h Hngels early in 1848, insisted: The bourgeoisie, d u r i n g its rule of scarce one h u n d r e d years, has created m o r e massive a n d m o r e colossal p r o d u c t i v e forces t h a n all the preceding generations put together. It e m p h a s i s e d the c o n t i n u a l t r a n s f o r m a t i o n o f industry

under

capitalism: T h e bourgeoisie c a n n o t exist w i t h o u t constantly revolutionising the m e a n s o f p r o d u c t i o n . . . C o n s t a n t r e v o l u t i o n i s i n g o f product i o n . . . d i s t i n g u i s h e s the bourgeois epoch f r o m all earlier ones. In Capital

M a r x sees the c o n t i n u a l drive to b u i l d u p ever bigger in-

dustry as the characteristic feature o f c a p i t a l i s m : Fanatically bent o n m a k i n g value e x p a n d itself, he [the capitalist] ruthlessly forces the h u m a n race ro p r o d u c e for p r o d u c t i o n s s a k e . . . A c c u m u l a t i o n for rhe sake o f a c c u m u l a t i o n , p r o d u c t i o n for p r o d u c t i o n ' s sake! ; i T h e w o r k ' s first v o l u m e begins w i t h a n a l y s i n g p r o d u c t i o n for the m a r k e t ( " c o m m o d i t y p r o d u c t i o n " ) , then l o o k s w h a t

happens

w h e n w a g e l a b o u r arises a n d l a b o u r p o w e r becomes a c o m m o d ity, a n d finally c u l m i n a t e s in s h o w i n g h o w p r o d u c t i o n u s i n g w a g e l a b o u r brings a b o u t a process o f c o m p u l s i v e a c c u m u l a t i o n that ignores h u m a n need a n d i n d i v i d u a l desires. 36

Understanding the System: Marx and Ik-yond

C a p i t a l is n o t then defined just hv e x p l o i t a t i o n ( w h i c h occurred tn m a n y precapitalist societies), b u t by its necessary drive to selfexpansion.

The

motivation

for

production

and

exchange

increasing the a m o u n t o f value in the h a n d s o f the capitalist

is

firm—

a process for w h i c h s o m e M a r x i s t writers use the (in m y view confusing) neologism "valorisation". So the system is n o t just a system o f c o m m o d i t y p r o d u c t i o n ; it is also a system o f c o m p e t i t i v e a c c u m u l a t i o n . T h i s creates limits to the a c t i o n possible n o t o n l y for w o r k e r s , b u t also for capitalists. For if they d o n o t c o n t i n u a l l y seek t o e x p l o i t their w o r k e r s as m u c h as is practically possible, they will n o t dispose o f the surplus value necessary to a c c u m u l a t e as q u i c k l y as their rivals. They can choose to e x p l o i t their w o r k e r s in o n e w a y rather t h a n another. But they c a n n o t choose n o t t o exploit their w o r k e r s at all, or even to e x p l o i t them less t h a n other capitalists d o — u n l e s s they w a n t t o g o bust. They themselves are subject t o a system w h i c h pursues its relentless course whatever the feelings o f i n d i v i d u a l h u m a n beings.

Surplus value, a c c u m u l a t i o n a n d the rate o f profit M a c h i n e s a n d r a w materials d o n o t themselves create value. O n l y the exercise o f h u m a n l a b o u r has a d d e d to the n a t u r a l w e a l t h that existed in a state o f n a t u r e a n d o n l v c o n t i n u e d h u m a n l a b o u r c a n 0

increase it still further. M a c h i n e s a n d r a w materials exist because h u m a n l a b o u r has been a p p l i e d in the past a n d they c a n n o t substitute for it in the c r e a t i o n o f n e w value. But they are necessary if l a b o u r is to achieve the average level o f p r o d u c t i v i t y prevailing in a p a r t i c u l a r society at a p a r t i c u l a r time. T h e final value o f g o o d s p r o d u c e d has t o i n c l u d e a n element c o v e r i n g the cost o f the machines a n d materials used. W h e n a c o m p a n y p r o d u c e s c l o t h by e m p l o y i n g w o r k e r s t o w o r k o n p o w e r l o o m s t h a t w e a v e w o o l , the price o f the f i n a l p r o d u c t has t o cover n o t o n l y the cost o f p r o v i d i n g the l a b o u r p o w e r o f the w o r k e r s (their wages) a n d the profit o f the c o m p a n y , b u t also the cost o f the w o o l a n d the w e a r a n d tear t o the p o w e r l o o m s . If the p o w e r l o o m c a n keep g o i n g for ten years, then in each year o n e t e n t h o f its cost has t o be covered by the a n n u a l sales o f the c l o t h — t h i s is w h a t a c c o u n t a n t s refer t o the depreciat i o n costs o f c a p i t a l . O r , t o p u r it a n o t h e r w a y , the

labour

i n c o r p o r a t e d in the v a l u e o f the c l o t h includes n o t o n l y the n e w Mrtrx's Concepts 36

socially necessary l a b o u r e x p e n d e d by the w o r k e r s , bur also the " d e a d l a b o u r " used to p r o d u c e the w o o l a n d o n e tenth o f the power loom. For these reasons, M a r x argued that the investment m a d e by the capitalist c o u l d be d i v i d e d i n t o t w o parts. O n e w a s the expenditure on

p a y i n g w a g e s to hire the workers. T h i s he called

" v a r i a b l e c a p i t a l " — b e c a u s e it w a s capital t h a t by p u t t i n g l a b o u r p o w e r to w o r k e x p a n d e d v a l u e t o create s u r p l u s v a l u e in the course o f p r o d u c t i o n . T h e other part w a s e x p e n d i t u r e o n the m e a n s o f p r o d u c t i o n . H e called this " c o n s t a n t c a p i t a l " because its existing value passed i n t o the v a l u e o f the g o o d s p r o d u c e d witho u t g r o w i n g a n y b i g g e r — i t s value w a s s i m p l y transferred t o the final p r o d u c t . In the case o f fixed c o n s t a n t c a p i t a l (factory buildings, m a c h i n e r y etc) this rook place over several p r o d u c t i o n cycles; in the case o f c i r c u l a t i n g c o n s t a n t capital (raw materials, energy, c o m p o n e n t s ) i n a single p r o d u c t i o n cycle. M a r x i s t s usually use the letter v t o s t a n d for variable capital (wages t h a t purchase w o r k e r s ' l a b o u r ) ; c t o s t a n d for c o n s t a n t capital ( p l a n t , e q u i p m e n t a n d raw materials); s t o stand f o r surplus v a l u e . T h e r a t i o o f s u r p l u s v a l u e to variable capital (wages) is the ratio o f the length o f the w o r k i n g day the w o r k e r gives t o capital compared

to that which

provides for

themselves—sometimes

called the rate o f e x p l o i t a t i o n . It can be represented by s/v. But for rhe capitalist, the ratio o f surplus value ro wages is n o t the o n l y t h i n g t h a t matters, since his investment is bigger t h a n simply w h a t he has spent o n wages. H e is interested in m a k i n g his total capital e x p a n d , n o t just t h a t w h i c h goes i n t o wages. W h a t matters, therefore, is the ratio o f surplus value to total i n v e s t m e n t — that is, expenditure o n instruments a n d materials o f p r o d u c t i o n as well as o n wages. This is the " r a t e o f p r o f i t " , w h i c h M a r x depicted as s/(c+v). It is affected n o t o n l y by rhe r a t i o o f surplus value to wages, b u t also by the ratio o f e x p e n d i t u r e o n i n s t r u m e n t s a n d m a t e r i a l s o f p r o d u c t i o n ( c o n s t a n t c a p i t a l ) t o w a g e s (variable c a p i t a l ) . M a r x called this last ratio (c/v) the " o r g a n i c c o m p o s i t i o n o f c a p i t a l " . This varies f r o m industry to industry a n d over time. Different prod u c t i o n processes c a n use the same a m o u n t o f l a b o u r b u t different a m o u n t s o f p l a n t a n d e q u i p m e n t ; the cost o f e q u i p m e n t in a factory e m p l o y i n g 1,000 people t o sew c l o t h i n t o clothes is less t h a n t h a t to e m p l o y the same n u m b e r t o smelt iron ore i n t o steel. T h i s has i m p o r t a n t i m p l i c a t i o n s for the d y n a m i c o f c a p i t a l i s m . It is 38

Understanding the System: Marx and Ik-yond

driven f o r w a r d nor o n l y by concern w i t h the ratio o f surplus value to w a g e s , b u t by the drive t o m a i n t a i n a n d increase the ratio o f surplus value t o different levels o f total investment. It is a p o i n t w e will have t o return to repeatedly.

Primitive a c c u m u l a t i o n T o d a y w e take the b u y i n g a n d selling o f l a b o u r p o w e r for g r a n t e d . It seems as " n a t u r a l " as the rising a n d setting o f the s u n . Yet n o w h e r e w a s it m o r e t h a n a m i n o r feature o f any societ> until a few h u n d r e d years a g o . So in E u r o p e in the late M i d d l e Ages, or in Africa a n d Asia at the t i m e o f E u r o p e a n c o l o n i s a t i o n in the 18th a n d 19th centuries, most people h a d at least s o m e direct access to the m e a n s of getting a l i v e l i h o o d — e v e n if they h a d to h a n d over a slice o f w h a t they p r o d u c e d to a parasitic l a n d l o r d . Peasants c o u l d g r o w f o o d o n their o w n land a n d craftsmen m a k e g o o d s in their o w n little w o r k s h o p s . W h a t c h a n g e d this, a c c o r d i n g t o M a r x , w a s a p r i m e v a l act o f r o b b e r y — t h e use o f force t o r e m o v e masses o f p e o p l e f r o m a n y c o n t r o l over the m e a n s o f p r o d u c t i o n . T h i s w a s often carried t h r o u g h by the state at the behest o f s o m e o f the m o s t privileged g r o u p s in society. In E n g l a n d a n d Wales, for e x a m p l e , the rise o f c a p i t a l i s m w a s a c c o m p a n i e d by " e n c l o s u r e s " — t h e forcible d r i v i n g o f peasants f r o m c o m m o n l a n d they h a d cultivated for centuries. I a w s against " v a g r a n c y " then c o m p e l l e d the dispossessed peasants to seek w o r k at whatever w a g e they c o u l d get. In Scotland the "clearances'* h a d the same effect, as the lairds d r o v e the crofters (small farmers) f r o m the l a n d so as to replace them first by sheep and then by deer. As Britain's rulers carved o u t a n e m p i r e for themselves t h r o u g h o u t the rest o f the w o r l d , they rook measures t o bring a b o u t the same separation o f the mass o f p e o p l e f r o m control over the m e a n s o f g a i n i n g a livelihood. In I n d i a , for e x a m p l e , they granted c o m p l e t e o w n e r s h i p o f the l a n d to the already highly privileged zamindar

class. In East a n d S o u t h Africa they usually

torced each h o u s e h o l d t o pay a fixed s u m o f m o n e y , a poll t a x , w h i c h it c o u l d o n l y raise by sending s o m e o f its m e m b e r s to seek e m p l o y m e n t w i t h E u r o p e a n ranchers or businessmen. M a r x called this process o f creating the c o n d i t i o n s for the g r o w t h o f capitalist p r o d u c t i o n " t h e p r i m i t i v e a c c u m u l a t i o n o f c a p i t a l " . M a r x tells h o w : Mrtrx's Concepts 38

I he discovery of g o l d a n d silver in A m e r i c a , rhe e x t i r p a t i o n , enslavement

and

entombment

in

mines

of

the

aboriginal

p o p u l a t i o n , the b e g i n n i n g o f the c o n q u e s t a n d l o o t i n g o f the East Indies, the t u r n i n g o f Africa i n t o a w a r r e n for the c o m m e r cial h u n t i n g o f black skins, signalised the rosy d a w n o f the era o f capitalist p r o d u c t i o n . . . But by itself this c o u l d not lead t o capitalist

p r o d u c t i o n . There

h a d , after all, been pillage o f o n e sort or a n o t h e r t h r o u g h o u t the history o f class society, g o i n g back ro B a b y l o n i a n times, w i t h o u t it l e a d i n g t o the r a p i d a c c u m u l a t i o n t h a t characterises c a p i t a l i s m . T h e forcible separation ot masses o f people f r o m a n y c o n t r o l over the m e a n s o f p r o d u c t i o n — a n d so f r o m a n y possibility o f m a k i n g a l i v e l i h o o d w i t h o u t selling their l a b o u r p o w e r — w a s indispensable. " T h e e x p r o p r i a t i o n o f the a g r i c u l t u r a l producer, of the p e a s a n t , f r o m the soil, is the basis o f the w h o l e process". 1 4 For this reason, it c a n be m i s l e a d i n g to refer t o a n y f o r c i b l e seizure o f w e a l t h bycapitalists as " p r i m i t i v e a c c u m u l a t i o n " / 5 In M a r x ' s writings it has t w o aspects: o n the one h a n d the "freei n g " o f the mass o f p o p u l a t i o n f r o m a n y direct access t o the m e a n s ot m a k i n g a l i v e l i h o o d ; o n the other the a c c u m u l a t i o n o f wealth by a class t h a t can use e c o n o m i c necessity t o m a k e s u c h "free l a b o u r " toil for it. O n c e c a p i t a l i s m h a d established itself, its o w n e c o n o m i c mecha n i s m s pushed the process o f s e p a r a t i n g people from c o n t r o l over rhe m e a n s o f p r o d u c t i o n even further, w i t h o u t necessarily needing intervention by the state or the use o f force to bring it a b o u t . T h u s in Britain in the late 18th century there were still h u n d r e d s o f thousands of h a n d l o o m

weavers, w h o w o r k e d

for themselves

w e a v i n g c l o t h t o sell. W i t h i n 50 years they h a d all been driven o u t o f business by capitalist firms using p o w e r l o o m s . In Ireland in the 1840s a terrible f a m i n e caused by the r e q u i r e m e n t t h a t h u n g r y peasants pay rent to ( m a i n l y British) l a n d l o r d s led a m i l l i o n to die o f h u n g e r a n d a n o t h e r m i l l i o n to a b a n d o n their h o l d i n g s a n d seek w o r k in Britain a n d the US. The m a r k e t c o u l d achieve such horrors w i t h o u t the direct help o f the state (except, of course, in protecting the property o f the l a n d l o r d s ) . C a p i t a l i s m h a d b e c o m e a self-sustaining a n d self-expanding system destined ro a b s o r b the w h o l e w o r l d i n t o its w o r k i n g s .

40

Understanding the System: Marx and Ik-yond

CHAPTER TWO

Marx and his critics

T h e neoclassical c r i t i q u e o f his t h e o r y o f v a l u e M a r x ' s theory o f v a l u e has been u n d e r a t t a c k ever since

Capital

w a s first p u b l i s h e d . T h e m o s t c o m m o n f o r m this attack takes is t o c l a i m t h a t c a p i t a l as well as l a b o u r creates v a l u e . A f t e r a l l , it is said, a w o r k e r using a m a c h i n e produces m u c h

more than

a

w o r k e r w i t h o u t o n e , a n d all the t i m e w o r k e r s are b e i n g replaced by m a c h i n e s t h a t d o the s a m e j o b . It is even p o s s i b l e t o c o n c e i v e o f a n e c o n o m y in w h i c h all w o r k is d o n e by m a c h i n e s . So neoclassical e c o n o m i s t s a r g u e t h a t n o t o n l y l a b o u r bur also c a p i t a l

is

involved in p r o d u c i n g tilings w h i c h satisfy h u m a n need. A n d just as l a b o u r gets p a i d a c c o r d i n g t o w h a t it c o n t r i b u t e s t o w e a l t h creation,

so d o e s c a p i t a l .

Each

"factor

of

production"

gets

a

" r e w a r d " e q u a l t o its " m a r g i n a l o u t p u t " . There is a central fallacy in this a r g u m e n t against M a r x . It rests o f a static picture o f the e c o n o m y , in w h i c h capital a n d l a b o u r s i m p l y exist a l o n g s i d e each other. It ignores the p a l p a b l e reality t h a t the means a n d materials o f p r o d u c t i o n themselves have been p r o d u c e d . M a c h i n e s a n d factory b u i l d i n g s are n o t things that exist in their o w n right. They are the p r o d u c t o f p r e v i o u s h u m a n labour. T h e wheelb a r r o w w h i c h aids the toil o f the l a b o u r e r is itself the p r o d u c t o f the toil o f the metal worker. T h a t w a s w h y M a r x called the m e a n s o f p r o d u c t i o n " d e a d l a b o u r " (as o p p o s e d to present w o r k , w h i c h is " l i v i n g l a b o u r " ) . T h e y are the p r o d u c t s o f l a b o u r t h a t has t a k e n place p r e v i o u s l y — a n d c a n , if necessary, be replicated by the application o f l a b o u r today. T h e a m o u n t o f socially necessary l a b o u r needed t o reproduce them determines their current w o r t h . T h e failure o f neoclassical t h e o r y t o t a k e i n t o a c c o u n t the crea t i o n o f the m e a n s o f p r o d u c t i o n by l a b o u r is n o accidental f a i l i n g . Its f o u n d e r s in t h e late 19th c e n t u r y — t h e A u s t r i a n s M e n g e r a n d Bohm-Bawerk,

the

Englishmen

Jevons

and

Marshall,

the 4!

F r e n c h m a n W a l r a s , the Italian Pareto, a n d the A m e r i c a n C l a r k — b u i l t the a s s u m p t i o n o f a static system i n t o their theory. They viewed the w h o l e e c o n o r m

as like a street m a r k e t w h e r e the

buyers calculate w h a t c o m b i n a t i o n o f g o o d s gives t h e m rhe best v a l u e for rhe m o n e y they have g o t in their pockets, w h i l e the stallholders calculate the best price they can get for each o f their g o o d s . T h e m u t u a l a d j u s t m e n t o f the price each seller is w i l l i n g t o accept a n d each buyer is w i l l i n g to pay leads to all rhe g o o d s being sold. A n d , since each seller is in turn the buyer f r o m s o m e o n e w h o has *

4

b o u g h t f r o m s o m e o n e else, a w h o l e n e t w o r k o f prices is set u p w h i c h ensures that w h a t is p r o d u c e d is exactly w h a t people w a n t . W a l r a s c l a i m e d t o s h o w h o w this w o r k s for a n a t i o n a l e c o n o m y 4

w i t h h u n d r e d s o f pages o f e q u a t i o n s a n d g r a p h s . I n b u i l t into the w h o l e a p p r o a c h w a s a very unreal view o f capi t a l i s m . For, w h a t e v e r else c a p i t a l i s m is, it is n o t static. I n a real street m a r k e t , people d o nor agree i n s t a n t a n e o u s l y o n the prices for b u y i n g a n d selling. B u t neoclassical

theory a s s u m e d

that

t h r o u g h the m e d i a t i o n o f a central a u c t i o n e e r they c o u l d arrive at agreed prices instantaneously. Real life haggling often rakes quite a l o n g t i m e , w i t h prices across the m a r k e t as a w h o l e being arrived at t h r o u g h a process o f successive a d j u s t m e n t s . O n c e t h a t is t a k e n i n t o a c c o u n t divergences o p e n u p between rhe actual prices o f g o o d s a n d those presupposed in the theory. T h e actual p r o d u c t i o n o f g o o d s t h a t are ro be sold is a l w a y s a process t a k i n g place in time. "Price signals" d o not tell y o u w h a t will

be w a n t e d w h e n

p r o d u c t i o n is finished, b u t w h a t w a s w a n t e d before it began. T h e s i m u l t a n e i t y o f the theory is a m y t h , a n d the s i m u l t a n e o u s equations developed o n the basis o f its a s s u m p t i o n s bear little relation t o really existing c a p i t a l i s m . Faced w i t h rhe reality t h a t p r o d u c t i o n occurs over t i m e , h o w did the f o u n d e r s o f neoclassical e c o n o m i c s react? They d i d n o t a l l o w it t o affect their theory o n e iota. W a l r a s , for instance, recognised t h a t " p r o d u c t i o n requires a certain lapse o f t i m e " . But he then w r o t e he w o u l d deal w i t h the " d i f f i c u l t y purely a n d simply by i g n o r i n g the t i m e element at this p o i n t " ; 1 a n d w h e n he returned t o the issue it w a s t o a s s u m e t h a t " d a t a " r e m a i n e d " c o n s t a n t for a given period o f time",- as if the t r a n s f o r m a t i o n o f the w h o l e productive

apparatus

with

economic

growth

would

not

mean

c o n t i n u a l t r a n s f o r m a t i o n o f the structure o f s u p p l y a n d d e m a n d . M a r s h a l l w e n t as far as t o a d m i t t h a t " r i m e is the source o f m a n y o f rhe greatest difficulties in e c o n o m i c s " / since " c h a n g e s in the 42

Understanding the System: Marx and Ik-yond

v o l u m e o f p r o d u c t i o n , in its m e t h o d s , a n d its costs are ever m u t u ally m o d i f y i n g o n e a n o t h e r . " T h i s d i d n o t , however, s t o p h i m teaching the theory a n d a w h o l e g e n e r a t i o n of m a i n s t r e a m economists t a k i n g it as p r o o f o f the efficacy o f m a r k e t c a p i t a l i s m . A n u p d a t e d version o f Walras's m a t h e m a t i c a l m o d e l w a s p r o d u c e d in the earlv 1950s bv Kenneth A r r o w a n d G e r a r d D e b r e u w h i c h atj

d

tempted to take t i m e i n t o a c c o u n t . But A r r o w h i m s e l f recognised t h a t the m o d e l o n l y

works " i f you assume n o

technological

progress, n o g r o w t h i n p o p u l a t i o n a n d lots o f other t h i n g s " . 4 T h e refusal o f the neoclassical school to grasp the basic p o i n t that c a p i t a l i s m is a s y s t e m u n d e r g o i n g c o n t i n u a l t r a n s f o r m a t i o n that disrupts the old price structure a n d prevents a n y settled equil i b r i u m means t h a t it provides at best a n apologetic description o f things as they exist at a n y m o m e n t in t i m e , n o t an a c c o u n t o f economic developments and dynamics. T h e neoclassical school's o w n theory o f v a l u e , w h i c h it counterposes t o the theories o f S m i t h , R i c a r d o a n d M a r x , is in terms o f the utility w h i c h a c o m m o d i t y gives—that is, h o w i n d i v i d u a l s evaluate the c o m m o d i t y c o m p a r e d t o other c o m m o d i t i e s . But this leaves completely unresolved the basis for m e a s u r i n g the utility for o n e person c o m p a r e d t o another. H o w d o you measure the "utili t y " o f a glass o f water t o s o m e o n e in the desert w i t h the " u t i l i t y " o f a d i a m o n d tiara t o a princess? T h e m o s t y o u can d o is list the preferences o f i n d i v i d u a l s . But to e x p l a i n w h y the preferences o f s o m e i n d i v i d u a l s m a t t e r m o r e t h a n the preferences o f others y o u have t o explain w h y s o m e are wealthier t h a n o t h e r s — a n d t h a t depends o n factors to d o w i t h the structure a n d d y n a m i c o f capitalist society w h i c h " u t i l i t y " theory ignores. Pareto replaced the term " u t i l i t y " by " o p h e l i m i t y "

because, as

his A m e r i c a n c o n t e m p o r a r y Irving Fischer put it, " t h e great untutored a n d naive p u b l i c . . . find it h a r d to call a n overcoat n o m o r e truly useful t h a n a necklace, o r a g r i n d s t o n e t h a n a roulette w h e e l " . 6 S o m e later neoclassical theorists d r o p p e d a n y n o t i o n o f value a l t o g e t h e r — a l t h o u g h

" m a r g i n a l u t i l i t y " c o n t i n u e s to be

t a u g h t in school a n d college t e x t b o o k s to this day as the " m o d e r n " answer t o the l a b o u r theory o f value. Neoclassical e c o n o m i s t s have n o t succeeded in g i v i n g a n objective basis to their theory o f value, despite m o r e t h a n a century o f effort. O f course, ultimately, s o m e o n e m u s t w a n t to use s o m e t h i n g (or, at least be able to sell it to s o m e o n e else w h o will use it) if they are g o i n g t o p a y for it. But it is n o t use that determines price. Marx and his Critics 42

N o r can

"marginal

o u t p u t ' ' as defined by the

neoclassical

s c h o o l p r o v i d e a n answer. T h i s is m e a s u r e d , they a r g u e , by the value o f the c a p i t a l used u p in p r o d u c i n g it; bur w h e n they define the value o f that capital they d o so in terms o f the m a r g i n a l o u t p u t . T h e y e n d u p saying, in effect, t h a t " t h e m a r g i n a l value o f capital e q u a l s the m a r g i n a l value o f c a p i t a l ', o r " p r o f i t equals p r o f i t " . Statements o f this sort c a n n o t e x p l a i n a n y t h i n g . A l l they d o is to stare t h a t if s o m e t h i n g exists, it exists. O r t h o d o x e c o n o m i c s in fact does n o m o r e t h a n state that certain things are b o u g h t a n d certain t h i n g s are sold at present, w i t h o u t e x p l a i n i n g w h y these things are p r o d u c e d a n d n o t others, w h y s o m e people are rich a n d s o m e poor, a n d w h y s o m e g o o d s pile u p u n s o l d w h i l e people w h o desperately need t h e m g o witho u t , or w h y sometimes there are b o o m s a n d at other times s l u m p s . These p o i n t s were m a d e against m a r g i n a l e c o n o m i c s m o r e t h a n 80 years a g o by the A u s t r i a n M a r x i s t R u d o l f H i l f e r d i n g a n d the Russian revolutionary

N i c o l a i B u k h a r i n . They have been

put

across m o r e recently in a rigorously logical f o r m by dissident acad e m i c e c o n o m i s t s k n o w n as the " C a m b r i d g e S c h o o l " .

But the

c a p a c i t y o f dissident e c o n o m i s t s t o p o i n t o u t the absurdities in neoclassical theorv has n o t w e a k e n e d its h o l d o n a c a d e m i c econ o m i c s . It has s i m p l y led t o ever m o r e o b t u s e

mathematical

models being used to p r o v i d e a n a p p e a r a n c e o f scientific rigour. As J o a n R o b i n s o n p o i n t e d o u t h a l f a century ago: Q u a n t i t a t i v e utility has l o n g since e v a p o r a t e d b u t it is still c o m m o n t o set u p a m o d e l in w h i c h q u a n t i t i e s o f " c a p i t a l " appear, w i t h o u t a n y i n d i c a t i o n o f w h a t it is s u p p o s e d t o be a q u a n t i t y of. J u s t as the p r o b l e m o f g i v i n g a n o p e r a t i o n a l meaning t o utility used to be a v o i d e d by p u t t i n g it i n t o a d i a g r a m , so the p r o b l e m o f g i v i n g a m e a n i n g to the q u a n t i t y o f " c a p i t a l " is evaded by p u t t i n g it i n t o algebra. 8 R e c o g n i t i o n o f the difficulties w i t h their o w n theory has, o n occasions, forced those w h o otherwise accept the neoclassical system t o trv* to reinforce it w i t h elements f r o m the l a b o u r theorv # o f value. So M a r s h a l l suggested there m i g h t occasionally be merit in using a l a b o u r theory o f value: " t h e real value o f m o n e y is better measured for s o m e purposes in l a b o u r rather t h a n in c o m m o d i t i e s " , alt h o u g h he hastened t o a d d , " T h i s difficulty will n o t affect o u r w o r k in the present v o l u m e . . . " ' J o h n M a y n a r d Keynes also h a l f 44

Understanding the System: Marx and Ik-yond

grasped the l i m i t a t i o n s o f the very neoclassical system w h o s e postulates he t o o k for granted. At o n e p o i n t in his m o s t f a m o u s w o r k , the General

Theory

of Employment,

Money

and

Interest,

he

recognised t h a t y o u c a n n o t s i m p l y a d d together different sets o f physical c o m m o d i t i e s at o n e p o i n t in t i m e a n d c o m p a r e them w i t h .1 different set at a later point. 1 ' 1 To m a k e such c o m p a r i s o n s involves "covertly i n t r o d u c i n g changes in v a l u e " . " To deal w i t h this p r o b l e m , he d r o p p e d the usual a s s u m p t i o n s o f neoclassical theory a n d m a d e h a l f a turn ro a l a b o u r theory o f value,' suggesting t h a t o u t p u t c o u l d be measured by " t h e a m o u n t o f e m p l o y m e n t associated w i t h a given capital e q u i p m e n t ' 1 . 1

H e explained later:

I sympathise w i t h rhe pre-classical [sic] doctrine that everything is p r o d u c e d by labour, aided by w h a t used to be called art a n d is n o w called t e c h n i q u e , by n a t u r a l resources...and by the results o f past labour, e m b o d i e d in assets..."

4

Neither M a r s h a l l n o r Keynes w a s prepared t o g o further a n d jettison the neoclassical system as a w h o l e . Bur if they h a d taken their o w n observations o f these p o i n t s seriously, they w o u l d have been c o m p e l l e d to d o so. T h e failings o f the neoclassical system p r o v i d e at least a partial, negative, p r o o f o f M a r x ' s a p p r o a c h . For his theory o f value avoids such a subjective a n d static a p p r o a c h . M a r x ' s theory is objective because it is n o t based o n i n d i v i d u a l e v a l u a t i o n s o f a c o m m o d i t y , b u t o n the necessary a m o u n t of l a b o u r needed t o p r o d u c e it given rhe level o f technology existing in the system as a w h o l e at a particular p o i n t in t i m e — b o t h the direct living l a b o u r o f the w o r k e r a n d " d e a d l a b o u r " e m b o d i e d in rhe e q u i p m e n t a n d materials o f p r o d u c t i o n used u p in the p r o d u c t i o n process. For M a r x , it is the pressure different capitals exert o n each other, n o t rhe e v a l u a t i o n s o f i n d i v i d u a l s , that matters, since a n y capitalist w h o prices a comm o d i t y at a level higher t h a n rhe a m o u n t o f socially necessary l a b o u r needed to p r o d u c e it will s o o n be driven o u t o f business. The l a w o f value is therefore an external force o p e r a t i n g o n every capitalist t h r o u g h the interaction o f all capitalists once there is the general p r o d u c t i o n o f c o m m o d i t i e s for e x c h a n g e m e d i a t e d

by

money. Since rhe " i n d i v i d u a l c a p i t a l i s t s " , writes M a r x , " c o n f r o n t o n e a n o t h e r o n l y as c o m m o d i t y - o w n e r s , the "inner l a w ' enforces itself o n l y t h r o u g h their c o m p e t i t i o n , their m u t u a l pressure u p o n each other, w h e r e b y the deviations are m u t u a l l y c a n c e l l e d " . ' Marx and his Critics

45

T h e relation between capitals c a n n o t be u n d e r s t o o d as somet h i n g fixed a n d u n c h a n g i n g . It is a d y n a m i c process, based o n the interaction t h r o u g h rime o f different capitals, so t h a t the average "socially necessary l a b o u r " at any p o i n t is the result o f i n d i v i d u a l processes o f p r o d u c t i o n organised independently of each other w i t h different, often c h a n g i n g , a m o u n t s o f concrete labour. The first capitalist t o introduce a n e w technique in any section o f industry will be able t o p r o d u c e g o o d s w i t h less t h a n the a m o u n t s of l a b o u r prevailing in the system as a w h o l e , a n d will be able to capture markets from others. But once other capitalists a d o p t the technique, this advantage is lost. O n l y a capitalist w h o controls a very large part o f the market for particular c o m m o d i t i e s , or w h o can exert political pressure to impede others accessing his markets, will be able t o get a w a y for longer or shorter periods o f t i m e w i t h c h a r g i n g prices w h i c h reflect a m o u n t s o f l a b o u r higher t h a n those that are socially necessary. T h e l a w o f value o n l y operates as the result o f the pressures these different capitals exert o n each other t h r o u g h rime. A n y still p h o t o g r a p h from the m o v i n g film o f capitalist d e v e l o p m e n t will always s h o w discrepancies—and sometimes large o n e s — f r o m the l a w o f value. But the film itself will s h o w the discrepancies eventually

disappearing

under

the

pressure

of

inter-capitalist

c o m p e t i t i o n even as other discrepancies arise.

Value a n d prices It is this d y n a m i c aspect to M a r x ' s theory t h a t enables it t o deal w i t h a p r o b l e m that beset the a t t e m p t s by S m i t h a n d R i c a r d o t o base v a l u e o n labour. This is that the r a t i o o f l a b o u r t o investment varies f r o m industry t o industry. Yet in practice t h e rate o f profit (the ratio o f the s u r p l u s value to investment) does n o t v a n ' in the same way, even w h e n wages are m o r e or less the same level a n d the rate of e x p l o i t a t i o n m u s t be a b o u t rhe same. T h e prices o f g o o d s seem ro d e p e n d n o t o n the a m o u n t o f socially necessary l a b o u r needed t o p r o d u c e t h e m , bur o n a m a r k u p o n rhe cost o f capital investment. T h e bigger the capital investment the bigger, it seems, is the m a r k u p . A capitalist selling s o m e t h i n g p r o d u c e d by o n e person w o r k i n g o n an expensive m a c h i n e will expect a bigger m a r k u p t h a n for s o m e t h i n g p r o d u c e d by o n e person w o r k i n g o n a c h e a p m a c h i n e . T h e fact t h a t s o m e industries are m o r e " c a p i t a l i n t e n s i v e " t h a n others i m p l i e s t h a t prices have t o diverge f r o m 46

Understanding the System: Marx and Ik-yond

values in terms o f l a b o u r if profitability is n o t t o be m u c h lower in s o m e cases rhan others. T h i s is w h a t led A d a m Smith to dilute his l a b o u r theory o f value m

w i t h another, c o n t r a d i c t o r y a p p r o a c h . T h e sale of g o o d s p r o d u c e s a p a y m e n t that is d i v i d e d u p i n t o different " r e v e n u e s " — w a g e s for the workers, profit for the industrialist, interest for the banker w h o lent the industrialist money, a n d rent for the l a n d l o r d . S m i t h contradicts his o w n initial labour-based theory o f v a l u e by a r g u i n g that each o f these revenues a d d s to value. D a v i d R i c a r d o w a s m o r e consistent t h a n S m i t h a n d tried ro stick t o the p u r e l a b o u r theory. But this left a g a p in his t h e o r y t h a t e c o n o m i s t s w h o c a m e after h i m c o u l d n o t s o l v e — o n e w h i c h eventually o p e n e d the w a y to the neoclassical a b a n d o n m e n t o f the l a b o u r theorv o f value. 0

M a r x c o u l d , however, deal w i t h the p r o b l e m — u s u a l l y called the " t r a n s f o r m a t i o n p r o b l e m " — p r e c i s e l y because his m o d e l is a d y n a m i c o n e t h a t operates t h r o u g h time. H i s s o l u t i o n depends o n l o o k i n g at h o w firms will react to the emergence o f different profit rates. Those w i t h l o w e r profit rates will begin t o m o v e their capital elsewThere. T h i s w i l l cause a p o t e n t i a l shortage in w h a t they have been p r o d u c i n g , leading to a rise in prices a b o v e their value in l a b o u r terms. O t h e r firms w h o use those p r o d u c t s as i n p u t s t o their o w n

p r o d u c t i o n (either directly o r t h r o u g h

p a y i n g their

workers to buy t h e m t o replenish their l a b o u r power) 1 0 are forced to p a y the higher prices, in the process effectively h a n d i n g over some o f the s u r p l u s value in their o w n h a n d s . T h e e q u a l i s a t i o n o f rhe rare o f profit takes place t h r o u g h the redistribution o f surplus value w i t h i n the capitalist class. T h i s does n o t in a n y degree alter the fact t h a t the surplus value c a m e f r o m the e x p l o i t a t i o n o f w o r k e r s in the first place, a n d that every c h a n g e in the socially necessary l a b o u r t i m e needed to produce a c o m m o d i t y has a n effect o n its price. It is the flow o f a l r e a d y p r o d u c e d s u r p l u s v a l u e f r o m o n e capitalist t o a n o t h e r t h r o u g h t i m e t h a t equalises the rate o f p r o f i t ' " — w h i c h is also w h y there can be big differences between the rates o f profit in different parts o f the system w h e n there are i m p e d i m e n t s t o the flow o f value t h r o u g h rhe system (for instance, w h e n firms have very large a m o u n t s o f i n v e s t m e n t tied d o w n i m m o v a b l y in certain sorts o f fixed c a p i t a l o r w h e n states prevent i n v e s t m e n t m o v i n g o u t o f w h a t they see as priority industries). M a r x ' s s o l u t i o n to rhe p r o b l e m posed in S m i t h a n d R i c a r d o w a s attacked w i t h i n t w o years o f it a p p e a r i n g in V o l u m e Three o f Marx and his Critics

47

Capital

by the marginalist Bohm-Bawerk. The same a r g u m e n t s he

used have been e m p l o y e d repeatedly every since. They have often t h r o w n M a r x i s t s o n t o the defensive, w i t h m a n y accepting the core o f the criticism a n d retreating from the a t t e m p t t o understand the d y n a m i c s o f capitalism using M a r x ' s concepts. This h a p p e n e d , for instance, s o o n after the revival o f interest in M a r x i s m after rhe events o f 1968. Figures o n rhe left such as Ian Steedman a n d G e o f f H o d g s o n t o o k u p a r g u m e n t s essentially rhe same as those used against M a r x by Bohm-Bawerk ( a l t h o u g h they did n o t accept the marginaList theory o f value) a n d his successors like Samuelson.''* M a r x i s t scholarship, already o n the defensive for political reasons inside university economics faculties, often retreated into scholastic debates over texts or i n t o obtuse m a t h e m a t i c a l c a l c u l a t i o n s as remote from rhe real w o r l d as rhose o f their m a i n s t r e a m colleagues. The result overall w a s , as Ben Fine has pur it, u a n increasingly a n d exclusively academicised M a r x i s m " 1 " a n d " l i m i t e d w i t h rhe w o r l d o f capital as o p p o s e d to t h a t o f

engagement

CapitalV°

T h e criticism o f M a r x ' s a p p r o a c h centres a r o u n d the c o n t e n t i o n t h a t s i m p l y l o o k i n g at the m o v e m e n t o f v a l u e between c a p i t a l s after p r o d u c t i o n has taken place c a n n o r e x p l a i n final prices, since ir does n o t e x p l a i n the prices o f rhe i n p u t s i n t o p r o d u c t i o n (the m e a n s o f p r o d u c t i o n a n d l a b o u r p o w e r ) . For the i n p u t s themselves are c o m m o d i t i e s w i t h prices different t o rheir values. So M a r x ' s m e t h o d , it is c l a i m e d , e x p l a i n s prices in t e r m s o f prices, nor in rerms o f l a b o u r values. 21 T h e R i c a r d i a n , v o n Borrkiewicz, a t t e m p t e d in 1 9 0 7 to solve rhe p r o b l e m of d e d u c i n g prices f r o m l a b o u r values m a t h e m a t i c a l l y , using s i m u l t a n e o u s e q u a t i o n s . H e used a m o d e l in w h i c h there is n o c h a n g e in the a m o u n t o f capital investment f r o m o n e cycle o f p r o d u c t i o n t o the next ( w h a t is called " s i m p l e r e p r o d u c t i o n " ) . H i s e q u a t i o n s supposedly s h o w e d that a n y a t t e m p t to p r o v i d e a generally a p p l i c a b l e w a y o f t r a n s f o r m i n g l a b o u r values i n t o prices led ro o n e o f the " e q u a l i t i e s " taken for granted by M a r x n o t w o r k i n g . Hither total price did not equal equal total surplus

total value, or total profit

did

not

value.

Every a t t e m p t t o deduce prices f r o m values for most o f rhe 2 0 t h century ran i n t o the same p r o b l e m . T h e response o f M a r x i s t s w a s either t o a b a n d o n the central feature o f the l a b o u r t h e o r y o f value or ro c o n c l u d e , as for instance Paul Sweezy d i d in 1942, t h a t " r h e M a r x i a n m e t h o d of t r a n s f o r m a t i o n is logically unsatisfactory" but t h a t rhe " p a t t e r n s o f d e v e l o p m e n t " o f value a n d price " w i l l differ 48

Understanding the System: Marx and Ik-yond

o n l y in m i n o r d e t a i l s " . - A s o m e w h a t s i m i l a r c o n c l u s i o n w a s arrived at by M i g u e l Angel G a r c i a a n d A n w a r S h a i k h a m o n g others in the late I97()s using m o d e l s t h a t were m u c h less m a t h e m a t i c a l a n d easier t o f o l l o w t h a n v o n Bortkiewicz s.2* S h a i k h s h o w e d that total price c o u l d e q u a l total v a l u e , b u t total profit w o u l d

not

always e q u a l total s u r p l u s value. G a r c i a c l a i m e d to prove t h a t both equalities c o u l d h o l d . But he c o u l d o n l y d o so by a l l o w i n g a c h a n g e in rhe rate o f e x p l o i t a t i o n f r o m o n e p r o d u c t i o n cycle to the next, since the shift in prices caused by the m o v e m e n t s o f value between sectors caused changes i n the relative prices o f w a g e g o o d s a n d capital goods. 2 4 Since then, however, a n u m b e r o f M a r x i s t s have been able completely t o rescue M a r x ' s position by c h a l l e n g i n g the f u n d a m e n t a l a s s u m p t i o n m a d e by v o n Bortkiewicz, Sweezv, S h a i k h a n d m a n y o t h e r s — t h e reliance o n simultaneity. 2 5 T h e m e t h o d o f simultaneous e q u a t i o n s assumes t h a t the prices o f the i n p u t s t o p r o d u c t i o n have t o e q u a l the prices o f the o u t p u t s . Bur they d o n o t . T h e outputs are p r o d u c e d after the i n p u t s have g o n e i n t o p r o d u c t i o n . O r , ro p u t it a n o t h e r w a y , the value o f the i n p u t s for a process A will differ f r o m that o f rhe s a m e i n p u t s for a later process B — e v e n if in terms o f their physical c o m p o s i t i o n as use values they are identical. T h e value o f a ton o f steel used to m a k e a m a c h i n e t o d a y will n o t be the s a m e as the value used t o m a k e a n identical m a c h i n e next week. 7 * But, argue the critics o f M a r x , this still leaves the i n p u t s i n t o p r o d u c t i o n as prices, n o t as values, a n d t o reduce t h e m t o l a b o u r values involves an infinite regress. T h e investment need t o p r o d u c e rhe inputs needs t o be b r o k e n d o w n i n t o l a b o u r values, bur t h a t is nor possible w i t h o u t b r e a k i n g d o w n in turn rhe investment needed to p r o d u c e it, ad i n f i n i t u m . There is a s i m p l e response to those w h o pose the p r o b l e m like this: W h y ? W h y d o rhe investments needed t o p r o d u c e the i n p u t s have t o be b r o k e n d o w n in terms o f their l a b o u r v a l u e w h e n they themselves were p r o d u c e d ? 2 7 T h e starting p o i n t for l o o k i n g at any cycle o f p r o d u c t i o n is the m o n e y price o f the i n p u t s needed t o u n d e r t a k e it. T h e exercise o f l a b o u r in the p r o d u c t i o n process then a d d s a certain a m o u n t o f new v a l u e , w h i c h f o r m s the basis o f the n e w c o m m o d i t y , rhe price o f w h i c h in t u r n is f o r m e d t h r o u g h the m o v e m e n t o f surplus value f r o m capitalists w h o w o u l d otherwise get a higher t h a n average rate o f profit to those w h o w o u l d get a lower one. Marx and his Critics

49

There is n o need t o g o back in history ro d e c o m p o s e i n r o l a b o u r values rhe prices o f things w h i c h were p a i d for ar the b e g i n n i n g o f rhe p r o d u c t i o n r o u n d , in order t o u n d e r s t a n d rhe i m p a c t o f creating n e w value a n d s u r p l u s value o n the d y n a m i c s o f the system. It is n o m o r e necessary t h a n it is in physical d y n a m i c s t o d e c o m p o s e rhe m o m e n t u m o f an object that strikes a n o t h e r i n t o all the forces t h a t have previously acted o n it to create rhat m o m e n t u m , g o i n g right back ro the f o u n d a t i o n o f the universe w i t h the big b a n g ; or t h a n it is necessary in b i o l o g y ro k n o w the w h o l e history o f the e v o l u t i o n o f a n o r g a n i s m , g o i n g right back ro rhe first f o r m a t i o n o f o r g a n i c life f o r m s , in o r d e r to see w h a t the effect o f a genetic c h a n g e will be in the present. As G u g l i e l m o C a r c h e d i has p o i n t e d o u t , " I f this c r i t i q u e were s o u n d , it w o u l d m e a n rhe b a n k r u p t c y n o t o n l y of M a r x ' s transform a t i o n p r o c e d u r e b u t also o f social science in all its v e r s i o n s " i n c l u d i n g those that criticise M a r x : This critique, in fact, w o u l d have ro a p p l y t o a n y social phen o m e n o n i n a s m u c h as it is d e t e r m i n e d by other p h e n o m e n a , b o t h present a n d past. Social sciences, then, w o u l d become a n endless quest for the starting p o i n t o f the inquiry. It w o u l d never be possible t o analyse h o w s o m e current actions related t o the c u m u l a t i v e products o f past actions.

Skilled a n d unskilled l a b o u r T h e s a m e d y n a m i c character of M a r x s m o d e l also dispels w h a t has been presented f r o m B o h m - B a w e r k o n w a r d s as a n o t h e r problem for the l a b o u r theory o f value. T h i s is h o w the c o n t r i b u t i o n o f skilled l a b o u r t o value creation is to be measured. M a r x seems to see this as easily solved. H e writes that: skilled l a b o u r c o u n t s o n l y as s i m p l e l a b o u r intensified, or rather, as m u l t i p l i e d s i m p l e labour, a given q u a n t i t y o f skilled being considered e q u a l to a greater q u a n t i t y o f s i m p l e l a b o u r . . . T h e different p r o p o r t i o n s in w h i c h the different sorts o f l a b o u r are reduced to unskilled l a b o u r as their s t a n d a r d , are established by a social process that goes o n b e h i n d the b a c k o f the producers a n d , consequently, a p p e a r t o be fixed by custom. 2 * 50

Understanding the System: Marx and Ik-yond

This e x p l a n a t i o n is fully a d e q u a t e w h e n rhe s a m e j o b is d o n e by a skilled w o r k e r a n d unskilled worker, w i t h the skilled w o r k e r d o i n g it m u c h m o r e quickly. A n h o u r o f the skilled l a b o u r will be w o r t h m o r e t h a n o n e h o u r o f the average "socially necessary" l a b o u r in rhe svstem as a w h o l e , w h i l e the unskilled l a b o u r will be w o r t h less •

W

t h a n that. There is a p r o b l e m , however, w h e n it c o m e s t o skilled l a b o u r that c a n n o t be replaced by a greater q u a n t i t y o f unskilled labour. lr does n o t m a t t e r h o w m a n y unskilled l a b o u r e r s a capitalist employs, they will never be able t o d o the s a m e task as a skilled l o o l m a k e r or a systems analyst. H o w then can the value p r o d u c e d by the second g r o u p be m e a s u r e d in terms o f h o u r s o f l a b o u r o f the first g r o u p ? It seems t h a t any a t t e m p t t o d o so m u s t involve an arbitrariness t h a t u n d e r m i n e s the basic theory.

Bohm-Bawerk

argued t h a t w h e n M a r x writes t h a t " a social process" explains the m e a s u r e m e n t , he is t a k i n g for g r a n t e d t h a t w h i c h he is trying t o explain. For B o h m - B a w e r k this proved that it is n o t the a m o u n t o f l a b o u r in g o o d s w h i c h determines their prices, b u t the w a y people evaluate them in relation t o other g o o d s (their " u t i l i t y " ) a n d that ihis deals a death b l o w t o the l a b o u r theory o f value. H o w e v e r , the p r o b l e m for the theory evaporates o n c e the l a w o f value is seen as s o m e t h i n g w o r k i n g t h r o u g h time. T h e developm e n t o f t e c h n o l o g y a g a i n a n d a g a i n leads t o jobs e m e r g i n g that can o n l y be carried o u t by those w i t h particular skills. A t first there is n o objective measure o f the a m o u n t o f socially necessary l a b o u r time needed to p r o d u c e t h e m , a n d those in possession o f such skills or the g o o d s p r o d u c e d by t h e m c a n receive p a y m e n t s w h i c h bear n o o b v i o u s relation to l a b o u r t i m e . In effect, v a l u e flows to those c o n t r o l l i n g a m o n o p o l y of these skills f r o m the rest o f the system. But this is o n l y a transitory phase, even if sometimes a long o n e , as capitalists elsewhere in the system will d o their u t m o s t t o try t o g a i n c o n t r o l o f s o m e o f the benefits o f the n e w skills for themselves. There are t w o w a y s they can d o this. They c a n train n e w g r o u p s o f w o r k e r s t o a c q u i r e rhe skills. T h i s effectively a m o u n t s to u s i n g one sort of l a b o u r to create n e w l a b o u r p o w e r c a p a b l e o f d o i n g the skilled w o r k , so t h a t the final l a b o u r is in fact c o m p o s i t e labour, m a d e u p of rhe living l a b o u r o f the i m m e d i a t e w o r k e r s a n d a form of dead l a b o u r e m b o d i e d in their l a b o u r p o w e r as skills. T h e capitalists c a n get this extra element in l a b o u r p o w e r directly by o n rhe j o b t r a i n i n g for w o r k e r s (as w i t h a p p r e n t i c e s h i p systems), they Marx and his Critics

51

c a n leave its p r o v i s i o n to the w o r k e r s themselves ( w h e n w o r k e r s p a y to g o t h r o u g h courses to get skills qualifications) or they can rely in part 011 the state p r o v i d i n g it t h r o u g h its t r a i n i n g courses. But in each case, dead l a b o u r is e m b o d i e d in the e n h a n c e d l a b o u r power and

then transferred

i n t o rhe p r o d u c t s o f rhe

labour

process, as w i t h the dead l a b o u r e m b o d i e d in m e a n s a n d materials of production.30 B u t this still leaves a question unresolved. W h o trains the trainers?

Skilled

trainers c a n n o t

themselves

get

their

skills

from

unskilled workers. I f their skills are m o n o p o l y skills a n d they produce g o o d s that c a n n o t be produced by unskilled workers, however m a n y w o r k Together at the j o b , then those w h o o w n those g o o d s will be able t o charge m o n o p o l y prices that d o n o t reflect l a b o u r values, bur simply h o w m u c h people are prepared t o pay. T h i s will be true o f certain skills a n d certain g o o d s at any particular p o i n t in time. But over t i m e this l a b o u r t o o will be reduced t o s o m e objective ratio o f other labour. Capitalists elsewhere in the system w i l l actively seek o u t new technologies t h a t

undermine

such skill m o n o p o l i e s by e n a b l i n g the tasks t o be d o n e by m u c h less skilled labour. In this way, the reduction o f skilled l a b o u r ro unskilled l a b o u r over t i m e is a never e n d i n g feature o f capitalist acc u m u l a t i o n . If e n o u g h unskilled l a b o u r is trained u p t o the level o f skilled l a b o u r needed t o p r o d u c e p a r t i c u l a r c o m m o d i t i e s , those c o m m o d i t i e s will cease ro be scarce a n d their v a l u e will fall ro the level t h a t reflects the c o m b i n a t i o n o f the l a b o u r needed to reproduce average l a b o u r p o w e r a n d the extra cost o f the t r a i n i n g . A s C a r c h e d i puts it: D u e t o rhe i n t r o d u c t i o n

of new techniques

in the

labour

process, the level o f skills required o f an agent is lowered. T h e value o f his o r her l a b o u r p o w e r is then d e v a l u e d . W e can refer to this process as devaluation qualification

(of l a b o u r p o w e r ) through

de-

(of skills). It is this process w h i c h reduces skilled

t o u n s k i l l e d l a b o u r a n d thus (at least as far as the value o f l a b o u r p o w e r is c o n c e r n e d ) alters the e x c h a n g e relations between the c o m m o d i t i e s o f w h i c h those different types o f l a b o u r p o w e r are a n i n p u t . It is this real process w h i c h justifies the theoretical

reduction

of

skilled

to

unskilled

labour,

or

the

expression o f the f o r m e r as a m u l t i p l e o f the latter... T h e process o f d e v a l u a t i o n t h r o u g h d e q u a l i f i c a t i o n is a constant tendency in capitalist p r o d u c t i o n , d u e to rhe c o n s t a n t need 52

Understanding the System: Marx and Ik-yond

capitalists have t o reduce the level o f wages. O n the other h a n d , the s a m e techniques create n e w a n d qualified p o s i t i o n s (the counter-rendency) w h i c h , in their t u r n , are s o o n subjected to deq u a l i f i c a t i o n . . . A t any m o m e n t i n rime we can observe b o t h the tendency (the d e q u a l i f i c a t i o n o f certain p o s i t i o n s a n d thus the d e v a l u a t i o n o f the agents' l a b o u r p o w e r ) a n d rhe counter-tendency (the creation o f new, qualified p o s i t i o n s for w h i c h agents w i t h a high value of l a b o u r p o w e r are n e e d e d ) / L a b o u r m a v n o t be reducible t o socially necessary l a b o u r t i m e in4

9

*

stantaneously. But it is so reduced over t i m e t h r o u g h the b l i n d interaction o f different capitals w i t h each other. A g a i n the l a w o f value has ro be u n d e r s t o o d as pressurising the i n d i v i d u a l components t o operate in a certain way, n o t as a f o r m u l a establishing fixed, fast f f t z e n relations between t h e m . M a r x s basic c o n c e p t s survive all rhe criticisms o n c e they are not interpreted t h r o u g h the static f r a m e w o r k , i g n o r i n g the process of c h a n g e t h r o u g h t i m e that characterises the neoclassical system.

Marx and his Critics

53

Understanding the System: Marx and Beyond

CHAPTER THRLE

The dynamics of the system

Illusions a n d reality r h e history o f c a p i t a l i s m in M a r x ' s t i m e a n d t h a t o f his immediate successors w a s p u n c t u a t e d hv e c o n o m i c crises t h a t occurred a b o u t o n c e every ten years—there were 15 in the US in the 1 1 0 years between 1810 a n d 1920. For a few years firms w o u l d invest o n a large scale, t a k i n g o n n e w w o r k e r s ; b u i l d i n g n e w factories a n d b u y i n g new m a c h i n e s w o u l d create a d e m a n d for the p r o d u c t s o f industries like c o n s t r u c t i o n , steel a n d c o a l , w h i c h in t u r n w o u l d take o n n e w workers; the n e w workers w o u l d receive wages w h i c h in t u r n e n a b l e d t h e m ro b u y g o o d s . Very fast rates o f economicg r o w t h led firms to d o everything they c o u l d to lure p e o p l e f r o m the c o u n t r y s i d e — a n d increasingly f r o m other, poorer c o u n t r i e s — i n t o selling their l a b o u r p o w e r in the t o w n s .

Unemployment

w o u l d fall to a r o u n d 2 percent. T h e n s o m e t h i n g a l w a y s seemed t o go w r o n g . G i a n t firms w o u l d s u d d e n l y g o bust, c a n c e l l i n g the d e m a n d for the p r o d u c t s o f other industries, where firms w o u l d also g o bust; right across the e c o n o m y w o r k e r s — m a n y o n l y recently d r a w n i n t o i n d u s t r y — w o u l d be sacked; their loss o f b u y i n g p o w e r then ensured that the crisis ricocheted f r o m i n d u s t r y t o industry; p a n i c w o u l d sweep t h r o u g h rhe capitalist class, w h i l e u n e m p l o y m e n t shot u p virtually over n i g h t t o 10 percent or higher, where it w o u l d stay for m o n t h s or even years until a n e w p e r i o d o f r a p i d g r o w t h t o o k off. T h e m a i n s t r e a m e c o n o m i c s o f t h e t i m e denied that such "crises of o v e r p r o d u c t i o n " were e n d e m i c to the system, b a s i n g their arg u m e n t s o n a p o p u l a r i s e r a n d vulgariser o f A d a m Smith's ideas, Jean-Baptiste Say. H i s " l a w " a r g u e d t h a t s u p p l y a n d

demand

m u s t a l w a y s c o i n c i d e , since every t i m e s o m e o n e sold s o m e t h i n g 55

s o m e o n e else m u s t have b o u g h t it: s u p p l y , it w a s c l a i m e d , created its o w n d e m a n d . S o J o h n Stuart M i l l a r g u e d : Each person's m e a n s for p a y i n g for the p r o d u c t i o n o f o t h e r p e o p l e consists in those [ c o m m o d i t i e s ) that he h i m s e l f possesses. A l l sellers are i n e v i t a b l y by the m e a n i n g o f the w o r d b u y e r s . . . A general over-supply...of all c o m m o d i t i e s a b o v e the d e m a n d is...[an| i m p o s s i b i l i t y . . . People m u s t spend

their...

s a v i n g s . . . p r o d u c t i v e l y ; t h a t is, in e m p l o y i n g labour. 1 T h e f o u n d e r s of the neoclassical s c h o o l h a d to accept t h a t in practice the e c o n o m y experienced a " t r a d e cycle" o r "business cycle" o f b o o m s a n d recessions, in w h i c h for s o m e reason s u p p l y a n d d e m a n d did not a l w a y s balance as their theory c l a i m e d . Their reaction was t o b l a m e these things o n external factors t h a t s o m e h o w led

to temporary

distortions

in

an

otherwise

fundamentally

healthy system. So J e v o n s w r o t e t h a t the business cycle w a s a result o f sun spots w h i c h , he c l a i m e d , affected the c l i m a t e a n d therefore the p r o d u c t i v i t y o f a g r i c u l t u r e a n d the profitability o f trade, w h i l e Walras saw crises as disturbances caused by the failure o f prices t o respond to s u p p l y a n d d e m a n d , c o m p a r a b l e in effect to passing storms o n a s h a l l o w lake. S o m e later neoclassical economists did try t o develop theories o f the business cycle. A n w a r S h a i k h has s u m m e d u p their a p p r o a c h : t h e system is still v i e w e d as b e i n g self-regulating; o n l y n o w the a d j u s t m e n t is seen as b e i n g cyclical rather t h a n s m o o t h . . . I n o r t h o d o x t h e o r y a cycle is n o t a crisis... Cycles m u s t be v i e w e d as " s m a l l f l u c t u a t i o n s " . . . w h i c h a t first a p p r o x i m a tion

one

may

justifiably

neglect...

Violent

or

e x p a n s i o n s a n d c o n t r a c t i o n s arise f r o m e x t e r n a l

prolonged factors...

Crises, therefore, r e m a i n o u t s i d e the n o r m a l process o f capitalist r e p r o d u c t i o n . This view still persists in w h a t is k n o w n as "real business cycle theo r i e s " . These hold that: business cycles are rhe aggregate result o f the o p t i m u m response o f i n d i v i d u a l s to changes in the e c o n o m i c e n v i r o n m e n t . . . T h e e c o n o m i c cycle is a s s u m e d to have a stochastic [ i r r e g u l a r — C H ] oscillation a r o u n d a t r e n d / 56

Understanding the System: Marx and Ik-yond

I hey still d o n o t a l l o w w h a t they see as short-term a b e r r a t i o n s ro u n d e r m i n e their f a i t h in a n u n c h a l l e n g e a b l e system o f l a w s w h i c h lay d o w n h o w any efficient e c o n o m y m u s t operate.

I he possibility o f crisis Karl M a r x , by c o n t r a s t , a r g u e d t h a t the possibility o f general crises o f o v e r p r o d u c t i o n w a s b u i l t i n t o the very n a t u r e o f capitalism. H e destroyed the a r g u m e n t s based u p o n Say's l a w in a c o u p l e ot p a r a g r a p h s in the- first v o l u m e o f Capital.

O f course, he ac-

k n o w l e d g e d , every t i m e s o m e o n e sells an article s o m e o n e else buys it. R u t , argued M a r x , o n c e m o n e y is used ro e x c h a n g e g o o d s t h r o u g h rhe m a r k e t , it does n o t f o l l o w that the seller has then immediately t o b u y s o m e t h i n g else. M o n e y acts n o t o n l y as a measure o f value in directly e x c h a n g i n g g o o d s , b u t also as a m e a n s o f storing value. I f s o m e o n e chooses t o save the m o n e y they ger from selling a g o o d rather t h a n s p e n d i n g it immediately, then there will nor be e n o u g h m o n e y being spent in rhe system as a w h o l e t o buy all the g o o d s t h a t have been p r o d u c e d : N o t h i n g c a n be m o r e c h i l d i s h t h a n the d o g m a t h a t because every sale is a purchase a n d every purchase a sale, therefore rhe c i r c u l a t i o n o f c o m m o d i t i e s necessarily i m p l i e s e q u i l i b r i u m o f sales a n d purchases. If this m e a n s t h a t the n u m b e r o f a c t u a l sales is equal t o the n u m b e r o f purchases, it is mere t a u t o l o g y . But its real p u r p o r t is t o p r o v e that every seller brings his buyer to m a r k e t w i t h h i m . N o t h i n g o f the k i n d . T h e sale a n d the purchase c o n s t i t u t e . . . a n e x c h a n g e between a c o m m o d i t y - o w n e r a n d a n o w n e r o f m o n e y , between t w o persons as o p p o s e d t o each other as the t w o poles o f a m a g n e t . . . N o o n e c a n sell unless s o m e o n e else p u r c h a s e s . B u t n o o n e is f o r t h w i t h b o u n d

ro p u r c h a s e , because he has just s o l d .

C i r c u l a t i o n bursts t h r o u g h all r e s t r i c t i o n s as ro t i m e , p l a c e , a n d i n d i v i d u a l s , i m p o s e d by direct barter, a n d this it effects by s p l i t t i n g u p , i n t o the a n t i t h e s i s o f a sale a n d a p u r c h a s e , the direct identity t h a t in barter does exist between the a l i e n a t i o n o f one's o w n a n d the a c q u i s i t i o n o f s o m e o t h e r m a n ' s p r o d u c t . If the interval i n t i m e between the t w o c o m p l e m e n t a r y phases o f the c o m p l e t e m e t a m o r p h o s i s o f a c o m m o d i t y b e c o m e t o o great, if t h e split between rhe sale a n d the p u r c h a s e b e c o m e I he Dynamics of rhe System

57

t o o p r o n o u n c e d , the i n t i m a t e c o n n e x i o n between t h e m , their oneness, asserts itself b y p r o d u c i n g — a crisis/

T h e inevitability o f crisis These a r g u m e n t s used by M a r x in V o l u m e O n e o f Capital

"imply

the possibility, a n d n o m o r e t h a n the possibility, o f crises". 6 But in V o l u m e Three he w e n t further, t o a r g u e for the inevitability o f crises. H e did so by m o v i n g b e y o n d the m o s t abstract considerations a b o u t the b u y i n g a n d selling o f c o m m o d i t i e s w i t h m o n e y t o l o o k at the concrete process involved in capitalist p r o d u c t i o n a n d exchange. As is often r e m a r k e d , M a r x d i d not p r o v i d e a single, integrated a c c o u n t o f the crisis. R a t h e r he refers to different aspects o f the crisis in w r i t i n g s t h a t are scattered i n different parts o f the text.

But it is n o t t h a t difficult t o c o n s t r u c t a coherent a c c o u n t

f r o m these. T h e starting p o i n t is that c o m p e t i t i v e a c c u m u l a t i o n m e a n s t h a t capitalists are s i m u l t a n e o u s l y trying ro increase the o u t p u t of their g o o d s as m u c h as possible at the same t i m e as trying ro m a x i m i s e profits by h o l d i n g d o w n wages. But wages c o n s t i t u t e a m a j o r part o f rhe m o n e y available ro b u y goods. P r o d u c t i o n rends t o m o v e in one direction, the c o n s u m p t i o n o f the masses in the other: T h e c o n d i t i o n s o f direct e x p l o i t a t i o n , a n d those o f realising it, are n o t identical. T h e y diverge nor o n l y in place a n d t i m e , but also logically. T h e first are o n l y l i m i t e d by the p r o d u c t i v e p o w e r o f society, the latter by the p r o p o r t i o n a l relation o f rhe various branches o f p r o d u c t i o n a n d the c o n s u m e r p o w e r o f society. B u t this last-named is based o n a n t a g o n i s t i c c o n d i t i o n s o f distribut i o n , w h i c h reduce t h e c o n s u m p t i o n o f rhe b u l k o f society t o a m i n i m u m v a r y i n g w i t h i n m o r e or less n a r r o w limits. It is furt h e r m o r e restricted by the tendency ro a c c u m u l a t e , the drive to e x p a n d capital and

p r o d u c e s u r p l u s value o n a n

extended

scale... I h e m o r e productiveness develops, the m o r e it

finds

itself at variance w i t h the n a r r o w basis o n w h i c h the c o n d i t i o n s of consumption rest../ S o m e people have interpreted this passage as m e a n i n g t h a t the mere fact that w o r k e r s are exploited limits the scale o f the m a r k e t a n d creates crises. Such " u n d e r c o n s u m p t i o n i s r " versions o f M a r x i s m 58

Understanding the System: Marx and Ik-yond

share s o m e features in c o m m o n w i t h the f o r m o f the m a i n s t r e a m economics t h a t developed in the 1930s u n d e r the influence o f Keynes. T h e c o n c l u s i o n seems t o be that c a p i t a l i s m c a n escape i risis if the state intervenes t o raise c o n s u m p t i o n the m o m e n t a recession seems likely t o develop. But M a r x ' s o w n a r g u m e n t does nor s t o p w i t h p o i n t i n g ro the possibility o f c o n s u m p t i o n falling b e l o w p r o d u c t i o n . H e goes o n to insist t h a t the d o u b l e n a t u r e o f o n e set o f c o m m o d i t i e s , those that m a k e u p the m e a n s o f p r o d u c t i o n , as b o t h values a n d use values, m a k e s that inevitable. A Russian M a r x i s t e c o n o m i s t o f the late 1920s, Pavel V M a k s a k o v s k y , spelt o u t h o w this d o u b l e n a t u r e w o r k s itself out. 1 0 As w e have seen, the e x c h a n g e value o f goods is determined by the a m o u n t o f l a b o u r required t o p r o d u c e them u s i n g rhe average level o f techniques a n d skill o p e r a t i n g in the system as a w h o l e ( w h a t M a r x refers t o as " a b s t r a c t l a b o u r " ) . But their p r o d u c t i o n involves concrete h u m a n l a b o u r b r i n g i n g objects ( " u s e v a l u e s " ) i n t o physical interaction w i t h each other. T h e correct relations between different e x c h a n g e values a n d different use values m u s t exist for p r o d u c t i o n to take place. The m o r e industry develops, rhe more complicated these relations become. Textile m a c h i n e s c a n n o t be p r o d u c e d w i t h o u t steel; steel w i t h o u t i r o n ore a n d coal; coal w i t h o u t c u t t i n g machinery, w i n d i n g gear a n d so o n . But the chains o f physical interaction depend o n chains o f b u y i n g a n d selling, in which coal firms sell to steel firms, steel firms t o textile firms a n d textile firms to c o n s u m e r s — t h a t is, ro people w h o get wages or profits to spend from other firms so l o n g as these can sell their goods. Such l o n g , i n t e r t w i n e d c h a i n s l i n k i n g p r o d u c t i o n t o final cons u m p t i o n o n l y f u n c t i o n if t w o c o m p l e t e l y different c o n d i t i o n s are fulfilled. T h e correct physical relations between things t h a t g o to produce other t h i n g s has t o exist determined by the l a w o f physics, chemistry a n d biology. B u t , at the s a m e rime, each act o f production has to e x p a n d the a m o u n t o f value (ie the a m o u n t o f average ibstract l a b o u r ) in the h a n d s o f rhe o w n e r s o f each particular firm. I he physical o r g a n i s a t i o n o f the p r o d u c t i o n o f use values has s o m e h o w t o correspond w i t h the capitalist d e t e r m i n a t i o n o f prices by values. Discrepancies between rhe t w o requirements m e a n t h a t the expansion o f p r o d u c t i o n inevitably leads t o bottlenecks in the supply of raw materials, causing their prices t o rise, c u t t i n g i n t o the profits of those capitalists w h o buy t h e m , a n d so redistributing surplus I he Dynamics of rhe System

59

v a l u e f r o m the capitalists p r o d u c i n g finished g o o d s a n d c o m p o nents ro those p r o d u c i n g r a w materials. It also m e a n s t h a t the d e m a n d for o n e vital c o m m o d i t y , l a b o u r power, c a n begin t o exceed the supply, leading t o u p w a r d pressure o n wages (at least in m o n e y terms, a l t h o u g h workers m a y n o t see it like this if rising raw material prices cut i n t o rhe b u y i n g p o w e r o f the e x p a n d e d wage). T h a r is n o t all. I f it were, the p r o b l e m w o u l d s i m p l y be a tendency t o w a r d s d i s p r o p o r t i o n a l i t y between the different parts o f the e c o n o m y . '

Bur there are f u r t h e r p r o b l e m s . P r o d u c t i o n w i l l

n o t take place at all unless capitalists t h i n k they can sustain themselves i n c o m p e t i t i o n w i t h o t h e r capitalists, by g e t t i n g a rate o f p r o f i t at least e q u a l t o the average in rhe system as a w h o l e . To g u a r a n t e e this they h a v e repeatedly t o reorganise

production,

u s i n g m o r e a d v a n c e d t e c h n i q u e s to increase p r o d u c t i v i t y

per

worker. Bur as all the capitalists try t o d o this, they c o n t i n u a l l y reduce the average a m o u n t o f l a b o u r needed t o p r o d u c e g o o d s — a n d therefore the v a l u e o f the g o o d s . T h e physical q u a n t i t y o f g o o d s p r o d u c e d by the system will tend t o rise, b u t the value o f each i n d i v i d u a l g o o d w i l l tend t o fall. T h e t w o t h i n g s necessary for the system t o f u n c t i o n , the physical o r g a n i s a t i o n o f p r o d u c t i o n a n d the f l o w o f v a l u e t h r o u g h rhe system, b o t h

change

r e p e a t e d l y — b u r w i t h o u t there being a n y a u t o m a t i c c o m p a t i b i l i t y between the changes t a k i n g place. Firms undertake p r o d u c t i o n by b u y i n g physical e q u i p m e n t (machines, b u i l d i n g s , c o m p u t e r s a n d so o n ) at prices d e p e n d e n t o n the average a m o u n t of l a b o u r needed t o p r o d u c e t h e m at a p a r t i c u l a r m o m e n t in time. But even as p r o d u c t i o n is t a k i n g place, increases in p r o d u c t i v i t y elsewhere in the system are r e d u c i n g rhe value o f t h a t e q u i p m e n t a n d o f the g o o d s the firm is p r o d u c i n g w i t h it. The firm's c a l c u l a t i o n s o f profitability were based o n the a m o u n t it h a d to spend o n this e q u i p m e n t in the past, n o t o n w h a t its present value i s — b u r it is o n its initial investment that the firm has t o m a k e a profit. S o the r a p i d rate o f a c c u m u l a t i o n t h a t characterises the b o o m has the effect o f c u t t i n g the prices o f each u n i t o f o u t p u t , a n d this hits the profits to be m a d e o n investments m a d e earlier in the b o o m . Not

only

do

rhe

values

of

goods

keep

changing,

but,

M a k s a k o v s k y s h o w s , rhe reaction o f capitalists t o these changes leads prices t o diverge f r o m values. A s profits fall, s o m e firms s t o p n e w investments for a p e r i o d . T h i s reduces the d e m a n d for rhe g o o d s o f the other firms t h a t previously supplied t h e m . These then 60

Understanding the System: Marx and Ik-yond

try t o m a i n t a i n their sales by c u t t i n g their prices b e l o w the levels determined by value w h i l e they sack w o r k e r s in o r d e r to try ro protect their profits o n rhe g o o d s they are selling ar reduced prices a n d ar t h a t s a m e t i m e cancel their o w n investments for fear they will n o t be profitable. A w a v e o f c o n t r a c t i o n goes t h r o u g h the e c o n o m y a n d w i t h it a general r e d u c t i o n o f prices below values. The c o n t r a c t i o n does n o t last forever. S o m e firms g o b a n k r u p t , a l l o w i n g other firms t o buy plant a n d e q u i p m e n t o n the c h e a p a n d to cur rhe wages w h i c h workers are prepared ro accept. Eventually, .1 p o i n t is reached where they c a n expect ro get higher t h a n average profits it they e m b a r k o n a n e w r o u n d o f i n v e s t m e n t a n d a n e w wave o f e x p a n s i o n takes o f f as capitalists rush ro rake a d v a n t a g e ot the better business c o n d i t i o n s . C o m p e t i t i o n leads firms t o undertake a le\^l o f i n v e s t m e n t w h i c h

t e m p o r a r i l y exceeds the

existing o u t p u t o f n e w machinery, c o m p o n e n t s a n d r a w materials. I he " o v e r p r o d u c t i o n " of the d o w n t u r n is replaced by " u n d e r p r o d u c t i o n " in the u p t u r n , a n d just as prices before were b e l o w values m the s l u m p , n o w they rise a b o v e values in the b o o m . But this o n l y Lists until all the n e w p l a n t a n d m a c h i n e r y pass i n t o p r o d u c t i o n , increasing o u t p u t at the s a m e t i m e as r e d u c i n g the value o f individual g o o d s , m a k i n g s o m e i n v e s t m e n t u n p r o f i t a b l e a n d g i v i n g rise in t i m e to yet a n o t h e r d o w n t u r n . T h e central p o i n t is t h a t the cycle is n o t a result o f m i s t a k e n decisions by i n d i v i d u a l capitalists o r their g o v e r n m e n t s , b u t o f rhe very w a y value expresses itself in prices. T h i s takes place t h r o u g h .1 c o n t i n u a l oscillation w i t h prices arising a b o v e a n d falling b e l o w values, n o t t h r o u g h s o m e c o n t i n u o u s e q u i l i b r i u m . This c a n n o t be grasped w i t h o u t starting w i t h the objective contradictions expressed in the n o t i o n o f value. O n l y by dialectically d r a w i n g o u t these c o n t r a d i c t i o n s w a s M a r x able t o p r o v i d e a n overview o f the system s d y n a m i c .

(Credit a n d

financial

capital

I he spells o f e x p a n s i o n a n d c o n t r a c t i o n arc m o d i f i e d a n d intensified by the role played by c r e d i t — a n d those w h o play a special part in the d e v e l o p m e n t o f this, the bankers. C a p i t a l passes t h r o u g h different f o r m s in rhe c o u r s e o f capitalist p r o d u c t i o n . 1 1

It begins as m o n e y . T h i s is used t o

buy

i n s t r u m e n t s a n d m a t e r i a l s o f p r o d u c t i o n a n d l a b o u r p o w e r as I lit* Dvrumics of rhe System J /

61

c o m m o d i t i e s , w h i c h in t u r n arc c o m b i n e d i n the

production

process t o p r o d u c e o t h e r c o m m o d i t i e s . These are sold t o get m o r e m o n e y , w h i c h is then used t o b u y m o r e m e a n s o f product i o n a n d l a b o u r p o w e r . In this w a y o n e cycle o f

production

f o l l o w s a n o t h e r endlessly, so t h a t "every e l e m e n t " in it " a p p e a r s as a p o i n t o f d e p a r t u r e , transit a n d r e t u r n " . 1 ' So capital takes the f o r m o f m o n e y , o f c o m m o d i t i e s , o f m e a n s o f p r o d u c t i o n a n d l a b o u r power, then o f c o m m o d i t i e s a g a i n a n d finally o f money. For the system ro operate, all these f o r m s have to exist simultaneously. If p r o d u c t i o n is ro keep g o i n g w i t h o u t a s t o p , there has to be a supply o f m o n e y to buy c o m m o d i t i e s , a s u p p l y of c o m m o d i t i e s to be b o u g h t as p r o d u c t i v e c a p i t a l a n d a s u p p l y o f l a b o u r power. T h e cycle ot capitalist p r o d u c t i o n , then, is m a d e u p o f three interconnected c i r c u i t s — o f m o n e y , o f p r o d u c t i v e capital a n d o f c o m m o d i t i e s . Each circuit fulfils a f u n c t i o n for c a p i t a l acc u m u l a t i o n — a n d does so to s o m e extent a c c o r d i n g to a d y n a m i c o f its o w n . In the early stages o f c a p i t a l i s m , w h e n rhe units o f p r o d u c t i o n were s m a l l , the p r o d u c t i v e capitalist c o u l d operate to s o m e degree i n d e p e n d e n t l y . H e h a d the possibility o f

financing

the b u y i n g o f

plant a n d m a c h i n e r y a n d p a y i n g his w o r k e r s f r o m his o w n pocket. H e also h a d t h e possibility o f selling his o u t p u t directly ro those w h o c o n s u m e d it. But as the i n d i v i d u a l enterprises grew bigger, the capitalist often f o u n d his o w n resources were n o t e n o u g h ro pay in a d v a n c e for all the p l a n t , m a c h i n e r y a n d materials he needed. H e h a d t o b o r r o w f r o m others. H e c a m e to rely o n credit, a n d o n special institutions, b a n k s , ready to lend t o people in return for interest o n these loans. At the same t i m e , as the scale o f the m a r k e t grew, he c o u l d o n l y sell his g o o d s by relying u p o n specialists in the wholesale a n d retail trades, w h o w o u l d nor be able ro pay h i m for all those g o o d s until they h a d , in t u r n , sold them t o the final c o n s u m e r s . T h e productive capitalist b o r r o w e d o n rhe o n e h a n d a n d lent o n the other. C r e d i t b e c a m e an indispensable part o f capitalist p r o d u c t i o n . A n d the greater the extent o f capitalist p r o d u c t i o n w i t h i n a p a r t i c u l a r e c o n o m y , the longer a n d m o r e c o m p l e x b e c a m e rhe c h a i n s of credit, o f b o r r o w i n g a n d l e n d i n g . T h e p r o d u c t i v e capitalist c o u l d also b e c o m e a large scale lender. H i s fixed c a p i t a l — h i s factory b u i l d i n g a n d m a c h i n e r y — w a s o n l y renewed every few years. Bur p r o d u c t i o n p r o v i d e d a m o r e or less c o n s t a n t f l o w o f profits. H e c o u l d lend these profits to others in the 62

Understanding the System: Marx and Ik-yond

interim before r e n e w i n g his o w n fixed c a p i t a l — a n d w o u l d d o so in return for the p a y m e n t o f interest. O n c e c a p i t a l i s m is fully developed as the d o m i n a n t w a y o f prod u c i n g in a p a r t i c u l a r e c o n o m y , the lending o f past profits by those productive capitalists w h o d o n o t wish to i m m e d i a t e l y reinvest becomes rhe chief source o f the f u n d s for those capitalists w h o d o wish to invest but lack sufficient past profits t o d o so. T h e

financial

system emerges as a n e t w o r k o f institutions t h a t m e d i a t e between different p r o d u c t i v e capitalists ( a n d the stare, i n s o f a r as discrepancies t h a t exist between

its i m m e d i a t e

tax

income

and

its

i m m e d i a t e e x p e n d i t u r e lead it t o also b o r r o w a n d lend). T h o s e w h o r u n the financial institutions are o u t to m a k e profits just as m u c h as rhe p r o d u c t i v e capitalists are. They h a v e f u n d s o f their o w n (their b a n k i n g capitals) w h i c h pay for the expense o f their o p e r a t i o h s a n d bridge a n y g a p t h a t m i g h t o p e n u p between iheir l e n d i n g a n d b o r r o w i n g (or, at least, are m e a n t t o bridge the g a p — a l l roo often in the history o f rhe system they have n o t ) , a n d they expect to earn a profit o n t h e m , just as the p r o d u c t i v e capitalists d o o n their c a p i t a l s . There is a difference, however. T h e financial

capitalists' profits d o n o t c o m e directly f r o m p r o d u c t i o n ,

but f r o m a share they get o f the p r o d u c t i v e capitalists' profits in return for l e n d i n g to t h e m — t h a t is, interest p a y m e n t s . The rate o f interest has often been confused in m a i n s t r e a m econ o m i c w r i t i n g s w i t h rhe rate o f profit. But in fact the level a n d direction o f m o v e m e n t o f rhe t w o are q u i t e different. T h e rate o f profit, as w e have seen, is determined by the ratio of surplus value 10 investment in the p r o d u c t i o n process. By contrast, the rare o f interest d e p e n d s solely u p o n the s u p p l y a n d d e m a n d for l o a n a b l e lunds. If there is m o r e m o n e y available for l e n d i n g in a n e c o n o m y , then the rate o f interest will tend t o fall; if there is a n increased d e m a n d f o r b o r r o w i n g it will tend to rise. Since rhe profits o f p r o d u c t i v e capitalists are the m a j o r source «>l rhe f u n d s for l e n d i n g , a high rate o f profit will e n c o u r a g e a lower rate o f interest. O n the other h a n d , if profits are l o w , m o r e productive capitalists will themselves w a n t ro b o r r o w a n d this will exert a pressure for interest rates to rise. H o w these c o n t r a d i c t o r y pressures o n interest rates w o r k themselves our d e p e n d s o n other factors, p a r t i c u l a r l y b o r r o w i n g a n d l e n d i n g by the state a n d rhe m o v e m e n t o f f u n d s in a n d o u t o f a n a t i o n a l e c o n o m y . But these other factors c a n n o t d o a w a y w i t h the pressures o f real p r o d u c t i o n on rhe financial sector. I he Dynamics of rhe System

63

O t h e r c o m p l i c a t i o n s arise o u t o f this state o f affairs. The lending that financial institutions m a k e is not necessarily restricted to rhe a m o u n t they actually have at their disposal as a result o f their o w n investment a n d b o r r o w i n g . T h e

financial

i n s t i t u t i o n s can

assume that w h a t they have b o r r o w e d will n o t h a v e to be p a i d back immediately. Therefore they can extend their l e n d i n g b e y o n d their i m m e d i a t e m e a n s , trusting that e n o u g h o f it w i l l be p a i d back for t h e m to meet their o w n debts as they become d u e . This makes sense so long as rhe productive secror o f the system is e x p a n d i n g its o u t p u t ; increased l e n d i n g t o d a y can be p a i d back out o f increased o u t p u t a n d surplus value in rhe n o t t o o distant future. Such prophecies a b o u t increased l e n d i n g being recoverable are self-fulfilling u p t o a degree, since the increased l e n d i n g t o productive capital encourages it in rurn ro increase its o w n levels o f investment, a n d to p r o d u c e m o r e profits f r o m w h i c h to repay the b a n k e r s . But i n v a r i a b l y a p o i n t is eventually reached w h e n the drive for financial profits leads ro levels o f l e n d i n g a b o v e w h a t c a n be p a i d back our of t h e e x p a n s i o n o f real o u t p u t , p r o d u c i n g financial crises on rhe o n e h a n d a n d a t t e m p t s to escape their i m p a c t t h r o u g h fraud o n rhe other. As M a r x puts it. " T h e credir system accelerates rhe material d e v e l o p m e n t o f the p r o d u c t i v e forces a n d the w o r l d m a r k e t " , b u t does this t h r o u g h d e v e l o p i n g " t h e incentive to capitalist p r o d u c t i o n , e n r i c h m e n t t h r o u g h e x p l o i t a t i o n o f rhe l a b o u r of others, to the m o s t pure f o r m o f g a m b l i n g a n d swind l i n g " . 1 4 f i n a n c e drives " r h e process |of p r o d u c t i o n ] b e y o n d its capitalist limits" resulting in " o v e r t r a d e , o v e r p r o d u c t i o n a n d excessive credit" 15 in ways that r e b o u n d o n p r o d u c t i o n itself. M a r x ' s view o f this process f o r e s h a d o w e d by a century the currently fashionable a c c o u n t o f H y m a n which

financial

Minsky, 1 * a c c o r d i n g

to

o p e r a t i o n s i n v a r i a b l y m o v e o n f r o m a stage o f

n o r m a l profitable business ( " h e d g i n g " ) t o o n e o f s p e c u l a t i o n w h i c h culminates at a p o i n t (a " M i n s k v m o m e n t " ) w h e n all o f w h a t is lent c a n n o t be r e c o v e r e d — a n d encourages Ponzi 1 or pyram i d schemes whereby m o n e y f r o m new investors is simply used to pay high iiterest rates t o old investors. The final c o m p l i c a t i o n is t h a t financial institutions d o n o t onlyuse their f j n d s to lend ro p r o d u c t i v e capital. They also lend t o individuals

for

their

own

requirements

(notably

for

buying

property), or t o b u y shares in already existing c o m p a n i e s t h r o u g h the stock exchange. Such use o f f u n d s is expected ro earn the g o i n g rate o f interest, just as l e n d i n g to p r o d u c t i v e c o n c e r n s does, a n d 64

Understanding the System: Marx and Ik-yond

lor rhis reason is regarded by the financial institutions as a n "investment" o f " c a p i t a l " . Yet it in n o w a y contributes to the process of c a p i t a l a c c u m u l a t i o n , a n d rhe interest earned is parasitic o n w h a t is t a k i n g place in the p r o d u c t i v e sector o f rhe e c o n o m y . For this reason M a r x calls it "fictitious c a p i t a l " , describing it as " t h e m o s t fetish like f o r m o f the relations o f capital", 1 - since " c a p i t a l appears as a mysterious a n d self-creating source o f interest" a n d "it becomes the property o f m o n e y to generate value a n d yield interest, m u c h as it is an a t t r i b u t e o f pear trees to bear pears".'*

Finance, speculation a n d the crisis W e have seen t h a t the profits o f p r o d u c t i v e capital are rhe m a i n source o f the Kinds that the b a n k s have a t their disposal for lending, a n d

that

the p r o d u c t i v e capitalists*

need

for f u n d s

for

a c c u m u l a t i o n is a m a j o r source o f b o r r o w i n g from the b a n k s . This means t h a t the cycle o f e x p a n s i o n a n d c o n t r a c t i o n o f n e w investment is a c c o m p a n i e d by a cycle o f e x p a n s i o n a n d c o n t r a c t i o n o f lending. But the t w o cycles are nor fully in phase w i t h each other. C r e d i t e x p a n d s as rhe b o o m begins t o take off, w i t h s o m e capitalists keen to lend rising profits a n d o t h e r capitalists keen ro borrow, all c o n v i n c e d t h a t there w i l l be n o p r o b l e m s o f r e p a y m e n t \s ith interest. But eventually a p o i n t is reached w h e r e the frenzy o f investment begins t o exceed the f u n d s c o m i n g f r o m pools o f previous profits. F i r m s o u t b i d o n e a n o t h e r as they try to get access t o i liese p o o l s , raising the level o f interest they are prepared t o pay t o net credit. R i s i n g interest rates cut i n t o profits just as rising r a w material prices a n d m o n e y wages d o so as well. They a d d t o the pressures t i p p i n g the system from e x p a n s i o n i n t o crisis. T h e contraction t h a t f o l l o w s m a k e s firms a n d b a n k s m u c h less w i l l i n g t o li u d — r h e y fear they m a y need every p e n n y themselves as their revenue f r o m sales threatens t o decline. B u t c o n t r a c t i o n also increases tin need for m a n y firms t o b o r r o w if they are g o i n g t o m a k e u p the shortfall in their sales i n c o m e s a n d n o t be forced i n t o b a n k r u p t c y by u n p a i d bills. Interest rates c o n t i n u e to rise for a rime, despite the shortage o f profits t o pay t h e m , a n d a d d t o the d o w n w a r d h trees in the system. F l u c t u a t i o n s are i n t e n s i f i e d because o f s o m e t h i n g else t h a t h a p p e n s a t the h e i g h t o f rhe b o o m . F i r m s a n d b a n k s see t h a t l e n d i n g is a q u i c k w a y t o b o o s t their p r o f i t s . T h e y offer credit IIK*Dynamics of the System

65

t h r o u g h " f i n a n c i a l p a p e r " (in effect p r o m i s e s to p a y ) o f v a r i o u s sorts far in excess o f their cash reserves o n the a s s u m p t i o n t h a t o t h e r p e o p l e a n d i n s t i t u t i o n s w i l l trust in such " p a p e r "

and

accept it as p a y m e n t f o r c o m m o d i t i e s w i t h o u t t r y i n g i m m e d i ately t o t u r n it i n t o c a s h . In effect, credit created by the b a n k s c o m e s t o be treated as a f o r m o f m o n e y — a n d as " c r e d i t m o n e y " is c o u n t e d in certain measures o f the m o n e y supply. Such easy credit encourages each firm to u n d e r t a k e massive productive investments as it competes ro get a bigger slice o f the e x p a n d i n g m a r k e t t h a n its rivals, even t h o u g h this causes their c o m b i n e d o u t p u t t o far exceed the capacity o f rhe m a r k e t to a b s o r b it. Easy credit also enables those o n friendly terms w i t h rhe b a n k s t o e m b a r k o n an orgy o f l u x u r y spending, a n d all sorts o f c r o o k s a n d fraudsters to join in the very profitable business o f b o r r o w i n g in order to lend a n d lending in order t o borrow. The real, u n d e r l y i n g processes o f p r o d u c t i o n , e x p l o i t a t i o n a n d c r e a t i o n o f surplus value get completely h i d d e n f r o m v i e w — u n t i l the e c o n o m y s u d d e n l y starts t u r n i n g d o w n a n d all the bits o f paper w h i c h represent credit have t o be repaid from profits w h i c h are t o o small t o d o so. A t this p o i n t firms a n d b a n k s c o m e ro distrust the ability o f each other ro p a y back w h a t has been b o r r o w e d , a n d l e n d i n g can g r i n d ro a virtual stop in w h a t is t o d a y called a "credit c r u n c h " : T h e c h a i n o f p a y m e n t o b l i g a t i o n s d u e at specific dates is b r o k e n in a h u n d r e d places. T h e c o n f u s i o n is a u g m e n t e d by the attend a n t c o l l a p s e o f the credit s y s t e m . . . a n d leads t o violent a n d acute crises, t o s u d d e n a n d forcible depreciations, t o the actual s t a g n a t i o n a n d d i s r u p t i o n o f the process o f r e p r o d u c t i o n , a n d t h u s to a real falling o f f in reproduction. 2 0 T h e b e h a v i o u r o f " f i c t i t i o u s c a p i t a l " serves f u r t h e r t o intensify the general boom-recession cycle o f c a p i t a l i s m . Despite its nonp r o d u c t i v e n a t u r e , the m o n e t a r y v a l u e o f fictitious c a p i t a l at a n y p o i n t in t i m e represents a c l a i m o n real resources t h a t can be converted i n t o cash a n d f r o m cash i n t o c o m m o d i t i e s . W h e n , say, share prices are rismg d u r i n g a b o o m , they a d d t o the c a p a c i t y o f their o w n e r s to b u y g o o d s a n d tend t o intensify the b o o m ; w h e n they fall w i t h a recession, this a d d s t o the pressure, r e d u c i n g expenditure

through

the e c o n o m y

as a w h o l e . T h e

inevitably

u n s t a b l e , s u d d e n l y f l u c t u a t i n g , prices o f the v a r i o u s sorts o f fictit i o u s c a p i t a l a d d t o the general i n s t a b i l i t y o f rhe system as a 66

Understanding the System: Marx and Ik-yond

w h o l e . T h e y intensify the s w i n g s f r o m b o o m t o recession a n d back, a n d they also play h a v o c w i t h the capacity o f m o n e y t o provide a fixed m e a s u r i n g rod for value. M a j o r e c o n o m i c crises a l m o s t i n v a r i a b l y involve crashes o f b a n k s a n d other financial institutions as well as the b a n k r u p t c y o f productive firms a n d rising u n e m p l o y m e n t for workers. It is easy then for people to m i s u n d e r s t a n d w h a t is h a p p e n i n g a n d t o b l a m e finance,

the b a n k s or m o n e y for the crisis, rather t h a n rhe capital-

ist basis o f p r o d u c t i o n .

I he m o d e r n i t v o f M a r x 4

M a r x ' s p i c t u r ^ o f crisis w a s far a h e a d o f his c o n t e m p o r a r y mainstream e c o n o m i s t s . It w a s n o t until the 1930s that study o f crises began t o be t a k e n seriously by the m a i n s t r e a m . E v e n the archpriest o f free m a r k e t e c o n o m i c s , H a y e k , c o u l d a d m i t in

one

passage t h a t M a r x w a s responsible for i n t r o d u c i n g , in G e r m a n y at least, ideas t h a t c o u l d e x p l a i n the trade cycle, w h i l e " t h e o n l y satisfactory theory o f capital we yet possess, t h a t o f B o h m - B a w e r k had " n o t helped us m u c h further w i t h the p r o b l e m s o f the t r a d e cycle". 2 1 Recurrent e c o n o m i c crises are as m u c h a part o f o u r w o r l d as o f M a r x s. S o m e at least o f the ideological heirs o f J o h n Stuart M i l l , levons a n d B o h m - B a w e r k d o n o t try t o conceal the f a c t — a t least w h e n they are w r i t i n g for an elite u p p e r class a u d i e n c e in rhe itnancial

Times or rhe Economist,

rather t h a n p r o p a g a n d i s i n g to

the masses. So the long-time Conservative chancellor o f the exchequer

in

Britain,

Nigel

Lawson,

who

once

embraced

the

" m o n e t a r i s t " d o c t r i n e that crises were a n accidental result o f central b a n k e r s a l l o w i n g the m o n e y s u p p l y t o g o w r o n g , 2 2

was

eventually a r g u i n g t h a t he w a s n o t responsible for the s l u m p w h i c h f o l l o w e d the i m p l e m e n t a t i o n o f his policies because rhe "business cycle*' is inevitable. They see the crisis as "creative destruction" w i t h o u t m a k i n g clear t h a t the creative element consists «»f wealth for o n e class, w h i l e rhe destruction is of the livelihoods of others. I will return t o the question o f crises in the 21st c e n t u r y later in iIns b o o k . A l l that needs t o be said for the m o m e n t is t h a t there is n o p r o b l e m a c c o u n t i n g for t h e m by s t a r t i n g w i t h M a r x . I n d e e d , the only serious question c o n f r o n t i n g M a r x ' s crisis theory does n o t IIK*Dynamics of the System

67

arise f r o m the occurrence o f crises today, but rather f r o m rhe fact t h a t for three a n d a h a l f decades, from 1939 ro 1974, a m a j o r capitalist c o u n t r y like Britain d i d n o t experience a recession in w h i c h e c o n o m i c o u t p u t fell, w h i l e rhe biggest e c o n o m y , rhe U S , o n l y experienced o n e very b r i e f such recession (that o f 1948-9). T h e absence o f such crises b e c a m e a m a j o r element in e c o n o m i c discussion in rhe decades o f the 1950s, 1960s a n d early 1970s. A n d w i t h o u t c o m i n g to terms w i t h it, o n e c a n n o t grasp the intractability o f the boom-recession cvcle todav. 4

4

4

H o w e v e r , if crises were a n inevitable feature o f c a p i t a l i s m for M a r x , they were n o t in themselves the central p o i n t in his analysis o f its long-term d y n a m i c . They were a cyclical feature o f the system w h i c h ir h a d m a n a g e d t o c o p e w i t h several times by rhe t i m e Capital

w a s p u b l i s h e d , however great the h a r d s h i p they h a d

caused t o the mass o f the p o p u l a t i o n , the distress t o those capitalists w h o

went

bust, or

rhe occasional

outburst

of

popular

discontent. They were n o t in themselves g o i n g t o b r i n g the system to a n end. A s the Russian revolutionary Leon Trotsky pur it nearly 4 0 years after M a r x ' s d e a t h , " c a p i t a l i s m does live by crises a n d b o o m s , just as a h u m a n being lives by i n h a l i n g a n d e x h a l i n g " . ' T h e long-term d y n a m i c c a m e f r o m elsewhere t h a n the crisis— f r o m t w o long-term processes at w o r k in the system, processes t h a t were a p r o d u c t o f its ageing as it w e n t t h r o u g h each repetition o f the cycle o f e x p a n s i o n a n d c o n t r a c t i o n .

T h e tendency o f the rate o f profit to fall The

theory

T h e first o f these processes is w h a t M a r x called " t h e l a w o f rhe tendency o f rhe rate o f profit t o f a l l " (sometimes called, for short, by M a r x i s t s since, " r h e falling rare o f p r o f i t " — t h e phrase I will often use here). T h i s is o n e o f the m o s t difficult parts o f M a r x ' s theory for newc o m e r s t o his ideas to u n d e r s t a n d , a n d a l s o o n e o f the m o s t c o n t e n t i o u s . N o n - M a r x i s t e c o n o m i s t s reject it. So the often perceptive

Observer

economic

columnist

William

Keegan

has

d e n o u n c e d M a r x ' s a c c o u n t as " a n obsolete e c o n o m i c t e x t b o o k w h i c h w a s itself w r i t t e n d u r i n g the early, faltering p h a s e o f u n i f o r m e d capitalism*'' q u o t i n g rhe French e c o n o m i s t M a r j o l i n t o the effect t h a t , " A m o d i c u m o f experience a n d s o m e k n o w l e d g e 67

Understanding the System: Marx and Ik-yond

o f history w a s e n o u g h ro cast d o u b t o n the [Marxist] t h e o r y o f a n inevitable decline o f c a p i t a l i s m o w i n g t o a falling rate o f profit"'. 24 M a n y M a r x i s t s w h o accept rhe theory o f v a l u e a n d the m a i n contours o f M a r x ' s a c c o u n t o f rhe crisis are just as dismissive of it. 1 O t h e r s hedge r o u n d their s u p p o r t for it w i t h so m a n y p r o v i s o s as to effectively cur it o u t o f a n y a c c o u n t o f the system's long-term development. Yet M a r x himself regarded it as absolutely central. It e n a b l e d h i m to assert that c a p i t a l i s m is d o o m e d by rhe very forces o f prod u c t i o n w h i c h it itself unleashes: T h e rate o f self-expansion o f c a p i t a l i s m , or rhe rate o f profit, b e i n g the goal o f capitalist p r o d u c t i o n , its f a l l . . . a p p e a r s as a threat t o t h e x a p i t a l i s t p r o d u c t i o n process. 26 This "testifies t o the mcrelv historical, transitory character o f the capitalist m o d e of p r o d u c t i o n " a n d t o the w a y t h a t " a t a certain stage it conflicts w i t h its o w n further d e v e l o p m e n t " . I t s h o w e d that " r h e real barrier o f capitalist p r o d u c t i o n w a s capital i t s e l f " . " M a r x d i d n o t pick the idea t h a t p r o f i t rates fall o u t o f t h i n air. It w a s c o m m o n a m o n g e c o n o m i s t s w h o preceded him.21" As Eric H o b s b a w m has s a i d , " T w o t h i n g s w o r r i e d the early 19th century b u s i n e s s m e n a n d e c o n o m i s t s : the rate o f their p r o f i t s a n d the rate o f e x p a n s i o n o f their i n d u s t r i e s . " A d a m S m i t h h a d believed p r o f i t rates m u s t fall as a result o f increased c o m p e t i t i o n a n d R i c a r d o because o f s u p p o s e d " d i m i n i s h i n g r e t u r n s " in agriculture." 1 M a r x p r o v i d e d a n e x p l a n a t i o n w h i c h d i d n o t d e p e n d o n s u c h q u e s t i o n a b l e a s s u m p t i o n s , 3 1 b u t u p o n g r a s p i n g t h a t the d y n a m i c o f c a p i t a l i s t a c c u m u l a t i o n c o n t a i n s w i t h i n it a n irresolvable c o n t r a d i c t i o n . E a c h i n d i v i d u a l c a p i t a l i s t c a n increase his o w n c o m p e t i t i v e ness t h r o u g h increasing rhe p r o d u c t i v i t y o f his w o r k e r s . T h e w a y 10 d o this is for each w o r k e r t o use m o r e a n d m o r e " m e a n s o f p r o d u c t i o n " — t o o l s , m a c h i n e r y a n d so o n — i n his o r her w o r k . I hat i n v o l v e s the m e a n s o f p r o d u c t i o n e x p a n d i n g m o r e r a p i d l y t h a n the w o r k f o r c e . There is a g r o w t h in the r a t i o o f the

physical

extent o f the m e a n s o f p r o d u c t i o n t o t h e a m o u n t o f

labour

p o w e r w o r k i n g o n t h e m — a r a t i o t h a t M a r x calls rhe " t e c h n i c a l c o m p o s i t i o n o f c a p i t a l *V ? But o t h e r t h i n g s b e i n g e q u a l , a g r o w t h in the physical extent o f the m e a n s o f p r o d u c t i o n will a l s o be a g r o w t h in the level o f i n v e s t m e n t needed t o b u y t h e m . S o there I IK* Dynamics of the System

69

w i l l also be a n e x p a n s i o n in the r a t i o o f i n v e s t m e n t t o the w o r k force. in the v a l u e o f the m e a n s o f p r o d u c t i o n c o m p a r e d w i t h w a g e s (or, t o use M a r x ' s t e r m i n o l o g y , o f " c o n s t a n t c a p i t a l " t o " v a r i a b l e c a p i t a l " ) . I his r a t i o is M a r x s " o r g a n i c c o m p o s i t i o n o f c a p i t a l " (as e x p l a i n e d in C h a p t e r O n e ) . " Its g r o w t h , for M a r x , is a logical c o r o l l a r y o f c a p i t a l a c c u m u l a t i o n . Yet the o n l y source o f value a n d surplus value for the system as a w h o l e is labour. So if i n v e s t m e n t g r o w s m o r e r a p i d l y t h a n the l a b o u r force, it m u s t also g r o w m o r e r a p i d l y t h a n the creation o f n e w v a l u e , a n d profit c o m e s from this. In short, capital investment g r o w s m o r e r a p i d l y t h a n the source o f profit. As a c o n s e q u e n c e , there will be a d o w n w a r d pressure for the ratio o f profit t o investm e n t — o n rhe rate o f profit. T h e reason for the g r o w t h o f i n v e s t m e n t is c o m p e t i t i o n — t h e need of each capitalist t o p u s h for greater p r o d u c t i v i t y in order t o stay a h e a d o f c o m p e t i t o r s . But h o w e v e r m u c h c o m p e t i t i o n m a y c o m p e l rhe i n d i v i d u a l capitalist to take part in this process, f r o m the p o i n t o f view o f the capitalist class as a w h o l e it is disastrous. For, as w e s a w in the p r e v i o u s chapter, capitalists m e a s u r e the success or failure of their u n d e r t a k i n g s n o t in terms o f the total profit they b r i n g in but i n terms o f the rate o f profit. T w o o b j e c t i o n s are often raised t o this picture o f M a r x ' s . T h e first is that technological a d v a n c e does n o t a l w a y s involve increasing the ratio o f m e a n s o f p r o d u c t i o n to w o r k e r s — t h a t it can be "capital

saving"

rather t h a n

"capital

intensive".

If

scientific

k n o w l e d g e is progressing a n d being applied as n e w technologies, t h e n s o m e o f these technologies m a y e m p l o y less m a c h i n e r y a n d r a w materials per w o r k e r t h a n o l d technologies. A t a n y o n e rime rhere will be some n e w technologies t h a t are capital-saving. T h i s is true. But it does n o t refute M a r x . For there are likelv t o 4

be a greater n u m b e r o f " c a p i t a l i n t e n s i v e " rather t h a n " c a p i t a l s a v i n g " i n n o v a t i o n s . A t a n y given level o f scientific a n d technical k n o w l e d g e s o m e i n n o v a t i o n s m a y indeed be capital-saving. Bur w h e n all these have been e m p l o y e d , there w i l l still be other innovations

(or

at

least

capitalists

will

suspect

rhere are

other

i n n o v a t i o n s ) to be o b t a i n e d o n l y by increasing the level o f investment

in m e a n s of p r o d u c t i o n . T h e fact t h a t s o m e

technical

progress can take place w i t h o u t a n y rise in the ratio o f capital t o l a b o u r does n o t m e a n t h a t all the a d v a n t a g e s o f technical progress c a n be gained w i t h o u t such a rise. If a n i n d i v i d u a l capitalist c a n increase the r a t i o o f c a p i t a l t o w o r k e r s he will be able to invest in 70

Understanding the System: Marx and Ik-yond

and take a d v a n t a g e o f i n n o v a t i o n s t h a t need m o r e capital as well is those t h a t d o n o t . If he c a n n o t increase this ratio then he will benefit o n l y f r o m those i n n o v a t i o n s t h a t d o n o t — a n d he w i l l lose o u t in c o m p e t i t i o n w i t h those w h o c a n . Since, in theory at least, ihere is n o l i m i t t o the possible increase in the r a t i o o f m e a n s o f p r o d u c t i o n t o workers, there is n o theoretical l i m i t to possible inn o v a t i o n based o n this m e t h o d o f c o m p e t i t i o n . In rhe real w o r l d , every o p e r a t i n g c a p i t a l i s t

takes it

for

granted t h a t rhe w a y to g a i n access ro rhe m o s t a d v a n c e d technical c h a n g e is t o increase the level o f i n v e s t m e n t in m e a n s o f p r o d u c t i o n o r " d e a d l a b o u r " ( i n c l u d i n g rhe d e a d l a b o u r accum u l a t e d in the results o f past research a n d d e v e l o p m e n t ) . It is o n l y in rhe pages o f the m o s t esoteric j o u r n a l s o f political econo m y t h a t a n y g n e i m a g i n e s t h a t the w a y for rhe F o r d

Motor

( o m p a n y t o meet c o m p e t i t i o n f r o m G e n e r a l M o t o r s o r T o y o t a is to cut the level o f p h y s i c a l i n v e s t m e n t per w o r k e r . T h e c a p i t a l i s t usually recognises t h a t y o u c a n n o t get the benefits o f i n n o v a t i o n w i t h o u t p a y i n g for it. For these reasons the average a m o u n t o f m e a n s o f p r o d u c t i o n per worker, M a r x ' s " t e c h n i c a l c o m p o s i t i o n o f c a p i t a l " , will rise— a n d w i t h it the " o r g a n i c c o m p o s i t i o n o f c a p i t a l " . O n l y o n e t h i n g c o u l d s t o p the pressure for this rise: if for s o m e reason there w a s a shortage o f profit-seeking investment. In such a case the capitalists w o u l d be forced to forego hopes o f a c h i e v i n g the i n n o v a t i o n s possible t h r o u g h greater i n v e s t m e n t a n d settle for those they m i g h t stumble u p o n by accident. T h e second a r g u m e n t a g a i n s t M a r x ' s a c c o u n t c l a i m s changes in t e c h n i q u e a l o n e cannot

that

p r o d u c e a fall in the rate o f

profit. For, it is s a i d , capitalists w i l l o n l y i n t r o d u c e a n e w techn i q u e if it raises their p r o f i t s . But if it raises the p r o f i t o f o n e capitalist, then ir m u s t raise rhe average profit o f the w h o l e capitalist class. So, for instance, S t e e d m a n states, " T h e forces o f c o m p e t i t i o n will lead to t h a t selection o f p r o d u c t i o n m e t h o d s industry by industry w h i c h generates the highest possible u n i f o r m rate o f p r o f i t t h r o u g h rhe e c o n o m y " . " T h e same p o i n t has been accepted by v a r i o u s M a r x i s t s e c o n o m i s t s over the last 4 0 years, lor instance by G l y n , H H a r r i s o n H i m m e l w e i t , 3 * Brenner 1

and

I h i m c n i l a n d Levy**—and has been e l a b o r a t e d m a t h e m a t i c a l l y by ( ) k i s h i o . w T h e y c o n c l u d e t h a t capitalists w i l l o n l y a d o p t c a p i t a l intensive techniques t h a t seem t o reduce their rate o f profit if t h a t rate is a l r e a d y b e i n g squeezed either by a rise in real wages or b y IIK*Dynamics of the System

71

external c o m p e t i t i o n . These things, nor rhe o r g a n i c c o m p o s i t i o n o f c a p i t a l , h i t the rate o f profit. M a r x ' s o w n writings p r o v i d e a s i m p l e answer ro a n y such argum e n t : t h a t rhe first capitalist ro invest in a n e w technology gets a c o m p e t i t i v e a d v a n t a g e over his fellow capitalists w h i c h enables h i m ro g a i n a surplus profit, b u t t h a t this surplus will n o t last o n c e rhe n e w techniques are generalised. W h a t the capitalist gets in m o n e y terms w h e n he sells his g o o d s d e p e n d s u p o n the average a m o u n t o f socially necessary l a b o u r c o n t a i n e d i n t h e m . If he introduces a new, m o r e p r o d u c t i v e , techn i q u e , b u t n o other capitalists d o so, he is p r o d u c i n g g o o d s w o r t h the same a m o u n t o f socially necessary l a b o u r as before, b u t w i t h less e x p e n d i t u r e o n real concrete l a b o u r p o w e r . H i s profits rise. 40 But once all capitalists have i n t r o d u c e d these techniques, the v a l u e o f rhe g o o d s falls until it c o r r e s p o n d s t o the average a m o u n t o f l a b o u r needed ro p r o d u c e them u n d e r the n e w techniques. T h e add i t i o n a l profit d i s a p p e a r s — a n d if m o r e m e a n s o f p r o d u c t i o n are used t o ger access ro rhe n e w techniques, the rate o f profit falls. 41 T h e i m p l i c a t i o n s o f M a r x ' s a r g u m e n t are far reaching. T h e very success o f c a p i t a l i s m at a c c u m u l a t i n g leads t o p r o b l e m s for further a c c u m u l a t i o n . E v e n t u a l l y the c o m p e t i t i v e drive o f capitalists t o keep a h e a d o f o t h e r capitalists results in a massive scale o f n e w investment w h i c h c a n n o t be sustained by the rate o f profit. If s o m e capitalists are ro m a k e a n a d e q u a t e profit it can o n l y be ar the expense ot other capitalists w h o are driven o u t o f business. T h e drive ro a c c u m u l a t e leads inevitably ro crises. A n d rhe greater the scale o f past a c c u m u l a t i o n , the deeper the crises will be. The countervailing

tendencies

M a r x ' s theory, it s h o u l d be stressed, is a n abstract a c c o u n t o f the m o s t general trends in the capitalist system. Y o u c a n n o t d r a w from ir i m m e d i a t e c o n c l u s i o n s a b o u t the concrete b e h a v i o u r o f the e c o n o m y ar a n y i n d i v i d u a l p o i n t in space a n d t i m e . Y o u have first ro l o o k at h o w t h e general trends interact w i t h a r a n g e o f o t h e r factors. M a r x himself w a s fully a w a r e o f this, a n d b u i l t i n t o his acc o u n t w h a t he called " c o u n t e r v a i l i n g t e n d e n c i e s " . T w o are o f central i m p o r t a n c e . First, rhere is increasing the rate o f e x p l o i t a t i o n . If each w o r k e r conrribures m o r e s u r p l u s value this w i l l c o u n t e r a c t rhe fact that there are fewer w o r k e r s per unit o f i n v e s t m e n t . T h e increased exp l o i t a t i o n c o u l d result f r o m increasing rhe length o f the w o r k i n g 72

Understanding the System: Marx and Ik-yond

day ( M a r x s " a b s o l u t e s u r p l u s v a l u e " ) , c u t t i n g real wages, increasing the physical intensity o f l a b o u r or a fall in the cost o f p r o v i d i n g w o r k e r s w i t h a l i v e l i h o o d as a result o f increased productivity. In this case the capitalist c o u l d increase the p r o p o r t i o n of each i n d i v i d u a l w o r k e r ' s l a b o u r t h a t w e n t i n t o s u r p l u s v a l u e , even if rhe worker's living s t a n d a r d w a s n o t reduced. Such an increase in the rate of exploitation

c o u l d c o u n t e r a c t s o m e o f the

d o w n w a r d pressures o n the rate o f profit: the total n u m b e r o f workers m i g h t n o t g r o w as fast as total i n v e s t m e n t , b u t each worker w o u l d p r o d u c e m o r e surplus value even if he or she did n o t suffer a w a g e cur or have t o w o r k a n y harder. There is, however, a limit t o the capacity o f this m e t h o d to c o u n t e r the d o w n w a r d pressure o n profit rates—the n u m b e r o f hours in the w o r k i n g day. The n u m b e r o f hours per day that g o i n t o p r o v i d i n g f o r * h e u p k e e p o f the w o r k e r can fall f r o m four ro three, or from three to t w o , but it c a n n o t fall b e l o w zero! By contrast investment in means o f p r o d u c t i o n can increase w i t h o u t limit. 4 1 Take the e x a m p l e o f a firm w h i c h e m p l o y s a static w o r k f o r c e o f 10,000. Even if it w o r k e d them as l o n g as was physically possible each d a y (say, 16 hours) a n d p a i d them n o wages, its d a i l y profit c o u l d n o t exceed the value e m b o d i e d in 3 0 , 0 0 0 x 16 hours labour. I his is a limit beyond w h i c h profit c a n n o t grow. But there is n o such limit o n rhe degree t o w h i c h investment can g r o w (and w i t h such a high level of exploitation there w o u l d be an e n o r m o u s quantity of old surplus value ro be turned i n t o new enlarged investment). So a p o i n t will be reached where profits stop g r o w i n g , even t h o u g h c o m p e t i t i o n forces the level o f investment t o c o n t i n u e rising. T h e f .itio o f profits to i n v e s t m e n t — t h e rate o f p r o f i t — w i l l tend t o fall. The second " c o u n t e r v a i l i n g f a c t o r " is t h a t rhe increase in the p r o d u c t i v i t y o f l a b o u r m e a n s rhere is a c o n t i n u a l fall in the i m o u n t o f l a b o u r t i m e — a n d therefore o f v a l u e — n e e d e d t o produce

each

unit

of

plant,

equipment

or

raw

materials.

The

technical c o m p o s i t i o n o f capital " — t h e physical ratio o f factories, machines, etc t o w o r k e r s — g r o w s . But the factories, m a c h i n e s a n d so o n get cheaper t o buy. A n d so the e x p a n s i o n o f investment in \ alue terms w o u l d be rather slower t h a n the e x p a n s i o n in material terms. T h i s w o u l d c o u n t e r a c t t o s o m e extent the tendency for the value o f investment t o o u t s t r i p rhe g r o w t h in surplus value. There have been c l a i m s t h a t this is m o r e t h a n just a "countervailing t e n d e n c y " to M a r x s law a n d in fact completely destroys it. ( nttcs argue, using m a t h e m a t i c a l e q u a t i o n s provided by O k i s h i o , 11»« Dynamics ol rhe System

7 1

that technical progress m e a n s t h a t g o o d s are a l w a y s being produced m o r e cheaply t h a n in the p a s t / ' If a rise i n the ratio of dead to living l a b o u r in a certain industry increases productivity, the price o f its o u t p u t will fall c o m p a r e d t o the o u t p u t o f other industries. Bur t h a t in t u r n will reduce the costs o f investment in these industries a n d its ratio to labour. Lower investment costs will lower the organic c o m p o s i t i o n o f capital a n d raise the rate o f profit. Ar first glance the a r g u m e n t l o o k s c o n v i n c i n g . It is, however, false. It rests u p o n a sequence o f logical steps w h i c h y o u c a n n o t take in the real w o r l d . Investment is a process o f p r o d u c t i o n that takes place at o n e p o i n t in time. T h e c h e a p e n i n g of further investm e n t as a result o f i m p r o v e d p r o d u c t i o n techniques occurs at a later p o i n t in t i m e . T h e t w o things are not simultaneous. 4 4 There is a n o l d s a y i n g , " Y o u c a n n o t b u i l d the h o u s e o f t o d a y w i t h the bricks o f t o m o r r o w . " T h e fact t h a t the increase in productivity will reduce the cost o f getting a m a c h i n e in a year's t i m e does n o t reduce the a m o u n t a capitalist has t o spend o n getting it today. A n d if s o m e o t h e r capitalist buys the cheaper m a c h i n e , it i m m e d i a t e l y reduces the value o f the m a c h i n e o w n e d by the first capitalist. W h i l e the n e w capitalist m i g h t be able to turn o u t g o o d s in a m o r e profitable w a y , the first capitalist has to d e d u c t f r o m his profits the loss in the value o f his machine. 4 5 W h e n capitalists measure their rates o f profit they are comparing the surplus value they get f r o m r u n n i n g p l a n t a n d m a c h i n e r y w i t h w h a t they spent o n a c q u i r i n g it at s o m e p o i n t in the p a s t — n o t w h a t it w o u l d cost t o replace it today. T h e p o i n t has a d d e d importance w h e n it is remembered that the real process of capitalist investment takes place in such a w a y that the same fixed c o n s t a n t capital ( m a c h i n e s a n d buildings) is used for several cycles o f prod u c t i o n . T h e fact t h a t the cost o f the investment w o u l d be less if it t o o k place after rhe second, third or f o u r t h r o u n d o f p r o d u c t i o n does n o t alter rhe cost before the first r o u n d o f p r o d u c t i o n . T h e alleged d i s p r o o f o f M a r x arises, as does the so-called transformation problem, from applying simultaneous equations

to

processes r a k i n g place t h r o u g h time. S i m u l t a n e o u s e q u a t i o n s , by d e f i n i t i o n , assume simultaneity, w i t h n o passage o f rime. T h e decline in the value o f their invested capital certainly does n o t m a k e life any easier for rhe capitalists. To survive in business they have ro recoup, w i t h a profit, rhe full cost o f their past investm e n t s , a n d if technological a d v a n c e m e a n s these investments are n o w w o r t h , say, half w h a t they were previously, they have t o pay 74

Understanding the System: Marx and Ik-yond

o u t o f their gross profits for w r i t i n g o f f t h a t s u m . W h a t they have gained o n the swings they h a v e lost o n the r o u n d a b o u t s , w i t h "depreciation"

of capital causing them

as big a h e a d a c h e as a

s t r a i g h t f o r w a r d fall in the rate o f profit. 4 6 C a p i t a l i s m is based n o t just o n value b u t u p o n the

self-expansion

of the values e m b o d i e d in capital. T h i s necessarily implies a comparison o f current surplus value with the prior capitalist investment from w h i c h it flows. T h e very n o t i o n of "self-expanding values" is incoherent w i t h o u t it. A n d the loss o f value of the e q u i p m e n t a n d materials o f p r o d u c t i o n t h a t have already been p a i d for is detrimental t o the self-expansion o f value. T h e fall in the cost o f investment m i g h t help the n e w capitalist. But he in t u r n is u n d e r pressure f r o m still o t h e r capitalists w h o invest after h i m in still cheaper e q u i p m e n t . A n d all the time the existence o f s u r p l u s value m a d e in p r e v i o u s r o u n d s o f p r o d u c t i o n a n d a v a i l a b l e for investment in still newer techniques serves t o push u p the ratio o f investment to the l a b o u r force. There is c o n t i n u a l g r o w t h in the mass o f surplus value seeking an outlet for investment. The m o r e o f this surplus value an individual capitalist can get h o l d o f , the bigger the investments he can m a k e a n d the m o r e productivity-increasing i n n o v a t i o n s he will be able to introduce c o m p a r e d to his competitors. A capitalist m a y be able t o buy t o d a y a m a c h i n e w h i c h is twice as productive as o n e he paid the same price for a year ago. But that is n o help to h i m if a rival is using greater a c c u m u l a t e d surplus value to buy a m a c h i n e four times as productive. T h e individual capitalist can stay in business o n l y if he spends as m u c h surplus value as possible o n new m e a n s o f production. If rhe means o f p r o d u c t i o n become cheaper, that o n l y results in his h a v i n g to buy m o r e o f them in order to achieve competitive success. So long as rhere is m o r e surplus value available for investment than there w a s previously, the organic c o m p o s i t i o n o f capital will tend t o rise, other things being equal. ' It m a k e s n o difference if the physical means a n d materials o f p r o d u c t i o n are c h e a p e r — t h a t just causes m o r e o f t h e m to be employed.

Crisis a n d the falling rate But if the d e p r e c i a t i o n o f c a p i t a l t h r o u g h increased p r o d u c t i v i t y c a n n o t by itself save the rate o f profit, it c a n if it is c o m b i n e d w i t h s o m e t h i n g e l s e — t h e crisis. For the crisis involves s o m e capitals I IK* Dynamics of the System

75

being m a d e b a n k r u p t . They are then forced to dispose o f their capital n o t just at its depreciated v a l u e , but for a n y t h i n g they can get, however lirtle. T h e beneficiaries are those capitalists w h o survive the crisis. T h e y c a n pick u p m e a n s o f p r o d u c t i o n — a c c u m u l a t i o n s o f v a l u e — o n the cheap, e n a b l i n g t h e m t o restore their o w n rates o f profit. In this w a y depreciation c a n ease rhe pressure o n the capitalist system as a w h o l e , w i t h the b u r d e n o f p a y i n g for it falling o n those capitalists w h o were driven o u r o f business, b u t nor o n rhose w h o r e m a i n e d . T h o s e capitalists w h o die bear m a n y o f the costs o f depreciation for the system as w h o l e , m a k i n g it possible f o r those w h o live o n t o d o so w i t h lower capital costs a n d eventually higher rates o f profit t h a n w o u l d o t h e r w i s e be the case. " T h e crises are always but m o m e n t a r y a n d forcible s o l u t i o n s o f the existing contradictions. T h e y are violent e r u p t i o n s w h i c h for a t i m e restore the disturbed e q u i l i b r i u m " . 4 * There is a c o n t i n u a l d o u b l e interaction between the long-term tendency for the rate o f profit to fall a n d cyclical crises. T h e rise in the ratio o f investment t o l a b o u r e m p l o y e d as n e w i n v e s t m e n t takes place d u r i n g periods o f e x p a n s i o n exerrs a d o w n w a r d pressure o n the rate o f profit, just as it is u n d e r pressure f r o m rising r a w material prices a n d wages. T h i s can have a direct effect, w i t h the fall in the rate o f profit c a u s i n g firms ro stop investing, so causing recession in rhe c a p i t a l g o o d s industries w h i c h then spreads elsewhere. O r it c a n h a p p e n indirectly if firms are successful in p r o t e c t i n g the rare of profit t e m p o r a r i l y by forcing d o w n

real

wages. In that case, firms in the c o n s u m e r g o o d s industries c a n n o t sell all their g o o d s — o r , as M a r x p u t s it, they c a n n o t "realise the surplus v a l u e " t h a t they have e x p l o i t e d — a n d their profits fall, a g a i n p r o d u c i n g recession. 49 But the crisis in t u r n leads t o s o m e firms g o i n g b u s t a n d provides o p p o r t u n i t i e s f o r o t h e r f i r m s t o b u y u p their e q u i p m e n t a n d r a w m a t e r i a l a n d rake o n w o r k e r s at l o w e r w a g e s . If e n o u g h firms g o b u s t , the crisis itself can w o r k t o c o m p l e t e l y c o u n t e r a c t the long-term d o w n w a r d t e n d e n c y o f rhe rate o f p r o f i t . In s h o r t , the d e c l i n e in the rate o f p r o f i t helps p r o d u c e the cyclical crisis, b u t the cyclical crisis helps resolve the long-term decline in the rate o f p r o f i t . M a r x ' s a c c o u n t o f the falling rate o f profit w a s n o t p u b l i s h e d until 1 1 years after his d e a t h a n d did n o t have a big i m p a c t o n the analyses o f his followers in the next t w o decades. It barely featured 76

Understanding the System: Marx and Ik-yond

in the m o s t

important

works

of

Marxist

analysis

by

Rosa

I u x e m b u r g , V l a d i m i r L e n i n a n d N i c o l a i B u k h a r i n . It w a s accepted by R u d o l f H i l f e r d i n g b u t w a s n o t central ro his analysis.'" Ir was n o t until the 1920s that a concerted a t t e m p t w a s m a d e t o use it to analyse the l o n g term trajectory o f the system by the PolishAustrian

Marxist Henryk Grossman.

H e w a s reacting t o rhe

propensity o f m a n y M a r x i s t s t o d e n y t h a t c a p i t a l i s m w a s inevitably h e a d i n g t o a great crash, a " b r e a k d o w n " . H e t o o k u p the a r g u m e n t in the f o r m in w h i c h it h a d been put by the A u s t r i a n social d e m o c r a t O t t o Bauer, w h o c l a i m e d to s h o w t h a t c a p i t a l i s m c o u l d e x p a n d indefinitely, using s c h e m a f r o m M a r x in V o l u m e I w o o f Capital

d e p i c t i n g the interrelation between different sec-

tors o f capitalist p r o d u c t i o n .

1

G r o s s m a n c l a i m e d t o prove, as against Bauer, t h a t if these schema were applied over a sufficiently large n u m b e r o f cycles o f p r o d u c t i o n a p o i n t w o u l d be reached ar w h i c h the rate o f profit w o u l d be t o o l o w to a l l o w p r o d u c t i o n t o c o n t i n u e w i t h o u t c u t t i n g i n t o w o r k e r s ' real wages a n d the c o n s u m p t i o n o f rhe capitalist class itself. T h i s w o u l d h a p p e n because " r h e scope o f a c c u m u l a tion

expands...in

proportion

to

the

weight

of

rhe

already

a c c u m u l a t e d c a p i t a l " even as the rate o f profit tends to decline. I ventually a p o i n t w o u l d be reached w h e r e sustaining a c c u m u l a tion a b s o r b e d all existing s u r p l u s value, leaving n o n e for rhe luxury c o n s u m p t i o n o f the capitalist class, a n d then b e g i n n i n g t o i .it into the v a l u e needed to sustain the w o r k i n g class." Alternatively, if s u r p l u s value w a s used o n a n increasing scale to m a i n t a i n the rate o f profir o n existing i n v e s t m e n t , there w o u l d be i collapse in rhe mass o f s u r p l u s value a v a i l a b l e for n e w investment. T h e industries catering for investment w o u l d n o t be able t o f u n c t i o n . There w o u l d be " a b s o l u t e o v e r - a c c u m u l a t i o n " a n d " a state o f c a p i t a l s a t u r a t i o n in w h i c h rhe over-accumulated c a p i t a l laces a shortage o f investment o p p o r t u n i t i e s a n d finds it m o r e difficult

t o s u r m o u n t this s a t u r a t i o n " . 5 3 In either case the system

w o u l d n o longer be able t o r e p r o d u c e itself. There have been m a n y o b j e c t i o n s t o G r o s s m a n ' s a r g u m e n t s / 4 It is n o t clear f r o m his a r g u m e n t w h y rhe rare o f e x p a n s i o n o f investment has t o r e m a i n c o n s t a n t f r o m o n e cycle t o another, rather than s l o w l y decline in response t o the decline in the rate o f profit ind in d o i n g so reduce the tendency o f rhe o r g a n i c c o m p o s i t i o n o f capital t o rise. In that case the " b r e a k d o w n ' ' , it m i g h t seem, c o u l d be p o s t p o n e d for a very l o n g time. Further, G r o s s m a n ' s b o o k is IIK*Dynamics of the System

77

a m b i g u o u s a b o u t w h e t h e r his theory proves the inevitability o f crisis or rhe inevitability o f a c o m p l e t e b r e a k d o w n o f the system. H e recognises t h a t the crisis can c o u n t e r a c t the tendency o f rhe rare o f profit t o fall, b u t still c o n c l u d e s that: the m e c h a n i s m as a w h o l e tends relentlessly t o w a r d s its

final

end w i t h the general process o f a c c u m u l a t i o n . . . O n c e these counter-tendencies are themselves defused o r s i m p l y cease to operate, the b r e a k d o w n tendency gains the u p p e r h a n d a n d asserts itself in rhe absolute f o r m o f the final crisis." Yet it is possible to see h y p o t h e t i c a l c i r c u m s t a n c e s in

which

G r o s s m a n ' s a r g u m e n t s w o u l d apply. Intense c o m p e t i t i o n between c a p i t a l s — i t s e l f intensified by f a l l i n g profit r a t e s — c o u l d c o m p e l each t o invest in ever m o r e expensive m e a n s o f p r o d u c t i o n so as t o o b t a i n the a d v a n c e d technology that is a p r e c o n d i t i o n for survival. In this w a y the technical prerequisites o f successful c o m p e t i t i o n w o u l d c o n t r a d i c t the possibility o f m a i n t a i n i n g p r o f i t a b i l i t y ; the e m b o d i m e n t o f capital in certain use values w o u l d c o n t r a d i c t rhe possibility o f e x p a n d i n g its value. Resistance f r o m the w o r k i n g class c o u l d prevent restoration o f profit rates t h r o u g h the m e t h o d o f p a y i n g for l a b o u r p o w e r at b e l o w its r e p r o d u c t i o n costs. A n d s o m e t h i n g m i g h t prevent the usual boom-recession cycles f r o m d r i v i n g s o m e firms o u t o f business a n d easing the long-term problems o f others. G r o s s m a n ' s theory c a n then s h o w h o w the falling rare o f profit c a n p r o d u c e deep p r o b l e m s for the system, w i t h o u t being treated as definitive p r o o f t h a t c a p i t a l i s m has t o collapse o f its o w n accord.

T h e c o n c e n t r a t i o n a n d centralisation o f capital The second long-term process recognised by M a r x w a s w h a t he called the " c o n c e n t r a t i o n a n d c e n t r a l i s a t i o n " o f capital. 5 * Ir is n o t difficult t o grasp w h a t is involved. C o n c e n t r a t i o n refers to the w a y in w h i c h e x p l o i t a t i o n enables i n d i v i d u a l c a p i t a l s to a c c u m u l a t e a n d so g r o w larger. T h e s m a l l firm becomes a big firm a n d the big firm becomes a g i a n t — p r o v i d i n g it c a n survive each cyclical crisis. C e n t r a l i s a t i o n refers ro the w a y in w h i c h each crisis weeds o u t s o m e capitals, leaving those that r e m a i n c o n t r o l l i n g a bigger parr o f rhe w h o l e system. 78

Understanding the System: Marx and Ik-yond

This process has i m p o r t a n t i m p l i c a t i o n s — n o t all o f w h i c h were fully d r a w n o u t by M a r x himself. T h e bigger rhe i n d i v i d u a l units o f capital a n d larger the p r o p o r t i o n o f the system as a w h o l e they constitute, the greater will be the i m p a c t o n rhe rest o f rhe system every rime o n e o f t h e m goes bust. If a small firm stops m a k i n g profits a n d goes b u s t , this will destroy o n l y a small part o f the market for other, previously profitable, small firms t h a t s u p p l y it. There will be a verv limited d o m i n o effect. If, however, o n e o f the m

iuants o f the system goes bust, it c a n have a devastating i m p a c t o n other previously profitable big firms that d e p e n d e d o n it f o r their o w n m a r k e t s , a n d o n a n y b a n k s or other firms rhar have lent it money. T h e d o m i n o effect becomes an a v a l a n c h e effect. A t the s a m e t i m e , however, the ver\ size o f firms can p r o v i d e them w i t h p r o t e c t i o n f r o m m a r k e r forces u p ro a certain p o i n t . I he i n d i v i d u a l acts o f l a b o u r w i t h i n a great capitalist enterprise .ire n o t directly in c o m p e t i t i o n w i t h i n d i v i d u a l acts o u t s i d e it. Instead m a n a g e r i a l decisions d e t e r m i n e h o w they relate t o each other. As M a r x puts it: In m a n u f a c t u r e . . . t h e collective w o r k i n g o r g a n i s m is a f o r m o f existence o f capital. T h e m e c h a n i s m t h a t is m a d e u p o f numerous

individual

detail

labourers

belongs to the

capitalist...

M a n u f a c t u r e p r o p e r n o t o n l y subjects the previously independent w o r k m a n to the discipline a n d c o m m a n d o f c a p i t a l , b u t , in a d d i t i o n , creates a hierarchic g r a d a t i o n o f the w o r k m e n themselves... N o t o n l y is the detail w o r k distributed to the different i n d i v i d u a l s , but the i n d i v i d u a l h i m s e l f is m a d e the a u t o m a t i c m o t o r o f a fractional o p e r a t i o n . . . 5 7 I he great enterprises are like islands w i t h i n t h e system where the relation between the w o r k d o n e by i n d i v i d u a l s is organised by a plan, nor by rhe interrelation o f their products t h r o u g h the m a r k e t : W h a t . . . c h a r a c t e r i s e s division o f l a b o u r in m a n u f a c t u r e s ? T h e fact that rhe detail l a b o u r e r p r o d u c e s n o c o m m o d i t i e s . It is o n l y the c o m m o n p r o d u c t o f all rhe derail labourers rhar becomes a c o m m o d i t y . D i v i s i o n o f l a b o u r in society is b r o u g h t a b o u t by the p u r c h a s e a n d sale o f the p r o d u c t s o f different b r a n c h e s o f industry, w h i l e the c o n n e x i o n between the detail o p e r a t i o n s in a w o r k s h o p is d u e to the sale o f the l a b o u r p o w e r o f several w o r k m e n t o one capitalist, w h o applies it as c o m b i n e d l a b o u r IIK*Dynamics of the System

79

p o w e r . . . W h i l e w i r h i n the w o r k s h o p , the iron l a w o f proport i o n a l i t y subjects definite n u m b e r s o f w o r k m e n

to

definite

f u n c t i o n s ; in the society o u t s i d e rhe w o r k s h o p , c h a n c e a n d caprice have full p l a y in d i s t r i b u t i n g the p r o d u c e r s a n d their m e a n s o f p r o d u c t i o n a m o n g the various branches o f industry/* T h e islands o f p l a n n i n g w i r h i n rhe enterprises d o n o t exist a p a r t f r o m the sea o f c o m m o d i t y p r o d u c t i o n a r o u n d t h e m . T h e internal regime is a response t o the external pressure to extract a n d accum u l a t e surplus value in o r d e r t o c o m p e t e : " A n a r c h y in the social d i v i s i o n of l a b o u r a n d d e s p o t i s m in t h a t o f the w o r k s h o p are m u t u a l c o n d i t i o n s rhe o n e o f the o t h e r " /

T h e d e s p o t i s m arises

f r o m the pressure o n the capitalist t o relate the p r o d u c t i v i t y o f l a b o u r w i t h i n the enterprise ro rhe ever c h a n g i n g p r o d u c t i v i t y o f l a b o u r in rhe system as a w h o l e . But this c a n n o t be d o n e w i t h o u t u s i n g c o m p u l s i o n , pressing d o w n o n each worker, t o achieve w h a t is b r o u g h t a b o u t in the w i d e r society by rhe b l i n d interplay o f commodities. T h e l a w o f value operates between enterprises t h r o u g h

the

m a r k e t . W i t h i n the enterprise it has t o be i m p o s e d by c o n s c i o u s regulation o n the part o f the capitalist. P l a n n i n g w i r h i n capitalism is not the o p p o s i t e of rhe m a r k e t ; it is the w a y in w h i c h the capitalist tries to i m p o s e the d e m a n d s o f the m a r k e t o n the workforce. 6 0 The capitalist can often still have a certain leeway w i t h i n w h i c h to operate. T h e enterprise c a n m a k e profits if the m a r k e t for its o u t p u t is g r o w i n g rapidly despite costs o f p r o d u c t i o n internally dep a r t i n g m a r k e d l y f r o m those currently prevailing in rhe system as a w h o l e . T h i n g s are similar w h e n it has gained a m a j o r share o f rhe m a r k e t in a sector o f p r o d u c t i o n that requires very large a m o u n t s o f fixed capital. The p r o d u c t i o n m e t h o d s associated w i t h the physical structure ot its fixed capital (its use value) can be m u c h m o r e costly t h a n those available in the system as w h o l e (eg w h e n o l d machines using m a n y workers are used), but the enterprise is protected f r o m serious c o m p e t i t i o n for a long period o f t i m e by rhe sheer cost to n e w firms o f entering the industry to c o m p e t e w i t h it. T h e existence o f a certain c a p i t a l as a fixed, physically constituted use value as well as a potentially fluid exchange value means that the l a w o f value does n o t a p p l y t o it directly a n d instantaneously. This is n o t a state of affairs thar can last indefinitely. Eventually the d e v e l o p m e n t o f new, m o r e a d v a n c e d p r o d u c t i o n m e t h o d s in the wider system will lead ro it facing sudden serious c o m p e t i t i o n . 80

Understanding the System: Marx and Ik-yond

It is t h e n , t h r o u g h the i m p a c t of crisis o n it, that the enterprise is forced t o restructure so as to p r o d u c e a c c o r d i n g t o the l a w o f value or t o g o under. T h e m o r e enterprises there are t h a t have been relatively protected in the p a s t — t h a t is, the higher the c o n c e n t r a t i o n a n d centralisation o f c a p i t a l — t h e greater will be the crisis w h e n it eventually breaks. But in the interim the g i a n t firm can evade the c r i s i s — a n d sometimes the interim can be a very long time. If m a n y g i a n t firms are able ro d o this for a p e r i o d , the impression can arise t h a t that s y s t e m — o r part o f i t — h a s b e c o m e crisis free. W h a t is n o t noticed is that the price it pays-for a v o i d i n g crises is t h a t it is there is n o restructuring

to

offset

the

long-term

downward

pressure

on

profitability. C a p i t a l s a v o i d small crises, only to be hit, eventually, by a m u c h greater one.

I he o t h e r l i m i t o f c a p i t a l i s m ? I here is a final p o i n t that has often been lost in e x p o s i t i o n s o f M a r x ' s ideas: his stress o n the e x p a n s i o n o f the "forces o f product i o n " has been interpreted as identification w i t h e c o n o m i c g r o w t h .it all costs. Yet in b o t h the earlier a n d the later writings o f M a r x and Engels there is a keen awareness o f the c o n t r a d i c t o r y character o f such g r o w t h w i t h i n class societies in general a n d w i t h i n capitalism in particular. They w r o t e in 1845-6: In the d e v e l o p m e n t o f the p r o d u c t i v e forces there c o m e s a stage w h e n p r o d u c t i v e forces a n d m e a n s o f intercourse are b r o u g h t i n t o being w h i c h , u n d e r existing relations, can o n l y cause mischief, a n d are n o longer p r o d u c t i v e b u t destructive. 61 M a r x a n d Engels did n o t just view c a p i t a l i s m as generally destructive. They also p r o v i d e d the outlines o f a critique o f the p a r t i c u l a r ecological d a m a g e w r o u g h t by it, as writers like J o h n

Bellamy

l-oster have emphasised in recent vears. 6 : Vlarx s a w h u m a n beings an integral part o f the n a t u r a l w o r l d , " l a b o u r " , he wrote: is, in the first place, a process in w h i c h b o t h m a n a n d N a t u r e p a r t i c i p a t e , a n d in w h i c h m a n o f his o w n accord starts, regulates, a n d c o n t r o l s the material reactions between himself a n d IIK*Dynamics of the System

81

Ill

N a t u r e . H e opposes h i m s e l f ro N a t u r e as o n e o f her o w n forces, setting in m o t i o n a r m s a n d legs, head a n d h a n d s , the n a t u r a l forces o f his body, in o r d e r t o a p p r o p r i a t e N a t u r e ' s p r o d u c t i o n s in a form a d a p t e d t o his o w n wants. 6 3 Bur rhe drive o f capital t o create surplus value leads to it undermining o f the vitality o f n a t u r e — a n d rhe c o n d i t i o n s for h u m a n life: E x p l o i t a t i o n a n d s q u a n d e r i n g o f the vitality o f the soil takes the place o f c o n s c i o u s r a t i o n a l c u l t i v a t i o n o f the soil as eternal c o m m u n a l property, a n i n a l i e n a b l e c o n d i t i o n for the existence a n d r e p r o d u c t i o n o f a c h a i n o f successive g e n e r a t i o n s o f the h u m a n race. 64 There arises " a n i r r e p a r a b l e break in the coherence o f social int e r c h a n g e prescribed by the n a t u r a l laws o f l i f e V

"Capitalist

p r o d u c t i o n d e v e l o p s t e c h n o l o g y , a n d the c o m b i n i n g together o f various processes i n t o a social w h o l e , o n l y by s a p p i n g the o r i g i n a l sources o f all w e a l t h — t h e soil a n d the l a b o u r e r . . / ' 6 6 J u s t as "large-scale i n d u s t r y . . . l a y s waste a n d d e s t r o y s . . . l a b o u r - p o w e r ', "large-scale m e c h a n i s e d a g r i c u l t u r e . . . d i r e c t l y e x h a u s t s the natural

vitality

of

the

soil..."-"

Capitalist

production,

Marx

recognised, w a s s l o w l y d e s t r o y i n g the very basis o n w h i c h it, like all h u m a n p r o d u c t i o n , r e s t e d — t h e m e t a b o l i c interaction between h u m a n i t y a n d the rest o f the n a t u r a l w o r l d . 0

M a r x s r e m a r k s w e r e m a i n l y c o n c e r n e d w i t h rhe i m m e d i a t e effects o f c a p i t a l i s t a g r i c u l t u r e o n soil fertility, w h i c h in his t i m e c o u l d o n l y be o v e r c o m e by the use of g u a n o — n i t r o u s m i n e r a l deposits resulting f r o m t h o u s a n d s o f years o f b i r d d r o p p i n g s ro be f o u n d m a i n l y o n the coast o f n o r t h e r n C h i l e . M a r x ' s insights were t a k e n u p a n d d e v e l o p e d in this sense by K a r l K a u t s k y in rhe 1890s as i m p l y i n g a crisis o f f o o d p r o d u c t i o n in the short t e r m . But they seemed t o lose their relevance w i t h rhe discovery o f h o w n i t r o u s fertilisers c o u l d be m a d e artificially ( t h r o u g h the HaberBosch

process)

during

World

War

One

and

world

food

p r o d u c t i o n w a s a b l e t o e x p a n d w i t h o u t difficulty t h r o u g h o u t the 2 0 t h century. But analyses o f the relation between h u m a n i t y a n d nature had wider implications than a simple concern with food o u t p u t , as w a s spelt o u t by Engels in his t h e m a n u s c r i p t Dialectics

of Nature,

The

w h i c h w a s n o t p u b l i s h e d until 3 0 years after

his d e a t h , in the m i d - 1 9 2 0 s . 82

Understanding the System: Marx and Ik-yond

Here Engels noted t h a t , a l t h o u g h h u m a n s differ f r o m other animals in being able t o " m a s t e r " n a t u r e , this historically has often had unforeseen negative consequences w h i c h cancelled o u t initial gains. H e t o o k as an e x a m p l e rhe w a y in w h i c h deforestation h a d wreaked h a v o c o n Greece, M e s o p o t a m i a a n d Asia M i n o r : Thus w i t h every step w e are r e m i n d e d t h a t w e by n o m e a n s rule over nature as over a foreign people, like s o m e o n e s t a n d i n g outside n a t u r e — b u t t h a t w e , w i t h flesh a n d

blood and

brain,

belong t o nature a n d exist in its midst. 6 8 Scientific progress w a s s l o w l y p r o v i d i n g the m e a n s t o a v o i d c a u s i n g ecological c a l a m i t i e s by c o n t r o l l i n g a n d r e g u l a t i n g " p r o d u c t i o n a c t i v i t y " . B u t " t h i s r e g u l a t i o n " required

"something

m o r e t h a n iftere k n o w l e d g e " . It r e q u i r e d " a c o m p l e t e r e v o l u t i o n in o u r h i t h e r t o existing m o d e o f p r o d u c t i o n , a n d s i m u l t a n e o u s l y .1 r e v o l u t i o n in o u r w h o l e c o n t e m p o r a r y social o r d e r " . 6 " T h i s w a s necessary because: T h e i n d i v i d u a l capitalists, w h o d o m i n a t e p r o d u c t i o n a n d exc h a n g e , are able t o c o n c e r n themselves o n l y w i t h the m o s t i m m e d i a t e useful effect o f their a c t i o n s . . . In relation t o n a t u r e , as t o society, rhe present m o d e o f p r o d u c t i o n is p r e d o m i n a n t l y concerned o n l y a b o u t the i m m e d i a t e , the m o s t t a n g i b l e result; a n d then surprise is expressed t h a t the m o r e r e m o t e effects o f actions directed t o this end t u r n o u t to be q u i t e different, are mostly q u i t e the o p p o s i t e in character. 70 I he i m p l i c a t i o n is t h a t c a p i t a l i s m c o n t a i n e d a n o t h e r i n b u i l t l i m i t besides t h a t o f its i n b u i l t tendency ro e c o n o m i c crises. It is t h a t left to itself it c o u l d eventually destroy the very e n v i r o n m e n t a l conditions for any f o r m o f h u m a n existence, i n c l u d i n g its o w n . N e i t h e r M a r x n o r Engels developed this i m p l i c a t i o n . But it w o u l d b e c o m e very i m p o r t a n t a c e n t u r y later.

\ d y n a m i c a n d c o n t r a d i c t o r y system I he recognition that c a p i t a l i s m is an ever e x p a n d i n g system o f alienated l a b o u r runs t h r o u g h the pages o f M a r x ' s e c o n o m i c writings. It is a system in w h i c h p e o p l e s living force is taken f r o m them IIK*Dynamics of the System

83

a n d turned i n t o a system o f things that d o m i n a t e t h e m . C a p i t a l is l a b o u r that is t r a n s f o r m e d i n t o a m o n s t r o u s p r o d u c t w h o s e o n l y a i m is to e x p a n d itself: " C a p i t a l is d e a d labour, t h a t , vampire-like, o n l y lives by s u c k i n g l i v i n g labour, a n d lives the m o r e , t h e m o r e l a b o u r it s u c k s " . ' It is this w h i c h gives c a p i t a l i s m a d y n a m i c o f g r o w t h unparalleled in previous societies. T h e endless drive t o p u m p o u t s u r p l u s v a l u e in order t o further p u m p o u t yet m o r e surplus v a l u e , o f a c c u m u l a t i o n in order t o further a c c u m u l a t e , k n o w s n o b o u n d s . A s c a p i t a l i s m emerged in parts o f north west K u r o p e , it w a s c o m p e l l e d t o stretch o u t its tentacles to e n c o m p a s s the w h o l e e a r t h , subjecting ever m o r e l i v i n g l a b o u r to ir: T h e need of a c o n s t a n t l y e x p a n d i n g m a r k e t for its p r o d u c t s chases the bourgeoisie over the entire surface o f the globe. It m u s t nestle everywhere, settle everywhere, establish connections everywhere. T h e bourgeoisie has t h r o u g h its e x p l o i t a t i o n of the w o r l d m a r k e t given a c o s m o p o l i t a n character to p r o d u c t i o n a n d c o n s u m p t i o n in every country. To the great chagrin o f reactionists, it has d r a w n f r o m u n d e r rhe feet o f industry the n a t i o n a l g r o u n d o n w h i c h it s t o o d . All old-established n a t i o n a l industries have been destroyed or are daily being destroyed. They are dislodged by n e w industries, w h o s e i n t r o d u c t i o n becomes a life a n d death question for all civilised n a t i o n s , by industries t h a t n o longer w o r k

u p i n d i g e n o u s raw m a t e r i a l , but r a w

material

d r a w n f r o m the remotest zones; industries w h o s e p r o d u c t s are c o n s u m e d , n o t only at h o m e , bur in every quarter o f the globe. In place o f the old w a n t s , satisfied b y the p r o d u c t i o n of the country, w e find n e w w a n t s , requiring for their satisfaction the p r o d u c t s o f distant lands a n d climes. In place o f the old local a n d n a t i o n a l seclusion a n d self-sufficiency, we have intercourse in every direct i o n , universal interdependence o f nations." 2 W h a t stands o u t f r o m M a r x ' s analysis is precisely w h a t has been missing f r o m m a i n s t r e a m e c o n o m i c s since his r i m e — a sense o f the mass f o r w a r d rush o f capitalism." H i s m o d e l provides, as n o other has, a n a c c o u n t o f a system t h a t h a d e x p a n d e d to fill m o s t of Western E u r o p e a n d N o r t h A m e r i c a by rhe t i m e o f his death in 1 8 8 3 — a n d e x p a n d e d further t o fill the w h o l e globe in the 2 0 t h century. But t h a t is n o t all. H i s m o d e l w a s n o t o n l y of a self-expanding system, b u t o f one w h o s e e x p a n s i o n is based u p o n the interplay o f 84

Understanding the Svsteni: Marx and Bevond * 4

c o n t r a d i c t o r y forces that finds expression in the crisis a n d the d o w n w a r d pressure o n the rate o f profit. T h e e x p a n s i o n of rhe system simultaneously leads t o a massive g r o w t h in the productive forces—the capacity o f h u m a n i t y t o p r o d u c e its l i v e l i h o o d — a n d o f the t r a n s f o r m a t i o n o f these into destructive forces t h r o u g h the crippling o f people's lives. Capitalism

has

been

a totalising—I

am

tempted

to

write

" t o t a l i t a r i a n " — s y s t e m , in a w a y in w h i c h n o previous m o d e o f p r o d u c t i o n h a d been, c o m p e l l i n g the w h o l e w o r l d t o dance t o its frenzied r h y t h m s o f c o m p e t i t o n a n d a c c u m u l a t i o n . As it has d o n e so, the system as a w h o l e has c o n t i n u a l l y reacted back u p o n the ind i v i d u a l processes o n w h i c h it d e p e n d s . It forces each c a p i t a l t o lorce d o w n the price o f l a b o u r p o w e r t o the m i n i m u m t h a t will keep its w o r k e r s able a n d w i l l i n g ro w o r k . " 4 T h e clash o f capitals compels each t o a c c u m u l a t e in a w a y t h a t will p r o d u c e d o w n w a r d pressure o n profit rates for all o f t h e m . It stops a n y o f t h e m standing still, even if they occasionally b e c o m e a w a r e o f the devastation they are causing. It is a system that creates periodic h a v o c for all ihose w h o live w i t h i n it, a horrific h y b r i d o f Frankenstein's m o n ster a n d o f D r a c u l a , a h u m a n c r e a t i o n t h a t has escaped c o n t r o l ind lives by d e v o u r i n g the lifeblood o f its creators. It is this u n d e r s t a n d i n g w h i c h a b o v e all distinguishes M a r x ' s approach f r o m every school o f m a i n s t r e a m economics, o r t h o d o x a n d heterodox alike, a n d w h i c h m e a n s it a l o n e provides a g u i d e for analysing c a p i t a l i s m in o u r century. But d o i n g so m e a n s u s i n g Marx's concepts t o g o beyond M a r x .

I l»c I >vnamics of rhe System

85

Understanding the System: Marx and Beyond

CHAPTER FOUR

Beyond Marx: monopoly, war and the state

New developments M a r x d e p i c t e d a system t h a t w a s very d y n a m i c , b u t a l s o p l a g u e d w i t h seemingly i n s u p e r a b l e c o n t r a d i c t i o n s . Its very d y n a m i s m cont i n u a l l y led c a p i t a l t o try t o e x p a n d at a greater rate t h a n c o u l d be sustained by the l i v i n g l a b o u r p o w e r o n w h i c h it u l t i m a t e l y depended. T h e barrier t o c a p i t a l i s t p r o d u c t i o n , M a r x w r o t e , lay in capital itself. T h e i m p l i c a t i o n w a s t h a t as c a p i t a l i s m e n g u l f e d the w h o l e w o r l d , it w o u l d be subject t o longer a n d deeper s l u m p s , interspersed w i t h s h o r t e r a n d s h a l l o w e r p e r i o d s o f b o o m . A t the .une t i m e , the c o n c e n t r a t i o n a n d c e n t r a l i s a t i o n o f c a p i t a l w o u l d p r o d u c e a n ever greater p o l a r i s a t i o n b e t w e e n a c a p i t a l i s t class w h i c h w a s d i m i n i s h i n g in size a n d a w o r k i n g class t h a t a b s o r b e d i n t o itself the rest o f society. T h e m o d e l was by design a n a b s t r a c t i o n . M a r x consciously ignored m u c h o f rhe d a y t o day f u n c t i o n i n g o f m a r k e t s a n d m a n y o f i lie features o f p a r t i c u l a r capitalist societies in his a t t e m p t t o grasp the u n d e r l y i n g tendencies b u i l t i n t o rhe m o d e o f p r o d u c t i o n as Mich—its " g e n e r a l l a w s " . T h e w a y each o f the three v o l u m e s o f i si/)rial o p e r a t e d at a different level o f a b s t r a c t i o n m e a n t t h a t the third v o l u m e , by i n t e g r a t i n g p r o d u c t i o n a n d c i r c u l a t i o n , w a s closer in the a c t u a l o p e r a t i n g detail o f any really existing capitalist socirty than rhe first v o l u m e , even t h o u g h its analysis d e p e n d e d o n the l u s i c concepts developed there. It dealt n o t o n l y w i t h the equalisation o f profit rates, the d e v i a t i o n o f prices f r o m values, crises, a n d i hi tendency o f the rate o f profit t o fall, b u t a l s o w i t h credit a n d the I' i n k i n g system, c o m m e r c i a l profits, interest p a y m e n t s t o m o n e y l» inlers, a n d rents t o l a n d o w n e r s . But even the third v o l u m e delibi rately p a i d little a t t e n t i o n t o m a n y i m p o r t a n t things: foreign trade. 87

the i m p a c t o n the capitalist system o f a b s o r b i n g the still e n o r m o u s pre-capitalist parts o f the w o r l d or the role o f rhe state. M a r x h a d intended in rhe o r i g i n a l p l a n for Capital

he d r e w u p in the early

m a n u s c r i p t s o f rhe w o r k further v o l u m e s dealing w i t h such things. But he never h a d rime ro d o so, immersed as he w a s in d a y to day revolutionary political activity, c o m p e l l e d to m a k e a livelihood for himself t h r o u g h journalistic articles a n d , in the last years o f his life, plagued by illness, a l t h o u g h rhe three volumes he did fully or partially c o m p l e t e were themselves a n incredible achievement. T h e g a p between the m o d e l a n d the reality left m a n y questions u n a n s w e r e d a b o u t the course c a p i t a l i s m w o u l d take. These questions did n o t necessarily seem to m a t t e r that m u c h either t o M a r x a n d Engels or ro the activists in the n e w workers' m o v e m e n t s o f the 18~0s a n d 1880s. These were rhe years o f a l o n g p e r i o d o f crises k n o w n as rhe Great D e p r e s s i o n . T h e IJS steel m a g n a t e A n d r e w C a r n e g i e expressed the m o o d even in capitalist circles i n 1889: M a n u f a c t u r e r s . . . s e e savings o f m a n y y e a r s . . . b e c o m i n g less a n d less, w i t h n o h o p e o f a c h a n g e in the s i t u a t i o n . It is in a soil thus prepared rhar a n y t h i n g p r o m i s i n g o f relief is gladly w e l c o m e d . T h e m a n u f a c t u r e r s are in the p o s i t i o n o f patients that h a v e tried in vain every d o c t o r o f the regular school for years, a n d are n o w liable to b e c o m e rhe victim o f a n y q u a c k that appears... 1 A q u a r t e r c e n t u r y o f falling profit rates- led t o massive p o o l s o f poverty in L o n d o n a n d other cities a n d ro mass u n e m p l o y m e n t in the mid-1880s. 3 It w a s n o t surprising t h a t Frederick Engels c o u l d feel t h a t the logic o f M a r x ' s m o d e l w a s w o r k i n g itself o u r right in f r o n t o f his eyes in E n g l a n d as " t h e decennial cycle o f s t a g n a t i o n , prosperity, o v e r p r o d u c t i o n a n d crisis" seemed to give w a y t o " a p e r m a n e n t a n d c h r o n i c depression". 4 The trajectory o f capitalism s o o n , however, p r o v e d to be m o r e c o m p l i c a t e d t h a n rhe experience o f the 1880s suggested. Profit rates recovered in Britain in the 1890s, a n d the US a n d G e r m a n y •

went through a new wave of economic expansion.

There were

certain positive reforms for w o r k e r s that seemed to c o n t r a d i c t M a r x ' s picture: Bismarck granted pensions t o G e r m a n y ' s workers in 1 8 8 9 a n d a British Liberal g o v e r n m e n t p r o d u c e d a s i m i l a r scheme in Britain 2 0 years later, a l o n g w i t h free school meals; real wages rose in rhe last t w o decades o f the 19rh century, even if they tended to stagnate after that; 6 w o r k i n g h o u r s everywhere tended 88

Understanding the System: Marx and Ik-yond

to fall f r o m 12 or 14 h o u r s a day t o eight, a n d the w o r k i n g week to tall from six days t o five a n d a half." I he a p p a r e n t r e f u t a t i o n o f t h e p r e d i c t i o n s d r a w n f r o m M a r x ' s model led t o a crisis w i t h i n M a r x i s t r a n k s , k n o w n as the revisionist controversy. O u t o f it emerged t w o very different trends in the analysis o f capitalism w h i c h were t o c o n f r o n t each other again a n d again over the next century. E d w a r d Bernstein, o n l y a few years previously a close collaborator o f Engels, p r o d u c e d a r o o t a n d b r a n c h c r i t i q u e o f M a r x ' s methods and conclusions. "Signs o f an e c o n o m i c

worldwide

crash o f u n h e a r d o f ^ v i o l e n c e h a v e n o t been e s t a b l i s h e d " , he w r o t e . " O v e r p r o d u c t i o n in single industries does not m e a n general crises".' " W o r k i n g m e n " , he c o n c l u d e d , are n o t " u n i v e r s a l l y pauperised a ^ w r a s set o u t in the Communist

Manifesto'V

These

changes, he a r g u e d , h a d arisen because o f " t h e e n o r m o u s extension o f the w o r l d m a r k e t " a n d the r e g u l a t i o n o f p r o d u c t i o n w i t h the rise o f the i n d u s t r i a l c a r t e l s " so t h a t " g e n e r a l c o m m e r c i a l crises" were " i m p r o b a b l e " . Bernstein s " r e v i s i o n " o f M a r x w a s rejected by Engels' other collaborator, K a r l Kautsky. But this d i d n o t p r e v e n t m a n y socialists u;tivists c o m i n g t o accept in practice that c a p i t a l i s m h a d stabilised itself for the indefinite future. C h a l l e n g i n g such views m e a n t g o i n g further t h a n K a u t s k y a n d a d d i n g t o M a r x ' s analysis. It is this w h i c h , each in their o w n way, R u d o l f H i l f e r d i n g , V l a d i m i r L e n i n , Nicolai B u k h a r i n a n d R o s a L u x e m b u r g tried t o d o . S o o n it w a s n o t o n l y the purely e c o n o m i c f u n c t i o n i n g o f rhe system t h a t required s o m e t h i n g m o r e t h a n the basic a c c o u n t provided by M a r x . So t o o d i d a n e w p e r i o d o f i m m e n s e p o l i t i c a l c o n v u l s i o n s as 4 4 years o f peace in western E u r o p e gave w a y t o the most horrific w a r h u m a n i t y h a d yet k n o w n .

I lilferding: finance capitalism a n d i m p e r i a l i s m I he first M a r x i s t e c o n o m i s t t o p u b l i s h a detailed analysis o f the . hanges w a s the A u s t r i a n R u d o l f H i l f e r d i n g in his w o r k

Finance

< apita I, in 1911. Basing h i m s e l f o n d e v e l o p m e n t s in G e r m a n y , he argued t h a t b a n k i n g capital a n d industrial capital were m e r g i n g t o produce a synthesis o f the t w o , w h i c h he labelled " f i n a n c e capital' 1 . O n this basis g i a n t trusts a n d cartels w e r e e m e r g i n g that . o u l d d o m i n a t e w h o l e sectors o f industry: llcyond

Marx: Monopoly, War and the State

89

There is a c o n t i n u a l tendency for cartelisation t o be extended. T h e i n d i v i d u a l industries become increasingly d e p e n d e n t u p o n the cartelised industries until they are finally a n n e x e d by t h e m . T h e u l t i m a t e o u t c o m e o f this process w o u l d be the f o r m a t i o n o f a general cartel. T h e w h o l e o f capitalist p r o d u c t i o n w o u l d then be consciously regulated by a single b o d y w h i c h w o u l d determ i n e the v o l u m e of p r o d u c t i o n in all the branches o f industry. 1 0 H i l f e r d i n g d i d n o t see c o m p e t i t i o n as d i s a p p e a r i n g completely. H e emphasised the i m p o r t a n c e o f i n t e r n a t i o n a l c o m p e t i t i o n , p o i n t i n g ro the w a y the merger o f finance a n d i n d u s t r y inside a c o u n t r y led ro pressure o n its state ro use protectionist tax duties t o a i d its capitalists in their struggle a g a i n s t rivals in rhe w o r l d m a r k e t . " I t is n o t free trade E n g l a n d , b u r rhe p r o t e c t i o n i s t countries, G e r m a n y a n d the U n i t e d States, w h i c h b e c o m e the m o d e l s o f capitalist dev e l o p m e n t " , w r o t e H i l f e r d i n g . 1 1 Far f r o m c o n t i n u i n g w i t h

the

t r a d i t i o n a l liberal n o t i o n o f a m i n i m a l " n i g h t - w a t c h m a n state" the great trusts w a n t e d it t o have the p o w e r ro w i d e n its b o u n d a r i e s so as t o enlarge the m a r k e t in w h i c h they c o u l d g a i n m o n o p o l y profits: " W h i l e free trade w a s indifferent to c o l o n i e s , p r o t e c t i o n i s m leads directly t o a m o r e active c o l o n i a l policy, a n d t o conflicts o f interest between different states", 1 2 H i l f e r d i n g a r g u e d . " T h e policy o f finance capital is b o u n d ro lead t o w a r d s w a r " . 1 ' This analysis w e n t b e y o n d a n y t h i n g in M a r x . H e h a d witnessed the w a r s o f his lifetime a n d written a b o u t t h e m : rhe o p i u m wars o f Britain against C h i n a , the C r i m e a n War, the A m e r i c a n C i v i l W a r , a n d the Franco-Prussian W'ar. But these were wars, as he saw it, resulting

f r o m the drive o f c a p i t a l i s m

t o i m p o s e itself o n

the

r e m n a n t s o f the pre-capitalist w o r l d a r o u n d it. C a p i t a l i s m

had

c o m e i n t o the w o r l d " m i r e d in b l o o d " , b u t M a r x ' s m o d e l contained n o m o r e t h a n a few h i n t s as t o w h y fully established capitalist c o u n t r i e s w o u l d

be driven t o w a r w i t h each other.

H i l f e r d i n g h a d taken a first step t o w a r d s a M a r x i s m for the 2 0 t h century that explained w h a t h a d c h a n g e d since M a r x ' s t i m e in this a l l - i m p o r t a n t respect. There were, however, a m b i g u i t i e s in Hilferding ? s a p p r o a c h . T h e m a i n trend in his b o o k w a s to argue that rhe g r o w t h o f m o n o p o l i e s d i d n o t d o a w a y w i t h the tendency o f capitalism t o crisis, a n d their g r o w i n g reliance o n the state w o u l d lead to intensified international c o m p e t i t i o n , imperialism a n d the drive to war. But at p o i n t s there were suggestions t h a t pointed ro a very different c o n c l u s i o n — t h a t 90

Understanding the System: Marx and Ik-yond

the m o n o p o l i e s a n d the state c o u l d w o r k together t o d a m p e n the tendency t o w a r d s crisis: " T h e specific character o f capital is obliterated

in

finance

capital"

which

w a s able t o resolve

"more

successfully the p r o b l e m s o f the o r g a n i s a t i o n o f the social econo m y " , even t h o u g h it w a s still a class society, w i t h

"property

concentrated in the h a n d s o f a few giant capitalist groups"'. 1 4 This meant the m i t i g a t i o n o f the o l d style e c o n o m i c crisis: As capitalist p r o d u c t i o n develops, there is therefore a n increase... in the part o f p r o d u c t i o n t h a t c a n be carried o n u n d e r all circumstances. H e n c e the d i s r u p t i o n o f credit need n o t be as complete

as in

crises i n

the earlier

period

of

capitalism.

F u r t h e r m o r e , the d e v e l o p m e n t o f the credit crisis i n t o a banking crisis o n the o n e side a n d a m o n e t a r y crisis o n the other is m a d e m o r e difficult... 1 5 T h e mass psychoses w h i c h s p e c u l a t i o n generated at the beg i n n i n g o f the capitalist era...seem g o n e for ever.' 6 I iiiferding d i d n o t carry his a r g u m e n t t h r o u g h t o its logical conclusion in Finance

Capital,

a n d still w r o t e t h a t the system c o u l d

not d o a w a y w i t h " t h e cyclical a l t e r n a t i o n o f prosperity a n d depression". 1 7 But by the 1920s, w h e n he served as a minister in t w o W e i m a r R e p u b l i c g o v e r n m e n t s , he veered t o w a r d s Bernstein s app r o a c h w i t h a theory o f " o r g a n i s e d c a p i t a l i s m "

in w h i c h rhe

a n a r c h y o f the m a r k e t a n d the trend t o w a r d s crisis disappear. O n e c o r o l l a r y w a s t o d e n y that there w a s a n y t h i n g in c a p i t a l i s m inevitably leading t o war, since rhe " o r g a n i s e d c a p i t a l i s m s " in different countries w o u l d w a n t ro c o o p e r a t e w i t h each other. A s i m i l a r c o n c l u s i o n h a d already been reached in 1914 by K a r l k.uitskv, leading h i m t o o t o a p o s i t i o n t h a t barely differed in practice f r o m Bernstein's. B u t w h e r e H i l f e r d i n g p o i n t e d t o the merger ot finance a n d p r o d u c t i v e c a p i t a l i s m , K a u t s k y ' s a r g u m e n t rested on seeing a f u n d a m e n t a l d i s t i n c t i o n a n d a n t a g o n i s m o f interests between t h e m : T h e finance c a p i t a l i s t s . . . h a d a direct interest in t r a n s f o r m i n g each n a t i o n a l state i n t o a n a p p a r a t u s o f s u p p o r t for their o w n e x p a n s i o n . I m p e r i a l i s m w a s therefore directly linked t o

finance

c a p i t a l i s m . But the interests o f finance capital were n o t identical to those o f industrial capital, w h i c h c o u l d e x p a n d only by broadening its markets t h r o u g h free trade. It w a s f r o m the industrial llcyond

Marx: Monopoly, War and the State

91

sector that impulses t o w a r d s international c o n c o r d arose in the bourgeois c a m p . . . I m p e r i a l i s m , rhe expression o f o n e phase o f capitalist d e v e l o p m e n t a n d the cause o f a r m e d conflicts, w a s n o t rhe o n l y possible f o r m o f d e v e l o p m e n t o f capitalism. | J K a u t s k y stressed the role of a r m s firms i n particular as h a v i n g a n interest in i m p e r i a l i s m a n d war. But he m a i n t a i n e d that rhe econ o m i c costs of r e a r m a m e n t , w h i l e they favoured the d e v e l o p m e n t o f s o m e sectors o f industry, were d e t r i m e n t a l t o others. C a p i t a l in rhe industrial countries needed t o d o m i n a t e the " a g r i c u l t u r a l " countries in o r d e r to get r a w materials. But there w a s n o reason w h y capitalists s h o u l d n o t be able t o c o o p e r a t e t o d o this t h r o u g h a " s o r t o f super-imperialism".- 0 In h o l d i n g t h a t the drive t o w a r w a s s o m e t h i n g t h a t h a p p e n e d despite the interests o f m o s t capitalists, H i l f e r d i n g a n d K a u t s k y were articulating a view very similar t o that o f s o m e liberals. O n e w a s the influential e c o n o m i s t H o b s o n , w h o h a d p r o d u c e d his o w n theory o f i m p e r i a l i s m s o m e n i n e years before H i l f e r d i n g . H e s a w imperialism as the p r o d u c t o f o n e interest g r o u p , those connected w i t h certain financial institutions. 2 1 These opted for guaranteed returns o f interest o n overseas loans rather t h a n raking the risks involved i n industrial investment at h o m e , a n d w e l c o m e d colonial e x p a n s i o n as a w a y of m a k i n g sure rheir state guaranteed the safety o f their investments. So for H o b s o n rhe r o o t o f imperialism lay nor w i t h capitalism as such but w i t h finance capital a n d those he saw as benefitting directly f r o m i t — t h e b o n d - h o l d i n g rentiers

w h o re-

ceived their d i v i d e n d s regularly w i t h o u t ever h a v i n g t o w o r r y themselves w i t h p r o d u c t i v e or c o m m e r c i a l activity o f a n y sort. A n o t h e r British liberal, N o r m a n A n g e l l , argued a s i m i l a r posit i o n , i d e n t i f y i n g a n essentially peaceful d y n a m i c in c a p i t a l i s m , a l t h o u g h ascribing a m o r e benign role t o

finance—no

d o u b t influ-

enced by the u n h e s i t a t i n g w a y rhe central b a n k s o f France a n d G e r m a n y h a d sent g o l d to help Britain, a n d Russia h a d then sent g o l d to help G e r m a n y , d u r i n g the m a j o r financial crisis o f 1907.-" I n n o d e p a r t m e n t o f h u m a n a c t i v i t y " , he w r o t e , "is internationalisarion so c o m p l e t e as in finance. T h e capitalist has n o c o u n t r y , a n d he k n o w s , if he be o f the m o d e r n type, that a r m s a n d conquests a n d jugglery w i t h frontiers serve n o ends o f h i s . . . " S u c h a r g u m e n t s h a v e p e r c o l a t e d d o w n t h r o u g h rhe years t o t h e present day. S o t h e f o r m e r r e v o l u t i o n a r y M a r x i s t

Nigel

H a r r i s argues t h a t " b u s i n e s s has in general n o m o r e p o w e r over 92

Understanding the System: Marx and Ik-yond

governments t h a n p o p u l a t i o n s " a n d rhe threat to the w o r l d c o m e s not f r o m u n t r a m m e l l e d capitalism but f r o m rhe states w h i c h g u a r d iheir o w n interests. 24 Ellen W o o d is still a m i l i t a n t M a r x i s t , b u t her a r g u m e n t s are n o t t h a t different. She has criticised w h a t she calls "classical-Marxist theories o f i m p e r i a l i s m " o f the First W o r l d W a r years for failing to see t h a t the " ' p o l i t i c a l ' f o r m o f i m p e r i a l i s m , in w h i c h e x p l o i t a t i o n o f c o l o n i a l peoples a n d resources d e p e n d s on political d o m i n a t i o n a n d c o n t r o l o f t e r r i t o r y " , is " t h e essence o f //^-capitalist e m p i r e s " . 2 ' " C a p i t a l i s t class e x p l o i t a t i o n " , she insists, is a " p u r e l y e c o n o m i c process w h i c h , like capitalist class relations, concerns the c o m m o d i t y m a r k e t " . 1 ' F r o m this it f o l l o w s that, w h i l e c a p i t a l i s m needs a state to exert c o n t r o l over society, it does n o t need states t h a t enter i n t o conflict w i t h each other. M u c h the same a r g u m e n t is p u t by M i c h a e l H a r d t a n d Toni Negri i n their b o o k Empire.

H a r d r w r o t e shortly before the US invasion o f

Iraq that the "elites" b e h i n d the decision to g o t o w a r " a r e incapable o f u n d e r s t a n d i n g their o w n interests". 2 "

I he classical theory o f i m p e r i a l i s m W r i t i n g in the m i d d l e o f the First W o r l d War, N i c o l a i Bukharin* 8 and V l a d i m i r Lenin-" d r e w very different c o n c l u s i o n s . T h e y began w i t h H i l f e r d i n g ' s description o f the i n t e g r a t i o n o f b a n k i n g c a p i t a l , industrial capital a n d the state, b u t removed f r o m it any sense o f the result being h a r m o n i o u s by stressing the w a y in w h i c h the role of rhe state in i n t e r n a t i o n a l e c o n o m i c c o m p e t i t i o n led to war. This w a s the o v e r r i d i n g t h e m e o f Lenin's p a m p h l e t

Imperialism.

Its a i m w a s to be a " p o p u l a r o u t l i n e " , s h o w i n g h o w the resort to w a r w a s a p r o d u c t o f the "latest stage o f c a p i t a l i s m " — t h e original subtitle t o the w o r k : H a l f a century a g o , w h e n M a r x w a s w r i t i n g Capital,

free com-

petition appeared to rhe o v e r w h e l m i n g m a j o r i t y o f e c o n o m i s t s t o be a " n a t u r a l l a w " . . . M a r x h a d p r o v e d that free c o m p e t i t i o n gives rise to the c o n c e n t r a t i o n o f p r o d u c t i o n , w h i c h , in t u r n , at a certain stage o f d e v e l o p m e n t , leads to m o n o p o l y . . . T h i s is s o m e t h i n g q u i t e different f r o m the o l d free competition

between

manufacturers...producing

for

an

unknown

m a r k e t . C o n c e n t r a t i o n has reached the p o i n t at w h i c h it is possible t o m a k e a n a p p r o x i m a t e estimate o f all sources o f r a w llcyond Marx: Monopoly, War and the State

93

materials (for e x a m p l e , t h e iron ore deposits) o f a c o u n t r y a n d e v e n . . . o f the w h o l e w o r l d . . . These sources are c a p t u r e d by gig a n t i c m o n o p o l i s t a s s o c i a t i o n s . . . T h e associations

"divide"

t h e m u p a m o n g s t themselves by agreement. 3W O n c e this stage is reached, c o m p e t i t i o n between the g i a n t corporations is n o longer based s i m p l y — o r even m a i n l y — o n the o l d purely m a r k e t m e t h o d s . T a k i n g c o n t r o l o f raw m a t e r i a l s so t h a t rivals c a n n o t get t h e m , b l o c k i n g rivals' access t o t r a n s p o r t facilities, selling g o o d s at a loss so as t o drive rivals o u t o f business, d e n y i n g t h e m access to credit, are all m e t h o d s used. " M o n o p o l i e s b r i n g w i t h them everywhere m o n o p o l i s t principles: the utilisation o f ' c o n n e c t i o n s ' for p r o f i t a b l e deals takes the place o f c o m p e t i t i o n in the o p e n m a r k e t " / ' The c a p i t a l i s t p o w e r s h a d

partitioned

the w o r l d

between

t h e m , b u i l d i n g rival c o l o n i a l e m p i r e s , o n the basis o f " a calculat i o n o f the strength o f t h e p a r t i c i p a n t s , their general e c o n o m i c , f i n a n c i a l , m i l i t a r y a n d o t h e r s t r e n g t h . " But " t h e relative strength o f these p a r t i c i p a n t s is n o t c h a n g i n g u n i f o r m l y , f o r u n d e r capitalism

there c a n n o t

be

an

equal

development

of

different

u n d e r t a k i n g s , trusts, b r a n c h e s of industry o r c o u n t r i e s " . A partit i o n o f the w o r l d t h a t c o r r e s p o n d e d t o the relative strength o f the great p o w e r s at o n e p o i n t n o longer d i d so a c o u p l e o f decades later. T h e p a r t i t i o n i n g o f the w o r l d gives w a y ro struggles over the r e p a r t i t i o n i n g o f the w o r l d : Peaceful alliances prepared the g r o u n d for wars a n d in their turn g r o w o u t o f wars. O n e is the c o n d i t i o n for the other, g i v i n g rise t o a l t e r n a t i n g forms o f peaceful a n d non-peaceful struggle o n o n e a n d the s a m e basis, t h a t o f imperialist c o n n e c t i o n s a n d interrelations o f w o r l d e c o n o m i c s a n d w o r l d politics. The epoch o f the latest stage of c a p i t a l i s m s h o w s us t h a t certain relations between capitalist associations g r o w u p , based o n rhe e c o n o m i c division o f the w o r l d ; w h i l e parallel t o a n d in connection w i t h it, certain relations g r o w u p between

political

alliances, between states, o n the basis o f the territorial division o f the w o r l d , o f the struggle f o r c o l o n i e s , o f the " s t r u g g l e for spheres o f i n f l u e n c e " / ' Britain a n d France h a d been able t o b u i l d great empires, d i v i d i n g Africa a n d m u c h o f Asia between t h e m . T h e N e t h e r l a n d s a n d 94

Understanding the System: Marx and Ik-yond

Belgium controlled smaller bur still e n o r m o u s empires in Indonesia ind the C o n g o . By c o n t r a s t , G e r m a n y h a d o n l y a few relatively small colonies, despite its e c o n o m y b e g i n n i n g to overtake that o f Britain. It w a s this discrepancy that lay behind rhe repeated clashes between the rival alliances o f great p o w e r t h a t c u l m i n a t e d in the First W o r l d War. Finally, w h e r e K a u t s k y focused s i m p l y o n the c o n t r o l o f the " a g r a r i a n " parts o f the w o r l d ( w h a t t o d a y w o u l d be called the I bird W o r l d or the G l o b a l S o u t h ) , L e n i n w a s insistent t h a t the imperialist

division

o f rhe w o r l d

was

increasingly

centred

on

industrial areas. " T h e characteristic feature o f i m p e r i a l i s m is precisely t h a t it strives to a n n e x not only agrarian territories, b u t even most highly industrialised regions ( G e r m a n appetite for B e l g i u m ; l ; rench appetite for L o r r a i n e ) " . ' 4 B u k h a r i n s Imperialism

and

World

Economy,

written shortly

before Lenin's w o r k , b u t a p p e a r i n g a f t e r w a r d s w i t h an introduction by L e n i n , m a d e the a r g u m e n t just as forcefully as he d r a w s o f tin consequences of the tendencies t h a t H i l f e r d i n g h a d described: Combines...in

industry and

b a n k i n g . . . u n i t e the entire

"na-

t i o n a l " p r o d u c t i o n , w h i c h assumes the f o r m o f a c o m p a n y o f companies,

thus

becoming

a

state

capitalist

trust.

C o m p e t i t i o n . . . i s n o w c o m p e t i t i o n o f the state capitalist trusts o n the w o r l d m a r k e t . . . C o m p e t i t i o n is reduced t o a m i n i m u m w i t h i n the b o u n d a r i e s o f the " n a t i o n a l " economies, o n l y ro flare u p in colossal p r o p o r t i o n s , such as w o u l d n o t have been possible in any o f the preceding historical e p o c h s . . . T h e centre o f gravity is shifted i n the c o m p e t i t i o n o f g i g a n t i c , c o n s o l i d a t e d a n d organised e c o n o m i c bodies possessed o f a colossal fighting capacity in the w o r l d t o u r n a m e n t o f " n a t i o n s " . . . - 5 Writing three years after the e n d o f the war, he drew o u t the implications even m o r e sharply: The state o r g a n i s a t i o n o f the bourgeoisie concentrates w i t h i n itself t h e entire p o w e r o f this class. C o n s e q u e n t l y , all remaining o r g a n i s a t i o n s . . . m u s t be s u b o r d i n a t e d to the state. A l l are " m i l i t a r i s e d " . . . T h u s there arises a n e w m o d e l o f srate power, the classical m o d e l o f t h e imperialist state, w h i c h relies o n state capitalist relations o f p r o d u c t i o n . H e r e " e c o n o m i c s " is organi s a t i o n a l l y fused w i t h " p o l i t i c s " ; the e c o n o m i c p o w e r o f the |V
95

b o u r g e o i s i e unites itself directly w i t h the p o l i t i c a l p o w e r ; the state ceases t o be a s i m p l e protector o f rhe process o f exploitation a n d becomes a direct, capitalist collective e x p l o i t e r . . . ' * W a r n o w becomes central t o the system, arising f r o m the competition between the " s t a t e capitalist t r u s t s " , a n d also feeding b a c k i n t o a n d d e t e r m i n i n g their internal o r g a n i s a t i o n : W i t h rhe f o r m a t i o n o f state capitalist trusts, c o m p e t i t i o n is being a l m o s t entirely shifted t o foreign countries. The o r g a n s o f the struggle waged a b r o a d , p r i m a r i l y state power, m u s t therefore g r o w t r e m e n d o u s l y . . . I n " p e a c e f u l " times the military state a p p a r a t u s is hidden b e h i n d the scenes where it never stops functioning; in w a r times it appears o n the scene m o s t directly... T h e struggle between state capitalist trusts is decided in the first place by the relation between rheir military forces, for the military p o w e r o f rhe c o u n t r y is the last resort o f rhe struggling " n a t i o n a l " g r o u p s o f capitalists... Every i m p r o v e m e n t i n military technique entails a reorganisation a n d reconstruction o f the m i l i t a r y m e c h a n i s m ; every i n n o v a t i o n , every e x p a n s i o n o f rhe military p o w e r o f o n e stare, stimulates all the o t h e r s / T h e logic o f the a r g u m e n t presented by Lenin a n d B u k h a r i n w a s t h a t the period o f peace t h a t f o l l o w e d the First W o r l d W a r w o u l d , sooner rather t h a n later, give w a y to a n e w w o r l d w a r unless capitalism w a s o v e r t h r o w n . " T h e possibility o f a 'second r o u n d ' o f imperialist w a r i s . . . q u i t e o b v i o u s " , w r o t e B u k h a r i n . A s w e shall see later, the reaction o f the great capitalist powers t o rhe e c o n o m i c crisis that began in 1929 c o n f i r m e d this p r e d i c t i o n . T h a t has n o t , however, stilled the a r g u m e n t against the L e n i n - B u k h a r i n a c c o u n t .

The economics of empire T h i s a r g u m e n t a s s u m e d — a n d still a s s u m e s 3 ' — t h a t peaceful free trade rather t h a n a militaristic struggle to c o n t r o l c h u n k s o f territory w o u l d have been the most profitable course for rhe m a j o r i t y o f capitalists t o pursue. This c l a i m is easy to deal w i t h . T h e great period o f g r o w t h of the Western empires w a s the last quarter o f the 19th century. In 1876 n o m o r e t h a n 10 percent o f Africa w a s under E u r o p e a n rule. By 1900 m o r e than 90 percent w a s colonised. In the 96

Understanding the System: Marx and Ik-yond

same period Britain, France, Russia a n d G e r m a n y each established colonial enclaves a n d w i d e spheres o f influence in C h i n a ; J a p a n rook over Korea a n d T a i w a n ; France conquered all o f I n d o c h i n a ; ihe US seized Puerto R i c o a n d the P h i l i p p i n e s from S p a i n ; a n d Britain a n d Russia agreed t o a n i n f o r m a l p a r t i t i o n i n g o f Iran. At the same rime there w a s a massive g r o w t h in the e x p o r t o f capital f r o m B r i t a i n , still the biggest capitalist e c o n o m y a n d rhe centre o f rhe w o r l d

financial

system, even if the US a n d G e r m a n y

were r a p i d l y c a t c h i n g u p in industrial o u t p u t . Total British investment in foreign b o n d s rose f r o m £ 9 5 m i l l i o n in 1X83 t o £ 3 9 3 m i l l i o n in 1889. It s o o n e q u a l l e d 8 percent o f Britain's gross national p r o d u c t a n d a b s o r b e d 5 0 percent o f savings. J U N o t all cvports o f c a p i t a l , let a l o n e of g o o d s , w e n t ro the colonies. M u c h went t o the U £ a n d q u i t e a lot w e n t to Latin A m e r i c a n countries like A r g e n t i n a . Bur the colonies were i m p o r t a n t . Britain's biggest colony, I n d i a , a l o n e a c c o u n t e d for 12 percent o f exported g o o d s and 11 percent o f c a p i t a l exports; it also p r o v i d e d a s u r p l u s to Britain's balance o f p a y m e n t s t h a t c o u l d help p a y for investments elsewhere in the w o r l d ; a n d it p r o v i d e d B r i t a i n , free of charge, with a n a r m y for c o n q u e r i n g other places. 4 ' T h e r a w materials re«1111reel for the most technologically a d v a n c e d industries o f rhe rime c a m e f r o m c o l o n i a l areas (vegetable oils for m a r g a r i n e a n d s o a p m a n u f a c t u r e , c o p p e r f o r the electrical industry, rubber a n d oil for the fledgling a u t o m o b i l e industry, nitrates for fertilisers a n d explosives). O n t o p o f this, there w a s rhe strategic i m p o r t a n c e o f rhe colonies. W h a t mattered for b o t h politicians a n d industrial interests

was t h a t " B r i t a i n ruled the w a v e s " a n d c o u l d use its bases in

ihe colonies t o p u n i s h states t h a t threatened those interests. It h a r d l y seemed a c o i n c i d e n c e t o the theorists o f i m p e r i a l i s m iliat the decades w h i c h witnessed this massive e x p a n s i o n o f colonisation, o f exports of capital a n d o f extraction o f raw materials also saw the recovery o f p r o f i t a b i l i t y a n d m a r k e t s f r o m the g l o o m o f i lu- G r e a t Depression. T h e y m a y n o t a l w a y s have m a n a g e d t o theorise this clearly, bur rhe c o i n c i d e n c e o f e m p i r e a n d capitalist b o o m w a s real e n o u g h . I he L e n i n - B u k h a r i n theory therefore stands u p as a n a c c o u n t ol the pre-World W a r O n e d e c a d e s — a n d o f rhe d r i v e to war. Nevertheless, there w a s a w e a k n e s s in Lenin's version o f the theory. It generalised f r o m the experience o f British i m p e r i a l i s m it the e n d o f the 19th c e n t u r y t o the w h o l e o f i m p e r i a l i s m , a n d tended t o m a k e rhe entire theory rest u p o n the key role o f the |V< yond Marx: Monopoly, War and rhe State

97

h a n k s in e x p o r t i n g

financial

c a p i t a l . B u t this d i d n o t fir w i t h the

picture even w h e n L e n i n w a s w r i t i n g , let alone in the decades afterwards. T h e e x p o r t o f finance h a d i n d e e d been a central feature o f British

i m p e r i a l i s m , b u t the s i t u a t i o n w a s rather different w i t h

its n e w c o m p e t i t o r s . I n the G e r m a n case ir w a s the industrial combines, especially those i n heavy industry, rather t h a n f i n a n c e as such, t h a t s o u g h t ro e x p a n d b e y o n d n a t i o n a l frontiers by the establishment

of colonies

and

spheres o f

influence.

And

the

characteristic feature o f the US a n d R u s s i a n e c o n o m i e s in the preI irsr W o r l d W a r decades w a s n o t the e x p o r t o f c a p i t a l b u t the i n f l o w o f f u n d s f r o m o t h e r capitalist c o u n t r i e s ( a l t h o u g h there w a s s o m e re-export o f c a p i t a l ) . T h e focus o n finance b e c a m e even m o r e p r o b l e m a t i c in rhe q u a r t e r o f a c e n t u r y after L e n i n w r o t e . T h e q u a n t i t y o f c a p i t a l invested a b r o a d never rose a b o v e the level o f 1914 a n d t h e n declined. 4 2 Yet the great c a p i t a l i s t p o w e r s rem a i n e d intent o n imperialist e x p a n s i o n d u r i n g the intervvar years, w i t h Britain a n d France g r a b b i n g m o s t o f the M i d d l e Fast a n d rhe former

German

colonies, J a p a n

expanding

into C h i n a ,

and

G e r m a n heavy i n d u s t r y l o o k i n g to carve o u t a n e w e m p i r e i n Europe. T h e phraseology o f certain parts o f L e n i n s p a m p h l e t has led to s o m e interpretations o f it rhar see

financial

interests, r a t h e r as

H o b s o n a n d K a u t s k y d i d , as m a i n l y responsible for i m p e r i a l i s m . This w a s especially so w h e n , basing h i m s e l f o n H o b s o n , Lenin insisted o n the "parasitic 1 * character o f finance c a p i t a l , w r i t i n g o f : rhe e x t r a o r d i n a r y g r o w t h o f . . . a social s t r a t u m o f rentiers,

ie

people w h o live by " c l i p p i n g c o u p o n s ' 1 , w h o take n o part in a n y enterprise whatever, w h o s e profession is idleness. 43 T h i s stress o n rhe " p a r a s i t i s m " o f f i n a n c e c a p i t a l has even led t o s o m e o n the left e m b r a c i n g strategies based o n a n t i - i m p e r i a l i s t alliances w i t h sections o f i n d u s t r i a l c a p i t a l a g a i n s t f i n a n c e capit a l — p r e c i s e l y the K a u t s k y p o l i c y thar L e n i n a t t a c k e d so bitterly. B u k h a r i n ' s a c c o u n t o f i m p e r i a l i s m by a n d large a v o i d s these faults. H e uses rhe category o f " f i n a n c e c a p i t a r repeatedly. But he explicitly w a r n s a g a i n s t seeing it as s o m e t h i n g d i s t i n c t f r o m i n d u s t r i a l c a p i t a l . " F i n a n c e c a p i t a l . . . m u s t n o t be c o n f u s e d w i t h m o n e y c a p i t a l , for f i n a n c e c a p i t a l is characterised by b e i n g sim u l t a n e o u s l y b a n k i n g and i n d u s t r i a l c a p i t a l " . " " It is i n s e p a r a b l e , for B u k h a r i n , f r o m the trend t o w a r d s d o m i n a t i o n o f the w h o l e 98

Understanding the System: Marx and Ik-yond

n a t i o n a l e c o n o m y by " s t a t e capitalist t r u s t s " s t r u g g l i n g g l o b a l l y against o t h e r " s t a t e c a p i t a l i s t t r u s t s " . Such a struggle d i d nor have to concentrate o n investing in foreign countries. It c o u l d t u r n i n t o s o m e t h i n g else: the effort t o wrest from o t h e r countries alreadv industrialised areas o r sources o f im/

port a n t raw materials by force. As B u k h a r i n p u t it. " T h e further it |imperialism] develops rhe m o r e it will b e c o m e a struggle for rhe capitalist centres as well ". 4 ' It w a s necessary, in o t h e r w o r d s , t o turn vast a m o u n t s o f v a l u e into m e a n s o f d e s t r u c t i o n — n o t o n l y in order t o try t o o b t a i n m o r e \ alue but t o h o l d o n t o that already possessed. This w a s the logic o f ihe capitalist m a r k e t a p p l i e d t o the relations between states. E a c h had to invest in p r e p a r a t i o n s for w a r in order n o t to lose o u t as the other in vested % m o r e , just as each c a p i t a l h a d ro invest in new means o f p r o d u c t i o n so as ro h o l d its o w n in m a r k e t c o m p e t i t i o n . Imperialist policies" were " n o t h i n g b u t the r e p r o d u c t i o n o f the competitive struggle o n a w o r l d w i d e scale," w i t h '"stare capitalist trusts", n o t i n d i v i d u a l firms, " t h e subjects o f c o m p e t i t i o n . T h e explosions o f w a r " were a result o f " t h e c o n t r a d i c t i o n between the p r o d u c t i v e forces o f rhe world

economy

a n d the ' n a t i o n a l l y '

limited m e t h o d s o f a p p r o p r i a t i o n o f the bourgeoisie separated by states". 46 In other w o r d s , just as c o m p e t i t i o n between capitals (and with it the free o p e r a t i o n o f rhe l a w o f value) w a s reduced w i t h i n states, it operated o n an ever m o r e ferocious scale between t h e m .

Rosa L u x e m b u r g : i m p e r i a l i s m a n d the collapse o f capitalism I cnin a n d B u k h a r i n were n o t t h e o n l y M a r x i s t o p p o n e n t s o f imperialism t o a t t e m p t to p r o v e t h a t it w a s a n essential stage o f i . t p i t a l i s m . R o s a L u x e m b u r g also did so w i t h a rather different theoretical analysis in her The Accumulation

of Capital,

published

in I913. 4 It rested o n w h a t she believed t o be a central contradiction w i t h i n c a p i t a l i s m t h a t h a d escaped M a r x ' s notice. M a r x h a d p r o d u c e d tables in V o l u m e T w o o f Capital

showing

the interrelation between a c c u m u l a t i o n a n d c o n s u m p t i o n . Each r o u n d o f p r o d u c t i o n i n v o l v e d using the p r o d u c t s o f rhe p r e v i o u s l o u n d , either as material i n p u t s (machinery, r a w materials, etc) or .1 •» means o f c o n s u m p t i o n for the w o r k f o r c e . This required that the material p r o d u c t s in o n e r o u n d c o r r e s p o n d e d to w h a t w a s needed lor p r o d u c t i o n to proceed at rhe next r o u n d . It w a s n o t merely a llcyond Marx: Monopoly, War and the State

99

question o f rhe righr a m o u n t s o f v a l u e passing f r o m o n e r o u n d t o the next, b u t also o f the right sorts of use v a l u e s — s u c h a n d such quantities o f r a w materials, n e w machinery, factory b u i l d i n g , etc, a n d such a n d such q u a n t i t i e s o f f o o d , c l o t h i n g , etc, for the workforce (plus l u x u r y g o o d s f o r the capitalists themselves).

Rosa

L u x e m b u r g , in e x a m i n i n g M a r x ' s tables, c a m e to the c o n c l u s i o n t h a t discrepancies were b o u n d to arise between the d i s t r i b u t i o n o f value f r o m o n e r o u n d t o a n o t h e r a n d the d i s t r i b u t i o n o f the use values needed

ro e x p a n d

production.

More consumer

goods

w o u l d be p r o d u c e d t h a n c o u l d be b o u g h t w i t h rhe wages p a i d o u t to workers or m o r e investment g o o d s t h a n c o u l d be p a i d for o u t o f profits. In other w o r d s , the system inevitably p r o d u c e d a n excess o f g o o d s for w h i c h there w a s n o m a r k e t w i t h i n ir. O v e r p r o d u c t i o n w a s n o t just a phase in the b o o m - s l u m p cycle, b u t e n d e m i c . C o n c e i v e d ot as a closed system, in w h i c h all rhe o u t p u t s o f o n e r o u n d o f p r o d u c t i o n h a d to be a b s o r b e d as i n p u t s in later r o u n d s , capitalism w a s d o o m e d ro tend t o w a r d s a c o m p l e t e b r e a k d o w n . In the early stages o f c a p i t a l i s m this w a s nor a p r o b l e m . It w a s n o t a closed system. Precisely because ir g r e w u p w i t h i n a precapitalist w o r l d ir w a s s u r r o u n d e d by p e o p l e w h o w e r e nor part o f i t — a r t i s a n s , the r e m n a n t s o f f e u d a l r u l i n g classes a n d vast n u m b e r s o f subsistence peasants. T h e y c o u l d a b s o r b the s u r p l u s g o o d s , p r o v i d i n g r a w m a t e r i a l s in r e t u r n . Bur the m o r e capitalism c a m e t o d o m i n a t e in a p a r t i c u l a r c o u n t r y , the m o r e it w o u l d be faced w i t h this c o n t r a d i c t i o n — u n l e s s ir e x p a n d e d o u t w a r d s t o seize c o n t r o l o f other, pre-capitalist, societies. C o l o n i s a t i o n w a s in this w a y essential for the c o n t i n u e d f u n c t i o n i n g o f rhe system. W i t h o u t it c a p i t a l i s m w o u l d c o l l a p s e . L u x e m b u r g d i d nor s i m p l y p r o d u c e this a r g u m e n t in a n analytical f o r m . She s u p p l e m e n t e d it w i t h c h a p t e r after c h a p t e r s h o w i n g in h o r r i f y i n g detail h o w rhe historical d e v e l o p m e n t o f c a p i t a l i s m in E u r o p e a n d N o r t h A m e r i c a h a d been a c c o m p a n i e d by the subj u g a t i o n a n d e x p l o i t a t i o n o f the rest o f the w o r l d . H e r c o n c l u s i o n , like L e n i n a n d B u k h a r i n ' s , w a s t h a t socialist r e v o l u t i o n w a s t h e o n l y alternative ro i m p e r i a l i s m a n d war. H e r analysis w a s , however, subject to t r e n c h a n t a n d devastating critiques, m o s t n o t a b l y by the Austrian reformist M a r x i s t O t t o Bauer a n d by B u k h a r i n . Bauer p r o d u c e d his o w n versions o f the r e p r o d u c t i o n tables, c l a i m i n g t h a t there w a s n o p r o b l e m getting the i n p u t s a n d o u t p u t s t o balance properly over several r o u n d s o f p r o d u c t i o n . B u k h a r i n c o n c e n t r a t e d o n refuting points L u x e m b u r g 100

Understanding the System: Marx and Ik-yond

m a d e in her " a n t i - c r i t i q u e " reply t o Bauer. She h a d argued t h a t there h a d t o be s o m e t h i n g outside capitalism t o p r o v i d e an incentive to the capitalists t o keep investing. It w a s n o t g o o d e n o u g h for ever increasing a m o u n t s o f i n v e s t m e n t t o a b s o r b the g r o w i n g o u t p u t o f society, since, she a r g u e d , this w o u l d p r o v i d e n o gain t o the capitalists t o justify such investment: P r o d u c t i o n to a n ever greater extent for p r o d u c t i o n ' s sake is, from the capitalist p o i n t o f view, a b s u r d because in this w a y it is i m p o s s i b l e for the entire capitalist class t o realise a profit a n d therefore ro accumulate. 4 8 B u k h a r i n s reply, in essence, a m o u n t e d t o p o i n t i n g our rhar it w a s precisely such a p p a r e n t l y a b s u r d a c c u m u l a t i o n for the sake of acc u m u l a t i o n t h a t characterised c a p i t a l i s m for M a r x .

Capitalism

did not need a g o a l outside itself. It c o u l d be a d d e d that it is precisely this w h i c h epitomises the extreme a l i e n a t i o n o f

human

activity in rhe system: it is driven f o r w a r d n o t by the satisfaction of h u m a n need, n o t even by the h u m a n need o f rhe capitalist, b u t by us o w n d y n a m i c . B u k h a r i n did not deny t h a t discrepancies arise in rhe course of capitalist d e v e l o p m e n t between p r o d u c t i o n a n d c o n s u m p t i o n . H e insisted in his c o m m e n t s o n L u x e m b u r g that they are i n e v i t a b l e — but

it is precisely

the capitalist crisis t h a t o v e r c o m e s

them.

Over-accumulation a n d o v e r p r o d u c t i o n occur, b u t n o t all rhe time. I hey arise in the course o f rhe crisis a n d are l i q u i d a t e d by its further d e v e l o p m e n t . A n d

Bukharin quoted

M a r x : " T h e r e is n o

p e r m a n e n t crisis". 5 0 For h i m i m p e r i a l i s m w a s not t o be e x p l a i n e d by the p r o b l e m s o f o v e r p r o d u c t i o n , but by the w a y in w h i c h it aids the capitalist p u r s u i t o f higher profits. B u k h a r i n s a r g u m e n t against L u x e m b u r g c a n n o t be faulted. But lu a n d L e n i n d o leave s o m e t h i n g u n e x p l a i n e d : w h y the e x p o r t o f c.ipital d u r i n g rhe high tide o f imperialist e x p a n s i o n w a s able to lead c a p i t a l i s m o u t of the G r e a t Depression. For all its p r o b l e m s , Rosa L u x e m b u r g ' s theory did a t t e m p t to find a link between imperialism a n d the t e m p o r a r y m i t i g a t i o n o f crisis, w h i c h L e n i n a n d IWikharin failed to. W r i t i n g in the 1920s Flenryk G r o s s m a n , critical b o t h o f R o s a L u x e m b u r g a n d her detractors, 5 1 d i d p o i n t t o a w a y o f m a k i n g the l i n k . T h e f l o w o f c a p i t a l f r o m existing centres o f a c c u m u l a tion t o n e w o n e s overseas c o u l d ease the pressure l e a d i n g t o a |V< yond Marx: Monopoly, War and rhe State

101

rising o r g a n i c c o m p o s i t i o n o f capital a n d a falling rate o f p r o f i t , even if such a s o l u t i o n w o u l d " o n l y h a v e a s h o r t rime effect". 5 2 T h i s insight can m a k e sense o f the a c t u a l pattern o f e c o n o m i c d e v e l o p m e n t d u r i n g the high tide o f i m p e r i a l i s m at the e n d o f rhe 19rh century. H a d rhe h a l f o f British investment t h a t w e n t overseas been invested domestically it w o u l d h a v e raised the ratio o f investment to labour

(the o r g a n i c c o m p o s i t i o n

o f capital) a n d

so

lowered the rate of profit. As it was, estimates suggest t h a t the capital-output r a t i o actually fell f r o m 2 . 1 6 in 1875-83 (rhe years o f rhe first " G r e a t D e p r e s s i o n " ) t o 1.82 in 1891-1901, 5 3 a n d t h a t the early 1890s were a p e r i o d o f rising profit rates ( f o l l o w i n g a fall f r o m the 1860s to rhe 1880s). 54 A n d in these years w h a t h a p p e n e d in Britain still h a d a m a j o r i m p a c t o n the rest of the system. T h i s p o i n t s t o a w i d e r a n d very i m p o r t a n t insight i n t o rhe dyn a m i c o f c a p i t a l i s m in the 2 0 t h a n d 21sr centuries to w h i c h w e w i l l return in later c h a p t e r s . For the m o m e n t it is sufficient t o recognise t h a t i m p e r i a l i s m arose o u t o f rhe c o m p e t i t i v e drive o f c a p i t a l s t o e x p a n d b e y o n d n a t i o n a l f r o n t i e r s — a n d led, as a temporary

side-effect, t o a lessening o f the pressures

otherwise

d r i v i n g u p the o r g a n i c c o m p o s i t i o n of c a p i t a l a n d so l o w e r i n g the rate o f p r o f i t . B u t it c o u l d o n l y be a t e m p o r a r y effect because eventually investments m a d e in rhe n e w centres o f a c c u m u l a t i o n w o u l d p r o d u c e new s u r p l u s value seeking investment a n d exerti n g a d o w n w a r d pressure o n p r o f i t rates. As t h a t h a p p e n e d the old c o n t r a d i c t i o n s in t h e system w o u l d return w i t h a vengeance, opening up a n e w period of economic instability which

would

lead t o intensified c o m p e t i t i o n , n o t o n l y o f a n e c o n o m i c b u t also o f a m i l i t a r y sort. T h i s is effectively w h a t h a p p e n e d in rhe firsr decades o f the 2 0 t h century, w i t h a n i n t e r n a t i o n a l tendency tow a r d s falling p r o f i t rates a n d increased tensions between states. A m e n d e d in this w a y , the insistence by L e n i n , B u k h a r i n

and

L u x e m b u r g o n rhe c o n n e c t i o n between c a p i t a l i s m a n d w a r c o u l d be m a d e theoretically w a t e r t i g h t .

A p r o b l e m M a r x left b e h i n d The classic theory o f i m p e r i a l i s m has one i m p o r t a n t i m p l i c a t i o n . It raises the question o f the relation between states a n d the capitals w i t h i n t h e m . M a r x left the q u e s t i o n unresolved. H e t o o k u p s o m e o f its aspects in his n o n - e c o n o m i c w r i t i n g s , " but d i d n o t get 102

Understanding the System: Marx and Ik-yond

is far as integrating t h e m i n t o his analysis o f rhe capitalist system .is a w h o l e . But the q u e s t i o n is nor o n e t h a t any serious analysis o f capitalism in the century after his death can a v o i d . A q u i c k glance .it the g r o w t h o f state e x p e n d i t u r e s h o w s w h y (see the g r a p h b e l o w for the U n i t e d States). F r o m its share o f n a t i o n a l o u t p u t being more or less static t h r o u g h the 19th century, except at times o f allnut war, it started g r o w i n g in rhe second third o f the 2 0 t h century a n d has never sropped d o i n g so.

US Government Spending as Proportion of Cross Domestic Product-'

I he m o s t c o m m o n v i e w o f the state, a m o n g M a r x i s t s a n d nonM a r x i s t s a l i k e , has been to see it as s o m e t h i n g external ro the capitalist e c o n o m i c system. T h i s a p p r o a c h h a s l o n g been accepted by rhe m a i n s t r e a m

"Realist"

school

in the

academic

d i s c i p l i n e o f i n t e r n a t i o n a l r e l a t i o n s . It sees states as self-contained entities c l a s h i n g i n t e r n a t i o n a l l y a c c o r d i n g t o a logic w h i c h lias n o t h i n g t o d o w i t h rhe e c o n o m i c f o r m o f o r g a n i s a t i o n existing w i t h i n them. 5 7 A s o m e w h a t s i m i l a r a p p r o a c h is t o be f o u n d In s o m e M a r x i s t w r i t i n g s . C a p i t a l i s m , in this view, consists o f rhe p u r s u i t o f profits by firms (or, m o r e accurately s p e a k i n g , the self-expansion o f capitals) w i t h o u t regard to w h e r e they are based geographically. T h e state. In c o n t r a s t , is a g e o g r a p h i c a l l y

based political entity, w h o s e

b o u n d a r i e s cur across the o p e r a t i o n s o f i n d i v i d u a l capitals. T h e state m a y be a structure t h a t developed historically t o p r o v i d e rhe political prerequisites for capitalist p r o d u c t i o n — t o protect capitalist property, to police the dealings o f different m e m b e r s o f the i tiling class w i t h each other, ro p r o v i d e certain services w h i c h are essential for the r e p r o d u c t i o n o f the system, a n d ro carry t h r o u g h |V<

yond Marx: Monopoly, War and rhe State

103

such r e f o r m s as are necessary to m a k e other sections ot societyaccept capitalist r u l e — b u t it is not t o be identified w i t h the capitals that operate within it. T h o s e w h o view t h e state as s i m p l y external t o c a p i t a l i s m tend t o refer to the " s t a t e " in rhe s i n g u l a r — a n d o f t e n t o " c a p i t a l " in the singular as well. T h i s w a y o f p u t t i n g it m a y m a k e sense w h e n p r o v i d i n g a n account o f c a p i t a l i s m at the most abstract level, w i t h the state p r o v i d i n g a level playing held o n w h i c h different capitals c o m p e t e o n equal terms. B u t rhe actually existing capitalist system is m a d e u p o f m a n y states * a n d m a n y c a p i t a l s / 9 But even those w h o see states as existing in the p l u r a l , as does Ellen W o o d , often c o n c l u d e that they serve the interests o f capital in general, n o t o f particular capitalists based w i t h i n t h e m . " T h e essential role o f rhe state in c a p i t a l i s m " , she argues: is nor ro serve as a n i n s t r u m e n t o f a p p r o p r i a t i o n , or a f o r m of " p o l i t i c a l l y constituted p r o p e r t y " , bur rather as a m e a n s o f crea t i n g a n d s u s t a i n i n g the c o n d i t i o n s o f a c c u m u l a t i o n at a r m s length, m a i n t a i n i n g the social, legal a n d a d m i n i s t r a t i v e order necessary for a c c u m u l a t i o n . 6 0 As against these views, there are those w h o s e analyses start f r o m rhe classic theories o f i m p e r i a l i s m , w i t h their l a n g u a g e a b o u t the state " m e r g i n g " wirh c a p i t a l , o f "state m o n o p o l y c a p i t a l i s m " , or simply o f "state c a p i t a l i s m " , a n d their view o f the clashes between states as a n expression o f i n t e r n a t i o n a l c o m p e t i t i o n o f the capitals operating within them. A b o w d l e r i s e d version o f this view became parr o f the orthod o x y o f Stabilised iMarxism in the years f r o m the 1930s t o rhe 1 9 7 0 s , k n o w n for short as " s t a m o c a p " . A m o r e serious a t t e m p t to describe the w o r l d system as c o m p o s e d o f state c a p i t a l s in the decades after the Second W o r l d W a r w a s m a d e by M i k e Kidron. 6 1 In his a c c o u n t i n d i v i d u a l states a n d i n d i v i d u a l c a p i t a l s b e c a m e c o m p l e t e l y c o n g r u e n t w i r h each other: every state acted ar the behest o f a set o f n a t i o n a l l y based capitals, a n d every significant capital w a s i n c o r p o r a t e d i n a p a r t i c u l a r state. A n y exceptions, for K i d r o n , were a h a n g o v e r from the past, relics w h i c h w r ould disappear w i t h the further d e v e l o p m e n t o f the system. A parallel a t t e m p t t o see the w o r l d in terms o f states representi n g capitals w a s developed in the early 1970s in debates between G e r m a n Marxists. 6 - C l a u d i a v o n B r a u n m u h l , for instance, w r o t e : 104

Understanding the System: Marx and Ik-yond

ir is nor rhe stare in general t h a t m u s t he analysed b u t " t h e specific

political

organisation

of

the

world

market

in

many

states' . . . the role o f the state in q u e s t i o n in its specific relationship w i t h the w o r l d m a r k e t a n d w i t h other states m u s t a l w a y s be i n c l u d e d in the analysis from the outset."' 0

l e w people have f o l l o w e d t h r o u g h such a t t e m p t s ro develop such insights i n t o a r i g o r o u s i n t e r p r e t a t i o n o f the w o r l d system. But some o f their p r e s u p p o s i t i o n s are t a k e n for g r a n t e d in everyday w a y s o f t a l k i n g a n d w r i t i n g a b o u t the w o r l d . People h a b i t u a l l y .peak o f " t h e e c o n o m i c interests" o f this or t h a t state, o f h o w o n e is d o i n g c o m p a r e d w i t h another, o f rhe " p r o f i t s " o f o n e or other country. So the recent very useful a c c o u n t o f c a p i t a l i s m since the Second W o j J d W a r by Roberr Brenner emphasises rhe interactions o f " U S c a p i t a l i s m " , " J a p a n e s e c a p i t a l i s m " a n d " G e r m a n capitali s m " , w i t h n e g o t i a t i o n by states p l a y i n g a central role. 64 There is the i m p l i c a t i o n o f a tight a l i g n m e n t o f interest between a particular n a t i o n a l state a n d a p a r t i c u l a r sector o f the

international

capitalist system. T h e view o f n a t i o n a l states as w h o l l y c o n g r u e n t w i t h

"na-

t i o n a l " c a p i t a l s is a b i g o v e r s i m p l i f i c a t i o n , especially in today's w o r l d , w i t h m u l t i n a t i o n a l c o r p o r a t i o n s o p e r a t i n g in scores o f countries, as w e shall see later. But this does n o t m e a n t h a t states simply s t a n d at " a r m s l e n g t h " from p a r t i c u l a r capitals, or rhat states d o nor act at the behest o f particular n a t i o n a l l y based groupings o f c a p i t a l . T h e y r e m a i n tied ro rhem in c o m p l e x ways.

I he genesis o f the capitalist state \ starting p o i n t for u n d e r s t a n d i n g this can be f o u n d in rhe relationship between the development o f m o d e r n states a n d capitalism. T h i s was nor dealr w i t h explicitly by M a r x , a n d it was Engels w h o first did so in a m a n u s c r i p t written after M a r x ' s death a n d n o t published until 1935. H i s studies led h i m t o c o n c l u d e that as merchants a n d tradespeople o f the t o w n s (the " b u r g h e r s " ) grew in i m p o r t a n c e at the end o f the M i d d l e Ages they allied themselves with the monart. hy against the rest of rhe feudal ruling class: " O u t of the confusions of the people that characterised the early M i d d l e Ages, there gradually developed

rhe new n a t i o n a l i s m s " — a n d

the beginnings

of

national states very different t o the earlier political s t r u c t u r e s / ' Iw-yond Marx: Monopoly. War and the Stare

105

I.enin further theoretically elaborated similar insights as rhe revolutionary m o v e m e n t in R u s s i a tried to c o m e t o terms w i t h the d e m a n d for independent states arising a m o n g rhe Tsarist e m p i r e s minority nationalities o n its borders in south eastern E u r o p e a n d in the colonial possessions o f the West European powers. H e spelt o u t the deep c o n n e c t i o n s between the struggle to establish

national

states

and

the emergence o f g r o u p s

in

the

pre-capitalist w o r l d w h o w a n t e d to base themselves o n capitalist forms of economic organisation: T h r o u g h o u t the w o r l d , the period o f rhe final victory o f capitalism over feudalism has been linked u p w i t h n a t i o n a l movements. For the c o m p l e t e victory o f c o m m o d i t y p r o d u c t i o n , t h e bourgeoisie m u s t capture the h o m e m a r k e t , a n d there m u s t be politically united territories whose p o p u l a t i o n speak a single lang u a g e , w i t h all obstacles t o the d e v e l o p m e n t o f t h a t language a n d to its c o n s o l i d a t i o n in literature e l i m i n a t e d . . . Therefore, the tendency o f everv n a t i o n a l m o v e m e n t is t o w a r d s the f o r m a t i o n •

of national

4

states, u n d e r w h i c h these requirements o f m o d e r n

capitalism are best satisfied... T h e n a t i o n a l state is typical

and

n o r m a l for the capitalist period. 1 * M o d e r n states have n o t d e v e l o p e d , a c c o r d i n g ro this c o n c e p t i o n , as external to the capitals (or at least, t o m o s t o f the capitals) based w i t h i n t h e m . T h e y have been shaped historically by the process by w h i c h capitalist m e t h o d s o f a c c u m u l a t i n g w e a l t h began to rake r o o t , first in parts of E u r o p e a n d then in the rest o f the w o r l d . T h o s e g r o u p s i d e n t i f y i n g w i t h such m e t h o d s needed t o protect themselves a g a i n s t the v a r i o u s social forces associated w i t h the pre-capitalist society in w h i c h they d e v e l o p e d — a n d very soon against other capitalist g r o u p s located elsewhere. This m e a n t seeking t o shape political structures t o defend their c o m m o n interests, by force if necessary, i n w h a t c o u l d be a hostile w o r l d . W h e r e old pre-capitalist state f o r m s existed, they h a d t o get c o n t r o l o f them a n d reorganise rhem t o fit their o w n interests (as in E n g l a n d or France) or break a p a r t f r o m them t o f o r m n e w states (as w i t h rhe D u t c h R e p u b l i c , the United States a n d the ex-colonial countries of the second h a l f o f the 2 0 t h century). By the late 19th century it w a s n o t o n l y existing capitalist interests w h i c h s o u g h t t o b u i l d such states. So t o o d i d elements f r o m o l d e x p l o i t i n g classes in places like G e r m a n y , Tsarist Russia a n d J a p a n w h o w a n t e d to sur106

Understanding the System: Marx and Ik-yond

s ive in a w o r l d increasingly d o m i n a t e d by capitalist p o w e r s o n the one h a n d , a n d rhe m i d d l e class intelligentsia w h o c a m e t o play a leading role in m a n y o f rhe n a t i o n a l m o v e m e n t s in rhe c o l o n i a l world o n the other. This picture has been rejected by s o m e M a r x i s t s o n the g r o u n d s that states existed before the rise o f c a p i t a l i s m . T h e "system o f states" is then seen as s o m e t h i n g c o m p l e t e l y distinct f r o m the system o f c a p i t a l i s m , a n d there is a " l o g i c o f stares" t h a t differs from the " l o g i c o f c a p i t a l " . But the o l d states were n o t left as they were w i t h the rise o f c a p i t a l i s m . They were reshaped f u n d a m e n tally, wirh a r e d r a w i n g o f o l d territorial b o u n d a r i e s a n d

the

establishment f o r the first t i m e o f centralised structures

that

reached d o w n i n t o the lives o f every i n h a b i t a n t (for rhe first t i m e they were all " c i t i z e n s " ) /

The fact t h a t the new structures func-

tioned t h r o u g h the d e p l o y m e n t o f force, nor rhe p r o d u c t i o n o f c o m m o d i t i e s for sale, d i d n o t s t o p t h e m being s h a p e d by rhe c h a n g i n g relations o f p r o d u c t i o n a n d e x p l o i t a t i o n created by rhe rise o f c a p i t a l i s m . A n d they were f r o m the b e g i n n i n g — a n d r e m a i n t o d a y — s t r u c t u r e s that feed back i n t o the o r g a n i s a t i o n o f production by capitals, i n f l u e n c i n g the t e m p o a n d direction o f their . t c c u m u l a t i o n . The logic o f states w a s a p r o d u c t o f the w i d e r logic of c a p i t a l i s m , even if it frequently c a m e i n t o c o n t r a d i c t i o n w i t h other elements in the system/ 4 * C a p i t a l exists in rhree f o r m s — a s p r o d u c t i v e c a p i t a l , as commodity

(or m e r c h a n t s ' ) c a p i t a l a n d as m o n e y capital."'

Every

process o f c a p i t a l a c c u m u l a t i o n u n d e r fully developed c a p i t a l i s m involves repeated changes f r o m o n e f o r m to a n o t h e r : m o n e y capital is used t o buy m e a n s o f p r o d u c t i o n , r a w materials a n d l a b o u r p o w e r ; these are p u t together in the p r o d u c t i o n process t o t u r n o u t c o m m o d i t i e s ; these c o m m o d i t i e s are then e x c h a n g e d for m o n e y ; this m o n e y is then used t o buy m o r e m e a n s o f p r o d u c t i o n , r a w materials a n d l a b o u r p o w e r , a n d so o n . T h e f o r m s o f c a p i t a l are c o n t i n u a l l y interacting as one changes i n t o rhe other. Bur there can .1 Iso be a partial separation o f these three different f o r m s . T h e organisation o f direct p r o d u c t i o n , rhe selling o f c o m m o d i t i e s a n d the supply o f finance c a n devolve u p o n different g r o u p s o f capitalists. Money

capital

and commodity

capital

can

be

continually

m o b i l e , m o v i n g f r o m place t o place a n d across n a t i o n a l b o u n d aries, unless obstructed by the state o r o t h e r bodies exercising lorce.

Things

are

rather

different

with

productive

capitals.

Regarded s i m p l y as a c c u m u l a t i o n s o f v a l u e , they differ f r o m each llcyond Marx: Monopoly, War and the State

107

other only in their size. Bur each i n d i v i d u a l c a p i t a l , like each indiv i d u a l c o m m o d i t y , has a t w o f o l d character. As well as b e i n g m e a s u r a b l e in terms of e x c h a n g e value, it is also a concrete use v a l u e — a concrete set of r e l a t i o n s between people a n d things in the process o f p r o d u c t i o n . E a c h p a r t i c u l a r c a p i t a l has its concrete ways o f b r i n g i n g together l a b o u r power, r a w materials a n d m e a n s o f p r o d u c t i o n , o f raising finance a n d g e t t i n g credit, a n d o f mainraining n e t w o r k s for d i s t r i b u t i n g a n d selling its o u t p u t . These all involve interaction with o t h e r people a n d w i t h nature, interactions o f a physical s o n , which t a k e place on a d a y to d a y basis in fixed geographical locations. N o p r o d u c t i v e capital c a n f u n c t i o n w i t h o u t , o n the o n e h a n d , a g u a r a n t e e o f its c o n t r o l o f its o w n m e a n s o f p r o d u c t i o n (a guarantee w h i c h , in the last resort, relies u p o n " a r m e d bodies o f m e n " ) , a n d , o n the other, a l a b o u r force t h a t is d o u b l y " f r e e " — f r e e f r o m coercion by non-capitalist exploiters o n the o n e h a n d a n d free f r o m a n y w a y o f m a k i n g a l i v e l i h o o d t h a n by selling its l a b o u r p o w e r o n the other. The p r o d u c t i v e capitalists in any p a r t i c u l a r locality necessarily acr together t o try to shape its social a n d political c o n d i t i o n s , t h a t is to exercise influence over the state. As N e i l Brenner puts it: In its drive to a c c u m u l a t e surplus value, capital strives ^ . . . o v e r c o m e all geographical barriers to its c i r c u l a t i o n process. Yet t o pursue this c o n t i n u a l d y n a m i c . . . c a p i t a l

necessarily

depends

u p o n relatively fixed a n d i m m o b i l e territorial infrastructures, such as u r b a n regional a g g l o m e r a t i o n s a n d territorial states... C a p i t a l s e n d e m i c drive . . . is intrinsically premised u p o n the prod u c t i o n , r e p r o d u c t i o n , a n d reconfiguration of relatively

fixed

a n d i m m o b i l e configurations o f territorial o r g a n i s a t i o n , including u r b a n regional a g g l o m e r a t i o n s , t r a n s p o r t a t i o n

networks,

c o m m u n i c a t i o n systems, a n d state regulatory institutions." 0 M o s t capitalist enterprises operate nor s i m p l y o n m a r k e t calculations, b u t also o n the long-term relarions they establish w i t h other enterprises t h a t sell t o t h e m a n d b u y f r o m t h e m . O t h e r w i s e they w o u l d live in c o n t i n u a l fear that any c h a n g e in m a r k e t c o n d i t i o n s w o u l d cause their suppliers ro sell elsewhere a n d those w h o transport a n d retail their g o o d s suddenly t o lose interest in t h e m . They seek t o " l o c k i n " these o t h e r firms by a c o m b i n a t i o n o f

financial

incentives, business f a v o u r s a n d personal c o n t a c t . T o this extent 108

Understanding the System: M a r x and Ik-yond

p r o d u c t i o n d o c s n o t rake place in i n d i v i d u a l firms, b u t in " i n d u s trial c o m p l e x e s " , w h i c h h a v e g r o w n u p over rime. ' T h e m a r k e t m o d e l s o f classical a n d neo-classical e c o n o m i c s portray capitals as isolated a t o m s w h i c h engage in b l i n d competition w i t h o t h e r capitals. I n the real w o r l d capitalists h a v e a l w a y s itied t o b o o s t their c o m p e t i t i v e positions by establishing alliances with each o t h e r a n d w i t h a m b i t i o u s political

figures—alliances

ce-

mented by m o n e y b u t also by i n t e r m a r r i a g e , o l d b o y n e t w o r k s a n d I

m u t u a l socialising. Even the f l u i d i t y o f m o n e y c a p i t a l does n o t d i m i n i s h rhe imp o r t a n c e o f rhe p a r t i c u l a r n a t i o n a l stares for p a r t i c u l a r

financial

i n s t i t u t i o n s . A s C o s t a s L a p a v i t s a s has n o t e d in his a n a l y s i s o f m o n e y u n d e r c a p i t a l i s m , " T r a d e c r e d i t d e p e n d s o n trust a m o n g i n d i v i d u a l c a p i t a l i s t enterprises t h a t is subjective a n d

private,

since such trust d r a w s o n k n o w l e d g e t h a t enterprises h a v e accum u l a t e d a b o u t each o t h e r in rhe c o u r s e o f their

commercial

relations"." 1 A n d the n e t w o r k s t h a t p r o v i d e such k n o w l e d g e h a v e to a very high degree been o r g a n i s e d o n a n a t i o n a l basis, w i t h the state, t h r o u g h the central b a n k , p l a y i n g a key role. " T h e institutions a n d m a r k e t s o f the credit system, regulated a n d m a n a g e d by the c e n t r a l b a n k , place social p o w e r a n d trust at the service o f capitalist a c c u m u l a t i o n " .

4

T h e relationship between states a n d capitals are relationships between people, between those engaged i n e x p l o i t i n g the mass o f rhe p o p u l a t i o n a n d those w h o c o n t r o l bodies o f a r m e d m e n . Personal contact w i t h the l e a d i n g personnel o f rhe state is s o m e t h i n g every capitalist a i m s a t — j u s t as every capitalist seeks ro cultivate ties o f trust a n d m u t u a l s u p p o r t w i t h certain o t h e r capitalists. T h e "connections" L e n i n referred to 75 are i m m e n s e l y i m p o r t a n t . S u c h i n t e r a c t i o n s i n e v i t a b l y leave a n i m p r i n t o n the i n t e r n a l m a k e u p o f each c a p i t a l , so t h a t a n y p a r t i c u l a r c a p i t a l w o u l d

find

it very difficult t o c o p e i f it w e r e s u d d e n l y t o be t o r n a p a r t f r o m the o t h e r c a p i t a l s a n d rhe state w i t h w h i c h ir has co-exisred in the past. T h e n a t i o n a l state a n d different n a t i o n a l l y based c a p i t a l s g r o w u p together, like c h i l d r e n in a single family. T h e d e v e l o p m e n t of o n e i n e v i t a b l y shapes the d e v e l o p m e n t o f the others. T h e g r o u p s o f c a p i t a l s a n d the stare w i t h w h i c h they are associated f o r m a system in w h i c h each affects the others. T h e specific character o f e a c h c a p i t a l is influenced by its i n t e r a c t i o n w i t h the other capitals a n d the state. It reflects n o t o n l y rhe general drive ro e x p a n d value, t o a c c u m u l a t e , bur also the specific e n v i r o n m e n t i n llcyond Marx: Monopoly, War and the State

109

w h i c h it has g r o w n u p . T h e stare a n d the i n d i v i d u a l capitals are int e r t w i n e d , w i t h each f e e d i n g off the other. Neither rhe state nor t h e particular capitals c a n easily escape this structural

interdependence.

The particular capitals find it easier ro

operate w i t h i n one state rather t h a n another, because they m a y have ro p r o f o u n d l y restructure both their internal o r g a n i s a t i o n a n d their relations w i t h other capitals if rhev m o v e their operations. The stare has to adjust to the needs o f p a r t i c u l a r capitals because it depends o n t h e m for the resources—particularly the revenues f r o m t a x a t i o n — i t needs to k e e p g o i n g : if it goes against their interests, they can m o v e their l i q u i d assets a b r o a d . T h e pressures w h i c h different states a p p l y on each other are indispensable for the capitals based w i t h i n each to e n s u r e that their interests are taken i n t o acc o u n t w h e n they are o p e r a t i n g globally. T h e existence o f rival states is n o t s o m e t h i n g p r o d u c e d from o u t s i d e c a p i t a l i s m n o r is it optional for capitalists. It is integral to rhe system a n d t o its d y n a m i c . Failure ro grasp this, as, say, Nigel H a r r i s does, leaves a great hole in any a t t e m p t t o u n d e r s t a n d capitalism over rhe last century.

T h e " a u t o n o m y " o f the state a n d the class n a t u r e o f its bureaucracy T h e m u t u a l dependence o f states a n d capitals does n o t , however, m e a n t h a t states can s i m p l y be reduced t o the e c o n o m i c entities t h a t operate w i t h i n t h e m . T h o s e w h o d o the actual r u n n i n g o f the state take o n functions w h i c h c o m p e t i t i o n between firms prevents firms themselves u n d e r t a k i n g . They have t o m e d i a t e between rival capitals, p r o v i d i n g judicial systems a n d overseeing, t h r o u g h central b a n k s , rhe financial system a n d rhe n a t i o n a l currency. As C l a u s O f f e p u t ir, "Since 'capital as a w h o l e ' exists o n l y in the ideal sense...it requires special g u i d a n c e a n d supervision by a fully differentiated political-administrative system"."" T h e state also has t o p r o v i d e m e c h a n i s m s for i n t e g r a t i n g the mass o f people i n t o the system: o n the o n e h a n d the coercive instit u t i o n s t h a t beat p e o p l e i n t o s u b m i s s i o n (police, secret police, prisons); o n the other h a n d the integrative m e c h a n i s m s t h a t divert grievance i n t o c h a n n e l s c o m p a t i b l e w i t h the system (parliamentary structures, f r a m e w o r k s for collective b a r g a i n i n g , reformist, conservative or fascist parties). T h e p r o p o r t i o n s in w h i c h these t w o sets o f m e c h a n i s m s operate vary f r o m s i t u a t i o n t o s i t u a t i o n , 110

Understanding the System: Marx and Ik-yond

hut everywhere they exist to c o m p l e m e n t each other. T h e coercive m e c h a n i s m s persuade people ro rake the easier p a t h o f integration into the system; the integrative m e c h a n i s m s p r o v i d e the velvet glove w h i c h conceals the i r o n h a n d o f state coercive power, so legitimising it. T h e I t a l i a n r e v o l u t i o n a r y M a r x i s t A n t o n i o G r a m s c i n g h t l v used M a c h i a v e l l i ' s m e t a p h o r o f the " c e n t a u r " , half a n i m a l , half h u m a n , ro c a p t u r e the w a y in w h i c h force a n d c o n s e n t are c o m b i n e d in the state. T h e coercive a n d the integrative m e c h a n i s m s d e p e n d o n organisation

and

leadership

from

outside

the sphere o f

capitalist

e x p l o i t a t i o n a n d a c c u m u l a t i o n as s u c h — f r o m m i l i t a r y a n d police specialists o n rhe o n e h a n d , from political leaders able ro m o b i l i s e some degree o f social s u p p o r t o n the other. A n effective stare requires the b u i l d i n g o f c o a l i t i o n s t h a t o b t a i n rhe s u p p o r t — o r at least rhe c o m p l i a n c e — o f such elements w h i l e a l l o w i n g rhem a certain leeway t o p u r s u e their o w n inrerests.

K

It t h e n , inevitably,

reflects nor just rhe interests o f capital in general, but the concessions it m a k e s to integrate other social g r o u p s a n d classes i n t o its rule. Ir necessarily displays a n i m p o r t a n t degree o f a u t o n o m y . M a r x c o m m e n t e d in 1871 that " t h e c o m p l i c a t e d stare machine r y . . . w i t h its u b i q u i t o u s a n d c o m p l i c a t e d military, b u r e a u c r a t i c , clerical a n d judiciary o r g a n s , encoils the living society like a boa c o n s t r i c t o r . . . " T h e state bureaucracy arises to assure the d o m i n a tion o f the existing r u l i n g class, b u t in the process becomes a " p a r a s i t e " w h i c h is c a p a b l e o f " h u m b l i n g u n d e r its s w a y even the interests o f the r u l i n g classes..."" 9 This a u t o n o m y reaches its highest p o i n t s w h e n g o v e r n m e n t a l power lies w i t h reformist, p o p u l i s t or fascist parties w i t h a powerful base a m o n g w o r k e r s , peasants or rhe petty bourgeoisie. There are cases w h e n those w h o exercise such a u t o n o m y are able t o break w i t h a n d even e x p r o p r i a t e i m p o r t a n t capitalist interests within their territory. T h i s w a s to be true o n n u m e r o u s occasions tu the course o f the 2 0 r h c e n t u r y — G e r m a n N a z i s m , A r g e n t i n e I'eronism, Nasserism in Egypt, B a ' a t h i s m in Syria a n d I r a q , are all e x a m p l e s . There are also i n n u m e r a b l e cases in w h i c h i n d i v i d u a l capitals behave in w a y s d e t r i m e n t a l to the interests o f " t h e i r " s t a t e — m o v i n g f u n d s a n d investment a b r o a d , d o i n g deals w i t h foreign capitalists t h a t u n d e r c u t other local capitals, even selling w e a p o n s t o states fighting their o w n . Yet there are limits t o the extent t o w h i c h a state can break free from its capitals, a n d capitals f r o m their state. A state m a y override llcyond Marx: Monopoly, War and the State

111

rhe interests o f particular capitalists; it c a n n o t forget rhat its o w n revenues a n d its o w n a b i l i t y to defend itself against o t h e r states d e p e n d o n t h e c o n t i n u a t i o n o f capital a c c u m u l a t i o n . Conversely, the i n d i v i d u a l capital c a n , w i t h considerable difficulty, u p r o o t itself f r o m o n e n a t i o n a l srate terrain a n d p l a n t itself in a n o t h e r ; but it c a n n o t operate for any length of time i n a " W i l d W e s t " s i t u a t i o n w i t h n o effective state t o protect it both against those forces b e l o w w h i c h m i g h t disrupt its n o r m a l rhythms o f exploitation a n d against other capitals a n d their states. A break between either a srate w i t h its capitals or by capitals w i t h their state is a difficult a n d risky business. If a state turns o n private c a p i t a l , it can create a s i t u a t i o n in w h i c h people begin to challenge n o t merely p r i v a t e c a p i t a l b u t c a p i t a l a c c u m u l a t i o n as such a n d , w i t h it, the hierarchies o f the stare. If a private capital breaks w i t h " i t s " state it risks being left to fend a l o n e in a hostile and dangerous world. T h i s m u t u a l interdependence between states a n d capitals has i m p l i c a t i o n s f o r a n issue w h i c h m a n y analysts never even t o u c h o n — t h e class character o f the state b u r e a u c r a c y itself. T h e ass u m p t i o n is usually either that it is s i m p l y a passive creature o f a private capitalist class o r t h a t it is a separate political f o r m a t i o n w i t h interests quire different to those o f a n y f o r m o f capital. Class is seen as d e p e n d i n g o n i n d i v i d u a l o w n e r s h i p (or n o n - o w n e r s h i p ) of property, a n d rhe c o n c l u s i o n d r a w n is that the state bureaucracy c a n n o t be a n e x p l o i t i n g class or part o f a n e x p l o i t i n g class. T h i s is implicit in the view of, say, Ellen W o o d a n d D a v i d Harvey, w h o see srate r u n e c o n o m i c activities as lying " o u t s i d e " rhe system of capitalist production.* 11 Such

an

approach

leaves a huge

hole when

it c o m e s

to

a n a l y s i n g c a p i t a l i s m in the c e n t u r y a n d a q u a r t e r since M a r x ' s d e a t h . T h e total i n c o m e o f society passing t h r o u g h the h a n d s of rhe state has reached levels m u c h greater t h a n i n c o m e g o i n g directly t o private c a p i t a l as profits, interest a n d rent. I n v e s t m e n t directly u n d e r t a k e n by rhe state is often m o r e t h a n h a l f o f total inv e s t m e n t / ' a n d the state b u r e a u c r a c y directly disposes o f a verybig p o r t i o n o f the fruits o f e x p l o i t a t i o n . A n analysis o f class in such a s i t u a t i o n c a n n o t restrict itself to #

l o o k i n g at t h i n g s as they a p p e a r in the o f f i c i a l " c o m m o n sense" o f a society as expressed in its j u r i d i c a l d e f i n i t i o n s o f p r o p e r t y . Classes, for M a r x , d e p e n d n o t o n such f o r m a l d e f i n i t i o n s , b u t o n the real social r e l a t i o n s o f p r o d u c t i o n in w h i c h p e o p l e f i n d 112

Understanding the System: Marx and Ik-yond

themselves. T h e y are aggregates o f p e o p l e w h o s e r e l a t i o n s h i p t o material production and exploitation gether

collectively

against

other

forces t h e m ro acr to-

such

aggregates.

u n f i n i s h e d f i n a l c h a p t e r ro V o l u m e T h r e e o f Capital

In

an

M a r x in-

sists t h a t classes c a n n o t be i d e n t i f i e d s i m p l y by the " s o u r c e s o f r e v e n u e s " since this w o u l d lead ro a n i n f i n i t e d i v i s i o n o f classes, p a r a l l e l i n g " t h e i n f i n i t e f r a g m e n t a t i o n o f interests a n d r a n k i n t o w h i c h rhe d i v i s i o n o f s o c i a l l a b o u r splits l a b o u r e r s as well as c a p i t a l i s t s a n d l a n d l o r d s " / 2 W h a t m a k e s s u c h diverse g r o u p s c o m e together i n t o t h e great classes ot m o d e r n society, he argues e lsewhere, is the w a y [n w h i c h rhe revenues o f o n e ser o f g r o u p s arise o u t o f the e x p l o i t a t i o n

of t h o s e w h o

make up

g r o u p s . As h e p u t it i n his n o t e b o o k s for Capital,

other

"Capital and

w a g e l a b o u r o n l y express t w o factors o f the s a m e r e l a t i o n " . 1 I he c a p i t a l i s t s o n l y a c a p i t a l i s t i n s o f a r as he e m b o d i e s the selfexpansion

o f v a l u e , i n s o f a r as h e is the p e r s o n i f i c a t i o n

of

a c c u m u l a t i o n ; w o r k e r s are w o r k e r s o n l y i n s o f a r as " t h e objective c o n d i t i o n s o f l a b o u r " c o n f r o n t t h e m as c a p i t a l . Since the directing layer in rhe state bureaucracy is c o m p e l l e d t o act as a n a g e n t o f capital a c c u m u l a t i o n , w h e t h e r it likes it or n o t , it c o m e s to identify its o w n interests as n a t i o n a l capitalist interests in o p p o s i t i o n ro b o t h foreign capital a n d the w o r k i n g class. J u s t as the i n d i v i d u a l capitalist c a n choose t o enter o n e line o f business rather t h a n a n o t h e r , b u t c a n n o t a v o i d rhe c o m p u l s i o n t o e x p l o i t a n d a c c u m u l a t e in whatever line he goes i n t o , so the state bureaucracy can m o v e in o n e direction or another, but c a n n o t ignore the needs o f n a t i o n a l c a p i t a l a c c u m u l a t i o n w i t h o u t risking its o w n longer term future. Its " a u t o n o m y " consists in a l i m i t e d degree o f freedom as t o h o w it enforces the needs o f n a t i o n a l c a p i t a l accum u l a t i o n , n o t in a n y choice as to whether t o enforce these or n o t . T h e dependence o f the stare bureaucracy o n capitalist exploitation

is often

concealed

by

the

way

in

which

it

raises

its

r e v e n u e s — b y t a x a t i o n o f i n c o m e s a n d e x p e n d i t u r e , by governm e n t b o r r o w i n g or by " p r i n t i n g m o n e y " . A l l o f rhese activities seem, o n the surface, t o be q u i t e different f r o m capitalist exploitation at the p o i n t o f p r o d u c t i o n . T h e state therefore seems like an i n d e p e n d e n t entity w h i c h can raise the resources ir needs by levying f u n d s

from

a n y class i n

society.

But this s e m b l a n c e

of

i n d e p e n d e n c e d i s a p p e a r s w h e n the stare's activities are seen in a wider c o n t e x t . State revenues are raised by t a x i n g i n d i v i d u a l s . But individuals w i l l a t t e m p t t o r e c o u p their loss o f p u r c h a s i n g p o w e r llcyond M a r x : Monopoly, War and the State

113

by struggles at the p o i n t o f p r o d u c t i o n — t h e capitalists by t r y i n g t o enforce a higher rate o f e x p l o i t a t i o n , the w o r k e r s by a t t e m p t i n g to get wage increases. T h e balance o f class forces determines the leeway w h i c h exists for rhe state to increase its revenues. These are part of rhe total social s u r p l u s v a l u e — p a r t o f the total a m o u n t by w h i c h the value o f w o r k e r s ' o u t p u t exceeds the cost o f reproducing their l a b o u r power. I n this sense, state revenues are c o m p a r a b l e t o the other revenues t h a t accrue ro d i f f e r e n t sections o f c a p i t a l — t o the rents a c c r u i n g ro l a n d o w n e r s , the interest g o i n g t o m o n e y c a p i t a l , rhe returns f r o m t r a d e g o i n g t o c o m m o d i t y capital a n d the profits o f p r o d u c t i v e c a p i t a l . Just as there is c o n t i n u a l conflict between rhe different sections o f c a p i t a l over the sizes o f these different revenues, so there is c o n t i n u a l conflict between the state bureaucracy a n d the rest o f the capitalist class over rhe size o f its cut f r o m the total surplus value. The state bureaucracy w i l l , o n occasions, use its o w n special p o s i t i o n , w i t h its m o n o p o l y o f a r m e d force, to m a k e gains for itself at the expense o f others. In response t o this, the other sections o f c a p i t a l will use their o w n special p o s i t i o n — industrial c a p i t a l its ability ro p o s t p o n e investment, m o n e y capital its ability ro m o v e o v e r s e a s — t o fight back. Yet in all this, the different sections o f capital c a n n o t escape their m u t u a l interdependence m o r e t h a n temporarily. It eventually asserts itself in rhe m o s t d r a m a t i c f a s h i o n , t h r o u g h

crises—the

sudden collapse o f the system o f credit, the s u d d e n inability to sell c o m m o d i t i e s , s u d d e n b a l a n c e o f p a y m e n t crises or even the threat of state b a n k r u p t c y . Those w h o direct the bureaucracies o f the state m a y n o t o w n i n d i v i d u a l c h u n k s o f c a p i t a l , bur they are forced t o behave as agents o f capital a c c u m u l a t i o n , t o b e c o m e , acc o r d i n g to M a r x ' s d e f i n i t i o n , part o f the capitalist class. M a r x p o i n t s o u t in Capital

t h a t w i t h the a d v a n c e o f capitalist

p r o d u c t i o n there takes place a division o f f u n c t i o n w i t h i n the capitalist class. T h e o w n e r s o f c a p i t a l tend to play a less direct part in the a c t u a l o r g a n i s a t i o n o f p r o d u c t i o n a n d e x p l o i t a t i o n , l e a v i n g this to h i g h l y p a i d m a n a g e r s . B u t , insofar as these m a n a g e r s continue

to

be

agents

of

capital

accumulation,

they

remain

capitalists. H i l f e r d i n g developed the a r g u m e n t further, p o i n t i n g t o the divisions w i t h i n a single capitalist class between the mass o f rentier capitalists, w h o rely o n a m o r e o r less fixed rate o f return o n their shares, a n d " p r o m o t e r " capitalists w h o g a i n extra surp l u s v a l u e by g a t h e r i n g together the c a p i t a l needed by the gianr 114

Understanding the System: Marx and Ik-yond

c o r p o r a t i o n s . 8 4 W e can a d d a further d i s t i n c t i o n , between those w h o m a n a g e the a c c u m u l a t i o n o f i n d i v i d u a l c a p i t a l s a n d t h o s e w h o , t h r o u g h the state, seek to p r o m o t e the d e v e l o p m e n t o f the sibling c a p i t a l s o p e r a t i n g w i t h i n a n i n d i v i d u a l s t a t e — w h a t m a y be called " p o l i t i c a l c a p i t a l i s t s " .

State capitalism a n d state capitalists O n e o f the m o s t s i g n i f i c a n t d e v e l o p m e n t s o f the 2 0 t h c e n t u r y was the e m e r g e n c e o f - b i g state-owned e c o n o m i c sectors. T h e slate c a m e t o p l a n the w h o l e o f internal p r o d u c t i o n i n G e r m a n y in the latter p a r t o f the First W o r l d W a r , in the US a n d Britain as well as G e r m a n y t h r o u g h o u t m o s t o f the S e c o n d W o r l d

War—

. i n d , o f c o u r s e , in rhe U S S R f r o m S t a l i n t o G o r b a c h e v a n d in ( hina under M a o . Just as m a n y analysts accept the " c o m m o n sense" view that the state is s o m e t h i n g o u t s i d e o f c a p i t a l i s m , so they also refuse t o accept t h a t state-run industries a n d e c o n o m i e s c a n be capitalist.I he classical M a r x i s t s , however, s a w t h i n g s rather differently. M a r x in V o l u m e T w o o f Capital

w a s already " i n c l u d i n g " a m o n g

" t h e s u m o f i n d i v i d u a l c a p i t a l s " , " . . . t h e state c a p i t a l , so far as g o v e r n m e n t s e m p l o y p r o d u c t i v e w a g e l a b o u r in m i n e s , r a i l w a y s etc, p e r f o r m rhe f u n c t i o n o f i n d u s t r i a l capitalists". 8 6 Engels spelt this o u t m u c h m o r e fully in reacting to Bismarck's n a t i o n a l i s a t i o n of the G e r m a n r a i l w a y system: The m o d e r n state, n o m a t t e r w h a t its f o r m , is essentially a capitalist m a c h i n e , rhe state o f the capitalists, rhe ideal personification o f the total n a t i o n a l capital. T h e m o r e it proceeds t o the t a k i n g over o f productive forces, rhe m o r e it actually becomes the national capitalist, the m o r e citizens it exploits. The workers remain wage w o r k e r s — p r o l e t a r i a n s . T h e capitalist relation is n o t d o n e a w a y w i t h . It is rather b r o u g h t to a head. " K a u t s k y c o u l d a r g u e in the 1890s rhar the o r i g i n a l e c o n o m i c liberalism (from w h i c h present d a y neoliberalism gers its n a m e ) o f the " M a n c h e s t e r s c h o o l " " n o l o n g e r influences the capitalist class" because " e c o n o m i c a n d political d e v e l o p m e n t urged rhe necessity o f the extension o f the f u n c t i o n s o f the state", forcing it " t o take ill to its o w n h a n d s m o r e a n d m o r e f u n c t i o n s or industries".*' llcyond Marx: Monopoly, War and the State

115

Trotsky c o u l d write a quarter of a century later, in The of the Communist

International

to the Workers

of the

Manifesto

World:

T h e statisation of e c o n o m i c life, against w h i c h the capitalist liberalism used ro protest so m u c h , has become a n a c c o m p l i s h e d fact... Ir is impossible t o return n o t o n l y t o free c o m p e t i t i o n b u t even to the d o m i n a t i o n o f trusts, syndicates a n d other e c o n o m i c octopuses. T o d a y the o n e a n d o n l y issue is: W h o shall hereforrh be the bearer o f statised p r o d u c t i o n — t h e imperialist state or rhe victorious proletariat. 8 " W h a t all o f t h e m recognised w a s that state rather t h a n private o w n e r s h i p of the means o f p r o d u c t i o n d i d n o t alter the f u n d a m e n tal

relations

of

production

or

the

dynamic

of

capitalist

a c c u m u l a t i o n . For the state, the p u r p o s e o f nationalised industrywas t o enable domestic a c c u m u l a t i o n ro m a t c h rhar u n d e r t a k e n bv 4

foreign rivals so as ro be a b l e to survive successfully in e c o n o m i c a n d / o r military c o m p e t i t i o n . To this e n d , rhe l a b o u r e m p l o y e d rem a i n e d w a g e labour, a n d rhe a t t e m p t w a s m a d e to h o l d

its

r e m u n e r a t i o n d o w n ro the m i n i m a l level required to sustain a n d reproduce l a b o u r power. T h e stare m i g h t p l a n p r o d u c t i o n w i t h i n the enterprises it o w n e d , b u t its p l a n n i n g w a s s u b o r d i n a t e d t o external c o m p e t i t i o n , just as rhe p l a n n i n g w i t h i n a n y

privately

o w n e d Hrm was. T h e self-expansion of c a p i t a l r e m a i n e d the g o a l , a n d this m e a n t rhat rhe l a w o f value o p e r a t e d a n d m a d e itself felt o n rhe internal o p e r a t i o n s of rhe enterprises. In b e h a v i n g like this, state a p p o i n t e e s b e h a v e as m u c h like capitalists—as l i v i n g e m b o d i m e n t s o f capital a c c u m u l a t i o n at rhe expense o f w o r k e r s — a s d o private entrepreneurs or shareholders. It w a s a failure to recognise this t h a t led H i l f e r d i n g in the 1920s to c o m e the c o n c l u s i o n that " o r g a n i s e d " c a p i t a l i s m w a s overcomi n g the c o n t r a d i c t i o n s analysed by M a r x . By the late 1930s state p l a n n i n g in N a z i G e r m a n y led h i m t o c o n c l u d e t h a t w h a t existed w a s n o longer capitalism at all, bur a n e w f o r m o f class society, in w h i c h " o r g a n i s a t i o n " h a d superseded " c a p i t a l i s m " , a n d w h e r e rhe d r i v i n g force had ceased t o be profit m a k i n g t o feed the competitive a c c u m u l a t i o n o f rival capitals. W h a t H i l f e r d i n g failed t o g r a s p — a s d o all those t o d a y w h o still identify c a p i t a l i s m w i t h the p r i v a t e o w n e r s h i p o f firms compering in free m a r k e t s — i s thar the system r e m a i n e d based o n c o m p e t i t i v e a c c u m u l a t i o n between different capitals, even if these 116

Understanding the System: Marx and Ik-yond

were n o w m i l i t a r y stare c a p i t a l i s m s . It w a s driven f o r w a r d by t h e same d y n a m i c a n d subject t o the s a m e c o n t r a d i c t i o n s analysed by M a r x . T h i s w a s true d u r i n g the p e r i o d o f total war, in w h i c h the rival states did n o t trade directly w i t h each other a n d n a v a l blockades greatly l i m i t e d their c o m p e t i t i o n i n foreign m a r k e t s . Every success in a c c u m u l a t i n g m i l i t a r y h a r d w a r e by a state forced efforts t o a c c u m u l a t e s i m i l a r levels o f m i l i t a r y h a r d w a r e i n its rivals. J u s t as the efforts o f rival car p r o d u c e r s ro outsell each other b r i n g the concrete f o r m s o f l a b o u r in different car p l a n t s i n t o a n u n p l a n n e d inter-relationship w i t h each other, transforming them i n t o different a m o u n t s o f a h o m o g e n o u s abstract labour, so t o o the efforts o f rival t a n k - p r o d u c i n g states ro o u t s h o o t o n e a n o t h e r have the s a m e result. M a r x described h o w u n d e r the m a r k e t capitalism of his time: the l a b o u r o f the i n d i v i d u a l asserts itself as a part o f the l a b o u r o f society o n l y by the relations w h i c h the act o f e x c h a n g e establishes directly between the p r o d u c t s , a n d indirectly t h r o u g h I h e m , between the p r o d u c e r s / ' In the w o r l d system as it developed after M a r x ' s d e a t h , m i l i t a r y c o m p e t i t i o n c a m e to play the s a m e role in b r i n g i n g i n d i v i d u a l acts of l a b o u r p e r f o r m e d in different, a p p a r e n t l y closed, state entities, into a r e l a t i o n s h i p w i t h each other. A c q u i s i t i o n o f the m e a n s o f destruction o n the necessary scale t o issure success in w a r depended u p o n the s a m e drive t o a c c u m u l a t e means o f p r o d u c t i o n as did the struggle for m a r k e t s — a n d w i t h that went the h o l d i n g d o w n o f wages t o the cost o f r e p r o d u c t i o n o f l.ihour power, rhe forcing u p o f p r o d u c t i v i t y to the level prevailing • »n a w o r l d scale, a n d the drive t o use the surplus for a c c u m u l a t i o n . As Tony C l i f f pointed o u t m o r e t h a n 6 0 years a g o , the o n l y dif!< icnce, in this respect, between military a n d e c o n o m i c c o m p e t i t i o n nn .is the f o r m the a c c u m u l a t i o n t o o k — w h e t h e r it w a s terms o f a n k c u m u l a t i o n o f use values t h a t c o u l d be used t o p r o d u c e n e w Koods or of use values that c o u l d be used to w a g e war. In either case ihe i m p o r t a n c e o f these use values t o those c o n t r o l l i n g t h e m w a s determined b y c o m p a r i s o n with use values elsewhere in rhe system, ,i i o m p a r i s o n w h i c h t r a n s m u t e d t h e m i n t o exchange values. I bis also m e a n t the rate o f p r o f i t c o n t i n u e d t o play a central iolc. It n o l o n g e r d e t e r m i n e d the d i s t r i b u t i o n o f i n v e s t m e n t beuvcen different sectors o f the internal e c o n o m y . T h e requirements llcyond

Marx: Monopoly, War and the State

117

o f the m i l i t a r y d i d this. But it o p e r a t e d as a c o n s t r a i n t o n rhe e c o n o m y as a w h o l e . I f the r a t i o o f total n a t i o n a l s u r p l u s v a l u e t o total

investment

in the m i l i t a r y• - i n d u s t r i a l

m a c h i n e fell,* this

w e a k e n e d the a b i l i t y o f t h e n a t i o n a l state c a p i t a l i s m to sustain itself in w a r f a r e w i t h its rivals. T h e d e c l i n e in the rate o f p r o f i t c o u l d n o t lead t o e c o n o m i c s l u m p , since the w a r m a c h i n e w o u l d g o o n g r o w i n g as l o n g as there w a s a n y r e m a i n i n g mass of surplus v a l u e to be used u p , h o w e v e r s m a l l . But it c o u l d c o n t r i b u t e t o m i l i t a r y defeat. T h e s a m e capitalist logic c o u l d be seen as o p e r a t i n g in the stares w h e r e n e w bureaucracies emerged to take c o n t r o l o f the m e a n s of p r o d u c t i o n (rhe U S S R f r o m the late 1920s o n w a r d s , ' 1

Eastern

E u r o p e a n d C h i n a after W o r l d W a r T w o , various former c o l o n i a l states in the late 1950s a n d 1960s). A l t h o u g h they called themselves " s o c i a l i s t " their e c o n o m i c d y n a m i c w a s d e p e n d e n t o n their inter-relations w i t h the w i d e r capitalist w o r l d . If they traded w r irh the capitalist countries b e y o n d their borders, they were d r a w n i n t o rhe logic o f c o m m o d i t y

production—and

the r e q u i r e m e n t

to

r e m a i n c o m p e t i t i v e in m a r k e t s b y u n d e r t a k i n g a c c u m u l a t i o n in an essentially capitalist w a y . B u t even if they tried t o a d o p t

an

a u t a r c h i c policy o f c u t t i n g themselves o f f e c o n o m i c a l l y , they c o u l d n o t a v o i d h a v i n g to defend themselves a g a i n s t p r e d a t o r y foreign imperialisms. In either case, they were subject to the logic o f capitalism as a w o r l d system in rhe 2 0 t h century in the w a v B u k h a r i n 4

t

4

h a d described in rhe early 1920s. A n d those w h o ruled these societies were as m u c h " p e r s o n i f i c a t i o n s " o f a c c u m u l a t i o n as were rhe private capitalists o f M a r x s t i m e , driven i n t o historic o p p o s i t i o n t o the w a g e labourers w h o toiled o n the m e a n s o f p r o d u c t i o n . They were, in other w o r d s , m e m b e r s o f a capitalist class, even if ir w a s a class w h i c h collectively rather t h a n i n d i v i d u a l l y carried through exploitation and accumulation. T h e state seemed, o n the face o f it, a great island o f p l a n n i n g — at o n e t i m e even half a c o n t i n e n t o f p l a n n i n g — w i t h i n a w o r l d o f m a r k e r relations. But so l o n g as states c o m p e t e d t o e x p a n d the forces o f p r o d u c t i o n w i t h i n them m o r e rapidly t h a n each other, the p l a n n i n g w a s , like rhe islands o f p l a n n i n g w i t h i n the i n d i v i d u a l capitalist enterprise o f M a r x ' s rime, s i m p l y p l a n n i n g t o keep l a b o u r p r o d u c t i v i t y abreast w i t h the l a b o u r p r o d u c t i v i t y prevailing o n a w o r l d scale. T h e l a w o f value i m p o s e d itself t h r o u g h such c o m p e t i t i o n o n all the units in rhe w o r l d sysrem. T h o s e r u n n i n g w h o l e states, p a r t i c u l a r state sectors or i n d i v i d u a l enterprises were 118

Understanding the System: Marx and Ik-yond

.ilike subject ro pressure ro reduce rhe price p a i d for every exertion of l a b o u r p o w e r t o its value w i t h i n the system as w h o l e . T h e i n d i v i d u a l capitalist m a n a g e r s a n d i n d i v i d u a l state manners c o u l d rely for a t i m e o n rhe sheer size o f the resources at their disposal t o try t o ignore these pressures. But they c o u l d n o t d o so indefinitely. A t s o m e p o i n t they h a d to face h a r d choices if they were n o t to risk collapse: they c o u l d try to i m p o s e the l a w o f value on those w h o l a b o u r e d for t h e m t h r o u g h w h a t c o u l d be a p a i n f u l iud h a z a r d o u s process o f internal restructuring; or they c o u l d take desperate g a m b l e s in o r d e r t o try t o shift the g l o b a l b a l a n c e o f forces in their favour. For-the civilian c o r p o r a t i o n this m i g h t m e a n p o u r i n g resources i n t o o n e last, possibly f r a u d u l e n t , m a r k e t i n g ploy; for those r u n n i n g rhe state, t o try to use its military force t o c o m p e n s a t e for its e c o n o m i c weakness. H e n c e the w a y in w h i c h the real history of capitalism in the 2 0 t h century w a s very different to the picture o f peaceful a n d honest c o m p e t i t i o n presented in econ o m i c t e x t b o o k s — a n d accepted by s o m e M a r x i s t s w h o have n o t understood the need to l o o k at the real social relations w h i c h lie beneath surface appearances.

llcyond

Marx: Monopoly, War and the State

119

120

Understanding the System: Marx and Ik-yond

( IIAPTER FIVE

State spending and the system

A n i m p o r t a n t distinction %

ll the e n o r m o u s g r o w t h ot the e c o n o m i c i m p o r t a n c e o f the state was o n e feature w h i c h distinguished 2 0 t h century c a p i t a l i s m f r o m the c a p i t a l i s m o f M a r x ' s t i m e , a n o t h e r w a s rhe g r o w t h o f all sorts of expenditures that w e r e n o t directly p r o d u c t i v e . M a r x h a d taken over f r o m A d a m S m i t h a distinction between " p r o d u c t i v e " a n d " u n p r o d u c t i v e " labour. S m i t h h a d been w r i t i n g .it a time w h e n the capitalist m o d e o f p r o d u c t i o n was still in its infancy a n d he s o u g h t t o w o r k o u t w h a t w a s needed for it t o o v e r c o m e obstacles ro its further a d v a n c e . H e therefore distinguished between the uses o f hired l a b o u r t h a t enabled the capitalist to m a k e profits so as ro further a d v a n c e p r o d u c t i o n a n d those which s i m p l y a b s o r b e d existing resources. E m p l o y i n g s o m e o n e to m a k e things to sell w a s p r o d u c t i v e ; e m p l o y i n g s o m e o n e t o tend to one's i n d i v i d u a l desires wTas nor. O r , as it w a s sometimes pur, employing s o m e o n e in a factory created w e a l t h ; e m p l o y i n g s o m e o n e as a personal servant s i m p l y used w e a l t h u p . But it w a s n o t o n l y servants w h o Smith regarded as u n p r o d u c t i v e a n d wasteful in this sense: he h a d the same a t t i t u d e t o the h o a r d s o f p l a c e m e n a n d w o m e n w h o lived o f f the revenues o f a state w h i c h h a d n o t been relormed fully to suit the needs o f capitalist p r o d u c t i o n . 1 M a r x rook u p this d i s t i n c t i o n as he prepared various drafts for ('.dpiLil

a n d d e v e l o p e d his o w n

u n d e r s t a n d i n g o f it. H e , like

S m i t h , w a s interested i n w h a t m a d e c a p i t a l i s m f u n c t i o n — e v e n if o u t o f o p p o s i t i o n t o , n o t s u p p o r t for, the system. A n d so his concern w a s w i t h w h a t w a s " p r o d u c t i v e " i n capitalist terms. 2 Ir w a s , lie a r g u e d , t h a t w h i c h w a s p r o d u c t i v e o f s u r p l u s v a l u e . L a b o u r w h i c h p r o d u c e d s u r p l u s v a l u e e n a b l e d capitalists t o a c c u m u l a t e ;

l a b o u r w h i c h d i d not p r o d u c c surplus v a l u e was o f n o use in this respect—it w a s " u n p r o d u c t i v e " . In all this, he was careful t o m a k e it clear that the "productiveness" of labour did not d e p e n d o n the physical f o r m or h o w socially useful the p r o d u c t was. W h a t mattered w a s its ability to create surplus v a l u e — n o t h i n g else. " T h i s distinction between productive a n d unproductive l a b o u r " , he w r o t e in one o f his notebooks, " h a s nothing ro d o with either the p a r t i c u l a r speciality o f the l a b o u r or with the particular use value in which...[it]...is i n c o r p o r a t e d " . M a r x s d i s t i n c t i o n w a s n o t between material p r o d u c t i o n a n d w h a t t o d a y arc categorised as "services". S o m e "services" have a use value that is bought a n d sold as a c o m m o d i t y 011 the m a r k e t — or m a k e a useful a d d i t i o n t o s o m e o t h e r c o m m o d i t v . These h a v e a n e x c h a n g e value w h i c h is d e t e r m i n e d by the socially necessary l a b o u r t i m e needed to p r o d u c e them a n d so can p r o v i d e capitalists w r ith n e w surplus value. T h e y are therefore p r o d u c t i v e . A c t i n g in a f i l m , for instance, is p r o d u c t i v e i n s o f a r as it creates a use v a l u e ( a d d i n g to people s e n j o y m e n t a n d so i m p r o v i n g their living s t a n d a r d ) t h a t is sold p r o f i t a b l y as a c o m m o d i t y by the capitalist w h o e m p l o y s the actor. Similarly, m o v i n g t h i n g s f r o m w h e r e they are m a d e t o w r here they c a n be c o n s u m e d , as is d o n e by s o m e t r a n s p o r t w o r k e r s , is p r o d u c t i v e , since it is in effect p a r t o f the process o f c o m p l e t i n g their p r o d u c t i o n . By c o n t r a s t , actors w h o a p p e a r o n television to urge people ro b u y a p a r t i c u l a r g o o d arcnot p r o d u c t i v e , since their l a b o u r does n o t create n e w use or exc h a n g e values. It merely a i d s in the selling o f g o o d s t h a t have already been p r o d u c e d . G u g l i e l m o C a r c h e d i has rightly a r g u e d : T h e category "services" o n l y confuses matters a n d s h o u l d be d r o p p e d . " A service is n o t h i n g m o r e t h a n rhe useful effect o f a use value, be it o f a c o m m o d i t y , o r be it o f l a b o u r " [according t o M a r x ] / Therefore, "services" e n c o m p a s s p r o d u c t i v e

labour

(hotels, e n t e r t a i n m e n t ) a n d u n p r o d u c t i v e l a b o u r (advertising, m a r k e t research)... 5 In his first discussions o n the issue in the earlv 1860s M a r x as*

s u m e d , like S m i t h , t h a t u n p r o d u c t i v e l a b o u r is c o n c e r n e d w i t h services p r o v i d e d by i n d i v i d u a l s for the u p p e r classes." These included

providing

"entertainments",

dealing

with

"physical

infirmities" (doctors) and "spiritual weakness" (parsons), and 122

Understanding the System: Marx and Ik-yond

resolving " t h e c o n f l i c t b e t w e e n p r i v a t e interests a n d n a t i o n a l interests" (eg statesmen, lawyers, police a n d soldiers). T h e last sort were regarded " b y rhe i n d u s t r i a l capitalists t h e m s e l v e s " as incidental expenses o f p r o d u c t i o n

t o be k e p t d o w n t o the m o s t

indispensable m i n i m u m a n d p r o v i d e d as c h e a p l y as possible. 7 M a r x recognised that sometimes personal services for the r u l i n g class were p r o v i d e d n o t by i n d i v i d u a l s w o r k i n g o n their o w n acc o u n t , but by capitalists e m p l o y i n g p a i d l a b o u r to p r o v i d e t h e m t o uihers. In these cases, he a r g u e d , the l a b o u r w a s p r o d u c t i v e because it created s u r p l u s value. T h e capitalists w h o e m p l o y e d it, after all, sold rhe p r o d u c e of the l a b o u r at m o r e t h a n they p a i d for the l a b o u r p o w e r a n d p o c k e t e d a profit as a result. So a teacher e m p l o y e d p e r s o n a l l y in s o m e o n e ' s h o m e t o teach their c h i l d r e n was p r o v i d i n g ^ service f r o m w h i c h n o profit was m a d e a n d w a s u n p r o d u c t i v e ; by c o n t r a s t , a teacher e m p l o y e d by a c o m p a n y w h i c h m a d e a profit by r u n n i n g a school w a s p r o d u c t i v e . O n e d i d not in a n y w a y help capitalists to a c c u m u l a t e value; the other d i d . I he distinction w a s between l a b o u r that w a s integral ro capitalist production and accumulation, and that which was not. But in Capital tinction

M a r x also f o u n d himself h a v i n g t o revisit the dis-

between

productive

and

unproductive

labour

in

a

different c o n t e x t — a c o n t e x t w h i c h w a s integral to, n o t external to, capitalist p r o d u c t i o n in its totality. For as capitalism developed, it became increasingly d e p e n d e n t o n m a n y f o r m s o f l a b o u r that produced n o t h i n g . There w a s the l a b o u r i n v o l v e d in m a i n t a i n i n g discipline inside the c a p i t a l i s t e n t e r p r i s e — t h e " w o r k " o f m a n a g e r s , supervisors, l o r e m e n . There w a s the c o m m e r c i a l l a b o u r i n v o l v e d in the exi hange o f a l r e a d y p r o d u c e d c o m m o d i t i e s as they w e n t t h r o u g h the v a r i o u s c h a i n s o f b u y i n g a n d selling before r e a c h i n g the final consumer. There w a s rhe f i n a n c i a l l a b o u r i n v o l v e d in r e c k o n i n g up profit a n d loss, a d v a n c i n g credit, a n d d i v i d i n g u p s u r p l u s v a l u e between the v a r i o u s sections o f rhe capitalist class. M a r x recognised t h a t these sorts o f l a b o u r

would grow

in q u a n t i t y

as

capitalism e x p a n d e d : It is clear t h a t as the scale o f p r o d u c t i o n is extended, c o m m e r cial o p e r a t i o n s r e q u i r e d c o n s t a n t l y for rhe r e c i r c u l a t i o n

of

industrial c a p i t a l . . . m u l t i p l y a c c o r d i n g l y . . . T h e m o r e developed the scale o f p r o d u c t i o n , rhe greater...the c o m m e r c i a l o p e r a t i o n s o f industrial capital. 8 State Spending and the System

123

Such l a b o u r c o u l d not be regarded as p r o d u c t i v e if the capitalist e m p l o y e d it in these ways, a n y m o r e t h a n the l a b o u r of the servant c o u l d be. M a i n t a i n i n g discipline, selling g o o d s o r getting the acc o u n t s d o n e w e r e necessary f u n c t i o n s that had t o be p a i d for by d e d u c t i o n s f r o m surplus v a l u e , not creative l a b o u r t h a t a d d e d t o surplus value. They d i d n o t p r o d u c e s o m e t h i n g n e w , b u t were merely concerned with c o n t r o l l i n g the p r o d u c t i o n o f v a l u e by others, with t r a n s f o r m i n g it f r o m one f o r m (commodities) inro another (money), or with d i v i d i n g it u p between people. The activities o f a supervisor, a b a n k clerk or a s h o p assistant c o u l d n o m o r e create value ( a n d therefore s u r p l u s value) t h a n c o u l d the valet. But w h a t happened if the p r o d u c t i v e capitalist used other capitalists t o carry o u t s o m e o f these f u n c t i o n s o n his behalf? T h e l a b o u r e m p l o y e d by rhese o t h e r capitalists s h o u l d be c o u n t e d as p r o d u c t i v e according t o M a r x ' s established definition since it enabled t h e m t o m a k e a profit. But seeing things like this presented a p r o b l e m . T h e profit did nor arise from increasing rhe total a m o u n t o f o u t p u t a n y m o r e than it d i d w h e n p r o d u c t i v e capitalists directly e m p l o y e d people to p e r f o r m the tasks. It s i m p l y a m o u n t e d t o the second capitalist getting a slice o f the s u r p l u s value o r i g i n a l l y in the h a n d s o f the first capitalist. M a r x c o n c l u d e d t h a t f r o m the p o i n t o f view o f capitalist p r o d u c t i o n such l a b o u r w a s u n p r o d u c tive, even t h o u g h this seemed to be based o n a different definition o f p r o d u c t i v e l a b o u r to t h a t he used elsewhere. For this reason J a c q u e s Bidet, for instance, has a r g u e d t h a t M a r x w a s inconsistent." Yet it m a d e sense in terms o f the t h i n g b o t h A d a m S m i t h a n d Karl M a r x were interested i n — t h e d i s t i n c t i o n between w h a t advanced capitalist d e v e l o p m e n t a n d w h a t retarded it. So long as capitalists were operating in a n e c o n o m i c environment in which capitalist p r o d u c t i o n w a s not yet d o m i n a n t , those w h o employed workers to provide personal services were p r o v i d i n g them m a i n l y t o those w h o s e w e a l t h c a m e f r o m outside the capitalist system. T h e p a y m e n t s received, for instance, by the o w n e r s of a school constituted a transfer o f resources inro the capitalist sector from the pockets o f pre-capitalist exploiters—resources that c o u l d then be used for p r o d u c t i v e a c c u m u l a t i o n . By contrast, the merchants or shopkeepers w h o h a n d l e d rhe g o o d s of the p r o d u c t i v e capitalists got their profit from rhe already created surplus value ot the p r o d u c t i v e capitalist. They were not a d d i n g to total surplus value a n d w i t h it rhe further a c c u m u l a t i o n of capital. As M a r x p u t it at o n e p o i n t : 124

Understanding the System: Marx and Ik-yond

To i n d u s t r i a l capital the costs o f c i r c u l a t i o n a p p e a r as unproductive expenses, a n d so they are. To the m e r c h a n t they a p p e a r as a source of p r o f i t , p r o p o r t i o n a l , given rhe general rate o f profit, to rheir size. T h e o u t l a y t o he m a d e o n these c i r c u l a t i o n costs is therefore p r o d u c t i v e investment for mercantile c a p i t a l . . . A n d the c o m m e r c i a l l a b o u r w h i c h it buys is likewise i m m e d i ately p r o d u c t i v e for i r . " I he c o m p e t i t i o n between c o m m e r c i a l capitalists w i t h each other meant t h a t each w a s subject t o rhe same pressures as rhe capitalists involved in p r o d u c t i o n ro keep wages d o w n ro rhe value o f l a b o u r power. For this reason their w o r k e r s were e x p l o i t e d in rhe s a m e w a y as w o r k e r s for c a p i t a l involved in p r o d u c t i o n . T h e m o r e a c o m m e r c i a l capitalist held d o w n the wages a n d increased rhe w o r k l o a d o f his employees, the greater w a s the share he c o u l d keep for himself o f the p a y m e n t he gor f r o m the p r o d u c t i v e capiinlists for p r o v i d i n g services t o t h e m . If it t o o k eight hours o f socially necessary l a b o u r rime to p e r f o r m , say, a certain sales task, but o n l y f o u r hours to cover a sales w o r k e r s w a g e , then the shopkeeping capitalist c o u l d p o c k e t f o u r h o u r s w o r t h o f the s u r p l u s value supplied f r o m elsewhere in the system. But this d i d n o t m e a n t h a t c o m m e r c i a l l a b o u r c o u l d be equated with p r o d u c t i v e l a b o u r w h e n it c a m e ro u n d e r s t a n d i n g rhe dynamics o f the system as a w h o l e . O n e created resources t h a t c o u l d be used for further a c c u m u l a t i o n , a n d the other did n o t . T h a r is w h y M a r x is insistent: Costs w h i c h e n h a n c e the price o f a c o m m o d i t y w i t h o u t a d d i n g to its use value, w h i c h are therefore ro be classed as u n p r o d u c tive expenses so far as society is c o n c e r n e d , m a y be a source o f e n r i c h m e n t t o the i n d i v i d u a l capitalist. O n the other h a n d , as this a d d i t i o n t o rhe price o f rhe c o m m o d i t y merely distributes the costs of c i r c u l a t i o n equally, they d o n o t cease t o be unproductive in character. For instance, insurance c o m p a n i e s divide the losses o f i n d i v i d u a l capitalists a m o n g rhe capitalist class. But this does n o t stop rhese equalised losses f r o m being losses so far as rhe aggregate social capital is concerned. I he d i s t i n c t i o n between p r o d u c t i v e a n d u n p r o d u c t i v e l a b o u r is often seen as a merely scholastic q u e s t i o n . Bur o n c e seen in terms of w h a t c o n t r i b u t e s t o a c c u m u l a t i o n a n d w h a t does n o t , it has State Spending and the System

125

enormous

implications—including

some

that

Marx

himself

never d e v e l o p e d . W h a t is " p r o d u c t i v e o f s u r p l u s v a l u e " for the i n d i v i d u a l capitalist (the d e f i n i t i o n o f p r o d u c t i v e l a b o u r M a r x used in his n o t e b o o k s ) is n o t necessarily w h a t is p r o d u c t i v e in terms o f a d d i n g to rhe s u r p l u s value a v a i l a b l e t o c a p i t a l in general for a c c u m u l a t i o n . A n d it is this is that is central for the d y n a m i c o f the system.

T h e scale o f u n p r o d u c t i v e l a b o u r T h e level o f u n p r o d u c t i v e e x p e n d i t u r e s i n v o l v e d in sales a n d fin a n c e grew t h r o u g h o u t

t h e 2 0 t h century. S h a i k h a n d

Tonak

calculate that the n u m b e r o f w o r k e r s e m p l o y e d in trade in the U S grew f r o m 1 0 , 6 9 0 , 0 0 0 in 1 9 4 8 ro 2 4 , 3 7 5 , 0 0 0 in 1989, a n d ot those in

finance

and i n s u r a n c e f r o m

1,251,000 to

7,123,000.

M e a n w h i l e , the n u m b e r o f p r o d u c t i v e w o r k e r s o n l y grew f r o m 3 2 , 9 9 4 , 0 0 0 to 4 1 , I 4 8 , 0 0 0 . ' 2 Fred Moseley estimates the n u m b e r s in c o m m e r c e as g r o w i n g f r o m 8.9 to 21 m i l l i o n between 1 9 5 0 a n d 1980, a n d rhe n u m b e r in finance f r o m 1.9 t o 5.2 m i l l i o n , w h i l e the p r o d u c t i v e w o r k f o r c e o n l y grew f r o m 2 8 t o 4 0 . 3 million. 1 T h e figures d o n o t i n c l u d e the large n u m b e r o f m a n a g e r i a l employees w h o M a r x regarded as n o n - p r o d u c t i v e because they are i n v o l v e d in p o l i c i n g those w h o a c t u a l l y p r o d u c e value. S i m o n M o h u n has calculated t h a t rhe g r o w t h in their n u m b e r s a n d remuneration caused rhe share o f " u n p r o d u c t i v e " wages a n d salaries in the " m a t e r i a l value a d d e d " in rhe US to rise f r o m 35 percent in 1964 ro over 5 0 percent in 2000. 1 4 These figures also understate the t o t a l g r o w t h o f u n p r o d u c t i v e l a b o u r because they d o n o t inc l u d e employees i n v o l v e d in n o n - p r o d u c t i v e state f u n c t i o n s like the m i l i t a r y a n d the legal system.

U n p r o d u c t i v e expenditures a n d waste p r o d u c t i o n There is a n o t h e r sort o f l a b o u r t h a t also has to be taken i n t o consideration w h e n e x a m i n i n g 2 0 t h a n d 21 st century c a p i t a l i s m . This is the l a b o u r that goes i n t o p r o d u c i n g c o m m o d i t i e s t h a t are sold like other c o m m o d i t i e s but w h i c h d o n o t then re-enter later r o u n d s o f p r o d u c t i o n , w h e t h e r as m e a n s o f p r o d u c t i o n or as w a g e g o o d s , f h e l a b o u r p r o d u c i n g l u x u r y g o o d s for the capitalist class falls 126

Understanding the System: Marx and Ik-yond

into this category. S o t o o does l a b o u r t h a t goes i n t o m i l i t a r y weaponry. A l t h o u g h such l a b o u r has usually been regarded as " p r o d u c t i v e " by M a r x i s t s , it shares wirh n o n - p r o d u c r i v e l a b o u r the fact t h a t it does n o t a d d t o capitalist a c c u m u l a t i o n . For rhese reasons it was argued by M i c h a e l K i d r o n in rhe early 1970s t h a t it should also be regarded as non-producrive: The ageing o f c a p i t a l i s m . . . o p e n e d a g u l f between rhe w o criteria of productiveness t h a t he [ M a r x — C H J used i n t e r c h a n g e a b l y — e m p l o y m e n t by capital a n d a u g m e n t i n g c a p i t a l . . . N o w capital

is k i n g . . . t h e - t w o criteria

are n o longer

that

congruous.

M i l l i o n s o f workers are e m p l o y e d directly by capital t o produce g o o d s a n d services w h i c h it c a n n o t use for further e x p a n s i o n under any c<Miceivable circumstances. They are productive by one criterion a n a u n p r o d u c t i v e by rhe o t h e r . . . G i v e n the need ro choose, productive labour today m u s t be defined as l a b o u r whose final o u t p u t is or can be a n i n p u t i n t o further p r o d u c t i o n . O n l y such l a b o u r c a n w o r k for c a p i t a l s self-expansion... To spell it o u t , in late capitalism only part o f the surplus can be used for rhe expansion o f capital. T h e rest is waste product. 1 5 M o r e recently A l a n Freeman has also suggested t h a t the n o t i o n o f u n p r o d u c t i v e l a b o u r has t o be extended ro involve the use o f l a b o u r to p r o d u c e t h i n g s rhat are then used i n a n u n p r o d u c t i v e manner.

"The

workers w h o

decked

the E u r o p e a n

Bank

for

Reconstruction a n d D e v e l o p m e n t in m a r b l e are just as u n p r o d u c nve as the clerks w h o n o w w a l k across it". 1 6 G u g l i e l m o C a r c h e d i , by contrast, argues there is l a b o u r t h a t is p r o d u c t i v e if it has created new value, even if this does n o t then c o n t r i b u t e a n y t h i n g t o the next r o u n d o f a c c u m u l a t i o n . 1

Regardless o f h o w it is cate-

rised, the p r o p o r t i o n o f l a b o u r that is waste f r o m the p o i n t o f view o f c a p i t a l a c c u m u l a t i o n has b e c o m e e n o r m o u s . K i d r o n calculated t h a t "three fifths o f the w o r k actually u n d e r t a k e n in rhe US in the 1 9 / 0 s w a s wasted f r o m c a p i t a l s o w n p o i n t o f view". 1 8

r h e state sector a n d n o n - p r o d u c t i v e l a b o u r Expenditures by i n d i v i d u a l capitals t h a t are neither g o i n g t o capital i n v e s t m e n t n o r ro the wages o f p r o d u c t i v e w o r k e r s c a n be broken d o w n i n t o different categories: M i to Spending and the System

127

(a)

T h o s e concerned w i t h the d i s c i p l i n i n g o f rhe w o r k f o r c e a n d ensuring ii w o r k s flat o u t — e x p e n d i t u r e s on internal security, supervisory l a b o u r

and

time

and

motion

measurement,

c h e c k i n g on w o r k speeds. (b)

T h o s e concerned w i t h k e e p i n g the allegiance o f rhe workforce, eg expenditures o n i n t e r n a l p u b l i c relations, w o r k s bulletins, m a n a g e m e n t - r u n w o r k s c o m m i t t e e s , subsidies t o w o r k s sports reams.

(c)

T h o s e devoted t o financial t r a n s a c t i o n s , o b t a i n i n g credit, b a n k charges, etc.

(d)

Those devoted t o sales, advertising, etc.

(e)

T h o s e concerned w i t h keeping the w o r k f o r c e fit a n d able t o w o r k — c o m p a n y m e d i c a l facilities, factory canteens, etc, in s o m e cases the p r o v i s i o n o f h o u s i n g for the w o r k f o r c e .

(f)

T h o s e concerned w i t h t r a i n i n g the w o r k f o r c e — w h a t mainstream economists often call " h u m a n c a p i t a l " .

(g)

Expenditures o n research a n d d e v e l o p m e n t .

E x p e n d i t u r e s (a) a n d (b) are u n a m b i g u o u s l y u n p r o d u c t i v e . They create n o t h i n g a n d are o n l y c o n c e r n e d w i t h getting the m a x i m u m o f already created v a l u e f r o m rhe w o r k e r s . E x p e n d i t u r e s (c) a n d (d) are u n p r o d u c t i v e f r o m the p o i n t o f view o f capital in general. They d o n o t in any w a y a d d t o the capacity of the system as w h o l e to a c c u m u l a t e . But the i n d i v i d u a l firm can regard them as productive in the same way as M a r x w r o t e t h a t the i n d i v i d u a l m e r c h a n t capitalist d i d — t h e y serve t o get c o n t r o l o f s u r p l u s v a l u e w h i c h w o u l d o t h e r w i s e g o to rival firms. So advertising e x p e n d i t u r e , for e x a m p l e , m a y be seen by the firm, like e x p e n d i t u r e o n n e w equipm e n t , as a w a y o f e x p a n d i n g its p o s i t i o n in the m a r k e t ,

of

forestalling a t t e m p t s to enter the m a r k e t by other capitalists, a n d so o n . Similar e x p e n d i t u r e o n patents a n d patent protection m a y be seen as a w a y o f getting a s t r a n g l e h o l d o n the m a r k e t (1 will return t o the other types o f expenditures (e) ro (g) b e l o w ) . T h e g r o w t h of state expenditures in the course o f rhe last century has involved states t a k i n g over partial responsibility for m a m o f these o u t l a y s f r o m the h a n d s o f rhe private c a p i t a l s based in their n a t i o n a l territory. So state expenditures can be b r o k e n d o w n i n t o categories p l a y i n g rhe same or a n a l o g o u s f u n c t i o n s to the expenditures of

firms.

There are those e x p e n d i t u r e s w h i c h are clearly u n p r o d u c t i v e in t e r m s o f a c c u m u l a t i o n t h r o u g h o u t t h e system as a w h o l e . 128

Understanding the System: Marx and Ik-yond

A m o n g these are those c o n c e r n e d

with

protecting

property,

m a i n t a i n i n g social d i s c i p l i n e a n d e n s u r i n g the s m o o t h reproduction o f class r e l a t i o n s ; m a i n t a i n i n g state-run or f i n a n c e d f o r m s «•! m a i n t a i n i n g p o p u l a r a l l e g i a n c e to rhe system, such as state p r o d u c e d p r o p a g a n d a a n d subsidies t o religious i n s t i t u t i o n s ; the p e r p e t u a t i o n o f rhe r u l i n g ideology t h r o u g h sections o f the edui i t i o n a l system; m a i n t a i n i n g rhe f i n a n c i a l i n f r a s t r u c t u r e o f rhe system t h r o u g h the p r i n t i n g o f n a t i o n a l currencies a n d r u n n i n g central b a n k s . A l o n g s i d e these there are expenditures beneficial ro n a t i o n a l l y based capitals in c o m p e t i t i o n w i t h foreign capitals, b u t w h i c h , like i he i n d i v i d u a l capitalists' expenditure o n m a r k e t i n g or advertising, d o n o t a d d t o a c c u m u l a t i o n as a w h o l e . T h i s includes military expenditure, s p e n d i n g o n e x p o r t p r o m o t i o n schemes, n e g o t i a t i o n s w i t h o t h e r g o v e r n m e n t s over i n t e r n a t i o n a l trade a n d i n v e s t m e n t regulations, etc. It w a s these u n p r o d u c t i v e e x p e n d i t u r e s t h a t M a r x referred t o w h e n he w r o t e : Political e c o n o m y in its classical p e r i o d , like the bourgeoisie itself in its p a r v e n u phase, a d o p t e d a severely critical attitude t o the m a c h i n e r y o f rhe state etc. Ar a later stage it realised a n d learnt f r o m experience t h a t the necessity for classes w h i c h were totally u n p r o d u c t i v e arose f r o m its o w n o r g a n i s a t i o n . Such g r o w t h in u n p r o d u c t i v e e x p e n d i t u r e s c a m e ro h a v e a big impact o n rhe d y n a m i c o f the system after M a r x ' s death.

Waste o u t p u t a n d the system's d y n a m i c M a r x hinted at o n e i m p o r t a n t p o i n t a b o u t non-producrive l a b o u r in his first a t t e m p t at a d r a f t for C a p i t a l , rhe Grundrisse.

H e in-

» hides a m o n g the " m o m e n t s " t h a t can delay the rise in the o r g a n i c c o m p o s i t i o n o f capital a n d rhe fall in the rate o f profit: ihe t r a n s f o r m a t i o n o f a great p a r t o f capital i n t o fixed capital w h i c h does n o t serve as agency o f direct p r o d u c t i o n ; u n p r o d u c tive waste o f a great

p o r t i o n o f c a p i t a l etc

(productively

e m p l o y e d capital is a l w a y s replaced d o u b l y , in t h a t the p o s i n g o f a p r o d u c t i v e c a p i t a l presupposes a c o u n t e r v a l u e ) . T h e unM i to Spending and the System

129

p r o d u c t i v e c o n s u m p t i o n o f capital replaces it o n o n e side, annihilates it o n the other... 2 0 M a r x is saying t h a t if for s o m e reason p a r t of the s u r p l u s v a l u e a v a i l a b l e for investment is diverted i n t o s o m e o t h e r use, rhere is less n e w c a p i t a l available f o r firms seeking i n n o v a t i o n s t h a t w i l l cut their costs, a n d the trend t o w a r d s capital-intensive in vestment will be reduced. The s a m e p o i n t w a s m a d e m u c h m o r e explicitly in the 1960s by M i k e K i d r o n — a p p a r e n t l y w i t h o u t k n o w i n g that M a r x h a d spelt the a r g u m e n t out.-1 H e p o i n t e d o u t that M a r x ' s arg u m e n t a b o u t the falling rate o f profit: rested o n t w o a s s u m p t i o n s , b o t h realistic: all o u t p u t f l o w s back

i n t o rhe system as p r o d u c t i v e i n p u t s t h r o u g h

workers'

or

capitalists'

productive

either

consumption—ideally

there arc n o leakages i n the system a n d n o choice other t h a n t o a l l o c a t e t o t a l o u t p u t b e t w e e n w h a t w o u l d n o w be called investment a n d w o r k i n g class c o n s u m p t i o n ; s e c o n d l y in a closed system like this the a l l o c a t i o n w o u l d s w i n g progressively in favour o f investment. If the first a s s u m p t i o n , t h a t all o u t p u t s flow back i n t o the system, w a s d r o p p e d — i n other w o r d s , if s o m e o f these o u t p u t s are lost to the p r o d u c t i o n c y c l e — t h e n there w o u l d be n o need for investment to g r o w m o r e rapidly t h a n the l a b o u r e m p l o y e d . T h e l a w of the falling rare o f profit w o u l d not operate. " L e a k s " o f s u r p l u s value f r o m the closed cycle o f production/investm e n t / p r o d u c t i o n w o u l d offset the tendency of the rare o f profir to fall." As K i d r o n p u t it in a later w o r k : I n M a r x the m o d e l a s s u m e s a closed system in w h i c h

all

o u t p u t f l o w s back as i n p u t s in the f o r m o f i n v e s t m e n t g o o d s o r w a g e g o o d s . T h e r e are n o leaks. Yet in p r i n c i p l e a leak c o u l d insulate the c o m p u l s i o n t o g r o w f r o m its m o s t i m p o r t a n t c o n s e q u e n c e s . . . In such a case there w o u l d be n o decline in the average rate o f p r o f i t , n o reason t o expect increasing!) severe s l u m p s a n d so o n . : " T h e a r g u m e n t is i m p e c c a b l e , a n d K i d r o n goes o n to suggest the f o r m these leaks h a v e taken: 130

Understanding the System: Marx and Ik-yond

C a p i t a l i s m has never f o r m e d a closed system in practice. W a r s a n d s l u m p s have destroyed i m m e n s e q u a n t i t i e s o f o u t p u t , inc o r p o r a t i n g h u g e a c c u m u l a t i o n s o f value, a n d prevented the p r o d u c t i o n o f m o r e . C a p i t a l exports have diverted a n d frozen o t h e r a c c u m u l a t i o n s for l o n g stretches o f time.

4

As w e saw in C h a p t e r Four, H e n r y k G r o s s m a n h a d recognised t h a t imperialism in diverting surplus value overseas h a d t e m p o r a r i l y reduced the u p w a r d pressures o n the o r g a n i c c o m p o s i t i o n o f capital hi the d o m e s t i c e c o n o m y a n d the therefore tendency to crisis. Fie also at least partially anticipated K i d r o n s p o i n t a b o u t the effect o f military e x p e n d i t u r e . H e noted t h a t , w h i l e wars were e n o r m o u s l y destructive o f use values, they h a d rhe effect o f easing the purely economic

contradictions

of capitalism

since

they

"pulverise

values" a n d "sfc>w d o w n a c c u m u l a t i o n " . By r e d u c i n g rhe tendency lor a c c u m u l a t i o n t o rise faster t h a n the e m p l o y e d l a b o u r force they c o u n t e r e d the fall in the rate o f profit: T h e d e s t r u c t i o n s a n d d e v a l u a t i o n s o f w a r are a m e a n s o f w a r d i n g o f f the i m m a n e n t c o l l a p s e [of c a p i t a l i s m |, o f c r e a t i n g a b r e a t h i n g space for rhe a c c u m u l a t i o n o f c a p i t a l . . . W a r a n d the d e s t r u c t i o n o f c a p i t a l values b o u n d u p w i t h it w e a k e n rhe b r e a k d o w n [of c a p i t a l i s m ] a n d necessarily p r o v i d e a n e w impetus t o rhe a c c u m u l a t i o n o f c a p i t a l . . . M i l i t a r i s m is a sphere o f u n p r o d u c t i v e c o n s u m p t i o n . Instead o f being saved, values are pulverised. 2 ' M i l i t a r y e x p e n d i t u r e is a p a r t i c u l a r f o r m o f waste that c a n a p p e a l 10 capitalists connected ro a particular state. For it enhances their capacity t o struggle for c o n t r o l o f w o r l d w i d e s u r p l u s v a l u e w i t h rival capitalists. Ir is f u n c t i o n a l for n a t i o n a l l y based c o m p l e x e s o f capital in the s a m e w a y t h a t a d v e r t i s i n g is for i n d i v i d u a l firms, even w h i l e w a s t i n g resources for rhe system as a w h o l e . It w a s therefore a characteristic p h e n o m e n o n o f rhe classical f o r m o f imperialism t h a t led to the First W o r l d W a r — a n d it survives t o d a y in the massive a r m s s p e n d i n g o f rhe United States in particular. The logic o f arms-based e c o n o m i c e x p a n s i o n has escaped m a n y M a r x i s t economists. Ir is a b s u r d , they argue, t o see a d e d u c t i o n by the state f r o m the total s u r p l u s value as s o m e h o w c o u n t e r i n g rhe tendency for surplus value t o g r o w m o r e slowly rhan total investment costs, a n d so o v e r c o m i n g the fall in the rate o f profit. W h a t M i to Spending and the System

131

they have failed to u n d e r s t a n d is t h a t this " a b s u r d i t y " is just part o f the greater absurdity o f the capitalist system as a w h o l e , o f its c o n t r a d i c t o r y nature. T h e y have not seen that e n g a g i n g in military c o m p e t i t i o n can he just as m u c h a " l e g i t i m a t e v capitalist g o a l as e n g a g i n g in e c o n o m i c c o m p e t i t i o n for m a r k e t s . As w e s a w in the last chapter, o n e o f the greatest f o l l o w e r s o f M a r x , Rosa Luxemburg, could n o t understand h o w capitalism c o u l d c o n t i n u a l l y e x p a n d the value e m b o d i e d in m e a n s o f production w i t h o u t p r o d u c i n g m o r e g o o d s f o r c o n s u m p t i o n . Similarly, these M a r x i s t s have n o t been able t o u n d e r s t a n d h o w capitalism c o u l d possibly benefit f r o m c o n t i n u a l l y e x p a n d i n g the m e a n s o t d e s t r u c t i o n . They h a v e been so b e m u s e d by the i r r a t i o n a l i t y ot w h a t capitalists are d o i n g as t o try t o d e n y t h a t this is h o w the system w o r k s . Bur such expenditures h a d e n o r m o u s i m p l i c a t i o n s f o r capitalism in the latter p a r t o f the 2 0 r h century. W a s t e e x p e n d i t u r e s played a c o n t r a d i c t o r y role. They reduced rhe a m o u n t o f surplus v a l u e a v a i l a b l e for p r o d u c t i v e i n v e s t m e n t , so c o u n t e r a c t i n g the tendency t o w a r d s over-rapid a c c u m u l a t i o n a n d crisis. But the eventual effect in s l o w i n g d o w n a c c u m u l a t i o n w a s t o create a w h o l e n e w series o f p r o b l e m s for rhe system, as w e w i l l see in Chapter Nine.

W e l f a r e a n d the supply o f l a b o u r p o w e r N o t all the state expenditures listed earlier fall i n t o the u n p r o d u c tive category as n a r r o w l y defined o r i n t o the w i d e r category o f waste. State-financed research a n d d e v e l o p m e n t (corresponding to category (g) in the list above) that feeds t h r o u g h i n t o a i d i n g accumulation

in the w i d e r e c o n o m y clearly plays a role for those

capitals that benefit f r o m it, similar t o t h a t o f d e a d l a b o u r embodied in m e a n s o f p r o d u c t i o n . But w h a t of expenditures o n health, e d u c a t i o n a n d welfare services (equivalent to the expenditures (e) a n d (f) o f i n d i v i d u a l capitalists)? H e r e it is necessary to e x a m i n e s o m e t h i n g M a r x o n l y discusses in p a s s i n g — t h e r e p r o d u c t i o n of the w o r k i n g class that c a p i t a l i s m needs for e x p l o i t a t i o n . T h e first i n d u s t r i a l capitalists of rhe late 18th a n d early 19th centuries in B r i t a i n d i d n o t have to w o r r y over m u c h a b o u t the supply o f l a b o u r power. It w a s available in a b u n d a n c e once " p r i m itive a c c u m u l a t i o n " h a d driven sufficient peasants f r o m the l a n d . 132

Understanding the System: Marx and Ik-yond

I hey assumed they c o u l d hend f o r m e r peasants a n d their children to the discipline o f unskilled m a c h i n e minding,- 6 w h i l e relying o n d r a w i n g m e n trained as artisans i n t o the factories for m o r e skilled w o r k . For these reasons, M a r x , w h o dealt ar length w i t h p r i m i t i v e i c c u m u l a r i o n a n d rhe t r e a t m e n t o f w o r k e r s in the factories, virtually i g n o r e d the p r o b l e m for capitalists o f getting a l a b o u r force with the right physiques a n d skills. Yet by the time o f his d e a t h , the spread o f capitalist industry to ever newer new sectors o f production

was

making

the

supply

and

management

of

labour

p o w e r — o u t s i d e as well as inside the f a c t o r y — s o m e t h i n g o f increasing concern to those p r o m o t i n g capitalist a c c u m u l a t i o n . T h e i n d i v i d u a l capitalist a i m e d t o pay the i n d i v i d u a l w o r k e r just e n o u g h by the h o u r , d a y or week t o keep h i m o r her fit a n d m o t i v a t e d t o w o r k . But this did n o t cater for a n u m b e r o f important things i f l a b o u r p o w e r o f the right q u a n t i t y a n d q u a l i t y w a s going to be available for rhe capitalist class as a w h o l e over rime. It did n o t take into a c c o u n t the need for workers to learn necessary skills n o r d i d it sustain them t h r o u g h periods o f u n e m p l o y m e n t so is to be able ro s u p p l y their l a b o u r p o w e r w h e n the crisis ended. Ir did n o t deal w i t h the p r o b l e m o f w o r k e r s t e m p o r a r i l y losing their capacity t o be p r o d u c t i v e l y e x p l o i t e d t h r o u g h illness or injury. And it did n o t provide for the u p b r i n g i n g o f w o r k i n g class c h i l d r e n w h o w o u l d be the next generation o f l a b o u r power. There were various a d h o c a t t e m p t s to deal w i t h each o f these problems t h r o u g h rhe 19th century. Religious a n d o t h e r c h a r i t a b l e funds p r o v i d e d

s o m e relief for the u n e m p l o y e d

o r the sick.

Pressure w a s p u t o n w o r k i n g class w o m e n t o bear the b u r d e n o f i liiId rearing t h r o u g h the p r o p a g a t i o n o f ideologies that treated men as the w a g e earner a n d m e n s wages as a " f a m i l y w a g e " (even t h o u g h w o r k i n g class w o m e n a l w a y s w o r k e d ro s o m e extent a n d a man's w a g e w a s rarely a d e q u a t e t o keep a family). 2 8 S o m e firms w o u l d p r o v i d e h o u s i n g u n d e r their o w n c o n t r o l — a n d s o m e t i m e s m i n i m a l health facilities as w e l l — f o r their workforces. G r o u p s o f skilled w o r k e r s w o u l d run f u n d s ro p r o v i d e for periods o f unemp l o y m e n t o r sickness. F i r m s w o u l d i n c o r p o r a t e i n t o the factory system a version o f the apprenticeship system o f pre-capitalist aru s a n s h i p , w r ith youngsters l e a r n i n g a trade by w o r k i n g

under

skilled w o r k e r s for five or seven years o n m i n i m a l w r ages. But over t i m e it became clear that the a d hoc m e t h o d s were inadequate a n d that the state h a d t o take over m a n y o f the tasks f r o m private capitalists a n d charitable concerns. In Britain it intervened M i to Spending and the System

133

as early as the 1834 Poor L a w ro ensure t h a t the c o n d i t i o n s under w h i c h the unemployed o r t h e infirm c o u l d get poverty relief were so a r d u o u s t h a t those w h o c o u l d w o r k w o u l d , however l o w the pay. In 1848 it established a Board o f H e a l t h t o act against rhe spread o f diseases in w o r k i n g class a r e a s — w h i c h w a s affecting richer areas t o o . Over the decades it w a s cajoled i n t o l i m i t i n g the w o r k i n g h o u r s o f children a n d b a r r i n g w o m e n f r o m o c c u p a t i o n s that m i g h t d a m a g e their capacity to bear a n d bring u p the next generation. In the 1870s it m o v e d to set u p a stare system o f elementar\ education a n d to encourage rhe b u i l d i n g o f homes for skilled workers. T h e n in the first d e c a d e o f the 2 0 t h century it m a d e the first m o v e s t o c o o r d i n a t e the v a r i o u s ad h o c measures o f the previous 70 years into national structures to p r o v i d e m i n i m a l social insurance benefits for u n e m p l o y m e n t , o l d age and

sickness/'

The

impetus ro d o so came f r o m the shock o f discovering in the course o f recruitment for the Boer W a r h o w few o f rhe w o r k i n g class were healthy e n o u g h to undertake military service. A n n Rogers has summarised the reaction of the u p p e r a n d m i d d l e class: I he belief t h a t change w a s necessary if Britain w a s to c o m p e t e successfully w i t h G e r m a n y a n d rhe U n i t e d States r e m a i n e d central. W h e t h e r rhe a r g u m e n t was f o r m u l a t e d by the F a b i a n s or by Liberal imperialists the c o n c e n t r a t i o n w a s o n the d a m a g e t h a t poverty was d o i n g t o society rather t h a n the misery it caused i n d i v i d u a l w o r k e r s . . . T h e u n d e r l y i n g reason for the desire t o i m p r o v e rhe health o f rhe w o r k i n g class w a s the need for a healthier l a b o u r force in the factories a n d the a r m y .

0

T hese measures were n o t simply a result o f capitalists getting together a n d deciding w h a t w a s rational for their system. They c a m e i n t o being o n l y after recurrent c a m p a i g n s i n v o l v i n g u p p e r class p h i l a n t h r o p i s t s w i t h a conservative d i s d a i n for rhe money-grabb i n g g r u b b i n e s s o f c a p i t a l i s m , m i d d l e class moralisers

about

w o r k i n g class behaviour, political o p p o r t u n i s t s o u t t o get w o r k i n g class votes, factory inspectors a n d d o c t o r s w i t h professional concerns a b o u t people s safety a n d w e l l - b e i n g — a n d , a l o n g s i d e them a n d o f t e n i n d e p e n d e n t l y o f t h e m , trade u n i o n a n d socialist activists. But such c o a l i t i o n s f r a m e d the projects they p u r s u e d in terms o f w h a t they s a w as rational for c a p i t a l i s m . A n d that meant w h a t w a s necessary t o supply it w i t h p o o l s o f sufficiently health\ a n d skilled l a b o u r power. T h i s w a s s h o w n clearly by o n e feature 134

Understanding the System: Marx and Ik-yond

that characterised the reforms o f rhe early 2 0 t h c e n t u r y just as m u c h as it h a d the c h a r i t a b l e efforts o f the early 19th century. A n y benefits were a l w a y s t o be p r o v i d e d i n such a w a y as t o coerce i n t o seeking w o r k all those w h o were fit a n d able. T h e principle o f "less eligibility" h a d t o a p p l y : getting the benefit m u s t still leave the recipients w o r s e o f f t h a n the w o r s t p a i d w o r k . W h a t is m o r e , the benefits were n o t m e a n t ro c o m e f r o m a diversion o f v a l u e f r o m capital to labour, b u t by a redistribution o f i n c o m e w i t h i n the w o r k i n g class t h r o u g h the " t h e insurance p r i n c i p l e " . Weekly payments f r o m those able t o w o r k were t o sustain those u n a b l e t o d o so because o f sickness or u n e m p l o y m e n t . T h e role o f the state in the supply, t r a i n i n g a n d r e p r o d u c t i o n o f l a b o u r p o w e r grew t h r o u g h the 2 0 t h century, reaching a peak in the l o n g b o o m ^ r o m rhe m i d - 1 9 4 0 s t h r o u g h to rhe mid-1970s, a n d c o n t i n u i n g i n t o the n e w period o f crises w h i c h

followed.

All

t h r o u g h this the " w e l f a r e state" c o n t i n u e d to be tailored t o the interests o f n a t i o n a l l y based capitals, even w h e n rhe i m p e t u s for e x t e n d i n g its role c a m e f r o m b e l o w , as d u r i n g the Second W o r l d War, w h e n rhe British Tory p o l i t i c i a n Q u i n t i n H o g g f a m o u s l y del I a red, " i f y o u d o n o t give the people social r e f o r m , they are g o i n g to give y o u social r e v o l u t i o n " . 3 1 T h e British L a b o u r minister o f the 1940s A n e u r i n Bevan a r g u e d t h a t p u b l i c health measures h a d become part o f the system, " b u t they d o n o t f l o w f r o m it. In claiming t h e m c a p i t a l i s m p r o u d l y displays m e d a l s w o n in battles it has lost". 5 2 T h e fact, however, is t h a t those w h o f o r m u l a t e d t h e m — i n e l u d i n g B e v a n — d i d so in ways t h a t c o u l d fit in w i t h the needs o f the system. T h i s has i m p o r t a n t i m p l i c a t i o n s for the l a b o u r p o w e r t h a t goes into such services—and for the p e o p l e w h o s u p p l y it. There is a widespread

tendency

for

Marxists—as

well

as

some

non-

M a r x i s t s 3 ' — t o insist that such l a b o u r c a n n o t be p r o d u c t i v e since it does n o t p r o d u c e c o m m o d i t i e s directly. But that also a p p l i e s t o m u c h l a b o u r inside a n y capitalist enterprise, w h i c h is merely a prec o n d i t i o n f o r other l a b o u r t h a t p r o d u c e s the final p r o d u c t s . It is productive as part o f the l a b o u r o f rhe "collective w o r k e r " i 4 in the enterprise. A fully trained carpenter o r bricklayer c a n be m a n y tunes m o r e p r o d u c t i v e t h a n an unskilled o n e ; a fully trained toolmaker can d o jobs a n u n s k i l l e d l a b o u r e r is i n c a p a b l e of. T h e labour o f those w h o train t h e m is a d d i n g to the capacity o f the collective w o r k e r t o p r o d u c e value. A n d they are exploited, since they are p a i d the value o f their l a b o u r power, n o t o f the t r a i n i n g they M i to Spending and the System

135

p r o v i d e . There can be a d e b a t e over exactly h o w rhe skills a d d e d by their l a b o u r fir inro M a r x ' s categories: are they to be e q u a t e d w i t h p l a n t a n d e q u i p m e n t as a f o r m o f c o n s t a n t c a p i t a l or as s i m p l y e n h a n c e d labour power, as v a r i a b l e capital? 1 ' There are also debates between i n d i v i d u a l firms over the merits o f undertaking t r a i n i n g p r o g r a m m e s . They m a y g a i n i n rhe s h o r t t e r m , bur w h a t is to prevent other firms " p o a c h i n g " their skilled l a b o u r w i t h o u t ever h a v i n g paid for its training." 1 Finally, there are argum e n t s a b o u t h o w t o characterise the l a b o u r used to train other workers: is it " p r o d u c t i v e " o r "indirectly p r o d u c t i v e " ? But there s h o u l d be n o d o u b t a b o u t its role in increasing overall p o t e n t i a l o u t p u t a n d productivity: it is p a r t of the total p r o d u c t i v e l a b o u r o f the firm a n d o f the system as a whole. 1 " A big p o r t i o n o f rhe l a b o u r t h a t goes i n t o the e d u c a t i o n a l system plays a n identical role i n p r o v i d i n g t h e skills capital needs, a l t h o u g h in this case the skills are n o t a v a i l a b l e s i m p l y for individual capitalists, b u t for all the capitalists o p e r a t i n g f r o m w i r h i n the state that provides it. T h e t r a i n i n g in skills w h i c h future w o r k e r s get f r o m a teacher in an e d u c a t i o n a l institution adds to the a m o u n t o f socially necessary l a b o u r they can p r o d u c e in an h o u r in exactly the same w a y as the t r a i n i n g they m i g h t get inside an enterprise. A n d the cost o f rhe t r a i n i n g is part o f the cost o f p r o v i d i n g l a b o u r power, just as m u c h as the w a g e t h a t goes i n t o b u y i n g the f o o d , clothing

and

shelter the

workers

require.

Enterprises

under

m o d e r n c a p i t a l i s m require l a b o u r p o w e r w i t h at least m i n i m a l levels o f literacy a n d n u m e r a c y . T h e teachers w h o p r o v i d e this have ro be considered as parr o f rhe collective worker, ultimately w o r k i n g for the c o m p l e x o f n a t i o n a l l y based capitals that the state services. A p o l o g i s t s for c a p i t a l i s m recognise this i n a d v e r t e n t ! ) w h e n rhey refer t o the provision o f e d u c a t i o n as " a d d i n g t o social c a p i t a l " a n d d e m a n d " v a l u e a d d e d " in schools. T h e same general principle applies t o health services that cater for a c t u a l , p o t e n t i a l o r future w o r k e r s . S p e n d i n g o n k e e p i n g the w o r k f o r c e fit a n d able t o w o r k is in reality a part o f the w a g e even w h e n it is p a i d i n k i n d rather t h a n in cash a n d goes to the w o r k e r s collectively rather t h a n i n d i v i d u a l l y . In M a r x ' s t e r m i n o l o g y , it is parr o f " v a r i a b l e c a p i t a l " . This is absolutely clear in countries like the US w h e r e healthcare is p r o v i d e d for m o s t w o r k e r s t h r o u g h insurance schemes p r o v i d e d by their employers. It s h o u l d be just as clear i n c o u n t r i e s like Britain w h e r e the state p r o v i d e s t h e m o n b e h a l f o f rhe n a t i o n a l l y based capitals. T h e p o p u l a r l y used term 136

Understanding the System: Marx and Ik-yond

"social w a g e " is an accurate description. It is just as accurate w h e n ipplied t o u n e m p l o y m e n t benefits a v a i l a b l e o n l y to those w h o s h o w they are able a n d w i l l i n g to w o r k , a n d to pension schemes dependent o n a lifetime o f labour. T h e capitalist w a n t s contented workers t o e x p l o i t in the s a m e w a y t h a t a farmer w a n t s contented cows. W o r k e r s c a n n o t be expected t o l a b o u r w i t h a n y c o m m i t m e n t t o their w o r k unless there is s o m e sort o f p r o m i s e t h a t they will n o t starve t o death o n c e they reach retirement age. As M a r x put it, there is a historically a n d socially determined element t o rhe tost o f r e p r o d u c i n g l a b o u r p o w e r as well as a physiological one. But l a b o u r p o w e r is-not a n object like other

commodities,

which are passive as they are b o u g h t a n d sold. It is the living expression o f h u m a n beings. W h a t f r o m a capitalist p o i n t o f v i e w is " r e c u p e r a t i o n o f l a b o u r p o w e r " is for the w o r k e r the c h a n c e for relaxation, e n j o y m e n t a n d creativity. There is a struggle over rhe Social w a g e just as over the n o r m a l w a g e , even if b o t h are, t o a certain degree, necessary for c a p i t a l . The p r o b l e m is c o m p o u n d e d f r o m capital's p o i n t o f v i e w by the (act t h a t n o t all welfare provision is in a n y sense p r o d u c t i v e . A good p o r t i o n o f it is concerned solely w i t h m a i n t a i n i n g the existing relations o f e x p l o i t a t i o n . Studies o f the s c h o o l i n g o f w o r k i n g . lass c h i l d r e n in rhe 19th century e m p h a s i s e the degree to w h i c h w h a t w a s involved w a s n o t e d u c a t i o n in skills so m u c h as inculi ating i n t o t h e m discipline a n d respect for authority. , J i N o t until late in the 19th c e n t u r v d i d a c o n c e r n w i t h basic skills for the m

w o r k f o r c e begin to b e c o m e a central p r e o c c u p a t i o n for British • ipitalism facing foreign c o m p e t i t i o n . ' Today disciplines like economics a n d sociology are a b o u t t r y i n g t o reproduce b o u r g e o i s ideology, w h i l e others like a c c o u n t a n c y are concerned w i t h rhe unproductive redistribution o f surplus value a m o n g m e m b e r s o f the • apitalist class. If c a p i t a l has n o choice b u t to tolerate these u n p r o d u c t i v e "expenses o f

production",

there are o t h e r elements

in

welfare

1 x p e n d i t u r e it w o u l d love t o be able t o d o w i t h o u t a n d does its utmost ro m i n i m i s e . These g o t o those w h o are nor needed as labour p o w e r (the long-term u n e m p l o y e d w i t h o u t needed skills) • •I are i n c a p a b l e o f p r o v i d i n g it (the c h r o n i c sick a n d disabled). It li.is a s i m i l a r a t t i t u d e to p r o v i s i o n for the mass o f the elderly, b u t i restrained t o s o m e degree b y its need t o give the impression t o i in rently e m p l o y e d w o r k e r s t h a t their f u t u r e is assured. M a r x pointed o u r t h a t rhere exists, a l o n g s i d e the "reserve a r m y M i to Spending and the System

of 137

l a b o u r " , able to enter the active l a b o u r force w h e n the system undergoes periodic e x p a n s i o n ( a n d in the m e a n t i m e exercising a d o w n w a r d pressure o n wages), a s u r p l u s p o p u l a t i o n in w h o s e survival it has no real interest a p a r t f r o m t h a t o f w a r d i n g o f f rebellion a n d preventing a d e m o r a l i s i n g i m p a c t on the e m p l o y e d w o r k i n g class. T h e history of w e l f a r e legislation over the last 1 8 0 years h a s been a history of a t t e m p t s t o separate that p r o v i s i o n w h i c h is necessary for capital in the same w a y that wage p a y m e n t s are a n d t h a t w h i c h is unnecessary b u t forced o n it by its need to c o n t a i n popular discontent. This finds expression in repeated debates a m o n g those w h o w o u l d m a n a g e n a t i o n a l c a p i t a l i s m s over h o w welfare p o l i c y interacts w i t h l a b o u r m a r k e t policy, a m o n g

mainstream

e c o n o m i s t s a b o u t the " n a t u r a l " or " n o n - i n f l a t i o n a r y " level o f une m p l o y m e n t , and a m o n g sociologists a n d social w o r k theorists a b o u t the " u n d e r c l a s s " . T h e d i v i s i o n between social expenditures that are i n s o m e w a y p r o d u c t i v e for c a p i t a l a n d those t h a t are n o n - p r o d u c t i v e cuts across s o m e o f the n o r m a l ways o f d i v i d i n g u p n a t i o n a l budgets. So e d u c a t i o n is both t r a i n i n g for p r o d u c t i v e l a b o u r a n d also training for u n p r o d u c t i v e f o r m s o f l a b o u r (eg in sales p r o m o t i o n or finance) a n d

the i n c u l c a t i o n

of bourgeois ideological

H e a l t h services a n d u n e m p l o y m e n t benefits both

values.

keep the work-

force fit a n d ready t o p r o v i d e l a b o u r p o w e r and are m e c h a n i s m s for m a i n t a i n i n g social cohesion by p r o v i d i n g at least m i n i m a l provision for the o l d , the infirm a n d the long-term u n e m p l o y e d . These a m b i g u i t i e s become i m p o r t a n t whenever capital finds the costs o f state provision begin t o cut i n t o profit rates. A t such p o i n t s states c o m e u n d e r t h e s a m e pressure as d o b i g capitals w h e n faced w i t h s u d d e n c o m p e t i t i o n — t h e pressure to restructure a n d reorganise their o p e r a t i o n s so as t o a c c o r d w i t h the l a w o f value. O n the o n e side this m e a n s trying to i m p o s e w o r k m e a s u r e m e n t a n d p a y m e n t schemes o n welfare sector employees s i m i l a r to those w i t h i n the m o s t c o m p e t i t i v e i n d u s t r i a l firms. O n the other side it m e a n s cuts in welfare provision so as to restrict it as m u c h as possible t o servicing l a b o u r p o w e r t h a t is necessary for c a p i t a l a c c u m u l a t i o n — a n d d o i n g so i n such a w a y t h a t those w h o p r o v i d e this l a b o u r p o w e r are prepared ro d o so at the wages they are offered. These pressures g r o w as m a n a g i n g l a b o u r p o w e r

becomes

m o r e i m p o r t a n t for the stare. In the process, employees w o r k i n g 138

Understanding the System: Marx and Ik-yond

in the w e l f a r e , health a n d e d u c a t i o n a l sectors w h o c o u l d at o n e stage o f c a p i t a l i s t d e v e l o p m e n t regard themselves as part o f rhe professional m i d d l e c l a s s — w i t h salaries a n d c o n d i t i o n s c o m p a r a ble t o lawyers or a c c o u n t a n t s — f i n d

themselves subject t o a

t r a u m a t i c process o f p r o l e t a r i a n i s a t i o n . This, as we shall see. a d d s t o the p r o b l e m s t h a t beset n a t i o n a l capitalist states as they att e m p t t o c o p e w i t h s u d d e n crises. P u b l i c e x p e n d i t u r e s b e c o m e a central focus for class struggle in a w a y in w h i c h they were n o t i n Marx's time.

M i to Spending and the System

139

Understanding rhe System: M a r x and Beyond

Part T w o

CAPITALISM IN THE 20th CENTURY %

decline in o u t p u t , 2 and w o r l d t r a d e fell ro a third o f its 1929 level. By c o m p a r i s o n , both w o r l d o u t p u t a n d w o r l d trade h a d g r o w n d u r i n g the previous " G r e a t D e p r e s s i o n " o f the 1870s a n d 1880s. '

T h e 1920s b o o m T h e ideological shock o f the crisis was increased by the w a y capitalism h a d seemed to have recovered in the preceding years from rhe destruction o f the First W o r l d War: I n d u s t r i a l o u t p u t in the US h a d d o u b l e d f r o m 1914 t o 1929. w i t h the emergence ot a h o s t of n e w industries t h a t began t o r e v o l u t i o n i s e p a t t e r n s o f c o n s u m p t i o n — r a d i o , r a y o n , chemicals, a v i a t i o n , refrigeration, a n d

the

replacement o f horse-borne by motorised t r a n s p o r t . T h e b o o m in the US h a d a beneficial i m p a c t in E u r o p e . G e r m a n y , r a c k e d by civil w a r in 1919-20 a n d then unparalleled i n f l a t i o n in 1923, h a d then seen i n d u s t r i a l o u t p u t g r o w 4 0 percent a b o v e its 1 9 1 4 level. In France i n d u s t r i a l p r o d u c t i o n h a d d o u b l e d . The press h a d displayed a n u n b o u n d e d o p t i m i s m a b o u t c a p i t a l i s m , p r o c l a i m i n g a " n e w e r a " o f endless prosperity. M a i n s t r e a m e c o n o m i s t s h a d been just as c o n f i d e n t . A l v i n H a n s e n w r o t e t h a t the " c h i l d h o o d diseases"

o f capitalism's

youth

were

"being

mitigated",

while

America's m o s t e m i n e n t neoclassical e c o n o m i s t , Irving Fisher, h a d stated o n the eve o f rhe W a l l Street C r a s h t h a t " s t o c k prices have reached w h a t l o o k s like a p e r m a n e n t l y high p l a t e a u " , and continued t o e x u d e o p t i m i s m for s o m e m o n t h s after, w h i l e in Britain J o h n M a y n a r d Keynes h a d assured his students, " T h e r e will be n o further crash in o u r l i f e t i m e " / Social d e m o c r a t M a r x i s t s joined in the c h o r u s , w i t h H i l f e r d i n g s theory o f " o r g a n i s e d c a p i t a l i s m " , as a system in w h i c h rhe a n a r c h y o f the m a r k e t a n d the trend t o w a r d s crisis h a d d i s a p p e a r e d / S u d d e n l y they were all p r o v e d w r o n g . T h e initial reaction o f m a i n s t r e a m politicians a n d their fellow travellers in the economics profession w a s t o assume t h a t they o n l y had t o wait a short t i m e a n d the s l u m p w o u l d begin ro correct itself. " R e c o v e r y is just a r o u n d the corner," as US president H e r b e r t H o o v e r assured people. But recovery d i d n o t c o m e i n 1930, 1931 or 1932. A n d rhe e c o n o m i c o r t h o d o x y w h i c h h a d been so confident in its praise o f the w o n d e r s o f capitalism so recently c o u l d n o t explain w h y — a n d it still c a n n o t explain w h y today. There h a v e been a t t e m p t s at e x p l a n a t i o n . T h e m o s t c o m m o n a m o n g the m o s t o r t h o d o x at the t i m e was that articulated by the 144

Capitalism in the 20th Century

I nglish e c o n o m i s t P i g o u . W o r k e r s , a c c o r d i n g to his a r g u m e n t , had priced themselves o u t o f their jobs by n o t accepting cuts i n their m o n e y wages. H a d they d o n e so, the m a g i c o f s u p p l y a n d d e m a n d w o u l d have solved all the p r o b l e m s . Irving Fisher belatedly p u t forward a monetarist

i n t e r p r e t a t i o n , a r g u i n g t h a t the

money

supply w a s t o o l o w , l e a d i n g t o falling prices a n d so c u m u l a t i v e l y increasing d e b t levels. M o r e recent m o n e t a r i s t theorists p u t the b l a m e o n the b e h a v i o u r o f the central bankers. If only, the argum e n t w e n t , the U S Federal Reserve Bank h a d acted t o s t o p the m o n e y s u p p l y c o n t r a c t i n g in

1930 a n d

1931, then everything

w o u l d h a v e b e e n all r i g h t — t h e arch m o n e t a r i s t o f the post-war decades, M i l t o n F r i e d m a n , traced its mistakes a n d the depth o f the s l u m p back t o the d e a t h o f N e w Y o r k Reserve Bank president B e n j a m i n S t r o n g in O c t o b e r I layek a n d the

1928." By contrast Friedrich v o n

A u s t r i a n " school argued that excessive credit in

the 1920s h a d led to " a n i m b a l a n c e in rhe structure o f production",' 1 w h i c h w o u l d be m a d e w o r s e by increasing the m o n e y supply. Still o t h e r e c o n o m i s t s b l a m e d the d i s l o c a t i o n o f rhe w o r l d e c o n o m y in the a f t e r m a t h o f t h e First W o r l d W a r , w h i l e J o h n M a v n a r d Keynes stressed a n excess o f s a v i n g over investment t h a t led t o a lack o f "effective d e m a n d " f o r the e c o n o m y ' s o u t p u t . Finally, there w a s the c l a i m , still perpetuated i n m u c h m e d i a comm e n t a r y today, that the raising o f US tariffs by the S m o o t - H a w l e y Act in the s u m m e r o f 1930 unleashed a w a v e o f protectionism preventing a recovery t h a t w o u l d o t h e r w i s e have occurred if free trade h a d been a l l o w e d u n t r a m m e l l e d sway. Ever since then rhe p r o p o n e n t s o f each view have f o u n d it easy to tear holes in the a r g u m e n t s o f those h o l d i n g the other views, w i t h n o n e being able t o survive serious criticism. Thar is w h y the c u r r e n t Federal Reserve h e a d , Ben B e r n a n k e , sees e x p l a i n i n g the s l u m p as the ever illusive H o l y G r a i l o f his profession. Yet if the s l u m p o f the 1930s c a n n o t be u n d e r s t o o d , neither can the chances o f it recurring in the 21 st c e n t u r y be seriously assessed. D i s e n t a n g l i n g the real causes o f the s l u m p f r o m this m i s h m a s h of c o n t r a d i c t o r y a r g u m e n t involves, first of all, l o o k i n g at w h a t really h a p p e n e d d u r i n g the 1920s. R a p i d e c o n o m i c g r o w t h a n d the proliferation o f n e w c o n s u m e r g o o d s h a d encouraged people to sec this as a decade o f c o n t i n u a l rises in l i v i n g standards a n d e n o r m o u s p r o d u c t i v e i n v e s t m e n t — a story t h a t is still frequently accepted today. But in fact wages rose by a total o f o n l y 6.1 percent between 1922 a n d 1929 ' ( w i t h n o The Great Slump

14S

< HAPTF.R SIX

The great slump

A n u n p r e c e d e n t e d crisis I he deepest s l u m p c a p i t a l i s m h a d ever k n o w n f o l l o w e d by the most s u s t a i n e d

b o o m , interspersed w i t h the b l o o d i e s t w a r

in

h u m a n l^story. Such w a s the course o f c a p i t a l i s m in the m i d d l e 5 0 years o f the t w e n t i e t h century. The e p i c e n t r e o f the s l u m p w a s the U n i t e d States, w h i c h h a d e m e r g e d f r o m t h e First W o r l d

W a r as the greatest

economic

power, w i t h 5 0 percent o f g l o b a l i n d u s t r i a l p r o d u c t i o n , overtaking b o t h v i c t o r i o u s B r i t a i n a n d d e f e a t e d G e r m a n y . T h e o n s e t is o f t e n i d e n t i f i e d w i t h the W a l l Street C r a s h o f 2 9 O c t o b e r 1 9 2 9 , w h e n t h e N e w Y o r k stock e x c h a n g e fell by a l m o s t a t h i r d . B u t " b u s i n e s s w a s a l r e a d y in t r o u b l e before the c r a s h " , w i t h a u t o output d o w n

1929.'

by a t h i r d in S e p t e m b e r c o m p a r e d w i t h

March

O v e r the n e x t three years US i n d u s t r i a l p r o d u c t i o n fell by

a b o u t h a l f , a n d the s l u m p s p r e a d across the A t l a n t i c t o E u r o p e , w here there were a l r e a d y i n c i p i e n t signs o f crisis. G e r m a n industrial p r o d u c t i o n a l s o fell a b o u t h a l f a n d , w i t h a slight delay, I rench fell by nearly 3 0 percent. O n l y B r i t a i n s a w a s m a l l e r f a l l — ot a b o u t 2 0 p e r c e n t — b u t t h a t w a s because its h e a v y i n d u s t r i e s were a l r e a d y in a depressed c o n d i t i o n . By 1 9 3 2 a third o f the w o r k f o r c e in the US a n d G e r m a n y were u n e m p l o y e d a n d a fifth in B r i t a i n . T h o s e h i t were n o t o n l y m a n u a l w o r k e r s as in p r e v i o u s crises, b u t w h i t e c o l l a r e m p l o y e e s

who

t h o u g h t o f themselves as b e l o n g i n g t o the m i d d l e class. H u n d r e d s of local b a n k s w e n t bust in rhe US a n d s o m e g i a n t b a n k s in E u r o p e collapsed spectacularly, d e s t r o y i n g people's savings a n d aggravating the general sense o f disaster. H i t t i n g all i n d u s t r i a l c o u n t r i e s at once, the crisis destroyed the d e m a n d for the o u t p u t o f a g r i c u l t u r a l c o u n t r i e s , d r i v i n g d o w n the prices f a r m e r s received a n d c r e a t i n g vast p o o l s o f misery. N o region o f the g l o b e a v o i d e d a t least s o m e

143

increase after 1925) a n d the m a n u f a c t u r i n g w o r k f o r c e r e m a i n e d static w h i l e industrial p r o d u c t i o n e x p a n d e d by a b o u t a t h i r d . M i c h a e l Bernstein notes t h a t " t h e l o w e r 9 3 percent o f the nonfarm p o p u l a t i o n saw their per capita disposable i n c o m e fall d u r i n g the b o o m o f the late 1920s"." 0 T h e fall in labour's share o f total income m e a n t t h a t the p r o p o r t i o n o f n a t i o n a l o u t p u t that c o u l d be b o u g h t w i t h wages fell. T h e e c o n o m y c o u l d o n l y keep e x p a n d i n g because s o m e t h i n g else filled the resulting g a p in d e m a n d . M a n y analyses have a r g u e d that investment fulfilled this role. G o r d o n tells h o w m u c h recent literature sees " t h a t rhe m o s t notable aspect o f the 1920s w a s o v e r i n v e s t m e n t " . " A chastened H a n s e n noted in his analysis o f the s l u m p t h a t , a l t h o u g h a "vast sum of $ 1 3 8 , 0 0 0 , 0 0 0 , 0 0 0 " of "investment" had "led consumpt i o n " d u r i n g the 1920s, o n l y half o f t h a t w a s business investment, a n d o f that o n l y a third w a s new investment, ic a mere $ 3 billion a year. 1J In other w o r d s , beneath the a p p e a r a n c e o f rapidly expanding investment, the reality w a s a relatively l o w level o f p r o d u c t i v e a c c u m u l a t i o n despite rhe i m p e t u s p r o v i d e d by rhe n e w industries. O t h e r analyses, by S i m o n K u s z n e t s , n Steindl, 14 a n d G i l l m a n , " bear this o u t . O n l y o n e , stark, c o n c l u s i o n can be d r a w n f r o m such

figures.

T h e b o o m c o u l d n o t have t a k e n place if it h a d o n l y d e p e n d e d o n the d e m a n d

for g o o d s created by p r o d u c t i v e i n v e s t m e n t

and

wages. A third element h a d ro be present t o prevent rhe p i l i n g u p o f unsold g o o d s a n d recession in the mid-1920s. As H a n s e n recognised,

"Stimulating

and

sustaining

forces

outside

business

investment a n d c o n s u m p t i o n were p r e s e n t . . . w i t h these s t i m u l i rem o v e d , business e x p e n d i t u r e s w o u l d h a v e been m a d e o n a m o r e restrictive scale, leaving the e c o n o m y s t a g n a n t if n o t depressed".'" H a n s e n , as a m a i n s t r e a m e c o n o m i s t , even if by n o w a critical o n e , saw these forces as being "non-business capital expenditures (residential b u i l d i n g a n d p u b l i c c o n s t r u c t i o n ) " a n d " the g r o w i n g i m p o r t a n c e o f d u r a b l e c o n s u m e r g o o d s financed in large part by a billion d o l l a r per year g r o w t h o f i n s t a l m e n t c r e d i t " a n d " r a t h e r feckless foreign lending". 1 T A classic M a r x i s t analysis o f the s l u m p by L e w i s C o r e y puts the stress o n the g r o w t h o f l u x u r y c o n s u m p t i o n , u n p r o d u c t i v e expenditures a n d credit. The 1920s were a decade in w h i c h incomes f r o m dividends a n d managerial salaries rose several times faster t h a n real wages, 1 ' until " t h e b o u r g e o i s i e " ( i n c l u d i n g rhe non-farm petty bourgeoisie) were responsible for over 4 0 percent o f c o n s u m p t i o n , 144

Capitalism in the 20th Century

iccording t o h i m . 1 9 T h e n there w a s g r o w i n g e x p e n d i t u r e o n advertising a n d sales drives as firms s o u g h t m a r k e t s for the g r o w i n g n u m b e r o f g o o d s they were t u r n i n g o u t — t h i s e x p e n d i t u r e , in the l o r m o f i n c o m e s for sales p e r s o n n e l in these same industries, c o u l d i hen create a m a r k e t for s o m e o f the g o o d s businesses were t r y i n g to sell. A d o u b l i n g o f c o n s u m e r c r e d i t ^ e n a b l e d rhe m i d d l e class a n d s o m e layers o f w o r k e r s t o b u y " o n the never never" s o m e o f ihe n e w range o f c o n s u m e r g o o d s , w i t h car sales ar a level in 1 9 2 9 they were nor t o reach a g a i n u n t i l 1953. A n d finally there were upsurges o f n o n - p r o d u c t i v e speculative i n v e s t m e n t in real estate a n d the stock m a r k e t . Such t h i n g s c o u l d n o t create fresh n e w surplus value ro solve rhe p r o b l e m o f p r o f i t a b i l i t y (they merely involved funds passing f r o m o n e capitalist p o c k e t t o a n o t h e r ) . But their byp r o d u c t w a s u n p r o d u c t i v e e x p e n d i t u r e in n e w b u i l d i n g ,

new

m a n a g e r i a l salaries a n d c o n s p i c u o u s c o n s u m p t i o n , all o f w h i c h .ibsorbed s o m e o f the g o o d s being p o u r e d o u r by industry, encouraging further speculation: S u p e r a b u n d a n t c a p i t a l b e c a m e m o r e a n d m o r e aggressive a n d a d v e n t u r o u s in its search for investment a n d profit, o v e r f l o w i n g i n t o risky enterprises a n d s p e c u l a t i o n . S p e c u l a t i o n seized u p o n technical changes a n d n e w industries w h i c h were i n t r o d u c e d regardless o f the r e q u i r e m e n t s o f industry as a w h o l e . . . 2 1 S p e n d i n g o n n e w non-residential c o n s t r u c t i o n rose by m o r e t h a n half over rhe decade, a n d w a s " m o s t intense in the central business districts o f cities". T h i s wras most n o t a b l e in N e w Y o r k , w h e r e w o r k o n the w o r l d ' s tallest b u i l d i n g , the E m p i r e State B u i l d i n g , began in 1 9 2 9 — o n l y for it to be k n o w n by 1931 as " t h e E m p t y State B u i l d i n g " . 2 2 W h i l e the US b o o m e d , there w a s also a b o o s t t o e c o n o m i c exp a n s i o n in E u r o p e w i t h a n i n f l o w o f A m e r i c a n f u n d s t h a t c o u l d m a k e u p for s o m e o f the destruction caused by the w a r — t h e i m p a c t o f the US D a w e s p l a n o f 1924 w a s particularly i m p o r t a n t in e n c o u r a g i n g loans to G e r m a n y . These factors were already losing their capacity t o sustain the b o o m in industry before rhe W a l l Street C r a s h . There w a s the beg i n n i n g o f a recession in 1927, but a brief upsurge o f investment in heavy industry a n d a u t o s in 1928-9 pulled the rest o f the e c o n o m y f o r w a r d . 2 . T h e n , in the late spring a n d early s u m m e r o f 1929, this c a m e t o a s u d d e n e n d , w i t h a sharp fall in fixed investment 2 4 a n d The Great Slump

14S

a u t o p r o d u c t i o n / The e x p a n s i o n o f credit a n d rhe scale o f specul a t i o n that sustained u n p r o d u c t i v e e x p e n d i t u r e s h a d h i d d e n the u n d e r l y i n g problems right u p t o the last m i n u t e . But o n c e there w a s a single tiny break in the c h a i n o f b o r r o w i n g a n d l e n d i n g that held it u p , the whole edifice w a s b o u n d to c o m e t u m b l i n g d o w n . M a r x ' s c o m m e n t on crises c o u l d n o t have been m o r e apposite: T h e s e m b l a n c e of a very solvent business w i t h a s m o o t h flow o f returns c a n easily persist even l o n g after returns actually c o m e in o n l y at the expense partly o f s w i n d l e d money-lenders a n d p a r t l y o f s w i n d l e d p r o d u c e r s . T h u s business a l w a y s appears a l m o s t excessively s o u n d r i g h t o n the eve o f a crash. Business is always t h o r o u g h l y s o u n d until s u d d e n l y the debacle takes place. 2 " T h e recession precipitated a sudden c o n t r a c t i o n o f speculative ventures a n d u n p r o d u c t i v e expenditures, so reducing still further the m a r k e t for industrial o u t p u t . Faced w i t h d e c l i n i n g sales, industrialists were already b e g i n n i n g t o b o r r o w f r o m rhe b a n k s , rather t h a n lend t o t h e m . Those w h o h a d engaged in the speculative boom

( i n c l u d i n g both industrialists a n d

banks) n o w

tried

ro

b o r r o w m o r e in order ro cover rheir losses after the crash, b u t borr o w i n g w a s n o w very difficult. Those w h o c o u l d n o t b o r r o w went bust, creating further losses for those w h o h a d lent t o t h e m . T h e s l u m p spread f r o m one sector o f the e c o n o m y t o another. O n c e the decline started there seemed n o end to it. Industrial decline led t o pressure o n

rhe b a n k s , w h i c h

in t u r n

deepened

industrial decline a n d pur m o r e pressure o n the b a n k s . Bur t h a t o n l y further exacerbated the d i s p r o p o r t i o n between p r o d u c t i v e capacity a n d c o n s u m e r d e m a n d , further w o r s e n i n g the crisis in industry. As firms tried t o sustain sales by c o m p e t i t i v e price cutring, profits everywhere fell a n d w i t h t h e m the willingness even of firms

that survived t o invest. T h e n o n - p r o d u c t i v e e x p e n d i t u r e s

that h e l p e d to fuel the b o o m were cut right back as c o m p a n i e s tried to conserve their f u n d s a n d the s l u m p grew deeper. T h e p o s i t i o n in E u r o p e w a s n o better, w i t h recession also already u n d e r w a y w h e n W a l l Street c r a s h e d . C o n d i t i o n s

were

w o r s t in G e r m a n y , t h e w o r l d s second biggest i n d u s t r i a l economy,

which

began

experiencing

an

economic

downturn

in

1 928:2~ " B y the s u m m e r o f 1929 the existence o f depression w a s u n m i s t a k a b l e " , 2 * as u n e m p l o y m e n t reached 1.9 m i l l i o n a n d the 144

Capitalism in the 20th Century

spectacular failure o f the F r a n k f u r t I n s u r a n c e C o m p a n y b e g a n a series o f b a n k r u p t c i e s . Problems in each c o u n t r y i m p a c t e d o n those i n others. There had already been a n o u t f l o w f r o m G e r m a n y o f s o m e o f the A m e r i c a n f u n d s associated w i t h the D a w e s plan before the C r a s h . It n o w became a torrent as hard-hit A m e r i c a n institutions recalled their short-term l o a n s f r o m G e r m a n y , creating difficulties ( i e r m a n industrialists w h o h a d been relying o n t h e m t o

for

finance

their o w n i n d u s t r i a l overcapacity. Austria's biggest b a n k , the ( reditanstalt, w e n t bust in M a y 1931. Britain w a s hit by the withd r a w a l o f foreign funds-from its b a n k s , a n d b r o k e w i t h the w o r l d financial

system based o n the g o l d s t a n d a r d . T h i s in turn created

vastly exaggerated fears i n the U S w h e r e the Federal Reserve B a n k laised interest rates, a n d there w a s " a spectacular increase in b a n k failures" 2 * a n d industrial p r o d u c t i o n s l u m p e d even more. The proliferating i m p a c t o f the crisis m a d e it easy for people t o confuse effects w i t h causes. H e n c e the c o n t r a d i c t o r y interpretations f r o m m a i n s t r e a m e c o n o m i s t s , w i t h s o m e b l a m i n g t o o m u c h money, some t o o little; s o m e central b a n k interventions, s o m e lack of i n t e r v e n t i o n ; s o m e excessive c o n s u m p t i o n , s o m e t o o little cons u m p t i o n ; s o m e the g o l d s t a n d a r d , s o m e the t u r n o f states to protectionism a n d c o m p e t i t i v e currency d e v a l u a t i o n ; s o m e the rapidity o f the g r o w t h o f i n v e s t m e n t , s o m e its tardiness; s o m e the torcing d o w n o f wages, s o m e their "stickiness" in falling; some the scale o f indebtedness, s o m e the refusal o f the b a n k s t o lend. i r Yet a m i d s t rhe c o n t r a d i c t o r y interpretations there w a s an occasional p a r t i a l g l i m p s e t h a t s o m e t h i n g f u n d a m e n t a l w a s c a u s i n g havoc to the system t o w h i c h all the m a i n s t r e a m e c o n o m i s t s a n d /

politicians were c o m m i t t e d . T h e t w o economists usually t h o u g h t as representing p o l a r o p p o s i t e attitudes, Keynes a n d H a y e k , b o t h s t u m b l e d o n rhe s a m e f a c t o r b u t in such a w a y that neither they nor their apostles t o o k it seriously. T h e m a i n t h e m e r u n n i n g t h r o u g h Keynes's General Employment,

Interest

ami Money

Theory

of

w a s t h a t saving c a n exceed in-

vestment, o p e n i n g u p a g a p rhar reduced the effective d e m a n d for g o o d s , a n d therefore o u t p u t , u n t i l the reduced level o f e c o n o m i c activity h a d cut saving d o w n t o the level o f investment. T h i s c o u l d be o v e r c o m e , he a r g u e d , b y c u t t i n g the rate o f interest ( " m o n e t a r y m e a s u r e s " ) a n d p u t t i n g m o r e m o n e y in people's pockets b y tax cuts a n d increased g o v e r n m e n t s p e n d i n g ("fiscal m e a s u r e s " ) . But he recognised that these measures m i g h t n o t w o r k , since people The Great Slump

14S

a n d firms m i g h t still decide t o save r a t h e r t h a n s p e n d . In particular he w a s

" s o m e w h a t sceptical o f the success o f a

merely

m o n e t a r y p o l i c y directed t o w a r d s i n f l u e n c i n g t h e rate o f inter est". 1 1

He

is

best k n o w n

for

explaining

the

weakness

of

investment o n the crowd psychology o f s p e c u l a t o r s — " w h e n the c a p i t a l d e v e l o p m e n t of a c o u n t r y becomes a by-product o f the activities o f a c a s i n o , rhe j o b is likely t o be ill d o n e "

52

— a n d the

f l a g g i n g " a n i m a l spirits" o f entrepreneurs.'" But at p o i n t s in the text he t h r e w in another factor. H e a r g u e d t h a t the very process o f e x p a n d i n g c a p i t a l i n v e s t m e n t led to a decline in the return o n i t — i n " t h e m a r g i n a l e f f i c i e n c y " — a n d therefore t o a b l u n t i n g ot the s p u r to further investment. 3 4 H e believed the declining " m a r g i n a l efficiency o f c a p i t a l " t o b e a n e m p i r i c a l fact which c o u l d be f o u n d , for instance, in the interw a r " e x p e r i e n c e o f Great Britain a n d the United States". T h e result w a s t h a t the return o n capital w a s n o t sufficiently a b o v e the cost to the entrepreneurs o f b o r r o w i n g as t o e n c o u r a g e n e w investment, so t e n d i n g " t o i n t e r f e r e . . . w i t h a reasonable level o f e m p l o y m e n t a n d w i t h the s t a n d a r d o f life w h i c h the technical cond i t i o n s o f p r o d u c t i o n are c a p a b l e o f f u r n i s h i n g " . 3 ' T h i s he sees as both a long-term trend a n d a short-term effect t u r n i n g the b o o m into a s l u m p in each cycle: the essence o f the situation is t o be f o u n d in the collapse o f the m a r g i n a l efficiency o f c a p i t a l , p a r t i c u l a r l y . . . o f those types o f capital w h i c h have been c o n t r i b u t i n g m o s t ro the previous phase o f heavy new i n v e s t m e n t . Keynes's e x p l a n a t i o n for this w a s g r o u n d e d in his overall " m a r g i n a l i s t " a p p r o a c h , w i t h its acceptance t h a t v a l u e d e p e n d e d o n s u p p l y a n d d e m a n d . As rhe s u p p l y o f c a p i t a l increased it w o u l d g r o w less scarce, a n d the v a l u e t o rhe user o f each extra unit w o u l d fall u n t i l , eventually, it reached zero.

T h i s theoretical r e a s o n i n g

seems t o h a v e been t o o o b s c u r e for m o s t o f Keynes's followers. T h e " d e c l i n i n g m a r g i n a l efficiency o f c a p i t a l " h a r d l y a p p e a r s in m o s t a c c o u n t s o f his ideas. Yet it is the m o s t radical single n o t i o n in his writings. It implies t h a t the obstacles to full e m p l o y m e n t lie w i t h an i n b u i l t tendency o f the existing system a n d n o t just w i t h the psychology o f capitalists. If that is so, there w o u l d seem to be n o p o i n t in g o v e r n m e n t s s i m p l y seeking t o "restore c o n f i d e n c e " , since rhere is n o t h i n g t o restore confidence in. 144

Capitalism in the 20th Century

H a y e k expressed in passing the s a m e view o f w h a t was happening t o profits, a l t h o u g h f r o m a different reasoning. H e c l a i m e d ihat cyclical crises resulted f r o m d i s p r o p o r t i o n s between different sectors o f p r o d u c t i o n — w i t h "excessive c r e d i t " c a u s i n g the o u t p u t i»l p r o d u c e r g o o d s t o g r o w t o o r a p i d l y in the r e l a t i o n s h i p to the output o f c o n s u m e r goods. 3 8 In this w a y , he believed, he c o u l d explain the cycle as an inevitable m e a n s by w h i c h the different sectors adjusted t o each other, m u c h as M a r x saw the crises as able partially to resolve internal c o n t r a d i c t i o n s in c a p i t a l i s m — b u t w h a t M a r x viewed negatively H a y e k viewed positively. H i s theory still, however, h a d a b i g hole iq it. W h y s h o u l d the lag between the seclors cause so m u c h greater p r o b l e m s t h a n in previous decades? W h y , in particular, s h o u l d the p r o d u c t i o n g o o d s sector n o t keep g r o w i n g fast e n o u g h t o pull the rest o f the e c o n o m y b e h i n d it? T h e mswer he put f o r w a r d in passing in 1935 ( a n d w h i c h never m a d e it into the H a y e k i a n o r t h o d o x y ) w a s that profitability fell w i t h the e x p a n s i o n o f w h a t he called " r o u n d a b o u t processes o f product i o n ' ' — t h a t is processes w i t h a high ratio o f m e a n s o f p r o d u c t i o n 10 workers, or as M a r x w o u l d have p u t it, a high o r g a n i c c o m p o sition o f capital: T h a t [profit] m a r g i n s m u s t exist is o b v i o u s . . . i f it were n o t so, there w o u l d exist n o i n d u c e m e n t to risk m o n e y by investing it in p r o d u c t i o n rather t h a n t o let it r e m a i n i d l e . . . These m a r g i n s m u s t g r o w smaller as the r o u n d a b o u t processes o f p r o d u c t i o n increase in l e n g t h . . . 3 9 In o t h e r w o r d s , b o t h Keynes a n d H a y e k recognised, t h o u g h they c o u l d n o t clearly e x p l a i n , the feature w h i c h is central t o M a r x ' s theory o f c a p i t a l i s t c r i s i s — t h e d o w n w a r d pressures o n the rate of profit. In fact, M a r x i s t theory c a n p r o v i d e a n e x p l a n a t i o n o f the s l u m p w h i c h a v o i d s the c o n t r a d i c t i o n s o f all the m a i n s t r e a m theories. Profit rates in the US h a d fallen a b o u t 4 0 percent between the 1880s a n d the early 1920s, 4 " those in Britain were already in decline before 1914"1' a n d those in G e r m a n y h a d failed ''to return t o their pre-war ' n o r m a l ' level". 42 Such declines c o u l d be traced back to long-term rises in the ratio o f investment t o rhe e m p l o y e d workforce (the " o r g a n i c c o m p o s i t i o n o f c a p i t a l " ) , a b o u t 2 0 percent in the case o f the U S . A m e r i c a n profitability w a s able to m a k e a small recovery t h r o u g h the 1920s o n the basis o f a rise in rhe rate The Great Slump

14S

o f e x p l o i t a t i o n . But the rise w a s n o t sufficient to i n d u c e productive investment o n the scale necessary to a b s o r b the surplus value a c c u m u l a t e d f r o m previous r o u n d s o f p r o d u c t i o n a n d exploitation.

F i r m s were torn

between

the c o m p e t i t i v e

pressures

to

u n d e r t a k e investment in massive n e w c o m p l e x e s o f p l a n t a n d e q u i p m e n t (the F o r d River R o u g e p l a n t , c o m p l e t e d in 1928, was the largest in t h e w o r l d ) , a n d the fear t h a t a n y n e w e q u i p m e n t w o u l d n o t be profitable. S o m e w o u l d take the risk, b u t m a n y did n o t . This m e a n t t h a t the b i g n e w plants t h a t c a m e i n t o o p e r a t i o n t o w a r d s the e n d o f the b o o m necessarily p r o d u c e d o n t o o big a scale for the m a r k e t , flooding it w i t h p r o d u c t s w h i c h u n d e r c u t the prices a n d profits o f old p l a n t s . N e w investment c a m e t o a h a l t , l e a d i n g t o a fall i n e m p l o y m e n t a n d c o n s u m p t i o n that worsened the crisis. T h e b l i n d self-expansion o f c a p i t a l h a d led ro a n ever greater a c c u m u l a t i o n of constant capital compared with living labour. T h i s expressed itself on the o n e side by a rate o f p r o f i t considera b l y l o w e r t h a n a quarter o f a century before a n d o n the o t h e r by e m p l o y e r s h o l d i n g back w a g e s a n d so d i m i n i s h i n g the share of output

that could

be a b s o r b e d

by

workers'

buying

power.

" O v e r p r o d u c t i o n " a n d the l o w rate o f p r o f i t were aspects o f the s a m e process t h a t w o u l d e v e n t u a l l y lead t o the s l u m p . A n upsurge o f u n p r o d u c t i v e e x p e n d i t u r e s a n d credit c o u l d

postpone

this, bur d o n o m o r e . T h e stage w a s set for a deep c r i s i s — a n d ir o n l y r e q u i r e d scares in t h e stock e x c h a n g e a n d the f i n a n c i a l sectors for it t o occur. T h e crisis in these respects w a s very s i m i l a r to those described by M a r x i n passages w h e r e h e analysed the crises o f 1846 a n d 1 8 5 7 in Britain. 4 4 It also fits w i t h G r o s s m a n ' s i n t e r p r e t a t i o n of M a r x ' s a c c o u n t , w i t h its stress o n the w a y in w h i c h

firms

arc

pushed t o u n d e r t a k e new investments t h a t threaten t o m a k e the already l o w rate o f profit d r o p t o such a n extent that m u c h o f the n e w investment becomes u n p r o f i t a b l e so as ro cause all investment t o freeze up. 4 ' Bur there r e m a i n s s o m e t h i n g else t h a t h a s t o be e x p l a i n e d — w h y the a u t o m a t i c m a r k e t m e c h a n i s m s w h i c h h a d a l w a y s in the past been c a p a b l e , u l t i m a t e l y , o f lifting the e c o n o m y o u t o f crisis n o l o n g e r seemed t o be w o r k i n g . T h r e e years after t h e crisis s t a r t e d , i n d u s t r i a l p r o d u c t i o n in rhe U S , G e r m a n y , B r i t a i n a n d France w a s still d e c l i n i n g . T o e x p l a i n this it is n o t e n o u g h just t o l o o k at rhe t e n d e n c y o f the r a t e o f p r o f i t t o fall. T h e o t h e r 152

Capitalism in the 20rh C c n t u n

long-term t r e n d i n M a r x ' s a c c o u n t — r h e c o n c e n t r a t i o n a n d cenn a l i s a t i o n o f c a p i t a l as t h e system a g e d — a l s o played a role, as was suggested i n C h a p t e r T h r e e . At first it delayed the o u t b r e a k o f the crisis. T h e Bolshevik economist P r e o b r a z h e n s k y , a t t e m p t i n g t o analyse the crisis in 1 9 3 1 , argued t h a t there h a d been a b i g c h a n g e since M a r x ' s time. T h e n recessions h a d led t o the e l i m i n a t i o n o f inefficient firms a n d allowed the rest ro enter i n t o n e w r o u n d s o f a c c u m u l a t i o n . Bur n o w ihe system w a s d o m i n a t e d by big n e a r - m o n o p o l i e s w h i c h were able t o prevent the l i q u i d a t i o n o f their inefficient plants. T h e y w o u l d d o their u t m o s t ro-keep their o p e r a t i o n s intact, even if it meant their p l a n t s o p e r a t i n g at o n l y a f r a c t i o n o f their usual capacity a n d c u t t i n g i n v e s t m e n t t o the m i n i m u m . This p r o d u c e s a " t h r o m b o s i s in tjic t r a n s i t i o n f r o m crisis to recession" a n d prev e n t s — o r at least d e l a y s — t h e

restructuring necessary

for

an

emergence f r o m the crisis: " M o n o p o l y emerges as a factor o f decay in the entire e c o n o m y . Its effects delay the t r a n s i t i o n to expanded r e p r o d u c t i o n " . 4 6 O n c e the crisis e r u p t e d , the sheer size o f i n d i v i d u a l industrial or financial c a p i t a l s w a s such t h a t the collapse o f a n y o n e o f t h e m threatened t o d r a g others d o w n w i t h it. T h e b a n k s w o u l d lose the m o n e y they h a d lent it, a n d so cut o f f credit t o other firms. Its suppliers w o u l d be driven o u t o f business a n d so d a m a g e other

firms

dependent o n t h e m . A n d the end to its s p e n d i n g o n investment a n d wage bills w o u l d reduce d e m a n d i n the e c o n o m y as a w h o l e . T h e delayed crisis was n o w a m u c h m a g n i f i e d o n e , w h i c h c o u l d nor aut o m a t i c a l l y resolve itself. T h e response o f the big capitals w a s t o turn t o rhe state for " b a i l - o u t s " t o keep the system g o i n g .

I he turn to state capitalism At first g o v e r n m e n t s c o n t i n u e d to place their hopes in the u n t r a m melled o p e r a t i o n o f the m a r k e t m e c h a n i s m , w i t h o n l y l i m i t e d actions t o protect s o m e b a n k s . Bur rhe crisis c o n t i n u e d to get worse, p a r t i c u l a r l y in the US a n d G e r m a n y . K n o r m o u s d a m a g e was b e i n g d o n e t o c a p i t a l itself as it tried t o operate w i t h little more t h a n h a l f its previous p r o d u c t i o n levels. A t the s a m e t i m e desperation w a s l e a d i n g the mass o f p e o p l e t o l o o k t o remedies that m i g h r turn the w h o l e o f society over. M a j o r sections o f capital began t o l o o k for a n a p p r o a c h t h a t m i g h t solve their p r o b l e m s , t he Great Slump

153

h o w e v e r m u c h it broke w i t h old ideological s h i b b o l e t h s . By the s u m m e r o f 1 9 3 2 the head o f General Electric in the US w a s camp a i g n i n g for state intervention. T h e shift w h i c h eventually rook place w a s f r o m forms o f m o n o p o l y capitalism in w h i c h the stare kept in the b a c k g r o u n d , p r o v i d i n g services t o big capital b u t keeping away

f r o m a t t e m p t i n g t o direct it, t o f o r m s in w h i c h it

a t t e m p t e d to ensure the i n t e r n a t i o n a l competitiveness o f nationally based c a p i t a l . That c a m e to involve consciously restructuring industry by shifting surplus value f r o m o n e section o f the e c o n o m y to another. T h e shift h a d been f o r e s h a d o w e d in the later stages o f the First W o r l d War, w h e n the state h a d t a k e n d r a c o n i a n p o w e r s t o force i n d i v i d u a l c a p i t a l s to c o n c e n t r a t e their efforts o n the military struggle. Bur in the aftermath o f the war, the state h a d given u p the p o w e r it h a d acquired. N o w the sheer scale o f the crisis forced a r e t h i n k . Political crises i n the US a n d G e r m a n y b r o u g h t governm e n t s t o p o w e r early in 1933 p r e p a r e d t o i m p l e m e n t

radical

c h a n g e in order t o save c a p i t a l i s m f r o m itself. In the US this took the f o r m o f Roosevelt s N e w D e a l . It extended already existing p u b l i c w o r k s schemes to m o p u p s o m e ot rhe u n e m p l o y m e n t , guaranteed the f u n d s o f the b a n k s w h i c h h a d not g o n e bust, encouraged rhe self-regulation o f industry t h r o u g h cartels, destroyed crops so as to raise a g r i c u l t u r a l prices a n d inc o m e s , carried t h r o u g h very l i m i t e d e x p e r i m e n t s in direct state p r o d u c t i o n a n d also m a d e it a little easier for u n i o n s to raise wages (and therefore the d e m a n d for c o n s u m e r g o o d s ) . Federal expenditure, o n l y a r o u n d 2.5 percent o f G D P in 1 9 2 9 reached a peacetime peak o f just over 9 percent in 1 9 3 6 . It w a s a recognition that capitalism in its m o n o p o l y stage c o u l d n o longer solve its p r o b l e m s w i t h o u t limited stare intervention. But it w a s still limited intervention: federal e x p e n d i t u r e fell back in 1937. Such t i m i d i t y c o u l d have o n l y a limited i m p a c t o n the crisis. All the efforts o f the N e w D e a l c o u l d n o t p u s h the u p t u r n t h a t began in the spring o f 1933 b e y o n d a certain p o i n t . T h e n u m b e r of un e m p l o y e d fell by 1.7 m i l l i o n — b u t t h a t still left 12 m i l l i o n jobless. It w a s n o t u n t i l 1 9 3 7 — e i g h t years after the start o f the crisis—that p r o d u c t i o n reached the 1929 figure. But even then fixed investm e n t in i n d u s t r y r e m a i n e d low 4 " a n d there w a s

14.3 percent

u n e m p l o y m e n t . Yet this " m i n i b o o m " gave w a y in A u g u s t 1 9 3 7 t o " t h e steepest e c o n o m i c decline since the history o f the U S " w h i c h "lost h a l f the g r o u n d g a i n e d by m a n y indexes since 1932". 4 8 144

Capitalism in the 20th Century

The 1920s h a d s h o w n t h a t t h e n o n - p r o d u c t i v e expenditures associated

with

monopoly

capital

(marketing

expenditures,

advertising, speculative ventures, l u x u r y c o n s u m p t i o n ) c o u l d postpone crisis b u t n o t s t o p its eventual i m p a c t being greater t h a n previously. T h e 1930s s h o w e d t h a t " p u m p p r i m i n g " by governments

might

produce

a

shortlived

and

limited

revival

of

p r o d u c t i o n , b u t c o u l d n o t give a n e w lease o f life t o the system either. A m o r e p r o f o u n d c h a n g e in the direction o f state capitalism was needed.

I r o m s l u m p to w a r II w a s here t h a t the G e r m a n a n d |apanese e x a m p l e s were signifii . m t . T h e m a j o r sections o f their r u l i n g classes accepted political o p t i o n s t h a t s u b o r d i n a t e d i n d i v i d u a l capitalists t o p r o g r a m m e s o f n a t i o n a l capitalist a c c u m u l a t i o n i m p o s e d by rhe state w h i l e repressing the w o r k i n g class m o v e m e n t . T h e m a j o r capitalist g r o u p s remained intact. But f r o m n o w o n they were s u b o r d i n a t e d t o the needs

of

an

arms

drive

which

they

themselves

supported.

\rmaments a n d rhe e x p a n s i o n o f heavy industry drove the w h o l e e c o n o m y f o r w a r d , p r o v i d i n g m a r k e t s a n d outlets for investment, .is wages lagged b e h i n d rising o u t p u t a n d profit rates were partially restored. In G e r m a n y such m e t h o d s pulled rhe e c o n o m y right o u t o f the s l u m p (after t w o years o f less effective " p u m p p r i m i n g " ) a n d kept it b o o m i n g w h i l e the A m e r i c a n e c o n o m y w a s s l u m p i n g a g a i n in 1937. By 1939 o u t p u t h a d c l i m b e d 3 0 percent a b o v e the 1929 level a n d u n e m p l o y m e n t h a d fallen f r o m six m i l l i o n to 7 0 , 0 0 0 , with the creation o f eight m i l l i o n n e w jobs. 4 M o s t o f the n e w prod u c t i o n w e n t i n t o a r m s a n d the heavy industries that p r o v i d e d military preparedness, b u t a tenth o f increased o u t p u t d i d g o i n t o raising private c o n s u m p t i o n . 5 0 A n d the e c o n o m i c e x p a n s i o n itself paid for a large percentage o f rhe cost o f fuelling rhe b o o m , w i t h only a b o u t a fifth o f g o v e r n m e n t s p e n d i n g being covered by a budgetary deficit. In effect, the N a z i d i c t a t o r s h i p w a s able t o ensure that n e w investment rook place, even t h o u g h initial profit rates were low. H o w e v e r , there were m a j o r p r o b l e m s w i t h a n y such policy. G e r m a n y w a s n o t a self-contained e c o n o m i c u n i t . T h e forces o f p r o d u c t i o n i n t e r n a t i o n a l l y h a d l o n g since developed ro rhe p o i n t The Great Slump

14S

where they cut across n a t i o n a l b o u n d a r i e s , a n d there w a s a growing need for certain strategic i m p o r t s as the a r m a m e n t s b o o m took off. T h e o n l y w a y to o v e r c o m e this w h i l e k e e p i n g the G e r m a n e c o n o m y self-contained, a n d therefore i m m u n e to international recessionary pressures, was t o e x p a n d the b o u n d a r i e s o f the G e r m a n Reich so as ro incorporate n e i g h b o u r i n g e c o n o m i e s , a n d t o subordinate their industries t o the G e r m a n m i l i t a r y/ drive. T h e logic o f state-directed m o n o p o l y c a p i t a l i s m led ro a f o r m o f imperialism Lenin h a J referred ro in 1 9 1 6 — t h e seizure o f " h i g h l y industrialised regions' / 1 B e y o n d a certain p o i n t such e x p a n s i o n led t o inevitable clashes w i t h other great p o w e r s w h i c h feared threats to their o w n empires a n d spheres o f influence. A s they re acted by b u i l d i n g u p t h e i r o w n a r m e d forces, the G e r m a n a n d Japanese regimes in turn h a d t o direct even m o r e o f the e c o n o m y t o w a r d s a r m s — a n d to reach o u t to g r a b new t e r r i t o r y — i n order t o " d e f e n d " the lands they h a d already g r a b b e d . T h i s p r o v i d e d their capitalists w i t h new sources o f s u r p l u s value t o c o u n t e r any d o w n w a r d pressure o n profit rates. But at the s a m e t i m e it increased rhe hostility o f the existing e m p i r e s — l e a d i n g t o the need for a greater a r m s potential a n d further military adventures. T h e b r e a k i n g p o i n t s were the G e r m a n seizure o f western P o l a n d a n d the Japanese o n s l a u g h t o n Pearl H a r b o r .

1

Just as deepening s l u m p in each m a j o r capitalist c o u n t r y h a d fed i n t o the s l u m p s d e v e l o p i n g elsewhere, so n o w did rhe path our ot rhe s l u m p t h r o u g h military state c a p i t a l i s m . British a n d A m e r i c a n i m p e r i a l i s m c o u l d o n l y d e f e n d

their

o w n p o s i t i o n s in the w o r l d after the fall o f France in 1 9 4 0 a n d Pearl H a r b o r in 1941 by m o v i n g o n f r o m the h a l f b a k e d statedirected

capitalism

of

the

mid-1930s

to

fully

militarised

e c o n o m i e s o f their o w n . T h e British state r o o k c h a r g e o f all m a j o r e c o n o m i c decisions, d i r e c t i n g w h i c h i n d u s t r i e s s h o u l d get r a w m a t e r i a l s a n d r a t i o n i n g f o o d a n d c o n s u m e r g o o d s , w i t h the c i v i l i a n e c o n o m y r e d u c e d t o a mere a d j u n c t o f the c e n t r a l l y or g a n i s e d wTar e c o n o m y . T h e U S g o v e r n m e n t " n o t o n l y c o n t r o l l e d the a r m a m e n t s sector o f t h e e c o n o m y , w h i c h represented a b o u t h a l f the t o t a l p r o d u c t i o n o f g o o d s . T h e state d e c i d e d w h a t cons u m e r g o o d s s h o u l d be p r o d u c e d a n d w h a t c o n s u m e r

goods

s h o u l d n o t be p r o d u c e d " . 5 3 It s p e n t h u g e s u m s b u i l d i n g armam e n t s factories w h i c h it h a n d e d over ro p r i v a t e c o r p o r a t i o n s to r u n . G o v e r n m e n t c a p i t a l e x p e n d i t u r e in 1941 w a s 5 0 percent h i g h e r t h a n t h e c o u n t r y ' s e n t i r e m a n u f a c t u r i n g i n v e s t m e n t in 144

Capitalism in the 20th Century

11'39, a n d

i n 1 9 4 3 the state w a s r e s p o n s i b l e for 9 0 percent o f all

investment.'4

Again

a

militarised

state-dominated

economy

seemed t o p r o v i d e a n s w e r s t o t h e p r o b l e m s t h a t h a d faced t h e r c o n o m y b e f o r e the w a r . N i n e m i l l i o n u n e m p l o y e d b e c a m e less than o n e m i l l i o n w i t h i n three years, a n d there w a s a g r o w t h in the c i v i l i a n e c o n o m y d e s p i t e t h e v a s t e x p e n d i t u r e o n n o n - p r o ductive o u t p u t . Total o u t p u t d o u b l e d b e t w e e n 1 9 4 0 a n d 1 9 4 3 , and c o n s u m e r e x p e n d i t u r e in

1943—even when measured

1940 p r i c e s — e x c e e d e d t h o s e o f e a r l i e r years.

in

T h e w a r econ-

o m y c o u l d a c h i e v e w h a t e i g h t years o f t h e N e w D e a l

could

n o t — f u l l e m p l o y m e n t o £ r h e p r o d u c t i v e c a p a c i t y o f rhe largest • >! the a g e i n g c a p i t a l i s m s .

As K e n n e t h

Galbraith

has

noted,

H i e G r e a t D e p r e s s i o n o f t h e 3 0 s never c a m e t o a n e n d .

It

merely d i s a p p e a r e d in the great m o b i l i s a t i o n o f t h e 4 0 s " . "

I he R u s s i a n v a r i a n t I here w a s o n e o t h e r m a j o r e c o n o m y w h e r e state d i r e c t i o n seemed n> p r o v i d e a n alternative ro b e i n g t o r n a p a r t in the m a e l s t r o m o f the w o r l d system. This w a s the U S S R . I n the 1930s nearly all commentators s a w it as based o n radically different principles t o those • »t Western c a p i t a l i s m — a n d this view persisted a m o n g m a n y right up u n t i l its i m p l o s i o n in 1989-91.The right defined ir s i m p l y as totalitarian* 1 , as i f there w a s n o d y n a m i c t o its e c o n o m y , a n d m a n y o n the left a d o p t e d a m i r r o r i m a g e view, s p e a k i n g o f it as " c o m m u n i s t " o r " s o c i a l i s t " , o r those w h o w e r e m o r e critical as "post-capitalist"

o r a " d e g e n e r a t e d w o r k e r s ' s t a t e " 8 . A l l these

different a p p r o a c h e s a s s u m e d a high degree o f c o n t i n u i t y between i he Soviet system as it operated in rhe 1930s a n d the r e v o l u t i o n a r y itrtte established in 191 "7. But t h e c e n t r a l m e c h a n i s m s d i r e c t i n g the S o v i e t

economy

were n o t e s t a b l i s h e d d u r i n g the r e v o l u t i o n , b u t in 1928-9 u n d e r the i m p a c t o f a p r o f o u n d e c o n o m i c a n d p o l i t i c a l crisis. By t h a t n i n e lirtle r e m a i n e d o f t h e r e v o l u t i o n a r v d e m o c r a c y t h a t h a d •

/

c h a r a c t e r i s e d t h e c o u n t r y in the i m m e d i a t e a f t e r m a t h o f t h e O c t o b e r R e v o l u t i o n o f 1 9 1 7 . A n e w b u r e a u c r a t i c layer h a d initeasingly concentrated

p o w e r in its o w n

hands amidst

the

d e v a s t a t i o n o f a n a l r e a d y e c o n o m i c a l l y b a c k w a r d c o u n t r y suflering f r o m t h r e e years o f w o r l d w a r f o l l o w e d by three years o f civil w a r . N e v e r t h e l e s s , t h e d r i v i n g force b e h i n d rhe e c o n o m y I he Great Slump

157

t h r o u g h t o t h e m i d - 1 9 2 0 s r e m a i n e d the p r o d u c t i o n o f g o o d s to satisfy rhe needs o f the p o p u l a t i o n , a n d l i v i n g s t a n d a r d s rose f r o m the a b y s m a l levels o f the w a r a n d civil w a r years, even il b u r e a u c r a t s ' living s r a n d a r d s rose d i s p r o p o r t i o n a t e l y m o r e t h a n those o f w o r k e r s a n d peasants. Then in late 1928 a w a v e o f p a n i c hit the b u r e a u c r a c y in the face o f w a r l i k e threats f r o m Britain a n d a d o m e s t i c crisis as peas a n t s held back supplies o f f o o d , creating h u n g e r in the cities. A f r a i d o f l o s i n g their c o n t r o l over the c o u n t r y t h r o u g h a c o m b i n a tion o f rebellion at h o m e a n d a r m e d pressure f r o m a b r o a d , the bureaucracy, led by Stalin, turned p r a g m a t i c a l l y t o a series o f m e a sures t h a t involved super-exploitation o f the peasantry a n d the w o r k i n g class in order to b u i l d the i n d u s t r y rhe c o u n t r y lacked. The c u m u l a t i v e effect w a s to p u s h the w h o l e e c o n o m y t o w a r d s a n e w d y n a m i c other t h a n t h a t o f fulfilling people's n e e d s — a dyn a m i c u l t i m a t e l y d e t e r m i n e d by m i l i t a r y c o m p e t i t i o n w i t h the various Western states. A s the C z e c h historian R e i m a n has said: There were not e n o u g h resources t o g u a r a n t e e the proposed rare o f industrial g r o w t h . T h e p l a n n i n g agencies therefore dec i d e d . . . t o balance the p l a n by m e a n s o f resources the econom\ d i d nor yet have at its d i s p o s a l . . . T h e fulfilment o f the plan dep e n d e d o n a very b r u t a l a t t a c k o n the l i v i n g a n d c o n d i t i o n s o f industrial w o r k e r s a n d t h e rural

working

population...

T h i s w a s a p l a n o f organised poverty a n d famine. 6 0 Stalin, justifying the s u b o r d i n a t i o n o f everything else t o accumul a t i o n , insisted, " W e are fifty or a h u n d r e d years b e h i n d

the

a d v a n c e d countries. W e m u s t m a k e g o o d this lag i n ten years. Either w e d o it or they crush u s " / '

u

T h e e n v i r o n m e n t in w h i c h we

are p l a c e d . . . a t h o m e a n d a b r o a d . . . c o m p e l s us t o a d o p t a rapid rate o f g r o w t h o f o u r i n d u s t r y " In u n d e r t a k i n g the task o f a c c u m u l a t i o n , the bureaucracy substituted itself for a capitalist class that n o longer existed. But the m e t h o d s it used were essentially those o f capitalist industrialisation elsewhere in the w o r l d . " C o l l e c t i v i s a t i o n " — i n reality the state takeover of the l a n d — i n c r e a s e d rhe p r o p o r t i o n o f a g r i c u l t u r a l o u t p u t a v a i l a b l e for industrial a c c u m u l a t i o n w h i l e d r i v i n g a ver\ high p r o p o r t i o n o f the peasantry f r o m the l a n d , just as enclosures h a d for E n g l a n d ' s early capitalists. T h e g r o w i n g industries were Capitalism in the 20th Century

mainly m a n n e d by w a g e l a b o u r — b u t s o m e s u b o r d i n a t e tasks were i irried our by s o m e m i l l i o n s o f slave labourers. T h e rights workers h id held o n t o t h r o u g h the 1920s were a b o l i s h e d . C o n t r o l o f the e c o n o m y by a single centralised state bureau• racy w i t h a m o n o p o l y o f foreign trade m e a n t a c c u m u l a t i o n c o u l d proceed w i t h o u t i n t e r r u p t i o n , as in the militarised state m o n o p o l y i apitalisms o f the West. But the e c o n o m y c o u l d n o t be isolated completely f r o m the w i d e r w o r l d system, a n y m o r e t h a n those of i .ermany a n d J a p a n c o u l d in t h e late 1930s. I m p o r t i n g m a c h i n e r y lor i n d u s t r i a l i s a t i o n f r o m the West d e p e n d e d o n e x p o r t earnings from grain at a t i m e o t f a l l i n g w o r l d p r i c e s — a n d that d e p e n d e d o n I he state seizing the grain f r o m starving peasants, s o m e m i l l i o n s o f w h o m d i e d . P r e o b r a z h e n s k v n o t e d , " A s exporters w e |rhe U S S R | are suffering severely f r o m rhe w o r l d crisis".* 3 There w a s , however, a relative i s o l a t i o n f r o m the w o r l d economy, a n d this m e a n t the a c c u m u l a t i o n c o u l d proceed as l o n g as there w a s s o m e surplus value, regardless o f the rate o f profit at any particular time. T h i s did n o t , however, o v e r c o m e e c o n o m i c contradictions. Fulfilling the p r o d u c t i o n p l a n s for heavy industry a n d a r m a m e n t s i n v a r i a b l y i n v o l v e d d i v e r t i n g resources t o t h e m f r o m c o n s u m e r g o o d s industries, w h o s e o u t p u t fell even as the e c o n o m y is a w h o l e e x p a n d e d at great speed. Such a n o u t c o m e w a s the opposite o f " p l a n n i n g " in a n y real sense o f rhe w o r d . I f t w o o f us p l a n t o g o f r o m L o n d o n t o M a n c h e s t e r but o n e o f us ends u p in ( i l a s g o w a n d the other in B r i g h t o n , t h e n o u r " p l a n " d i d n o t g u i d e o u r a c t i o n . T h e same w a s true of Soviet p l a n n i n g . As in the West c o m p e t i t i v e a c c u m u l a t i o n p r o d u c e d a d y n a m i c o f g r o w t h o n the one h a n d a n d o f c h a o s , inefficiency a n d poverty o n the other. It also p r o d u c e d a tendency t o i m p e r i a l i s t e x p a n s i o n b e y o n d national borders, as w a s s h o w n in 1 9 3 9 w h e n Stalin d i v i d e d Eastern I u r o p e w i t h Hitler, t a k i n g h a l f o f P o l a n d , E s t o n i a , L i t h u a n i a a n d I a t v i a — o n l y t o find in 1941 t h a t Hitler h a d set his eyes o n seizing and p i l l a g i n g the U S S R for G e r m a n c a p i t a l i s m .

Balance sheet o f a decade In the 1930s rhere h a d been a widespread feeling a m o n g the supporters o f c a p i t a l i s m o p p o n e n t s t h a t it w a s

t h a t it w r as in deep t r o u b l e ; a m o n g finished.

its

Lewis C o r e y h a d written o f the

"decline a n d decay o f capitalism"/- 4 J o h n Strachey t h a t " t h e r e c a n The Great Slump

14S

o n l y exist f o r rhe capitalist areas o f the w o r l d an ever m o r e rapid decay"

with

"rhe

permanent

contraction

of

production1,

P r e o b r a z h e n s k y of " t h e t e r m i n a l crisis o f the entire capitalist system", 6 6 L e o n Trotsky o f " r h e death a g o n y o f c a p i t a l i s m " . Their prophesies did n o t seem a b s u r d ar a t i m e w h e n the support ers o f c a p i t a l i s m were t o r m e n t e d by worries as to w h a t h a d gonew r o n g w i t h their supposedly i n f a l l i b l e system. Yet the desperateturn t o srate capitalism a n d massive a r m s p r o d u c t i o n a l l o w e d the system t o enter into a n e w phase o f e x p a n s i o n . T h e question rem a i n e d : for h o w long?

144

Capitalism in the 20th Century

• HIAPTER SEVF.N

The long boom

I he " G o l d e n A g e " o f Western c a p i t a l i s m M a n y e c o n o m i c forecasters expected the w o r l d e c o n o m y to slip into crisis a g a i n after the war, alter a brief period o f b o o m as in 1919. It d i d nor h a p p e n . W h a t f o l l o w e d w a s the longest b o o m rhat i apitalism h a d ever k n o w n — w h a t is often n o w called " t h e golden age o f c a p i t a l i s m " , or in France, " t h e g l o r i o u s thirty years". By the I ''70s A m e r i c a n e c o n o m i c o u t p u t w a s three times the 1940 level; ( i e r m a n e c o n o m i c o u t p u t w a s five times the (depressed) level o f 1947; French o u r p u r u p f o u r f o l d . A thirteen-fold increase in industrial o u t p u t turned J a p a n , still t h o u g h t o f as a p o o r c o u n t r y in iIn- 1940s, i n t o rhe second largest Western 1 e c o n o m y after the US. And a l o n g w i t h e c o n o m i c g r o w t h w e n t rising real wages, v i r t u a l l y lull e m p l o y m e n t a n d welfare p r o v i s i o n o n a scale people h a d o n l y been able to d r e a m o f previously. }

Conditions

were very different

in

A s i a , Africa

and

Latin

A m e r i c a — w h a t b e c a m e k n o w n as the " T h i r d W o r l d " after the b a n d u n g conference o f 1955. There massive poverty r e m a i n e d the lot o f the vast mass o f people. But the E u r o p e a n p o w e r s were forced t o r e l i n q u i s h their c o l o n i e s , a n d increased per c a p i t a economic

growth-

created

the

expectation

that

eventually

the

e c o n o m i c a l l y "less d e v e l o p e d " countries w o u l d begin to catch u p with the m o s t a d v a n c e d . It b e c a m e the o r t h o d o x y o n b o t h the r i g h t a n d m u c h o f the left t o p r o c l a i m t h a t the c o n t r a d i c t i o n s in the system perceived by M a r x h a d been o v e r c o m e . T h e key c h a n g e , it w a s a r g u e d , was t h a t g o v e r n m e n t s h a d l e a r n t t o intervene in the e c o n o m y t o c o u n t e r a c t tendencies t o crisis a l o n g the lines urged in the 1930s In J o h n M a y n a r d Keynes. A l l t h a t w a s n e e d e d f o r the system t o w o r k w a s f o r the e x i s t i n g state t o disregard o l d free m a r k e t ort h o d o x i e s a n d t o intervene in e c o n o m i c life t o raise rhe level o f 143

s p e n d i n g o n i n v e s t m e n t a n d c o n s u m p t i o n . T h i s c o u l d be d o n e either by c h a n g e s ir interest rates ( " m o n e t a r y m e a s u r e s " ) t o encourage private investment, or t h r o u g h increasing government e x p e n d i t u r e a b o v e its t a x revenues ( " f i s c a l m e a s u r e s " ) . " D e f i c i t f i n a n c i n g " o f the latter sort w o u l d increase t h e d e m a n d

for

g o o d s a n d so t h e level o f e m p l o y m e n t . Ir w o u l d a l s o p a y for itself e v e n t u a l l y t h r o u g h a " m u l t i p l i e r e f f e c t " ( d i s c o v e r e d by Keynes's C a m b r i d g e c o l l e a g u e K a h n ) . T h e extra w o r k e r s w h o g o t j o b s because o f g o v e r n m e n t e x p e n d i t u r e s w o u l d s p e n d their w a g e s , so p r o v i d i n g a m a r k e t for the o u t p u t o f o t h e r w o r k e r s , w h o in t u r n w o u l d s p e n d their w a g e s a n d p r o v i d e still bigger m a r k e t s . A n d as the e c o n o m y e x p a n d e d closer t o its full employment

level,

the

government's

revenue

from

taxes

on

i n c o m e s a n d s p e n d i n g w o u l d rise, u n t i l it w a s e n o u g h t o p a y for rhe p r e v i o u s increase in e x p e n d i t u r e . These

two

measures

were

soon

seen

as

the

archetypal

" K e y n e s i a n " tools' for getting full e m p l o y m e n t a n d accepted as es senrial for e c o n o m i c m a n a g e m e n t by b o t h Conservative a n d social d e m o c r a t i c politicians

in the

1940s,

1950s,

1960s a n d

early

1 9 7 0 s . Keynes h a d , as w e s a w in the last chapter, expressed m o r e radical n o t i o n s ar p o i n t s , n o t a b l y the c o n t e n t i o n thar t h e very process o f e x p a n d i n g c a p i t a l i n v e s t m e n t led ro a decline in the return o n i t — " r h e m a r g i n a l efficiency o f c a p i t a l " . 4 H e h a d even g o n e so far as t o urge rhe g r a d u a l " e u t h a n a s i a " o f the " r e n t i e r w h o lives o f f dividends^ a n d t o argue t h a t " a s o m e w h a t comprehensive socialisation o f investment w i l l p r o v e the o n l y m e a n s ot securing an a p p r o x i m a t i o n t o full e m p l o y m e n t " . 6 But Keynes himself shied a w a y f r o m these m o r e radical i n s i g h t s — " i n practice he was very c a u t i o u s i n d e e d " , writes his ultra-moderate biographer Skidelsky, a n d rhe version o f Keynesianism* t h a t h e g e m o n i s e d m a i n s t r e a m e c o n o m i c s f o r the 3 0 years after the Second W o r l d W a r p u r g e d Keynes's theory o f its radical elements. For this reason, rhe radical Keynesian J o a n

R o b i n s o n d e n o u n c e d ir as

"bastard Keynesianism".' M a i n s t r e a m e c o n o m i c s believed in those years t h a t it h a d rhe capacity ro e n a b l e g o v e r n m e n t s t o d o a w a y w i t h the crises that h a d p l a g u e d c a p i t a l i s m since the early 19th century. T h e capitalist system c o u l d n o w , the o r t h o d o x y p r e a c h e d , deliver endless prosperity, rising l i v i n g s t a n d a r d s a n d a decline in t h e level o f class s t r u g g l e — p r o v i d i n g g o v e r n m e n t s accepted its d i k t a t s a n d a v o i d e d the " m i s t a k e s " o f 1929-32. 144

Capitalism in the 20th Century

J o h n Strachey h a d been by far the best k n o w n M a r x i s t writer on e c o n o m i c s in Britain in the 1930s. H i s b o o k s , The Nature ( J pita list Crisis, and

Practice

The Coming

of Socialism

Struggle

for Power a n d The

of

Theory

h a d t a u g h t M a r x i s t e c o n o m i c s to a

whole g e n e r a t i o n of w o r k e r activists a n d y o u n g intellectuals, w i t h ihe message t h a t c a p i t a l i s m c o u l d n o t escape f r o m recurring a n d ever deeper crises. Yet by 1 9 5 6 he w a s a r g u i n g , in his b o o k ( ontemporary

Capitalism,

t h a t Keynes h a d been right a n d Marx-

w r o n g o n the crucial question o f w h e t h e r the capitalist crisis c o u l d be reformed away. 1 0 Keynes's o n l y m i s t a k e , Strachey held, was that he failed t o see t h a t the*capitalists w o u l d have to be pressurised into accepting his remedies: " T h e Keynesian remedies...will be opposed by the capitalists certainly: bur experience s h o w s they can be i m p o s e d by the electorate". 1 1 The belief t h a t Keynes's ideas were responsible for the l o n g b o o m persists today, w i t h a w i d e s p r e a d view 011 the left that the . i b a n d o n m e n t o f those ideas is responsible for the crises o f recenr sears. This is essentially rhe position p u t f o r w a r d by the journalists D a n A t k i n s o n a n d L a r r y Elliot in a series o f b o o k s , t h e columnist Will

H u t t o n 1 J a n d the radical e c o n o m i c

Observer consultant

( . r a h a m Turner. 14 A version o f it is accepted by s o m e M a r x i s t s . (icrard D u m e n i l a n d D o m i n i q u e Levy ascribe the post-war g r o w t h 10 a " K e y n e s i a n " a p p r o a c h by i n d u s t r i a l c a p i t a l , in w h i c h accumulation

w a s based 011 a " c o m p r o m i s e "

with

working

class

organisations o n the terrain o f the welfare state. 15 D a v i d H a r v e y presents a p i c t u r e of c a p i t a l i s m e x p a n d i n g o n the basis o f " a class c o m p r o m i s e between c a p i t a l a n d l a b o u r "

in w h i c h " t h e state

could focus o n full e m p l o y m e n t , e c o n o m i c g r o w t h a n d the welfare of its c i t i z e n s " , w h i l e "fiscal or m o n e t a r y policies usually d u b b e d 'Keynesian* were widely deployed t o d a m p e n business cycles a n d to ensure reasonably full e m p l o y m e n t " . 1 6 Yet

the

most

amazing

fact

about

rhe

period

in

which

Keynesian ism reigned s u p r e m e as rhe official e c o n o m i c i d e o l o g y was that rhe measures it proposed for w a r d i n g o f f crises were n o t used. T h e e c o n o m y e x p a n d e d despite their absence until the 1960s 111 the US a n d the 1970s in Western E u r o p e a n d J a p a n . A s R C O M a t t h e w s l o n g a g o p o i n t e d o u t , the e c o n o m i c exp a n s i o n o f the post-war years in Britain d i d n o t d e p e n d o n the specific Keynesian " r e m e d i e s " t o recurrent crises o f b u d g e t deficits or a higher level o f g o v e r n m e n t i n v e s t m e n t t h a n in the pre-war years.1" M e g h n a d Desai has n o t e d , " I n the U S A Keynesian policies 'T he Long Boom

163

were s l o w ro he officially a d o p t e d . . . They finally t r i u m p h e d w i t h the Kennedy-Johnson rax cur o f 1964". 1 8 T h a r w a s after the Great B o o m h a d already lasted 1.5 years (25 years if y o u e x c l u d e the shortlived recession of the late 1940s). T h e s a m e p o i n t is m a d e for G e r m a n y by Ton N o t e r m a n s : " C o u n t e r c y c l i c a l d e m a n d m a n a g e menr

policies

were only

pursued

in

Germany...

during

the

1 9 7 0 s " . I n so far as g o v e r n m e n t intervention was used t o determ i n e rhe speed o f the e c o n o m y , it w a s t o s l o w d o w n b o o m s , not t o avert recessions, as with the " s t o p g o " policies o f British gov e r n m e n t s faced w r irh balance o f p a y m e n t s p r o b l e m s in the 1950s a n d 1960s. Bleaney, re-analysing the figures used by M a t t h e w s a n d others, c o n c l u d e s rhar Keynesianism played little role in the West E u r o p e a n l o n g b o o m , and o n l y a l i m i t e d o n e in the US. A n d he notes that it was rhe big increase in US levels o f m i l i t a r y expenditure c o m p a r e d w i t h rhe pre-war years t h a t p r o v i d e d m o s t o f the "fiscal s t i m u l u s " : "Largely because o f m u c h higher defence spending, total g o v e r n m e n t spending o n g o o d s a n d services increased by nearly 9 percent o f potential G N P " . : o T h e e x p l a n a t i o n of the b o o m as a result o f Keynesian policies is often c o m b i n e d w i t h references t o a " F o r d i s t " period in w h i c h rhe great capitalist c o r p o r a t i o n s accepted a c o m p r o m i s e w i t h workers based o n wages high e n o u g h to b u y a c o n t i n u a l l y

increasing

a m o u n t o f o u t p u t . T h e French e c o n o m i s t A g l i e t t a , for instance, has argued t h a t " F o r d i s m " regulated " p r i v a t e w o r k i n g class cons u m p t i o n " by "generalising the w a g e r e l a t i o n " t o g u a r a n t e e "rhe maintenance

cycle o f l a b o u r

power".21

So, for h i m

and

his

" R e g u l a t i o n S c h o o l " version o f M a r x i s m , Keynes is the p r o p h e t ot F o r d i s m , w i t h Keynes's criticism o f neoclassical e c o n o m i c s a n d his n o t i o n o f "effective d e m a n d " a partial recognition o f the need for p r o d u c t i o n a n d c o n s u m p t i o n to be integrated at a certain stage ot capitalist d e v e l o p m e n t . Certainly, o n e element in the d o m i n a n t state interventionist ideology o f the post-war decades w a s the c o n t e n t i o n t h a t welfare provision c o u l d c o u n t e r b a l a n c e cyclical ups a n d d o w n s in the d e m a n d for c o n s u m e r g o o d s . T h e " s u p p l y side" need o f capital t o ensure the r e p r o d u c t i o n o f l a b o u r p o w e r for it to exploit ( w h i c h we have looked at in C h a p t e r Five) seemed ro coincide w i t h " d e m a n d side"

worries a b o u t k e e p i n g m a r k e t s e x p a n d i n g .

Promises

to

e x p a n d welfare provision also suited social d e m o c r a t a n d Christian D e m o c r a t parties in E u r o p e as a w a y o f w i n n i n g votes a n d luring workers a w a y f r o m the C o m m u n i s t parties t o their left. Yet n o n e 144

Capitalism in the 20th Century

this is a d e q u a t e t o e x p l a i n w h y the global e c o n o m y s h o u l d b o o m in rhe post-war years after s l u m p i n g pre-war. W h a t is m o r e , there w a s n o c o n s c i o u s policy by the " F o r d i s t " managers o f mass p r o d u c t i o n industries ro o p t for such a supposed k e y n e s i a n " policy o f raising real wages a n d welfare provision. As Robert Brenner a n d M a r k G l i c k say, US c a p i t a l never: resigned itself t o the p r i n c i p l e o f m a i n t a i n i n g labour's share or failed t o fight t o o t h a n d nail t o l i m i t the degree t o w h i c h wages kept u p w i t h the cost o f living o r w i t h productivity. There w a s never a n y t h i n g resembling a generalised " s o c i a l c o n t r a c t " o n h o w revenue w a s to be d i v i d e d between i n v e s t m e n t a n d cons u m p t i o n o r between profits a n d w a g e s . 2 I he reality w a s t h a t as c a p i t a l i s m e x p a n d e d in the

post-war

decades, the full e m p l o y m e n t that resulted forced employers a n d i he state t o pay m u c h m o r e a t t e n t i o n t h a n previously ro reproducing l a b o u r p o w e r a n d deflecting w o r k i n g class discontent. Both the conventional Keynesian a c c o u n t a n d " R e g u l a t i o n " theory c o n f u s e causes w i t h effects. In the process they fail to a c c o u n t for the m o s t significant feature o f the post-war decades: the rare o f profit in rhe US w a s between 5 0 a n d

100 percent h i g h e r t h a n in the f o u r

dccades before the Second W o r l d War. A n d it m o r e or less sustained t h a t higher level u n t i l the late I 9 6 0 s . :

It w a s this w h i c h

r x p l a i n e d w h y capitalists k e p t investing o n a scale sufficient t o keep the e c o n o m y b o o m i n g w i t h o u t m o s t states needing even t o ir> using the "counter-cyclical m e a s u r e s " suggested by Keynes. But h o w were such high profit rates achieved a n d sustained alongside r a p i d l y rising real wages? Parr o f the a n s w e r lies i n the i m p a c t o f the s l u m p a n d the war. Some firms h a d g o n e b a n k r u p t in the s l u m p . M u c h c a p i t a l h a d been w r i t t e n off. R e s t r u c t u r i n g t h r o u g h crisis h a d begun t o perform s o m e o f its o l d role o f a l l o w i n g capital t o u n d e r t a k e renewed a c c u m u l a t i o n w i t h a l o w e r rate o f profit. T h e destruction o f the war p r o v i d e d

further assistance. Vast a m o u n t s o f

investment

w h i c h w o u l d o t h e r w i s e h a v e raised the r a t i o o f investment t o labour (and therefore profits) were instead used for m i l i t a r y purposes. S h a n e M a g e , for instance, estimated the c o m b i n e d effect o f the crisis o f the 1930s a n d the Second W o r l d W a r o n rhe US econo m y : " B e t w e e n 1 9 3 0 a n d 1945 the capital stock o f rhe US fell from 145 billion dollars to 120 billion dollars, a net disinvestment 'TheLong Boom

165

o f s o m e 2 0 percent V 4 W r i t t e n o f f w a s a n a m o u n t equal to a fifth o f the pre-existing a c c u m u l a t e d s u r p l u s value plus all the a d d i t i o n a l surplus value p r o d u c e d over those 15 years. M e a n w h i l e capitalists in the defeated states, G e r m a n y a n d J a p a n , emerged f r o m the w a r w i t h m u c h of their c a p i t a l destroyed. They had n o choice but to write off m u c h o f the value o f old investments as thev 4

began a c c u m u l a t i o n afresh, w i t h a skilled l a b o u r force forced to accept l o w wages by rhe massive u n e m p l o y m e n t resulting f r o m military devastation. But these factors are n o r , in themselves, a sufficient e x p l a n a t i o n for rhe length a n d c o n t i n u i t y o f the b o o m . T h e y d o n o t explain w h y profit rates did n o t resume their d o w n w a r d slope o n c e new p r o d u c t i v e investment c a m e i n t o effect. H a d c a p i t a l i s m c o n t i n u e d o n its pre-war trajectory there w o u l d have been crises at leasi every ten years o r so. Yet, a l t h o u g h there were periodic dips in g r o w t h rates, sometimes described as " g r o w t h recessions", t h e n w a s o n l y one brief spell o f falling o u t p u t in rhe US (in 1949) a n d n o n e in the other m a j o r industrial countries for m o r e t h a n a quarter o f a century. A t t e m p t s have been m a d e t o e x p l a i n the b o o m as a result ot rapid t e c h n o l o g i c a l

i n n o v a t i o n , the waves o f i m m i g r a t i o n

ot

y o u n g w o r k e r s in the 1950s a n d 1960s, or the c h e a p e n i n g o f raw m a t e r i a l s f r o m rhe non-industrial countries. But such t h i n g s h a d n o t been able to prevent cyclical crises previously. Technological i n n o v a t i o n m i g h t have reduced rhe cost o f each u n i t o f n e w in vestment, b u t ir w o u l d also have reduced rhe life s p a n o f old investments, so increasing d e d u c t i o n s f r o m profits d u e to deprecia t i o n costs; massive i m m i g r a t i o n ro Britain f r o m Ireland a n d to the US f r o m E u r o p e h a d characterised the 19th century w i t h o u t stop p i n g pressures o n profit rates; the c h e a p e n i n g o f r a w materials w a s in part caused by the w a y rhe b o o m itself e n c o u r a g e d capitalists ro p r o d u c e synthetic substitutes w i t h i n the industrial e c o n o m i e s (ar tificial fibres, plastics, etc). There w a s , however, o n e n e w factor t h a t c o u l d e x p l a i n w h a t w a s h a p p e n i n g . There w a s a n unprecedented level o f peacetime a r m s s p e n d i n g . It h a d been o n l y a little over 1 percent o f G N P in the United States before the war. Yet post-war " d i s a r m a m e n t " left it at 4 percent in 1 9 4 8 , a n d it t h e n shot u p wirh the onset o f the C o l d W a r t o over 13 percent in 1950-53, r e m a i n i n g between five a n d seven times the level o f the inter-war years t h r o u g h o u t the 1950s a n d 1960s. 144

Capitalism in the 20th Century

T h e military c o n s u m e d a n e n o r m o u s q u a n t i t y of invcstible surplus v a l u e t h a t w o u l d o t h e r w i s e have g o n e i n t o rhe p r o d u c t i v e economy-—according

to a calculation

by M i c h a e l

Kidron,

an

i i m o u n t e q u a l t o 6 0 percent o f US gross fixed c a p i t a l f o r m a t i o n . I he i m m e d i a t e i m p a c t o f such s p e n d i n g w a s to p r o v i d e a m a r k e t for the o u t p u t o f m a j o r industries: M o r e t h a n nine-tenths o f the final d e m a n d for aircraft a n d parts w a s o n g o v e r n m e n t a c c o u n t , m o s t o f it m i l i t a r y ; as w a s nearly three-fifths o f the d e m a n d for non-ferrous metals; over half the d e m a n d for c h e m i c a l s ' a n d electronic g o o d s ; over one-third the d e m a n d for c o m m u n i c a t i o n e q u i p m e n t a n d scientific instrum e n t s ; a n d so o n d o w n the list o f eighteen m a j o r industries I

one-tenth o r giore o f w h o s e final d e m a n d s t e m m e d f r o m governmental procurement.2' Phe role o f military e x p e n d i t u r e has been ignored by m o s t mainstream Keynesian a c c o u n t s o f the post-war b o o m a n d by m a n y Marxists. O n b o t h sides there has been a tendency t o identify capitalism w i t h the p u r e "free m a r k e t " f o r m it rook for a brief p e r i o d in Britain in rhe 19th century a n d t o see rhe state a n d rhe military .is e x t r a n e o u s t o it. M i s s i n g has been a n y sense o f the changes t h a t had already b e g u n t o be analysed by H i l f e r d i n g , B u k h a r i n a n d l.enin,

let

alone

the

further

transformations

brought

about

t h r o u g h s l u m p , w a r a n d the C o l d War. I

S o m e M a r x i s t s a n d a few K e y n e s i a n s d i d , however, grasp o n e i m p o r t a n t i m p a c t of a r m s s p e n d i n g . It p r o v i d e d a m a r k e t for the rest o f the e c o n o m y t h a t w a s n o t affected by rhe ups a n d d o w n s o f the w i d e r e c o n o m y — a buffer t h a t l i m i t e d the d o w n w a r d movement o f the e c o n o m i c cycle. So the A m e r i c a n M a r x i s t s P a u l Baran ind Paul Sweezy c o u l d see a r m s s p e n d i n g as a n i m p o r t a n t mechanism for a b s o r b i n g a n ever g r o w i n g " s u r p l u s " a n d o v e r c o m i n g overproduction. 2 * T h e y c o u l d n o t , however, e x p l a i n w h y t a x a t i o n to pay for it d i d not have the effect o f reducing d e m a n d elsewhere in the e c o n o m y . x\nd, as Bleaney has p o i n t e d o u r , the military purchases o f the US g o v e r n m e n t c o u l d n o t have played a m a j o r direct role in b o o s t i n g the E u r o p e a n economies. 2 7 T h e a c c o u n t o f the i m p a c t o f waste e x p e n d i t u r e (see C h a p t e r live) o n rhe d y n a m i c o f the w i d e r e c o n o m y p r o v i d e d by K i d r o n was able t o deal w i t h such p r o b l e m s , since its starting p o i n t w a s n o t " u n d e r c o n s u m p t i o n i s m " but the rate of profit. A r m s expenditure. I'he l ong Boom

167

like " u n p r o d u c t i v e " expenditures, m i g h t be a d e d u c t i o n f r o m p r o i its in rhe shorr term, b u t in the l o n g term it h a d the i m p a c t ot reducing the funds available for further a c c u m u l a t i o n a n d

so

slowed the rise in rhe ratio o f investment to the e m p l o y e d l a b o u r force (the "organic c o m p o s i t i o n o f c a p i t a l " ) . Kidron s logic found empirical confirmation in w h a t actually hap pencd to the organic c o m p o s i t i o n o f capital. Its rise in the post-war decades in the US was m u c h slower t h a n in the pre-slump decades. It was also m u c h lower t h a n that w h i c h occurred in post-war E u r o p e , where the p r o p o r t i o n o f n a t i o n a l o u t p u t g o i n g i n t o a r m s spending w a s considerably lower than in the US. 2 "

Arms, accumulation and planning T h e a r m s economies were n o t a result o f a c o n s c i o u s strategy a i m e d at w a r d i n g o f f s l u m p s . They f o l l o w e d f r o m the logic o f imperialist c o m p e t i t i o n in the C o l d W a r era. But sections o f capital certainly appreciated their effects in k e e p i n g the b o o m

going.

" M i l i t a r y - i n d u s t r i a l c o m p l e x e s " e m e r g e d , d r a w i n g together the m i l i t a r y a n d those i n charge o f the a r m s industries, w h i c h h a d a direct interest in p u s h i n g f o r w a r d the inter-imperialist conflicts. They were a b l e t o u n i t e the r u l i n g class as a w h o l e b e h i n d their policies n o t o n l y because o f fear o f the rival power, b u t also because o f the effect o f a r m s budgets in s u s t a i n i n g a c c u m u l a t i o n . J o h n Kenneth G a l b r a i t h described in the 1960s the inter-relation between government expenditure a n d w h a t he termed the " p l a n n i n g system" by w h i c h each large c o r p o r a t i o n p l a n n e d its investments m a n y years in advance: A l t h o u g h there is a w i d e s p r e a d s u p p o s i t i o n to the contrary, this increase [in stare expenditures]...has rhe strong a p p r o v a l o f the businessmen o f the p l a n n i n g system. T h e executive o f the great c o r p o r a t i o n r o u t i n e l y o p p o s e s p r o d i g a l i t y in g o v e r n m e n t expenditure.

But f r o m his pleas f o r p u b l i c e c o n o m y

defence

expenditures are m e t i c u l o u s l y excluded. 1 0 O n e effect o f such e x p e n d i t u r e s w a s t o a l l o w the great corporat i o n s ro u n d e r t a k e long-term p l a n n i n g o f their o w n investments w i t h the assurance t h a t they w o u l d be able t o m a k e a profit o n them a n d turn it i n t o cash by selling their g o o d s ( " r e a l i s i n g their 144

Capitalism in the 20th Century

mirplus v a l u e " , to use M a r x ' s t e r m i n o l o g y ) . T h i s c h a n g e d their ini n n a l o p e r a t i o n s i n w a y s w h i c h seemed t o c o n t r a d i c t the usual i s s u m p t i o n a b o u t capitalist b e h a v i o u r being m o t i v a t e d by shorticrm profit r e q u i r e m e n t a n d price c o m p e t i t i o n for markets. G a l b r a i t h painted a picture o f howT the s i t u a t i o n a p p e a r e d : The m a r k e t is superseded by vertical integration. The p l a n n i n g unit takes over t h e source o f supply or the outlet; a transaction that is subject to b a r g a i n i n g over prices a n d a m o u n t s is thus replaced w i t h a transfer w i t h i n the p l a n n i n g u n i t . . . As viewed by the firm, e l i m i n a t i o n o f a market converts an external negotiation a n d hence a partially o r w h o l l y u n c o n t r o l l a b l e decision t o a matter f o r purely internal decision. N o t h i n g , we shall see, better explains m o d e r n industrial p o l i c y — c a p i t a l supply is the extreme c a s e — t h a n the desire ro m a k e highly strategic cost factors subject t o w h o l l y internal decisions. M a r k e t s can also be controlled. This consists in reducing or e l i m i n a t i n g the independence o f action o f those to w h o m rhe p l a n n i n g u n i t sells or from w h o m it b u y s . . . At the same time the o u t w a r d f o r m of the m a r k e t , i n c l u d i n g the process o f b u y i n g a n d selling, remains f o r m a l l y intact.' 1 At a time w h e n " t h e largest 2 0 0 m a n u f a c t u r i n g enterprises h a d t w o thirds o f all assets used in m a n u f a c t u r i n g a n d m o r e t h a n three fifths ol all sales, e m p l o y m e n t a n d net income", 3 2 this represented a huge section o f the US e c o n o m y in w h i c h m o s t e c o n o m i c operations were not subject ro the i m m e d i a t e vagaries o f the market. There was competition between rhe giants, but it w a s to a large extent undertaken by means different to the old c o m p e t i t i o n t o sell goods m o r e cheaply than one another. T h e giant firms learnt that they c o u l d w a r d o f f potential c o m p e t i t o r s by resorting t o non-productive m e t h o d s — t h e use of their wealth t o get a tight grip over distribution outlets; the use o f advertising t o hype u p their o w n products, regardless o f their intrinsic merits; the systematic cultivation o f well greased contacts with buyers f r o m governmental bodies. G a l b r a i t h t h o u g h t this represented a f u n d a m e n t a l c h a n g e in the nature of c a p i t a l i s m itself. A n d M a r x i s t s w h o defined c a p i t a l i s m simply in terms o f the "free m a r k e t " c o m p e t i t i o n between rival private capitalists c o u l d easily c o m e t o rhe same c o n c l u s i o n , since the huge area o f p r o d u c t i o n internal t o the great c o r p o r a t i o n s w a s n o t directly subject t o the l a w o f value. Extreme variations in the degree o f " x - e f f i c i e n c y " — t h e internal efficiency o f c o m p a n i e s — s h o w e d 'T he Long Boom

169

h o w far m a n y differed from rhe capitalist ideaL A n d capital did not a u t o m a t i c a l l y m o v e under the i m p a c t o f m a r k e t forces o u t o f sec tors wirh big fixed investments, a high o r g a n i c c o m p o s i t i o n ol c a p i t a l a n d a l o w rate of profit, as a simplistic reading o f

Capital

m i g h t suggest. W h e t h e r it d i d so or not depended o n the decisions o f m a n a g e r s w h o m i g h t decide to sacrifice short-term profitability for long-term g r o w t h within markets over w h i c h they already had a stranglehold. If rhe l a w of value c o n t i n u e d to operate it w a s in the long term, since eventually c o r p o r a t i o n s w o u l d n o t be able to grow a n d to keep rivals a n d newcomers to rhe industry at bay unless the\ c o n t i n u e d to get e n o u g h surplus value to m a k e massive n e w invest ments. But often they w o u l d o n l y discover whether they h a d done so o n c e the long b o o m itself c a m e ro a n a b r u p t end.

T h e other a d v a n c e d capitalisms T h e picture so far has been o f the US e c o n o m y in the post-war b o o m . It w a s responsible for a p p r o a c h i n g h a l f o f total w o r l d o u t p u t at the end o f the war, a n d its d y n a m i c determined to a greai exrent w h a t h a p p e n e d elsewhere. But the big E u r o p e a n economies, w i t h substantial bur lower levels o f a r m s s p e n d i n g , s h o w e d m a n y o f the s a m e features. In Britain a n d ro a lesser extent France, great investments in a r m s industries h a d rhe effect o f d r a w i n g the rest ol the e c o n o m y f o r w a r d , c o u n t e r a c t i n g s o m e o f the pressures for the organic c o m p o s i t i o n t o rise a n d the rate o f profit t o fall, a n d per mirting continual

economic expansion—all

without

resorr

to

Keynesian measures. In G e r m a n y a r m a m e n t s were less i m p o r t a n t . But the role o f the g o v e r n m e n t r e m a i n e d i m p o r t a n t . O n e M a r x i s t a c c o u n t tells h o w : far m o r e t h a n in a n y other capitalist c o u n t r y the bourgeoisie in the Federal R e p u b l i c m a d e use o f the state apparatuses a n d the m o n e t a r y a n d fiscal system t o force c a p i t a l a c c u m u l a t i o n b\ m e a n s o f f a v o u r a b l e d e p r e c i a t i o n rates, credirs for reconstruction at f a v o u r a b l e rates o f interest a n d finance for investment. A l l this rook p l a c e in c o n t r a d i c t i o n t o the official neoliberal econ o m i c theory... 1 1 In J a p a n state c a p i t a l i s m a d v a n c e d further in its influence over civilian 144

industry

than

almost

anywhere

else in

the

Western

Capitalism in the 20th Century

w o r l d — d e s p i t e a l o w level o f direct state o w n e r s h i p . T h e state a n d I he largest private firms w o r k e d together t o ensure that t h a t portion o f the n a t i o n a l i n c o m e t h a t h a d g o n e i n t o a r m s before 1945 n o w w e n t i n t o p r o d u c t i v e investment: I

The m o t i v e force for r a p i d g r o w t h w a s fixed investment in p l a n t a n d e q u i p m e n t . Private fixed investment grew f r o m ~\8 percent o f G N P i n 1946 t o 2 1 . 9 percent in 1961. 3 4

(

W h e n i m p o r t e d r a w materials were in short s u p p l y in rhe late 1940s a n d the 1950s the g o v e r n m e n t rook c h a r g e o f their allocation to industries it t h o u g h t w o u l d best c o n t r i b u t e t o the g r o w t h of the e c o n o m y , t o the b u i l d i n g u p o f key industries like coal

I

m i n i n g , iron a n d steel a n d the e x p a n s i o n o f exports. T h e M i n i s t r y o f I n t e r n a t i o n a l Trade a n d I n d u s t r y ( M i l l ) issued " g u i d e l i n e s " to industry w h i c h it ignored at its peril. T h e g i a n t firms t h a t h a d accepted the dictates o f the w a r e c o n o m y before August 1945 as essential t o m i l i t a r y e x p a n s i o n n o w accepted the dictates o f M i l l as essential t o peaceful e c o n o m i c e x p a n s i o n : Japanese entrepreneurs are v i g o r o u s in investing. T h e y will n o t confine their fixed investment w i t h i n the l i m i t o f gross profits or internal a c c u m u l a t i o n , u n l i k e the case o f entrepreneurs in other a d v a n c e d countries. Kven if the fixed i n v e s t m e n t is over a n d

I

a b o v e their gross profits, the enterprise will u n d e r t a k e invesr-

I

m e n t so l o n g as b a n k finance is a v a i l a b l e . " In other w o r d s , the heads o f big business a n d the state w o r k e d together to ensure the g r o w t h o f J a p a n e s e n a t i o n a l c a p i t a l i s m by ising the w h o l e mass o f s u r p l u s v a l u e a n d directing it touards

"strategic"

sectors,

regardless

of

considerations

of

short-term profitability. W h a t other state capitals d i d w i t h military considerations u p p e r m o s t , Japanese state c a p i t a l i s m did in the interests o f overseas m a r k e t c o m p e t i t i o n . E x p o r t s played a very i m p o r t a n t role in d r i v i n g the e c o n o m y f o r w a r d s . A n d thar m e a n t that J a p a n e s e g r o w t h w a s u l t i m a t e l y d e p e n d e n t o n the US a r m s economy. As R o b e r t Brenner s h o w s in a highly e m p i r i c a l study: G e r m a n a n d Japanese m a n u f a c t u r e r s derived m u c h o f their dynamism

by

means o f a p p r o p r i a t i n g

large segments o f

the

fast-growing w o r l d m a r k e t from the US a n d U K , while beginning 'T he Long Boom

171

to invade the US domestic m a r k e t . This redistribution o f market s h a r e — t h e filling o f orders ( d e m a n d ) by G e r m a n a n d Japanese manufacturers t h a t h a d formerly been supplied by US p r o d u c ers—gave a powerful boost to their investment a n d output. 3 6 It w a s n o t "social c o m p r o m i s e " a n d the " w e l f a r e state" t h a t p r o duced the l o n g b o o m a n d the " g o l d e n a g e " . R a t h e r they were all by-products of militarised state c a p i t a l i s m . Prosperity rested o n the cone o f the H - b o m b . r

L a b o u r p o w e r in the G r e a t B o o m T h r o u g h o u t the first post-war decades u n e m p l o y m e n t w a s at levels k n o w n previously o n l y d u r i n g brief b o o m periods. In the US u n e m p l o y m e n t w a s less t h a n 3 percent in the early

1950s; in

Britain it hovered between 1.5 a n d 2 percent; in West G e r m a n y a high level o f u n e m p l o y m e n t caused by the e c o n o m i c dislocation of the early post-war years fell t o 4 percent in 1957 a n d a mere 1 percent in 1960. So rhe p r o b l e m for industrialised capitalist states w a s n o t c o p i n g w i t h u n e m p l o y m e n t , b u t its o p p o s i t e — e n s u r i n g that e m p l o y m e n t grew at sufficient speed to feed capital's seemingly insatiable appetite for l a b o u r power. The US e m p l o y e d w o r k f o r c e rose by 6 0 percent between 1940 a n d 1970. Such e x p a n s i o n d e m a n d e d completely new supplies o f l a b o u r power. W h e t h e r politicians a n d g o v e r n m e n t administrators liked it or n o t , the state c o u l d n o t leave s u p p l y i n g the key raw material for e c o n o m i c or military competit i o n , labour, t o the vagaries o f a " f r e e " l a b o u r m a r k e t . T h e state had

to

supplement—and

even

partially

supplant—the

wages

system w i t h services a n d subsidies p r o v i d e d by itself o n a m u c h greater scale t h a n previously. O n e a n s w e r t o the shortage o f l a b o u r p o w e r lay in r e d u c i n g the a g r i c u l t u r a l w o r k f o r c e still m o r e , w i t h state-sponsored amalgam a t i o n s o f small

farms—an

approach

followed

in

much

of

Western E u r o p e . A n o t h e r lay in e n c o u r a g i n g massive e m i g r a t i o n o f people f r o m less developed countries t o the cities o f rhe industrial c o u n t r i e s ( f r o m Turkey, Eastern a n d S o u t h e r n E u r o p e t o G e r m a n y ; f r o m Y u g o s l a v i a , Portugal, Spain a n d Algeria t o France; f r o m the West Indies a n d rhe I n d i a n s u b c o n t i n e n t t o B r i t a i n ; f r o m Puerto R i c o t o t h e US). A t h i r d s o l u t i o n — a g a i n a d o p t e d a l m o s r 144

Capitalism in the 20th Century

e v e r y w h e r e — w a s rhe d r a w i n g o f m a r r i e d w o m e n i n t o p a i d emp l o y m e n t . Yet each o f the w a y s o f e n l a r g i n g the l a b o u r

force

created n e w p r o b l e m s for capital a n d the state. Squeezing l a b o u r f r o m agriculture c o u l d w o r k o n l y if resources were p u t i n t o agriculture in order t o increase its productivity. T h i s c o u l d be very expensive. But the alternative w a s t h a t the provision of f o o d for the g r o w i n g u r b a n p o p u l a t i o n a n d r a w materials for industry w o u l d suffer, c r e a t i n g w o r k i n g class discontent a n d bottlenecks in a c c u m u l a t i o n . A n d e v e n t u a l l y there w a s little in rhe w a y o f spare l a b o u r p o w e r left i n the c o u n t r y s i d e t o p r o v i d e for the needs o f i n d u s t r y as the peasantry s h r a n k in n u m b e r s . M i g r a t i o n from the T h i r d W o r l d w a s a very c h e a p w a y o f getting l a b o u r power. T h e advanced c o u n t r y h a d t o bear n o n e of rhe costs of rearing a n d educating this part o f its labour force—effectively, it was g e t t i n g a subsidy f r o m the i m m i g r a n t workers' c o u n t r y o f origin. JK T h e new w o r k f o r c e was usually younger t h a n rhe " n a t i v e " w o r k f o r c e , a n d d e m a n d e d less in the w a y o f health care, old age pensions a n d so o n . A n d its m e m b e r s were usually m o r e prepared to tolerate l o w wages, harsh w o r k i n g c o n d i t i o n s , rigid discipline a n d so o n — i n short, t o be super-exploited. The p o o l f r o m w h i c h this new l a b o u r c a m e w a s potentially limitless. Yet there were practical limits. A s m i g r a n t w o r k e r s became accustomed

to

living

and

working

in

their

new

home,

they

d e m a n d e d c o n d i t i o n s closer t o those o f established w o r k e r s ; they w a n t e d decent a c c o m m o d a t i o n a n d welfare benefits. T h e state h a d either t o increase its e x p e n d i t u r e o n these t h i n g s — o r t o see growing social tensions t h a t c o u l d

lead

t o either intensified

class

struggles (to a considerable extent the revolt in France in 1968 w a s a revolt o f such new workers) o r t o " r a c i a l " clashes between o l d established a n d newer workers. U n a b l e t o afford the social expend i t u r e needed t o head o f f such sources o f social i n s t a b i l i t y — a n d eager t o deflect discontent a w a y f r o m itself—the state usually reacted by i m p o s i n g c o n t r o l s o n further i m m i g r a t i o n . T h e wholesale entry o f married w o m e n into the w o r k f o r c e also d e m a n d e d a certain level o f investment by the state. M e a n s h a d t o be f o u n d to ensure t h a t it did n o t lead t o the neglect o f child reari n g — t h e socialisation o f the next generation o f w o r k e r s — o r a b r e a k d o w n in the provision o f f o o d , shelter a n d c l o t h i n g for the male w o r k f o r c e . M a n y o f these m e a n s c o u l d be p r o v i d e d , at relatively l o w cost, w i t h

rhe a p p l i c a t i o n o f n e w technology.

The

refrigerator, w a s h i n g m a c h i n e a n d v a c u u m cleaner, the replacement 'T he Long Boom

173

o f the coal fire by electricity, gas or oil heating, the p o p u l a r i s a t i o n o f frozen foods, the spread o f fast food outlets, even the television set—all had rhe effect o f reducing the a m o u n t o f effort needed to ensure the reproduction o f b o t h present a n d future l a b o u r power. A n d they usually cost n o t a penny t o the state or capital, being paid for by the family o u t of the enlarged i n c o m e it received as rhe wife t o o k u p p a i d e m p l o y m e n t . C a r i n g for y o u n g children w h i l e both their parents w o r k e d created greater difficulties, since the provision o f nursery facilities could be costly for the stare—even if these costs t o o c o u l d often be recouped f r o m the wage o f the w o r k i n g wife. So all the m e t h o d s o f e x p a n d i n g the l a b o u r force c o u l d w o r k , u p ro a certain p o i n t — b u t b e y o n d that they tended t o i m p l y q u i t e considerable overhead costs. Welfare costs c o u l d be b o r n e w h i l e the system w a s e x p a n d i n g rapidly. The " i n s u r a n c e " principle en sured, as w e s a w in C h a p t e r Five, t h a t s o m e sections o f the w o r k i n g class p a i d for welfare provision t o other sections. T h e extra cost a m o u n t e d ro o n l y 2 or 3 percent o f G N P in Western E u r o p e , w h i l e in the US the srate m a d e a small s u r p l u s . B u r the costs w o u l d b e c o m e a b u r d e n once rhe G r e a t B o o m collapsed. There w a s a n o t h e r s o l u t i o n available t o the l a b o u r shortage. But it was even m o r e expensive. It w a s t o increase state expenditure o n rhe r e p r o d u c t i o n o f the labour force, so as ro increase the average level o f skill. In all the advanced countries there w a s a considerable increase in e d u c a t i o n a l expenditures d u r i n g the G r e a t B o o m — p a r t i c u l a r l y in the u p p e r grades o f secondary e d u c a t i o n a n d in higher education. 4 " Finally, rhere w a s a t h i r d area of e x p a n s i o n o f state expenditures designed t o increase p r o d u c t i v i t y — e x p e n d i t u r e s designed to p r o v i d e a feeling o f security for e m p l o y e d w o r k e r s . I n t o this category fell old age pensions a n d u n e m p l o y m e n t benefits. A s J a m e s O ' C o n n o r n o t e d , " T h e p r i m a r y purpose is to create a sense o f econ o m i c security w i t h i n the ranks o f e m p l o y e d w o r k e r s a n d thereby raise m o r a l e a n d reinforce discipline". 4 1 H e n c e in m a n y countries in the late 1960s wage-related u n e m p l o y m e n t benefits a n d redundancy p a y m e n t s were i n t r o d u c e d . They were the other side o f rhe " s h a k e - o u t " o f l a b o u r f r o m older industries. T h i s " s o c i a l i s a t i o n " o f l a b o u r costs h a d s o m e i m p o r t a n t consequences for the system as a w h o l e . U n d e r c o n d i t i o n s o f acute l a b o u r shortage, the n a t i o n a l capitalist state h a d t o tend a n d care for l a b o u r p o w e r as wTell as e x p l o i t it if p r o d u c t i v i t y w a s t o m a t c h i n t e r n a t i o n a l levels. But this m e a n t t h a t w o r k e r s h a d s o m e 144

Capitalism in the 20th Century

possibilities o f b e i n g a b l e t o sustain t h e m s e l v e s w i t h o u t selling their l a b o u r p o w e r . T h e r e w a s a p a r t i a l n e g a t i o n ot the c h a r a c t e r of free l a b o u r — b u t o n l y a partial

n e g a t i o n , since the state ap-

plied all sorts o f pressures t o keep p e o p l e in the l a b o u r m a r k e t . Yet even this l i m i t e d " n e g a t i o n " o f the free l a b o u r m a r k e t w a s i b u r d e n t h a t p u t u p the o v e r h e a d s o f e a c h n a t i o n a l c a p i t a l . A s such they exerted a d o w n w a r d pressure o n the rate o f return o n the t o t a l n a t i o n a l i n v e s t m e n t . For a l o n g p e r i o d this d i d n o t seem to matter. O t h e r f a c t o r s w e r e ar w o r k

p r o t e c t i n g rhe rate o f

p r o f i t . B u t o n c e the u p w a r d d y n a m i c o f the b o o m

b e g a n ro

w e a k e n , the costs o f w e l f a r e b e c a m e a c r u c i a l p r o b l e m . T h e t w o f u n c t i o n s — o f increasing p r o d u c t i v i t y and

buying consent—were

n o longer c o m p l e m e n t a r y . C a p i t a l h a d t o try t o reduce the cost of m a i n t a i n i n g a n d i n c r e a s i n g p r o d u c t i v i t y , even if d o i n g so upset its o l d m A h a n i s m s f o r k e e p i n g c o n t r o l over the w o r k i n g class. T h i s w a s t o be a n i m p o r t a n t f a c t o r s h a p i n g class struggle once the l o n g b o o m faltered.

I he Eastern b l o c I he Western e c o n o m i e s a n d J a p a n were n o t the o n l y ones t o ichieve r a p i d g r o w t h rates d u r i n g the post-war decades. So t o o did the U S S R a n d the countries it d o m i n a t e d in Eastern E u r o p e . Soviet electricity o u t p u t grew by 5 0 0 percent between 1950 a n d 1 9 6 6 , steel o u t p u t by just u n d e r 2 5 0 percent, oil o u t p u t by 6 0 0 percent, tractor o u t p u t by 2 0 0 percent, fabric o u t p u t by 100 percent, shoe o u t p u t by 100 percent, rhe h o u s i n g stock by 100 percent.' 2 By the m i d - 1 9 7 0 s the s a m e c o n s u m e r g o o d s w h i c h h a d

transformed

^ p e o p l e ' s lives in Western E u r o p e a n d N o r t h A m e r i c a — t h e television set, the refrigerator, the w a s h i n g m a c h i n e — w e r e also m a k i n g their a p p e a r a n c e in Soviet a n d East E u r o p e a n h o m e s , even if m o r e slowly. 4 ' Since the collapse o f the Eastern bloc in 1989-91 it has usually been forgotten t h a t in the 1950s a n d 1960s even by m a n y Western o p p o n e n t s o f the U S S R t o o k it for granted that its g r o w t h rate w a s higher t h a n regimes elsewhere in the w o r l d h a d achieved. A t r e n c h a n t critic o f rhe system, Alec N o v c c o u l d write, " T h e success o f the Soviet U n i o n . . . in m a k i n g itself the w o r l d ' s second industrial a n d military p o w e r is i n d i s p u t a b l e " . 4 4 But simply g r o w i n g fast d i d not overcome the external pressures for m o r e g r o w t h , since even after decades o f industrialisation the 'T he Long Boom

175

Soviet e c o n o m y was still less t h a n h a l f the size o f its then m a i n mil itary competitor, the US. Indeed, in s o m e w a y s the pressures grew greater. A t the beginning o f industrialisation, there were e n o r m o u s reserves o f l a b o u r that c o u l d be released for industry f r o m agriculture. T h a t m e a n t it was n o t o f any great concern to those at the t o p o f the bureaucracy if m u c h o f this l a b o u r was used wastefully. It started t o m a t t e r as the c o u n t r y s i d e began t o e m p t y o f y o u n g m e n — l e a v i n g m u c h o f the agricultural p r o d u c t i o n needed t o feed the cities to be d o n e by d i m i n i s h i n g n u m b e r s o f ageing people. The slave l a b o u r c a m p s were run d o w n s o o n after Stalin's death in 19.53, in part for political reasons b u t also t o release inefficient slave l a b o u r for efficient e x p l o i t a t i o n as w a g e labour. It w a s a n ind i c a t i o n that the phase o f " p r i m i t i v e a c c u m u l a t i o n " w a s at a n end. There w a s recurrent talk w i t h i n official circles f r o m that t i m e onw a r d s a b o u t e c o n o m i c " r e f o r m " . D u r i n g o n e such phase, in 1970, the leader Brezhnev spelt o u t the rationale: C o m r a d e Brezhnev d w e l t o n the question o f the e c o n o m i c competition between the t w o w o r l d systems. " T h i s c o m p e t i t i o n takes different f o r m s , " he said. " I n m a n y cases w e are c o p i n g successfully w i t h the task o f o v e r t a k i n g a n d o u t d i s t a n c i n g t h e capitalist

countries

in

the

production

o f certain

types

of

o u t p u t . . . b u t the f u n d a m e n t a l question is n o t o n l y how 7 m u c h you

p r o d u c e b u t a l s o at w h a t cost, w i t h

w h a t o u t l a y s ot

l a b o u r . . . It is in this field t h a t the centre o f gravity between the t w o systems lies in o u r t i m e " . 4 5 This w a s the same logic o f competitive a c c u m u l a t i o n t h a t operated o n the sometimes h u g e state sector o f rhe Western industrial capitalisms—or, f o r that matter, o n the giant c o r p o r a t i o n s described by G a l b r a i r h . T h e o r g a n i s a t i o n o f p r o d u c t i o n inside the U S S R m i g h t i n v o l v e the p u t t i n g together o f different use values (so m u c h labour, so m a n y physically distinct raw materials, such a n d such a particular sort o f m a c h i n e ) to p r o d u c e further use values. But w h a t mattered to the r u l i n g bureaucracy w a s h o w these use values measured u p t o the s i m i l a r c o n g l o m e r a t i o n s o f use values p r o d u c e d inside the great c o r p o r a t i o n s o f rhe West. A n d t h a t m e a n t comp a r i n g the a m o u n t s o f l a b o u r used in the USSR to the l a b o u r used in rhe Western c o r p o r a t i o n s . O r , t o pur it in M a r x ' s terms, prod u c t i o n w i t h i n the U S S R w a s subject to the l a w o f value o p e r a t i n g o n the g l o b a l scale. 4 " 144

Capitalism in the 20th Century

O n e o f the i l l u s i o n s created b y the r a p i d n o n - s t o p g r o w t h o f ihe U S S R w a s t h a t it p r o c e e d e d s m o o t h l y a n d r a t i o n a l l y acc o r d i n g to the v a r i o u s Five Year P l a n s , i n c o n t r a s t w i t h the u p s and d o w n s in t h e W e s t . But t h e relentless d r i v e t o a c c u m u l a t e h a d as a necessary b y - p r o d u c t d i s o r g a n i s a t i o n , c h a o s a n d w a s t e in w h o l e areas o f p r o d u c t i o n . A t the b e g i n n i n g o f every " p l a n " vast n e w i n d u s t r i a l p r o j e c t s w o u l d b e g i n t o be c o n s t r u c t e d . But .ilter a w h i l e it w o u l d b e c o m e clear t h a t they c o u l d n o t all be Imished.

Some

(usually

catering

for

people's

consumption

needs) w o u l d be " f r o z e n " , w h i l e rhe resources for t h e m w e r e diverted e l s e w h e r e (to the. p r o d u c t i o n o f m e a n s o f p r o d u c t i o n ) . I his m e a n t a c o n t i n u a l c h o p p i n g a n d c h a n g i n g o f rhe g o o d s resources were expected t o p r o d u c e ; s u d d e n pressure o n p e o p l e to p r o d u c e m o r e o f o n e p r o d u c t a n d less o f a n o t h e r ; c o n c e a l m e n t by p e o p l e at every level in the p r o d u c t i o n process o f the resources at their d i s p o s a l in case they w e r e s u d d e n l y pressed t o p r o d u c e m o r e ; massive a m o u n t s o f w a s t e as s o m e o f the t h i n g s c o n t a i n e d in the p l a n s were p r o d u c e d , b u t n o t o t h e r t h i n g s necessary f o r t h e i r use (such as t h e case i n rhe 1 9 8 0 s w h e n vast .1 m o u n t s o f fertiliser were w a s t e d because o n e o f the f r o z e n projects w a s the b u i l d i n g o f rhe f a c t o r y t o p r o v i d e the b a g s f o r p a c k i n g the f e r t i l i s e r ) / Since the collapse o f the Soviet U n i o n it has become h a b i t u a l o n both the left a n d the right to b l a m e all this simply o n bureaucratic irrationality, w i t h o u t a c k n o w l e d g i n g its similarity to the irrationality o f the m a n a g e r i a l d e s p o t i s m w i t h i n Western e n t e r p r i s e s — a n d the c o m m o n roots o f b o t h in the s u b o r d i n a t i o n o f h u m a n l a b o u r to competitive a c c u m u l a t i o n , that is, to the self-expansion o f capital. Yet it was possible t o trace each o f the f o r m s o f irrationality w i t h i n the Soviet e c o n o m y back t o o v e r i n v e s t m e n t — j u s t as it is w i t h managerial irrationality w i t h i n Western c o r p o r a t i o n s . There w a s n o t o n l y w a s t e in the Soviet-type e c o n o m i e s . T h e r e w a s a l s o unevenness in g r o w t h over t i m e , as in the W e s t . Studies m rhe 1 9 6 0 s , m a i n l y by Eastern E u r o p e a n e c o n o m i s t s , revealed the presence o f cyclical ups a n d d o w n s in e c o n o m i e s m o d e l l e d o n t h e U S S R . T h e C z e c h o s l o v a k s G o l d m a n a n d K o r b a t o l d in 1968 h o w : Analysis o f the d y n a m i c s o f industrial p r o d u c t i o n in Czechoslovakia, the G e r m a n D e m o c r a t i c Republic a n d H u n g a r y supplies a n interesting picture. T h e rare o f g r o w t h shows relatively regular 'T he Long Boom

177

fluctuations...

These

fluctuations

are even m o r e p r o n o u n c e d it

analysis is confined t o producer goods. 4 * T h e Y u g o s l a v B r a n k o H o r v a t w a s able to p u b l i s h a b o o k called Business Cycles in Yugoslavia4a

w h i c h pointed o u t that even before

the m a r k e t reforms o f 1968 the Y u g o s l a v e c o n o m y w a s " s i g n i h c a n t l y m o r e u n s t a b l e " t h a n ten other e c o n o m i e s that w e r e cited, " i n c l u d i n g the United States". A Western a c a d e m i c s h o w e d that such unevenness was already visible in the Soviet U n i o n f r o m the t i m e o f the first Five Year p l a n o n w a r d s . 5 T h e p a t t e r n o f unevenness s h o w e d great similarities w i t h the Western capitalist states d u r i n g the l o n g b o o m . Its o r i g i n lay in the

dynamics

of competitive

accumulation.

As

we

saw

in

C h a p t e r Three, at a c e r t a i n p o i n t i n a n y b o o m the c o m p e t i t i v e drive o f capitalists to invest leads to a d r y i n g u p o f existing s u p plies

of

raw

materials,

labour

and

loanable

capital

(ie

non-invested s u r p l u s value). T h e prices o f all these t h i n g s — c o m m o d i t y prices, m o n e y w a g e s a n d interest r a t e s — b e g i n t o rise u n t i l the least p r o f i t a b l e firms s u d d e n l y f i n d they are o p e r a t i n g at a loss. S o m e g o o u t o f business. O t h e r s s u r v i v e , b u t o n l y by a b a n d o n i n g planned investments a n d closing d o w n

factories.

T h e i r a c t i o n s in turn destroy m a r k e t s f o r o t h e r c a p i t a l s , f o r c i n g t h e m t o a b a n d o n i n v e s t m e n t s a n d close d o w n factories. T h e "excess d e m a n d " o f the b o o m gives rise t o rhe o v e r p r o d u c t i o n ot the s l u m p . T h e secret o f the Western l o n g b o o m o f the 1 9 4 0 s , 1950s a n d 1960s lay in the w a y rhe n a t i o n a l state c o u l d reduce the pressures l e a d i n g t o o v e r - a c c u m u l a t i o n (by d i v e r t i n g a p o r tion o f c a p i t a l i n t o n o n - p r o d u c t i v e m i l i t a r y c h a n n e l s ) ; take direct a c t i o n t o try t o m a i n t a i n a h i g h rate o f e x p l o i t a t i o n

(through

w a g e c o n t r o l s ) ; i n t e r v e n e t o s l o w d o w n the b o o m before it led key f i r m s t o b e c o m e u n p r o f i t a b l e ; a n d m a i n t a i n a

minimum

g u a r a n t e e d level o f d e m a n d t h r o u g h m i l i t a r y orders. T h e stare m o n o p o l y capitalist a r m s e c o n o m y w a s n o t able to d o a w a y w i t h the cyclical p a t t e r n o f c a p i t a l i s t a c c u m u l a t i o n . Specifically, it c o u l d n o t s t o p c o m p e t i t i v e pressures c a u s i n g capitalists t o tend t o e x p a n d p r o d u c t i o n d u r i n g u p t u r n s in the e c o n o m y o n a scale w h i c h exceeded the a v a i l a b l e resources. But ir w a s a b l e t o prevent s u c h spells o f " o v e r - a c c u m u l a t i o n " l e a d i n g t o s l u m p s o f the pre-Second W o r l d W a r sort. Something

o f the s a m e pattern

existed

in the

Soviet-type

e c o n o m i e s . Bottlenecks arose t h r o u g h o u t the e c o n o m y , threaten144

Capitalism in the 20th Century

ing the closure o f vast sectors o f p r o d u c t i o n t h r o u g h shortages o f inputs. O u t p u t never rose nearly as r a p i d l y as p l a n n e d . T h e monetary f u n d s p a i d o u t by enterprises for m a t e r i a l s a n d

labour

exceeded the o u t p u t o f the e c o n o m y , g i v i n g rise t o inflationary pressures w h i c h f o u n d direct expression as price rises or " h i d d e n " expression as acute shortages o f g o o d s i n the shops. Left t o itself, over-rapid a c c u m u l a t i o n by c e r t a i n key enterprises w o u l d s o o n h a v e a b s o r b e d rhe resources m a n y enterprises d e p e n d e d o n t o keep o p e r a t i n g ar e x i s t i n g levels, l e a d i n g to the v\ holesale c l o s u r e o f their p l a n t s a n d the d e s t r u c t i o n o f rhe marLets for the o u t p u t o f o t h e r enterprises. It w o u l d have b e c o m e a crisis o f o v e r p r o d u c t i o n o f c o m m o d i t i e s . But as in the W e s t i n the l o n g b o o m , the state stepped in t o try a n d pre-empt this by " c o o l i n g d o w n " the e c o n o m y . It o r d e r e d enterprises ro " f r e e z e " certain i n v e s t m e n t s a n d t o divert resources t o o t h e r s . T h i s involved factories s u d d e n l y s w i t c h i n g f r o m o n e sort o f o u t p u t t o another. T h e m y t h o f the p r e - p l a n n i n g o f p r o d u c t i o n gave w a y to the reality o f after rhe event, " a p o s t e r i o r i " , a l l o c a t i o n , w i t h a repeated s h i f t i n g o f i n p u t s a n d o u t p u t s . O n e p l a n target w h i c h always suffered in the process w a s t h a t for c o n s u m e r g o o d s prod u c t i o n . T h e result w a s t o increase still f u r t h e r the d i s c r e p a n c y between t h e f u n d s l a i d o u t by enterprises o n w a g e s a n d

the

g o o d s a v a i l a b l e f o r these w a g e s t o b u y — t o increase o p e n

or

hidden inflation. D e e p social a n d political crises in 1 9 5 3 (East G e r m a n y ) , 1956 (Poland

and

Hungary),

1968

(Czechoslovakia)

and

1970-71

(Poland a g a i n ) s h o w e d h o w the tensions this p r o d u c e d c o u l d find sudden expression. But so l o n g as it w a s possible to restore g r o w t h rates, the tensions c o u l d be reduced, usually by a c o m b i n a t i o n o f repression o n rhe o n e h a n d a n d concessions over living s t a n d a r d s o n the other. Such remedies h i d t e m p o r a r i l y the u n d e r l y i n g pressures t o w a r d s crisis Those w h o failed t o analyse the system in terms o f c o m p e t i t i v e a c c u m u l a t i o n failed to see this. This w a s true o f the Western procapitalist theorists o f " t o t a l i t a r i a n i s m O n e writings o f rhe 1950s a n d

can search

their

1960s in vain for s o m e h i n t s that

R u s s i a n type systems c o n t a i n e d i n b u i l t e c o n o m i c c o n t r a d i c t i o n s . It w a s also true o f m o s t o f those w h o saw t h e m as s o m e sort o f socialist or workers" states. They were c o n t i n u a l l y over-optimistic a b o u t the e c o n o m i c p r o s p e c t s — i n their o w n w a y m i r r o r i n g the illusions o f the Western Kcyncsians. 'T he Long Boom

179

A r m s , profits a n d of the C o l d W a r T h e a r m s budgets of the great p o w e r s were central ro their econ o m i c development. But their roots were n o t n a r r o w l y e c o n o m i c . They flowed f r o m a n e w struggle to divide a n d redivide the w o r l d between the m a i n victors o f the Second W o r l d War, the US a n d the U S S R — t h e C o l d War. T h e US h a d a s p i r a t i o n s for its i n d u s t r i e s , the m o s t a d v a n c e d a n d p r o d u c t i v e in rhe w o r l d , t o penetrate the w h o l e w o r l d econ omy

through

"free t r a d e " .

The W e s t e r n

European

powers,

e x h a u s t e d by the war, w e r e in n o p o s i t i o n ro c h a l l e n g e it direct I > ( a l t h o u g h British p o l i t i c i a n s o f t e n expressed a p r i v a t e desire to d o so). Russia's rulers w e r e in a d i f f e r e n t s i t u a t i o n . T h e w a r ' s end

left t h e m

dominating

virtually

the w h o l e

of

northern

E u r a s i a , f r o m t h e b o r d e r s o f W e s t e r n E u r o p e r i g h t t h r o u g h ro the Pacific. W i t h levels o f i n d u s t r i a l p r o d u c t i v i t y less t h a n half those o f the U S , they were i n n o p o s i t i o n t o sustain themselves i n e c o n o m i c c o m p e t i t i o n t h r o u g h free t r a d e . But they c o u l d c o n rest the US a t t e m p t at g l o b a l h e g e m o n y by b l o c k i n g its access t o the e c o n o m i e s u n d e r their c o n t r o l — n o t just the territory o f the o l d R u s s i a n E m p i r e , b u t a l s o the c o u n t r i e s o f Eastern E u r o p e w h i c h rhey s u b o r d i n a t e d t o their m i l i t a r y - i n d u s t r i a l g o a l s . T h e U S , f o r its p a r t , rushed t o c e m e n t its h e g e m o n y over W e s t e r n Europe through financing pro-American Christian

Democrat

a n d Social D e m o c r a t p o l i t i c a l parties, rhe M a r s h a l l Plan for rev i v i n g E u r o p e a n i n d u s t r y w i t h i n p a r a m e t e r s f a v o u r a b l e t o US interests, a n d rhe c r e a t i o n o f the N A T O m i l i t a r v a l l i a n c e a n d setting u p US bases in Western E u r o p e . T h e pattern w a s laid for the next 4 0 years, o f each o f the t w o great p o w e r s reaching o u t t o d r a w as m u c h o f the w o r l d as possible i n t o its sphere o f influence so as t o gain a strategic a d v a n t a g e over the other. T h e y f o u g h t a b l o o d y w a r over c o n t r o l o f the K o r e a n p e n i n s u l a , n o t because o f the little w e a l t h it t h e n possessed, b u t because o f the strategic i m p l i c a t i o n s for the w h o l e of the East A s i a n a n d Pacific region. Each tried over rhe f o l l o w i n g decades t o extend its sphere o f influence by g i v i n g aid a n d a r m s ro states w h i c h fell o u t w i t h its rival. T h e C o l d W a r c o n f l i c t c o u l d n o t be e x p l a i n e d by e c o n o m i c s as o f t e n u n d e r s t o o d , in t e r m s s i m p l y o f p r o f i t a n d loss accounti n g . T h e a r m a m e n t s bills o f b o t h great p o w e r s s o o n exceeded a n y t h i n g their rulers c o u l d h o p e t o g a i n f r o m the increased 144

Capitalism in the 20th Century

e x p l o i t a t i o n o f the lesser p o w e r s u n d e r their c o n t r o l . A t

no

fctage in the 1 9 4 0 s o r 1950s d i d total U S overseas i n v e s t m e n t (ler done the m u c h s m a l l e r r e t u r n o n t h a t i n v e s t m e n t ) exceed US s p e n d i n g o n a r m s . E v e n in the p e r i o d o f " d i s a r m a m e n t "

prior

co the o u t b r e a k o f t h e K o r e a n W a r " m i l i t a r y e x p e n d i t u r e totalled s o m e t h i n g like S 1 5 b i l l i o n a year. T h u s it w a s 2 5 times as high as the s u m o f p r i v a t e c a p i t a l e x p o r t s 1 . " By 1980 t o t a l exp e n d i t u r e o n " d e f e n c e " h a d risen t o a r o u n d $ 2 0 0 b i l l i o n — l e s s n o w t h a n t o t a l overseas i n v e s t m e n t o f $ 5 0 0 b i l l i o n , b u t still s u b s t a n t i a l l y m o r e t h a n the p r o f i t s t h a t c o u l d p o s s i b l y a c c r u e from that investment.

-

T h e p i c t u r e for the U S S R w a s s o m e w h a t similar. In the years 1945-50 it pillaged Eastern E u r o p e , r e m o v i n g p l a n t a n d equipment w h o l e s a l e from East G e r m a n y a n d R o m a n i a , a n d forced the region as a w h o l e t o accept prices b e l o w w o r l d m a r k e t levels for goods g o i n g t o the U S S R p r o p e r / 2 Bur even in t h a t period the econ o m i c g a i n s f r o m this m u s t h a v e been s u b s t a n t i a l l y less t h a n rhe escalation o f the USSR's a r m s b u d g e t o n c e the C o l d W a r h a d well and truly b e g u n . A n d f r o m

1955 o n w a r d s fear o f rebellion in

Eastern E u r o p e led rhe Soviet g o v e r n m e n t t o relax the direct econ o m i c pressure o n its satellites. T h e i m p e r i a l i s m w h i c h necessitated a r m s s p e n d i n g w a s n o t t h a t of a single e m p i r e in w h i c h a few " f i n a n c e capitalists" at the centre m a d e h u g e super-profits by h o l d i n g b i l l i o n s o f p e o p l e

down.

Rather it w a s the i m p e r i a l i s m o f rival empires, in w h i c h the combined capitalists o f each r u l i n g class h a d t o divert f u n d s f r o m p r o d u c t i v e investments t o m i l i t a r y e x p e n d i t u r e in order t o ensure that they h u n g o n t o w h a t they already possessed. T h e c a l c u l a t i o n in b o t h W a s h i n g t o n a n d M o s c o w w a s s i m p l e . To relax the level o f m i l i t a r y s p e n d i n g w a s t o risk losing strategic s u p e r i o r i t y t o the rival i m p e r i a l i s m , e n a b l i n g it t o e x t e n d its sphere o f d o m i n a n c e . So the R u s s i a n s lived in fear o f a n att e m p t e d US " r o l l b a c k " o f Eastern E u r o p e , w h i c h w o u l d

have

b r o k e n these e c o n o m i e s f r o m the U S S R ' s g r a s p , l e a d i n g i n t u r n to the p o s s i b i l i t y o f a n u n r a v e l l i n g o f the ties w h i c h b o u n d rhe o t h e r c o n s t i t u e n t parts o f the U S S R t o its R u s s i a n centre (somet h i n g t h a t d i d in fact h a p p e n e v e n t u a l l y w i t h the great e c o n o m i c a n d p o l i t i c a l crisis t h a t s h o o k rhe w h o l e Eastern b l o c i n the years 1989 t o 1 9 9 1 ) . A t the s a m e t i m e , the US feared for its h e g e m o n y . As o n e US s p o k e s m a n p u t it at the t i m e o f t h e K o r e a n

War,

" W e r e either o f the t w o critical areas o n the b o r d e r s o f the 'T he Long Boom

181

C o m m u n i s t w o r l d ro be o v e r r u n — W e s t e r n E u r o p e o r A s i a — t h e rest o f the free w o r l d w o u l d be i m m e n s e l y w e a k e n e d . . . i n econ o m i c and military strength..."'1 Ir was necessary, in other w o r d s , to t u r n vast a m o u n t s o f value i n t o m e a n s o f d e s t r u c t i o n — n o t in order t o o b t a i n m o r e value but t o h o l d o n t o t h a t already possessed. Such w a s rhe logic o f capital isr c o m p e t i t i o n applied t o the relations between states. So the C o l d W a r a m o u n t e d t o a n e w inter-imperialist conflict o f the sort de scribed by B u k h a r i n , a n d it soon o v e r s h a d o w e d the old imperialist conflicts between the West E u r o p e a n p o w e r s .

D e c o l o n i s a t i o n and d e v e l o p m e n t a l ism in the G l o b a l South Eighty five percent of h u m a n i t y lived outside the a d v a n c e d industrial countries. Their experience o f rhe " g o l d e n a g e " w a s very far from g o l d e n . T h e great m a j o r i t y still lived in rhe c o u n t r y s i d e , a n d there w a s little c h a n g e in the poverty t h a t p l a g u e d their d a i l y lives. O n e i m p o r t a n t political c h a n g e d i d , however, take place. T h e West E u r o p e a n powers, were forced, bit by bit, t o a b a n d o n direct c o l o n i a l rule, a process starting w i t h a w e a k e n e d Britain e n d i n g its 190 year o l d e m p i r e in I n d i a in 1 9 4 7 a n d e n d i n g w i t h Portugal h a n d i n g over p o w e r t o liberation m o v e m e n t s in Africa in 1975. T h e US replaced Western E u r o p e a n influence in s o m e regions. It t o o k c o n t r o l o f S o u t h V i e t n a m w h e n the French w i t h d r e w in 1 9 5 4 — u n t i l it t o o w a s forced t o w i t h d r a w after the most bitter ol w a r s in the mid-1970s. It became the d o m i n a n t influence in most o f the M i d d l e F'ast a n d parts o f Africa. But, like the E u r o p e a n p o w e r s , it retreated f r o m f o r m a l c o l o n i s a t i o n , g r a n t i n g i n d e p e n dence t o the P h i l i p p i n e s a n d k e e p i n g direct c o n t r o l o n l y over Puerto R i c o . T h i s retreat f r o m direct c o l o n i s a t i o n h a d as a direct c o r o l l a n the end o f t h e o l d clashes between the Western p o w e r s over rhe p a r t i t i o n i n g o f the rest o f the w o r l d . T h e drive t o w a r between t h e m seemed t o have g o n e o n c e a n d for all. It w a s also accompanied, as w e have seen, by s o m e t h i n g else unexpected by the classu theories o f i m p e r i a l i s m — l o s i n g their colonies did n o t s t o p Western e c o n o m i e s p a r t i c i p a t i n g in the l o n g b o o m a n d c o n c e d i n g regular rises in living s t a n d a r d s t o their workers. A n d the a d v a n c e d c o u n tries w i t h o u t a n y c o l o n i e s — W e s t G e r m a n y , J a p a n a n d I t a l y — h a d the e c o n o m i e s w h i c h e x p a n d e d fastest o f all. M e a n w h i l e , for the 144

Capitalism in the 20th Century

first t w o post-war decades, exports o f capital stayed d o w n at the very l o w levels they h a d s u n k t o in rhe great s l u m p o f rhe 1930s. As M i k e K i d r o n p o i n t e d o u t in 1962: Even in B r i t a i n . . . t h e significance o f c a p i t a l exports has declined t r e m e n d o u s l y : latterly they have run at a b o u t 2 percent o f gross n a t i o n a l p r o d u c t c o m p a r e d w i t h 8 percent in the period before W o r l d W a r O n e ; they n o w a b s o r b less t h a n 10 percent o f savings c o m p a r e d w i t h s o m e 5 0 percent before; a n d returns o n foreign investment have been r u n n i n g at slightly over 2 percent o f n a t i o n a l i n c o m e c o m p a r e d w i t h . . . 10 percent in 1 9 1 4 . " Hie foreign i n v e s t m e n t t h a t d i d take place w a s decreasingly directed t o w a r d s the less industrialised parts o f the w o r l d : " T h e concentration

o f activity is increasingly w i t h i n

the developed

w o r l d , leaving all b u t a few d e v e l o p i n g countries outside the reach «r

of the n e w d y n a m i s m " . ^ T h e r e w a s a l s o a shift in the d e m a n d for T h i r d W o r l d products.

Raw

materials

from

agricultural

countries

had

been

i n d i s p e n s a b l e f o r i n d u s t r i a l p r o d u c t i o n in the W e s t b e f o r e the I irst W o r l d W a r , a n d c o l o n i a l c o n t r o l w a s a n i m p o r t a n t w a y for i n d u s t r i a l i s e d c o u n t r i e s t o ensure their o w n s u p p l i e s a n d b l o c k access t o their rivals. But n o w there w e r e synthetic substitutes for most r a w m a t e r i a l s — a r t i f i c i a l fertilisers, synthetic rubber, r a y o n , nylon,

plastics.

A

parallel

transformation

of agriculture

in

Western E u r o p e a n d N o r t h A m e r i c a reduced f o o d i m p o r t s f r o m the rest o f the w o r l d . By rhe late 1950s w i t h d r a w a l f r o m c o l o n i e s in Africa a n d Asia w a s n o longer the t h r e a t it w o u l d o n c e h a v e been ro the industrialists o f the E u r o p e a n c o u n t r i e s . C o m p a n i e s which h a d m a d e their f o r t u n e s f r o m p l a n t a t i o n s a n d m i n e s o f rhe ( i l o b a l S o u t h began t o diversify their i n v e s t m e n t s i n r o n e w lines of business. There w a s o n e great exception t o this p i c t u r e — o i l . Here w a s rhe t a w material o f r a w materials, the ingredient for m a n u f a c t u r i n g plastics, synthetic r u b b e r a n d artificial fibres, as well as p r o v i d i n g for massively e x p a n d i n g energy needs a n d p r o p e l l i n g rhe ever greater p r o l i f e r a t i o n o f m o t o r vehicles, ranks a n d aircraft. A n d the supplies o f it were increasingly t o be f o u n d o u t s i d e E u r o p e a n d North

America.

By the m i d - 1 9 7 0 s S a u d i A r a b i a ,

Iraq,

Iran,

K u w a i t , a n d the petty s h e i k h d o m s a r o u n d the A r a b i a n Peninsula were the countries that m a t t e r e d — a s w a s s h o w n by the r e m p o r a r y 'T he Long Boom

183

i n t e r r u p t i o n o f supplies d u r i n g the Arab-Israeli w a r o f 1 9 7 3 . h w a s n o t an accident t h a t the o n e version o f o l d style c o l o n i a l i s m »

t h a t c o n t i n u e d to get u n t r a m m e l l e d s u p p o r t f r o m all the Western states was the settler state o f Israel—fostered in its early years as a " J e w i s h h o m e l a n d " by British i m p e r i a l i s m , a r m e d for its seizure of 78 percent o f Palestine in 1948 by the U S a n d the U S S R , allied w i t h Britain a n d France in their a t t a c k o n Egypt in 1 9 5 6 , a n d b a c k e d wholeheartedly by the US in the aggression t h a t gave ir c o n t r o l o f the rest of Palestine in J u n e 1967. 56

I n d i g e n o u s governments a n d capitalist d e v e l o p m e n t T h e d i s m a n t l i n g o f the E u r o p e a n c o l o n i a l empires w a s a fact ot i m m e n s e i m p o r t a n c e for s o m e t h i n g like h a l f the w o r l d ' s p e o p k w h o h a d lived u n d e r rheir t h u m b . It also raised very i m p o r t a n t questions for those w h o h a d , in one w a y or another, fought against the h o l d o f those empires. W h a t h a p p e n e d t o i m p e r i a l i s m — a n d the fight against i t — i f empires n o longer existed? T h e reaction o f m a n y social d e m o c r a t s a n d liberals in the West w a s to say t h a t i m p e r i a l i s m n o longer existed. T h i s w a s , for in stance, the conclusion d r a w n by J o h n Strachey. In End of

Empire

( 1 9 5 9 ) he argued that rising living s t a n d a r d s m e a n t businesses n o longer needed colonies t o a b s o r b the surplus a n d prevent o v e r p r o d u c t i o n . In effect, he w a s saying t h a t H o b s o n ' s alternative to i m p e r i a l i s m , a reflation o f the d o m e s t i c e c o n o m y , h a d prevailed a n d solved the systems p r o b l e m s . A n i m p o r t a n t section o f rhe left rejected such reasoning. They c o u l d see t h a t the former c o l o n i a l countries were still p l a g u e d by poverty a n d h u n g e r — a n d t h a t the Western firms t h a t h a d benefited f r o m e m p i r e r e m a i n e d entrenched in t h e m . W h a t is m o r e , the end o f the E u r o p e a n empires w a s n o t the end t o the violence inflicted o n the peoples of T h i r d W o r l d , as the US state picked u p the cudgel o f the d e p a r t i n g E u r o p e a n s . Yet rejection o f facile talk a b o u t an e n d to i m p e r i a l i s m w a s often a c c o m p a n i e d by q u o t e s , p a r r o t f a s h i o n , f r o m Lenin's 1916 analysis w i t h o u t recognising the changes t h a t h a d occurred since it w a s w r i t t e n . H i s insistence t h a t the great Western p o w e r s were driven t o d i v i d e a n d redivide the w o r l d between t h e m t h r o u g h direct c o l o n i a l rule h a r d l v fitted a s i t u a t i o n in w h i c h c o l o n i c s h a d 0

g a i n e d i n d e p e n d e n c e . T h e response o f m o s t o f the left w a s quietly 144

Capitalism in the 20th Century

to redefine i m p e r i a l i s m to m e a n s i m p l y the e x p l o i t a t i o n o f the I hird W o r l d b y Western capitalist classes, d r o p p i n g the drive towards w a r between imperialist p o w e r s s o central to Lenin's theory lor w h a t w a s in reality a version o f K a u t s k y s ultra-imperialism. At the s a m e t i m e they s i m p l y replaced talk o f c o l o n i a l i s m w i t h talk o f "neo-colonies" or "semi-colonies". Lenin h a d written o f "semi-colonies". For h i m these were places like C h i n a ar the t i m e o f the First W o r l d War, w h e r e " i n d e p e n dence" c o n c e a l e d c o n t i n u e d political s u b o r d i n a t i o n t o foreign a r m e d forces in p a r t i a l o c c u p a t i o n of the c o u n t r y . There were some places w h e r e things-did seem like this after the end o f direct c o l o n i a l c o n t r o l in the 1950s a n d 1960s. In m a n y cases the departing c o l o n i a l a d m i n i s t r a t i o n s were able to ensure that their place w a s t a k e n ^ y their o w n creatures, w i t h e n o r m o u s c o n t i n u i t y in the personnel o f the state, especially w h e n it c a m e ro key positions in the a r m e d forces. So, for i n s t a n c e , France h a d g r a n t e d " i n d e p e n d e n c e " to h u g e areas o f West a n d C e n t r a l Africa

by

h a n d i n g p o w e r ro people w h o c o n t i n u e d , as in the past, t o w o r k with French c o m p a n i e s , use the French c u r r e n c y — a n d periodically invite French t r o o p s in to m a i n t a i n " o r d e r " . But in s o m e o f the m o s t i m p o r t a n t cases independence d i d m e a n independence. G o v e r n m e n t s proceeded n o t o n l y t o take seats in ilie United N a t i o n s a n d set u p embassies all over the w o r l d . They also intervened in the e c o n o m y , n a t i o n a l i s i n g c o l o n i a l c o m p a n i e s , i m p l e m e n t i n g l a n d reforms, e m b a r k i n g o n schemes o f industrialisation

inspired

by

the

preaching

of

theorists

of

economic

d e v e l o p m e n t o r often by Stalin's Russia. Such things were undertaken w i t h v a r y i n g degrees o f success o r failure in I n d i a , E g y p t , Syria, Iraq, Algeria, I n d o n e s i a , G h a n a , E q u a t o r i a l G u i n e a , A n g o l a ind S o u t h K o r e a , as well as by rhe m o r e radical regimes o f C h i n a , ( uba a n d V i e t n a m . O v e r t i m e even s o m e o f the " d o c i l e " ex-colonial regimes began to f o l l o w the same p a t h . T h i s w a s t r u e , f o r instance, o f the M a l a y s i a n r e g i m e / o f the Shah's regime in Iran in the 1960s a n d early 1970s, a n d o f the Taiwanese regime. Even the dictator M o b u t u , b r o u g h t to p o w e r w i t h the help o f the C I A in ( o n g o - Z a i r e in 1965, n a t i o n a l i s e d the m i g h t y U n i o n M i n i e r e de I laut K a t a n g a m i n i n g c o r p o r a t i o n a l o n g w i t h 7 0 percent o f e x p o r t earnings three years later. To call regimes like Nasser s Egypt or N e h r u s I n d i a "neo-colon i a T or " s e m i - c o l o n i a l " w a s a travesty—as it w a s w i t h " p o p u l i s t " regimes in Latin A m e r i c a or rhe F i a n n a 'T he Long Boom

Fail g o v e r n m e n t s

in 185

Ireland. A t t e m p t s were m a d e in each case t o establish n o t o n l y in dependent political entities, b u t also i n d e p e n d e n t centres o f capital a c c u m u l a t i o n . These still operated w i t h i n a w o r l d d o m i n a t e d b\ rhe m u c h stronger c a p i t a l i s m s o f the a d v a n c e d countries, b u t the) were by n o means mere p l a y t h i n g s o f t h e m . A new " d e v e l o p m e n t a l i s t " o r t h o d o x y p o i n t e d the m e a n s by w h i c h such economies were m e a n t t o close the g a p w i t h the ad vanced

industrial

nations.

It

held

that

capitalist

market

m e c h a n i s m s c o u l d n o t achieve that g o a l . As the staff o f the W o r l d B a n k later recalled o f " r h e d o m i n a n t p a r a d i g m at t h a t t i m e " : It w a s assumed that in the early stages o f d e v e l o p m e n t markets c o u l d n o t be relied u p o n , a n d t h a t the stare w o u l d be able ro direct the d e v e l o p m e n t process... T h e success o f state p l a n n i n g in achieving industrialisation in the Soviet U n i o n (for so it w a s perceived) greatly influenced p o l i c y m a k e r s . T h e m a j o r develo p m e n t institutions ( i n c l u d i n g the W o r l d B a n k ) s u p p o r t e d these views w i t h various degrees o f enthusiasm.™ Just as Keynesianism w a s d o m i n a n t w i t h i n b o u r g e o i s e c o n o m i c s in rhe a d v a n c e d countries at the t i m e , so statist, " i m p o r t substitu t i o n i s t " , doctrines were h e g e m o n i c w h e n it c a m e t o the T h i r d W o r l d . T h e m a i n p r o p o n e n t o f these in the 1940s a n d 1950s w a s the verv influential U n i t e d N a t i o n s E c o n o m i c C o m m i s s i o n L a t i n A m e r i c a , directed

by the A r g e n t i n i a n e c o n o m i s t

for

Raoul

Prebisch. It argued t h a t d e v e l o p m e n t c o u l d o n l y take place if the state intervened to b l o c k i m p o r t s to foster the g r o w t h o f n e w local i n d u s t r i e s , " since otherwise " d e p e n d e n c e " o n the a d v a n c e d capitalist e c o n o m i e s w o u l d prevent i n d u s t r i a l i s a t i o n . " 6 0 M o r e radical versions o f such " d e p e n d e n c y t h e o r y " d o m i n a t e d m u c h o f the left w o r l d w i d e in the 1960s. T h e w r i t i n g s o f Paul B a r a n (especially The Political

Economy

of Growth)

and Andre

G u n d e r F r a n k ( w h o talked o f the " r h e d e v e l o p m e n t o f underdev e l o p m e n t " ) 6 1 d o m i n a t e d m o s t M a r x i s t t h i n k i n g o n the subject (even t h o u g h G u n d e r F r a n k d i d n o t see himself as M a r x i s t ) . " Baran wrote that: Far f r o m serving as an engine o f e c o n o m i c e x p a n s i o n , o f tech n o l o g i c a l progress a n d social c h a n g e , the c a p i t a l i s t order in these countries has represented a f r a m e w o r k for e c o n o m i c stagn a t i o n , for a r c h a i c technology a n d for social b a c k w a r d n e s s . 6 ' 144

Capitalism in the 20th Century

Adding: The e s t a b l i s h m e n t o f a socialist p l a n n e d e c o n o m y is the essential, i n d e e d

indispensable, c o n d i t i o n

for the a t t a i n m e n t

of

e c o n o m i c a n d social progress in u n d e r d e v e l o p e d countries. 1 1 ( . u n d e r F r a n k was just as a d a m a n t : N o c o u n t r y w h i c h has been tied t o the m e t r o p o l i s as a satellite through

incorporation

in

the w o r l d

capitalist

system

has

achieved rhe r a n k o t a n e c o n o m i c a l l y developed c o u n t r y except by finally a b a n d o n i n g the capitalist system."' " S o c i a l i s m " for Baran a n d " b r e a k i n g w i t h c a p i t a l i s m " for G u i l d e r I rank m e a n t f o l l o w i n g the m o d e l o f Stalinist Russia.'" The " d e p e n d e n c y " a r g u m e n t , w h e t h e r in its mainstream or radical f o r m , w a s a w e a k one. It assumed that capitalists f r o m the idvanced countries w h o invested in rhe T h i r d W o r l d w o u l d deliberately choose n o t to b u i l d u p industry even w h e n it w o u l d have been profitable. This did n o t fit the facts. There w a s considerable foreign finance o f industrial d e v e l o p m e n t in Tsarist Russia, Argentina a n d ihe British d o m i n i o n s before the First W o r l d War. N o r did Western states at all times use their p o w e r t o prevent industrialisation. Sometimes they did a n d sometimes they did not. Finally, a ruling c lass o f one country w h i c h depends o n bigger capitalist countries for m u c h o f its trade a n d investment does n o t completely lose its ability to

forge

an

independent

path

of

capital

accumulation.

The

I uropean economies, for instance, have long been ro a high degree dependent o n

what

h a p p e n s in the US e c o n o m y w i t h o u t

the

I uropean ruling classes simply b e c o m i n g A m e r i c a n puppets. So pervasive w a s the view t h a t " c a p i t a l i s m m e a n s underdevelopment"

t h a t p e o p l e read it back

i n t o s o m e o f the

Marxist

classics. B a r a n q u o t e d Lenin to back u p his case, w h i l e even someone as perceptive as Nigel H a r r i s c o u l d ascribe such views t o " t h e Bolsheviks in 1 9 1 7 V 7 Lenin's writings o n imperialism h a d in fact pur f o r w a r d a completely different view, as did Leon Trotsky's writings o f the late 1920s. Lenin wrote that the export o f capital "accelerates the develo p m e n t o f capitalism in rhe countries to which it is e x p o r t e d w h i l e Trotsky wrote that capitalism "equalises the cultural a n d e c o n o m i c development o f the most advanced a n d most b a c k w a r d countries" ,nV t he Long Boom

1S7

even if as it d i d so " d e v e l o p i n g some parts o f the w o r l d e c o n o m y w h i l e h a m p e r i n g a n d t h r o w i n g back the d e v e l o p m e n t o f others"."" W h a t m a i n s t r e a m d e p e n d e n c y t h e o r y d i d d o for a p e r i o d w a s p r o v i d e an ideological justification for m e t h o d s w h i c h e n a b l e d the rulers o f s o m e politically i n d e p e n d e n t states t o achieve impressive levels o f a c c u m u l a t i o n , even if o n l y for a p e r i o d . A r g e n t i n a ' s rati o f e c o n o m i c g r o w t h t h r o u g h rhe 1950s a n d 1960s w a s c o m p a r a ble w i t h t h a t o f Italy" 1 a n d

by the early

w o r k f o r c e w a s in industry, w i t h o n l y

1970s a t h i r d o f is

13 percent o n the l a n d .

Brazil's 9 percent g r o w t h rate w a s o n e o f the highest in rhe w o r l d a n d by the mid-1980s the Economist

c o u l d refer ro S a o P a u l o as

" a D e t r o i t in the m a k i n g " . " 4 S o u t h K o r e a experienced r a p i d ecu n o m i c g r o w t h o f a b o u t 8 percent a year after a g e n e r a l . Park C h u n g H e e , seized p o w e r in 1961 a n d forced the b i g firms (or chaebols)

t o w o r k w i t h i n a f r a m e w o r k established b y rhe state a n d

e m b a r k e d o n state capitalist i n d u s t r i a l i s a t i o n . C h i n a , w h e r e stare c o n t r o l o f the e c o n o m y c a m e closest t o the R u s s i a n m o d e l endorsed by the radical d e p e n d e n c y theorists, h a d a n e c o n o m i c g r o w t h rate n o h i g h e r t h a n these figures o n c e it h a d c o m p l e t e d the first short stage o f e c o n o m i c recovery f r o m 2 0 years o f civil w a r a n d J a p a n e s e i n v a s i o n . T h e i m p o s i t i o n o f p l a n s w h i c h diverted resources t o w a r d s n e w heavy i n d u s t r i e s — s t e e l , c e m e n t , e l e c t r i c i t y — i n a very p o o r , o v e r w h e l m i n g l y a g r i c u l t u r a l c o u n t r y like the C h i n a o l t h e early 1950s m e a n t s q u e e z i n g the l i v i n g stand a r d s o f rhe m a s s o f the p o p u l a t i o n . W h a t the peasants h a d g a i n e d t h r o u g h land reform in the previous decade, they n o w lost t h r o u g h rigorously enforced t a x a t i o n o f their o u t p u t . T h e n c a m e the ultim a t e l y disastrous a t t e m p t a t c o l l e c t i v i s a t i o n t h r o u g h

so-called

People's C o m m u n e s , in a n a t t e m p t t o b r i n g a b o u t a " G r e a t L e a p F o r w a r d " in e c o n o m i c d e v e l o p m e n t . T h e l e a p c u t t o t a l agricultural o u t p u t , led t o f a m i n e in vast areas o f rhe c o u n t r y s i d e a n d h a d t o be a b a n d o n e d . M u c h o f the n e w i n d u s t r y w a s far f r o m efficient. T h e g r o w t h o f h e a v y i n d u s t r y o u t o f all p r o p o r t i o n t o w h a t w a s h a p p e n i n g in t h e rest o f the e c o n o m y led t o a c u t e s h o r t a g e s ot i n p u t s needed t o keep p l a n t s r u n n i n g , a n d t o the p r o d u c t i o n o f o t h e r g o o d s w h i c h h a d n o i m m e d i a t e use. There w e r e m a s s i v e s w i n g s b e t w e e n spells o f fast i n d u s t r i a l e x p a n s i o n a n d spells o f near s t a g n a t i o n , a n d m a n y o f the g r a n d i o s e n e w g i a n t p l a n t s were o n l y a b l e to w o r k at a f r a c t i o n o f their capacity. T h e r e w a s u s u a l l y g r o w t h even in c o u n t r i e s t h a t w e r e n o t as successful as Brazil a n d S o u t h K o r e a . T h e m a n u f a c t u r i n g o u t p u t 144

187 Capitalism111the 20th Century

111 India grew by 5.3 percent a year f r o m 1 9 5 0 ro 198 I , a n d agriiillrural

output

by 2.3

percent, even

if there was

continual

d i s a p p o i n t m e n t at the e c o n o m y ' s i n a b i l i t y t o exceed a " H i n d u " r.rowth rate o f 4 percent. Sub-Saharan Africa h a d * p e r capita growth rates o f a r o u n d 2 percent in the early 1960s'" w h i c h " r o s e lo nearly 5 p e r c e n t by the e n d o f that d e c a d e " .

Egypt, whose

leader Nasser n a t i o n a l i s e d a l m o s t all o f industry, g r e w a b o u t 6 percent per year t h r o u g h the first h a l f o f the 1960s. Such o u t c o m e s hi terms o f levels o f e c o n o m i c g r o w t h were e n o u g h ro c o n v i n c e one " r e v i s i o n i s t " M a r x i s t , Bill W a r r e n , t o c o m e t o the c o n c l u s i o n in rhe early 1970s t h a t m o s t o f rhe rest o f the left w e r e w r o n g , t ountries in the T h i r d W o r l d c o u l d catch u p wirh the West without b r e a k i n g w i t h c a p i t a l i s m : T h e prospects % for successful c a p i t a l i s t e c o n o m i c d e v e l o p m e n t (implying industrialisation) of a significant n u m b e r of major underdeveloped progress

in

countries

capitalist

are

quite

industrialisation

good... has

Substantial

already

been

a c h i e v e d . . . In so far as there are obstacles to this d e v e l o p m e n t , they o r i g i n a t e n o t in c u r r e n t i m p e r i a l i s t - T h i r d W o r l d relationships, b u t a l m o s t entirely f r o m the i n t e r n a l c o n t r a d i c t i o n s o f the T h i r d W o r l d itself... T h e i m p e r i a l i s t c o u n t r i e s ' p o l i c i e s a n d their o v e r a l l i m p a c t o n the T h i r d W o r l d a c t u a l l y f a v o u r its i n d u s t r i a l i s a t i o n . . . 7 * I le p r o v i d e d figures s h o w i n g rhe real per capita e c o n o m i c g r o w t h ihat w a s in fact h a p p e n i n g . In c h a l l e n g i n g the a s s u m p t i o n of the radical version o f dependency theory he w a s o n strong g r o u n d . So too w a s h e w h e n he m a d e rhe p o i n t t h a t if the left s a w its m a i n priority as s u p p o r t i n g industrialising regimes as " a n t i - i m p e r i a l i s t " it could " f i n d itself directly s u p p o r t i n g bourgeois regimes w h i c h , as in Peru a n d Egypt, e x p l o i t a n d oppress w o r k e r s a n d peasants while e m p l o y i n g anti-imperialist r h e t o r i c " . But l a c k i n g f r o m his analysis w a s a n y real a c c o u n t i n g for rhe enormous

unevenness

between

Third

World

countries,

even

t h o u g h his o w n figures s h o w e d t h a t per c a p i t a a n n u a l g r o w t h in t w o o f the most p o p u l o u s countries, I n d i a a n d I n d o n e s i a , w a s o n l y 1.2 percent a n d

1 percent ( c o m p a r e d t o 6.8 percent for S o u t h

Korea, 4 . 9 percent for T h a i l a n d a n d 7.1 percent for Z a m b i a ) . H e also failed t o see that r a p i d capitalist d e v e l o p m e n t w a s nor necessarily s m o o t h a n d u n i n t e r r u p t e d t h r o u g h rime: 'T he Long Boom

189

Private investment in the T h i r d W o r l d is increasingly creating the c o n d i t i o n s for rhe d i s a p p e a r a n c e o f i m p e r i a l i s m as a system o f e c o n o m i c i n e q u a l i t y between n a t i o n s o f the capitalist w o r l d system, a n d . . . t h e r e are n o limits, in principle, ro this process. T h i s led h i m to m a k e a p r e d i c t i o n t h a t w o u l d s o o n be p u t the rest—and proved d r a m a t i c a l l y w r o n g : As for future prospects, the W o r l d Bank s view is t h a t the m a jority o f countries in the 1970s w i l l , as in the 1960s, r e m a i n free o f debt servicing p r o b l e m s . . . T h e Hrst three years o f the

1970s

strongly suggest t h a t this will be the case.""' W a r r e n h a d taken rhe c r u d e a c c o u n t by G u n d e r Frank a n d Baran that had maintained development was a n impossibility of and s i m p l y turned it u p s i d e d o w n . L a c k i n g w a s a n y sense o f the c h a o t i c , u n p r e d i c t a b l e character o f e c o n o m i c g r o w t h

for the

weaker sections o f the w o r l d system that Trotsky insisted o n w h e n recognising that c a p i t a l i s m does n o t a l w a y s lead to s t a g n a t i o n : By d r a w i n g countries e c o n o m i c a l l y closer to o n e a n o t h e r a n d levelling o u t their stages o f d e v e l o p m e n t , capitalism operates b\ m e t h o d s o f its o w n , that is t o say, by anarchistic m e t h o d s w h i c h constantly u n d e r m i n e irs o w n w o r k , set one c o u n t r y against another, o n e branch o f industry against another, d e v e l o p i n g some parts o f the w o r l d e c o n o m y while h a m p e r i n g a n d t h r o w i n g back rhe development o f others... I m p e r i a l i s m . . . a t t a i n s this " g o a l " by such antagonistic m e t h o d s , such tiger leaps a n d such raids u p o n b a c k w a r d countries a n d areas that the unification a n d levelling of w o r l d e c o n o m y w h i c h it has effected is upset by it even m o r e violently a n d convulsively t h a n i n the preceding epoch.4"1 It w a s a t r u t h t h a t w o u l d affect the lives o f m a n y h u n d r e d s o f millions o f people over the next four decades. In the G l o b a l S o u t h , as in the West, J a p a n a n d the Eastern bloc, variants o f w h a t Lenin a n d B u k h a r i n h a d called "stare c a p i t a l i s m ' did p e r m i t a l o n g p e r i o d o f e c o n o m i c g r o w t h . But those w h o extrapolated f r o m t h a t t o see a s m o o t h , crisis-free f u t u r e were soon to be p r o v e d w r o n g .

190

Capitalism111the 20th Century

< MlPTER EIGHT

The end of the golden age

I he crisis o f K e y n e s i a n i s m " I he N a t i o n a l B u r e a u o f E c o n o m i c Research has w o r k e d itself out o f o n e o f its first jobs, n a m e l y business cycles." S o p r o c l a i m e d I'.iul S a m u e l s o n in which

1 9 7 0 . Less t h a n three years later rhe crisis

was supposed

now

to

be i m p o s s i b l e

broke

upon

the

w o r l d — o r a t least u p o n the a d v a n c e d c a p i t a l i s t c o u n t r i e s a n d a big p a r t o f the T h i r d W o r l d . T h e " g o l d e n a g e " h a d c o m e t o a sudden e n d . T h e r e a c t i o n o f g o v e r n m e n t s e v e r y w h e r e w a s ro try t o keep it ftoing by resorting t o the K e y n e s i a n m e t h o d s they h a d c o m e t o believe i n f a l l i b l e . G o v e r n m e n t b u d g e t deficits, rare i n the p r e v i o u s three d e c a d e s , n o w b e c a m e the n o r m . T h e y failed t o restore the system t o its p r e v i o u s h e a l t h . N o t o n l y w a s there rhe first lapse i n t o negative g r o w t h — a real recession as o p p o s e d t o the " g r o w t h recessions" s o m e t i m e s k n o w n p r e v i o u s l y — w i t h s o a r i n g levels o f u n e m p l o y m e n t , b u t it w a s a c c o m p a n i e d b y rising levels o f inflation, w h i c h in a c o u n t r y like Britain c o u l d a p p r o a c h 2 5 percent. There were a t t e m p t s t o e x p l a i n w h a t h a p p e n e d as a result o f the i m p a c t o f the s u d d e n very b i g increase in t h e price o f oil in c t o b e r 1973 d u e t o the brief " Y o m K i p p u r " w a r between Israel a n d the A r a b states a n d the a c c o m p a n y i n g e m b a r g o o n o i l e x p o r t s by S a u d i A r a b i a . B u t the effect o f the price increase w a s o n l y t o reduce t h e n a t i o n a l i n c o m e s o f the a d v a n c e d c o u n t r i e s by a b o u t o n e p e r c e n t — a n d m o s t o f the m o n e y t h a t accrued t o the oil producers e n d e d u p b e i n g recycled back t o the a d v a n c e d c o u n t r i e s via the i n t e r n a t i o n a l b a n k i n g system. It w a s h a r d l y e n o u g h in itself t o e x p l a i n the scale o f rhe i m p a c t o n m o s t o f rhe w o r l d s y s t e m — a n i m p a c t w h i c h K e y n e s i a n m e t h o d s s h o u l d h a v e been sufficient t o deal w i t h a c c o r d i n g t o the then c o n v e n t i o n a l e c o n o m i c w i s d o m . W h a t is m o r e , the oil price increase d i d n o t t a k e place in isolation 221*

from other developments. Already three years earlier a " g r o w t h recession" h a d hit all the m a j o r e c o n o m i e s s i m u l t a n e o u s l y in .1 w a y w h i c h h a d not h a p p e n e d in rhe previous quarter century, a m i had been f o l l o w e d by a very sharp e c o n o m i c u p t u r n a n d accelei a t i n g inflation even before the oil price rise.1 In s h o r t , rhe recession that began at the end o f 1973 w a s the c u l m i n a t i o n o f precisely the sort o f e c o n o m i c cycle that Keynesian-style state interventions had s u p p o s e d l y consigned ro the history b o o k s . M a i n s t r e a m Kevnesians were at a loss. T h e y f o u n d t h a t their theory n o longer did a n y o f rhe t h i n g s they h a d c l a i m e d for it. As o n e Keynesian, Francis C r i p p s o f the Cambridge Review,

Economic

Policy

later p u t it, they s u d d e n l y realised rhat:

N o b o d y really u n d e r s t a n d s h o w the m o d e r n e c o n o m y w o r k v N o b o d y really k n o w s w h y we h a d so m u c h g r o w t h in the post w a r w o r l d . . . h o w the v a r i o u s m e c h a n i s m s slotted together. 2 M a n y Keynesians d r o p p e d their f o r m e r ideas o v e r n i g h t a n d en dorsed rhe " m o n e t a r i s t " theories p r o p a g a t e d b y M i l t o n F r i e d m a n a n d the C h i c a g o School o f e c o n o m i s t s . These held t h a t the ar tempts by g o v e r n m e n t s to c o n t r o l e c o n o m i c b e h a v i o u r h a d been misconceived. There w a s , they a r g u e d , a " n a t u r a l non-inflationary rate" o f u n e m p l o y m e n t , a n d a t t e m p t s t o reduce it by government s p e n d i n g were b o u n d to fail a n d t o merely cause i n f l a t i o n . All states s h o u l d d o , they insisted, w a s t o c o n t r o l the s u p p l y o f m o n e y so that it grew at rhe same speed as " t h e real e c o n o m y " — a n d rake such action as w a s necessary t o break d o w n " u n n a t u r a l m o n o p o lies" by t r a d e u n i o n s or n a t i o n a l i s e d industries, w h i l e h o l d i n g d o w n u n e m p l o y m e n t benefits so that w o r k e r s w o u l d t h e n be per suaded t o accept jobs at l o w e r wages. T h e reply o f apologists for c a p i t a l i s m t o its critics for 3 0 years h a d been t h a t it c o u l d be m a d e t o w o r k w i t h state i n t e r v e n t i o n . N o w ir w a s t h a t it c o u l d o n l y be m a d e t o w o r k if state intervent i o n w a s scrapped.

As the dissident r a d i c a l

Keynesian

Joan

R o b i n s o n s u m m e d u p the m a i n s t r e a m shift: T h e s p o k e s m e n o f c a p i t a l i s m were saying: Sorry c h a p s , w e m a d e a m i s t a k e , w e were nor offering full e m p l o y m e n t , b u t the n a t u r a l level of u n e m p l o y m e n t . O f course, they suggested t h a t a little u n e m p l o y m e n t w o u l d be e n o u g h t o keep prices stable. Bur n o w w e k n o w t h a t even a lot will n o t d o so. 3 192

Capitalism 111 the 20th Century

I a b o u r s p r i m e m i n i s t e r J a m e s C a l l a g h a n virtually a d m i t t e d this when he told his party's conference in S e p t e m b e r 1976: W e used t o t h i n k y o u c o u l d just spend y o u r w a y o u t o f recession by c u t t i n g taxes a n d b o o s t i n g g o v e r n m e n t b o r r o w i n g . I tell you i n all c a n d o u r t h a t t h a t o p t i o n n o longer exists; a n d insofar as it ever d i d exist, it w o r k e d by injecting inflation into the econo m y . A n d each t i m e t h a t has h a p p e n e d , the average level o f h

u n e m p l o y m e n t has risen.

I he p o i n t w a s repeated 2 0 years later by the future L a b o u r p r i m e minister, G o r d o n B r o w n : C o u n t r i e s w h i c h a t t e m p t ro r u n n a t i o n a l g o it a l o n e m a c r o e c o n o m i c p o l i c i e s based o n t a x , s p e n d , b o r r o w p o l i c i e s t o b o o s t d e m a n d , w i t h o u t l o o k i n g t o rhe a b i l i t y o f the s u p p l y side o f the e c o n o m y , arc b o u n d these d a y s t o be p u n i s h e d by rhe m a r k e t s in the f o r m o f s t i f l i n g l y h i g h interest rates a n d I c o l l a p s i n g currencies. 4 Politicians

and

academics

who

had

been

brought

up

on

keynesianism c a m e to accept the s a m e p a r a m e t e r s for d e c i d i n g e c o n o m i c policy as their o l d o p p o n e n t s , w i t h n o alternative to high levels o f u n e m p l o y m e n t , welfare cuts, " f l e x i b i l i t y " ro m a k e workers " m o r e c o m p e t i t i v e " a n d l a w s t o restrain " t r a d e u n i o n p o w e r " . K e y n e s i a n s w h o d i d n o t d r o p rheir o l d beliefs were pushed t o the m a r g i n s o f the e c o n o m i c e s t a b l i s h m e n t . By 2 0 0 7 a study s h o w e d t h a t " T 2 percent o f e c o n o m i c s t u d e n t s " were at educational i n s t i t u t i o n s w i t h o u t a single " h e t e r o d o x

economist"

w h o challenged " t h e neoclassical a n d neoliberal a s s u m p t i o n s " . 5 But the rush t o w a r d s m o n e t a r i s m by supporters o f the system was n o t a n y m o r e able t o c o m e t o terms w i t h the crisis t h a n Keynesianism. M o n e t a r i s m w a s , after all, little m o r e t h a n a regurgitation o f the neoclassical school w h i c h h a d d o m i n a t e d bourgeois e c o n o m i c s u n t i l the 1930s. J u s t as it h a d been i n c a p a b l e o f explaining the unprecedented severity o f the inter-war s l u m p , it wras incapable o f e x p l a i n i n g the crisis o f the 1970s a n d 1980s, still less <>l d e a l i n g w i t h it. In Britain the monetarist H o w e budget o f 1 9 7 9 was f o l l o w e d b y a d o u b l i n g o f b o t h inflation 6 a n d u n e m p l o y m e n t , a n d left industrial o u t p u t in 1984 15 percent b e l o w its level o f 11 vears before." T h e m o n e t a r i s t measures did n o t even m a n a g e ro I he F.nd of the Golden Age

193

c o n t r o l the money s u p p l y ; its broadest measures ( w h a t economists call M 3 ) g r e w in 1982 by 14.5 percent instead o f the intended 6 r« • 10 p e r c e n t / The policy merely served ro destroy m u c h o f local in dustrv, exacerbate the crisis o f the early 1980s a n d lay the g r o u n d for a n o t h e r crisis in 1990. S o m e economists w h o h a d a b a n d o n e d K e y n e s i a n i s m for m o m tarism in the mid-1970s c o u l d be seen deserting m o n e t a r i s m i n its turn i n the early 1980s. financial

Times c o l u m n i s t Samuel Brittan,

w h o h a d d o n e m u c h to p o p u l a r i s e monetarist ideas in Britain, was by 1982 criticising m a n y monetarist policies a n d c a l l i n g himself a "new-style K e y n e s i a n " . In the U n i t e d States, R e a g a n ' s e c o n o m i c advisers, faced w i t h the failure o f m o n e t a r i s t policies t o end a severe s l u m p , quietly ditched monetarism'' a n d a b a n d o n e d o n e ot m o n e t a r i s m ' s central p r i n c i p l e s — t h e balanced b u d g e t . Bur m u c h m a i n s t r e a m e c o n o m i c theory m o v e d in a different d i r e c t i o n . A " n e w classical" s c h o o l g a i n e d i n f l u e n c e t h a t c o n t e n d e d , very m u c h a l o n g the lines o f H a y e k in the 1930s, t h a i w h a t w a s w r o n g w i t h m o n e t a r i s m w a s rhar it left a role f o r the s t a t e — i n t e r v e n i n g in m o n e y m a r k e t s . F r i e d m a n , they c l a i m e d , h a d fallen i n t o the s a m e t r a p as Keynes by u r g i n g g o v e r n m e n t m o v e s t o shift the m o n e y s u p p l y : he w a s , in a c e r t a i n sense, " a K e y n e s i a n " . , u Such m o v e s , they insisted, c o u l d n o t alter business b e h a v i o u r in rhe h o p e d for w a y , since rhe " r a t i o n a l e x p e c t a t i o n s o f entrepreneurs w o u l d a l w a y s lead t h e m t o d i s c o u n t g o v e r n m e n t i n t e r v e n t i o n in a d v a n c e . F i d d l i n g w i t h the m o n e y s u p p l y , like g o v e r n m e n t deficit s p e n d i n g , s t o p p e d s u p p l y a n d d e m a n d intera c t i n g w i t h each o t h e r properly. " B o o m s a n d s l u m p s " , it w a s c l a i m e d , " a r e rhe o u t c o m e o f f r a u d u l e n t C e n t r a l Reserve b a n k ing". 1 1 It is an a m a z i n g c o m m e n t a r y o n the remoteness o f most a c a d e m i c e c o n o m i c s f r o m a n y c o n t a c t w i t h reality t h a t the new classicals c o u l d m a i n t a i n intellectual credibility w h e n they denied the i n s t a b i l i t y a n d i r r a t i o n a l i t y o f the laissez faire e c o n o m y in a p e r i o d w h i c h saw three m a j o r i n t e r n a t i o n a l recessions. T h e high p o i n t o f these ideas w a s w i t h a shortlived b o o m in the m i d t o late 1980s. It seemed t o v i n d i c a t e their o p t i m i s m a b o u t the benefits to e c o n o m i c g r o w t h o f d e r e g u l a t i o n , privatisation a n d the r e m o v a l o f all restraints o n rhe greed o f the rich. But they lost s o m e o f their lustre w i t h the renewed deep recession o f the earl\ 1990s. A different school o f free m a r k e t e c o n o m i s t s g a i n e d s o m e support within the mainstream.

This w a s the v a r i a n t o f the

" A u s t r i a n s c h o o l " influenced by the ideas o f J o s e p h Schumpeter, 194

Capitalism111the 20th Century

which s a w the s l u m p - b o o m cycle a s i n e v i t a b l e — a n d a g o o d t h i n g . I he system, it a r g u e d , w a s c a p a b l e o f non-stop e x p a n s i o n , b u t • inly o n the basis o f "creative d e s t r u c t i o n " w h i c h destroyed o l d rorms of p r o d u c t i o n to clear the w a y for n e w ones. 12 But it w a s n o more able t h a n rhe m a i n s t r e a m K e y n e s i a n s , the m o n e t a r i s t s a n d ihe new classicals to a n s w e r a central q u e s t i o n : W h y w a s the system p l a g u e d o n c e again by recurrent crises a n d by a l o n g term decline i n average g r o w t h rates after three decades of unprecenred, a l m o s t crisis-free g r o w t h ? 1 3 It w a s the failure o f the anti-Keynesians t o c o m e to terms w i t h such p r o b l e m s t h a t led s o m e K e y n e s i a n s — a n d s o m e o n the far left influenced b y K e y n e s i a n i s m — t o b l a m e them for the demise o f the " g o l d e n a g e " . It w a s n o t the system as such, thev argue, that w a s In-hind rhe recurrent crises. But, as N o t e r m a n s has p o i n t e d o u t : If neither the recovery f r o m the G r e a t Depression or post-war g r o w t h can be attributed t o Keynesian policies...[itJ c a n n o t serve as a n e x p l a n a t i o n for the t e r m i n a t i o n o f full e m p l o y m e n t . " So where does the e x p l a n a t i o n lie?

W h e r e the crises c a m e f r o m issing f r o m all rhe m o s t i n f l u e n t i a l m a i n s t r e a m e x p l a n a t i o n s for the e n d o f the " g o l d e n a g e " w a s w h a t w a s h a p p e n i n g t o the rate o f p r o f i t . Yet v a r i o u s efforts at m e a s u r i n g it h a v e c o m e t o a single c o n c l u s i o n : it fell s h a r p l y between the late 1960s a n d rhe ( early 1980s. T h e results are n o t a l w a y s f u l l y c o m p a t i b l e w i t h each other, since there are different w a y s o f m e a s u r i n g i n v e s t m e n t in fixed capital, a n d the i n f o r m a t i o n o n profits p r o v i d e d by c o m p a n i e s a n d g o v e r n m e n t s are subject to e n o r m o u s distortions. 1 I red

Moseley, T h o m a s

Ahmet Tonak,1" Gerard

Michl,16 A n w a r Dumenil

and

Shaikh

Nevertheless, and

Dominique

Ertugrul

Levy, U f u k

T u t a n a n d Al C a m p b e l l , I K R o b e r t Brenner, E d w i n N W o l f f , " a n d Piruz A l e m i a n d D u n c a n K Foley

0

have all c o m e t o very s i m i l a r

conclusions. A certain p a t t e r n emerges, w h i c h is s h o w n in g r a p h s given by D u m c n i l a n d Levy (Figure 1) for rhe w h o l e business sector in the US a n d by Brenner (Figure 2) for m a n u f a c t u r i n g in the U S , G e r m a n y a n d J a p a n . I he F.nd of the Golden Age

195

Figure i: US profit rates accounting for (—) and abstracting from (—) the impact of financial relations '

Figure 2: US, German and Japanese manufacturing

net profits rates"

* West Germany 1950-90 and Germany 1991-2000

There is general agreement that profit rates fell f r o m the late 1 9 6 0 s until the early 1980s. There is also agreement t h a t they p a r t i a l ! ) recovered f r o m a b o u t 1982 o n , b u t w i t h i n t e r r u p t i o n s a t the end o f the 1980s a n d the end o f the 1990s, a n d never m a k i n g u p m o r i t h a n a b o u t h a l f the decline since the l o n g b o o m . A c c o r d i n g to W o l f f , the rare o f profit fell b y 5 . 4 percent f r o m 1966 to 1979 a n d then

"rebounded"

by 3.6 percent f r o m

1979 to

1997; Fred

M o s e l e v calculates t h a t it " r e c o v e r e d . . . o n l y a b o u t 4 0 percent ot the earlier d e c l i n e " ; 2 ' D u m e n i l a n d Levy t h a t " t h e profit rate in 196

Capitalism111the 20th Century

1 9 9 7 " w a s "still o n l y h a l f o f its v a l u e o f 1948, a n d between 6 0 and 75 percent o f its average value for the decade 1956-65". 2 4 There were a t t e m p t s to e x p l a i n the decline in profitability in the 1970s as resulting f r o m a w a v e o f w o r k e r s ' struggle internationally w h i c h h a d s u p p o s e d l y forced u p the w o r k e r s ' share o f total income a n d c u t i n t o the share g o i n g t o c a p i t a l . T h a t a r g u m e n t w a s put

forward

by

Andrew

Glyn

and

Bob

Sutcliffe, 2 5

K o w t h o r n e , 2 6 a n d accepted in p a n b y Ernest M a n d e l . '

by

Bob

Glyn's

dnalysis has been given a f a v o u r a b l e m e n t i o n m u c h m o r e recently by M a r t i n W o l f . 2 8 Bur statistical analysis at the t i m e suggested i here h a d been n o increase in the share o f wages w h e n tax, capital depreciation a n d v a r i o u s other factors w e r e taken i n t o account.*' I he

argument

also

failed

ro

explain

why

all

the

Western

economies m o ^ e d i n t o crisis at the s a m e p o i n t in the mid-1970s. In Italy, Britain, Spain a n d France there were i m p o r t a n t improvements in the level of w o r k i n g class o r g a n i s a t i o n in the late 1960s and early 1970s. But there w a s n o s i m i l a r i m p r o v e m e n t in J a p a n and West G e r m a n y , w h i l e in the US " t h e r e w a s a sharp decline in real wages o f n o n - a g r i c u l t u r a l w o r k e r s f r o m late 1 9 7 2 t o s p r i n g 1975, w h i l e p r o d u c t i v i t y o n the w h o l e increased ' . " I

W h a t did seem to m a k e sense—and still d o e s — w a s M a r x s argument a b o u t the organic c o m p o s i t i o n o f capital. A m a i n s t r e a m study i»t the US e c o n o m y s h o w e d a rapid g r o w t h in the ratio of capital investment t o workers e m p l o y e d in m a n u f a c t u r i n g by over 4 0 percent between 1957-68 a n d 1968-73. , ) O n e study o f the U K showed a rise hi the capital-output ratio o f 5 0 percent between 1960 a n d rhe mid!970s.' : Samuel Brittan noted w i t h bewilderment: There has been an u n d e r l y i n g l o n g term decline in the a m o u n t

I

o f o u t p u t per unit o f c a p i t a l in m a n u f a c t u r i n g . . . T h i s is a fairly general experience in the industrial c o u n t r i e s . . . O n e c a n construct a fairly p l a u s i b l e story for a n y o n e c o u n t r y , b u t n o t for

•

the i n d u s t r i a l w o r l d as a w h o l e / * I he m o r e recent c a l c u l a t i o n s o f M i c h l , 3 4 M o s e l e y , S h a i k h

and

T o n a k , a n d W o l f f " have all c o n c l u d e d t h a t the rising ratio o f capital t o l a b o u r w a s an e l e m e n t in r e d u c i n g profit rates. It is a conclusion t h a t validates M a r x ' s position t h a t a rising ratio o f capital t o l a b o u r c a n cut i n t o p r o f i t s — a n d is a n e m p i r i c a l refutation of the p o s i t i o n held by O k i s h i o a n d others that this is impossible, but it still leaves o p e n w h y this h a p p e n e d then a n d n o t earlier. I he F.nd of the Golden Age

197

Ir is a n issue rhar c a n he resolved b y l o o k i n g a t c o n t r a d i c t i o n s w i t h i n the l o n g b o o m already being h i g h l i g h t e d in the early 1960s by those w h o explained the b o o m in terms o f the massive level of a r m s expenditures. A r m s s p e n d i n g w a s very u n e v e n l y d i s t r i b u t e d a m o n g the mosi i m p o r t a n t e c o n o m i e s . T h e y c o n s u m e d a very h i g h p r o p o r t i o n of rhe n a t i o n a l o u t p u t o f the US a n d the U S S R in the 1950s ( u p t o 13 percent in rhe first case, p r o b a b l y 2 0 percent o r m o r e in rhe second case), a low r er p r o p o r t i o n in B r i t a i n a n d F r a n c e , a n d a

much

s m a l l e r p r o p o r t i o n for G e r m a n y a n d J a p a n . T h i s d i d n o t matter u n d u l y in the first years after rhe S e c o n d W o r l d W a r , w h e n there w a s a relatively l o w level o f foreign t r a d e a n d m o s t firms were s u b ject t o l o w levels o f i n t e r n a t i o n a l e c o n o m i c c o m p e t i t i o n . The t a x a t i o n t o pay for rhe US a r m s b u d g e t c u t i n t o the profits ot A m e r i c a n firms, for instance, b u t this d i d n o t greatly d i s a d v a n t a g e a n y o n e such firm tn its d o m e s t i c c o m p e t i t i o n w i t h a n o t h e r . A n i l there w a s little for c a p i t a l i s t s t o c o m p l a i n a b o u t so l o n g as rhe overall rate o f profit d i d n o t decline m u c h f r o m its h i g h level in the i m m e d i a t e p o s t w a r p e r i o d . T h e positive effects o f a r m s s p e n d i n g m o r e t h a n c o m p e n s a t e d for the negative effects. B u t over t i m e rhe u n e v e n n e s s d i d c o m e t o matter. T h e U S , as p a r t o f its p r o g r a m m e t o use its d o m i n a n t e c o n o m i c p o s i t i o n t o c e m e n t its h e g e m o n y o u t s i d e the R u s s i a n b l o c , a l l o w e d access to its m a r k e t s t o the West E u r o p e a n states a n d J a p a n . Bur e c o n o m i e s w i r h l o w levels o f a r m s e x p e n d i t u r e c o u l d invest p r o p o r t i o n a t e l y m o r e a n d achieve faster g r o w t h rates t h a n the US c o u l d . O v e r time they b e g a n t o catch u p w i t h its levels o f p r o d u c t i v i t y a n d t o in crease their relative i m p o r t a n c e in the w o r l d e c o n o m y . C a p i t a l g r o w t h in J a p a n over the p e r i o d 1961-1971 w a s 1 l . X percent per year, w h i l e in West G e r m a n y over 1950-62 ir w a s 9.5 percent; these c o m p a r e d w i t h figures for rhe US for 1948-69 of o n l y 3 . 5 percent. 3 6 J a p a n a c c o u n t e d for 17.7 percent o f the c o m b i n e d a d v a n c e d c o u n t r i e s ' G N P in 1 9 7 7 a n d West G e r m a n y

13.2

percent; in 1953 the figures h a d o n l y been 3 . 6 a n d 6 . 5 percent re specrively. M e a n w h i l e , the U S share h a d fallen t o 4 8 f r o m percent. 1

T h e shift w a s e x p l a i n e d

by rhe benefits J a p a n

69 and

G e r m a n y g a i n e d f r o m the h i g h level o f w o r l d w i d e a r m s e x p e n d i ture, especially by the U n i t e d States, w i t h o u t h a v i n g t o sacrifice their o w n p r o d u c t i v e i n v e s t m e n t t o p a y for it. H a d all c o u n t r i e s h a d c o m p a r a b l e levels o f p r o d u c t i v e investment t o t h a t o f t h e West G e r m a n s a n d J a p a n e s e there w o u l d have been a very r a p i d l y rising L*>8

Capitalism in the 20th C e n n i n

ftlobal o r g a n i c c o m p o s i t i o n o f c a p i t a l a n d a d o w n w a r d trend in ilie rate o f p r o f i t . As it w a s , c a p i t a l h a d g r o w n in J a p a n

"much

more rapidly t h a n rhe l a b o u r f o r c e — a t m o r e t h a n 9 percent a yeat; (ii m o r e t h a n twice the average rate f o r t h e Western industrialised c o u n t r i e s . . . N o n - m i l i t a r y state c a p i t a l i s m s c o u l d o n l y e x p a n d w i t h o u t crises because they operated w T ithin a w o r l d system coni.lining a very large m i l i t a r y state c a p i t a l i s m . So the J a p a n e s e a n d G e r m a n experiences did n o t c o n t r a d i c t the thesis o f a r m s e x p e n d i t u r e as a n e x p l a n a t i o n o f world

growth and

stability. But they were a c o n t r a d i c t o r y factor i n this g r o w t h . Their very success m e a n t that^a g r o w i n g c h u n k o f the w o r l d e c o n o m y was n o t w a s t i n g investible o u t p u t on a r m s . N o r w a s t h a t the e n d of the

matter. T h e

very success o f

the

low

arms

spending

economies begi^n t o p u t pressure o n the h i g h a r m s spenders to switch resources a w a y f r o m a r m s a n d t o w a r d s p r o d u c t i v e investment. For o n l y then c o u l d they begin to meet the challenge they laced in m a r k e t c o m p e t i t i o n from J a p a n a n d West G e r m a n y . T h i s w a s m o s t clearly the case for Britain. Its e c o n o m y w a s highly d e p e n d e n t o n foreign trade a n d it ran i n t o balance o f payments crises w i t h every spell o f rapid e c o n o m i c g r o w t h between the Lite 1940s a n d the late 1970s. Successive British g o v e r n m e n t s were lorced, reluctantly, t o a b a n d o n their n o t i o n s o f i m p e r i a l g r a n d e u r a n d to reduce the p r o p o r t i o n o f the n a t i o n a l p r o d u c t g o i n g o n def c n c e — f r o m 7 . 7 percent of G D P in 1955 t o 4 . 9 percent in 1970. In the case o f the U S , the pressure w a s less o b v i o u s at first, since even in 1965 foreign trade o n l y a m o u n t e d to a b o u t 10 percent o f ( i N P a n d the c o u n t r y enjoyed a trade s u r p l u s t h r o u g h o u t the 1950s a n d

1960s. Nevertheless, a r m s s p e n d i n g declined

from

a r o u n d 13 percent o f G N P d u r i n g the K o r e a n W a r t o between t o between 7 a n d 9 percent in the early 1960s. T h e pressure o f a r m s s p e n d i n g o n its i n t e r n a t i o n a l competitiveness w a s s u d d e n l y revealed w h e n it shot u p by a third w i t h the V i e t n a m War. T h e n e w level w a s nor a n y t h i n g like t h a t o f the K o r e a n War. Bur it was t o o m u c h for a US i n d u s t r y facing v i g o r o u s c o m p e t i t i o n for m a r k e t s . There w a s a n upsurge o f inflation at h o m e a n d W a l l Street t u r n e d Igainsr the war.™ T h e n , in 1971 for the first t i m e since the Second World War, US i m p o r t s exceeded US exports. President N i x o n w a s lorced i n t o t w o measures w h i c h further u n d e r m i n e d the stability of the w o r l d e c o n o m y : he cut US a r m s spending' 0 a n d he devalued the US dollar, in t h e process destroying the " B r e t r o n

Woods"

system o f fixed i n t e r n a t i o n a l currency e x c h a n g e rates that h a d I he F.nd of the Golden Age

199

acted as a f r a m e w o r k for the e x p a n s i o n o f w o r l d trade t h r o u g h o u t the post-war p e r i o d . T h e d y n a m i c o f m a r k e t c o m p e t i t i o n w a s relentlessly undercut ting the d y n a m i c o f military c o m p e t i t i o n . W h a t s o m e people called the ''crisis o f h e g e m o n y " 4 1 o f the system in the 1970s w a s , in fact rhe offspring of s o m e t h i n g else—the inherent instability o f a w o r l d o f state capitalisms engaged in t w o quire different d i m e n s i o n s ol c o m p e t i t i o n , e c o n o m i c a n d military, w i t h each other. O n e of the paradoxes o f c a p i t a l i s m , w e saw in C h a p t e r Three, is t h a t , a l t h o u g h a rising o r g a n i c c o m p o s i t i o n o f capital reduces a\ erage profit rates, it raises the profits o f rhe first capitalist to i n t r o d u c e new machinery. So the Japanese a n d West G e r m a n s , In e n g a g i n g in capital intensive forms o f i n v e s t m e n t , cut w o r l d profit rates, w h i l e raising their o w n n a t i o n a l share o f w o r l d profits. Their increased competitiveness in e x p o r t markers forced other c a p i t a l i s m s to pay, w i t h falling rates o f p r o f i t , for the increased J a p a n e s e a n d G e r m a n organic c o m p o s i t i o n s o f c a p i t a l . But this, in t u r n , p u t pressure o n these other capitalists to increase their c o m petitiveness by raising their o w n o r g a n i c c o m p o s i t i o n s . T h e falling profit rates o f the 1 9 7 0 s were the result. By 1973 the rates were so l o w that rhe upsurge in raw material a n d f o o d prices caused by the b o o m o f the previous t w o years w a s sufficient t o p u s h the ad vanced Western e c o n o m i e s into recession. Suddenly there w a s n o g u a r a n t e e for the m a j o r capitalist con cerns t h a t n e w investments o n the scale they needed to keep u p w i t h i n t e r n a t i o n a l c o m p e t i t i o n w o u l d be profitable. Investment began to fall sharply a n d firms tried t o protect their profits b y cut t i n g back o n e m p l o y m e n t a n d l a b o u r costs. D e c l i n i n g markets t h e n led to further falls i n profits a n d investment. T h e o l d pattern o f b o o m t u r n i n g i n t o s l u m p h a d returned after its 30-year break. W h e n g o v e r n m e n t s reacted by t r y i n g to boost d e m a n d w i t h b u d g e t a r y deficits, firms d i d n o t i m m e d i a t e l y res p o n d , as the m a i n s t r e a m Keynesians held t h a t they s h o u l d , by increasing investment a n d o u t p u t . Instead they increased prices to try t o r e c o u p their profits, t o w h i c h w o r k e r s w h o still h a d a degree o f confidence f r o m l o n g years o f full e m p l o y m e n t r e s p o n d e d b> fighting

f o r w a g e increases. G o v e r n m e n t s a n d central b a n k s were

then faced w i r h a choice. They c o u l d a l l o w the m o n e y s u p p l y ro e x p a n d so as t o a l l o w firms to further raise prices a n d protect prof its. O r they c o u l d try t o restrict the m o n e y s u p p l y w i t h

high

short-term interest rates, relying o n firms then being forced to 200

Capitalism111the 20th Century

icsist w o r k e r s ' d e m a n d s . Typically they turned f r o m the first approach in the m i d - 1 9 7 0 s t o the second in the late I 9 ^ 0 s . But the success in restoring investment a n d creating a n e w period

of

growth d i d not last l o n g even wThen g o v e r n m e n t s h a d succeeded in Mibduing w o r k i n g class resistance. T h e rate o f proHt c o u l d n o t be raised a b o v e the pre-crisis level o f 1 9 7 3 , a n d in 1980-82 a second "oil s h o c k " w a s sufficient t o push the w o r l d i n t o a second serious recession, p r o v i n g that m o n e t a r i s m c o u l d n o m o r e restore conditions t o those o f the l o n g b o o m t h a n c o u l d Keynesianism.

I he limits o f state directed capitalism < a p i t a l i s m was c o m i n g u p against the limits of the state capitalist arategy for m a i n t a i n i n g a c c u m u l a t i o n . T h a t strategy h a d w o r k e d so long as states were able ro ignore the i m m e d i a t e effects o n the rate o f p r o f i t o f d i r e c t i n g s o m e o f the mass o f investible s u r p l u s value i n t o areas that were n o t i m m e d i a t e l y particularly profitable (the J a p a n e s e prioritising g r o w t h over profitability) or i n t o waste p r o d u c t i o n (the a r m s e c o n o m y ) . B u t this d e p e n d e d , firstly, o n the rate o f profit n o t d r o p p i n g t o o sharply, a n d , secondly, o n b e i n g able t o ignore h o w rhe competitiveness o f the p r o d u c t i o n o f particular g o o d s w i t h i n

the n a t i o n a l e c o n o m y c o m p a r e d t o t h a t

taking place elsewhere in the w o r l d system (or, in M a r x ' s language, to ignore the l a w o f value o n a w o r l d scale c o m p a r e d w i t h prod u c t i o n w i t h i n the i n d i v i d u a l u n i t s o f the n a t i o n a l e c o n o m y ) . By the m i d - 1 9 7 0 s b o t h p r e c o n d i t i o n s h a d been u n d e r m i n e d by the c o n t r a d i c t o r y d e v e l o p m e n t o f the l o n g b o o m itself. T h e rate o f profit h a d n o w fallen t o a degree w h i c h m a d e unproductive e x p e n d i t u r e s or n o t p a r t i c u l a r l y profitable areas o f investment a n increasing b u r d e n o n further a c c u m u l a t i o n . A n d the very d y n a m i s m o f the l o n g b o o m h a d p r o d u c e d a g r o w i n g interconnectedness between n a t i o n a l e c o n o m i e s . By 1 9 7 9 U S foreign trade a m o u n t e d to 31 percent o f o u t p u t , as against 10 percent in 1965.'" A m u c h larger p r o p o r t i o n o f industry t h a n before h a d to worry a b o u t the i n t e r n a t i o n a l c o m p a r i s o n s o f its costs. W h o l e industries s u d d e n l y f o u n d t h a t the v a l u e o f their o u t p u t h a d t o be recalculated o n the basis o f w h a t it w o u l d cost t o p r o d u c e it w i t h the m o r e a d v a n c e d techniques a n d l o w e r l a b o u r costs o f o t h e r c o u n t r i e s — a n d that m e a n t it w a s n o t high e n o u g h ro p r o v i d e "adequate'* profits. I he F.nd of the Golden Age

201

T h i s seems ro explain the well k n o w n stagnarion o f l a b o u r pro d u c t i v i t y in the US in the 1 9 7 0 s — t h e v a l u e o f the m a c h i n e r y o n >

/

w h i c h l a b o u r w o r k e d w a s o r i g i n a l l y reckoned i n terms o f how m u c h it cost t o p r o d u c e o r replace inside the US, b u t w i t h rising i n t e r n a t i o n a l trade, w h a t mattered w a s the l o w e r

figure

thai

w o u l d have obtained if w o r l d c o m p a r i s o n s were used. 44 In any case, the feature described by G a l b r a i t h , of firms being able t o d o w n p l a y the i m p o r t a n c e o f profit in the interests ol g r o w t h , was u n d e r m i n e d . A n d this w a s n o t o n l y a very significant c h a n g e for the state m o n o p o l y capitalism o f the US. It w a s t o have d e v a s t a t i n g consequences for those c o u n t r i e s w h i c h h a d

goni

m u c h further in rhe direction o f full b l o o d e d stare capitalism in rhe Eastern bloc a n d the T h i r d W o r l d . T h e y t o o were t o enter i n t o i n e w period o f crises.

T h e end o f the Stalinist m o d e l T h e a s s u m p t i o n o f c o n v e n t i o n a l t h i n k i n g o n the right as well as the left w a s t h a t the Soviet-type e c o n o m i e s displayed a very differ ent d v n a m i c to t h a t of the West. It w a s a s s u m e d , w i t h verv little •

'

»

dissent 4 until rhe 1970s a n d sometimes rhe 1980s, thar they c o u l d sustain high levels of g r o w t h indefinitely, even if they were also m a r k e d by m a j o r inefficiencies a n d tended to p r o d u c e l o w quality g o o d s . Typical of rhe a t t i t u d e o n the left, even f r o m people w h o were scathing a b o u t rhe d e n i a l o f workers" rights in such societies, w a s the p o s i t i o n Ernest M a n d e l held. H e w r o t e in 1956: I he Soviet U n i o n m a i n t a i n s a m o r e or less even r h y t h m o f eco n o m i c g r o w t h , p l a n after p l a n , d e c a d e after decade, w i t h o u t the progress o f the past w e i g h i n g o n rhe possibilities o f tin f u t u r e . . . A l l the l a w s o f d e v e l o p m e n t o f the capitalist e c o n o m y w h i c h p r o v o k e a s l o w d o w n in the speed o f e c o n o m i c g r o w t h are e l i m i n a t e d . . . 4 * M a n d e l still argued in the mid-70s, t h a t " w h i l e the recession is hit t i n g all the capitalist e c o n o m i e s , the countries w i t h non-capitalist e c o n o m i e s are escaping the overall effects o f the recession". 4 " Such attitudes received a r u d e s h o c k in the late 1980s w h e n M i k h a i l G o r b a c h e v , recently a p p o i n t e d as general secretary o f the C o m m u n i s t Party o f rhe U S S R , revealei 221*

been suffering f r o m " s t a g n a t i o n " f o r s o m e y e a r s / ' H i s e c o n o m i c advisor, A g a n b e g y a n , s a i d : In the p e r i o d

1981-85 there w a s

practically

no

economic

g r o w t h . U n p r e c e d e n t e d s t a g n a t i o n a n d crisis o c c u r r e d d u r i n g the p e r i o d 1 9 7 9 - 8 2 , w h e n p r o d u c t i o n o f 4 0 percent o f all industrial g o o d s actually fell." I lie official figures for t h e Soviet-type e c o n o m i e s h a d a l r e a d y in the late 1960s s h o w n a long-term t e n d e n c y for their g r o w t h rates to decline, by between a t h i r d a n d t w o t h i r d s . cline

in

growth

rates

was

paralleled

The long-term de-

by—and

dependent

m i — s o m e t h i n g else. T h e o u t p u t / c a p i t a l r a t i o kept f a l l i n g — f r o m 1 4 in 1 9 5 1 -5, t o 1.6 in 1 9 5 6 - 6 0 a n d 1.3 in 1 9 6 1 -65. O r , ro p u t it m o t h e r w a y , t h e a m o u n t o f c o n s t a n t c a p i t a l required t o p r o d u c e a v m a i n a m o u n t o f n e w o u t p u t k e p t rising. The p r o b l e m w a s m a d e w o r s e because g r o w i n g gross o u t p u t in material terms w a s n o t g o o d e n o u g h for the r u l i n g bureaucracies. I heir c o n c e r n w a s w i t h h o w this m a t e r i a l o u t p u t c o m p a r e d w i t h that p r o d u c e d by their i n t e r n a t i o n a l r i v a l s — t h a t is w i t h the v a l u e of the o u t p u t in i n t e r n a t i o n a l terms. T h i s led t o recurrent a t t e m p t s by sections o f the b u r e a u c r a c y t o i m p l e m e n t e c o n o m i c r e f o r m s , i m i d c o m p l a i n t s a b o u t p r o d u c t i v i t y a n d rhe q u a l i t y o f w h a t w a s produced: in the early 1950s after Stalin's d e a t h , in the early 1960s under K h r u s h c h e v

and then

in t h e late

1960s u n d e r

Leonid

Krezhnev a n d his p r i m e minister, K o s y g i n . T h e r e f o r m s h a d o n l y l i m i t e d effects. A rise i n workers 1 l i v i n g Htandards, in c o n t r a s t ro the very s h a r p fall in the 1 9 3 0 s , encouraged

greater

commitment

by

the

workforce

and

a

rise

in

productivity. B u t the pressures o f c o m p e t i t i v e i n t e r n a t i o n a l accum u l a t i o n ( m i l i t a r y in the case o f the U S S R , m a r k e t as well as m i l i t a r y in t h e case o f the East E u r o p e a n states) led t o a repeated tendency o f increased c o n s u m e r g o o d s a n d f o o d o u t p u t t o be sacriliced t o the needs o f i n d u s t r i a l i n v e s t m e n t . As Soviet statisticians » \plained in 1 9 6 9 , " O w i n g t o the i n t e r n a t i o n a l s i t u a t i o n it has n o t been possible t o a l l o c a t e as m a n y resources as i n t e n d e d t o agricultural i n v e s t m e n t " .

1

Such a s w i t c h i n g o f resources f r o m o n e sort o f

p r o d u c t i o n t o a n o t h e r necessarily led t o increasing w a s t e , underned the m o r a l e o f the w o r k f o r c e , a n d led p e o p l e a t every level o f nagerial hierarchies t o h i d e the resources at their disposal so as to e n a b l e t h e m t o c o p e if i n p u t s were s u d d e n l y c u r t a i l e d . 2 I lie End of the Golden Age

203

It is necessary to n o t e in passing t h a t s u c h a p h e n o m e n o n w a . not u n i q u e t o the Soviet-style e c o n o m i e s . Exactly the s a m e prcs sures a p p l y t o those b e l o w rhe t o p m a n a g e r i a l r a n k s i n Western c o r p o r a t i o n s as they are expected

ro be a b l e t o r e s p o n d

in

s u d d e n c h a n g e s in t h e pressures o n r h e m f r o m a b o v e i n response t o c h a n g i n g c o m p e t i t i o n . U n d e r such c o n d i t i o n s , the firms* cosis o f p r o d u c t i o n can d e p a r t very w i d e l y f r o m those w h i c h o u g h t to be achieved. T h e result can be w h a t o n e e c o n o m i s t has called " \ i n e f f i c i e n c y " — a level o f inefficiency in t h e c o m p a n y a m o u n t i n g t o 3 0 o r 4 0 percent o f p r o d u c t i o n c o s t s /

P r o d u c t i o n costs a n d

rhe prices w h i c h w o u l d prevail in a " p e r f e c t m a r k e t " d e p a r t m a s sively f r o m e a c h o t h e r — t o use M a r x i s t t e r m i n o l o g y , there are m a s s i v e short-term i n f r i n g e m e n t s o f rhe l a w o f value. Such things are rarely studied by m a i n s t r e a m e c o n o m i s t s he cause b o t h their micro- a n d m a c r o - e c o n o m i c s deal wirh

whai

h a p p e n s between firms, n o t w i t h i n t h e m . But there are repeated references t o such p r o b l e m s in m a n a g e r i a l studies. Interestingly, s o m e Western studies c o n c l u d e d w h e n it c a m e to relationships be tween enterprises in the U S S R " a l i o c a t i v e efficiency" (that is, for M a r x i s t s , the law o f value) d i d a p p l y : "Inter-firm trade in factors o f p r o d u c t i o n m a y be as efficient as in m a r k e t e c o n o m i e s " / 4 W h a t p r o d u c e d crisis a n d waste inside Western enterprises and Soviet-style e c o n o m i e s alike w a s the drive to a c c u m u l a t e at all costs. Ir m e a n t , as w e saw in C h a p t e r Seven, i n v e s t m e n t e x p a n d ing

repeatedly

at

the

expense

of

consumption,

increased

i m b a l a n c e s in the e c o n o m y , a c o n t i n u a l cyclical pattern to g r o w t h a n d increased a l i e n a t i o n o f the w o r k f o r c e . Figures given by the R u s s i a n e c o n o m i c j o u r n a l i s t Selyunin in 1987 s h o w e d the increas ing s u b o r d i n a t i o n o f c o n s u m p t i o n to a c c u m u l a t i o n over nearly six decades, w i t h o n l y 2 5 percent o f o u t p u t g o i n g t o c o n s u m p t i o n in 1985 as c o m p a r e d ro 3 9 percent in 1940 a n d 6 0 . 5 percent in 1928. H e c o n c l u d e d , " T h e e c o n o m y is w o r k i n g m o r e a n d m o r e for itsell, rarher t h a n for m a n " . ' H i s w o r d s e c h o e d ( p r o b a b l y u n i n t e n t i o n a l l y ) those o f M a r x d e s c r i b i n g the logic o f c a p i t a l i s m as " a c c u m u l a t i o n for a c c u m u lation's sake, p r o d u c t i o n f o r p r o d u c t i o n s s a k e " . ' 6 B u t the drive t o such a c c u m u l a t i o n w a s n o t o n l y a n expression o f the alien a t i o n o f the c a p i t a l i s t system f o r M a r x . It w a s a l s o the force u l t i m a t e l y b e h i n d the o u t b r e a k o f crises. For it m e a n t t h a t accu m u l a t i o n reached a p o i n t at w h i c h it a t t e m p t e d t o proceed faster t h a n rhe e x t r a c t i o n o f the extra s u r p l u s v a l u e necessary t o m a k e 204

Capitalism in the 20th Cent111v

m possible. A t such a p o i n t n e w a c c u m u l a t i o n c o u l d o n l y proceed .u the expense o f existing a c c u m u l a t i o n , as G r o s s m a n spelt o u t in his theory o f " c a p i t a l i s t b r e a k d o w n " . T h e r e w a s "over-aceumulation o f c a p i t a l " . T h e o n l y response o p e n t o capitalists t o this mi n a t i o n w a s t o s h u t d o w n p l a n t , sack s o m e w o r k e r s a n d try t o reMore profits at the expense o f the w a g e s o f the o t h e r s . E a c h o f these m o v e s h a d the effect o f m a k i n g it i m p o s s i b l e for s o m e o f the already p r o d u c e d c o m m o d i t i e s t o be sold (or, in M a r x s w o r d s , for the " r e a l i s a t i o n o f s u r p l u s v a l u e " t o t a k e place), c r e a t i n g a general o v e r p r o d u c t i o n o f g o o d s i n r e l a t i o n t o the m a r k e t . The Soviet U n i o n h a d a l w a y s experienced cyclical d o w n t u r n s as a result o f a t t e m p t s ro a c c u m u l a t e t o o r a p i d l y , as w e s a w in rhe previous chapter. But as w i t h the m a j o r Western c a p i t a l i s m s in the long b o o m , the d o w n t u r n s h a d n o t t u r n e d i n t o e c o n o m i c contraction, a " r e a l recession.*' N o w these b e c a m e m o r e difficult t o a v o i d is the s l o w d o w n in g r o w t h h a d its i m p a c t .

P o l a n d a n d the foretaste o f a dire f u t u r e I w o y o u n g Polish M a r x i s t s , J a c e k K u r o n a n d K a r o l M o d z e l e w s k i , produced a p a t h b r e a k i n g s t u d y o f the e c o n o m i c c o n t r a d i c t i o n s in an Eastern b l o c c o u n t r y in 1964. They p o i n t e d t o the

findings

of

certain East E u r o p e a n e c o n o m i s t s a b o u t the w a y over-accumulation affected the rest o f the e c o n o m y . A c c u m u l a t i o n c a m e

up

against three " b a r r i e r s " . T h e " i n f l a t i o n b a r r i e r " signified t h a t t o o rapid e x p a n s i o n o f investment h a d led either t o n o r m a l i n f l a t i o n (as ihe state p r i n t e d m o n e y to p a y for it, so raising prices a n d c u t t i n g living standards) o r t o " h i d d e n i n f l a t i o n " (as c u t b a c k s in the s u p p l y o f g o o d s t o rhe s h o p s led t o shortages, queues a n d a g r o w i n g black market.) T h e " r a w m a t e r i a l b a r r i e r " signified t h a t there were just not e n o u g h i n p u t s for p r o d u c t i o n t o reach the projected level. T h e " e x p o r t b a r r i e r " m e a n t t h a t a t t e m p t s t o m a k e u p for the shortages of inputs by i m p o r t i n g f r o m a b r o a d led t o foreign e x c h a n g e crises. Kuron a n d Modzelewksi concluded that a point was soon going to be reached in w h i c h the internal reserves w o u l d n o longer exist for accumulation

to continue w i t h o u t creating an immense

social

crisis. T h e y a r g u e d against those w h o l o o k e d t o r e f o r m : W h a t w e have here is n o t a c o n t r a d i c t i o n between the objectives o f the p l a n a n d the anti-stimuli resulting f r o m faulty directives, I lie End of the Golden Age

205

bur a contradiction between the class g o a l o f the r u l i n g bureau cracy ( p r o d u c t i o n for p r o d u c t i o n ) a n d the interests o f basic g r o u p s w h o achieve the p r o d u c t i o n ( m a x i m u m c o n s u m p t i o n ) . In other w o r d s , it is a c o n t r a d i c t i o n between the class goal ol p r o d u c t i o n a n d c o n s u m p t i o n , a n d it results f r o m existing con d i t i o n s , n o t from m i s m a n a g e m e n t . 5 " Their analysis was partially vindicated in 1970 w h e n a t t e m p t s to resolve a crisis caused by over-investment at the expense o f living standards led t o workers o c c u p y i n g rhe country's Baltic shipyards, attacks o n t h e m by the police a n d the enforced resignation o f the country's leader, G o m u l k a . But at first it seemed that the n e w lead ership h a d f o u n d a w a y o u t o f the crisis, w i t h a new b o o m based o n massively e x p a n d i n g t r a d e w i t h the West a n d b o r r o w i n g from Western b a n k s w h i c h p e r m i t t e d i m p o r t s t o rise by 5 0 percent in 1 9 7 2 a n d 8 9 percent in 1 9 7 3 . Polish state capitalism w a s o v e r c o m i n g the limits t o a c c u m u l a tion

created

by

the n a r r o w n e s s

of

its n a t i o n a l

e c o n o m y h\

integration i n t o the w o r l d e c o n o m y t h r o u g h m a r k e t c o m p e t i t i o n . T h e other side o f this, however, w a s t h a t the Polish e c o n o m y was b o u n d ro suffer whenever the w o r l d e c o n o m y w e n t into recession. A n d dependency on the rest o f the w o r l d system for i n p u t s t o p r o duction

and

for export

earnings

prevented

the state

shifting

resources from one sector o f the e c o n o m y t o another so as to w a r d off any incipient internal recession t u r n i n g i n t o a n actual one. F r o m 1980 t o 1982 there developed " a crisis unprecedented in the history o f E u r o p e since the second w o r l d w a r " . 1 8 The " n a t i o n a l net material p r o d u c t " fell by nearly a third; prices increased by 2 4 percent in 1981 a n d 100 percent in 1982; a n d real wages fell by a b o u t a fifth.v T h e regime a t t e m p t e d t o place the b u r d e n o f rhe crisis o n the mass o f w o r k e r s — a n d p r o d u c e d a sudden upsurge o f resistance t h r o u g h the Solidarnosc workers' m o v e m e n t . The events served as a w a r n i n g to the w h o l e o f the R u s s i a n bloc. Soviet-style state capital ism w a s not i m m u n e to a crisis similar i n i m p o r t a n t w a y s t o thai then hitting Western state m o n o p o l y capitalism. Both h a d thenroots in the system o f competitive a c c u m u l a t i o n as a w h o l e . C a t a s t r o p h i c crisis w a s inevitable at some p o i n t in the n o t t o o dis tant future t h r o u g h o u t rhe Soviet b l o c — i n c l u d i n g in the U S S R itself: By 1 9 8 1 , the choice between m a i n t a i n i n g the closed e c o n o m y a n d o p e n i n g u p t o the rest o f the w o r l d w a s indeed the choice 206

Capitalism111the 20th Century

berween the fry ing p a n a n d the fire. The first o p t i o n m e a n t deepening s t a g n a t i o n , g r o w i n g waste, an inability t o satisfy the d e m a n d s o f the mass o f the p o p u l a t i o n , a n d the c o n t i n u a l danger of w o r k i n g class rebellion. T h e second o p t i o n m e a n t b i n d i n g oneself i n t o rhe r h y t h m o f a w o r l d e c o n o m y increasingly p r o n e to s t a g n a t i o n a n d recession—and g i v i n g u p the a d m i n i s t r a t i v e m e a n s ro stop recession i n v o l v i n g c o n t r a c t i o n o f the d o m e s t i c economy. T h a t is w h y rhe Polish crisis o f 1980-81 was so trau•

r

m a t i c for all the rulers o f Eastern E u r o p e . Ir proved there w a s n o easy s o l u t i o n t o rhe p r o b l e m s besetting every s t a t e / '

I h e Soviet crash I he Soviet b u r e a u c r a c y w a s n o t long i n discovering this the h a r d way. Its levels o f a c c u m u l a t i o n were reaching the limits o f w h a t could be sustained. It d e p e n d e d m o r e o n foreign trade t h a n previously, u s i n g oil

revenues t o

buy

wheat

abroad

t o feed

the

p o p u l a t i o n in the 1 9 7 0 s a n d early 1980s ( a d d i n g t o w o r l d w i d e inflationary pressures). A fall in the w o r l d price o f oil in rhe course of the m i d - 1 9 8 0 s then t h r e w its d o m e s t i c e c o n o m i c c a l c u l a t i o n s i n t o s o m e disarray. A n d the decision o f the R e a g a n a d m i n i s t r a t i o n lo reassert US h e g e m o n y by raising a r m s s p e n d i n g p u t pressure o n the USSR t o d o likewise. T h e external factors a d d e d to the internal p r o b l e m s caused by trying t o sustain a c c u m u l a t i o n in the face o f declining g r o w t h rates. G o r b a c h e v ' s p r o m o t i o n to h e a d o f the r u l i n g C o m m u n i s t Party was a sign t h a t influential people h a d recognised the urgency o f the s i t u a t i o n — h i s rise o w e d m u c h to A n d r o p o v , w h o h a d witnessed w h a t crisis c o u l d lead t o as a m b a s s a d o r t o H u n g a r y in 1 9 5 6 a n d as general secretary o f C P S U d u r i n g the Polish events o f 1980-81. G o r b a c h e v has been b l a m e d since as a " c o u n t e r - r e v o l u t i o n a r y " by some people o n the left n o s t a l g i c for the Soviet style set-up. But his intention w a s t o try t o save t h a t set-up t h r o u g h t o p - d o w n reforms before e c o n o m i c , social a n d political crisis o n Polish lines c o u l d arise. H i s m i s f o r t u n e w a s t h a t the crisis h a d reached a p o i n t w h e r e it c o u l d n o t be o v e r c o m e by r e f o r m . R e p o r t s f r o m ministerial meetings in the winrer o f 1988-9 provide a picture of increasing e c o n o m i c c h a o s , w i t h rhe regime n o t seeing a n y w a y t o deal w i t h it. There were bitter clashes over " t h e balance (or rather the i m b a l a n c e ) between different sectors o f the I lie End of the Golden Age

207

e c o n o m y " , the " n u m b e r o f enterprises" w h i c h were "significant!\ refusing t o s u p p l y planned o u t p u t " or were "significantly rediu i n g deliveries" a n d the w a y " t h e v o l u m e c o n t i n u e d to g r o w "

62

of n e w

investment

" T h e supply o f g o o d s to the c o n s u m e r

m a r k e t " h a d " s u d d e n l y b e g u n to deteriorate sharply a n d notice a b l y before o u r eyes in the second h a l f o f 1 9 8 " a n d especially in 1 9 8 8 V 3 There w a s an: increasingly strained s i t u a t i o n as regards satisfying the public money-backed d e m a n d for goods a n d services... T h e p r o b l e m o f s u p p l y i n g the p o p u l a t i o n w i t h f o o d has w o r s e n e d . . . T h e m o n e y s u p p l y has reached critical d i m e n s i o n s . . . Hverything in the e c o n o m y is in short s u p p l y / 4 By O c t o b e r 1989 rhere w a s o p e n talk o f " t h e crisis in m a n y parts o f the e c o n o m y , the shortages, the u n b a l a n c e d m a r k e t , the collapse o f old relations before n e w ones are put in place, an atmosphere o f u n c e r t a i n prospects a n d scarcities". 6 5 Prices were rising, since factories a n d s h o p s f o u n d they c o u l d reduce p r o d u c t i o n

and

s i m p l y raise prices, d i s r u p t i n g supplies for the rest o f rhe e c o n o m s T h e e c o n o m i c crisis, as in P o l a n d , turned i n t o a political and social crisis. G o r b a c h e v h a d intended t o permit a limited o p e n i n g ( " g l a s n o s t " ) o f discussion in the ruling party a n d the m e d i a to iso late those in the bureaucracy o p p o s e d to his reforms. But people increasingly t o o k a d v a n t a g e o f this to give expression to o l d griev ances

and

their

discontent

with

rhe

deteriorating

economic

s i t u a t i o n . A n unprecedented series o f mass d e m o n s t r a t i o n s a n d riots t o o k place in the non-Russian n a t i o n a l Soviet republics ol A r m e n i a , K a z a k h s t a n , the Baltic states, G e o r g i a , the U k r a i n e , Byelorussia a n d A z e r b a i j a n , fusing struggles for n a t i o n a l rights w i t h grievances at the social c o n d i t i o n s people experienced. So the protests by the A r m e n i a n m i n o r i t y in rhe K a r a b a k h region ot Azerbaijan " b e g a n as protests against catastrophic mismanagement a n d miserable e c o n o m i c c o n d i t i o n s " / 6 Pravda

said that in 19X*>

(even before the crisis deepened) there was 2 7 . 6 percent unemplo\ m e n t in A z e r b a i j a n a n d 18 percent in A r m e n i a /

In K a z a k h s t a n

" o n l y h a l f the y o u n g people h a d a chance to find a j o b in 198 I 8 5 " / k T h e head o f the state-run u n i o n s said that across the USSR as a w h o l e 4 3 m i l l i o n people were living b e l o w the poverty line. Estimates o f the total n u m b e r o f u n e m p l o y e d varied f r o m 3 percent t o 6.2 percent (8.4 m i l l i o n people). Then miners right across the 208

Capitalism111the 20th Century

USSR struck i n the early s u m m e r of 1 9 8 9 a n d soon alter A b a l k i n c o m p l a i n e d , " A w a v e o f strikes h a s e n g u l f e d rhe e c o n o m y " . " 0 T h i s was h a p p e n i n g as huge mass m o v e m e n t s in Eastern E u r o p e — p a r t l y in response t o their e c o n o m i c crises—were b r e a k i n g Soviet c o n t r o l on the region a n d d e e p e n i n g rhe general sense o f political crisis, eni o u r a g i n g further protests in the USSR's n o n - R u s s i a n republics a n d w e a k e n i n g the c a p a c i t y o f the c e n t r a l state t o i m p o s e its w i l l . T h o s e r u n n i n g the enterprises d i d n o t k n o w h o w t o c o p e w i t h the w a v e o f protests f r o m b e l o w a p a r t f r o m m a k i n g concessions w hich raised m o n e y wages, a n d they h a d even less idea a b o u t w h a t d o a b o u t the shortages o f i n p u t s needed t o m a i n t a i n the level o f p r o d u c t i o n . S t a g n a t i o n gave w a y t o e c o n o m i c c o n t r a c t i o n — t h e b e g i n n i n g s o f a s l u m p — i n the second h a l f o f 1989. There were calls f r o m e c o n o m i s t s w h o c l a i m e d t h a t o n l y greater i o m p e t i t i o n between enterprises, a n d eventually direct c o m p e t i t i o n between firms inside Russia a n d those elsewhere in the w o r l d econn m y c o u l d force m a n a g e r s t o be efficient a n d t o p r o d u c e the t h i n g s that were needed. But they h a d n o m o r e idea t h a n the ministries at the centre as h o w t o rind the resources t o c o m p l e t e the investments that were m e a n t t o p r o v i d e the o u t p u t s t h a t w o u l d restore b a l a n c e io the e c o n o m y . T h e e c o n o m i c c o l l a p s e c o n t i n u e d regardless o f w h a t the g o v e r n m e n t d i d , l e a d i n g t o ever greater d i s c o n t e n t a n d political u p h e a v a l . A n a t t e m p t by G o r b a c h e v t o take a h a r d line to i cstore central c o n t r o l in the s p r i n g o f 1991 p r o d u c e d a n e w w a v e of d i s c o n t e n t w h i c h forced h i m t o retreat. A c o u p against h i m by those w h o h a n k e r e d after a r e t u r n t o the past in A u g u s t 1991 fell apart, l a c k i n g s u p p o r t f r o m the m o s t i m p o r t a n t generals.

There

v\ as n o p o p u l a r constituency for trying t o return t o the o l d order. lUit those w h o preached reform d i d n o t have a w a y f o r w a r d either, despite rhe brief p o p u l a r i t y for " 1 0 0 - d a y " o r " 3 0 0 - d a y "

pro-

g r a m m e s p r o m i s i n g m i r a c u l o u s e c o n o m i c recovery. Such p r o g r a m m e s were U t o p i a n i n the extreme. T h e collapse o f central c o n t r o l left the g i a n t Soviet enterprises in a m o n o p o l i s t i c o r semi-monopolistic p o s i t i o n . T h e y were able t o dictate to the m a r k e t and t o p r o d u c e w h a t they w a n t e d rather t h a n w h a t w a s needed by the e c o n o m y as a w h o l e ; they were in a p o s i t i o n t o raise prices a n d to simply i g n o r e c o n t r a c t u a l o b l i g a t i o n s t o o t h e r enterprises. There was n o s t o p p i n g the c o m b i n a t i o n o f d e e p e n i n g recession, inflation and a c u t e shortages o f c o n s u m e r g o o d s a n d f o o d .

Economists,

planners a n d frightened bureaucrats began t o l o o k for any scheme to get t h e m o u t o f the mess, until finally they gave u p a t t e m p t i n g t o I lie End of the Golden Age

209

c o n t r o l w h a t was h a p p e n i n g . W h e n Yeltsin a n d rhe C o m m u n i s ! leaders of rhe other n a t i o n a l republics a n n o u n c e d the dissolution ol the U S S R i n t o its c o m p o n e n t republics at the end of 1991 they weno n l y giving political expression t o the e c o n o m i c f r a g m e n t a t i o n rh.n w a s already under w a y , w i t h the heads o f each industrial sec m i trying t o protect themselves from the general e c o n o m i c crisis by r< lying o n their o w n resources. T h i s w a s turned i n t o a supposed e c o n o m i c strategy t h r o u g h " s h o c k t h e r a p y " policies o f Yeltsin " l i b e r a l " ministers a n d Western advisers like Jeffrey Sachs. T h e a* sumption

w a s that, left to c o m p e t e w i t h each o t h e r

without

restraints f r o m the state, enterprises w o u l d soon be pricing g o o d s rationally in a way t h a t w o u l d lead the efficient ones t o establish links wirh each other, a n d that this w o u l d restore stability. In fact, all it d i d w a s t o provide g o v e r n m e n t a l blessing t o a s l u m p already under w a y w h o s e only precedent a n y w h e r e in the 2 0 t h century was that o f 1929-33 in the US a n d G e r m a n y . T h e failure o f e c o n o m i c reform w a s n o t just a failure o f implt m e n t a t i o n . There w a s a flaw in the very n o t i o n o f r e f o r m irsell The a i m w a s t o restructure the Soviet e c o n o m y so t h a t those set tions o f it c a p a b l e of a d j u s t i n g ro the c u r r e n t i n t e r n a t i o n a l level ot the forces o f p r o d u c t i o n w o u l d e x p a n d w h i l e others closed d o w n . But this w a s b o u n d t o be a n e n o r m o u s l y p a i n f u l u n d e r t a k i n g , not just for those workers w h o suffered in the process b u t for the mass of

the

individual

members

of

the

bureaucracy

as

well.

R e s t r u c t u r i n g the British e c o n o m y between the mid-1970s a n d the mid-1980s h a d involved s h u t t i n g d o w n a b o u t o n e factory in three a n d destroying capital o n such a scale that gross industrial invest m e n t in 1990 w a s still n o higher t h a n in 1972. It is very d o u b t f u l t h a t it c o u l d have proceeded s m o o t h l y if British capitalism h a d not h a d the l u c k y b o n u s o f e n o r m o u s N o r t h Sea oil revenues. The U S S R s e c o n o m y w a s m u c h larger rhan Britain, a n d its enterprises h a d been m u c h m o r e insulated f r o m the rest o f rhe w o r l d for (SO years. T h e p r o p o r t i o n that w a s ro be destroyed by a n i m m e d i a t e o p e n i n g t o i n t e r n a t i o n a l c o m p e t i t i o n w a s c o r r e s p o n d i n g l y greater This, in t u r n , d i d considerable d a m a g e ro the r e m a i n i n g c o m p e t i tive enterprises as they lost suppliers o f materials a n d c o m p o n e n t s o n the o n e h a n d a n d buyers for their o u t p u t o n rhe other. T h e roots o f the crisis lay in rhe pressure t o a c c u m u l a t e for the sake o f a c c u m u l a t i o n t h a t arose f r o m the bureaucracy's position as part o f a c o m p e t i t i v e w o r l d system. T h e Soviet e c o n o m y

hail

reached the p o i n t a t w h i c h the precondition for a further w a v e ot 210

Capitalism in the 20th Cent111v

•elf-expansion o f capital w a s a crisis i n v o l v i n g the destruction o f at least some past a c c u m u l a t i o n . T h e o n l y difference between Russia and, say, France or Britain, was that rhe destruction was t o be o n a considerably greater scale. A n d this w a s because the Soviet U n i o n had u n d e r g o n e six decades o f a c c u m u l a t i o n w i t h o u t restructuring through crises a n d b a n k r u p t c i e s , w h i l e for the British a n d French economies it was only four a n d three decades respectively. Few people were prepared ro see t h i n g s in these terms at rhe nine. T h e vast m a j o r i t y o f those w h o h a d struggled for d e m o c r a t i c reform in Russia believed that the turn to m a r k e t c a p i t a l i s m w o u l d open u p a g l o r i o u s future. W h a t they got instead was a devastating s l u m p , the c o r r u p t i o n o f the Yeltsin years a n d the d o m i n a t i o n o f I he e c o n o m y a n d society by f o r m e r m e m b e r s o f the ruling bureaui racy

and

mafiosi

reborn

as

private

capitalist

oligarchs.

M e a n w h i l e , in the rest o f the w o r l d the great m a j o r i t y o f politi11.ms a n d theorists in the social d e m o c r a t i c a n d f o r m e r Stalinist left drew the c o n c l u s i o n t h a t it w a s socialism that h a d failed a n d ihat the future lay w i t h Western style m a r k e t s , failing t o perceive ilie depths o f the crises b r e w i n g there t o o .

j a p a n : the sun that s t o p p e d rising I he w o r l d ' s second e c o n o m i c p o w e r at the b e g i n n i n g o f the 1980s was the U S S R . J a p a n t o o k its place as the Soviet crisis o f the late I v '80s t u r n e d i n t o collapse.

1

J a p a n ' s average g r o w t h rate through-

out the 1980s was 4 . 2 percent as against 2 . 7 percent for the U S uid 1.9 percent for West G e r m a n y . Its a n n u a l investment in manufacturing e q u i p m e n t w a s m o r e t h a n twice t h a t o f the US.~: T h a t ihe f u t u r e lay w i t h J a p a n w a s the n e a r universal c o n c l u s i o n o f media c o m m e n t a t o r s . A c o m m i t t e e o f the US Congress w a r n e d in 1992 that J a p a n c o u l d overtake the U S by the end of the decade. "After

Japan"

became

the

slogan

of

European

and

North

\inerican industrialists t r y i n g t o m o t i v a t e their w o r k f o r c e s t o greater feats o f productivity. T h e " t h r e a t " f r o m the " r i s i n g s u n " became the excuse for the j o b losses experienced by A m e r i c a n a u t o workers. Keynesian c o m m e n t a t o r s like W i l l B u t t o n a n d W i l l i a m Keegan w r o t e b o o k s e x t o l l i n g the Japanese m o d e l o f c a p i t a l i s m . T h e n in the 1992-3 a financial crisis pushed J a p a n i n t o its o w n " p e r i o d o f s t a g n a t i o n " , w i t h a g r o w t h rate averaging just 0 . 9 percent a year between 1990 a n d 2001. 7 3 By 2 0 0 7 its e c o n o m y w a s I lie End of the Golden Age

211

o n l y a third of the size o f rhe US's ( a n d rhe E u r o p e a n Union's)" 1 as against estimates as h i g h as 6 0 percent in 1992." 5 T h e b l a m e for w h a t h a p p e n e d is usually ascribed t o faults in the r u n n i n g o f its financial system—either d u e to financial markets not b e i n g " f r e e " enough in the 1980s, or ro i n a p p r o p r i a t e action by rhe central banks o n c e the crisis h a d started. T h e c o n c l u s i o n from such reasoning is t h a t the J a p a n crisis w a s u n i q u e a n d has little to tell us a b o u t the direction in w h i c h the g l o b a l system is g o i n g . T h e s u d d e n inability o f the w o r l d ' s second biggest e c o n o m y t o grow then becomes the result o f accidents. Yet all the elements o f the M a r x i s t a c c o u n t o f the crisis o f the inter-war years are ro be f o u n d in the Japanese case. J a p a n h a d a rapidly rising ratio o f c a p i t a l t o w o r k e r s f r o m rhe 1950s ro the late 1980s. T h i s grew in the 1980s by 4 . 9 percent a y e a r — m o r e than f o u r times as fast as in the US a n d 7 0 percent faster t h a n in Germany. 7 6 T h e result, as M a r x w o u l d have predicted, w a s d o w n w a r d pressure on the rate o f profit. It fell by a b o u t three quarters between the end o f the 1960s a n d the end o f the 1980s Japanese profit rate' Manufacturing

Non-financial corporate

1960-69

36.2

25.4

1970-79

24.5

20.5

1980-90

24.9

16.7

1991-2000

14.5

10.8

Return on gross nott-residential stock 1 1960

28.3

1970

18.0

1980

7.8

1990

3.9

T h e decline seemed m a n a g e a b l e u n t i l the end o f the 1980s. The state a n d the b a n k s w o r k e d w i t h private industry t o sustain g r o w t h w i t h o u t m u c h attention to profit rates. So l o n g as there w a s a mass o f profit available for further investment, the Japanese system en sured t h a t it w a s used. J a p a n h a d been hit h a r d by the global recession o f the mid-1970s, but w a s able not o n l y t o recover from it before m o s t other counties b u t also to restructure industry in such as w a y as t o keep e x p a n d i n g t h r o u g h o u t the early 1980s w h e n the US a n d E u r o p e were in recession: 212

Capitalism in the 20th Cent111v

T h e crisis [of 1973-5] indicated t h a t f u t u r e g r o w t h o n the basis o f h e a v y a n d c h e m i c a l i n d u s t r i a l i s a t i o n w a s u n t e n a b l e . T h e role o f the state in c h a n g i n g the strategic direction o f J a p a n e s e capitalism w a s f u n d a m e n t a l . A d m i n i s t r a t i v e g u i d a n c e by M i l l ( M i n i s t r y o f I n t e r n a t i o n a l Trade a n d I n d u s t r y — C H ) began to n u d g e Japanese capital in the direction o f electronics, a u t o m o biles, c a p i t a l e q u i p m e n t a n d s e m i c o n d u c t o r s . . / 9 I his required high levels o f investment. T h e United States, for example, invested

just 2 1 percent o f its G D P d u r i n g the

1980s

c o m p a r e d w i t h a Japanese figure o f 31 percent. A c c o r d i n g t o o n e estimate, the ratio of capital stock ro G N P in J a p a n w a s nearly 5 0 percent higher t h a n in the US.*' T h e c o n c e n t r a t i o n o f investment into certain industries in this w a y raised their productivity, even though it remained fairly l o w in the rest of the Japanese economy." 1 hut such high investment c o u l d o n l y be sustained by h o l d i n g d o w n the c o n s u m p t i o n o f the mass of people. Partly this w a s d o n e by keeping d o w n real wages; partly it w a s d o n e through p r o v i d i n g minimal state provision for sickness a n d pensions, forcing people to save. As R o d Stevens pointed o u t w h e n the b o o m w a s at its height: Real w a g e s in J a p a n are still at m o s t o n l y a b o u t 6 0 percent o f real wages in the US, a n d J a p a n e s e w o r k e r s have t o save massively t o c o p e w i t h

the h u g e p r o p o r t i o n

o f rheir

lifetime

earnings w h i c h is a b s o r b e d by such t h i n g s as h o u s i n g , educat i o n , o l d age a n d health c a r e . " but this level o f real wages restricted the d o m e s t i c m a r k e r for the new g o o d s J a p a n e s e industry w a s t u r n i n g o u t at an ever increasing speed. T h e o n l y w a y to sell t h e m w a s to rely o n exports. As Stevens also p o i n t e d o u t : Because o f capital's increasingly strict w a g e c o n t r o l a n d authority in the w o r k p l a c e , g r o w i n g

labour

productivity

in

the

c o n s u m e r g o o d s branches o f rhe machinery industries (eg m o t o r cars a n d audio-visual e q u i p m e n t ) h a d t o find outlets in e x p o r t m a r k e t s if the J a p a n e s e w o r k i n g class's l i m i t e d b u y i n g p o w e r i

w a s n o t to i n t e r r u p t a c c u m u l a t i o n / ' I ligh productivity in the select range o f prioritised industry m a d e the required level o f exports possible, w i t h Japanese cars a n d electronics I lie End of the Golden Age

212

increasingly penetrating the US m a r k e t . But it b r o u g h t c o m p l i c a rions in its w a k e . Japanese e c o n o m i c success w a s very dependent on US g o o d will. W h e n the US d e m a n d e d that J a p a n accept an u p w a r d revaluation o f its currency ro m a k e its g o o d s less competitive against A m e r i c a n g o o d s , Japanese capitalism h a d little choice b u t t o comply a n d the v o l u m e of exports suffered (even t h o u g h revaluation meant their value in dollar terms did not). The reaction of rhe state to this w a s ro provide c h e a p funds to keep i n d u s t r i a l investment a n d e x p a n s i o n g o i n g . As Karel van Wolferen has satd,

44

To c o m p e n s a t e the c o r p o r a t e sector for the

squeeze o f rhe exchange rate, rhe M i n i s t r y |of Finance) encouraged the b a n k s vastly ro increase their l e n d i n g " / 4 But there h a d been a w e a k e n i n g o f the old mechanisms w h i c h directed b a n k l e n d i n g into industrial d e v e l o p m e n t — c a u s e d in part by the g r o w i n g integration o f Japanese capitalism i n t o the w o r l d system.' 5 T h e e x p a n d e d bank lending f o u n d its way i n t o speculation o n a massive scale: T h e e x p l o s i o n of l i q u i d i t y h e l p e d set o f f an u p w a r d spiral ot real-estate values, l o n g used as collateral by the big c o m p a n i e s , w h i c h rhen justified inflated stock v a l u e s / 6 In w h a t w a s later called the " b u b b l e e c o n o m y " , p r o p e r t y values soared a n d the stock e x c h a n g e d o u b l e d in v a l u e — u n t i l the net w o r t h of J a p a n e s e c o m p a n i e s w a s said to be greater t h a n t h a t ol the US c o m p a n i e s , a l t h o u g h by a n y real measure rhe US e c o n o m y w a s a b o u t twice the size o f the J a p a n e s e o n e . But w h i l e the b u b b l e lasted the J a p a n e s e e c o n o m y c o n t i n u e d to g r o w — a n d even after the b u b b l e h a d started deflating, b a n k l e n d i n g e n a b l e d the econo m y t o keep e x p a n d i n g t h r o u g h o u t 1991-2 as recession hit the US a n d Western E u r o p e . T h e n it b e c a m e clear t h a t the b a n k s themselves were in t r o u b l e . T h e y h a d m a d e l o a n s for l a n d a n d share purchases t h a t c o u l d n o t be repaid n o w these things h a d collapsed in price. T h e b a n k i n g system w a s hit by recurrent crises right t h r o u g h the 1990s, w r i t i n g o f f a total o f a r o u n d

7

1 trillion yen

(over $ 5 0 0 billion) in b a d loans. T h e total s u m o w e d by businesses in t r o u b l e or actually b a n k r u p t were set at 8 0 t o 100 trillion yen ( $ 6 0 0 ro $ 7 5 0 b i l l i o n ) by the US g o v e r n m e n t , a n d at 1 11 trillion yen (nearly $ 8 4 0 b i l l i o n ) by the IMF." 7 T h e role of the financial system in p r o d u c i n g rhe b u b b l e a n d then the long d r a w n o u r b a n k i n g crisis has led m o s t c o m m e n t a t o r s to locate the origin o f the Japanese crisis in faults w i t h i n t h a t system. 214

Capitalism in the 20thCent111v

I he p r o b l e m , neoliberal c o m m e n t a t o r s c l a i m , w a s that the close ties between those r u n n i n g the state, rhe b a n k i n g system a n d in-

dustry m e a n t t h a t there w a s n o t the scrutiny a b o u t w h a t the b a n k s were u p t o w h i c h a t r u l y c o m p e t i t i v e e c o n o m y w o u l d have pro\ ided. 8 * It w a s this w h i c h enabled such a massive a m o u n t o f d o d g y lending t o take place. As an e x p l a n a t i o n , it fails because very similar b u b b l e s

have

happened

in e c o n o m i e s

like the

US

which

supposedly fulfil all the n o r m s o f " c o m p e t i t i v e n e s s " . It is difficult to see any f u n d a m e n t a l difference between the Japanese b u b b l e o f the late 1980s a n d the US h o u s i n g b u b b l e o f the mid-2000s. T h e neoliberal reasoning t h a t b l a m e s the crisis o n the stare believes there w a s a s o l u t i o n — t h e state s h o u l d s i m p l y have w a l k e d a w a y a n d a l l o w e d s o m e o f the big b a n k s to g o o u t o f business. But this assumes t h a t s o m e b a n k s g o i n g bust w o u l d n o t b r i n g d o w n other b a n k s t o w h i c h they o w e d m o n e y , l e a d i n g to a c u m u l a t i v e collapse o f the w h o l e b a n k i n g sector. N o a d v a n c e d industrial state dare even c o n t e m p l a t e t h a t h a p p e n i n g . W h e n e v e r it has seemed possible, o t h e r states h a v e behaved in general as the J a p a n e s e have. In a n y case, there is n o reason t o believe t h a t the b a n k i n g crisis was the u l t i m a t e cause o f J a p a n e s e s t a g n a t i o n . T h e neoclassical e c o n o m i s t s F u m i o H a y a s h i a n d E d w a r d C Prcscott h a v e argued that firms t h a t w a n t e d t o invest c o u l d still d o so, since " o t h e r sources o f f u n d s replaced b a n k loans to finance the robust investm e n t by n o n f i n a n c i a l c o r p o r a t i o n s in the 1 9 9 0 s V But they have had t o recognise t h a t " t h o s e projects that are f u n d e d are o n average receiving a l o w rate o f r e t u r n " . ' 0 In fact, there w a s a fall in p r o d u c t i v e investment, a l t h o u g h n o t a n y t h i n g like a c o m p l e t e collapse. In such a s i t u a t i o n , restructuring the b a n k i n g

system,

whether t h r o u g h a l l o w i n g the crisis t o deepen, as rhe neoliberals w a n t e d , or g r a d u a l l y as those o f a m o r e Keynesian persuasion suggested, w o u l d nor solve the crisis. O n this Paul K r u g m a n rightly m a d e the p o i n t : T h e s t r i k i n g t h i n g a b o u t discussion o f structural r e f o r m , however, is that w h e n o n e poses the q u e s t i o n , " H o w

will

this

increase d e m a n d ? " the answers are actually q u i t e vague. I at least a m far from sure t h a t rhe k i n d s o f structural reform being urged o n J a p a n will increase d e m a n d at all, a n d see n o reason t o believe that even radical reform w o u l d be e n o u g h to jolt rhe e c o n o m y o u t o f its current t r a p / The Hnd of rhe (iolden Age

21S

T h e reason was t h a t the t r a p lav outside the b a n k i n g system, in rht capitalist system as a whole. T h e rate o f profit h a d fallen to a p o m i in the late 1980s which precluded further substantial increases in w o r k e r s ' living standards. But that in t u r n prevented rhe domestic e c o n o m y f r o m b e i n g able t o a b s o r b all o f the increased o u t p u t . \ n e w massive r o u n d of a c c u m u l a t i o n c o u l d h a v e absorbed it, but for t h a t p r o f i t a b i l i t y w o u l d h a v e h a d to h a v e been m u c h highei t h a n it w a s . R i c h a r d Koo's study o f the crisis, The Holy Macroeconomics,

Grail

of

by stressing the h i d d e n debts o f m a j o r c o r p o r a

t i o n s , hints at w h a t had really g o n e w r o n g , b u t fails to g r o u n d the p r o b l e m o f insolvency in the long-term decline o f profitability.* T h e Japanese state did t u r n ro s o m e Keynesian type s o l u t i o n s , w i t h a big p r o g r a m m e of p u b l i c w o r k s c o n s t r u c t i o n (bridges, ait porrs, roads, etc). G a v a n M c C o r m a c k writes, " W i t h the onset ot c h r o n i c recession after the b u b b l e burst at rhe b e g i n n i n g o f the 1990s, the g o v e r n m e n t turned t o ever l a r g e r — a n d decreasing!y el fcctive—Keynesian

deficits", a n d

that

"Japan's

public

works

sector has g r o w n t o be three times the size o f t h a t o f Britain, the US o r G e r m a n y , e m p l o y i n g 7 m i l l i o n people, o r 10 percent o f rhe w o r k f o r c e , a n d spending between 4 0 a n d 5 0 trillion yen a year a r o u n d $ 3 5 0 b i l l i o n , 8 percent o f G D P or t w o t o three times thai o f other i n d u s t r i a l c o u n t r i e s " . "

A c c o r d i n g t o o n e estimate the

state's share o f o u t p u t increased f r o m an average of 13.7 percent in the 1984-1990 period to 15.2 percent in the 1994-2000 p e r i o d . ' But it w a s not e n o u g h to fill the g a p created by the limited stimulus to investment from the rate o f profit, as the g r a p h b e l o w shows.

(Source: Fumio Hayashi and Edward C. Prescott. "The 1990s in Japan: A l ost Decade")

216

Capitalism in the 20th Cent111v

Hie e c o n o m y did n o t collapse in the 1990s in the w a y t h a t the US And G e r m a n e c o n o m i e s did in rhe early 1930s. T h e state still seemed able ro srop that. But it c o u l d n o t lift rhe e c o n o m y back to its o l d g r o w t h p a t h . Sections o f J a p a n e s e c a p i t a l believed they could escape f r o m this t r a p b y investing a b r o a d — a s the g a p between G r o s s I n v e s t m e n t a n d G r o s s D o m e s t i c I n v e s t m e n t s h o w s . But it w a s n o t a n a n s w e r for rhe great b u l k o f J a p a n e s e c a p i t a l which did its u t m o s t to try to raise the rare o f profit t h r o u g h raising the rate o f e x p l o i t a t i o n , even t h o u g h it c o u l d o n l y reduce domestic d e m a n d still further a n d deepen its p r o b l e m s . N o r w a s ir in a n s w e r for the Japanese-working class, w h i c h whether ir liked it hi n o t w o u l d be c o m p e l l e d ro struggle if it w a s ro avoid life getting worse. E c o n o m i c g r o w t h d i d n o t rise f r o m the d o l d r u m s until the m i d - 2 0 0 0 s , w h e n ^ C h i n e s e i m p o r t s o f m a c h i n e r y gave a boost ro h p a n e s e i n d u s t r y — b u t this w a s t o p r o v e t o be very shortlived. J a p a n s crisis w a s n o t as devastating t o the lives o f its people as i hat w h i c h b r o k e o u t a c o u p l e o f years earlier in the U S S R . Yet, unnoticed by nearly all e c o n o m i s t s , m a i n s t r e a m a n d M a r x i s t alike, there w a s a similarity between t h e m . C a p i t a l a c c u m u l a t i o n h a d reached the p o i n t where it c o u l d n o longer extract a surplus f r o m those it exploited o n a sufficiently rising scale t o keep abreast o f the internationally c o m p e t i t i v e level o f a c c u m u l a t i o n it looked to. T h e barrier t o c a p i t a l a c c u m u l a t i o n h a d indeed become c a p i t a l itself. I hose w h o presided over a c c u m u l a t i o n h a d t w o choices. They i ould a l l o w their bit o f rhe system t o restructure itself t h r o u g h blind c o m p e t i t i o n , t a k i n g o n trust ideological claims that it w o u l d produce n e w miracles. O r they c o u l d play safe, k n o w i n g they m i g h t never get o u r of long-term s t a g n a t i o n . T h e rulers o f Russia chose the first p a t h a n d saw their e c o n o m y , already halved w i t h the loss o f the rest o f the U S S R , halve in size a g a i n . J a p a n s rulers t o o k the other p a t h , a n d their e c o n o m y w e n t t h r o u g h a decade a n d a half o f debilitating s t a g n a t i o n w i t h o u t seeming a n y closer t o a solution t o its p r o b l e m s ar rhe end than ir w a s at the beginning. The big question both raised w a s , h o w w o u l d other countries, particularly rhe I IS, react if they fell into the same stagnation trap?

I he i m p a c t o n the G l o b a l S o u t h I he collapse

of

the

two

state-oriented

ideological

models,

eynesianism a n d S t a l i n i s m , h a d a p r o f o u n d effect o n p o l i t i c a l I lie End of the Golden Age

217

forces aspiring after ihe " d e v e l o p m e n t " o f T h i r d W o r l d economies i n t o f u l l a n d e q u a l c o m p o n e n t s o f the w o r l d system. It p u s h e d t h e m t o l o o k for new m o d e l s o f c a p i t a l a c c u m u l a t i o n in place <>i the state-directed import-substitutionist m o d e l , w h i c h w a s alread\ displaying problems. In Asia the tightly r e g u l a t e d C h i n e s e e c o n o m y a n d t h e less t i g h t l y r e g u l a t e d , but still centrally d i r e c t e d , I n d i a n e c o n o n n b o t h b e g a n t o show w o r r y i n g signs o f s t a g n a t i o n by t h e m i d 1 9 7 0 s / 5 f o r c i n g g o v e r n m e n t s t o l o o k for a l t e r n a t i v e s ; in L a t i n A m e r i c a the i m p o r t - s u b s t i t u t i o n i s t m o d e l w a s f o u n d w a n t i n g in its A r g e n t i n i a n

homeland

as e c o n o m i c

and

political

crises

e r u p t e d ; in A f r i c a the p r o m i s e s m a d e by p r o p o n e n t s o f " A f r i c a n s o c i a l i s m " were n o t fulfilled as i n d u s t r i a l g r o w t h w a s restricted by the n a r r o w n e s s of n a t i o n a l m a r k e t s a n d the m e a g r e resources left after the d e p r e d a t i o n s o f i m p e r i a l i s m . A d d i n g to these p r o b lems w a s a d e c l i n e i n the price o n t h e w o r l d m a r k e t for raw m a t e r i a l s a n d f o o d s t u f f s — r h e m a i n source o f the e x p o r t earnings needed to i m p o r t e q u i p m e n t for n e w industries. Particularly after the onset o f recession i n the a d v a n c e d c o u n t r i e s in 1 9 7 4 , n o n oil p r o d u c i n g T h i r d W o r l d c o u n t r i e s were c a u g h t between increased oil costs a n d a decline in t h e terms o f t r a d e f o r p r i m a r y c o m m o d i t y e x p o r t s o f nearly 5 0 percent. 9 6 T h o s e r u n n i n g industries w h i c h h a d g r o w n u p w i t h i n the p r o tective barriers o f rhe o l d m o d e l began p r a g m a t i c a l l y establishing links w i t h foreign capital. A r g e n t i n a , Brazil a n d M e x i c o were typi cal. Their industrial bases h a d been established in the 1940s, 1950s a n d 1960s by the state intervening t o direct investment in industry, often inro state-owned c o m p a n i e s . But the m o r e farsighted indus t r i a l i s t s — w h e t h e r in the srate or private sectors—saw t h a t the\ c o u l d n o t get rhe resources a n d m o d e r n technologies needed to keep u p w i t h w o r l d w i d e p r o d u c t i v i t y levels unless they f o u n d ways o f b r e a k i n g o u t o f the confines o f the n a t i o n a l e c o n o m y . They began increasingly t o t u r n t o foreign m u l t i n a t i o n a l s for licensing agreements, joint p r o d u c t i o n projects a n d f u n d s — a n d they began themselves t o operate as m u l t i n a t i o n a l s i n other countries. The trend was reinforced by rhe success o f a n u m b e r o f countries which h a d long oriented themselves to the world market in achiev ing very fast g r o w t h rates, i n Asia four bastions o f anti-CommunismSouth Korea, T a i w a n , H o n g K o n g a n d Singapore—registered growth rates easily as large as those in Stalin's U S S R . A n d in E u r o p e coun tries like Spain, Greece a n d Portugal, which Paul Baran h a d included 217

Capitalism111the 20th Century

is p a r t o f rhe u n d e r d e v e l o p e d w o r l d , g r e w r a p i d l y e n o u g h

to

join t h a t rich m a n ' s c l u b , the E u r o p e a n C o m m u n i t y . Brazil began lollowing a similar

export-oriented

parh

u n d e r the

military

t e g i m e t h a t h a d seized p o w e r in 1 9 6 4 . Irs still very large state nector a n d p r i v a t e c a p i t a l a l i k e increasingly oriented t o w a r d s rhe i est o f the w o r l d system r a t h e r t h a n t o a protected

national

m a r k e t . T h e Western f i n a n c i a l press rejoiced in this, a s s u r i n g its readers t h a t Brazil w a s t h e great rising T h i r d W o r l d

country

w h o s e i n d u s t r i e s w e r e destined ro c h a l l e n g e those o f t h e West. A n d there c e r t a i n l y w a s g r o w t h . " F o r a l m o s t 15 years (1965-80) the a v e r a g e rate o f g r o w t h w a s 8.5 p e r c e n t , m a k i n g Brazil the fourth fastest g r o w i n g c o u n t r y " . I

O t h e r L a t i n A m e r i c a n states began t o e m u l a t e the Brazilian policy. The m i l i a r y c o u p s in C h i l e (19~3) a n d A r g e n t i n a ( 1 9 7 6 ) were f o l l o w e d by a n o p e n i n g t o external c a p i t a l . A n d a g a i n the o u t c o m e seemed e n c o u r a g i n g at first. U n d e r the Videla regime in Argentina " r h e rate o f inflation w a s lowered, real o u t p u t grew, a n d a current a c c o u n t surplus was generated"V

w h i l e Chile's real G D P

grew 8.5 percent a year between 1 9 7 7 a n d 1980. y y It seemed t h a t a w a y h a d been f o u n d t o achieve n a t i o n a l accumulation

by

breaking

out

of

the

confines

of

rhe

national

m a r k e t — a n d , w h e n the policies were u n d e r t a k e n u n d e r m i l i t a r y regimes, of c r u s h i n g p o p u l a r resistance to rising levels o f exploitation. There w a s a similar s w i n g o f the intellectual p e n d u l u m as in the West a n d rhe f o r m e r C o m m u n i s t states, w i t h the w h o l e s a l e conversion o f " d e p e n d e n c y t h e o r y " e c o n o m i s t s ro the w o n d e r s o f tree markers.

The conversions

continued

even

as the

Latin

American " m i r a c l e " c a m e u n s t u c k . G r o w t h after 1974 h a d c o m e t o d e p e n d o n foreign b o r r o w i n g (as in P o l a n d a n d H u n g a r y in the s a m e p e r i o d ) . M a n y

Latin

A m e r i c a n countries g a m b l e d o n a m b i t i o u s g r o w t h targets by borr o w i n g heavily in i n t e r n a t i o n a l

financial

m a r k e t s . T h e external

debt o f C h i l e a n d A r g e n t i n a a l m o s t trebled over a few years, f r o m 1978 to 1981 . l0 ° But this did n o t seem to matter at the t i m e — e i t h e r ro the n a t i o n a l g o v e r n m e n t s o r the i n t e r n a t i o n a l b a n k i n g system: U p t o the second oil price shock (1979-80) the g a m b l e w a s w o r t h t a k i n g . E x p o r t g r o w t h w a s sustained in w o r l d m a r k e t s at f a v o u r a b l e prices... As a c o n s e q u e n c e the ratio o f d e b t outs t a n d i n g to export proceeds w a s m o r e f a v o u r a b l e for all non-oil d e v e l o p i n g countries in 1979 t h a n in 1970-72. 0 1 I he Fnd of the Golden Age

219

The I M F assured people in 1980, " D u r i n g the 1970s...a gener alised d e b t m a n a g e m e n t p r o b l e m w a s a v o i d e d . . . a n d the o u t l o o k for the i m m e d i a t e future does n o t give cause for a l a r m " . ' " 2 This w a s written just months before rhe second international recession, in rhe early 1980s, caught all these states u n p r e p a r e d . As export markets s h r a n k a n d international interest rates began to rise, the debts they h a d incurred in the 1970s c r i p p l e d their g r o w t h , threw t h e m i n t o recession and blighted their e c o n o m i e s right t h r o u g h the 1980s, w h i c h

became k n o w n

as " t h e

lost d e c a d e v

in

Latin

A m e r i c a , w i t h a fall in G N P per p e r s o n for rhe c o n t i n e n t as a w h o l e o f 10 percent. 101 T h e i m p a c t o n local capitalists a n d m a i n s t r e a m political forces w a s n o t , however, to q u e s t i o n rhe n e w o p e n i n g to the w o r l d m a r k e t . R a t h e r it was t o insist, as in Russia a n d Eastern E u r o p e t h a t rhe o p e n i n g h a d not g o n e far e n o u g h . T h e new doctrine was accepted in o n e f o r m or a n o t h e r by the late 1980s by populist p o l i t i c i a n s a n d even f o r m e r guerrillas in L a t i n A m e r i c a , by the p o l i t b u r o in C h i n a , by the Congress Party leadership i n I n d i a , by those w h o h a d o n c e p r o c l a i m e d their c o m m i t m e n t t o " s o c i a l i s m in A f r i c a a n d by rhe successors t o Nasser in E g y p t . T h e conversions were n o t a l w a y s v o l u n t a r y . T h e International M o n e t a r y F u n d a n d rhe W o r l d Bank intervened w h e r e they c o u l d , m a k i n g offers, mafia style, t o debt-laden countries w h i c h their rulers rarely f o u n d themselves able to refuse, since d o i n g so w o u l d rule o u r a n y sort o f a c c u m u l a t i o n strategy. T h e various d e b t prog r a m m e s were m o r e c o n c e r n e d w i t h protecting the interests ot Western b a n k s t h a n w i t h a m e l i o r a t i n g c o n d i t i o n s in the indebted countries. B u t m o r e was involved t h a n just a surrender to i m p e n alism o n the part o f the g o v e r n m e n t s t h a t accepted t h e m . Those capitals, private a n d state alike, t h a t h a d g r o w n d u r i n g the period o f state-directed " d e v e l o p m e n t " d i d n o t see a n y w a y o f c o n t i n u i n g t o e x p a n d w i r h i n the confines o f l i m i t e d n a t i o n a l markets. They w a n t e d access t o markers a n d ro technological i n n o v a t i o n s o u t s i d e n a t i o n a l borders. They m i g h t a l l o w , even e n c o u r a g e , na rional g o v e r n m e n t s t o haggle over the terms o n w h i c h c a p i t a l in the m e t r o p o l i t a n countries a l l o w e d this t o h a p p e n , b u t they w o n hi n o t reject t h e m o u t r i g h t . A n d in the process s o m e o f t h e m wen. indeed able to d e v e l o p m o r e t h a n a n a t i o n a l profile. S o the A r g e n t i n i a n steel m a k e r T e c h N e t t o o k c o n t r o l of tin M e x i c a n steel tube m a k e r Tamsa in 1 9 9 3 , acquired the Italian steel tube m a k e r D a l m i k n e in 1996, a n d then w e n t o n t o e x p a n d i n t o 220

Capitalism in rhe 20th Cenrun

Brazil,

Venezuela,

Japan

and

Canada,

adopting

the

name

I maris.' 0 4 There is a s i m i l a r pattern for s o m e M e x i c a n c o m p a n i e s , hi rhe late 1980s A l f a , the largest i n d u s t r i a l g r o u p in M e x i c o , w i t h 109 subsidiaries s p a n n i n g a u t o m o t i v e c o m p o n e n t s , f o o d , petrochemicals a n d steel, e m b a r k e d o n a g r o w i n g n u m b e r o f j o i n t operations w i t h foreign firms. T h e glass m a k e r V i t r o , w h i c h h a d b o u g h t t w o A m e r i c a n c o m p a n i e s , became " t h e w o r l d ' s l e a d i n g glass c o n t a i n e r m a n u f a c t u r e r , w i t h its m a r k e t a l m o s t e q u a l l y split between the US a n d M e x i c o " . 1 " 4 T h e logical o u t c o m e o f this in M e x i c o w a s for its r u l i n g class to forget its o l d n a t i o n a l i s m a n d t o |i)in the N o r t h A m e r i c a n Eree Trade Area a n d increasingly t o operate as a s u b o r d i n a t e c o m p o n e n t o f US c a p i t a l i s m . O c c a s i o n a l l y the c o l l a b o r a t i o n p r o d u c e d positive results for wider sections o f local c a p i t a l , p r o v i d e d s o m e j o b o p p o r t u n i t i e s lor the a s p i r a n t m i d d l e classes (in I r e l a n d , S o u t h Korea, M a l a y s i a , Singapore, Taiwan a n d coastal C h i n a ) , a n d even created conditions u n d e r w h i c h w o r k e r s c o u l d b o o s t their living s t a n d a r d s t h r o u g h i n d u s t r i a l a c t i o n . A l l t o o o f t e n , however, it created still further indebtedness t o foreign b a n k s w h i c h the n a t i o n a l states had t o cope w i t h . In such cases a n a r r o w s t r a t u m o f people gained a taste o f the fleshpots o f m u l t i n a t i o n a l c a p i t a l w h i l e the conditions of the mass o f people deteriorated, or a t best r e m a i n e d u n c h a n g e d . A y u p p i e class lived in protected enclaves as if it were in the wealthiest parts o f the industrialised w o r l d (and often w e n t i step further a n d lived part o f the year there), w h i l e m u c h o f the p o p u l a t i o n festered in ever proliferating s l u m s a n d s h a n t y t o w n s . T h e a s s u m p t i o n o f the n e w e c o n o m i c i d e o l o g y — m o s t forcefully addressed

in

the

u

neoliberar

notions

of

the

"Washington

i lonsensus" o f rhe I M F a n d W o r l d B a n k — w a s t h a t if s o m e capital a c c u m u l a t i o n in s o m e countries h a d been able to gain a n e w lease of life by reinsertion i n t o the w o r l d system, it c o u l d d o so anywhere if o n l y the last restrictions o n t r a d e a n d the m o v e m e n t o f capital were removed. But the reality proved to be rather different. A few areas attracted new p r o d u c t i v e investment, b u t o n l y a few. At the end o f the century o n l y a third o f w o r l d w i d e foreign direct investment w e n t t o the " e m e r g i n g m a r k e t s " o f the G l o b a l S o u t h and the f o r m e r C o m m u n i s t countries, a n d o f this m o r e t h a n half went

to

just

four

countries—China/Hong

Kong,

Singapore,

M e x i c o a n d Brazil. A n o t h e r q u a r t e r w e n t t o just seven countries i M a l a y s i a , T h a i l a n d , South K o r e a , B e r m u d a , Venezuela, C h i l e a n d g e n t i n a ) , leaving 1 7 6 countries t o share o u t the r e m a i n i n g 25 I lie End of the Golden Age

221

percent.' * A n d m u c h o f rhe investment w a s n o t n e w investment at a l l , b u t s i m p l y the buying u p of already o p e r a t i n g c o m p a n i e s In m u l t i n a t i o n a l s based in the m e t r o p o l i t a n countries. These p r o b l e m s uere m o s t felt in the poorest regions o f tin w o r l d , especially Africa. H o w e v e r m u c h they d i s m a n t l e d their old, protectionist, import-substitutionist policies, they still r e m a i n e d u n a t t r a c t i v e t o the m u l t i n a t i o n a l s they w a n t e d t o w o o : " S m a l l p o o r countries face increased barriers t o entry in industries most subject t o the g l o b a l forces o f c o m p e t i t i o n " . 1 0 M u c h the s a m e applied to exports. C h i n a a n d a few other coun tries d i d c o n t i n u e to break i n t o w o r l d m a r k e t s . Bur the export o r i e n t a t i o n o f these countries m e a n t t h a t their o w n internal mat kets f o r foreign-produced c o n s u m e r g o o d s d i d n o t g r o w at .1 c o r r e s p o n d i n g speed a n d t h a t their e x p a n s i o n w a s , in p a r t , ar tin expense o f other countries i n rhe G l o b a l S o u t h . So A f r i c a n c o u n tries

which

had

begun

to

enjoy

some

export

growth

in

m a n u f a c t u r e d g o o d s f o u n d themselves losing m a r k e t s t o C h i n a . T h e " c o m b i n e d a n d uneven d e v e l o p m e n t " t h a t h a d characterised the l o n g b o o m c o n t i n u e d i n t o its a f t e r m a t h , wirh the difference t h a t m a n y e c o n o m i e s a c t u a l l y c o n t r a c t e d even as others grew rapidly. Ir w a s as if rhe " T h i r d W o r l d " itself h a d split in t w o , except that i m m e n s e pools o f poverty r e m a i n e d even in the p a n that was growing. T h o s e w h o ran rhe local states c o u l d often feel insecure even w h e n the developmentalist strategy w a s successful i n its o w n cap italist o r state capitalist terms. Their success d e p e n d e d u p o n a high level o f d o m e s t i c a c c u m u l a t i o n — a n d the other side o f t h a t , a high level o f e x p l o i t a t i o n that c o u l d o n l y be achieved by h o l d i n g d o w n w o r k e r s ' a n d peasants' living standards. Bur even w h e n they sui ceeded in getting high levels o f a c c u m u l a t i o n ( w h i c h w a s the exception rather t h a n the rule) they r e m a i n e d w e a k in their bar g a i n i n g p o s i t i o n w i t h the m u l t i n a t i o n a l s . As m u l t i n a t i o n a l s took over local firms, their p r o p o r t i o n o f the local c a p i t a l investment c o u l d rise t o 4 0 o r even 5 0 percent o f rhe t o t a l , increasing tin 11 leverage over local decision m a k i n g . But states in the poorer part o f the w o r l d d i d n o t h a v e a n y t h i n g like the s a m e leverage ovei m u l t i n a t i o n a l s , since rhe small size o f their d o m e s t i c e c o n o m i c s m e a n t they p r o b a b l y a c c o u n t e d for n o m o r e t h a n 1 or 2 percent ol the m u l t i n a t i o n a l s ' w o r l d w i d e investments a n d sales. H u g e g a p s usually o p e n e d u p between w h a t those w h o ran the state h a d p r o m i s e d the mass o f people a n d w h a t they c o u l d delivei 222

Capitalism in the 20th Cent 111 v

I ligh levels o f repression a n d c o r r u p t i o n b e c o m e the n o r m rather than rhe e x c e p t i o n . W h e n the d e v e l o p m e n t a l i s t strategy ran i n t o p r o b l e m s , s o m e t h i n g else a c c o m p a n i e d the repression—rhe holl o w i n g o u t o f the mass o r g a n i s a t i o n s t h a t used t o tie sections o f tlit

m i d d l e class to the state a n d , via t h e m , s o m e o f the w o r k i n g

. lass a n d peasantry. T h e oppressive state b e c a m e a w e a k state a n d looked ro foreign b a c k i n g to reinforce its h o l d . All this h a p p e n e d as p r o b l e m s o f profitability in the a d v a n c e d * ountries d r o v e their capitalists t o l o o k for a n y o p p o r t u n i t y , however l i m i t e d , t o g r a b surplus v a l u e f r o m elsewhere. There w a s n o t m u c h t o be g o t f r o m the ^poorest o f the p o o r a n y w h e r e in the world,

but

what

there

was

they

were

determined

to

get.

Imperialism m e a n t that at the t o p level o f the system rival capitalist powers argued v e h e m e n t l y w i t h each other a b o u t h o w to satisfy iheir different interests. A t a l o w e r level, it m e a n t c o n s t r a i n i n g rhe local r u l i n g classes o f the T h i r d W o r l d t o act as collectors o f debt repayments f o r the Western b a n k s , royalty p a y m e n t s for the multinationals a n d profits for Western investors as well as for their o w n domestic capitalists. D e b t servicing a l o n e transferred $ 3 0 0 billion a year f r o m the " d e v e l o p i n g c o u n t r i e s " t o the w e a l t h y in the advanced world. 1 0 * A website dedicated t o d e f e n d i n g US overseas investment boasted: M o s t n e w overseas investments are p a i d f o r by profits m a d e overseas. Foreign direct investment by US c o m p a n i e s w a s o n l y $ 8 6 b i l l i o n i n 1 9 9 6 . . . If y o u s u b t r a c t o u t the reinvested earnings o f foreign o p e r a t i o n s , the result w a s o n l y $ 2 2 b i l l i o n . . . US c o m p a n i e s ' overseas o p e r a t i o n s also generate i n c o m e t h a t returns t o the U S . . . I n 1 9 9 5 , this f l o w o f i n c o m e — d e f i n e d

as

direct i n v e s t m e n t i n c o m e , r o y a l t y a n d license fees, a n d charges a n d services—back i n t o the US a m o u n t e d t o $1 17 billion. 1 0 * I here c o u l d be n o e n d t o the squeezing. T h e share o f foreign investors in the t r a d i n g o n the Brazilian stock e x c h a n g e rose f r o m 5 percent in 1991 to 2 9 . 4 percent in 1995, 1 , 0 a n d t h e share o f new M e x i c a n g o v e r n m e n t debt held by non-residents grew f r o m 8 percent at the end o f 1 9 9 0 t o 5 5 percent at the e n d o f 1993. 111 U n d e r such circumstances, the instability o f the w o r l d e c o n o m y in the a f t e r m a t h o f the " g o l d e n a g e " f o u n d heightened expression in the countries o f the G l o b a l S o u t h . Even those e x p a n d i n g rapidly and extolled by neoliberal m e d i a c o m m e n t a t o r s c o u l d suddenly be I lie End of the Golden Age

223

faced w i r h near insuperable d e b t p r o b l e m s , d e e p e n i n g s l u m p a n d possibly accelerating i n f l a t i o n — a s h a p p e n e d in M e x i c o i n tinearly 1990s, Indonesia in rhe late 1990s a n d A r g e n t i n a at the Ing i n n i n g o f the 2 0 0 0 s . A n d the fate o f the mass o f people m countries regarded as m a r g i n a l by i n t e r n a t i o n a l c a p i t a l , like most o f sub-Saharan A f r i c a , w a s d e e p e n i n g poverty, repeated famines a n d , all t o o often, recurrent b o u t s o f e t h n i c conflict spilling ovei i n t o civil wars, often financed b y foreign firms interested in con trol o f r a w materials. There m a y never have been a g o l d e n age tin such parts o f the w o r l d . But there w a s certainly a leaden one.

R e s t r u c t u r i n g through crises G l o b a l c a p i t a l i s m in the last q u a r t e r o f the 2 0 t h c e n t u r y was m a r k e d o n c e again by m a n y o f the features M a r x h a d described There were recurrent e c o n o m i c crises, a n d the

restructuring,

t h r o u g h crisis o f c a p i t a l s , big a n d s m a l l , p r i v a t e l y o w n e d a m i state o w n e d . Graph: Economic Growth of Industrial

Countries (—) As Against LV1T

Predictions (~)x

A l l the m a j o r i n d u s t r i a l e c o n o m i e s suffered at least three real n cessions, except for France a n d C a n a d a w h i c h each experienced o n e " g r o w t h recession" a n d t w o real recessions, a n d J a p a n which a v o i d e d a real recession for nearly 2 0 years after rhe crisis of the mid-1970s, o n l y then t o enter a 13-year p e r i o d o f near stagnation after 1992. In the f o r m e r Soviet bloc c o u n t r i e s recessionary tendencies ot the late 1980s n o w t u r n e d i n t o s l u m p s . B u t s o o n different paths 224

Capitalism111the 20th Century

emerged. T h e f o r m e r U S S R ( C I S in rhe g r a p h b e l o w ) suffered a n e n o r m o u s e c o n o m i c c o n t r a c t i o n , a n d o u t p u t in 2 0 0 0 , even after i w o years o f recovery, w a s o n l y 70 percent o f the 1990s figure. T h e picture w a s s i m i l a r l y m i s e r a b l e f o r R o m a n i a , B u l g a r i a , A l b a n i a a n d the b u l k

of

former Yugoslavia.

By c o n t r a s t , the

central

I u r o p e a n e c o n o m i e s ( C S B in the g r a p h ) o n l y c o n t r a c t e d ro a little nver 80 percent o f the 1990s figure a n d recovered t o begin ro surpass it i n 1 9 9 8 — a l t h o u g h this figure w a s still h a r d l y greater t h a n that for 1 9 8 0 . " ;

All this m e a n t c o n t i n u e d , recurrent p a i n for those w h o l a b o u r e d lor a n d lived w i t h i n the system. T h e big q u e s t i o n , however, f o r the s\stem itself w a s w h e t h e r the r e s t r u c t u r i n g caused by rhe crises w o u l d o p e n u p a n e w p e r i o d o f e x p a n s i o n . T h i s w e will l o o k at in i he next section o f this w o r k .

I he End of rhe Golden Age

225

Capitalism in the 20th Ccntm

I\trt T h r e e

(THE NEW AGE OF GLOBAL INSTABILITY

...AFTER

NINE

The years of delusion

I he n e w hype "A substantial decline in m a c r o e c o n o m i c v o l a t i l i t y " was " o n e o f the m o s t striking features o f the e c o n o m i c landscape over the past 20 years or s o " , declared Ben B e r n a n k e in 2 0 0 4 . ' Such h a d l o n g been the view o f m o s t m a i n s t r e a m e c o n o m i s t s a n d politicians: N e w P a r a d i g m advocates received c a u t i o u s s u p p o r t f r o m the US Treasury Secretary Larry S u m m e r s a n d c h a i r m a n o f the Federal Reserve, A l a n G r e e n s p a n . . . M r G r e e n s p a n said the recent e c o n o m i c p e r f o r m a n c e w a s " n o t e p h e m e r a l " . 2 I hey spoke o f the longest c o n t i n u o u s period o f A m e r i c a n e c o n o m i c growth for four decades a n d the lowest level o f u n e m p l o y m e n t for three. T h i s w a s supposedly a new, unprecedented period o f non-inllationary capitalist e x p a n s i o n , baptised " t h e great m o d e r a t i o n " or "the n e w e c o n o m i c p a r a d i g m " . S t a g n a t i o n , u n e m p l o y m e n t a n d inllation h a d supposedly been left b e h i n d . For Bernanke, the e x p l a n a t i o n lay in the greater capacity o f the states a n d central b a n k s t o h a n d l e the m o n e y s u p p l y t h a n in the 1970s. For others it lay in rhe new technologies associated w i t h the microprocessor: A n e w e c o n o m y has emerged f r o m a spurt o f i n v e n t i o n a n d inn o v a t i o n , led by the m i c r o p r o c e s s o r . . . o p e n i n g all sectors o f the e c o n o m y to p r o d u c t i v i t y g a i n s . . . The new e c o n o m i c p a r a d i g m has b r o u g h t us the best o f all w o r l d s — i n n o v a t i v e p r o d u c t s , new jobs, high profits, s o a r i n g stocks. A n d l o w inflation. 3 1'he a d v a n c e s o f w h a t w a s called " A n g l o - S a x o n supposedly

based

on

unleashing

"economic

capitalism",

freedom"

and 22 1 *

" e n t r e p r e n e u r s h i p " , were contrasted w i t h the laggardly rates <>! g r o w t h in Europe a n d the s t a g n a t i o n in J a p a n . In Britain Nc\\ L a b o u r boasted ir w a s f o l l o w i n g the US e x a m p l e . " N o return to b o o m a n d bust'* was the refrain in every budget speech o f chancel lor o f the exchequer (and future p r i m e minister) G o r d o n B r o w n . T h e e n t h u s i a s m h a d received a t e m p o r a r y setback w h e n tin A s i a n crisis o f 19c>~ spread t o a b o u t 4 0 percent o f the w o r l d . I In Financial and

ki

Times had h e a d l i n e s a b o u t a n " e c o n o m i c m e l t d o w n

a h o u s e o f c a r d s " , w h i l e the B B C ran a special

Newsnight

p r o g r a m m e , " I s C a p i t a l i s m C o l l a p s i n g ? " Bur the p a n i c did noi last for l o n g . W i t h i n m o n t h s the n e w p a r a d i g m w a s rising high again:

both

Patrick

Minford,

former

economic

adviser

i«>

M a r g a r e t Thatcher, a n d M e g h n a d D e s a i , f o r m e r e c o n o m i c ad viser t o G o r d o n B r o w n , insisted in debates late in 1998 t h a t .ill t h a t h a d occurred w a s a passing s t o r m o f n o significance, a n d all problems had

been solved

by q u i c k

intervention

by the I s

Federal Reserve. 4 There w a s brief p a n i c a g a i n in the s u m m e r •»t 2 0 0 1 as the US w e n t i n t o recession. " T h e w o r l d e c o n o m y is starting to look

r e m a r k a b l y , even d a n g e r o u s l y ,

stated the Economist.

vulnerable",

" I n d u s t r i a l i s t s a n d b a n k e r s at their annu.il

get t o g e t h e r o n b a n k s o f L a k e C o m o d i d little t o disguise t h e n over-riding p e s s i m i s m " , 5 reported the Financial

Times.

But again

a m n e s i a s o o n set in a n d f i n a n c i a l c o m m e n t a t o r s were describing the e c o n o m i c p a n i c o f a few m o n t h s earlier as " t h e recession that w a s over before it b e g a n " ' — d e s p i t e , or p e r h a p s because o f , the loss o f o n e in six m a n u f a c t u r i n g j o b s in the U S . R e n e w e d eco nomic growth

in the US led to even greater o p t i m i s m

before. T h e I n t e r n a t i o n a l

than

M o n e t a r y F u n d c o u l d declare yeai

after year t h a t the p i c t u r e f o r the f u t u r e w a s o f fast e c o n o m i c g r o w t h . So in A p r i l 2 0 0 7 a typical I M F press release a b o u t Us m o s t recent w o r l d survey r e a d , " G l o b a l e c o n o m y o n track tin continued

strong

growth".

There

were

a

few

mainstream

d o u b t e r s , but their w o r r i e s were o n l y ever discussed in o r d e r to be d i s m i s s e d . T h e overall

message w a s t h a t c a p i t a l i s m

was going

from

strength to strength w i t h s u p p o s e d l y record w o r l d g r o w t h fig ures. Even those sceptical a b o u t the c l a i m s for the a d v a n c e d c o u n t r i e s o f t e n a c c e p t e d a m o d i f i e d version o f the o p t i m i s m w h e n it c a m e t o t h e system as a w h o l e . H a r d l y a d a y w e n t past w i t h o u t m e d i a references t o the " n e w g i a n t s " , C h i n a a n d I n d i a , a n d s o o n c o m p l i m e n t s were b e i n g p o u r e d o n the o t h e r c o u n t r i e s 230

The New Age of Global In.stahilit\

included w i t h t h e m in t h e n e w " B R I C S " r u b r i c — B r a z i l , Russia uid S o u t h A f r i c a . Even if the o l d i n d u s t r i a l states w e r e t o r u n into p r o b l e m s , these n e w centres o f c a p i t a l i s t g r o w t h

would

a i n t a i n t h e stability o f the w o r l d system. T h e faults t h a t were recognised in the g l o b a l system w e r e regarded rather as Stalin's admirers used to speak o f his " o c c a s i o n a l e r r o r s " , as " s p o t s o n the s u n " .

Hidden problems I or those c o m m e n t a t o r s prepared t o l o o k honestly a n d g o a little deeper t h a n i m m e d i a t e a p p e a r a n c e s , there were d i s t u r b i n g signs. W h i l e the I I ^ F , for instance, w a s e x u b e r a n t a b o u t prospects, research c o m m i s s i o n e d by the W o r l d Bank painted a rather different picture. G r o w t h for the w o r l d as w h o l e w a s well d o w n o n the levels n o t o n l y o f the l o n g b o o m , b u t also o f the first decade a n d a half after its end: Graph three: world GDP growth rate 1961-2006

7-i

0 1965

1970

1975

1980

1985

1990

1995

2000

2005

It w a s o n l y possible t o d r a w a different c o n c l u s i o n , as a n I M F g r a p h in the April 2 0 0 7 W o r l d R e v i e w seemed t o , by starting rhe series in 1 9 7 0 — w i r h the b e g i n n i n g o f the end o f the l o n g b o o m / Parallel w i t h the decline in g r o w t h rates w e n t a long-term slowd o w n in g l o b a l investment, as research for the I M F revealed (see graph b e l o w ) . I lie Years of Delusion

231

World

accumulation

T h e f a l l in a c c u m u l a t i o n a n d the g r o w t h o f o u t p u t t o o k

phut

a l o n g s i d e a c o n t i n u i n g l o w level o f rhe rate o f p r o f i t c o m p a r e d w i t h the " g o l d e n a g e " . T h e r e h a d been s o m e recovery f r o m the l o w p o i n t o f the early 1980s, but o n l y t o reach a b o u t the level <>i t h e early 1 9 7 0 s — t h e t u r n i n g p o i n t t h a t e n d e d the " g o l d e n a g e " C a l c u l a t i o n s f o r rhe US suggest t h a t recovery o f p r o f i t a b i l i i s f r o m the recession of 2 0 0 1 - 2 t h r o u g h the years i m m e d i a t e l y p r e c e d i n g t h e c r e d i t c r u n c h o f 2 0 0 7 a g a i n failed t o raise it t<» a n y t h i n g like the level o f the l o n g b o o m . R o b e r t B r e n n e r s h o w s it m o v i n g m a r g i n a l l y a h e a d o f rhe early 1970s figure, o n l y then ro fall b a c k . D a v i d K o t z s h o w s the p r o f i t rate in 2 0 0 5 as 4.
1997. 1,1 Fred M o s e l e >

s h o w s a bigger recovery of recent p r o f i t rates, b u t his calcul.i t i o n s still leave t h e m at t h e i r h i g h p o i n t (in 2 0 0 4 ) as onl\ m a r g i n a l l y a b o v e their l o w e s t p o i n t s in the l o n g b o o m . 1 1 T h e overall p a t t e r n o f rhe 1990s a n d the early 2 0 0 0 s w a s a c o n r i n u a t i o n o f t h a t o f the 1 9 8 0 s — o f a c e r t a i n recovery o f p r o f i t rates, b u t n o t s u f f i c i e n t t o return the system t o rhe l o n g t e r m d\ n a m ism o f the l o n g b o o m . M a r x s a w restructuring t h r o u g h crisis as e n a b l i n g c a p i t a l i s m to recoup the rate o f profit, a n d the " A u s t r i a n S c h o o l " o f m a i n s t r e a m e c o n o m i c s likewise saw crises as the o n l y w a y t o r e i n v i g o r a t e the system. E a c h crisis in the 1980s, 1990s a n d early 2 0 0 0 s did lead t o w i d e s p r e a d restructuring o f industry. There were closures ot factories, m i n e s a n d d o c k s in all rhe w o r l d ' s industrial heartlands. Industries w h i c h

h a d characterised

whole

regions

decamped;

others s a w their w o r k f o r c e s shrink t o h a l f or a q u a r t e r o f their f o r m e r size, as w i t h the heavy industries o f n o r t h e r n

China.

Detroit's c a r p l a n t s , rhe Polish s h i p y a r d s a n d the m e a t refrigeration plants o f Greater Buenos Aires. 232

The New Age of Global lnstabilitx

Bur the restructuring r h r o u g h crises d i d n o t have the full effect it li.id h a d in the "free m a r k e t " period of c a p i t a l i s m f r o m the early 19th c e n t u r y u n t i l the First W o r l d W a r . It d i d n o t get rid o f unprofitable c a p i t a l o n a sufficient scale t o raise profit rates t o the levels o f the 1950s a n d 1960s. T h e n e o l i b e r a l ideology m a y have embraced the n o t i o n o f "creative d e s t r u c t i o n w i t h irs i m p l i c a t i o n that s o m e g i a n t firms m u s t be a l l o w e d to g o bust in the interests o f ihe others. But the practice o f s t a t e s — a n d of the pressures w h i c h industry a n d finance p u t o n s t a t e s — w a s rather different. T h e fear • >f w h a t the c o l l a p s e o f the really big c o r p o r a t i o n s a n d

banks

might d o t o the rest of the system persisted. H a r d l y any big firms h a d been a l l o w e d t o g o bust d u r i n g the first t w o crises o f the m i d - 1 9 7 0 s a n d early 1980s. G o v e r n m e n t s h a d c o n t i n u e d t o step in t o keep them a f l o a t , m o s t n o t a b l y w i t h the US state's s u p p o r t f o r the bail-out o f the car giant Chrysler at the e n d o f the 1970s, o f the C o n t i n e n t a l Illinois b a n k in 1984 a n d of the Savings 8c L o a n s c o r p o r a t i o n s (the U S version o f b u i l d i n g societies) in the late 1980s. T h i n g s c h a n g e d t o s o m e degree f r o m i he late 1980s o n w a r d s . As the Bankruptcy

Year Book

reports:

D u r i n g the 1980s a n d early 1990s record n u m b e r s o f bankruptcies, o f all types, were filed. M a n y well k n o w n c o m p a n i e s filed for b a n k r u p t c y . . . I n c l u d e d were LTV, Eastern Airlines, Texaco,

Continental

Airlines,

Allied

Stores,

Federated

D e p a r t m e n t Stores, G r e y h o u n d , R H M a c y a n d P a n

Am...

M a x w e l l C o m m u n i c a t i o n a n d O l y m p i a & York. 1 2 I he same story w a s repeated o n a bigger scale d u r i n g the crisis o f i 0 0 1 - 2 . T h e collapse o f E n r o n w a s , as Joseph Stiglitz writes, " t h e biggest corporate b a n k r u p t c y ever—until W o r l d C o m came along". 1 5 T h i s was n o t just a US p h e n o m e n o n . It w a s a characteristic o f Britain in the early

1990s, as b a n k r u p t c i e s like those o f the

Maxwell Empire and O l y m p i a & York showed, and, although Britain a v o i d e d a full recession in 2001-2, t w o o n c e d o m i n a n t c o m p a n i e s , M a r c o n i / G E C a n d Rover, w e n t d o w n , as well as scores of recently established d o t c o m a n d hi-tech c o m p a n i e s . T h e s a m e p h e n o m e n o n w a s b e g i n n i n g t o be visible in c o n t i n e n t a l E u r o p e , with an a d d e d twist in G e r m a n y that m o s t o f the big enterprises o f the f o r m e r East G e r m a n y w e n t bust or were sold o f f at b a r g a i n basement prices t o West G e r m a n firms,M a n d then in Asia w i t h the crisis o f 1997-8. O n t o p o f this there w a s the b a n k r u p t c y o f w h o l e I lie Years of Delusion

233

s t a r e s — n o t a b l y the U S S R , w i t h a G D P t h a t w a s at o n e stage i third or even half t h a t o f the US. H o w e v e r , governments h a d certainly n o t c o m p l e t e l y given up intervening t o limit the i m p a c t o f crises o n large capitals, n o r had the most i m p o r t a n t capitalist sectors s t o p p e d d e m a n d i n g such in rervention. T h i s was s h o w n by the w a y the US Federal Reserves stepped in to save the L o n g Term C a p i t a l M a n a g e m e n t hedge fund in 1 9 9 8 . A w o r l d w i d e s a m p l e o f

u

4 0 b a n k i n g crisis episodes

in

2 0 0 3 f o u n d t h a t governments h a d spent " o n average 13 percent ul n a t i o n a l G D P to clean u p the financial system." ' G o v e r n m e n t s as varied as those of S c a n d i n a v i a a n d J a p a n h a d rushed to p r o p up b a n k s w h o s e collapse m i g h t d a m a g e the rest o f the n a t i o n a l

finan

cial system—even if this i n v o l v e d n a t i o n a l i s a t i o n as a last resort G o v e r n m e n t s took the costs of w r i t i n g o f f losses a w a y f r o m par ticular i n d i v i d u a l capitals. But those costs h a d then t o be covered f r o m elsewhere in the system—either by t a x a t i o n , h i t t i n g the real wages o f w o r k e r s or the profits o f c a p i t a l , or by b o r r o w i n g w h i c h eventually h a d t o be repaid s o m e h o w f r o m the same sources. The benefits for those capitals w h i c h survived the crisis were limited as a result. T h e rising rate o f b a n k r u p t c i e s only partially relieved the pressure o n their profit rates. Further relief came f r o m a slower rise in investment c o m p a r e d to p r o d u c t i v e l a b o u r p o w e r ( M a r x ' s o r g a n i c c o m p o s i t i o n o f capital). The s l o w d o w n in a c c u m u l a t i o n d u e t o lower profitability played .i role in this. So d i d c o n t i n u e d waste expenditure, particularly mill tarv expenditure. This absorbed a considerably lower level of w o r l d o u t p u t t h a n in the 1950s a n d 1960s, let a l o n e t h a n d u r i n g tlx Second W o r l d War. B u t it still absorbed a m u c h higher a m o u n t than in the pre-1939 w o r l d . A n d there h a d been an increase in US mill tary expenditure d u r i n g the " S e c o n d C o l d W a r " o f the 1980s under R o n a l d R e a g a n , a n d a g a i n with the " w a r o n terror" u n d e r Bush in the early a n d m i d - 2 0 0 0 s — a n d since US military e x p e n d i t u r e was h a l f the g l o b a l total, this m e a n t an overall increase across tinsystem. O n e estimate is t h a t by 2 0 0 5 US military s p e n d i n g h.ul risen t o a figure equal to a b o u t 4 2 percent o f gross non-residential private i n v e s t m e n t ' — a big drain o n resources that c o u l d otherwise have g o n e i n t o a c c u m u l a t i o n . A t the same t i m e , u n p r o d u c t i v e e\ penditures in the financial sector soared, as w e shall see later. T h e effect o f all o f these f o r m s o f " w a s t e " w a s m u c h less bene ficial t o the system as a w h o l e t h a n h a l f a c e n t u r y earlier. They c o u l d still reduce the d o w n w a r d pressures o n the rate o f profii 234

The New Age of Global In.stahilit\

Irom a rising o r g a n i c c o m p o s i t i o n o f c a p i t a l — i t certainly does n o t rise as r a p i d l y as it w o u l d h a v e d o n e if all s u r p l u s value h a d g o n e into a c c u m u l a t i o n : " T h e rate o f g r o w t h o f the c a p i t a l / l a b o u r ratio t< II in m o s t c o u n t r i e s " in the I 990s. 1 * R u t the o l d i n d u s t r i a l capilalist c o u n t r i e s p a i d

t h e price for a c o n t i n u e d

slowdown

in

p r o d u c t i v e a c c u m u l a t i o n a n d long-term g r o w t h rates. Changes in profit rates of six decades

Manufacturing

Non-farm/ non-man

Son-financial

corpns

1948-59

>0.250

0.110

0.143

1959-69

0.246

0.118

0.150

1969-73

0.166

0.109

0.108

1969-79

0.135

0.107

0.103

0.130

0.094

0.090

1990-2000

0.177

0.107

0.101

2000-2005

0.144

1979-90

%

0.091

Evolution of capital intensity and capital stock'

(Average annual growth rate)

United States

Japan

Germany

France

Italv 4

United Kmgd om

1980-90

1990-9 S

1995-98

Capital stock

3.0

2.6

3.3

Capital/labour ratio

1.1

0.6

1.0

Capital stock

5.7

4.2

3.6

Capital/labour ratio

4.9

4.7

4.4

Capital stock

2.6

2.6

2.3

Capital/labour ratio

2.9

3.7

3.1

Capital stock

2.0

2.0

2.0

Capital/labour ratio

2.3

2.3

2.3

Capital stock

2.8

2.7

2.7

Capital/labour ratio

2.7

3.5

3.4

Capital stock

1.8

1.6

1.6

Capital/labour ratio

1.8

1.2

1.0

I w o o t h e r factors c a n have s o m e i m p a c t o n the level o f investment capitalists h a v e t o u n d e r t a k e t o r e m a i n c o m p e t i t i v e . T h e r e is the increase in the speed at w h i c h c a p i t a l p r o d u c e s a n d sells comm o d i t i e s ( w h a t M a r x called the " t u r n o v e r t i m e " o f c a p i t a l ) as a result o f a d v a n c e s in t r a n s p o r t t e c h n o l o g y a n d o f the c o m p u t e r i sation o f w a r e h o u s i n g a n d stock k e e p i n g ( w h a t are often called I lie Years of Delusion

235

today "logistics"). A n estimate is that " c a p i t a l services" grew 2 to \ percent faster t h a n the capital stock in the late 1980s a n d 1990s foi m o s t countries. 2 1 This w o u l d have reduced the costs to capitals ol holding stocks o f raw materials o n the one h a n d a n d o f goods await ing sale (their "circulating c a p i t a l " ) . But the second factor will have worked from the opposite d i r e c t i o n — t h e reduced lifetime fixed cap ital h a d before it became o u t d a t e d ( w h a t is k n o w n as " m o r a l depreciation). C o m p u t e r s a n d software become obsolescent because o f technical advances m u c h m o r e quickly than other capital equip m e n t — i n p e r h a p s t w o or three years rather t h a n ten, 2 0 or even 3 0 — a n d the increased depreciation costs cut into profits. 22 This was ignored by the a r g u m e n t o f the late 1990s a n d earl\ 2000s that the increase in productivity d u e t o massive g r o w t h <>l cheap c o m p u t i n g power w a s the basis o f a new era o f c o n t i n u o u s g r o w t h . A s we saw in C h a p t e r Three, the more rapidly firms have to replace their fixed capital, the more it cuts into any increase in prot its they got from installing it in the first place. W h a t is m o r e , once .i new technology has spread beyond the firms that first introduce it, its effect is t o reduce the value o f each unit o f o u t p u t : the late 1990s and the early 2000s were a period in which the prices o f goods produced by the new technology t u m b l e d , leading to increased competitive pressure o n all the firms in these industries. A w a v e o f i n n o v a t i o n c o u l d n o m o r e create a n endless b o o m in the late 1990s a n d earls 2 0 0 0 s than it c o u l d in the " n e w e r a " o f the 1920s. T h e m o s t i m p o r t a n t factor in reviving profit rates w a s n o t c o m p u t e r i s a t i o n , or the reorganisation o f c a p i t a l as such, but the increased pressure capital w a s able to p u t o n those w h o w o r k e d for it as successive waves o f restructuring disrupted o l d patterns o! w o r k i n g class resistance. C a p i t a l s t o o k a d v a n t a g e o f the redun dancies a n d dislocations caused by restructuring t o p u t relentless pressure o n workers t o w o r k harder w h i l e wages were held d o w n . There w a s a decrease in the share o f n a t i o n a l i n c o m e g o i n g to l a b o u r in all o f the m a j o r Western e c o n o m i e s . In the U n i t e d States, " p r o d u c t i v i t y g r e w 4 6 . 5 percent between 19*73 a n d 1 9 9 8 " , while the m e d i a n wage fell by a b o u t 8 p e r c e n t " a n d that for p r o d u c t i o n w o r k e r s by 2 0 percent 2 5 ( w i t h w o r k e r s o n l y able t o protect their l i v i n g s t a n d a r d s by a n increase in average w o r k i n g h o u r s from 1,883 h o u r s in 1980 t o 1 , 9 6 6 in 1 9 9 7 " ) . Western E u r o p e d i d not see the same increase in h o u r s (apart f r o m in Britain, where u n p a i d o v e r t i m e soared) or a r e d u c t i o n in real wages as in the U S in tin 1980s a n d 236

1990s, b u t g o v e r n m e n t s a n d

firms

began t o p u s h

The New Age of Global lnstabilitx

OECD Employment

Outlook,

2007, pi 1 71

1980

1985

80-

70-

60-

50 1970

1975

1990

1995

2000

2005

lor b o t h in the n e w m i l l e n n i u m . " R e a l wages have fallen dramatically a n d w o r k i n g h o u r s are nearly back ro 4 0 a w e e k " , reported the B B C o n G e r m a n y in 200.5. : " It w a s n o t o n l y wages a n d w o r k i n g c o n d i t i o n s that h a d to be p u t under pressure. So t o o did the various services provided by the state (and in some case by private firms) that m a k e u p the "social w a g e " : healthcare, pensions, e d u c a t i o n . D u r i n g the long b o o m these had been, as w e have seen in C h a p t e r Seven, by a n d large, paid for o u t o f the taxes o n rhe w o r k i n g class, as is s h o w n by figures by A n w a r Shaikh for w h a t he calls " t h e net social w a g e " — r h e difference between w h a t workers pay in a n d w h a t they get o u t (see G r a p h A below). 2 * But the i m p a c t o f recurrent crises, rising u n e m p l o y m e n t and an ageing p o p u l a t i o n had been t o push welfare expenditures upwards (Table B), until even in rhe US the cost c o u l d n o longer always be covered by the taxation o n workers a n d therefore tended t o hit capital. T h e figures s h o w e n o r m o u s unevenness between the degree to w h i c h different states—and firms o p e r a t i n g in rhose states—were hit by b o t h the overall level o f the "net social w a g e " a n d the rise in the welfare expenditures in the 19^0s a n d 1980s. They responded I lie Years of Delusion

237

by a series o f " r e f o r m s " (in reality counter-reforms) w h i c h , under rhe label of " m o d e r n i s a t i o n " , aimed at reversing this trend. Net social wage as percent of GNI* (Graph A)

Germany, Canada, the UK, Australia and Sweden The US

Welfare expenditure as percent of GDP 1979 and 199519 (Table H)

Country

/ 979

1995

Australia

13.2

16.1

Canada

14.5

18.0

France

22.0

29.1

Germany

25.4

28.7

Italv

21.2

22.8

Sweden

25.1

34.0

United Kingdom

16.4

22.5

United States

13.8

15.8

•

Uneven competitiveness Each success any o n e g o v e r n m e n t h a d in d o i n g this p u t pressure o n other g o v e r n m e n t s t o d o likewise. But real wages c o u l d n o t be cut, w o r k i n g h o u r s p r o l o n g e d , or welfare benefits curtailed w i t h o u t c a u s i n g p o p u l a r resentment w i t h the potential to e x p l o d e i n t o all o u t resistance. T h e level o f resistance varied f r o m c o u n t r y t<» /

country, d e p e n d i n g o n established levels o f w o r k i n g class o r g a n i sation a n d the o u t c o m e o f key attacks o n it (like the defeat o f the l o n g 1980s strikes o f air traffic controllers in the US a n d o f miners 238

The New Age of Global lnstabilitx

and p r i n t w o r k e r s in Britain). T h e m o s t visible result w a s t h a t the p r o p o r t i o n o f n a t i o n a l o u t p u t g o i n g to w e l f a r e in the m i d - 1 9 9 0 s in France a n d G e r m a n y w a s a b o u t 14 percent higher t h a n in the IJS a n d over 6 percent higher t h a n in B r i t a i n . T h e same contrast between the success o f the capitalist offensive in the US a n d Britain and its effects i n E u r o p e w a s s h o w n by the figures for w o r k i n g hours. In these trends lay the supposed a d v a n t a g e of rhe " A n g l o S a x o n " m o d e l over the E u r o p e a n m o d e l for the capitals based w i t h i n each. Annual

hours worked per worker, 2004

Koreans

2,380

Mexicans

1,848

Americans

1,82*

British

1,689

French

1,441

Dutch

1,357

E u r o p e a n c a p i t a l f o u n d itself facing p r o b l e m s it h a d n o t faced in the years o f the b o o m or even in rhe decade a n d a half after it collapsed. O u t p u t per head in w h a t is n o w the E u r o z o n e h a d g r o w n f r o m 4 0 percent o f the US figure in 1 9 5 0 ro 75 percent in 1 9 7 5 , and G e r m a n g r o w t h , like t h a t o f J a p a n , exceeded that o f the US in the 1980s. In 1990 G e r m a n u n i f i c a t i o n w a s expected t o p r o v i d e a further massive boost. T h e m o o d by the b e g i n n i n g o f the n e w mill e n n i u m w a s very different. O v e r a l l p r o d u c t i v i t y levels h a d l o n g since stopped c a t c h i n g u p w i t h the US. T h o s e c h a l l e n g i n g the US a u t o industry o n its h o m e g r o u n d were J a p a n e s e transplant plants, not V o l k s w a g e n a n d F i a t . J a p a n m a y have lost o u t t o the U S in c o m p u t e r s , b u t at least it h a d a c o m p u t e r industry' w h i l e Europedid n o t . A n d c o m i n g u p o n the o u t s i d e in the inter-capitalist race was C h i n a . " E u r o p e needs t o w a k e u p " w a s the message p u m p e d o u t by scores o f E u r o t h i n k t a n k s , endorsed by centre-left a n d centre-right

politicians

alike

and

inscribed

in

the

Lisbon

D e c l a r a t i o n o f E u r o p e a n leaders in 2 0 0 2 . T h e picture for E u r o p e a n c a p i t a l i s m was n o t as dire as that message sometimes m a d e o u t . G e r m a n y , n o t C h i n a , w a s still the world's biggest exporter in 2 0 0 6 a n d its m a n u f a c t u r i n g industry's o u t p u t h a d g r o w n rapidly, even if its e m p l o y m e n t h a d nor. The E A D S airbus c o n s o r t i u m w a s able t o c o m p e t e w i t h Boeing in a w a y I lie Years of Delusion

239

that the Japanese aerospace industry could n o t . Spanish a n d French firms h a d gobbled u p m a n y o f Latin America's b a n k s , a n d tinE u r o p e a n U n i o n sold a n d invested slightly m o r e in the Mercosur region o f that c o n t i n e n t t h a n d i d the US. A n d for the m o m e n t Chinese imports o n l y a m o u n t e d t o 1 percent o f E u r o p e a n G D P . There were, nevertheless, reasons for European-based capital ism to w o r r y and t o n a g states t o take action o n its behalf. French a n d G e r m a n based capitals faced the d i l e m m a that a l t h o u g h the\ were m o r e p r o d u c t i v e in o u t p u t per h o u r w o r k e d t h a n capital based in the US' they lost o u t in terms o f overall p r o d u c t i v i t y be cause o f the few h o u r s they got from each w o r k e r in a year. E u r o p e a n capital therefore f o u n d itself under pressure f r o m at least three sides in g l o b a l m a r k e t s — f r o m the US a n d J a p a n in high technology p r o d u c t s a n d f r o m C h i n a in lower t e c h n o l o g y p r o d ucts. Its response w a s to p u s h for c o p y i n g the US a p p r o a c h ol i m p o s i n g "flexible l a b o u r m a r k e t s " so as to get longer w o r k i n g hours a n d m o r e intensive p r o d u c t i o n (in M a r x ' s terms a b s o l u t e a n d relative s u r p l u s value) a n d t o try to cut back o n welfare ex p e n d i t u r e . This w a s the r a t i o n a l e b e h i n d " n e o l i b e r a l "

policies,

w i t h counter-reforms o f welfare a n d the use o f m a r k e t i s a t i o n a n d p r i v a t i s a t i o n measures t o get workers c o m p e t i n g w i t h each other. G e r m a n capital f o l l o w e d a policy t h r o u g h the B u n d e s b a n k (and then the E u r o p e a n C e n t r a l B a n k ) in the 1990s o f sacrificing econ o m i c g r o w t h to h o l d d o w n wages ( w h i c h rose c u m u l a t i v e l y 10 percent less t h a n the E u r o p e a n average) a n d so increasing exports a n d the share o f profits. T h e p a r a d o x i c a l o u t c o m e w a s t h a t G e r m a n y h a d a big trade s u r p l u s a n d g o o d profits, b u t a reduced share o f w o r l d investment a n d p r o d u c t i o n . This lay b e h i n d the pressure it a p p l i e d successfully in the early 2 0 0 0 s t o getting the then Social Democrat-Green g o v e r n m e n t to push t h r o u g h counter-reforms in the A g e n d a 2 0 1 0 P r o g r a m m e . Its m a i n p l a n k s were a drastic red u c t i o n o f u n e m p l o y m e n t benefits by a t h i r d , d e n y i n g a n y benefits at all t o 8 0 0 , 0 0 0 p e o p l e , forcing the u n e m p l o y e d t o accept jobs w i t h b e l o w average pay, freezing pensions a n d c h a r g i n g for visits to doctors. M e a n w h i l e , big firms threatened to m o v e p r o d u c t i o n t o l o w wage sites in Eastern E u r o p e if workers d i d n o t accept increased

working

hours.

Such

"internal

modernisation",

said

C h a n c e l l o r Schroeder, w a s " t h e prerequisite for G e r m a n y ' s assert i o n i n t o global politics."- 2 T h e overall result was that G e r m a n real w a g e s fell for t h e first t i m e in h a l f a century. T h e s a m e l o g i c lay b e h i n d the a t t e m p t s o f French g o v e r n m e n t s t o cut back o n p u b l i c 240

The New Age of Global In.stahilit\

•.rotor pensions, to reduce the rights o f y o u n g w o r k e r s a n d t o d o away w i t h the 3 5 h o u r w e e k . But this was an e c o n o m i c strategy that raised b i g political problems. For h a l f a c e n t u r y after the S e c o n d W o r l d W a r c a p i t a l a n d I he state s o u g h t t o legitimise themselves t h r o u g h rhe ideology o f national consensus w h i l e c o l l a b o r a t i n g ro various degrees w i t h the irade u n i o n bureaucracy. This a p p l i e d n o t o n l y t o social democraey in G e r m a n y a n d France, b u t also t o the C h r i s t i a n D e m o c r a t and G a u l l i s t v a r i a n t s o f c o n s e r v a t i v e politics. There h a d seemed no reason t o d i s t u r b society bv o v e r t u r n i n g this a p p r o a c h so l o n g as their e c o n o m i e s se-emed ro be a d v a n c i n g in c o m p a r i s o n w i t h their m a j o r c o m p e t i t o r s . N o w the a t t e m p t to a t t a c k the reforms granted in the past threatened to tear a p a r t the o l d ideological hegemonies, d r i v i n g w o r k e r s w h o s e social d e m o c r a t i c attitudes took for g r a n t e d " p a r t n e r s h i p " w i t h capital i n t o an a n t a g o n i s t i c relationship to it. C a p i t a l i s t s a n d states were c a u g h t between their e c o n o m i c priorities a n d m a i n t a i n i n g their ideological h o l d o n the mass o f people. O f course, there w a s a l s o in o p e r a t i o n a second o p t i o n

for

t h e m — t h a t o f physically m o v i n g p r o d u c t i o n overseas. But this takes

time

with

most

sorts

of

industrial

production

(fully

••quipped factories are rarely easy t o m o v e , a n d even w h e n they are there is then the q u e s t i o n o f energy supplies, t r a n s p o r t facilities, a secure p o l i t i c a l e n v i r o n m e n t , a n d so o n ) . So it w a s rhar even i n B r i t a i n 3 0 years o f r e s t r u c t u r i n g a n d factory closures, w i t h a h a l v i n g o f the w o r k f o r c e , d i d n o t p e r m a n e n t l y cut overall manufacturing output. Even w h e n they considered m o v i n g p r o d u c t i o n in the l o n g term, the g i a n t E u r o p e a n firms still d e p e n d e d in rhe interim o n finding s o m e way t o increase rhe e x p l o i t a t i o n o f their local workforces. In practice few firms envisaged, for the m o m e n t , m o v i n g all their p r o d u c t i o n a b r o a d ( a l t h o u g h the G e r m a n car i n d u s t r y increasingly used c h e a p l a b o u r in Eastern E u r o p e t o solve s o m e o f its p r o b l e m s ) a n d this m a d e the need t o raise the e x p l o i t a t i o n o f the d o m e s t i c w o r k f o r c e p a r a m o u n t .

H o p e in the East? W h e n p e o p l e like S a m u e l Brittan w r o t e o f the f u t u r e for capitalism lying in Asia in the early 1990s they m e a n t the small n e w l y I lie Years of Delusion

241

industrialising countries o f the r e g i o n — t h e " t i g e r s "

of South

K o r e a , Singapore, H o n g K o n g a n d T a i w a n , a n d the " t i g e r cubs o f M a l a y s i a , T h a i l a n d a n d I n d o n e s i a . These h a d experienced very rapid rates o f e c o n o m i c g r o w t h , l e a d i n g the O E C D t o write of ;i S o u t h K o r e a n " e c o n o m i c m i r a c l e " in 1996. By this t i m e K o r e a n living s t a n d a r d s a p p r o x i m a t e d t o those o f the p o o r e r Western E u r o p e a n countries; s o m e o f the country's firms established them selves as g l o b a l giants. Posco, the w o r l d ' s t h i r d largest steel producer, boasted t h a t its K w a n g y a n g steel c o m p l e x , o p e n e d in 1 9 9 2 , w a s " t h e most m o d e r n in the w o r l d " . 3 4 B u t m u c h o f the g r o w t h d e p e n d e d o n each tiger h o l d i n g wages d o w n t o compete w i t h the others for Western markets. It w a s a classic case o f blind c o m p e t i t i o n between rival capitals (or in this case state m o n o p o l y capitals) a n d eventually led to o u t p u t t h a t w a s t o o great for the e\ isting m a r k e t to absorb. By J u n e 1 9 9 7 there w a s o n l y 7 0 percent capacity utilisation in Korea a n d 72 percent in Taiwan/* 1 a n d all the c o u n t r i e s d e p e n d e d o n foreign b o r r o w i n g t o deficits. Yet w h e n

financiers

finance

trade

s u d d e n l y reacted by w i t h d r a w i n g

funds f r o m T h a i l a n d , forcing the d e v a l u a t i o n o f its currency, those e n a m o u r e d o f the " m i r a c l e " tried at first to t h i n k n o t h i n g serious was

happening.

Financial

Times,

The Thai

crisis, w r o t e M a r t i n

W o l f in

the

w a s " n o t h i n g m o r e t h a n a b l i p o n the path ot

rapid East A s i a n g r o w t h " . W i t h i n weeks the crisis h a d spread to all the tigers a n d tiger cubs, causing e c o n o m i c c o n t r a c t i o n , reliance o n I M F austerity packages, the s u d d e n i m p o v e r i s h m e n t o f m i l l i o n s o f people a n d g r o w t h rates in the 2 0 0 0 s m u c h slower t h a n in the 1980s a n d 1990s. But this d i d n o t shatter the faith in m a n y q u a r ters t h a t c a p i t a l i s m in East Asia c o u l d see o f f a n y p r o b l e m s th.it m i g h t be encountered in the West. C o m m u n i s t C h i n a became tin n e w bearer o f their hopes. C e r t a i n l y the emergence o f C h i n a as a n e c o n o m i c p o w e r was o n e o f the m o s t i m p o r t a n t d e v e l o p m e n t s w i t h i n the w o r l d system at the b e g i n n i n g o f the 21st century. T h e scale o f C h i n e s e econ o m i c a d v a n c e w a s a w e s o m e . Its average g r o w t h rate for the p e r i o d 1978 t o 2 0 0 8 w a s a b o u t 8 percent a year; its economic o u t p u t w a s a b o u t n i n e times greater at the end o f the period than at the b e g i n n i n g ; its share o f w o r l d trade h a d risen f r o m less t h a n 1 percent in 1979 to over 6 percent in 2 0 0 7 , u n t i l it w a s just b e h i n d G e r m a n y , the w o r l d ' s biggest single e x p o r t e r ; by 2 0 0 5 n w a s " t h e l e a d i n g p r o d u c e r in terms o f o u t p u t in m o r e t h a n 100 k i n d s o f m a n u f a c t u r e d g o o d s " , i n c l u d i n g 5 0 percent o f cameras. 242

The New Age of Global In.stahilit\

30 percent o f air c o n d i t i o n e r s a n d televisions, 25 percent o f washing m a c h i n e s a n d 2 0 percent o f refrigerators. 16 Chinese cities like Beijing, S h a n g h a i , G u a n g z h o u o r even X i a n in the interior n o longer bore m u c h resemblance ro T h i r d W o r l d stereotypes. T h e torests o f skyscrapers i n Beijing o r S h a n g h a i m a d e 1 o n d o n s m u c h v aunted D o c k l a n d s d e v e l o p m e n t look like Toy t o w n , w h i l e the vast industrial d e v e l o p m e n t s a r o u n d S h a n g h a i had few c o m p a r i s o n s in Western E u r o p e . D r a m a t i c changes were t a k i n g place in w h a t w a s previously a s s u m e d t o be a " b a c k w a r d " c o u n t r y o f l i m i t e d econ o m i c significance t o the w o r l d system. C h i n a , like m o s t other i n d u s t r i a l i s i n g T h i r d W o r l d c o u n t r i e s , had suffered a crisis just as the l o n g b o o m was c o m i n g to an e n d in the West. A q u a r t e r o f a century of w h a t M a r x h a d called primitive a c c u m u l a t i o n h a d t r a n s f o r m e d tens o f m i l l i o n s o f peasants into w a g e w o r k e r s a n d b u i l t u p s o m e o f the bases o f m o d e r n ind u s t r y — b u t this industry w a s n o m a t c h in terms o f efficiency for that in m a n y other parts o f the w o r l d system. T h e sheer scale o f e x p l o i t a t i o n o f the mass o f the p o p u l a t i o n led ro all sorts o f pressures b u i l d i n g u p f r o m b e l o w , w h i l e the i n a b i l i t y ro keep u p the pace o f i n d u s t r i a l i s a t i o n led t o repeated crises w i t h i n the r u l i n g g r o u p . These c u l m i n a t e d in massive p o l i t i c a l u p h e a v a l s in the years 1966-75 ( f r o m the " C u l t u r a l R e v o l u t i o n " to the rise a n d fall of the " G a n g o f F o u r " ) w h i c h were o n l y finally resolved after .Vlao Z e d o n g ' s death in 1 9 7 6 . T h e resolution o f the crisis consisted o f ad h o c m o v e s ro a new structure o f a c c u m u l a t i o n . A series of reforms pushed t h r o u g h in 1978-81 began w i t h relief for peasants t h r o u g h a raising of the purchasing price p a i d by the state for their p r o d u c e . T h e peasants were n o w free t o decide h o w t o use s o m e o f the surplus left after (just a b o u t ) feeding themselves. There w a s a huge rise in agricultural p r o d u c t i o n , a n d the increased incomes p r o v i d e d a m a r k e t for some o f the under-utilised industrial capacity. A l o o s e n i n g o f state c o n t r o l s a l l o w e d it to satisfy this d e m a n d , a n d overall

output

soared a h e a d . Increasing social differentiation w i t h i n the peasantry led s o m e to a c c u m u l a t e a surplus a n d then t o use the n e w freedoms f r o m state c o n t r o l ro invest in establishing locally based " v i l l a g e industries

F o r m a l l y o w n e d by village g o v e r n m e n t s , in practice these

provided a m e a n s o f self-enrichment by those w i t h c o n n e c t i o n s to the local party a p p a r a t u s . A new m a r k e t c a p i t a l i s m grew u p in the south east o f the c o u n t r y alongside the old state c a p i t a l i s m centred I lie Years of Delusion

243

m a i n l y in the n o r t h , a n d the regime a l l o w e d the new industries to link u p w i t h overseas C h i n e s e capitalist interests in H o n g K o n g a n d elsewhere. I he surplus passing f r o m the peasantry i n t o the h a n d s of three g r o u p s o f capitalists (state, " v i l l a g e " a n d overseas) w a s still mas sive despite rhe reforms, w h i l e l o w peasant i n c o m e s m e a n t a reads supply o f workers for the n e w industries, w h i c h did n o t even have ro p r o v i d e the g u a r a n t e e d m i n i m u m living s t a n d a r d s a n d social p r o t e c t i o n (the so-called " i r o n rice b o w l " ) o f the o l d state-run heavy industries. In effect, there w a s a new m o d e l o f capitalist at cumulation,

combining

the

high

level

of

exploitation

and

repression o f the old state c a p i t a l i s m w i t h a turn t o w a r d s catering for m a r k e t s — a n d the m a r k e t s c a m e increasingly f r o m e x p o r t i n g t o the rest o f the w o r l d system, w h i l e p r o v i d i n g for the increas ingly c o n s p i c u o u s c o n s u m p t i o n o f the o l d state bureaucracy o n tino n e h a n d a n d its children as they t o o k over privatised industries o n the other. T h e new h y b r i d e c o n o m y h a d c o n t r a d i c t i o n s o f its o w n , w i t h the ups a n d d o w n s o f m a r k e t capitalism s u p e r i m p o s e d o n the ups a n d d o w n s o f the old state capitalist a c c u m u l a t i o n m o d e l . There were w i l d fluctuations in g r o w t h rates. T h e scale o n w h i c h the new industries c o m p e t e d w i t h each other for resources created short ages a n d forced prices u p , u n t i l the stare tried t o i m p o s e s o m e order o n the marker by c u r t a i l i n g f u n d s for further investment. So the g r o w t h rate c o u l d be a b o v e 2 0 percent in 1 9 8 4 , d o w n

to

a r o u n d 3 percent in 1 9 8 5 a n d back u p t o close t o 2 0 percent in 1988. There then f o l l o w e d a m a j o r e c o n o m i c , social a n d political crisis i n 1989 as g r o w t h fell right back a n d prices soared. T h i s was the e c o n o m i c b a c k g r o u n d

t o t u m u l t u o u s student a n d

worker

d e m o n s t r a t i o n s in 1989 in m o s t o f the m a j o r cities, m o s t f a m o u s l y in T i a n a n m e n Square i n Beijing. T h e regime f o u n d a w a y o u t o f the crisis f r o m 1992 o n w a r d s a l m o s t by accident. U n a b l e to c o n t r o l t h i n g s itself, it placed its h o p e s o n u n l e a s h i n g a new r o u n d o f a c c u m u l a t i o n based o n un controlled

competition

between

different i n d u s t r i a l

concerns.

Those w h o ran village g o v e r n m e n t s were able to t u r n the new industries i n t o their private p r o p e r t y a n d link u p w i t h

foreign

c a p i t a l , as were the m a n a g e r s o f the great stare-owned enterprises. There w a s a massive r a t i o n a l i s a t i o n o f o l d industries, w i t h perhaps 3 0 m i l l i o n w o r k e r s losing their jobs. These measures were ac c l a i m e d as "progressive^ by pro-capitalist e c o n o m i s t s right across 244

The New Age of Global In.stahilit\

the w o r l d . W h a t they m e a n t for w o r k e r s w a s p o r t r a y e d graphically in the 2 0 0 3 C h i n e s e H i m Blind

Shafts i n w h i c h the d e g r a d i n g

c o n d i t i o n s u n d e r w h i c h the m i n e r s w o r k lead t w o o f t h e m to m u r d e r a co-worker in a n a t t e m p t t o b l a c k m a i l c o r r u p t managers. I he closeness o f reality t o the fiction w a s s h o w n in a m i n i n g disasit i in G u a n g d o n g (supposedly C h i n a ' s m o s t " a d v a n c e d " province) in the s u m m e r o f 2 0 0 5 . A s m o r e t h a n 100 miners suffocated und e r g r o u n d , the o w n e r fled w h e n it w a s revealed he h a d p a i d o u t m i l l i o n s o f d o l l a r s in bribes t o t a k e over the previously shut d o w n state-owned m i n e , a n d at the same t i m e to b u y himself a senior position in the local police force. In this w a y he h a d been able to ignore all safety p r e c a u t i o n s w h i l e p a r a d i n g h i m s e l f as an exemplary " e n t r e p r e n e u r " for his role in s u p p l y i n g coal to satisfy the energy needs o f a b o o m i n g e c o n o m y . ~ A l o n g s i d e the attack o n the o l d w o r k i n g class w a s a renewed lipping o f the level of e x p l o i t a t i o n o f the rural w o r k f o r c e , w h o still m a d e u p t w o thirds o f the total. O n e ( b a n n e d ) Chinese study told 4)i a fall o f 6 percent i n peasants' per c a p i t a f a r m i n g i n c o m e s after 1997, a n d " g i v e n the rising costs o f health a n d e d u c a t i o n , their real p u r c h a s i n g p o w e r has p r o b a b l y fallen still f u r t h e r V * B u t the .iverage does n o t tell the w h o l e story. Class differentiation w i t h i n the peasantry i n v o l v e d l o c a l officials using their p o w e r s t o g r a b m o n e y (in the f o r m o f local taxes) a n d l a n d o f f other peasants w i t h the a i m o f e n r i c h i n g themselves as petty agrarian c a p i t a l i s t s — t h e cause o f m a n y local near-uprisings E n t h u s i a s t s for c a p i t a l i s m c l a i m e d the t u r n to the m a r k e t h a d led to a n unprecedented lifting o f h u n d r e d s o f m i l l i o n s o f people o u t o f poverty. A n d the a b a n d o n i n g o f the c r u d e m e t h o d s o f primitive a c c u m u l a t i o n in the m i d - 1 9 7 0 s h a d p e r m i t t e d m u c h o f the industry b u i l t u p t h r o u g h its m e t h o d s to be used m o r e productively, w i t h the result t h a t n o t o n l y the n e w rural capitalists bur also those f r o m peasant families w h o m o v e d to w o r k in the cities c o u l d enjoy i m p r o v e d living standards. But for the great m a j o r i t y of the p o p u l a t i o n , they were still l o w l i v i n g standards. T h e W o r l d Bank a d m i t t e d in the early 2 0 0 0 s t h a t 2 0 4 m i l l i o n people, or o n e in six o f the p o p u l a t i o n , still lived o n less t h a n S i a day. O t h e r estimates suggested t h a t " t h e vast m a j o r i t y o f the 8 0 0

million

peasants" h a d i n c o m e s at this level. w T h e key t o C h i n a ' s r a p i d g r o w t h rates w a s an unparalleled level of a c c u m u l a t i o n . T h e p r o p o r t i o n o f n a t i o n a l o u t p u t g o i n g i n t o investment rose t o 5 0 percent in 2006:*° I lie Years of Delusion

245

In recent years, n o O E C D or emerging m a r k e t e c o n o m y h a d ,i ratio greater than 30 percent (averaging over three years t<« smooth o u t cyclical effects)... Even c o m p a r e d to Korea a n d J a p a n d u r i n g their b o o m years, rhe ratio in C h i n a t o d a y looks high. 4 ' I he rising investment w a s p a i d for o u r o f total savings in the econ o m y also rising to over 5 0 percent o f o u t p u t . S o m e o f the savine. w a s by workers and peasants, w h o needed it in o r d e r t o pay for emergencies like medical care a n d for their o l d age. Effectively, they h a n d e d over a p o r t i o n o f their i n c o m e s t o state-run banks w h i c h have then loaned it to state a n d privately o w n e d enterprises B u t in the early and m i d - 2 0 0 0 s a n increasing p r o p o r t i o n o f saving c a m e o u t o f the profits m a d e by c o m p a n i e s , w h i c h rose by a b o u t S percent o f G N P in the early 2000s. 4 - T h i s w a s possible because h o u s e h o l d c o n s u m p t i o n as a share o f o u t p u t fell sharply, t o orilx a b o u t 4 0 p e r c e n t , " w i t h the share o f w a g e i n c o m e falling from 6 " percent in the 1970s t o a r o u n d 5 6 percent in 2 0 0 5 (see g r a p h ) . '

T h e decline in w a g e share d i d n o t necessarily m e a n a decline in real wages, since it w a s a d e c l i n i n g share o f rising o u t p u t . W h a t it did m e a n , however, w a s that C h i n a ' s e c o n o m y exemplified M a r x ' s picture o f a c c u m u l a t i o n t a k i n g place for the sake o f a c c u m u l a t i o n T h e picture w a s even starker if the section o f the e c o n o m y devoteil to exports was taken i n t o a c c o u n t . By the t u r n o f the m i l l e n n i u m 80 percent o f n e w g r o w t h each year w a s g o i n g to investment a n d exports as o p p o s e d t o satisfying the needs o f C h i n a ' s p e o p l e , a n d , in a further rwist, by 2 0 0 7 nearly 10 percent o f C h i n a ' s income t o o k the f o r m o f a surplus o f exports over i m p o r t s t h a t w a s then deposited in the U n i t e d Stares—effectively used t o finance govern 246

The New Age of Global In.stahilit\

mentor private American

c o n s u m p t i o n (graph 4 '), w h i c h then pro-

vided a n outlet for further C h i n e s e exports. 50

-20 Private consumption (left scale) -15

-10

Net exports (right scale)

35- -

-5

-4-0

30-f— 2000

2006

2004

2002

^ c u m u l a t i o n at such a rate created three sets o f p r o b l e m s , all o f which M a r x h a d been familiar w i t h . First it d r a w s in resources o n .i massive scale, creating shortages that push prices up. The i m p a c t <>l Chinese g r o w t h in the early a n d mid-2000s was t o a b s o r b r a w materials a n d foodstuffs f r o m across the w o r l d , raising their prices internationally (and in the process g i v i n g a n e c o n o m i c boost t o i.iw material producers in places like Latin A m e r i c a ) — a n d eventually the rising prices fed back i n t o C h i n a . Second, it leads to a g r o w t h o f o u t p u t t h a t c a n n o t be absorbed hv a n a t i o n a l e c o n o m y in w h i c h wages constitute a d i m i n i s h i n g share o f o u t p u t , except by still m o r e a c c u m u l a t i o n — o r by ever greater stress by firms o n exports. But there is e n o r m o u s c o m p e t i t i o n in export m a r k e t s — n o t just I t orn enterprises a b r o a d , b u t w i t h other enterprises o p e r a t i n g in ( liina. T h e increasing pattern has been o n e o f Chinese factories assembling c o m p o n e n t s p r o d u c e d elsewhere in East a n d South I ast A s i a , w i t h the final o u t p u t then being e x p o r t e d . This ties ( hinese based e x p o r t i n g supply lines:

u

firms

into competing

multinational

T h e percentage o f exports p r o d u c e d by foreign-

sed c o r p o r a t i o n s grew f r o m

17.4 percent in

1990 to 5 0 . 8

rcent in 2 0 0 1 " . * By the early 2 0 0 0 s the result o f such competition w a s a level o f o u t p u t that c o u l d n o t always be absorbed completely by the w o r l d m a r k e t any m o r e t h a n by the d o m e s t i c market. T h e N a t i o n a l Statistics Bureau

reported that

" o f all

t. hinese m a n u f a c t u r e d products, 90 percent are in o v e r s u p p l y ' Y " despite massive price c u t t i n g : " A m o n g C h i n e s e c o m p a n i e s the price w a r is particularly intense because c o m p e t i t o r s often chase I lie Years of Delusion

247

marker share rather t h a n trying to increase short term profitahil i n , " a Financial

Times c o r r e s p o n d e n t c o u l d report: "Relentless

c o m p e t i t i o n a m o n g local suppliers keeps profit m a r g i n s a l m o s t in visible for m a n y firms*.4" It w a s n o t only the o u t p u t o f export-directed c o n s u m e r g o o d s t h a t t e n d e d t o get o u t o f h a n d . " I n v e s t m e n t in m a n y sectors i n c l u d i n g p r o p e r t y , c e m e n t , steel, cars a n d a l u m i n u m "

was

" b e i n g o v e r d o n e " , Chinese g o v e r n m e n t officials c o m p l a i n e d . ' In a system c o n s t r u c t e d a r o u n d the g o a l o f a c c u m u l a t i o n for the sake o f a c c u m u l a t i o n a n d t h e n left t o r u n itself, t o p m a n a g e r s m e a s u r e d their success by the speed at w h i c h their f i r m s grew a n d rhe g o v e r n m e n t - r u n b a n k s t h e n r e w a r d e d t h o s e t h a t grew fastest by a l l o w i n g t h e m t o a c c u m u l a t e debts. 5 0 A third problem, w h i c h exacerbated the previous t w o , w a s thai the ratio o f investment t o workers e m p l o y e d — a n d t o o u t p u t — w a s rising, despite the a b u n d a n c e of labour. W h i l e investment w a s in creasing

by

about

20

percent

a

year,

employment

growth

t h r o u g h o u t the e c o n o m y as a w h o l e w a s o n l y a b o u t 1 percent—and even in urban areas it w a s o n l y a b o u t 3.5 percent. Total manufacturing e m p l o y m e n t fell from 98 m i l l i o n in 1997 to 83.1 million in 2001,

despite the massive rate o f a c c u m u l a t i o n . T h e fall w a s due

to large-scale redundancies in rhe old state-owned heavy industries, b u t it was n o t compensated for by the increased e m p l o y m e n t in the newer m a n u f a c t u r i n g enterprises—and e m p l o y m e n t in the "sec o n d a r y s e c t o r " a s a w h o l e remained m o r e or less static at r o u n d 157 million. In other w o r d s , the organic c o m p o s i t i o n of capital rose. Researchers for the I M F reported, " T h e increase in investment from the mid-1990s t o the mid-2000s h a d led ro " a rise in the capi tal o u t p u t ratio a n d a fall in the m a r g i n a l p r o d u c t o f capital' 1 . 11 T h e effect w a s b o u n d t o be d o w n w a r d pressure o n profitability. P h i l l i p O T i a r a calculates the rate for the e c o n o m y as a w h o l e as d e c l i n i n g f r o m 4 7 percent in 1978 t o 3 2 percent in 2000. 5 1 Jesus Felipe, E d i t h a l . a v i n a a n d E m m a X i a o q i n Fan p o i n t t o the same t r e n d , b u t w i t h different a b s o l u t e figures, f r o m 13.5 percent in 1980s t o 8.5 percent in 2 0 0 3 . T h e y q u o t e results f r o m L a r d y a n d f r o m L i n w h i c h s h o w the s a m e t r e n d — w i t h s o m e o f L i n s figures s h o w i n g very small profit rates indeed for s o m e industries (0.2 pet cent f o r bicycles, -0.3 percent for buses, 2 . 9 percent for w a s h i n g m a c h i n e s , 2.5 percent f o r beer). 55 A C h i n e s e s t u d y by Z h a n g "in a n d Z h a o Feng seems t o c o n t r a d i c t these c o n c l u s i o n s , s h o w i n g rht overall rate for m a n u f a c t u r i n g as f a l l i n g c o n t i n u a l l y for the 2 0 248

The New Age of Global In.stahilit\

years up ro 199SJ, h u t rising considerably after that.

1 he discrep-

ancy c o u l d be e x p l a i n e d by the w a y the massive o n s l a u g h t o n jobs in the state enterprise sector cur i n t o its o p e r a t i n g costs. T h e great c o u n t e r a c t i n g factor p r e v e n t i n g a c a t a s t r o p h i c fall in profit rates was the c o n t i n u a l fall in the share o f o u t p u t g o i n g t o wages. Bur I his necessarily prevented d o m e s t i c c o n s u m p t i o n a b s o r b i n g the g r o w i n g i n d u s t r i a l o u t p u t , f u r t h e r increasing the d e p e n d e n c e o f a c c u m u l a t i o n o n further a c c u m u l a t i o n a n d o n exports. At the s a m e t i m e , there w a s c o n s i d e r a b l e evidence t h a t the willingness o f the b a n k s to lend t o enterprises at l o w rates o f interest c o m p e n s a t e d for t h e 4 o w p r o f i t rates o f m a n y e n t e r p r i s e s — a n d that parallel w i t h this w e n t a willingness n o t to push loss-making enterprises i n t o b a n k r u p t c y , so l o a d i n g the b a n k i n g system w i t h vast, p r o b a b k u n r e p a y a b l e debts. As w i t h a n y capitalist b o o m , there w a s a b u r g e o n i n g o f all sorts o! s p e c u l a t i o n as enterprises a n d rich i n d i v i d u a l s s o u g h t t o find ijuick

and

apparently

effortless

sources

of

profitability:

Investment in real estate grew by a l m o s t 2 0 percent a year over the past f o u r years Iro 2 0 0 5 ] a n d reached 11 percent o f G D P in

2005 V * Everywhere in C h i n a ' s m a j o r cities there w a s a p p a r e n t l y endless b u i l d i n g a n d r e b u i l d i n g o f l u x u r y a p a r t m e n t b l o c k s , relatively expensive (by Chinese standards) fast f o o d outlets, h i g h class hotels, a n d s h o p p i n g malls dedicated ro selling designer p r o d u c t s (even t h o u g h such stores often seemed virtually e m p t y o f shoppers). A n d there w a s the lure o f i n t e r n a t i o n a l speculation t o a d d to the lure o f local profiteering. In M a r c h 2 0 0 8 executives o f the ( I T I C G r o u p in Beijing were o n the verge o f signing a deal to buy .i o n e b i l l i o n d o l l a r stake in the US b a n k Bear Stearns w h e n news c a m e t h r o u g h that it h a d g o n e bust. This c o m b i n a t i o n

J

of contradictions

meant

that a

smooth

u p w a r d p a t h o f g r o w t h was a m o s t unlikely scenario for Chinese c a p i t a l i s m . C e r t a i n l y those c h a r g e d w i t h m a n a g i n g its e c o n o m y were by n o m e a n s confident that they c o u l d c o n t r o l the t e m p o o f c o m p e t i t i v e a c c u m u l a t i o n in a w a y t h a t c o u l d a v o i d u n e x p e c t e d catastrophes as m a n a g e r s o f enterprises, b o t h p r i v a t e a n d state o w n e d , s o u g h t t o o u t d o each other. O r , as Premier W e n J i a b a o told the N a t i o n a l People s Congress in M a r c h 2 0 0 7 , " t h e biggest p r o b l e m w i t h C h i n a ' s e c o n o m y is that the g r o w t h is u n s t a b l e , unbalanced, u n c o o r d i n a t e d , a n d u n s u s t a i n a b l e " / 0 T h e unpredictability o f the Chinese e c o n o m y h a d i m p o r t a n t implications for the rest o f the w o r l d . It h a d replaced the US as I lie Years of Delusion

249

J a p a n ' s biggest export m a r k e t , w h i l e it w a s in t u r n the second biggest exporter to the US (just b e h i n d C a n a d a a n d just a h e a d of Mexico). 6 1 Its role in i m p o r t i n g c o m p o n e n t s f r o m elsewhere m East a n d S o u t h East Asia a n d r a w material f r o m L a t i n A m e r i c a a n d Africa m a d e it central to all their e c o n o m i e s . A n d , m o s t ini p o r t a n t l y , the huge receipts f r o m its t r a d e — m u c h o f it w i t h tinU S — w e r e deposited in the U S . A l o n g w i t h the s i m i l a r surpluses m a d e by J a p a n and the oil states, it p r o v i d e d the l e n d i n g w h i c h en abled US consumers a n d the US g o v e r n m e n t t o keep b o r r o w i n g until the " c r e d i t c r u n c h " o f the s u m m e r o f 2 0 0 7 . Effectively it lent m o n e y t o the US (and to a lesser extent t o certain E u r o p e a n states like Britain) t o buy g o o d s it itself m a d e . T h i s a d d e d to the a p p e a r ance o f stability of the w o r l d system. Yet rhose w h o believed C h i n e s e g r o w t h c o u l d p u l l the w o r l d system f o r w a r d if s o m e t h i n g w e n t w r o n g in rhe US a n d E u r o p i n o t o n l y f o r g o t that the u n b r i d l e d m a r k e t s u n l e a s h e d in C h i n a c o u l d n o t lead t o stable as o p p o s e d to w i l d l y f l u c t u a t i n g g r o w t h T h e y also failed to take i n t o a c c o u n t the relatively s m a l l weight C h i n a still h a d in the w o r l d system. In terms o f c u r r e n t exchange rates, G D P in 2 0 0 6 w a s $ 2 , 6 0 0 b i l l i o n — j u s t b e h i n d G e r m a n y , j u s t a h e a d o f the UK a n d less t h a n a fifth o f t h a t o f either the US or the E u r o p e a n U n i o n . " P u r c h a s i n g P o w e r P a r i t y "

estimates

(based o n the b u y i n g p o w e r o f i n c o m e s in the d o m e s t i c currency, the y u a n ) seemed m u c h higher, at a b o u t 5 0 percent o f US o r El 1 G N P a c c o r d i n g a revised W o r l d B a n k estimate in 2 0 0 7 . 6 : T h e e v change

rate

figures c o n s i d e r a b l y

underestimate

rhe level

of

resources a v a i l a b l e f o r c o n s u m p t i o n by C h i n a ' s p o p u l a t i o n (since d o m e s t i c prices o f basic f o o d s t u f f s like rice a n d basic services like u r b a n t r a n s p o r t fares cost a q u a r t e r or less o f those in the West). B u t , it is the e x c h a n g e rate m e a s u r e m e n t t h a t is i m p o r t a n t in de t e r m i n i n g t h e degree t o w h i c h a c o u n t r y c a n i m p o r r a n d

so

p r o v i d e a l o c o m o t i v e t o pull the rest o f the w o r l d e c o n o m y for wards.

And

it w a s

a grave m i s t a k e t o

believe t h a t

China,

a c c o u n t i n g for 4 o r 5 percent o f g l o b a l b u y i n g p o w e r , c o u l d some h o w c o m p e n s a t e for the effect o f a m a j o r e c o n o m i c crisis in m u c h o f the rest o f the w r orld system. T h e Chinese e c o n o m y w a s n o t yet big e n o u g h for it t o be a n a I ternative m o t o r for the w o r l d system as a w h o l e . But it w a s big e n o u g h for its r a p i d g r o w t h to a d d t o the instability o f the global system, as w a s s h o w n by the w a y it a d d e d t o escalating g l o b a l in flation in the years u p to the s u m m e r o f 2 0 0 8 . 250

The New Age of Global lnstabili(>

India, the N I C s a n d the B R I C S It became c o m m o n p l a c e

to bracket I n d i a

w i t h C h i n a as the

" e m e r g i n g g i a n t s ' by the rnid-2000s. T h e y h a d m o r e or less e q u a l p o p u l a t i o n s ( a r o u n d 1,300 m i l l i o n ) , b o t h were n u c l e a r p o w e r s and b o t h suffered d e e p rural poverty. B u t India's real i m p o r t a n c e in the w o r l d e c o n o m y w a s m u c h less t h a n C h i n a ' s . It w a s a b o u t a tlurd o f the size in e x c h a n g e rate terms (considerably smaller in iliei than Britain or France) a n d 6 0 percent smaller in PPP terms; its g r o w t h rates were o n l y a little a b o v e 6 0 percent o f t h a t o f i hina in the late 1 9 9 0 s rising briefly ro just less t h a n 9 0 percent in (he m i d - 2 0 0 0 s ; its share o f total w o r l d exports in 2 0 0 3 w a s o n l y 0 . 7 percent, p u t t i n g it in 31st p o s i t i o n . 6 There were some parallels w i t h the Chinese pattern: an early atleinpt at state-directed industrialisation (the period o f so-called " N e r u v i a n s o c i a l i s m " ) w a s followed by a few years of stagnation in i he m i d a n d late 1970s; a n d then the i n t r o d u c t i o n o f reforms a i m e d it a m u c h m o r e m a r k e t based m o d e l o f a c c u m u l a t i o n . But there were significant differences. L a c k i n g the crude p o w e r o f the Chinese Mate, India's state a n d private capitalists were not nearly as successlul in s u b d u i n g other classes ( o n the one side the old l a n d o w n i n g i lass, o n the other the workers a n d peasants) a n d so achieved less in the period o f state-led primitive a c c u m u l a t i o n w h e n the I n d i a n g r o w t h rate w a s p r o b a b l y three quarters o f C h i n a ' s . They were therefore less able t o benefit from a turn t o the w o r l d market—exporting less a n d r e m a i n i n g m u c h less attractive t o foreign capital than their Chinese competitors. " R e f o r m s " pushed u p the rate of acc u m u l a t i o n , w i t h investment reaching 25 t o 30 percent o f G N P . But iIns c o u l d o n l y be sustained o n the basis o f a g r o w i n g p o r t i o n o f o u t p u t accruing to the capitalist class a n d the u p p e r m i d d l e class, at the expense o f the workers, peasants a n d the poor. As a 2 0 0 7 report for the I M F s h o w e d : In the 1990s, the t o p o f the p o p u l a t i o n enjoyed a substantially larger share o f the gains f r o m e c o n o m i c g r o w t h c o m p a r e d t o the previous decade. T h i s h a d significant effects o n i n c o m e inequality, w h i c h grew w i t h i n states, across states, a n d between rural a n d u r b a n areas." 4 An analysis o f incomes tax data suggests u p t o 4 0 percent o f g r o w t h ended u p in the h a n d s o f the t o p 1 percent o f the p o p u l a t i o n / ' I lie Years of Delusion

251

Apologists for capitalism tend t o assume rising g r o w t h m u s t an t o m a t i c a l l y lead ro f a l l i n g poverty a n d q u o t e v a r i o u s official statistics s h o w i n g a decline in the p r o p o r t i o n o f p e o p l e living in a b s o l u t e poverty by 10 percent in the 1990s. But in the sanu decade there w a s a fall in f o o d c o n s u m p t i o n per head in the rural areas, w h e r e t w o thirds o f I n d i a n s live. A b h i j i t Sen, re-analysing the official figures, c o n c l u d e d t h a t rhe total n u m b e r living m poverty p r o b a b l y grew in the 1990s, that the p r o p o r t i o n below tin poverty line o n l y fell very slightly, a n d this w a s a " l o s t d e c a d e " in terms o f fighting poverty. 06 T h e n u m b e r b e l o w the poverty line in 2 0 0 2 was 35 percent o f rhe I n d i a n p o p u l a t i o n , s o m e 3 6 4 m i l l i o n people. But even this underestimated the degree o f suffering. H a l l o f all I n d i a n children are clinically u n d e r n o u r i s h e d a n d a l m o s t 40 percent o f all I n d i a n a d u l t s suffer c h r o n i c energy deficiency." Hv en in the supposedly prosperous states o f G u j a r a t , K a r n a t a k a , Kerala, M a h a r a s h t r a a n d Tamil N a d u , " m o r e t h a n 7 0 percent o f the rural p o p u l a t i o n c o n s u m e d less t h a n 2 , 2 0 0 calories per day". 6 * I n d i a ' s insertion i n t o the w o r l d system m e a n s t h a t i n d u s t r i a l i n v e s t m e n t , like that in C h i n a , has been o v e r w h e l m i n g l y capital intensive, w i t h

the c a p i t a l o u t p u t

rising s u b s t a n t i a l l y

in the

1990s. E m p l o y m e n t g r o w t h w a s stuck at a b o u t 1 percent a year; 0.87

percent

in rhe " o r g a n i s e d "

(ie f o r m a l )

manufacturing

sector, 0 ' even if g r o w t h w a s a little faster in the " u n o r g a n i s e d " in f o r m a l sector w h e r e average f i r m size is less t h a n t w o p e o p l e . M o s t o f the p e o p l e f l o o d i n g f r o m the c o u n t r y s i d e t o the cities h a v e e n d e d u p trying to m a k e a l i v e l i h o o d in the service sector, d o i n g unskilled

l a b o u r at very l o w levels o f p r o d u c t i v i t y

in

return for rhe 5 0 rupees ( $ 1 ) a d a y needed t o just a b o u t keep .i f a m i l y a l i v e — s w e e p i n g a n d c l e a n i n g , w o r k i n g as d o m e s t i c ser vants,

washing

clothes,

pushing

barrows,

peddling

cycle

r i c k s h a w s , h a w k i n g g o o d s , p o r t e r i n g , w a i t e r i n g , g u a r d i n g . The m u c h p u b l i c i s e d call centres e m p l o y e d o n l y 4 0 0 , 0 0 0 p e o p l e oi 0 . 0 0 8 percent o f the c o u n t r y ' s w o r k f o r c e in 2006. 7 1 I n d i a ' s g r o w t h , like C h i n a ' s , m e a n s t h a t by the m i d - 2 0 0 0 s ii represented a m u c h bigger p o r t i o n o f w o r l d c a p i t a l i s m t h a n 5 0 or even 2 0 years earlier, a n d rhis h a d i m p o r t a n t i m p l i c a t i o n s for the system as a w h o l e . But it w a s still q u i t e small by the s t a n d a r d s o! rhe US or even J a p a n , G e r m a n y a n d C h i n a . T h i s c o u l d c h a n g e il rhe rates o f g r o w t h o f the m i d - 2 0 0 0 s were sustained for another t w o decades: in d o l l a r terms the I n d i a n e c o n o m y w o u l d end u p being bigger t h a n the U K . But the most m o d e r n centres o f indus 252

I he New Age of Global Instability

trial society in M u m b a i , H y d e r a b a d or B a n g a l o r e w o u l d still be separated by stretches o f rural p o v e r t y bigger t h a n m o s t E u r o p e a n countries. A n d l o n g before that the w h o l e process o f r a p i d g r o w t h c o u l d be t h r o w n o f f b a l a n c e b o t h by internal factors a n d by the l i m p a c t o f instability i n t e r n a t i o n a l l y . [

W e have seen w h a t h a p p e n e d t o the " t i g e r s " in the late 1990s,

.tnd before t h a t t o the Brazilian " m i r a c l e " of the 1960s a n d 1970s. I here w a s therefore a l o t o f a m n e s i a i n v o l v e d w h e n

people

l u m p e d together a very d i s p a r a t e c o l l e c t i o n o f c o u n t r i e s , Brazil, Russia, I n d i a , C h i n a a n d S o u t h A f r i c a , a n d c l a i m e d that s o m e h o w together they represented a n a l t e r n a t i v e driver for the

world

system. In fact, renewed e c o n o m i c g r o w t h in Brazil, Russia a n d South Africa d e p e n d e d typically o n a n upsurge o f r a w material and agricultural prices in a b o o m w h i c h w a s b o u n d ro c o m e ro a n end e v e n t u a l l y — a n d w h e n it d i d so it w o u l d hit them seriously. 1

T h e great m i n d s t h a t extolled the system p a i d n o greater atten-

tion t o these c o n t r a d i c t i o n s in their rosy picture o f Asia t h a n they did t o the u n d e r l y i n g p r o b l e m s in E u r o p e a n d N o r t h A m e r i c a , lapan h a d p r o b l e m s , they u s u a l l y recognised, b u t this w a s because o f the lack of w i s d o m displayed by a g o v e r n m e n t w h i c h h a d never really a b s o r b e d the lessons a b o u t h o w a free m a r k e t s h o u l d operate. A s late as the a u t u m n o f 2 0 0 7 financial j o u r n a l i s t s , gove r n m e n t ministers a n d the stars o f a c a d e m i c e c o n o m i c s were all .igreed t h a t c a p i t a l i s m h a d f o u n d a n e w long-term s t a b i l i t y — a n d even s o m e M a r x i s t s s p o k e o f a " n e w l o n g u p t u r n " . T h e y were soon t o l o o k as foolish as those w h o forecast endless peace in the early s u m m e r o f 1914.

I lie Years of Delusion

253

i M AFTER TEN

Global capital in the new age

Bursting t h r o u g h b o r d e r s I he d e c a d e s o f t h e great d e l u s i o n were d e c a d e s in w h i c h c a p i t a l burst o u t o f n a t i o n a l c o n f i n e s in t r a d e , i n v e s t m e n t a n d p r o d u c t i o n . By 2 0 0 7 i n t e r n a t i o n a l t r a d e f l o w s w e r e 3 0 t i m e s greater t h a n in 1 9 5 0 , w h i l e o u t p u t w a s o n l y e i g h t t i m e s greater. 1 F o r e i g n direct i n v e s t m e n t s h o t u p : f l o w s o f it r i s i n g f r o m $ 3 " b i l l i o n in 1982 t o $ 1 , 2 0 0 b i l l i o n in 2 0 0 6 ; 2 t h e c u m u l a t i v e stock o f F D I

lose

f r o m 4 p e r c e n t o f w o r l d g r o s s d o m e s t i c p r o d u c t in

1950

(less t h a n h a l f the 1 9 1 3 figure) t o 3 6 p e r c e n t in 2 0 0 7 . " T h e direct o r g a n i s a t i o n o f p r o d u c t i o n across n a t i o n a l b o u n d a r i e s a l s o t o o k o f f in a w a y t h a t h a d been very rare i n rhe past a n d the m u l t i n a tional c o r p o r a t i o n became the generally accepted stereotype of the b i g c a p i t a l i s t e n t e r p r i s e / T h e m o v e m e n t o f finance across n a t i o n a l b o r d e r s , w h i c h h a d (alien sharply since the crisis o f the 1930s, n o w g r e w explosively, w i t h g o v e r n m e n t s d r o p p i n g e x c h a n g e c o n t r o l s as p a r t o f the m o r e general process o f d e r e g u l a t i o n . By the m i d - 1 9 8 0 s the t r e n d w a s lor " b a n k e r s t o m a p o u t n e w strategies w h i c h , for m o s t o f t h e m " , amounted

u

t o e s t a b l i s h i n g sizeable presences in the m a j o r

finan-

cial centres, L o n d o n , N e w Y o r k a n d T o k y o , a n d s o m e secondary ones as w e l l " . ' There w a s a p r o l i f e r a t i o n o f b a n k i n g mergers. T h e old-established H o n g K o n g a n d S h a n g h a i B a n k i n g C o r p o r a t i o n t o o k over o n e o f the " b i g five" British b a n k s , relocated its headquarters t o L o n d o n a n d m o v e d o n t o b u y b a n k s in a d o z e n c o u n t r i e s . T h e t w o b i g S p a n i s h b a n k s , the B a n k o f B i l b a o a n d Vizcaya, a n d rhe B a n k o f S a n t a n d e r , b o u g h t u p a very large prop o r t i o n o f the b a n k i n g systems o f m a n y L a t i n A m e r i c a n c o u n t r i e s , until they a l o n e o w n e d a l m o s t o n e t h i r d o f the assets o f the 2 0 255

biggest banks, fc and then branched o u t i n t o other types o f business, " i n v e s t m e n t b a n k i n g , insurance a n d in p a r t i c u l a r p a r t i c i p a t i o n in pension f u n d m a n a g e m e n t " , a c q u i r i n g " m i n o r i t y shares in sonu non-financial enterprises, basically in sectors w h e r e o t h e r Spanish investors are very active ( t e l e c o m m u n i c a t i o n s a n d energy)"." There w a s a parallel process o f c o n c e n t r a t i o n o f industrial activities across national borders. T h e h u g e firms that h a d emerged in the old industrial countries in the previous p e r i o d , often undet the tutelage o f the state, were n o w able to d o m i n a t e n o t only then n a t i o n a l market b u t also carve o u t h u g e c h u n k s o f the w o r l d m a r k e t . T h e i r c o m p e t i t o r s c o u l d o n l y survive if they l o o k e d to .in international m o b i l i s a t i o n o f resources, that is, if they t o o becann m u l t i n a t i o n a l , n o t o n l y w h e n it c a m e t o trade b u t also w h e n n c a m e t o p r o d u c t i o n . T h e most successful firms in m a n y key indus tries became those w i t h i n t e r n a t i o n a l d e v e l o p m e n t , p r o d u c t i o n a n d m a r k e t i n g strategies, based u p o n b u y i n g u p , m e r g i n g w i t h or establishing strategic alliances w i t h firms in other countries. In m o t o r s , the Japanese car firms established p r o d u c t i o n facih ties in the U S , t u r n i n g o u t m o r e vehicles t h a n the t h i r d biggest A m e r i c a n firm, Chrysler; the n a t i o n a l i s e d French firm R e n a u l t began a series of a c q u i s i t i o n s in the US, b e g i n n i n g w i t h the small f o u r t h US car firm A m e r i c a n M o t o r s ; V o l v o t o o k over General M o t o r s ' heavy truck p r o d u c t i o n in the US; F o r d a n d V o l k s w a g e n merged their car p r o d u c t i o n in Brazil; N i s s a n b u i l t a n assemblv p l a n t in n o r t h east E n g l a n d to p r o d u c e h u n d r e d s o f t h o u s a n d s ol cars a year, w h i l e H o n d a b o u g h t a 2 0 percent stake in Rover. In tyres, the French firm M i c h e l i n m a d e itself the w o r l d ' s biggest pro ducer by t a k i n g over U n i r o y a l - G o o d r i c h in the US i n 198S. The pattern c o n t i n u e d i n t o the 1990s a n d the early 2 0 0 0 s .

Mercedes

Benz t o o k over Chrysler (before selling it again in 2 0 0 7 ) ; Renault f o r m e d an " a l l i a n c e " w i t h Nissan ( b u y i n g 4 4 . 5 percent o f it, w h i l i Nissan b o u g h t 15 percent of R e n a u l t ) w i t h a j o i n t chicf executive; G e n e r a l M o t o r s b o u g h t S a a b , t o o k 2 0 percent stakes in S u z u k i , S u b a r u a n d Fiat, a n d acquired 4 2 percent o f D a e w o o ; the I n d i a n g r o u p Tata t o o k over the A n g l o - D u t c h steel firm C o r u s (formed b> a previous takeover o f the privatised British Steel); h a l f o f C h i n a ' s s o a r i n g exports were p r o d u c e d by c o r p o r a t i o n s at least partly o w n e d by Western m u l t i n a t i o n a l s ; C h i n e s e firm A V I C 1 was sup p l y i n g the r u d d e r for Boeing's 7 8 " D r e a m l i n e r a n d m a k i n g

bids

for six a u c t i o n e d o f f A i r b u s plants in E u r o p e ; Russia's Aeroflot put in a bid for A l i t a l i a . These are just a r a n d o m s a m p l e o f the wave of 256

The New Age of Global lnstabili(>

international takeovers a n d c o l l a b o r a t i o n agreements t h a t were reported by the Financial

Times every day.

I f the typical capitalist firm o f the 1 9 4 0 s , 1950s o r 1960s w a s nne w h i c h played a d o m i n a n t role in o n e n a t i o n a l e c o n o m y , a t the b e g i n n i n g o f the 2 1 s t c e n t u r y it w a s o n e t h a t operared in a score or m o r e c o u n t r i e s — n o t merely selling o u t s i d e its h o m e c o u n t r y but p r o d u c i n g there as well. T h e biggest d e p l o y e d far m o r e econ o m i c resources t h a n m a n y states. " 2 9 o f the w o r l d ' s 100 largest economic

entities

are

transnational

corporations",

reported

I J N C T A D . T h e process o f n a t i o n a l firms b r a n c h i n g o u t i n t o the rest o f t h e w o r l d w a s n o t c o n f i n e d t o rhe a d v a n c e d

industrial

c o u n t r i e s . It affected the T h i r d W o r l d a n d N e w l y I n d u s t r i a l i s i n g Countries

where

the s t a t i f i c a t i o n

of

industry

had

previously

iended t o g o even f u r t h e r t h a n in the W e s t , as w e s a w in C h a p t e r Seven. It intensified w i t h the r e s t r u c t u r i n g o f i n d u s t r y t h a t t o o k place in each crisis o f these years as firms rationalised p r o d u c t i o n , shut p l a n t s a n d m e r g e d w i t h others.

M v t h s a n d realities #

I his w h o l e process w a s baptised " g l o b a l i s a t i o n " by the 1990s. It was bracketed together w i t h neoliberalism as representing a w h o l e new phase o f c a p i t a l i s m — f o r enthusiasts a phase very different t o any previously. T h e y held n o t o n l y t h a t the w o r l d s h o u l d be organised a c c o r d i n g t o the free flows o f c a p i t a l , w i t h o u t a n y intervention by g o v e r n m e n t s , b u t that this h a d already c o m e a b o u t . W e l i v e d , it w a s s a i d , in the age o f m u l t i n a t i o n a l (or s o m e t i m e s transnational) capital, o f firms m o v i n g p r o d u c t i o n at will

to

wherever it c o u l d be d o n e m o s t c h e a p l y . It w a s , s o m e i n f l u e n t i a l voices insisted, a w o r l d o f " w e i g h t l e s s " p r o d u c t i o n ,

w h e r e com-

puter s o f t w a r e a n d the internet were m u c h m o r e i m p o r r a n r t h a n " o l d f a s h i o n e d m e t a l - b a s h i n g " industries, a n d w h e r e the a b s o l u t e m o b i l i t y o f c a p i t a l h a d c o m p l e t e l y d e t a c h e d it f r o m a n y dependence o n states. T h i s w a s a n integral parr of t h e n e w e c o n o m i c p a r a d i g m s u p p o s e d l y u n l e a s h i n g a n e w d y n a m i s m in t h e afterm a t h o f the failures o f K e y n e s i a n i s m , state d i r e c t i o n a n d Soviet style " s o c i a l i s m " . " N a t i o n a l i t i e s o f c o m p a n i e s " were " b e c o m i n g increasingly

irrelevant",

declared

the

British

Tory

minister

K e n n e t h C l a r k . 1 0 T h i s w r as the age o f " t h e stateless c o r p o r a t i o n " , declared Business

Week.11

Cilobal Capital in the New Age

2.57

M a n y people w h o rejected the politics o f m a i n s t r e a m globalise t i o n theory nevertheless accepted m a n y o f its a s s u m p t i o n s . St. V i v i a n e Forrester w r o t e o f " t h e b r a n d new w o r l d d o m i n a t e d b\ cybernetics, a u t o m a t i o n a n d revolutionary technologies" w i t h

u

im

real links w i t h 'the w o r l d o f w o r k 1 " ; 1 2 N a o m i Klein described 4\i system o f footloose factories e m p l o y i n g footloose w o r k e r s " ; 1 ' a n d J o h n H o l l o w a y told o f capital being able " t o m o v e f r o m o n e side o f the w o r l d to the other w i t h i n seconds". 1 4 T h e vision o f a g l o b a l system in w h i c h states n o longer played .1 central p a r t h a d as its c o r o l l a r y the a r g u m e n t t h a t the w a r s thai h a d plagued most o f the 2 0 t h century were a t h i n g o f the past. Tinw o r l d w a s entering a

ik

new w o r l d o r d e r " , p r o c l a i m e d G e o r g e Bush

senior after the collapse o f the Eastern b l o c a n d US victory in the first w a r against Iraq. 15 Francis F u k u y a m a gave such talk an acad e m i c gloss w i t h his a n n o u n c e m e n t o f " a n e n d to h i s t o r y " . Even thinkers l o n g associated w i t h the left c a m e t o the concln sion that capital in the n e w period n o longer needed the state, and therefore h a d turned its back o n war. Nigel H a r r i s w r o t e of " t i n w e a k e n i n g o f the drive to w a r " , since " a s c a p i t a l a n d

states

become slightly dissociated, the pressures t o w o r l d w a r are slight I v w e a k e n e d " . 1 6 Lash a n d Urry w e n t even further a n d d i d n o t include any m e n t i o n o f military e x p e n d i t u r e in their account o f the "posi m o d e r n " world of "disorganised capitalism".1" L a c k i n g from all these varied assertions a b o u t g l o b a l i s a t i o n was any real grasp of h o w the relations between states a n d capitals were really developing. For capitals were n o m o r e w i l l i n g , or able, t o break their relationships w i t h states t h a n they h a d been at tlu t i m e o f the First W o r l d War. Such relationships m a y have become m o r e c o m p l e x , but they retained their o v e r w h e l m i n g i m p o r t a n c e . T h i s s h o u l d have been m o s t o b v i o u s in the case o f p r o d u c t i v e c a p i t a l . It s i m p l y c o u l d n o t be as m o b i l e as g l o b a l i s a t i o n theory c o n t e n d e d . Factories a n d m a c h i n e r y , m i n e s , d o c k s , offices a n d so o n still t o o k years to b u i l d u p , just as they h a d in the earlier period o f c a p i t a l i s m , a n d c o u l d not be s i m p l y picked u p a n d carted away. S o m e t i m e s a firm can m o v e m a c h i n e r y a n d e q u i p m e n t . But this is usually an a r d u o u s process a n d , before it c a n be o p e r a t e d else w h e r e , the

firm

has t o recruit or train a sufficiently

skilled

w o r k f o r c e . In the i n t e r i m , n o t o n l y does the investment in the old b u i l d i n g s have t o be written off, b u t there is n o return o n the in vestment in the m a c h i n e r y either. A n d , few p r o d u c t i v e processes are ever c o m p l e t e l y self-contained. They are r o o t e d , as we saw in 258

The New Age of Global Inst.ibilit v

I hapter Four, in p r o d u c t i o n c o m p l e x e s , d e p e n d e n t o n inputs f r o m outside a n d links t o d i s t r i b u t i o n n e t w o r k s . If a firm sets u p a car plant, it has to ensure there are secure sources o f nuts a n d bolts, %teel o f the right quality, a l a b o u r force w i t h rhe right level o f training, reliable electricity- a n d w a t e r s u p p l i e s , a t r u s t w o r t h y

financial

system, friendly b a n k e r s , a n d a r o a d a n d rail n e t w o r k c a p a b l e o f •.hitting its finished products. It has ro persuade other people, other firms or g o v e r n m e n t s t o p r o v i d e these t h i n g s , a n d the process o f assembling t h e m c a n take m o n t h s or even years o f b a r g a i n i n g , involving trial a n d error as well as f o r w a r d p l a n n i n g . For this reason, w h e n restructuring firms usually prefer the r o a d o f "gradu a l i s m " — m o v i n g piecemeal from o l d p l a n t t o new, keeping intact old s u p p l y a n d d i s t r i b u t i o n n e t w o r k s , m i n i m i s i n g the d i s l o c a t i o n to the " c o m p l e x " a r o u n d t h e m . So it t o o k Ford nearly t w o years to i m p l e m e n t s decision in 2 0 0 0 t o close d o w n its assembly plant in D a g c n l i a m a n d m o v e p r o d u c t i o n elsewhere in E u r o p e . W h e n ( a d b u r y Schweppes a n n o u n c e d the " r a t i o n a l i s a t i o n " o f its g l o b a l operation i n c l u d i n g closures in J u n e 2 0 0 7 , it said it expected it t o take three years to i m p l e m e n t . Even w i t h m o n e y c a p i t a l there is n o p u r e m o b i l i t y . As S u s a n n e de B r u n h o f f noted: Even t h o u g h huge financial flows o f m o b i l e capital are d a i l y circ u l a t i n g r o u n d the g l o b e , a g l o b a l single m a r k e t o f capital does n o t exist. There is n o single w o r l d rate o f interest a n d there are n o single w o r l d prices for p r o d u c e d g o o d s . . . Financial assets are d e n o m i n a t e d in different currencies w h i c h are n o t "perfect ft substitutes". 1 " Dick Bryan m a d e a s i m i l a r p o i n t : I n t e r n a t i o n a l f i n a n c e provides a clear i l l u s t r a t i o n o f the centrality

of

nationality

within

global

accumulation.

The

c o m b i n a t i o n o f satellite a n d c o m p u t e r t e c h n o l o g y has provided...all

the t e c h n i c a l p r e c o n d i t i o n s for the

neoclassical

"perfect m a r k e t " o f financial flows t o equalise rates o f r e t u r n , t r a n s c e n d i n g n a t i o n a l b o u n d a r i e s . Y e t . . . f i n a n c e m a i n t a i n s national characteristics. It docs n o t m o v e systematically so as t o equalise savings a n d i n v e s t m e n t . . . A g l o b a l f i n a n c i a l system comprised

o f nationally-designated

currencies signals

that

g l o b a l i s a t i o n c a n n o t be devoid o f a n a t i o n a l d i m e n s i o n . ' Cilobal Capital in the New Age

2.57

Every year U N C T A D provides a list o f the t o p 100 multinationals a n d their "transnationality i n d e x " — t h e p r o p o r t i o n o f their sales, assets a n d investments w h i c h are located outside their

"honu

country. These figures are sometimes said to s h o w h o w little multi nationals depend on a national base. But in fact they can be looked at another way. In 2003 the t o p 5 0 multinationals still relied o n then h o m e base for over h a l f their business. A n d the 2 0 w i t h the highest ratios o f foreign sales were mostly from small, o p e n economies sueh as C a n a d a , Australia a n d Switzerland, or are m e m b e r s o f the El such as F i n l a n d , France, the U K , G e r m a n y a n d Sweden w h o s e sales are oriented to close neighbours. N o n e o f the US m u l t i n a t i o n a l s fig ured in the list o f the most international global Average Transnationality

firms.20

of the world's largest transnational

corporations

(TNCs) 2003

Top 100 T N C s

55.8

Top 50 T N C s

47.8

Those based in United States

45.8

United Kingdom

69.2

Japan

42.8

France

59.5

Germany

49.0

Small European countries

72.2

The proliferation o f cross-border mergers did n o t m e a n t h a t they represented the only, or even the d o m i n a n t form o f restructuring. They c o u n t e d for o n l y a quarter o f all mergers 2 1 —and m a n y were unsuccessful.- A n d o n l y a small p o r t i o n o f global investment was across n a t i o n a l borders. T i m K o e c h l i n s h o w e d that a l t h o u g h the stock o f A m e r i c a n F D I h a d " g r o w n quite d r a m a t i c a l l y " , from " $ 3 2 billion in 1 9 6 0 t o $ 2 , 0 6 3 billion in 2 0 0 4 " , this represented " a rel atively small share o f all US i n v e s t m e n t " , w i t h the ratio o f foreign direct investment o u t f l o w s to all investment at o n l y 7.3 percent' . For m a n u f a c t u r i n g , the ratio w a s higher, at 2 0 . 7 p e r c e n t — " b u t was d o w n o n the figure o f 3 5 . 4 percent in 1 9 9 4 " . 2 4 H e concludes, "Although

the

investment

process

has

become

increasingly

' g l o b a l ' . . . capita I a c c u m u l a t i o n remains a n essentially national

phe

n o m e n o n " . 2 5 W h a t is m o r e , foreign direct investment figures gave an exaggerated impression o f the m o b i l i t y o f p r o d u c t i v e capacity. 260

The New Age of Global lnstabili(>

rather t h a n o f the o w n e r s h i p o f it. U N C T A D figures bore o u t a point R i c c a r d o Bellofiore m a d e at the e n d o f the 1990s. Foreign investment m o s t l y i n v o l v e d b u y i n g u p existing enterprises, n o t new ones, so that: F D I flow r s in m a n u f a c t u r i n g are d o m i n a t e d by m e r g e r s a n d a c q u i s i t i o n s . . . r a t h e r t h a n by the c r e a t i o n o f n e w c a p a c i t y : a n d a big s h a r e o f F D I is in n o n - p r o d u c t i v e , s p e c u l a t i v e a n d f i n a n c i a l ventures. 2 6 M o s t m u l t i n a t i o n a l s concentrated their investments in a particular advanced industrial c o u n t r y a n d its n e i g h b o u r s , a n d then relied o n the sheer scale o f investment, research a n d d e v e l o p m e n t , a n d production there to p r o v i d e a n a d v a n t a g e over all c o m p e t i t o r s . T h e foreign investment that did take place w a s n o t necessarily " g l o b a l " in its character. "SLxty-six percent of the o u t p u t o f U S foreign affiliates" w a s " s o l d l o c a l l y " , that is, w i t h i n the b o u n d a r i e s o f the particular c o u n t r y in w h i c h a particular affiliate w a s based. 2 " This w a s a trend w h i c h b r o k e w i t h the p r e d o m i n a n t l y n a t i o n a l basis o f p r o d u c t i o n w i t h o u t , however, t u r n i n g i n t o the g l o b a l production

stereotype.

A

multinational

c o u l d seek t o

overcome

obstacles t o e x p o r t i n g t o a p a r t i c u l a r c o u n t r y by establishing plants inside its b o r d e r s — i n a pattern w h i c h R u i g r o k a n d v a n lulder called glocalisation. 2 8 Even if it started o f f w i t h "screwdriver p l a n t s " devoted s i m p l y to assembling c o m p o n e n t s i m p o r t e d trom the m u l t i n a t i o n a l ' s h o m e c o u n t r y , it often ended u p t u r n i n g to local firms to p r o v i d e c o m p o n e n t s . T h e m u l t i n a t i o n a l g a i n e d because local firms effectively b e c a m e its satellites, s u p p l y i n g it with resources a n d fighting for its interests against its local o r regional c o m p e t i t o r s . It m i g h t even w e l c o m e protectionist measures by the state its subsidiary w a s in, since that w o u l d protect its sales there f r o m i n t e r n a t i o n a l c o m p e t i t o r s . G l o b a l i s a t i o n theorists failed t o recognise such d e v e l o p m e n t s . Vet they o f t e n tried t o bolster their o w n case by referring t o investments like those o f J a p a n e s e m o t o r c o m p a n i e s in the US a n d Britain w h i c h were precisely a l o n g these lines. Similarly, they stressed the "flexible p r o d u c t i o n " characteristic, for instance, o f part o f the Italian k n i t w e a r industry, a n d " j u s t in t i m e " production m e t h o d s pioneered

in J a p a n

as typical o f

globalisation,

a l t h o u g h , as M i c h a e l M a n n quite correctly n o t e d , b o t h i m p l i e d localised o r regional, rather t h a n g l o b a l , p r o d u c t i o n . 2 9 C i l o b a l Capital in the New Age

2.57

T h e " o u t s o u r c i n g " overseas by a d v a n c e d c o u n t r y firms o f pai ticular parts o f their p r o d u c t i o n processes b e c a m e a n i m p o r t a n t p h e n o m e n o n , but it w a s still a m u c h m o r e limited o n e t h a n wa widely believed. At the b e g i n n i n g o f the 2 0 0 0 s , i m p o r t e d " m a t e i ial i n p u t s " (including r a w materials) a c c o u n t e d for 17.3 percent »>i total US o u t p u t . ' 0 K o e c h l i n estimated t h a t " o u t s o u r c i n g " ;k c o u n t e d " f o r s o m e w h a t less t h a n 4.8 percent o f U S gross domesr u purchases a n d s o m e w h a t less t h a n 9 percent o f a p p a r e n t con s u m p t i o n o f m a n u f a c t u r e d g o o d s " . " A n o t h e r study s h o w e d thai the fall in " p a y r o l l e m p l o y m e n t in m a n u f a c t u r i n g " i n the earls 2 0 0 0 s h a d " n o t been caused by a flood o f i m p o r t s o f either goods or services" b u t was: p r i m a r i l y the result o f inadequate g r o w t h o f domestic d e m a n d in the presence of strong productivity g r o w t h . . . To the extent thai trade d i d cause a loss o f m a n u f a c t u r i n g jobs it was the weakness o f US exports after 2 0 0 0 a n d n o t i m p o r t s that w a s responsible.

T h e different configurations of global capital N o t o n l y d i d the p o p u l a r g l o b a l i s a t i o n a c c o u n t s overstate the degree o f m o b i l i t y o f c a p i t a l , they also p r o v i d e d a m u c h distorted view o f w h a t that m o b i l i t y involves. A l a n M R u g m a n p o i n t e d out that o f the big m u l t i n a t i o n a l s : Very few are " g l o b a l " firms, with a " g l o b a l " strategy, defined as the ability t o sell the same products a n d / o r services a r o u n d the w o r l d . Instead, nearly all the t o p 5 0 0 firms are regionally based in their h o m e region o f the " t r i a d " o f N o r t h A m e r i c a , the E l ) , or A s i a . . . " H a l f o f m o s t g l o b a l firms were still o p e r a t i n g m a i n l y in t h e n h o m e region m a r k e t at the b e g i n n i n g o f the 2 0 0 0 s — i n c l u d i n g V i v e n d i , Pernod R i c a r d , T h o m s o n C o r p o r a t i o n , Stora Enso A k z o N o b e l , V o l v o , A B B a n d Philips. O n l y six m u l t i n a t i o n a l s operated in a n y t h i n g like a b a l a n c e d w a y across at least three c o n t i n e n t s Nestle, H o l c i m , R o c h e , Unilever, D i a g e o , a n d British A m e r i c a n Tobacco. 1 4 M o s t

foreign-owned

firms o p e r a t i n g in

European

U n i o n c o u n t r i e s were based in other E U c o u n t r i e s , w h e r e the pre d o m i n a n t f o r m o f m u l t i n a t i o n a l o w n e r s h i p w a s " r e g i o n a l " , not 262

The New Age of Global lnstabili(>

tylobal, w i t h "US-controlled firms responsible for o n l y 4 . 5 percent o! E u r o p e a n v a l u e a d d e d " . 1 ' f

C h o r t a r e a s a n d Pelagidis c o n c l u d e d in 2 0 0 4 : The increase in i n t e r n a t i o n a l trade flows is p r e d o m i n a n t l y confined

w i t h i n the three developed t r a d e blocs o f the g l o b a l

e c o n o m y (the U S A , the E U , A s i a - J a p a n ) . A large p a r t o f the w o r l d c o n t i n u e s to be e x c l u d e d f r o m the t r a d e b o o m . T h e e m e r g i n g reality is m o r e a process o f d e e p e n i n g r e g i o n a l integration (regionalisation) o f p a r t i c u l a r groups/blocs of countries rather t h a n a g l o b a b i n c r e a s e in cross-border t r a d e flows a n d p r o d u c t i o n interdependence.'' I r a d e " , t h e y ^ i r g u e d , " h a s n o t c o m e ro be spread over a w i d e r range o f c o u n t r i e s , even c o m p a r e d w i t h the past. It is e n o u g h to recall that developed countries' i m p o r t s from d e v e l o p i n g countries are still o n l y a b o u t 2 percent o f the c o m b i n e d

GDP

of

the

D l C D " . " 7 T h e i r one exception w a s East A s i a , w h i c h w i l l h a v e g r o w n m o r e i m p o r t a n t after their research at the t u r n o f the cent u r y — b y 2 0 0 5 Chinese exports h a d e x p a n d e d to reach t o over 7 percent o f the g l o b a l total. Investment flows were similarly concentrated w i t h i n the " t r i a d " of N o r t h A m e r i c a , E u r o p e a n d J a p a n . In 2002-4 F D I flows i n t o the E u r o p e a n U n i o n averaged a b o u t $ 3 0 0 billion a year. T h e total lor the rest o f the w o r l d — t h e " d e v e l o p i n g c o u n t r i e s " — w a s o n l y S i 8 0 billion, of which China (including H o n g Kong) took t w o fifths, a n d Brazil a n d M e x i c o a fifth. S o m e 8 9 percent o f the cumulative stock o f F D I w o r l d w i d e in 2 0 0 4 w a s in the developed economies ( r o u g h l y the s a m e p r o p o r t i o n as in 1990), a n d t w o thirds o f t h a t w a s in Europe. 1 " T h e pattern w a s n o t o n e o f c a p i t a l f l o w i n g effortlessly over a h o m o g e n o u s w o r l d w i d e landscape. It w a s " l u m p y " , concentrated in s o m e countries a n d regions, in a w a y t h a t w a s n o t fully grasped by either the c r u d e g l o b a l i s a t i o n view, by interpretations

that

stressed regional blocs, o r by those w h o still spoke solely in terms of n a t i o n a l e c o n o m i e s . T h e e m p i r i c a l m a t e r i a l c o u l d be l o o k e d at in different w a y s — j u s t as a bottle c a n be seen as h a l f full or h a l f empty. B u t the reality o f c a p i t a l i s m w a s t h a t it c o u l d n o t be reduced t o any o n e o f these facets. D i f f e r e n t f i r m s o p e r a t e d at d i f f e r e n t levels. S o m e , rhe majority in s i m p l e n u m e r i c a l t e r m s , still o p e r a t e d w i t h i n Cilobal Capital in the New Age 2.57

national

e c o n o m i e s f r o m w h i c h they p u t o u t tentacles t o see w h a t tin \ c o u l d g a i n by b u y i n g a n d selling t o their n e i g h b o u r s . O t h e r s , s m a l l e r in n u m b e r but e n o r m o u s l y p o w e r f u l , i n c r e a s i n g l y opei ated o n a r e g i o n a l basis a n d reached o u r t o p i c k u p w h a t tin \ c o u l d elsewhere in the w o r l d . A n d a s m a l l m i n o r i t y s a w then f u t u r e in g e n u i n e l y g l o b a l t e r m s . A s c a p i t a l s w i t h each perspe*. tive b o u g h t a n d sold, m a n o e u v r e d to e x p a n d m a r k e t s , searched for c h e a p e r i n p u t s a n d f o r m o r e p r o f i t a b l e places f o r invest m e n t , they b o t h i n f l u e n c e d each o t h e r a n d t r i p p e d over each other. T h e o u t c o m e w a s n o t s o m e n e w m o d e l , b u t an ever shift i n g , k a l e i d o s c o p i c p a t t e r n w h i c h w a s u p s e t every t i m e it seemed a b o u t t o a t t a i n s o m e fixity. " A l l t h a t is s o l i d " d i d " m e l t i n t o a i r " as M a r x h a d put i t — b u t n o t in the w a y the c r u d e g l o b a l i sation

theory held. For c a p i t a l s old c o m p a n i o n ,

the

state,

entered i n t o the process at every p o i n t .

States a n d capitals in the era o f " g l o b a l i s a t i o n " A l l the a d v a n c e d capitalist states still m a i n t a i n historically very high levels o f state expenditure, only surpassed historically d u r i n g the t i m e o f total war. A n d a l t h o u g h business often c o m p l a i n s a b o u t the level o f t a x a t i o n , it never seriously suggests g o i n g back to the level o f expenditure o f a century a g o . T h e reason is t h a t cap itals today, far f r o m n o t n e e d i n g states, require t h e m as m u c h a s — i f n o t m o r e t h a n — e v e r before. T h e y need them first because the c o n t i n u e d c o n c e n t r a t i o n ol ¥

capitals in particular g e o g r a p h i c a l locations necessitates facilities t h a t are n o t a u t o m a t i c a l l y

provided

by the o p e r a t i o n

o f the

m a r k e t : police; judicial systems; a f r a m e w o r k t o l i m i t the d e f r a u d ing o f s o m e capitals by others; at least m i n i m a l regulation o f the credit system; the p r o v i s i o n o f a m o r e or less stable currency. A l o n g w i t h these they also need s o m e of the f u n c t i o n s fulfilled by the state d u r i n g the period ot the state-directed e c o n o m y : regula rion o f the l a b o u r m a r k e t ; e n s u r i n g the r e p r o d u c t i o n o f the next generation o f l a b o u r p o w e r ; the provision o f a n infrastructure for t r a n s p o r t , c o m m u n i c a t i o n s , water a n d p o w e r ; the s u p p l y o f mill tarv contracts. E v e n the b i g m u l t i n a t i o n a l s , w i t h h a l f o r m o r e of their p r o d u c t i o n a n d sales located a b r o a d , still rely for m u c h ot their basic profitability o n their o p e r a t i o n s in their h o m e base, a n d therefore o n w h a t a state can p r o v i d e for t h e m . 264

The New Age of Global lnstabili(>

A l o n g w i t h these f u n c t i o n s there is c o n t i n u e d m a s s i v e support by a n y state for its c a p i t a l s d o m e s t i c a c c u m u l a t i o n — a n d iIns w a s true l o n g before the m o s t recent t u r n t o K e y n e s i a n i s m . So rhe P e n t a g o n p l a y e d a key role in r e s u s c i t a t i n g the A m e r i c a n m i c r o c h i p i n d u s t r y i n t h e late 1 9 8 0 s by p u t t i n g pressure o n l i n n s t o m e r g e , t o invest a n d t o i n n o v a t e

— a n d received s t r o n g

industrial support: " I n today % s global e c o n o m y s o m e central vision is r e q u i r e d " . H a c k w o r t h o f Cirus Logic explained. " S o m e b o d y has ro have an industrial strategy for this c o u n t r y " , agreed LSI Logic's C o r n g a n . " I he result of t h a t strategy w a s t h a t by the end o f the 1990s the world's

top

(Japanese)

semiconductor

but ^ntel

company

(American),

with

was

no

longer

Motorola

and

NEC Texas

Instruments ( b o t h A m e r i c a n ) in t h i r d a n d fifth p o s i t i o n . T h e US state also m a n a g e d ro bring a b o u t a s i m i l a r r a t i o n a l i s a t i o n o f the US aerospace industry, c u l m i n a t i n g in the merger o f Boeing a n d M c D o n n e l l D o u g l a s i n t o a firm t h a t c o n t r o l l e d 6 0 percent o f global civil aircraft sales, a n d a t u r n o v e r in m i l i t a r y aircraft prod u c t i o n twice as great as the w h o l e o f the E u r o p e a n industry. A s the New tion"

York Times p u t it, " P r e s i d e n t Bill C l i n t o n ' s administra-

had

"largely

succeeded

in

turning

America's

military

contractors i n t o i n s t r u m e n t s o f m a k i n g rhe e c o n o m y m o r e competitive g l o b a l l y " . 4 1 T h e i n t e r n a t i o n a l i s a t i o n o f firms* o p e r a t i o n s , far f r o m l e a d i n g to less d e p e n d e n c e o n stare s u p p o r t , increases it in o n e very imp o r t a n t respect. They need p r o t e c t i o n for their g l o b a l interests. A w h o l e range o f things b e c o m e m o r e i m p o r t a n t t o t h e m t h a n in rhe early post-war decades: trade n e g o t i a t i o n s for access t o n e w markets;

exchange

rates

between

currencies;

the

allocation

of

contracts by foreign g o v e r n m e n t s ; protection a g a i n s t expropriation o f foreign assets; the defence o f intellectual property rights; enforcement o f foreign debt repayments. There is n o w o r l d state to u n d e r t a k e such tasks. A n d so the p o w e r o f a n y n a t i o n a l state t o force others t o respect the interests o f capitals based w i t h i n it has become m o r e i m p o r t a n t , n o t less. Floating exchange rates between m a j o r currencies m e a n that the capacity o f a government to influence rhe value o f its o w n currency can have a n e n o r m o u s effect o n the international competitiveness o f firms operating w i t h i n its boundaries. This was s h o w n , for instance. Cilobal Capital in the New Age

2.57

by the " P l a z a A c c o r d " o f

1985, w h e n the U S persuaded

tin

E u r o p e a n a n d Japanese governments t o cooperate w i t h it i n forcini u p the value of the yen against the dollar. In the aftermath sales «•! US firms internationally " g r e w at their fastest rate d u r i n g the post w a r period, shooting u p at an a n n u a l rate o f 10.6 percent between 1985 a n d 1990". 4 J It was s h o w n again w h e n the political decision of the government

b r o u g h t t o office in the a f t e r m a t h o f tin

Argentinian uprising o f December 2 0 0 1 to devalue the currency > l\ 75 percent gave a considerable boost to the industrial a n d agrarian capitals based in the country. 4 ' A c h a n g e in the e x c h a n g e rate alters the a m o u n t o f g l o b a l value w h i c h a firm o p e r a t i n g w i t h i n a n a t i o n a l e c o n o m y gets in return for the l a b o u r it has used in p r o d u c i n g c o m m o d i t i e s . As Dick Bryan has p u t it: T h e e x c h a n g e rate is a critical d e t e r m i n a n t o f the d i s t r i b u t i o n ol s u r p l u s value a m o n g s t c a p i t a l s . . .

Because nation-states are

deemed responsible for the g l o b a l c o m m e n s u r a b i l i t y o f " t h e i r " currency, g l o b a l i s a t i o n . . . i s n o t a b o u t e r a d i c a t i n g the n a t i o n a l d i m e n s i o n o f a c c u m u l a t i o n . I n d e e d , g l o b a l i s a t i o n is n o t even a b o u t the n a t i o n a l d i m e n s i o n " h a n g i n g o n " in a process o f slow d i s s o l u t i o n . G l o b a l a c c u m u l a t i o n is actually r e p r o d u c i n g tin n a t i o n a l d i m e n s i o n , albeit in w a y s different to past eras. 44 A g a i n the same centralitv o f states is s h o w n in i n t e r n a t i o n a l trade negotiations c o n d u c t e d t h r o u g h the W T O . They gather as the rep resentatives o f the c a p i t a l s clustered together w i t h i n their borders. D i f f e r e n t firms have different interests a n d will l o o k to the indi v i d u a I states over w h i c h they have influence t o achieve these. This is just as true o f firms w h o l o o k to establishing g l o b a l d o m i n a t i o n t h r o u g h free trade as o f those w i t h protectionist inclinations. All are d e p e n d e n t u p o n " t h e i r " state to persuade other states to let t h e m get their way. So the US state is a n essential w e a p o n for firms like M i c r o s o f t , G l a x o S m i t h K l e i n or M o n s a n t o in getting the enorm o u s royalty p a y m e n t s t h a t accrue f r o m w o r l d r e c o g n i t i o n ol their intellectual copyrights. Likewise the financial p o w e r it exer cises t h r o u g h the I M F a n d the W o r l d B a n k has safeguarded the foreign loans m a d e by A m e r i c a n b a n k s — a n d has helped US-based industrial c o r p o r a t i o n s gain f r o m the crises facing smaller states, as w h e n Ford a n d G e n e r a l M o t o r s g a i n e d c o n t r o l o f t w o o f the K o r e a n car c o m p a n i e s at the t i m e o f the A s i a n crisis. 43 266

I he New Age of Global Instability

Neither d o i n t e r n a t i o n a l mergers s h o w t h a t the i m p o r t a n c e o f states is declining. Parr o f their r a t i o n a l e is for a m u l t i n a t i o n a l t o he able t o extend its influence f r o m its h o m e state t o other states. I IS a n d J a p a n e s e firms invest in West E u r o p e a n c o u n t r i e s so as t o be able to " j u m p " n a t i o n a l b o u n d a r i e s a n d so influence the p o l i c y of these states a n d the E u r o p e a n C o m m u n i t y f r o m w i t h i n : hence the spectacle in the early 1990s o f US m u l t i n a t i o n a l s like Ford a n d (icneral M o t o r s l o b b y i n g E u r o p e a n g o v e r n m e n t s for measures t o restrict the i m p o r t o f J a p a n e s e cars; hence also rhe sight

of

lapanese car firms n e g o t i a t i n g for subsidies from t h e British state to set u p c a r assembly-plants. T h e g i a n t c o m p a n y docs n o t end its link w i t h the state, b u t rather multiplies the n u m b e r o f states—and n a t i o n a l capitalist n e t w o r k s — t o w h i c h it is linked. T h e c o n t i n u e d i m p o r t a n c e o f such c o n n e c t i o n s is s h o w n m o s t vividly d u r i n g financial a n d e c o n o m i c crises. For states a l o n e can marshal the resources to stop a g i a n t firm or b a n k g o i n g b u s t — a n d pulling d o w n w i t h it w h o l e industrial or financial complexes. T h e history o f such crises since the earlv 1970s has been a historv o f states b a i l i n g o u t stricken c o r p o r a t i o n s or p u t t i n g pressure o n some firms for " l i f e b o a t o p e r a t i o n s " ro keep others afloat. Because i he p e r i o d o f g l o b a l i s a t i o n has been o n e o f m u c h greater crises t h a n the post-war decades, the reliance o f c o r p o r a t i o n s o n governments for such rescues has been m u c h greater. As w e will see in the next chapter, the t r a n s f o r m a t i o n o f the credit c r u n c h o f 2 0 0 " into the great b a n k i n g crash o f 2 0 0 8 s h o w e d h o w great t h a t reliance h a d become. T h e o v e r a l l c o n c l u s i o n has t o be t h a t c o r p o r a t i o n s , w h e t h e r m u l t i n a t i o n a l o r other, d o n o t regard a state w h i c h w i l l d e f e n d i heir interests as s o m e a f t e r t h o u g h t based o n n o s t a l g i a for the past, bur a n urgent necessity f l o w i n g f r o m their present d a y competitive s i t u a t i o n . T h e successor t o the state c a p i t a l i s m o f the m i d - 2 0 t h century has n o t been s o m e non-state c a p i t a l i s m b u t rather a system in w h i c h c a p i t a l s rely o n " t h e i r " state as m u c h as ever, b u t try t o spread o u t b e y o n d it t o f o r m links w i t h capitals tied t o other states. In the process, the system as a w h o l e has b e c o m e m o r e chaotic. It is n o t as if i n d i v i d u a l firms have s i m p l e d e m a n d s t h a t they merely p u t o n i n d i v i d u a l stares. As a firm operates internationally,

one

of

its d i v i s i o n s

can

establish

relations

with

a

particular state a n d its associated c o m p l e x o f capitals, even w h i l e other divisions o f the s a m e firm can be establishing other relations Cilobal Capital in the New Age

2.57

w i t h other states a n d their c o m p l e x e s o f c a p i t a l . A n d particulai state appararuses can lose a l o t o f c o h e s i o n as their parts tr\ c o p e w i t h the d e m a n d s o f different, c o m p e t i n g capitals. T h e global a g e n d a , the regional a g e n d a , the n a t i o n a l a g e n d a a n d , i n the cases o f the larger states, the sub-national a g e n d a (of particular localised geographical complexes o f capital) clash w i t h each other, p r o d u c i n g f r i c t i o n s — o n occasions deep s c h i s m s — w i t h i n the n a t i o n a l political-economic structure. T h i s w a s w h a t occurred d u r i n g the very l o n g crisis inside Britain's t r a d i t i o n a l r u l i n g class party, tin Tories, t h r o u g h the 1990s a n d early 2 0 0 0 s : its feuds reflected .1 clash between those w h o s a w British capitalism's future as tied to the US a n d those w h o saw it as d e p e n d e n t o n integration i n i o E u r o p e (a clash w h i c h itself reflected British capitalism's position h a v i n g the m a j o r i t y o f its t r a d e w i t h E u r o p e , but h a l f its overseas investment in the US). Those w h o see the n a t i o n a l states as archaic hangovers f r o m tin past often speak of the emergence o f a n " i n t e r n a t i o n a l capitalisi class" w h i c h will have as its correlate an " i n t e r n a t i o n a l capitalist state". 4 * They fail to take seriously M a r x ' s p o i n t t h a t once " i t is n o longer a question o f s h a r i n g profits, b u t o f sharing losses...practi cal b r o t h e r h o o d o f the capitalist c l a s s . . . t r a n s f o r m s itself i n t o a fight o f hostile b r o t h e r s " , the o u t c o m e o f w h i c h is " d e c i d e d by p o w e r a n d craftiness". 4 " A n d w h e n it c o m e s t o the use o f power, the n a t i o n a l state is a n i n s t r u m e n t ready t o h a n d . Interstate con ¥

flict, t o a lesser or greater degree, is a n inevitable o u t c o m e once e c o n o m i c c o m p e t i t i o n becomes a matter o f life a n d death for giant c o r p o r a t i o n s . This is just as true t o d a y as in the t i m e o f Lenin a n d B u k h a r i n , even if the interconnectedness o f n a t i o n a l , regional and g l o b a l circuits o f capital a c c u m u l a t i o n impacts o n h o w the instru m e n t is used. Such a p p l i c a t i o n s o f pressure by states o n other states still re quires the d e p l o y m e n t o f large " b o d i e s o f a r m e d m e n " , backed u p by p r o d i g i o u s e x p e n d i t u r e o n military h a r d w a r e — a l o n g s i d e such " n o n - v i o l e n t " m e t h o d s as e c o n o m i c a i d , trade embargoes, offers ot privileged t r a d i n g relationships a n d c r u d e bribery. M u c h of the time the role can be passive rather t h a n active. T h e force that sus tains a certain level o f influence does n o t need to be used so long as n o o n e dares t o challenge i t — a s w i t h

the M u t u a l l y

Assured

Destruction between the U S S R a n d the LIS w h i c h prevented either m o v i n g i n t o the other's E u r o p e a n spheres o f influence d u r i n g the C o l d War. A g a i n force c a n play an indirect rather t h a n a direct role 268

The New Age of Global lnstabili(>

.is w i t h the implicit US threat t o the W e s t E u r o p e a n p o w e r s a n d lapan not to help them militarily d u r i n g t h e C o l d W a r years unless i hey acceded to US objectives. But the violence o f the state remained a vital b a c k g r o u n d factor in such cases. I n this lies the c o n t i n u i t y w i t h the i m p e r i a l i s m analysed by L e n i n a n d B u k h a r i n . Even t o d a y the rulers o f Russia, C h i n a , I n d i a , Pakistan a n d N o r t h K o r e a — a n d for that m a t t e r Britain, France a n d the U S — s e e possession o f nuclear w e a p o n s as the u l t i m a t e defence against enemies. The interaction between the great p o w e r s is n o t the peaceful concert o f n a t i o n s d r e a m t o f by certain apostles o f neoliberalism and free trade. There are c o n t r a d i c t o r y interests, w j t h m i I i tar)' lorce a w e a p o n o f last resort f o r d e a l i n g w i t h t h e m . But there is still a difference w i t h the first f o u r decades o f rhe 2 0 t h century. I hese c u l m i n a t e d in w a r s w h i c h r a v a g e d the h e a r t l a n d s o f the great p o w e r s . Tensions since 1945 have led to massive a c c u m u l a tions o f a r m s that c o u l d p o t e n t i a l l y be unleashed against the heartlands. But h o t w a r s h a v e been f o u g h t outside t h e m , usually tn the T h i r d W o r l d . O n e reason for this has been the " d e t e r r e n t " effect, the fear that w a g i n g w a r o n a n u c l e a r p o w e r w i l l lead t o d e s t r u c t i o n o f the w h o l e d o m e s t i c e c o n o m y as well as m o s t o f its people. A n o t h e r has been the very i n t e r p e n e t r a t i o n o f the a d v a n c e d

capitalist

economies t h a t puts pressure o n states ro exercise p o w e r outside their o w n b o u n d a r i e s . F e w capitalists w a n t their n a t i o n a l srate t o destroy h u g e c h u n k s o f their property in other stares—and m o s t of it will be in other a d v a n c e d capitalist countries. T h i s does n o t rule o u t w a r completely. T h e capitalist e c o n o m y was h i g h l y i n t e r n a t i o n a l i s e d in 1914, b u t this did n o t prevent allo u t war. A g a i n , in 1 9 4 1 , the presence o f F o r d factories

and

( oca-Cola outlets in G e r m a n y d i d nor s t o p a LIS d e c l a r a t i o n o f w a r after Pearl H a r b o r . But it does p r o v i d e t h e m w i t h a n incentive t o a v o i d such conflicts if they c a n — a n d

t o settle

their

differences in less i n d u s t r i a l i s e d parts o f the w o r l d . H e n c e the years since 1945 h a v e been m a r k e d b y w a r after war, b u t a w a y from Western E u r o p e , N o r t h A m e r i c a a n d J a p a n . A n d o f t e n the wars h a v e been " p r o x y w a r s " i n v o l v i n g local regimes t o a greater or lesser extent b e h o l d e n t o , b u t n o t c o m p l e t e l y d e p e n d e n t o n , particular great p o w e r s . T h i s w a s the logic w h i c h led rhe US in rhe 1980s t o give tacit s u p p o r t t o Iraq in its long w a r against Iran a n d to p r o v i d e m o d e r n w e a p o n r y t o rhe M u j a h a d i n Cilobal Capital in the New Age

fighting

the R u s s i a n o c c u p a t i o n o f 2.57

A f g h a n i s t a n . A similar logic w o r k e d itself o u t in the Balkans in the 1990s, w h e n Austria's a t t e m p t t o gain f r o m S l o v e n i a n indepen dence from Yugoslavia led t o G e r m a n y e n c o u r a g i n g

Croatian

independence and then the US Bosnian independence, even t h o u g h the result w a s b o u n d to be bitter ethnic conflict. T h e w o r s t suffering f r o m p r o x y w a r s has p r o b a b l y been in Africa. D u r i n g the last decade a n d a h a l f o f the C o l d W a r the I l s a n d the U S S R backed rival sides in w a r s a n d civil w a r s as part ol their attempts t o gain a strategic a d v a n t a g e over each other. In the 1990s the US and F r a n c e vied for i n f l u e n c e in C e n t r a l Africa They backed rival sides i n the w a r c u m civil w a r t h a t b r o k e out in the b o r d e r regions o f T a n z a n i a , R w a n d a , B u r u n d i a n d C o n g o Z a i r e . They helped set in m o t i o n a c a t a s t r o p h e resulting overall in 3 or 4 m i l l i o n dead. I n such situations freelance armies emerged w h o s e c o m m a n d e r s e m u l a t e d the great i m p e r i a l p o w e r s o n a small scale by w a g i n g w a r in order to enrich themselves, a n d en r i c h i n g themselves in o r d e r further t o w a g e war.

Imperialism

m e a n t e n c o u r a g e m e n t t o local rulers t o engage in the bloodiest ol w a r s a n d civil w a r s — a n d t h e n o c c a s i o n a l l y the s e n d i n g in ol Western t r o o p s t o enforce " p e a c e k e e p i n g "

w h e n the disordei

reached such a scale as t o threaten t o d a m a g e Western interests. C o n t r a d i c t i o n s w h i c h arise f r o m the inter-imperialist

antago-

n i s m s o f the a d v a n c e d c a p i t a l i s t states in this w a y w r e a k their w o r s t h a v o c in the p o o r e r parts o f the w o r l d .

F r o m the n e w period o f crisis t o the new i m p e r i a l i s m T h e pattern o f the o l d i m p e r i a l i s m w a s o n e o f c o a l i t i o n s o f states w i t h c o m p a r a b l e levels o f e c o n o m i c a n d / o r m i l i t a r y capacity con f r o n t i n g each other. Today there is great unevenness even between the biggest states w h e n it c o m e s t o their c a p a c i t y to a d v a n c e the interests o f their domestically based capitals. A t the t o p o f the hi erarchy is the state w h i c h has the greatest capacity for getting its way, the US. A t the b o t t o m are very w e a k stares, h o p i n g to be able t o beg favours o f f those a b o v e t h e m . T h e states in the m i d d l e a I ternatively s q u a b b l e w i t h each o t h e r over their p o s i t i o n in the global pecking order a n d f o r m a d hoc alliances in the h o p e o f fore i n g concessions f r o m those a b o v e t h e m . This c a n n o t be a stable hierarchy. T h e unevenness in rates of econ o m i c g r o w t h (or sometimes c o n t r a c t i o n ) in a period of recurrent 270

The New Age of Global lnstabili(>

i rises m e a n s t h a t rhe b a l a n c e o f forces bervveen rhe different states is a l w a y s c h a n g i n g , l e a d i n g t o rival d i s p l a y s o t m i g h t between t h o s e w h o w a n t ro a d v a n c e u p the h i e r a r c h y a n d t h o s e w h o w a n t t o keep t h e m in their place. W e a k states get e n t a n g l e d m c o n f l i c t s w i t h n e i g h b o u r s w h i c h d r a w i n p o w e r f u l states t o w h i c h they are a l l i e d , w h i l e p o w e r f u l stares see e x e m p l a r y interventions in w e a k " r o g u e " states as a w a y o f g a i n i n g a d v a n t a g e over o t h e r strong states. The greatest source o f instability has c o m e f r o m the a t t e m p t s o f the US t o p e r m a n e n t l y cement its p o s i t i o n at the f r o n t o f the g l o b a l pecking order. This seemed unassailable ar the e n d o f the Second W o r l d War. But in the decades t h a t f o l l o w e d the US feared successive challenges f r o m other states w h i c h were g r o w i n g m u c h m o r e rapidly t h a n it w a s . Russia w a s seen as an e c o n o m i c (as well as military) t h A a t i n the 1950s, h o w e v e r a b s u r d t h a t m i g h t seem today, J a p a n in the 1980s, a n d m o r e recently C h i n a . T h e determination o f the US state n o t t o risk losing its p o s i t i o n e x p l a i n s its massive levels o f a r m s e x p e n d i t u r e a n d the w a r s it has waged in the G l o b a l S o u t h . T h e scale o f the p r o b l e m s it faced first b e g a n to hit h o m e i n the late 1960s w h e n the US r u l i n g class f o u n d it c o u l d n o t a f f o r d the escalating cost o f trying t o achieve all-out victory in V i e t n a m . I he history o f U S c a p i t a l i s m since has been very m u c h a h i s t o r y of its a t t e m p t s to restore its o l d p o s i t i o n , a m i d a w o r l d m a r k e d by repeated e c o n o m i c crises a n d generally d e c l i n i n g rates o f acc u m u l a t i o n . Irs a t t e m p t s h a v e i n v o l v e d a l t e r n a t i n g phases o f r e d u c i n g a r m s s p e n d i n g as a p r o p o r t i o n o f t o t a l o u t p u t in a n effort t o ease e c o n o m i c d i f f i c u l t i e s ( f r o m the late 1 9 6 0 s t o rhe late 1 9 7 0 s , a n d f r o m the late 1980s t o 2 0 0 0 ) , a n d o f increasing it in the belief t h a t this c o u l d b o o s t U S g l o b a l p o w e r a n d the performance

of

particular

US

corporations

(in

the

early

and

m i d - 1 9 8 0 s a n d 2000-8). In all the phases the US state m a d e s o m e gains f o r the c a p i t a l s based in it. I n n o n e o f t h e m w e r e the g a i n s sufficient fully t o offset its long-term relative decline. T h e collapse o f the m i l i t a r y challenge f r o m the U S S R a n d the e c o n o m i c challenge f r o m J a p a n m i g h t h a v e been expected t o restore the confidence o f the US ruling class in its g l o b a l p o w e r in the 1990s. Bur its strategists h a d worries a b o u t the future. They reasoned t h a t w i t h o u t rhe fear o f the U S S R t o keep them in line, the I u r o p e a n p o w e r s were m o r e likely to resist US d e m a n d s t h a n in the p a s t — a s w a s s h o w n by very h a r d b a r g a i n i n g at W o r l d Trade Cilobal Capital in the New Age

2.57

O r g a n i s a t i o n sessions. A n d in the East, C h i n e s e g r o w t h w a s n p l a c i n g the older challenge f r o m J a p a n . W r i t i n g in 1994, H e m s Kissinger expressed his unease: T h e U S is actually in n o better p o s i t i o n t o dictate the g l o b a l a g e n d a unilaterally t h a n it w a s at the b e g i n n i n g o f the C o l d W a r . . . T h e United States will face e c o n o m i c c o m p e t i t i o n ol .1 k i n d it never experienced d u r i n g the C o l d W a r . . . C h i n a is o n the r o a d to s u p e r p o w e r status... C h i n a s G N P w i l l a p p r o a c h that o f the US by the end o f the second decade o f the 21st cen tury. L o n g before t h a t C h i n a ' s s h a d o w will fall over Asia.4*1 W h a t is more, a quarter o f a century o f g r o w i n g inrernationalisa rion o f

finance, investment,

trade a n d

production

made

I S

capitalism vulnerable to events beyond its borders. Its great mulri n a t i o n a l c o r p o r a t i o n s needed s o m e policy w h i c h w o u l d enable the m i g h t o f the US state to exercise c o n t r o l over such events. Alreadv t o w a r d s the end o f the C l i n t o n A d m i n i s t r a t i o n there were moves t o w a r d s a m o r e aggressive foreign policy designed to achieve this, w i t h the push to e x p a n d N A T O i n t o Eastern E u r o p e , b u t this did n o t g o far e n o u g h for a g r o u p o f R e p u b l i c a n politicians, business men a n d a c a d e m i c s — t h e i n f a m o u s neoconservativc "Project for a N e w A m e r i c a n C e n t u r y " formed in the late 1990s. Their starring p o i n t was the insistence that the w a y to stop " a decline in American p o w e r " w a s a return to a " R e a g a n i t e " policy based o n large in creases in defence s p e n d i n g , the b u i l d i n g o f a missile defence system, a n d action to deal w i t h " t h r e a t s " f r o m " d i c t a t o r s h i p s " in C h i n a , Serbia, Iraq, Iran a n d N o r t h Korea. 4 " " H a v i n g led the West to victory in the C o l d War, A m e r i c a faces a n o p p o r t u n i t y a n d a challenge. W e are in d a n g e r o f s q u a n d e r i n g the o p p o r t u n i t y a n d failing the challenge".'" T h e R e p u b l i c a n electoral victory o f 2 0 0 0 a n d then the n a t i o n a l p a n i c caused by the 9/1 1 destruction o f the W o r l d Trade Centre gave t h e m a chance t o i m p l e m e n t their policy. It a m o u n t e d in practice t o further b u i l d i n g u p the military m i g h t o f the U S — a n d t h e n using it t o assert US g l o b a l d o m i n a n c e against all c o m e r s . Increased a r m s s p e n d i n g a n d massive tax cuts for the rich were m e a n t t o p u l l the US o u t o f recession, just as the "military Keynesianism"

of Reagan

h a d t w o decades before.

Increased a r m s s p e n d i n g w o u l d lead t o recovery f r o m recession, t o f u r t h e r m i l i t a r y h a n d o u t s t o f i n a n c e t e c h n i c a l a d v a n c e s for 272

The New Age of Global lnstabili(>

computer, s o f t w a r e o r a v i a t i o n c o r p o r a t i o n s , a n d ro an increased capacity t o d i c t a t e p o l i c i e s to o t h e r r u l i n g c l a s s e s — a n d all p a i d lor by even bigger investment flows i n t o t h e US as it d e m o n s t r a t e d us o v e r r i d i n g power. T h e a i m w a s for the US to m o r e t h a n compensate for l o s i n g its o l d lead i n m a r k e t c o m p e t i t i o n by u s i n g the one t h i n g it has that the other p o w e r s d o n o t — o v e r w h e l m i n g military m i g h t . It was a n u p d a t e d version o f the logic o f i m p e r i a l i s m as described b y B u k h a r i n in the early J 9 2 0 s , w i t h the difference that the rival capitalist states w e r e n o t g o i n g ro be forced i n t o subservience by w a r s directly a g a i n s t t h e m , b u t by rhe d i s p l a y o f the I 'S's c a p a c i t y t o wield g l o b a l p o w e r t h r o u g h w a r s it a n d its client states w a g e d in rhe G l o b a l S o u t h . H e n c e the attack o n A f g h a n i s t a n a n d t h e n , 18 m o n t h s later, o n Iraq. T h e " n e o c o n s " believed they h a d a perfect o p p o r t u n i t y to d e m o n s t r a t e tfte sheer level o f U S m i l i t a r y p o w e r and t o increase c o n t r o l over the w o r l d s n u m b e r o n e r a w m a t e r i a l , o i l . T h i s w o u l d w e a k e n the b a r g a i n i n g p o w e r o f rhe W e s t E u r o p e a n states, |apan a n d C h i n a , since they w o u l d be at least p a r t i a l l y d e p e n d e n t on the US f o r their supplies. T h e a s s u m p t i o n w a s t h a t the w a r s w o u l d be w o n by little m o r e t h a n a d i s p l a y o f US a i r p o w e r at very little cost. T h i s seemed a viable w a y for a c h i e v i n g shared goals t o those w h o ran US-based c o r p o r a t i o n s , a n d the D e m o c r a t s in Congress voted for war. It w a s a g a m b l e a n d by the s p r i n g o f 2 0 0 4 it w a s clear t h a t the g a m b l e w a s g o i n g seriously w r o n g . T h e U S h a d taken c o n t r o l o f K a b u l a n d B a g h d a d easily e n o u g h . Bur its forces o n the g r o u n d were n o t able t o prevent rhe g r o w t h o f resistance in I r a q — a n d o f g r o w i n g I r a n i a n influence there. W i t h i n a n o t h e r t w o years it also laced serious resistance f r o m a resurgent T a l i b a n in A f g h a n i s t a n . The turn t o military Keynesianism seemed at first t o be successful in e c o n o m i c terms. There was a n unexpectedly quick recovery f r o m the recession o f 2001-2: " O f f i c i a l military expenditures for 20012005

averaged

42

percent

investment'" a n d "official

of

gross

figures...excluded

non-residential

private

m u c h that should be in-

cluded in military s p e n d i n g V 1 All this provided markets, in the short term, for sections o f US industry. But the high levels of military expenditure soon showed the s a m e negative effects they h a d s h o w n at the rime o f the V i e t n a m W a r a n d under the Reagan administrations. They increased e c o n o m i c d e m a n d w i t h o u t increasing overall international competitiveness a n d so caused b a l l o o n i n g trade as well as budget deficits. By 2 0 0 6 the c o m b i n a t i o n o f escalating military Cilobal Capital in the New Age

2.57

costs a n d the risk o f defeat in Iraq w a s w o r r y i n g i m p o r t a n t sections o f the ruling class. A 2 0 0 6 report from the Iraq Study G r o u p , headed

by

Republican

Party

heavyweight

James

Baker

and

D e m o c r a t i c Party heavyweight Lee H a m i l t o n , b e m o a n e d the loss ol " b l o o d a n d treasure" w i t h an estimate o f the costs to US capitalism o f the Iraq venture o f a massive £ 1 , 0 0 0 billion (equal to seven m o n t h s o u t p u t from the British economy). 4 2 Meanwhile

other

states—and

the capitals

operating

from

t h e m — w e r e able t o take a d v a n t a g e o f the US's perceived weakness to

advance

their

own

positions.

The

most

important

West

E u r o p e a n states, France a n d G e r m a n y , h a d refused to back the 2 0 0 3 I r a q War, u n l i k e the first Iraq W a r o f 1991. T h e French stale in p a r t i c u l a r saw a w e a k e n i n g o f US influence in the M i d d l e Fast as an o p p o r t u n i t y t o a d v a n c e the interests o f French capital in w gions where its interests clashed w i t h the US's. C h i n a w a s able to benefit f r o m the US e n t a n g l e m e n t in I r a q a n d A f g h a n i s t a n i«» expand

its o w n

influence,

particularly

in

Africa

and

Latin

A m e r i c a . This went h a n d in h a n d w i t h g r o w i n g trade links, as n looked to mineral imports from Africa and agricultural imports f r o m Brazil, A r g e n t i n a a n d C h i l e . S o o n Russia t o o wras flexing it rather w e a k e r muscles, as increased oil revenue a l l o w e d it t o r< cover f r o m the e c o n o m i c collapse o f the previous decades a n d to exert pressure o n s o m e o f the other f o r m e r Soviet republics; Iran rook a d v a n t a g e o f the US's setbacks t o increase its leverage i n Iraq a n d L e b a n o n ; the B R 1 C S f o r m e d a n a d h o c alliance to a d v a n c e their c o m m o n trade interests in o p p o s i t i o n t o b o t h the US a n d the F U , so p a r a l y s i n g the D o h a r o u n d o f trade n e g o t i a t i o n s f r o m w h i c h US c o r p o r a t i o n s h a d h o p e d to get even easier access to for eign markets. T h e US discovered t h a t w h e n three o f its client states l a u n c h e d wars for objects it s u p p o r t e d — I s r a e l

in L e b a n o n

in

2 0 0 6 , E t h i o p i a in S o m a l i a in 2 0 0 7 , G e o r g i a a g a i n s t Ossetia m 2 0 0 8 — i t w a s n o t in a situation to stop t h e m facing defeat. C o m m e n t a t o r s w h o h a d n o t l o n g before insisted t h e collapse o f the U S S R h a d created a " u n i p o l a r w o r l d " w i t h o n e super p o w e r were b e g i n n i n g t o talk a b o u t " m u l t i p o l a r i t y " , w i t h the U s o n l y a b l e t o get its w a y by m a k i n g concessions t o o t h e r p o w e r s S o m e t h o u g h t this m e a n t a m o r e peaceable w o r l d . But the m u l t i p o l a r i t y is a w o r l d o f states a n d their associated c a p i t a l s w h i c h h a v e d i f f e r e n t interests a n d are o u t t o i m p o s e t h e m o n the others w h e n they get the c h a n c e . It is the m u l t i p o l a r i t y in w h i c h o l d i m perialist i m p e r a t i v e s are s t r e n g t h e n e d just as it b e c o m e s m o r i 273 I

he New Age of Global Instability

ifficult f o r t h e m t o be successful. It is a w o r l d , in s h o r t , beset by .1 m u l t i t u d e o f c o n t r a d i c t o r y pressures a n d c o m p e l l e d , therefore, ro experience o n e c o n v u l s i v e p o l i t i c a l crisis after a n o t h e r . T h i s •came clear w h e n rhe great e c o n o m i c d e l u s i o n gave w a y t o a great e c o n o m i c crisis.

2.57 Cilobal Capital in the New Age

The New Ape of Global Instabilirv

• 11 AFTER ELEVEN

Financialisation and the bubbles that burst

( rcdit c r u n c h e d I he m o o d w a s one o f " e x u b e r a n t optimism*', as the w o r l d business elite gathered in the Swiss resort o f D a v o s in J a n u a r y 2 0 0 7 to "enjoy"

what

the

Financial

Times

called

"the

opportunities

b r o u g h t a b o u t by g l o b a l i s a t i o n , n e w technologies a n d a w o r l d e c o n o m y t h a t is e x p a n d i n g a t its fastest pace for decades". 1 T h e i n o o d w a s rather different at their next gathering i n J a n u a r y 2 0 0 8 . I here w a s " g r i m d e t e r m i n a t i o n " 2 — g r i m because the g l o b a l financial system h a d begun to g r i n d to a halt w i t h a "credit c r u n c h " ; d e t e r m i n a t i o n because the "real e c o n o m y " w a s still e x p a n d i n g ,ind it seemed t h a t a p p r o p r i a t e g o v e r n m e n t a c t i o n w o u l d get the banks l e n d i n g a g a i n . G o v e r n m e n t s t o o k a c t i o n in the m o n t h s t h a t f o l l o w e d . J a n u a r y central b a n k s slashed interest rates. In February British g o v e r n m e n t n a t i o n a l i s e d the m o r t g a g e b a n k

In the

Northern

R o c k ; in M a r c h the US Federal Reserve p r o v i d e d $ 3 0 billion for J V M o r g a n C h a s e t o take over the failing Bear Stearns b a n k ; in April a n d M a y central b a n k s o n b o t h sides o f the A t l a n t i c provided h u n d r e d s o f billions t o the b a n k s t o keep them g o i n g , a n d in J u l y they p r o v i d e d h u n d r e d s o f billions m o r e ; early in September the US g o v e r n m e n t t o o k over the g i a n t m o r t g a g e lenders F a n n i e M a e a n d Freddy M a c in w h a t the f o r m e r g o v e r n m e n t adviser N o u n e l R o u b i n i described as " t h e biggest n a t i o n a l i s a t i o n h u m a n ity has ever k n o w n " . ' It w a s all t o n o avail. T h e collapse o f o n e o f the pillars o f the US's financial system, the investment b a n k L e h m a n Brothers, o n 15 September caused w T hat w a s generally called a

"financial

t s u n a m i " . Bank after b a n k in c o u n t r y after c o u n t r y c a m e close to 277

collapse a n d h a d to he rescued by g o v e r n m e n t bail-outs that cost f u r t h e r hundreds of billions a n d often involved partial n a t i o n a h s a t i o n . T h e credit crunch h a d become the m o s t serious financial crisis rhe g l o b a l system h a d k n o w n since rhe s l u m p o f the 1930s Bv e n d o f the year it w a s clear to everyone that it w a s m o r e than just a financial crisis. Tens o f t h o u s a n d s o f jobs were b e i n g lost every day in all rhe m a j o r e c o n o m i e s ; w o r l d trade w a s falling at an a n n u a l i s e d rate o f 4 0 percent, a n d rhe I M F w a s p r e d i c t i n g "tinsharpest recession since the Second W o r l d W a r for the rich c o u n tries"."' But it w a s not o n l y the rich countries w h i c h were affected S o u t h K o r e a , M a l a y s i a , T h a i l a n d a n d S i n g a p o r e suffered sharp e c o n o m i c c o n t r a c t i o n ; 2 0 m i l l i o n Chinese w o r k e r s lost their jobs as its exports fell a n d its real estate b u b b l e collapsed; Russian m m isters began t o fear a n e w crisis; B r a z i l s industrial o u t p u t started falling; the e c o n o m i c recovery o f Eastern E u r o p e c a m e ro a sudden h a l t as m i l l i o n s of people f o u n d they c o u l d n o t keep u p w i t h then m o r t g a g e p a y m e n t s to West E u r o p e a n b a n k s . A t D a v o s in January 2 0 0 9 there were "ever m o r e d o o m - l a d e n prognoses V

T h e rise o f

finance

T h e crisis f o l l o w e d a q u a r t e r o f a c e n t u r y in w h i c h

finance

had

g r o w n o n a massive scale t o play an u n p r e c e d e n t e d role in the system. T h e stock m a r k e t v a l u a t i o n o f US financial c o m p a n i e s was 2 9 percent of rhe value o f non-financials in 2 0 0 4 , a f o u r f o l d in crease

over

the

previous

25

years; 6

the

ratio

of

financial

c o r p o r a t i o n s ' to non-financial corporations* profits h a d risen from a b o u t 6 percent in the early 1950s t h r o u g h the early 1960s t<» a r o u n d 2 6 percent in 2 0 0 I f g l o b a l

financial

assets were equal to

3 1 6 percent o f a n n u a l w o r l d o u t p u t in 2 0 0 5 , as against o n l y 10c> percent in 1980;* h o u s e h o l d d e b t in the US w a s 127 percent ol total personal i n c o m e in 2 0 0 6 as against o n l y 3 6 percent in 1952. a r o u n d 6 0 percent in the late 1960s a n d 100 percent in 2 0 0 0 . ° T h e g r o w i n g role o f

finance

h a d its i m p a c t t h r o u g h o u t

the

g l o b a l e c o n o m y . Every u p t u r n in the recession-boom cycle afrer the early 1980s w a s a c c o m p a n i e d by financial s p e c u l a t i o n , caus i n g massive rises in the US a n d

British stock m a r k e t s in tin

m i d - 1 9 8 0 s a n d m i d - 1 9 9 0 s , the h u g e u p s u r g e o f J a p a n e s e share a n d real estate prices in the late 1 9 8 0 s , the d o t c o m b o o m o f the late 1990s, a n d the h o u s i n g b o o m s in the US a n d m u c h of E u r o p e 278

The New Age of Global lnstabili(>

111 the early a n d m i d - 2 0 0 0 s . A l o n g w i t h these w e n t successive ^ ives o f takeovers a n d mergers o f g i a n t c o m p a n i e s ,

financed

hv

v iedit, f r o m the b u y o u t s o f firms like R B S N a b i s c o in the late 1980s t h r o u g h to the w a v e o f takeovers o f old-established c o m p a nies by private equity f u n d s in the m i d - 2 0 0 0 s . M e a n w h i l e general levels of indebtedness tended t o g r o w for governments, non-financial c o r p o r a t i o n s a n d c o n s u m e r s alike, as h a n k l e n d i n g rose m u c h m o r e r a p i d l y in m o s t parts o f the w o r l d e c o n o m y t h a n d i d p r o d u c t i v e o u t p u t . It d o u b l e d in the US a n d trebled in J a p a n in the 1980s; the U S b o o m o f the mid-90s w a s a c c o m p a n i e d by a n e x t r a o r d i n a r i l y high level o f b o r r o w i n g by firms a n d c o n s u m e r s ; the h o u s i n g a n d p r o p e r t y b o o m s o f the mid'.000s were similarly sustained by massive b o r r o w i n g in the US, Britain, Spain a n d Ireland. T h e i m p a c t o f ^ n a n c e o n the less industrialised countries w a s already very m a r k e d by the 1980s. T h e loans of the late 19~0s h a d created a never e n d i n g dependence o n further b o r r o w i n g from financial i n s t i t u t i o n s in o r d e r t o keep servicing existing d e b t . By

2003 the total external debt o f sub-Saharan Africa stood at $ 2 1 3 . 4 billion, t h a t o f L a t i n A m e r i c a a n d the C a r i b b e a n at $ 7 7 9 . 6 b i l l i o n , and o f the S o u t h as a w h o l e at $ 2 , 5 0 0 billion. 1 0 O v e r a l l the role played by finance w i t h i n the system w a s m u c h greater t h a n in either the depression years o f the 1930s or the b o o m years o f the early post-war decades. In those decades the hanks h a d certainly n o t played the central role M i l f e r d i n g h a d asi n b e d t o them at the b e g i n n i n g o f the century w i t h his concept o f "finance c a p i t a l i s m " (see C h a p t e r F o u r ) . In the US the big industrial

corporations

relied

on

their

own

internally

generated

revenues for investment f u n d s ; in J a p a n a n d G e r m a n y the b a n k s played a greater parr, b u t it w a s o n e o f a i d i n g the e x p a n s i o n o f favoured sections o f i n d u s t r i a l c a p i t a l . It w a s w i t h the e n d i n g o f the l o n g b o o m that finance seemed t o break the b o n d s t h a t h a d b o u n d a n d s u b o r d i n a t e d it to industrial c a p i t a l . By the

1980s

l u n d s w o r t h b i l l i o n s — a n d later h u n d r e d s o f b i l l i o n s — o f dollars were m o v i n g i n t o a n d o u t o f e c o n o m i c sectors a n d p a r t i c u l a r countries, cherry p i c k i n g the m o s t profitable outlets f o r investment before m o v i n g o n elsewhere, often leaving e c o n o m i c d e v a s t a t i o n in their w a k e . F i n a n c e began to i m p a c t directly o n the lives o f the w o r l d ' s workers in a w a y in w h i c h it h a d n o t previously. M o s t people until the 1980s were p a i d wages in cash every w e e k ; n o w the n o r m was I inancialisation and the Bubbles that Burst

279

p a y m e n t i n t o b a n k a c c o u n t s . T h e spread of h o m e p u r c h a s e m countries like Britain or the US f r o m a third t o t w o thirds o f house h o l d s provided a n e w destination for l e n d i n g — a n d the diversion o f part o f wages a n d salaries i n t o interest r e p a y m e n t s . Insurance a n d private pension schemes likewise spread the tentacles o l h nance i n t o wider sections o f the p o p u l a t i o n t h a n ever before Credit in the f o r m o f mortgages a n d hire purchase agreement was already i m p o r t a n t in the 1930s, b u t it w a s o n l y in the 1980s that indebtedness began t o become central in m a i n t a i n i n g people's rcy, ular l i v i n g standards. For the m a j o r i t y o f w o r k e r s in the US or Britain, the m o r t g a g e a n d the credit card became part o f everydav life, while g o v e r n m e n t s a l m o s t everywhere preached the virtues < il depositing regular savings into financial institutions as the w a y tm the w o r k e r s a n d m i d d l e classes to p r o v i d e themselves w i t h pen sions in their old age. As R o b i n B l a c k b u r n has s h o w n , pension c o n t r i b u t i o n s fed i n t o the m u s h r o o m i n g e x p a n s i o n o f a

financial

system over w h i c h the c o n t r i b u t o r s h a d n o c o n t r o l . " T h i s rise o f finance w a s a c c o m p a n i e d by a great increase in the frequency of financial crises. A s A n d r e w G l v n said in Unleashed,

Capitalism

"Crises i n v o l v i n g b a n k i n g crises, w h i c h h a d almost

died o u t in the G o l d e n Age, reappeared in strength f r o m 1973 on w a r d s a n d became practically as frequent after 1987 as d u r i n g the inter-war period". 1 - M a r t i n W o l f n o t e d " 1 0 0 significant b a n k i n g crises over the past three d e c a d e s " . ' 3 Yet after each crisis the system as a w h o l e seemed to revive a g a i n , so t h a t o n the eve o f lis greatest crisis there w a s talk o f record g r o w t h rates a n d predic rions o f ever faster g r o w t h in future. Finance in fact acted like a d r u g for the system, seeming to give it great energy a n d creating a sense o f e u p h o r i a , w i t h each brief h a n g o v e r being f o l l o w e d by a further dose until the m e t a b o l i s m as a w h o l e s u d d e n l y f o u n d itsell being p o i s o n e d .

T h e debt e c o n o m y a n d the great delusion T h e g r o w t h o f finance w a s never s o m e t h i n g separate f r o m w h a t w a s h a p p e n i n g t o the p r o d u c t i v e core o f the system, b u t w a s a p r o d u c t o n the o n e h a n d o f its i n t e r n a t i o n a l i s a t i o n , o n rhe orhei o f the l o n g d r a w n o u t s l o w d o w n in a c c u m u l a t i o n . T h e first big g r o w t h o f international finance in the 1960s w a s .i result o f the w a y rhe g r o w t h of international trade a n d investment— 280

The New Age of Global lnstabili(>

iMil US overseas military expenditure associated w i t h the V i e t n a m W ar—led t o pools o f finance ( " E u r o m o n e y " ) w h i c h h a d escaped the vnntrol o f national governments. T h e next big g r o w t h came w i t h the recycling o f massively e x p a n d e d M i d d l e East oil revenues t h r o u g h the US b a n k i n g system—revenues that were a p r o d u c t o f the ini teased dependence o f productive capital on M i d d l e East oil. The restructuring of p r o d u c t i v e c a p i t a l t o o k place increasingly, as we have seen, across n a t i o n a l borders, even if m o s t l y it w a s regional, n o t g l o b a l , i n scope a n d did n o t measure u p t o m u c h o f the hype a b o u t g l o b a l i s a t i o n . But industry c o u l d n o t restructure in this vs iy w i t h o u t h a v i n g

financial

c o n n e c t i o n s across borders. I t re-

quired i n t e r n a t i o n a l

financial

n e t w o r k s if it w a s t o repatriate

profits or establish subsidiaries elsewhere i n the w o r l d . A n i m p o r tant source o ^ p r o f i t for s o m e sections o f financial capital lay in the lees t o be g a i n e d b y overseeing a c q u i s i t i o n s a n d mergers o f productive firms, a n d t h a t m e a n t there w a s a gain t o be m a d e in o p e r a t i n g m u l t i n a t i o n a l ^ before they d i d . As in M a r x ' s description o f finance in his day, it led the w a y in e n c o u r a g i n g p r o d u c t i v e capital to reach our b e y o n d its established b o u n d s . M u l t i n a t i o n a l p r o d u c t i v e c a p i t a l , in t u r n , o p e n e d u p n e w vistas for m u l t i n a t i o n a l

financial

transactions.

The

success

of

the

lapanese car industry in penetrating US markets in the late 1970s laid the g r o u n d for the f l o w o f J a p a n e s e finance i n t o b o t h productive investments (car plants) a n d real estate speculation in the US. A n d the flows o f f u n d s a n d c o m m o d i t i e s within

m u l t i n a t i o n a l cor-

porations p r o v i d e d c o n d u i t s by w h i c h financial transactions c o u l d if necessary escape g o v e r n m e n t a l c o n t r o l . As chains o f b u y i n g a n d selling grew longer t h a n ever, so did the chains o f b o r r o w i n g a n d l e n d i n g — a n d w i t h them the o p p o r t u n i t i e s grew ever greater for financial institutions t o m a k e profits t h r o u g h borrowing and lending that had n o immediate connections with processes o f p r o d u c t i o n a n d e x p l o i t a t i o n . T h i s t o o k place in a wider c o n t e x t w h i c h m a d e the search for profit t h r o u g h finance increasingly attractive t o capitalists o f all sorts—the fall in profit rates from their level in the long b o o m (as described in C h a p t e r s Eight and N i n e ) . C a p i t a l i s m i n t e r n a t i o n a l l y w e n t t h r o u g h nearly f o u r decades i n w h i c h profitability w a s substantially lower, even in its period o f recovery, t h a n that w h i c h h a d enabled it to e x p a n d prod u c t i o n a n d a c c u m u l a t e so rapidly previously. Profitability did n o t collapse completely, a n d there w a s a continuous g r o w t h o f a mass o f past surplus value seeking o p p o r t u n i t i e s I inancialisarion and the Bubbles rhar Burst

281

for fresh profitable investment. Bur there were not nearly as many o f these in productive sectors as previously. O n e consequence, as we have seen, was a general s l o w d o w n in the level o f a c c u m u l a t i o n and decline in average g r o w t h rates. Fairly fast g r o w t h of p r o d i u rive sectors w o u l d occur in one p a n o f the w o r l d e c o n o m y or a n o t h e r — i n Brazil a n d the East Asian N I C s in the late 1970s, in J a p a n a n d G e r m a n y in the 1980s, in the US a n d the East Asian N I C s again in the m i d t o late 1990s, in C h i n a a n d t o a lesser extern the other B R I C S in the 2000s. But profitability was n o t sufficient u» raise productive a c c u m u l a t i o n t h r o u g h o u t the system as a w h o l e to its previous levels. There were increased c o m p e t i t i v e pressures o n i n d i v i d u a l firms to undertake large i n d i v i d u a l investments so as keep a h e a d o f ri\ a I firms, b u t there w a s less certainty t h a n before a b o u t being able to m a k e a profit o n those investments. F i r m s , w e a l t h y i n d i v i d u a l s a n d investment f u n d s reacted by being c a u t i o u s a b o u t c o m m i t t i n g themselves to such investments lest it leave t h e m w i t h o u t readv cash ( " l i q u i d i t y " in financial parlance) next time there w a s a crisis T h e result was an inevitable tendency for the average level o f pro ductive investment to fall. Growth of private sector real non-residential capital stock in

industrial

countries] 1

1960-69

5.0 percent

1970-79

4.2 percent

1980-89

percent

1991-2000

3.3 percent

These figures, it s h o u l d be n o t e d , understate the s l o w d o w n i n p r o ductive investment, since a g r o w i n g share o f investment w e n t into the n o n - p r o d u c t i v e financial sphere. A n d it w a s n o t o n l y in the old industrial countries that a falling share o f surplus value w e n t into p r o d u c t i v e i n v e s t m e n t . T h e " t i g e r s " , the N I C s a n d the BRIC S d r e w a sharp lesson f r o m the Asian crisis o f 199"7-8. They were not w i l l i n g ro risk being stuck again w i t h a shortfall o f ready cash the next t i m e i n t e r n a t i o n a l instability hit their m a r k e t s , a n d b u i l t u p surpluses o n foreign trade t h a t they saved rather t h a n invested d o mestically. Even C h i n a ended u p w i t h an excess o f s a v i n g ovet investment e q u a l t o 10 percent of its n a t i o n a l i n c o m e , despite its virtually unprecedented rate o f a c c u m u l a t i o n . 282

The New Age of Global lnstabili(>

G l o b a l l y this m e a n t there w a s a g r o w i n g p o o l o f g r o w t h o f money c a p i t a l — m o n e y in the h a n d s o f p r o d u c t i v e as well as nonproductive c a p i t a l s — s e a r c h i n g for outlets t h a t seemed to p r o m i s e higher levels o f profitability. H e n c e the pressure o n firms t o deliver short-term rather t h a n long-term profits. S o t o o the succession of speculative bubbles a n d the repeated " M i n s k y " shifts f r o m speculation t o Ponzi schemes in w h i c h

financiers

used the

money

entrusted t o them by s o m e investors t o pay o f f other investors a n d line their o w n pockets.' A l l sorts o f speculative, u n p r o d u c t i v e ac11\ ities flourished, f r o m p o u r i n g m o n e y i n t o stock m a r k e t s o r real estate to b u y i n g oil p a i n t i n g s by o l d masters. In each case, the rush i>l speculators i n t o b u y i n g things in the e x p e c t a t i o n o f rising prices was, for a t i m e , a self-fulfilling prophecy. As they o u t b i d each other, prices did indeed rise. In this w a y the ups a n d d o w n s of the productive part o f the system f o u n d a m a g n i f i e d reflection in the ups a n d d o w n s o f various other assets. T h e

financial

system ex-

panded as a c o n s e q u e n c e , since it played a key p a r t in collecting together the f u n d s for s p e c u l a t i o n , a n d c o u l d then use the assets whose value h a d increased because o f speculation as collateral for borrowing more funds. T h e r e developed a mass of capital w a n d e r i n g r o u n d rhe w o r l d l o o k i n g for any o p p o r t u n i t y w h e r e ir seemed there m i g h t be profits ro be m a d e . Already in the e c o n o m i c recovery o f the late 1980s: Financial activity became frenetic, w i t h stock a n d share a n d property values soaring u p w a r d s . . . Property speculation rose to n e w heights, a n d private b o r r o w i n g reached record levels in the US, Britain, a n d J a p a n . . . There was real industrial g r o w t h , but it w a s dwarfed by the expansion o f the property markets a n d by various forms o f speculative activity... General business investment grew considerably faster t h a n m a n u f a c t u r i n g i n v e s t m e n t — i n l

sharp

contrast to the 1960s a n d early 1970s, w h e n m a n u f a c t u r i n g grew at the s a m e speed. T h e g r o w t h o f m a n u f a c t u r i n g investment w a s a b o u t a third lower in the US a n d J a p a n , a n d a b o u t t w o thirds lower in E u r o p e , t h a n in the earlier period. 1 ' Boyer a n d Aglietta h a v e accurately described w h a t

happened

d u r i n g the next US b o o m , in the m i d a n d later 1990s: O v e r a l l d e m a n d a n d s u p p l y are driven by asset price expectations, w h i c h create the possibility o f a self-fulfilling v i r t u o u s I manciahsation and rhe Bubbles that Burst

283

circle. In the g l o b a l e c o n o m y , h i g h e x p e c t a t i o n s o f profits trig ger a n increase in asset prices w h i c h foster a b o o s t in c o n s u m c i d e m a n d , w h i c h in t u r n validates the profir e x p e c t a t i o n s . . . O n e is left w i t h the i m p r e s s i o n t h a t the w e a l t h - i n d u c e d

growth

regime rests u p o n the e x p e c t a t i o n o f a n endless asset-price a p preciarion..." The g r o w t h o f m u l t i n a t i o n a l finance increased the instability of the system, b u t did n o t cause it. E n h a n c e d instability in turn encouraged p r o d u c t i v e firms t o seek speculative profits in a w a y t h a t furthei boosted t h e financial sector a n d a d d e d still m o r e to the instability. •

A p r i m e e x a m p l e o f t h i s w a s t h e rise o f the d e r i v a t i v e s m a r kets. T h e i r o r i g i n a l f u n c t i o n w a s t o p r o v i d e a sort o f i n s u r a n c e a g a i n s t s u d d e n c h a n g e s i n interest o r e x c h a n g e rates. T h i s w a s a n e x t e n s i o n o f the l o n g e s t a b l i s h e d p r a c t i c e o f b u y i n g a n d selling " f o r w a r d " — a g r e e i n g n o w o n a price t o be p a i d a t s o m e specified p o i n t in the f u t u r e for s o m e c o m m o d i t y . N o w d e r i v a t i v e s devel o p e d i n t o e l a b o r a t e systems o f p a y m e n t s f o r o p t i o n s t o b u y a n d sell currencies o r t o lend o r b o r r o w m o n e y at v a r i o u s rates at Jit ferent t i m e s in the f u t u r e . In d o i n g s o , they p r o v i d e d p r o d u c t i v e f i r m s w i t h s o m e p r o t e c t i o n a g a i n s t t h e i r c a l c u l a t i o n s o f future c o m p e t i t i v e n e s s a n d p r o f i t a b i l i t y b e i n g u p s e t by s u d d e n changes in v a r i o u s m a r k e t s — a n d b e c a m e a n integral p a r t o f n o r m a l busi ness f o r m a n y c o m p a n i e s . 1 8 Bur t h a t w a s n o t the e n d o f tin matter. T h e derivatives t h a t p r o v i d e d t h a t p r o t e c t i o n c o u l d t h e m selves be b o u g h t a n d s o l d , a n d it w a s t h e n p o s s i b l e t o g a m b l e on c h a n g e s t h a t w o u l d t a k e p l a c e in t h e i r prices if e x c h a n g e o r in terest rates w e n t u p o r d o w n . H e d g e f u n d s , w o r k i n g w i t h m o n e v p r o v i d e d by rich i n d i v i d u a l s p u t t i n g in a f e w m i l l i o n

dollars

e a c h , f o u n d they c o u l d m a k e very large p r o f i t s by b o r r o w i n g in o r d e r t o m a k e such bets, a s s u m i n g (as every p o o r g a m b l e r does) that they were b o u n d to w i n . T h e reliance o n derivatives w a s n o t rhe only w a y in w h i c h tin boundaries between p r o d u c t i v e capital a n d the financial sector were eroded. M a n y industrial concerns began ro l o o k to finance as a way o f profir m a k i n g . In the 1990s b o t h Ford a n d General M o t o r s turned t o w a r d s financial activities such as "leasing, insurances, car rental 1

so that " d u r i n g the b o o m 1995-98 a third o f the | Ford | g r o u p s prot accrued f r o m services".'

T h e Economist

has t o l d o f the US's cur

rently biggest m a n u f a c t u r i n g firm, General Electric, that its "profits grew w i t h 284

rhe sort o f predictable c o n s i s t e n c y . . . m a d e

possibh

The New Age of Global lnstabili(>

b y . . . m a k i n g good any unexpected shortfall w i t h

last-minute

sales o f assets held by t h e f i r m ' s n o t o r i o u s l y o p a q u e

finance

a r m , G E C a p i t a l , " w h i c h w a s r e s p o n s i b l e for " 4 0 percent o f jGE's revenue".-' 1 I

A s c a p i t a l i s m in a l l its f o r m s t u r n e d t o f i n a n c i a l o p e r a t i o n s t o

c o m p l e m e n t p r o d u c t i v e o p e r a t i o n s f r o m the early 1 9 7 0 s , gove r n m e n t s c a m e u n d e r pressure t o a b a n d o n c o n t r o l s i m p o s e d o n tinancial t r a n s a c t i o n s . F o r a t i m e g o v e r n m e n t s still c o m m i t t e d t o the state c a p i t a l i s t o r K e v n e s i a n n o t i o n s o f the p r e v i o u s p e r i o d a t t e m p t e d t o h o l d the line a g a i n s t the w a y f i n a n c e c o u l d well over n a t i o n a l borders.-But o n e by o n e they gave u p the a t t e m p t , partly because they s a w o l d c o n t r o l s o f c u r r e n c y a n d c a p i t a l m o v e m e n t s as ineffective, p a r t l y because, a c c u s t o m e d t o adjusting their h o r i z o n s t o w h a t c a p i t a l said w a s p o s s i b l e , they w e r e w o n over t o tlie idea t h a t this w a s the o n l y w a y t o achieve a n e w cycle o f c a p i t a l a c c u m u l a t i o n . T h e a p p r o a c h o f those w h o h a d started o f f o n t h e social d e m o c r a t i c left w a s t h a t if y o u c o u l d n o t beat t h e m , then j o i n t h e m . Usually the speculation was in non-productive spheres—repeated stock exchange a n d real estate bubbles. But occasionally it focused on s o m e area where they believed there w a s profit to be m a d e by productive investment. As the Financial

Times told o f the late 1990s:

S p e n d i n g o n telecoms e q u i p m e n t a n d devices in E u r o p e a n d the US a m o u n t e d t o m o r e t h a n $ 4 , 0 0 0 b i l l i o n . Between 1996 a n d 2 0 0 1 b a n k s lent $ 8 9 0 b i l l i o n in s y n d i c a t e d l o a n s . . . A n o t h e r $ 4 1 5 b i l l i o n o f d e b t w a s p r o v i d e d by the b o n d markers a n d $ 5 0 0 b i l l i o n w a s raised f r o m private e q u i t y a n d stock m a r k e t issues. Still m o r e c a m e f r o m profitable blue c h i p s firms t h a t d r o v e themselves t o the b r i n k o f b a n k r u p t c y o r b e y o n d in the belief t h a t an explosive e x p a n s i o n o f internet use w o u l d create a l m o s t infinite d e m a n d for telecoms capacity. T h e global

finan-

cial system became addicted to fuelling this bonfire. N e a r l y h a l f E u r o p e a n b a n k l e n d i n g in 1 9 9 9 w a s t o telecoms c o m p a n i e s . . . a b o u t 8 0 percent o f all the high-yield, or j u n k , b o n d s issued in the US were t o telecoms operators. Five o f the ten largest mergers or a c q u i s i t i o n s in history involved telecoms companies. 2 1 I he fact that there w a s a productive element to this b o o m a d d e d to the great illusion that it c o u l d g o o n forever. But the b o o m w a s based on speculation, ascribing massive exchange value to products Financialisation and the Bubbles rhar Burst

2KS

f o r w h i c h the current use value w a s very limited. So m u c h " b a n d w i d t h " h a d been created, the Financial

Times said, that:

it the w o r l d s 6 b i l l i o n p e o p l e were t o talk solidly o n the tele p h o n e for the next year, their w o r d s c o u l d be transmitted ovei the potential capacity w i t h i n a few h o u r s . . . ( o n l y ) 1 o r 2 percent of the fibre optic cable buried u n d e r E u r o p e a n d N o r t h America has even been turned o n . " I he telecoms b o o m inevitably c o l l a p s e d , c a u s i n g w i d e s p r e a d dis array. By the beginning o f September 2 0 0 1 (before the 9/11 attack w h i c h is usually b l a m e d for t h a t year's recession) the

"stock

m a r k e t value o f all telecom o p e r a t o r s a n d m a n u f a c t u r e r s "

had

" f a l l e n by $ 3 , 8 0 0 b i l l i o n since its peak in M a r c h 2 0 0 0 "

and

" p r o b a b l y $ 1 , 0 0 0 b i l l i o n " h a d g o n e " u p in s m o k e " . " Faced w i t h the collapse o f this b u b b l e i n t o p r o d u c t i v e invest m e n t , it is perhaps n o t surprising t h a t the next b u b b l e w o u l d be around

something

that

seemed t o

be...uas

safe as

houses

D u r i n g the recovery f r o m the 2000-2 recessions those w i t h mone\ (old fashioned b a n k s , newer financial g r o u p s such as hedge funds, a n d rich i n d i v i d u a l s w i t h a few m i l l i o n in ready cash) f o u n d the\ c o u l d e x p a n d their w e a l t h by b o r r o w i n g at l o w interest rates in o r d e r t o lend t o those prepared for, or c o n n e d i n t o , p a y i n g highei interest rates. Bits of v a r i o u s l o a n s were then parcelled togethei i n t o " f i n a n c i a l i n s t r u m e n t s " ro be sold at a profit t o other

finan

cial i n s t i t u t i o n s w h i c h in turn w o u l d sell them a g a i n . Those at one o f e n d o f the c h a i n o f l e n d i n g a n d b o r r o w i n g w o u l d n o t have the remotest idea where interest w a s c o m i n g f r o m at the other end. In fact, m a n y o f those expected t o pay it were p o o r e r sections of the A m e r i c a n p o p u l a t i o n desperate t o get s o m e w h e r e to live but pre viouslv regarded as u n c r e d i t w o r t h y . T h e y were lured i n t o t a k i n g o u t m o r t g a g e s w i t h " t i c k l e r " fixed term l o w rates o f interest w h i c h c o u l d then s u d d e n l y be increased after t w o or three years. R i s i n g house prices were s u p p o s e d t o m a k e l e n d i n g t o t h e m sate, since if they d e f a u l t e d o n their l o a n s their h o m e s c o u l d be rcpos sessed a n d sold at a h a n d s o m e p r o f i t . T h e fact t h a t it was precisely t h e w i l l i n g n e s s o f f i n a n c i a l i n s t i t u t i o n s t o b i d against each o t h e r t o offer l o a n s ro b u y houses t h a t w a s raising the p r i c e s — a n d t h a t prices w o u l d inevitably fall if they all began ri possessing—was

something

that

escaped

the

notice

of

the

geniuses w h o ran these i n s t i t u t i o n s .

286

The New Age of Global lnstabili(>

The m o r e c o r p o r a t i o n s i n f l a t e d their w e a l t h by l o s i n g t o u c h w i t h reality the m o r e t h e y w e r e h o n o u r e d . 9

0

1 he British

bank

N o r t h e r n R o c k w a s " t h e roast o f a glitzy C i t y d i n n e r w h e r e it w a s heaped w i t h praise for its skills in financial i n n o v a t i o n " . 2 4 G o r d o n b r o w n praised the " c o n t r i b u t i o n " o f L e h m a n Brothers " t o the prosperity o f B r i t a i n " . 2 5 R a m a l i n g a

Raju

was named

" Y o u n g E n t r e p r e n e u r o f the Y e a r " a n d a w a r d e d

the

India's Golden

Peacock a w a r d by the W o r l d C o u n c i l for C o r p o r a t e G o v e r n a n c e I list m o n t h s before it w a s revealed t h a t he h a d d e f r a u d e d his o w n c o m p a n y o f one billion dollars. A g a i n it has t o be stressed t h a t the speculative ventures o f these vears did n o t just i n v o l v e financial capitalists. Industrial a n d commercial capitalists rook part. M o r e t h a n half the supposed g r o w t h in the w o r t h o f the w h o l e of the n o n - f a r m , non-financial corporate sector o f the US in 2 0 0 5 h a d been d u e t o i n f l a t i o n in its real estate holdings. 2 6 T h e finance-led b u b b l e s were n o t , however, just i m p o r t a n t as a source o f profits for the s u p p o s e d l y p r o d u c t i v e sector o f the economy. They were also central in ensuring ir h a d markets t h a t neither us o w n i n v e s t m e n t n o r w h a t it p a i d its w o r k e r s c o u l d p r o v i d e . I his w a s true o f the b u b b l e s o f the 1980s a n d 1990s. T h e c o m b i nation o f reduced i n v e s t m e n t a n d a t t e m p t s t o h o l d d o w n wages in i he o l d industrial counrries ( a n d success in c u t t i n g them in the US) m a d e c o n s u m e r debt increasingly i m p o r t a n t in p r o v i d i n g d e m a n d lor o u t p u t . Ir w a s even truer in the early a n d m i d - 2 0 0 0 s . W i t h o u t the " h o u s i n g " a n d " s u b p r i m e m o r t g a g e " b u b b l e there w o u l d have been verv little recoverv f r o m the recession o f 2001-2. #

4

These wTere years in w h i c h the real earnings o f w o r k e r s in the US, G e r m a n y , France a n d s o m e o t h e r countries tended to fall. I hey were also years in w h i c h p r o d u c t i v e i n v e s t m e n t was l o w in .ill the " o l d " capitalisms. " I n v e s t m e n t rates have fallen across virtually all

industrial

country

r e g i o n s " , said o n e

IMF

study. :

Another report, for J P M o r g a n , told in 2 0 0 5 : T h e real driver o f t h i s s a v i n g g l u t has been the c o r p o r a t e sector. Between 2 0 0 0 a n d 2 0 0 4 , the s w i t c h f r o m c o r p o r a t e dis-saving t o net s a v i n g across the ( 1 6 (France, G e r m a n y , the US, J a p a n , B r i t a i n a n d Italy | e c o n o m i e s a m o u n t e d to over $1 t r i l l i o n . . . T h e rise in c o r p o r a t e s a v i n g has been t r u l y g l o b a l , s p a n n i n g the three m a j o r r e g i o n s — N o r t h A m e r i c a , E u r o p e , and Japan.2* I mancialisarion and the Bubbles that Bursr

287

In other w o r d s , "instead o f s p e n d i n g then- past p r o f i t s " , US bust nesses were " n o w a c c u m u l a t i n g t h e m as cash". 2 * A l o w level o f investment c o m b i n e d w i t h falling real wages w o u l d , in n o r m a l circumstances, have resulted in c o n t i n u e d reces sion. W h a t prevented t h a t w a s precisely the upsurge o f l e n d i n g via the financial system to A m e r i c a n c o n s u m e r s , i n c l u d i n g the r e a p i enrs

of

subprime

mortgages.

It

created

a

demand

for

the

c o n s t r u c t i o n a n d c o n s u m e r g o o d s i n d u s t r i e s — a n d via t h e m lor heavy i n d u s t r y a n d raw m a t e r i a l s — t h a t w o u l d n o t otherwise have existed. Recovery from the recession d e p e n d e d o n the b u b b l e , w h a t the Italian M a r x i s t R i c c a r d o Bellofiore has a p t l y called "pri vatised K e y n e s i a n i s n r V 0 T h e p r o d u c t i v e capitalists w h o were the beneficiaries o f the o p eration were n o t just t o be f o u n d in the US a n d E u r o p e , b u t also across the Pacific in East A s i a . J a p a n e s e industry, still suffering f r o m the decline in profitability in the early 1990s, staged some re covery by e x p o r t i n g hi-tech e q u i p m e n t t o C h i n a w h i c h then used it ( a l o n g w i t h c o m p o n e n t s f r o m the other Hast A s i a n states and G e r m a n y ) t o b u i l d u p ever greater exports t o the US. A n d it w is the surpluses o n their t r a d e w i t h the U n i t e d States t h a t J a p a n , C h i n a a n d the o t h e r East A s i a n e c o n o m i e s deposited in the US, w h i c h h e l p e d finance the b u b b l e a n d so p r o v i d e d a b o o s t t o the w h o l e w o r l d e c o n o m y , i n c l u d i n g their o w n part o f it. As M a r t i n W o l f rightly c o m m e n t e d , " S u r p l u s s a v i n g s " created " a need to generate high levels o f offsetting d e m a n d V

an(

J 'tMU'

ing t o p o o r people provided it: " U S h o u s e h o l d s m u s t spend more t h a n their incomes. If they fail to d o so, the e c o n o m y will plunge i n t o recession unless s o m e t h i n g changes e l s e w h e r e " T h e

bed

c o u l d have avoided p u r s u i n g w h a t seemed like excessively expan sionary m o n e t a r y policies o n l y if it h a d been w i l l i n g t o accept a p r o l o n g e d recession, possibly a s l u m p " . 3 1 In other w o r d s , only the financial

b u b b l e stopped recession o c c u r r i n g earlier. T h e implica

rion is that there was an u n d e r l y i n g crisis o f the system as a w h o k which c o u l d not have been resolved simply by regulating

financiers

W o l f a n d others w h o emphasised the i m b a l a n c e s in the global productive e c o n o m y d i d nor locate their roots in p r o b l e m s o f pro! itability. T o have d o n e so w o u l d have required at least h a l f a turn from neoclassical e c o n o m i c s to classical political e c o n o m y , a n d es pecially to M a r x . But l o w profitability w a s , as w e have seen, behind the s l o w d o w n

in p r o d u c t i v e a c c u m u l a t i o n

in N o r t h A m e r k i,

Europe a n d J a p a n , w h i l e the partially successful attempts to sustain 288

The New Age of Global lnstabili(>

profits a t the expense o f wages were responsible for rhe increasing dependence o f c o n s u m p t i o n o n debt. It w a s also the a t t e m p t s t o m a i n t a i n profitability in the face o f an ever greater p i l i n g u p o f lixed c a p i t a l t h a t led t o the h o l d i n g back o f c o n s u m p t i o n

in

( h i n a — a n d , as part o f d o i n g so, efforts t o s t o p any rise in the international value of the y u a n . A n d the m e m o r y o f the crises o f the 1990s t a u g h t the other B R I G S a n d N I C s that their o w n economies' profitability w a s n o t high e n o u g h ro protect them f r o m global instability, leading them t o o t o pile u p surpluses. In general, it can be aid t h a t the different sectors o f w o r l d capitalism w o u l d n o t have become d e p e n d e n t o n the b u b b l e h a d profit rates returned to the levels o f the l o n g b o o m . F i n a n c i a l i s a t i o n p r o v i d e d a s u b s t i t u t e m o t o r , in the f o r m o f debt, f o r the w o r l d e c o n o m y in the decades after the US a r m s e c o n o m y lost a g o o d part o f its effectiveness. T h e p e r m a n e n t a r m s e c o n o m y h a d to be s u p p l e m e n t e d by the d e b t e c o n o m y . But by its very n a t u r e a debr e c o n o m y c o u l d n o t be p e r m a n e n t . The massive profits t h a t b a n k s m a k e d u r i n g a n y b u b b l e represent c l a i m s o n value p r o d u c e d in the p r o d u c t i v e sections o f the e c o n o m y . W h e n there is a s u d d e n decline in the prices o f the assets they have previously

bid

u p (in the h o u s i n g , property, m o r t g a g e a n d

share

markets) they discover those c l a i m s are n o longer valid a n d t h a t they c a n n o t p a y their o w n debts unless they get cash f r o m elsewhere. Bur the very process o f trying t o raise cash involves selling turther assets; as all b a n k s d o so, asset prices decline still m o r e a n d their i n d i v i d u a l b a l a n c e sheets deteriorate further. T h e

bubble

bursts a n d the b o o m turns i n t o a crash. As M a r x p u t it: All this p a p e r a c t u a l l y represents n o t h i n g m o r e t h a n a c c u m u lated c l a i m s , or legal titles, t o f u t u r e p r o d u c t i o n w h o s e m o n e y or c a p i t a l v a l u e represents either n o c a p i t a l at a l l . . . o r is regulated

independently

o f the v a l u e o f

real capital

which

it

represents... A n d by a c c u m u l a t i o n o f money-capital n o t h i n g m o r e , in the m a i n , is c o n n o t e d t h a n an a c c u m u l a t i o n of these claims o n p r o d u c t i o n .

1

W h a t h a p p e n e d t h r o u g h the early a n d m i d - 2 0 0 0 s w a s t h a t rhe banks assumed t h a t these c l a i m s were themselves real value a n d entered t h e m in the positive side o f their b a l a n c e sheets. A chastened A d a i r Turner, f o r m e r head o f the British employers" GB1 a n d I inoncialisation and the Bubbles that Burst

289

f o r m e r vice-chairman o f M e r r i l l Lynch E u r o p e , recognised ahei rhe event, " T h e system in total has b e c o m e significantly m o r e n liant o n rhe a s s u m p t i o n t h a t a very w i d e range of assets c o u l d be c o u n t e d as liquid because they w o u l d alw r ays be sellable in liquid m a r k e t s " . " Profits were measured a c c o r d i n g ro " m a r k t o markci v a l u a t i o n s o f assets—that is, a c c o r d i n g the level to w h i c h c o m p e l itive b i d d i n g h a d raised t h e m . But o n c e there was a decline in the m o r t g a g e a n d property m a r k e t s , financiers h a d to try t o cash then assets in if they were n o t g o i n g to g o b u s t — a n d f o u n d they could not. This is w h a t the process w h i c h goes u n d e r the n a m e ol " d e l e v e r a g i n g " was a b o u t . M a r t i n W o l f again described w h a t w a s h a p p e n i n g accurately: T h e leverage m a c h i n e is o p e r a t i n g in reverse a n d , as it genet ated f i c t i t i o u s p r o f i t s o n the w a y u p , so it takes t h o s e profits a w a y o n the w a y d o w n . A s u n w i n d i n g c o n t i n u e s ,

highly

i n d e b t e d c o n s u m e r s c u t b a c k , c o r p o r a t i o n s retrench a n d un e m p l o y m e n t soars. 3 " H e n c e the first m o m e n t o f truth o f A u g u s t 2 0 0 7 , w h e n s o m e o f the hedge f u n d s controlled by b a n k s discovered they c o u l d n o t pav their debts a n d b a n k s s t o p p e d l e n d i n g t o each other o u t o f feat they w o u l d nor get their m o n e y back. H e n c e the failure o f the b u n dreds o f billions p o u r e d i n t o n a t i o n a l b a n k i n g systems t o prevent the second m o m e n t o f t r u t h in mid-September 2 0 0 8 w h e n the col lapse o f L e h m a n

Brothers w a s f o l l o w e d

within

days by

the

threatened collapse o f b a n k s in nearly all the m a j o r Western states ( A I G in the US, H B O S in Britain, Fortis in B e l g i u m a n d

the

N e t h e r l a n d s , H y p o R e a l Estate in G e r m a n y , the three m a j o r Irish b a n k s , the Icelandic b a n k s ) . H e n c e the w r ay in w h i c h in the t w o m o n t h s that f o l l o w e d even b a n k s w h i c h t h o u g h t they h a d gained f r o m the p r o b l e m s o f their c o m p e t i t o r s were in dire t r o u b l e C i t i b a n k (the w o r l d s biggest) a n d B a n k o f A m e r i c a in the US, L l o y d s in Britain. H e n c e , finally, it w a s clear the crisis w a s n o longer just o n e o f h nance. T h e vast e x p a n s i o n o f finance h a d created the illusion ol .1 n e w " l o n g u p t u r n " in p r o d u c t i v e a c c u m u l a t i o n ; the crisis o f li n a n c e m a d e that illusion d i s a p p e a r w i t h t r a i u n a t i c effects. There w a s " a week o f l i v i n g p e r i l o u s l y " i n N o v e m b e r as " p a n i c seized rhe markets". 3 " In the US Chrysler lost m i l l i o n s by rhe day, General M o t o r s said it needed $ 4 b i l l i o n i m m e d i a t e l y t o a v o i d bankruptcy 290

The New Age of Global lnstabili(>

a n d Ford joined in a s k i n g for a $ 3 4 billion g o v e r n m e n t h a n d o u t . In Britain, W o o i w o r t h s a n d M F 1 w e n t bust. The toll o t sackings in every sector began t o c o m p a r e w i t h the h a e m o r r h a g i n g o f jobs in the crisis o f the early 1980s. A n d the p a i n w a s felt n o t merely o n both sides o f the A t l a n t i c , but o n b o t h sides o f the Pacific t o o . 1

In the spring o f 2 0 0 8 rhe d o m i n a n t theme in m a i n s t r e a m econ o m i c c o m m e n t a r y h a d been that a " d e c o u p l i n g " o f different national economies w o u l d enable Asia to keep e x p a n d i n g at its old speed w h i l e E u r o p e a n d A m e r i c a suffered. By n e w year 2 0 0 9 the recession h a d spread to J a p a n , where car o u t p u t fell at a record rate, t<> C h i n a , where rher^e were t h o u s a n d s o f factory closures in the south east,3* a n d to India, where a business lobby g r o u p w a r n e d that 10 m i l l i o n m a n u f a c t u r i n g jobs c o u l d be lost as exports c o l l a p s e d . " I he victims o f the Asian crisis of 1 9 9 7 — T h a i l a n d , South Korea, Singapore, M a l a y s i a , I n d o n e s i a — w e r e battered once again. So t o o were the victims o f the s l u m p w h i c h swept the former Eastern bloc from the lare 1980s o n w a r d s — t h e Baltic states, Ukraine, H u n g a r y , Kulgaria, R o m a n i a . In Russia the collapse o f the record w o r l d oil prices o f o n l y six m o n t h s before led t o a fall in the value o f the rouble, escalating inflation a n d a renewed spread o f poverty. F i n a n c i a l i s a t i o n a n d the debt e c o n o m y h a d p r o v e d i n c a p a b l e o f m o v i n g w o r l d a c c u m u l a t i o n f o r w a r d at its o l d speed in the 1980s, 1990s a n d mtd-2000s. Ir h a d faltered every few years a n d , at the end, threatened t o fail completely, l e a d i n g t o a crisis o f unpredictable d e p t h . G o v e r n m e n t s w h i c h in w o r d s , if n o t in practice, had insisted t h a t the free m a r k e t c o u l d be left t o cure its o w n faults, were n o w faced w i t h the g r i m reality t h a t left t o itself capitalism c o u l d , as in the 1930s, threaten t o fall i n t o a c a t a s t r o p h i c s l u m p , w i t h the collapse o f each g i a n t firm ricocheting t h r o u g h rhe e c o n o m y a n d leading t o the collapse o f others. Urged o n by s o m e o f the g i a n t c o r p o r a t i o n s , states s a w n o alternative

but

to

intervene

in

the

economy

on

a

scale

unprecedented except u n d e r c i r c u m s t a n c e s o f total war. So it w a s the Bush a d m i n i s t r a t i o n , the m o s t right w i n g in the US for 7 5 years, t h a t effectively n a t i o n a l i s e d the m o r t g a g e

corporations

F a n n y M a e a n d F r e d d y M a c early in September. T h e r e w a s o n e last a t t e m p t t o rely o n the m a r k e t w h e n

it a l l o w e d

Brothers t o g o b u s t — a decision praised by the Financial

Lehman

Times

editorial as a " c o u r a g e o u s " a n d a "risk t h a t m i g h t well pay o f f " . 4 " T h e disastrous o u t c o m e left states w i t h n o choice n o t o n l y to attempt one a n d half trillion dollar I-'inancialisation and the Rubbles that Burst

bail-outs, b u t in effect

to 291

partially, a n d sometimes completely, nationalise n o t just relative^ s m a l l b a n k s like N o r t h e r n

Rock and

Bradford

&

Bingley in

Britain, b u t some o f the giants. As they d i d so, their advisers began t o p o n d e r whether the o n l y s o l u t i o n to the crisis m i g h t be the na t i o n a l i s a t i o n o f w h o l e b a n k i n g systems. State c a p i t a l i s m , a n d its ideological correlate, K e y n e s i a n i s m , w a s m a k i n g a massive c o n n back after being hidden in an ideological closet for a generation

Finance a n d " f i n a n c i a l i s a t i o n " T h e great crisis that erupted in 2 0 0 ~ led those w h o h a d rejoiced at rhe w o n d e r s o f c a p i t a l i s m d u r i n g the great delusion t o try to pin the b l a m e o n s o m e t h i n g other t h a n c a p i t a l i s m as such. T h e easiest w a y t o d o this was t o see the " t h e b a n k s " a n d " f i n a n c e " as de tached f r o m the rest o f the capitalist system. French president N i c o l a s Sarkozy w e n t to a G 7 meeting in J a n u a r y 2 0 0 8 declaring t h a t " s o m e t h i n g seems o u t o f c o n t r o l " w i t h the f i n a n c i a l system a n d c a l l i n g for increased c o n t r o l s over i t / 1 All a c c o u n t s o f tin D a v o s W o r l d E c o n o m i c F o r u m in 2 0 0 9 told o f the deep u n p o p u larity o f the b a n k s w i t h the representatives o f m u l t i n a t i o n a l s a m i g o v e r n m e n t s : " T h e a u d i e n c e cheered in o n e debate w h e n N a s s i m N i c h o l a s Taleb, a u t h o r o f The Black

Swan,

said it w a s t i m e to

p u n i s h bankers by forcing t h e m t o h a n d back bonuses". 4 2 Such a r g u m e n t s led to a s i m p l e c o n c l u s i o n : the w a y t o prevent future financial crises w a s greater regulation o f finance. Such was rhe response o f m a n y m a i n s t r e a m e c o n o m i s t s — f o r m e r

mone

tarists a n d m o d e r a t e Keynesians alike, w i t h repeated discussions in the pages o f rhe Financial

Times over the degree o f regulation

t h a t w a s possible a n d necessary. T h i s w a s also the response ol s o m e analvsts o n the reformist left. R o b e r t W a d e of the LSE c o u l d p r o v i d e riveting a c c o u n t s o f the absurdities o f finances that led to the crisis a n d then c o n c l u d e t h a t greater c o n t r o l s c o u l d

stop

t h e m . 4 ' Larrv Elliot a n d D a n A t k i n s o n in their b o o k The Cods

that

4

Failed

blamed "rhe gods of

finance",

called for increased regula

rion a n d a b r e a k i n g u p o f the g i g a n t i c

financial

institutions, and

then s a w s o m e h o p e in a m e e t i n g o f G 7 p o l i c y m a k e r s early in 2 0 0 8 t h a t c o n t e m p l a t e d " m e a s u r e s to rein in the t u r b o charged fi n a n c i a l interests". 4 4 R a t h e r further t o rhe left the rise o f finance h a d already led to tin re-emergence o f the old n o t i o n s o f H o b s o n , Hilferding a n d Kautsky 292

The New Age of Global lnstabili(>

ol " f i n a n c e " or " f i n a n c e c a p i t a l " as h a v i n g distinct interests f r o m productive capital. T h e French c a m p a i g n i n g organisation ATTAC had started life in the late 1990s c o m m i t t e d to o p p o s i t i o n to finani tal speculation, n o t to capitalism as s u c h / 5 Its central d e m a n d was loi a " T o b i n t a x " o n m o v e m e n t o f financial funds across n a t i o n a l borders. This, it was c l a i m e d , w o u l d c o u n t e r financial crises. Such "finance is t o b l a m e " a r g u m e n t s f o u n d a resonance a m o n g m a n y radical M a r x i s t s . D u m e n i l a n d Levy w r o t e o f " n e o l i b e r a l i s m " as "the ideological expression o f the reasserted p o w e r o f

finance"

which "dictates its forms a n d contents in rhe new stage o f internanonalisation. 4 ' James-Crotty s rone w a s very similar, a r g u i n g t h a t "financial interests have become m u c h m o r e e c o n o m i c a l l y a n d politically p o w e r f u l , a n d . . . t h e s e trends have been c o t e r m i n o u s w i t h a deterioration i n real e c o n o m i c p e r f o r m a n c e " . 4 7 Francois Chesnais wrote of " a globalised regime o f financially d o m i n a t e d accumulation V

in w h i c h " t h e m o v e m e n t o f m o n e y capital has b e c o m e a

lully a u t o n o m o u s force vis-a-vis industrial c a p i t a l " , forcing it either io accept a " d e e p interpenetration with m o n e y capital, or to s u b m i t itself to its exigencies". 1 H e t o o k u p the expression o f M a b l e , Bar re and Boyer, a c c o r d i n g ro w h i c h " b a d c a p i t a l i s m " h a d been able t o c hase o u t " g o o d " . 5 0 C h e s n a i s as a r e v o l u t i o n a r y socialist did n o t himself regard the o l d f o r m of c a p i t a l i s m as " g o o d " (hence his p u t t i n g the w o r d between q u o t e m a r k s ) . But he did argue that finance w a s to b l a m e for the " m e d i o c r e or p o o r d y n a m i c investment..." 5 1 A s i m i l a r e m p h a s i s o n

finance

of

h a v i n g interests

strongly o p p o s e d t o those o f p r o d u c t i v e capital w a s to be f o u n d in Peter G o w a n ' s The Global

Gamble,

a very useful a c c o u n t o f US

capitalism s a t t e m p t t o m a i n t a i n global hegemony. Fie argued that " s o m e o f the sharpest conflicts w i t h i n capitalist societies have occurred... between the financial sector a n d the rest o f society". 5 2 [

T h e a c c o u n t s o f " f i n a n c i a l i s a t i o n " varied considerably in their detail. B u t they all shared a c o n t e n t i o n that the " d o m i n a n c e " o f " f i n a n c e " led to a shift in the d y n a m i c o f the system. Productive capital, it w a s a r g u e d , w a s concerned w i t h p r o d u c t i v e a c c u m u l a tion. In the early post-war years this h a d occurred across rhe industrial w o r l d , even if it was organised differently in the US a n d Britain, w h e r e industrial c o r p o r a t i o n s h a d used internally generated profits in o r d e r t o u n d e r t a k e long-term i n v e s t m e n t s , a n d in J a p a n a n d West G e r m a n y , where c o l l a b o r a t i o n w i t h rhe b a n k s h a d provided such investment. But the rise o f big investment f u n d s a n d the " d o m i n a n c e " o f finance h a d c h a n g e d t h a t . T h e s i t u a t i o n n o w Financialisation and the Rubbles that Burst

291

was t h a t all rhe pressure w a s o n firms to deliver q u i c k returns t«. shareholders ( " s h a r e h o l d e r v a l u e " ) t h r o u g h high d i v i d e n d pa\ ments a n d measures t h a t ensured a high share price (so boosting shareholders' capital g a i n s ) , a n d o n g o v e r n m e n t s a n d

national

b a n k s to keep interest rates h i g h . Versions o f this s t a n d p o i n t had been presented by Keynesian writers like W i l l H u t t o n a n d W i l l i a m Keegan

in rhe

1990s t o c o u n t e r p o s e rhe "short-termism

ol

" A n g l o - S a x o n " capitalism t o s u p p o s e d l y long-term, m o r e invest m e n t oriented approaches o f Japanese a n d G e r m a n capitalisms. N o w it w a s extended t o all the a d v a n c e d industrial c o u n t r i e s w i t h the partial exception o f G e r m a n y . ' ' Crotry, Epstein and J a y a d e v referred to this as a g r o w t h o f ren tier i n c o m e s a n d "rentier p o w e r " . They were h a r k i n g back to Keynes's a p p l i c a t i o n o f the term rentier t o idle " g e n t l e m e n " w h o were receiving interest or dividends p a y m e n t s t h r o u g h the post !»m d o i n g n o t h i n g . But n o w the rentiers were " m u t u a l f u n d s , public a n d p r i v a t e pension f u n d s , insurance c o m p a n i e s a n d other institu rional investors". 5 5 C o s t a s Lapavitsas, w h o p r o v i d e d excellent factual a c c o u n t s ol the d e v e l o p m e n t o f the financial crisis o f 2007-8, nevertheless put the stress in e x p l a i n i n g it o n purely financial a s p e c t s — i n p a r t i a l lar the c h a n g e d b e h a v i o u r o f the b a n k i n g system, w h i c h

had

shifted its l e n d i n g from industry t o l e n d i n g t o i n d i v i d u a l s a n d re liance o n n e w c o m p u t e r i s e d t e c h n o l o g i e s . H e a r g u e d t h a t the " d i r e c t e x p l o i t a t i o n " o f c o n s u m e r s b y the b a n k s h a d b e c o m e a m a j o r n e w source o f s u r p l u s v a l u e a n d influenced the d y n a m i c s ot the s y s t e m . u But this f o r m o f " e x p l o i t a t i o n " , like t h a t caused bv s u p e r m a r k e t s forcing u p prices, 57 is o n l y s i g n i f i c a n t in so far as workers d o n o t fight t o protect the b u y i n g p o w e r o f their wages at rhe p o i n t o f p r o d u c t i o n — s o m e t h i n g u n i o n s in B r i t a i n h a v e usu ally tried to achieve by d e m a n d i n g w a g e increases l i n k e d to a Retail Price Index t h a t includes m o r t g a g e interest p a y m e n t s . Or, as M a r x w o u l d have p u t it, there is o n l y increased e x p l o i t a t i o n in so far as the capitalists w h o e m p l o y w o r k e r s get a w a y

with

b u y i n g l a b o u r p o w e r ar less t h a n its value." 1 It is also w o r t h a d d i n g t h a t o n Lapavitsas's logic it is it n o t o n l y w o r k e r s w h o .ine x p l o i t e d by the b a n k s but also indebted m e m b e r s o f the capital ist class a n d the n e w m i d d l e c l a s s — t h e m e d i a n debt o f households in the US w i t h i n c o m e s o f m o r e t h a n $ 1 0 0 , 0 0 0 in 2 0 0 3 w a s a b o u t f o u r a n d a h a l f times t h a t o f h o u s e h o l d s w i t h i n c o m e s in rhe range o f $ 2 5 , 0 0 0 - $ 5 0 , 0 0 0 / ' 294

The New Age of Global lnstabili(>

The " s h a r e h o l d e r v a l u e " version o f rhe

financialisation

argu

11it-nt h a s o f t e n been t a k e n for g r a n t e d . But it c o n t a i n s b i g gaps.

I >ick B r y a n a n d M i c h a e l R a f f e r t y have pointed o u t that: the s t o c k m a r k e t s h o u l d n o t be so heavily e m p h a s i s e d . It is, after all, a relatively m i n o r f o r u m for raising f u n d s . Even in the so-called

market-based

systems such

as the

US,

UK

and

A u s t r a l i a , retained earnings, loans a n d b o n d issues have been far m o r e i m p o r t a n t . . . I u r t h e r m o r e , pension f u n d s etc: rarely if ever play a n active role in the m a n a g e r i a l decisions o f firms. Institutional shareholder pressure o n c o m p a n y b o a r d s . . . is the exception rather t h a n the n o r m . . . * 0 I he fact that firms h a n d o u t a bigger p o r t i o n o f their profits as dividends need n o t in itself s l o w d o w n the level o f i n v e s t m e n t . T h e " r e n t i e r " shareholders c a n themselves lend a p o r t i o n o f their incomes back for further i n v e s t m e n t — a n d will d o so if they t h i n k it is g o i n g t o be profitable e n o u g h t o d o so. O n e p r o p o n e n t o f the "shareholder valuev

i n t e r p r e t a t i o n , S t o c k h a m m e r , a d m i t s thar

most e c o n o m i s t s h o l d that: Financial

investment

is a t r a n s f e r o f assets, n o t a use o f

i n c o m e . B u y i n g stocks transfers l i q u i d i t y f r o m o n e e c o n o m i c agent to another, possibly from firms with bad

investment

o p p o r t u n i t i e s t o ones w i t h g o o d o p p o r t u n i t i e s . T h u s macroeconomically

financial

investment

cannot

substitute

for

p h y s i c a l investment. 6 1 A n d C r o t t y suggests at o n e p o i n t t h a t " f i n a n c i a l i s a t i o n " , by ineasing c o m p e t i t i o n between firms, brings a b o u t m o r e , " c o e r c e d " , vestment."-1 Certainly, big

financial

i n s t i t u t i o n s have n o t h i n g in

rinciple against productive investment, even if finance d i d c o m e t o bsorb a peak figure o f 2 5 percent o f total investment in the US in 1990 as against o n l y 12 percent in the mid-1970s 61 a n d rose to close ro h a l f in Britain in rhe same period. 6 4 T h i s wras s h o w n in the late 1990s w h e n the d o t c o m / n e w technology b o o m saw industrial investment in the US financed by b o r r o w i n g from the institutions as it ared ahead o f savings. inancialisation and rhe Bubbles that Burst

295

T h e s u p p o s e d d o m i n a n c e o f finance over p r o d u c t i o n is o f u n rraced back to the US Federal Reserve u n d e r Paul Volcker raisin}.' interest rates s h a r p l y i n 1 9 7 9 . Boyer, C r o t t v , Chesnais, D u m e m l a n d Levy all see this "Volcker c o u p " as a decisive p o i n t . D u m e m l a n d Levy regard it as the great victory o f finance, a n d a r g u e this w a s w h y high interest tares w e r e " m a i n t a i n e d t h r o u g h the 19X(K a n d 1990s". 6 5 Implicit in such a r g u m e n t s is the suggestion thai s o m e h o w finance in general a n d shareholders in p a r t i c u l a r had suffered t h r o u g h the decades o f the long b o o m b u t were o n l y able to express their feelings w i t h the " c o u p " o f t h e late 1970s. T h e at g u m e n t s i m p l y does n o t fit the historical facts. The post-war decades were ones of e n o r m o u s self-confidence a m o n g all sections o f c a p i t a l i s m . T h e " g o l d e n a g e " for i n d u s t r i a l capital w a s by no m e a n s a living hell for its shareholders a n d

financiers.

All gained

as the g r o w t h o f profitable p r o d u c t i v e investment translated into secure long-term capital gains. There w a s s o m e c h a n g e w i t h rhe crisis o f the 1970s. T h e US s b a n k e r s a n d m u l t i n a t i o n a l s d i d dislike rhe w a y rhe " m a c r o e c o n o m i c " " K e y n e s i a n " response to the crisis o f the 1970s led to i n f l a t i o n a n d d e v a l u a t i o n ot rhe dollar. B u t , as R o b e r t Brenner p o i n t s o u t , h a d such a p o l i c y solved the p r o b l e m s o f profitabilit\ a n d i n d u s t r i a l o v e r c a p a c i t y f o r the rest o f US c a p i t a l i s m , " i t is q u i t e c o n c e i v a b l e that even the p o w e r f u l c o a l i t i o n o f interna t i o n a l a n d d o m e s t i c interests arrayed

against

it w o u l d

have

failed". 0 " In fact the K e y n e s i a n a p p r o a c h d i d n o t achieve these capitalist goals. L i m i t e d e c o n o m i c recovery f r o m the recession ot 19~4-6 increased the level o f i n f l a t i o n , w h i c h reached 13.3 pet cent. T h i s h a d t w o negative c o n s e q u e n c e s for all sections o f I s c a p i t a l . It w a s likely to e n c o u r a g e w o r k e r s t o struggle over wages, A n d ir w a s u n d e r m i n i n g the capacity o f the US d o l l a r t o act as .i m e a s u r i n g r o d for US capitalists in their t r a n s a c t i o n s w r ith each other. F o r c i n g u p interest rates w a s m e a n t t o solve b o t h p r o b l e m s — b y r e d u c i n g rhe level o f e c o n o m i c activity to scare w o r k e r s i n t o a c c e p t i n g l o w e r w a g e increases ( w h i c h it d i d ) a n d t o reduce inflation ( w h i c h it also d i d ) . T h i s enabled s o m e sections o f

finana

to g a i n a n d i n d u c e d a recession t h a t d a m a g e d s o m e sections ot A m e r i c a n p r o d u c t i v e c a p i t a l . Bur it also served the general inter ests o f all US capitalists. A s M a r x h a d n o t e d , c a p i t a l i s m needs m o n e y t o act as a fairK stable m e a s u r e o f v a l u e , even if d a m a g e is d o n e t o society as a w h o l e in order to achieve it: 296

The New Age of Global lnstabili(>

R a i s i n g interest rates...can be carried m o r e or less to extremes by m i s t a k e , based u p o n false theories of m o n e y a n d enforced o n the n a t i o n bv the interest o f m o n e y lenders... T h e basis, how/

#

ever, is given w i t h the basis o f the m o d e o f p r o d u c t i o n itself. A d e p r e c i a t i o n o f credit m o n e y w o u l d unsettle all existing relations. Therefore the v a l u e o f c o m m o d i t i e s is sacrificed f o r the p u r p o s e o f safeguarding the fantastic a n d i n d e p e n d e n t existence o f this v a l u e in m o n e y . . . For a few m i l l i o n in m o n e y , m a n y millions in c o m m o d i t i e s m u s t be sacrificed. T h i s is inevitable u n d e r capitalist p r o d u c t i o n a n d constitutes o n e o f its beauties. 6 " The suffering o f m a n y h u n d r e d s o f m i l l i o n s as a result o f the Volcker interest rate hike w a s a price w o r t h p a y i n g t o restore a relatively stable measure of value as far as US capitalism in its entirely w a s c o n c e r n e d — a n d helped cement its c o n t r o l elsewhere in the w o r l d . T h e " c o u p " by Volcker (and the t u r n t o m o n e t a r i s m u n d e r Thatcher in Britain) consisted o f t u r n i n g a w a y from o n e policy t h a t was supposed t o help restore the profitability o f productive indust r y — e x p a n d i n g the m o n e y supply so as t o a l l o w prices a n d profits to rise—to a n o t h e r policy, t h a t o f e n c o u r a g i n g interest rates to rise so as t o squeeze o u t u n p r o f i t a b l e firms a n d t o p u t pressure o n workers t h r o u g h u n e m p l o y m e n t to accept lower pay. C a p i t a l — a n d n o t just financial c a p i t a l — w a s recognising that the Keynesian orthodoxies o f the long b o o m c o u l d n o t cope w i t h the new phase in w h i c h capital ( i n c l u d i n g , n o t least, industrial capital) f o u n d itself. W h e n this m a n o e u v r e p r o d u c e d o n l y m i n i m a l results a n d it became clear t h a t the high interest rares were b e g i n n i n g seriously t o h u r t US industry, Volcker cut t h e m — n o t o n l y u n d e r pressure from industrialists, b u t also f r o m sections o f finance.68 T h e trend o f real l o n g term interest rates for the next q u a r t e r century w a s d o w n , n o t u p , a l t h o u g h they remained a b o v e the level o f the l o n g b o o m until the year 2 0 0 0 , after w h i c h they fell t o a r o u n d I percent in 2 0 0 3 . T h e w h o l e c l a i m t h a t there are t w o distinct sections o f c a p i t a l — finance capital a n d industrial c a p i t a l — i s o p e n t o challenge. M a n y i m p o r t a n t financial institutions n o t only lend m o n e y , b u t also b o r r o w it, since thev are involved in " i n t e r m e d i a t i o n " #

between

lenders a n d borrowers. W h a t matters for them is n o t the absolute level o f interest rates but the gaps t h a t o p e n u p between different rates, particularly between long-term a n d short-term rates. A n d industrial concerns lend as well as b o r r o w . Typically they a c c u m u l a t e Financialisation and the Bubbles that Burst

297

surpluses between bouts of n e w investment, w h i c h they lend o u t in return for interest (see Chapter Three). They also advance credit t«» rhe wholesalers w h o take their p r o d u c e o f f their hands. In short, in dustrial capital takes on s o m e o f the attributes o f finance capital As Itoh a n d Lapavitsas p o i n t o u t , " R e v e n u e in the form o f interest tends also to accrue to i n d u s t r i a l a n d c o m m e r c i a l capitalists, and c a n n o t be the exclusive f o u n d a t i o n for a social group". 6 5 ' T h o m a s S a b l o w s k i — w h o accepts part o f the " s h a r e h o l d e r value'* post t i o n — m a k e s the p o i n t :

A t rhe level o f the c o m m o n sense, it seems to be n o p r o b l e m t<» talk a b o u t finance and industry, like they were objects easily to distinguish. However, the d e f i n i t i o n o f the concepts of industrial capital a n d financial capital is n o easy task... 7 " But if this is true, then it is difficult t o see h o w the recurrent crises o f rhe last four decades—financial a n d i n d u s t r i a l — c o u l d simply be blamed on

finance.

A coherent e x p l a n a t i o n o f the crises has to

l o o k at the system as a w h o l e , a n d the w a y in w h i c h its different c o m p o n e n t s react o n each other. This is w h a t M a r x tried t o d o m a long, if r a m b l i n g a n d unfinished, discussion o f credit a n d in V o l u m e Three o f Capital.

finance

It is also w h a t H i l f e r d i n g a t t e m p t e d

t o d o w i t h the earlier chapters d e a l i n g w i t h these q u e s t i o n s iu Finance

Capital.

These insights need t o be developed t o t a k e ac

c o u n t o f the e x t r a o r d i n a r y d e v e l o p m e n t o f finance, o f

financial

institutions a n d o f financial crises in the late 2 0 t h a n d earlv 21st centurv.

Ideology a n d e x p l a n a t i o n A n y great crisis d o e s n o t just h a v e e c o n o m i c c o n s e q u e n c e s . It t u r n s c a p i t a l i s t a g a i n s t c a p i t a l i s t as each tries t o o f f l o a d the cost o f the crisis o n o t h e r s , just as it creates deep bitterness a m o n g tin mass o f the p o p u l a t i o n . T h e crisis t h a t began i n 2 0 0 7 fitted this p a t t e r n , a n d p u t t i n g the b l a m e o n rhe b a n k s w a s a n escape route for all t h o s e w h o h a d a r g u e d so v i g o r o u s l y t h a t n e o l i b e r a l i s m a n d capitalist g l o b a l i s a t i o n p r o m i s e d h u m a n i t y a g l o r i o u s future S o G o r d o n " t h e e n d o f b o o m a n d b u s t " B r o w n a r g u e d t h a t this w a s " a c o m p l e t e l y d i f f e r e n t sort o f c r i s i s " t o those o f the " p r e v i o u s 6 0 y e a r s " , since it w a s a " g l o b a l f i n a n c i a l crisis c a u s e d b\ 298

The New Age of Global lnstabili(>

i i r e s p o n s i b l e l e n d i n g practices, l a x i t y in t h e m a n d p r o b l e m s of r e g u l a t i o n V ' In this w a y , t h e reality o f 180 years o f p e r i o d i c irises w a s s h o v e d a s i d e , in a desperate a t t e m p t t o c o n t i n u e t o extol the virtues o f c a p i t a l i s m . Those radical e c o n o m i s t s w h o p u t the stress o n

financialisation

in creating the crisis risk o p e n i n g the d o o r t o such a p o l o g i e s for I he system. T h e i r characteristic a r g u m e n t has been t o c l a i m thar profit rates h a d recovered in rhe 1980s a n d 1990s sufficiently to have b r o u g h t a b o u t a revival o f p r o d u c t i v e investment were it n o t lor rhe p o w e r o f financial interests. Such w a s the a r g u m e n t o f the I rench M a r x i s t M i c h e l H u s s o n , w h e n he c l a i m e d in 1 9 9 9 t h a t (here were " h i g h levels of p r o f i t a b i l i t y " , 7 2 a n d S t o c k h a m m e r a n d D u m e n i l w e r e s a y i n g m u c h rhe s a m e t h i n g i n the s u m m e r a n d autumn of 2008.

1

If they were r i g h t , t h e crises w h i c h b r o k e in

2 0 0 1 a n d o n a m u c h bigger scale in 2007-8 w o u l d i n d e e d h a v e had causes very different t o previous ones, i n c l u d i n g the inter-war s l u m p , a n d greater c o n t r o l by the existing state over the behaviour o f rhe financial sector w o u l d in the 21st century be sufficient to s t o p such

crises.

In a c c o r d a n c e

with

such

an

approach,

D u m e n i l a n d Levy described the " K e y n e s i a n v i e w " as "very sensible" a n d l o o k e d t o " s o c i a l a l l i a n c e s " ro " s t o p the n e o l i b e r a l offensive a n d p u t to w o r k alternative p o l i c i e s — a different w a y o f m a n a g i n g the crisis"." 4 Yet, as we have seen f r o m the various profit rate c a l c u l a t i o n s in C hapters E i g h t a n d N i n e , there seems little t o justify c l a i m s t h a t crises t o d a y have different roots t o those in the past. T h e f o r m o f the crisis m i g h t be different each rime t o the last, b u t its i m p a c t will be just as devastating. N o a m o u n t o f regulation o f finance a l o n e will prevent a recurrence o f crisis, a n d rhe cost t o the capitalist srate o f trying t o stop this c a n b e c o m e a l m o s t u n b e a r a b l e . It is true that " f i n a n c i a l i s a t i o n " , h a v i n g risen o u t o f a s i t u a t i o n of l o w rates o f profit a n d a c c u m u l a t i o n , fed back i n t o b o t h . There was e n o r m o u s waste as l a b o u r a n d skills w e n t i n t o m o v i n g m o n e y from o n e pocket ro a n o t h e r ; as potentially p r o d u c t i v e material resources were used t o b u i l d a n d e q u i p ever m o r e g r a n d i o s e office b u i l d i n g s , a n d as the

financial

" M a s t e r s o f the U n i v e r s e " gorged

themselves in c o n s p i c u o u s c o n s u m p t i o n . It m a y also be, as Ben Fine has a r g u e d , thar

financialisation

" w e d g e . . . b e t w e e n real a n d

fictitious

h a d the effect o f d r i v i n g a accumulation","

m a k i n g it

difficult for capitalists to see t h r o u g h the fog o f the m a r k e t s a n d recognise p r o d u c t i v e investment o p p o r t u n i t i e s . But, ultimately, it Financialisation and the Bubbles thar Burst

299

w a s the deeper p r o b l e m s facing the p r o d u c t i v e sectors o f capital that b r o u g h t this situation a b o u t . F i n a n c e is a parasite o n the back o f a parasite, n o t a p r o b l e m t h a t can be dealt w i t h in isolation f r o m capitalism as a w h o l e .

T h e c o n t r a d i c t i o n s of the n e w Kevnesianism m

T h e w a y the crisis was rooted in the e c o n o m i c system as a whole w a s s h o w n by the sheer difficulties g o v e r n m e n t s h a d in reacting to ir. This w a s a crisis that h u r t big capitals a n d n o t just those w h o l a b o u r e d for t h e m . H u m p r y D u r n p t y h a d indeed fallen o f f the w a l l . Yet it seemed that all the king's horses a n d all the king's men c o u l d n o t p u t h i m together a g a i n . T h e response o f virtually all g o v e r n m e n t s t o the crisis that erupted in 2007-8 was t o turn a w a y f r o m the free m a r k e t policies they h a d p r o c l a i m e d for three decades as the o n l y ones t h a t w o u l d w o r k . O v e r n i g h t they ditched H a y e k for Keynes a n d kept only t h a t bit o f F r i e d m a n t h a t urged increasing the m o n e y s u p p l y to ward off deflation.6 But the c o n d i t i o n s f o r a p p l y i n g Keynesian policies w i t h an\ h o p e o f success were w o r s e t h a n they h a d been w h e n they had been tried a n d a b a n d o n e d 3 0 years before. T h e k n o w n scale o f tlu losses m a d e by the b a n k s d w a r f e d those o f the m i d - 1 9 7 0 s — a n d n o o n e k n e w , as each b a n k w e n t bust, w h i c h other b a n k s were o w e d m o n e y by it a n d m i g h t g o bust t o o . T h e p r o m i s e d bail-outs were massively bigger t h a n those at tempted

by

Roosevelt's

New Deal

i n the

1930s. US

federal

e x p e n d i t u r e then peaked at just over 9 percent o f n a t i o n a l o u t p u t in 1936. T h i s time r o u n d it w a s already 2 0 percent before rhe crisis began, a n d the Bush a n d then rhe O b a m a a d m i n i s t r a t i o n s raised it several percentages m o r e . But the levels of debt in the system rhat s o m e h o w h a d to be covered were also m u c h greater if the

financial

system w a s to begin t o f u n c t i o n a g a i n . G e o r g e Soros calculated " t o t a l credit o u t s t a n d i n g " at 160 percent o f gross d o m e s t i c p r o d uct in 1 9 2 9 , rising t o 2 6 0 percent in 1932; in 2 0 0 8 it w a s 365 percent a n d

"bound

t o rise to 5 0 0 p e r c e n t " .

The Bank

ol

E n g l a n d estimated in the a u t u m n o f 2 0 0 8 the g l o b a l losses o f the financial

system t o be as high as $ 2 , 8 0 0 billion. 7 8 N o u r i e l R o u b i n i

estimated rhe losses o f the A m e r i c a n b a n k s a l o n e at $ 1,800 billion early in 2009."* A s g o v e r n m e n t s p o u r e d in the m o n e y , m a i n s t r e a m 300

The New Age of Global lnstabili(>

economists offering advice debated w i t h each other whether it would be e n o u g h to halt the t r a n s f o r m a t i o n o f recession i n t o s l u m p , w hether g o v e r n m e n t s w o u l d be able to raise the m o n e y w i t h o u t lorcing u p the interest rates they were trying t o lower, whether they should t u r n t o " q u a n t i t a t i v e e a s i n g " — t h a t is, printing m o n e y — a n d whether any success w i t h this m i g h t n o t risk bringing a b o u t a new inflationary spiral a n d a n even greater slump. 8 0 T h e p r o b l e m did n o t just lie w i t h the size o f the b a n k s ' losses. It also lay w i t h the massive i n t e r n a t i o n a l i s a t i o n o f the system compared w i t h either the 1930s or even the 1970s. T h e Keynesian remedies w h i c h were supposed t o deal w i t h the crisis were remedies to be a p p l i e d by n a t i o n a l g o v e r n m e n t s , n o n e o f w h i c h h a d the resources t o p a y for all the losses o f the g l o b a l system o f w h i c h they were part. T h e biggest states m i g h t conceivably be able to salvage a g o o d

|?art o f their n a t i o n a l

financial system. But

the

p r o b l e m s even here were vast, a n d m a n y o f the smaller states h a d very little c h a n c e o f c o p i n g .

I h e system in a n o o s e r he crisis h a d revealed o n e o f the great fault lines r u n n i n g t h r o u g h c a p i t a l i s m in the 2 Ist century. T h e c o m p l e x i n t e r a c t i o n o f states a n d capitals w h i c h h a d been simplistically referred ro as globalisation m a k e s it m u c h m o r e difficult for n a t i o n a l states to fulfil their f u n c t i o n o f a i d i n g the g i g a n t i c capitals based w i t h i n them just as the need for that aid becomes greatest. As Paul K r u g m a n puts it, there are " m a j o r policy e x t e r n a l i t i e s " , since " m y fiscal s t i m u l u s helps y o u r e c o n o m y , by increasing y o u r e x p o r t s — b u t y o u d o n ' t share in m y a d d i t i o n t o g o v e r n m e n t d e b t " a n d so " t h e b a n g per buck o n s t i m u l u s for any o n e c o u n t r y is less t h a n it is for the w o r l d as a w h o l e " . " 1 It w a s a c o n t r a d i c t i o n t h a t i n e v i t a b l y led t o deep political fissures w i t h i n n a t i o n a l r u l i n g classes a n d t o bitter divisions between the states w h i c h were s u p p o s e d l y c o o p e r a t i n g t o deal w i t h the crisis. D o m e s t i c a l l y , sections o f capitals c o m p l a i n e d bitterly in 2007-9 at the potential cost o f b a i l i n g o u t other sections o f c a p i t a l , a n d i n t e r n a t i o n a l l y g o v e r n m e n t s quarrelled w i t h each other as the c o n c e n t r a t i o n o f each o n efforts t o prevent rhe collapse o f its n a t i o n a l l y based c a p i t a l s led t o a c c u s a t i o n s o f " f i n a n c i a l protect i o n i s m " . As one observer told the Financial tinancialisation and rhe Bubbles that Burst

Times: 301

There is a very strong l a w o f u n i n t e n d e d consequences taking place after all the b a n k bail-outs. W e will see m o r e a n d m o r e at tivist g o v e r n m e n t policies that distinguish e c o n o m i c activities a c c o r d i n g to the n a t i o n a l i t y o f the actors. It should be a big con cern to everybody.""1 A t the t i m e o f the W o r l d

Economic Forum

in J a n u a r y

200 1 '

G o r d o n B r o w n warned against " f i n a n c i a l p r o t e c t i o n i s m " , a n d he w a s then d e n o u n c e d in t u r n for t h a t very sin as he pressurised British b a n k s t o lend domestically a n d n o t abroad;* 1 the G e r m a n g o v e r n m e n t w a s criticised for n o t b o o s t i n g its d o m e s t i c economy b u t reiving o n exports t o the countries t h a t d i d ; it in t u r n criticised the French a n d British rescue packages as a f o r m o f subsidy t<> their firms w h i c h w o u l d d a m a g e G e r m a n interests; the new Us g o v e r n m e n t d e n o u n c e d C h i n a s g o v e r n m e n t for " m a n i p u l a t i n g its currency to aid its industries; the Chinese g o v e r n m e n t retorted t h a t US finance had caused the w h o l e mess; 84 a n d "less wealthy •

w

countries fretted" t h a t the US w o u l d " u s e force majeure

t o soak

up capital"/ T h e ideologists o f free trade w a r n e d t h a t p r o t e c t i o n i s m risked d e e p e n i n g the recession as the S m o o t - H a w l e y A c t in the US sup posedly d i d in the s u m m e r o f 1930 by raising tariffs o n certain i m p o r t s . A s Peter T e m i n has n o t e d , " T h e idea t h a t the S m o o t H a w l e y tariff w a s a m a j o r cause o f the Depression is a n e n d u r i n g c o n v i c t i o n . . . a n d has f o u n d its w a y i n t o p o p u l a r discussion a n d general histories"." 6 But he a d d s , " D e s p i t e its p o p u l a r i t y , this ar g u m e n t fails o n b o t h theoretical a n d historical g r o u n d s . " E x p o r t s o n l y fell by 1.5 percent o f US G N P between 1929 a n d 1 9 3 1 , w h i l e "real G N P fell 15 percent in the s a m e y e a r s " / " A n d the first real m o v e m e n t f r o m the depths o f the s l u m p t w o a n d a h a l f years later c a m e after measures by Roosevelt w h i c h included p u t t i n g n a t i o n a l capitalist interests first w i t h a n effective d e v a l u a t i o n o f the dollar. Even m o r e effective, as w e have seen, were those measures taken by the N a z i state in G e r m a n y . For those firms t h a t p r o d u c e d m a i n l y for the n a t i o n a l market (the great m a j o r i t y in early 1930s), it w a s better t o be i n a protectionist state t h a n a non-protectionist o n e . T h a t w a s the rationale for state c a p i t a l i s m a n d its ideological correlates: K e y n e s i a n i s m , d e p e n d e n c y theory a n d S t a l i n i s m . If the state c o u l d get c o n t r o l ol the m o s t i m p o r t a n t investment decisions in the n a t i o n a l e c o n o m y ; it c o u l d assure t h a t the mass o f surplus v a l u e w a s a b s o r b e d i n new 302

The New Age of Global lnstabili(>

a c c u m u l a t i o n even if the rate of profit c o n t i n u e d t o fall. This, however, w a s a p o l i c y t h a t c o u l d o n l y w o r k u p t o the p o i n t at w h i c h ihe d r i v e t o a c c u m u l a t e collided w i t h the restrictions i m p o s e d by the n a r r o w n e s s o f n a t i o n a l b o u n d a r i e s . T h i s l i m i t a t i o n s h o w e d itself i n the drive o f G e r m a n y a n d J a p a n t o e x p a n d their n a t i o n a l b o u n d a r i e s t h r o u g h w a r in the m i d to late 1930s, in the declining effectiveness o f the US a r m s e c o n o m y by the early 1970s a n d in the i risis t h a t tore rhe U S S R a p a r t in 1989-91. T o d a y the sheer scale o f integration o f n a t i o n a l

economies

m e a n s t h a t serious i m p l e m e n t a t i o n o f state capitalist s o l u t i o n s w o u l d cause e n o r m o u s d i s r u p t i o n t o the system as a w h o l e . Yet for n a t i o n a l states simply to sit back a n d leave giant firms t o g o bust in the h o p e o f crises l i q u i d a t i n g themselves, as the H a y e k i a n s preach, w o u l d d o even greater d a m a g e . T h e t w o long-term tendencies p o i n t e d t o b \ * M a r x — f o r the rate o f profit t o fall o n the o n e h a n d and f o r the c o n c e n t r a t i o n a n d centralisation o f c a p i t a l o n the o t h e r — c o m b i n e t o p u t the w h o l e system in a noose. T h e a t t e m p t s o f capitals a n d the states in w h i c h they based t o wriggle o u t o f it can o n l y increase the tensions between t h e m — a n d the p a i n they inflict o n those w h o s e l a b o u r sustains t h e m . i

As states stepped in to intervene in the e c o n o m y t o c o p e w i t h the crisis after O c t o b e r 2 0 0 8 , s o m e sections o f the left believed that the resurrection o f Kevnes m e a n t rhe resurrection o f the wel4

fare policies o f the l o n g b o o m . In Britain, Ken L i v i n g s t o n e , former m a y o r o f L o n d o n , declared t h a t the " e c o n o m i c a s s u m p t i o n s o f N e w L a b o u r s t h i n k i n g . . . h a v e been a b a n d o n e d " . Polly T o y n b e e p r o c l a i m e d , " A t last, the party o f social justice has w o k e n u p . . . The N e w L a b o u r era is over." Derek S i m p s o n , j o i n t general secretary o f the biggest U K trade u n i o n , U n i t e , s a w the pre-budget report as " a w e l c o m e w a r m u p exercise after 3 0 years of inaction and neoliberal e c o n o m i c s " . Yet reality s o o n proved otherwise. T h e g o v e r n m e n t a i m e d t o pay for a short-term e c o n o m i c b o o s t w i t h long-term c u t b a c k s in e x p e n d i t u r e o n e d u c a t i o n , health a n d social services. T h e new Keynesianism for c a p i t a l w a s c o m b i n e d w i t h a c o n t i n u a t i o n of n e o l i b e r a l i s m for those w h o w o r k e d for it. T h i s w a s n o t a p e c u l i a r i t y o f B r i t a i n . In every sector o f the w o r l d system the a t t e m p t to deal w i t h long-term d o w n w a r d pressures o n p r o f i t rates c o n t i n u e d ro m e a n efforts t o p u s h t h r o u g h counter-reforms in w o r k i n g h o u r s , welfare p r o v i s i o n , w a g e rates a n d pensions. The push

w a s intensified

as g l o b a l

economic

g r o w t h fell to z e r o a n d threatened t o fall further. T h e t u r n to Financialisation and the Bubbles that Burst

103

K e y n e s i a n i s m could neither restore the system t o its o l d vigoui n o r serve rhe interests o f the w o r k e r s , the peasants a n d the poor T h e system was o n l y able t o recover f r o m the crisis o f the inter w a r years after a massive destruction o f value t h r o u g h the worst s l u m p c a p i t a l i s m had ever k n o w n f o l l o w e d by the w o r s t war. The* greater size a n d interconnectedness o f capitals t o d a y m e a n s that the destruction of v a l u e w o u l d have t o be p r o p o r t i o n a t e l y greater to return the system t o a new " g o l d e n a g e " . After a l l , even the b a n k r u p t c y o f the w o r l d ' s second biggest e c o n o m y , t h a t o f tin U S S R , t w o decades a g o h a d only m a r g i n a l benefits for rhe rest ot the s y s t e m — a lower g l o b a l price o f oil t h a n w o u l d otherwise have been the case and s o m e c h e a p skilled l a b o u r p o w e r for West European

firms.

It is necessary to repeat that this does n o t a u t o m a t i c a l l y mean endless s l u m p . The limits o n rhe degree to w h i c h s o m e capitals can gain f r o m the destruction o f others d o n o t m e a n that n o gains at all are possible. The w i p i n g o u t o f m a n y s m a l l a n d m e d i u m sized firms c a n p r o v i d e s o m e relief for the g i a n t firms t h a t states p r o p u p . N e w b u b b l e s a n d periods o f rapid g r o w t h in o n e part o f the w o r l d or a n o t h e r are not o n l y possible b u t likely. But they will not involve the w h o l e w o r l d e c o n o m y m o v i n g f o r w a r d u n i f o r m l y a n d will o n l y prepare the w a y for m o r e burst bubbles a n d m o r e crises. A n d the consequences will not only be e c o n o m i c .

304

The New Age of Global lnstabili(>

I'art F o u r

THE RUNAWAY SYSTEM

< IIAPTER TWELVE

The new limits of capital

\ system that u n d e r l i n e s itself ( apitalism became a global system i n the 2 0 t h century in a w a y it had n o t been before. N o t o n l y were there global markets a n d global finance b u t V a p i t a l i s t industry a n d capitalist structures o f cons u m p t i o n arose in every region o f the globe, a l t h o u g h unevenly. As that h a p p e n e d a tendency noted in its e m b r y o n i c f o r m by o n l y the m o s t far sighted thinkers o f the 19th century, i n c l u d i n g M a r x a n d I ngels, developed until by the end o f rhe century it w a s visible to everyone w h o cared to l o o k . This w a s the tendency for the system to u n d e r m i n e the very process o f interaction with nature o n w h i c h it, like every other f o r m o f h u m a n society, d e p e n d e d . T h e m o s t d r a m a t i c expression o f this has been the w a y the acc u m u l a t i o n o f certain gases in the a t m o s p h e r e are raising the global t e m p e r a t u r e a n d p r o d u c i n g c l i m a t e change. C a p i t a l i s t industry a n d its p r o d u c t s a l w a y s h a d devastating env i r o n m e n t a l effects. Observers o f all sorts b e m o a n e d the p o l l u t i o n o f the w a t e r a n d a t m o s p h e r e i n the i n d u s t r i a l areas o f Britain i n I he m i d - 1 9 t h century. C h a r l e s D i c k e n s w r o t e in 1 8 5 4 o f his fictional ( b u t all t o o real) C o k e t o w n , " w h e r e N a t u r e w a s as strongly bricked o u t as k i l l i n g airs a n d gases were bricked in"; 1 Engels told o f h o w , " B r a d f o r d lies u p o n the b a n k s o f a s m a l l , coal b l a c k , foulsmelling s t r e a m . O n w e e k d a y s the t o w n is enveloped in a grey c l o u d o f c o a l s m o k e " . 2 E p i d e m i c s o f cholera a n d t y p h o i d w o u l d sweep t h r o u g h cities; tuberculosis w a s a curse t h a t m o s t w o r k i n g class families were a c q u a i n t e d w i t h . But the disastrous e n v i r o n m e n t a l effects o f c a p i t a l s ' b l i n d selfe x p a n s i o n were local effects. It w a s possible t o escape f r o m the s m o g filled cites, the rivers so polluted that fish c o u l d n o t survive in t h e m , the slag heaps a n d the o p e n sewers. T h e bigger scale o f capitalist p r o d u c t i o n a n d a c c u m u l a t i o n in the 2 0 t h c e n t u r y m e a n t 07

bigger e n v i r o n m e n t a l d e s t r u c t i o n — t h e t r a n s f o r m a t i o n o f agricul rural l a n d i n t o a dust b o w l i n parts o f the US in the 1930s, 11•« h o r r e n d o u s escape of gases that killed t h o u s a n d s in B h o p a l m I n d i a in

1984, the nuclear accidents at Three M i l e Island m

Pennsylvania a n d C h e r n o b y l in U k r a i n e , the d e v a s t a t i o n o f the lives o f the people w h o lived a r o u n d the Aerial Sea as they lost t w o thirds o f their water to c o t t o n p r o d u c t i o n a n d salination set in, ilie collapse o f cities built o n e a r t h q u a k e fault lines. These were, how ever, still local disasters, despite the scale o f the h u m a n S u p p o r t e r s o f c a p i t a l i s m — a n d o f the state c a p i t a l i s m

toll

usuallv

called " s o c i a l i s m " — c o u l d dismiss their relevance as passing acci dents. Critics o f capitalism w o u l d d e n o u n c e their horrors, but not see t h e m as h a v i n g a systemic i m p a c t . It w a s n o t u n t i l the e n d o f rhe 1950s t h a t scientists f o u n d tlir first evidence t h a t m a n - m a d e gases were b e g i n n i n g to create i g l o b a l c a t a s t r o p h e by c a u s i n g average temperatures t o r i s e — a n d n o t until the late 1980s t h a t definite p r o o f emerged o f h o w serious the s i t u a t i o n was becoming. 3 T h e scientific c o n c l u s i o n s are well e n o u g h k n o w n f o r a mere s u m m a r y here t o suffice. T h e m o s t i m p o r t a n t o f these gases, is m o s t p e o p l e n o w k n o w , is c a r b o n d i o x i d e , p r o d u c e d by b u r n i n g c a r b o n based substances such as oil a n d c o a l t o o b t a i n energy a l t h o u g h gases s u c h as m e t h a n e a n d n i t r o u s o x i d e also have t o be taken i n t o c o n s i d e r a t i o n . T h e c o n c e n t r a t i o n o f these gases in the a t m o s p h e r e is m e a s u r e d in terms o f parts o f c a r b o n

dioxide

e q u i v a l e n t per m i l l i o n , or p p m . I n pre-industrial times it w a s 2 8 0 p p m ; it n o w stands at 3 8 5 p p m a n d is rising by a b o u t 2.1 p p m .i year. So far the c h a n g e has been sufficient to raise rhe average t e m p e r a t u r e o f the E a r t h by a b o u t 0.8 degrees Celsius, a n d if emis sions

continue

at

their

present

rate,

there

will

be

further

t e m p e r a t u r e rises o f a b o u t 0 . 2 degrees a decade. T h i s is if other t h i n g s r e m a i n as at present. Bur there are v a r i o u s feedback m c c h anisms produced

by rising t e m p e r a t u r e s

that w o u l d

lead

to

accelerated c h a n g e — t h e m e l t i n g o f ice c a p s , the release o f c a r b o n d i o x i d e in rhe sea o r o f m e t h a n e f r o m arctic t u n d r a , the desertifi c a t i o n o f forests. There is n o f i n a l scientific c o n s e n s u s as t o the t e m p e r a t u r e s (the " t i p p i n g p o i n t s " ) t h a t w o u l d cause these feed back m e c h a n i s m s ro t a k e effect, b u t it w a s w i d e l y accepted in 2 0 0 7 t h a t s o m e w o u l d be likely t o set i n if the t e m p e r a t u r e rose 2 degrees a b o v e the pre-industrial l e v e l — a b o u t 1.2 degrees above that at present (that does n o t p r e c l u d e s o m e o f these m e c h a n i s m s 308

The Runaway System

Miring i n earlier, as, for instance N A S A s J a m e s H a n s o n argued in \pril 2 0 0 8 ) . 4 T o a v o i d t h a t p o i n t being reached, c a r b o n concentrations h a v e t o be kept d o w n — t h e 1PCC argues t o between 4 4 5 and 4 9 0 p p m b u t even 4 0 0 p p m m i g h t push the t e m p e r a t u r e u p to the 2 degrees t h r e s h o l d / O v e r the last t w o decades g o v e r n m e n t s have c o m e t o accept that g l o b a l w a r m i n g is a threat to m u c h o f h u m a n i t y . T h e Stern report f o r the British g o v e r n m e n t , for instance, c o n c l u d e d in 2 0 0 6 : All c o u n t r i e s will be affected b y c l i m a t e c h a n g e , b u t the poorest c o u n t r i e s w i l l suffer earliest a n d m o s t . Average temperatures c o u l d rise by 5 ° C f r o m pre-industrial levels if c l i m a t e c h a n g e goes u n c h e c k e d . W a r m i n g o f 3 or 4 ° C will result in m a n y millions m o r e people being flooded. By the m i d d l e o f the c e n t u r y 2 0 0 m i l l i o n % a y be p e r m a n e n t l y displaced d u e t o rising sea levels, heavier floods a n d d r o u g h t . W a r m i n g o f 4 ° C or m o r e is likely t o seriously affect g l o b a l f o o d p r o d u c t i o n . W a r m i n g o f 2 ° C c o u l d leave 15 to 4 0 percent o f species facing extinction. 6 I here w a s agreement as early as 1992 at the R i o E a r t h S u m m i t o n ihe need t o start n e g o t i a t i o n s o n measures t o reduce emissions, a n d the K y o t o conference five years later p r o d u c e d a general I r a m e w o r k for a c t i o n . By 2 0 0 7 even US president G e o r g e W Bush backtracked a n d accepted rhe principle o f g l o b a l w a r m i n g . T h e significant t h i n g , however, is t h a t such verbal agreement lias n o t been translated i n t o rhe sort o f a c t i o n likely t o prevent the 1 percent l i m i t — o r even higher

figures—being

reached. It t o o k an-

other f o u r years after K y o t o before a conference i n T h e H a g u e agreed o n its i m p l e m e n t a t i o n . The final agreement w a s " w e a k , unenforceable a n d full o f m a r k e t l o o p h o l e s " . the US a n d

Australia had

It w a s n o t o n l y t h a t

refused t o sign u p . T h e

European

powers, w h o w e r e supposedly keen o n the agreement, did n o t keep w i t h i n their targets. There w a s n o reduction in the speed at w h i c h climate c h a n g e gases c o n t i n u e d t o b u i l d u p i n the a t m o s p h e r e . T h e G l o b a l C a r b o n Project reported a record 7.9 b i l l i o n t o n n e s of c a r b o n passing i n t o the a t m o s p h e r e in 2 0 0 5 , c o m p a r e d w i t h 6 . 8 billion t o n n e s in 2 0 0 0 ; the g r o w t h rate o f C O : emissions f r o m 2 0 0 0 t o 2 0 0 5 was m o r e t h a n 2 . 5 percent a y e a r — i n rhe 1990s it was less t h a n 1 percent a year/ T h e G 8 meeting in R o s t o c k in the s u m m e r o f 2 0 0 " w a s p a r a d e d as the occasion w h e n m o r e decisive action w o u l d be f o r t h c o m i n g . 1 he New Limits of Capital

Bur declaring rhere w a s a m a j o r p r o b l e m , rhe w o r l d ' s leaders post p o n e d even beginning ro d o a n y t h i n g a b o u t it for t w o years. A n d all they agreed t o discuss a t that date w a s an a t t e m p t t o halve greenhouse gas emissions by 2 0 5 0 , whereas even an 8 0 percent cut in emissions w o u l d n o t be e n o u g h t o g u a r a n t e e k e e p i n g global w a r m i n g b e l o w 2 degrees/ G o v e r n m e n t s w h i c h have p r o c l a i m e d averting c l i m a t e change ro be at the top o f their a g e n d a s h a v e proceeded t o act as if the a p p e a r a n c e o f d o i n g s o m e t h i n g w a s m o r e i m p o r t a n t t h a n rhe r< ality. T o n y Blair s p o k e of c l i m a t e c h a n g e as the " m o s t serious issue f a c i n g m a n k i n d " . ' 0 H i s g o v e r n m e n t c o m m i t t e d t o a i m at .i g l o b a l figure of 6 6 6 p p m c a r b o n d i o x i d e e q u i v a l e n t (a fitting figure). Yet the Stern r e p o r t c o m m i s s i o n e d by it esrimared that w i t h 6 5 0 p p m there w a s a 6 0 t o 95 percent c h a n c e o f 3 ° (

<>|

w a r m i n g , a n d an E n v i r o n m e n t D e p a r t m e n t r e p o r t in 2 0 0 3 hail f o u n d thar w i t h " w i t h a n a t m o s p h e r i c C O 2 stabilisation concen t r a t i o n o f 5 5 0 p p m , temperatures are expected t o rise by between 2 ° C a n d 5°C".11 W a t c h i n g such b e h a v i o u r is a bit like w a t c h i n g a car crash in s l o w m o t i o n , w i t h the driver a w a r e o f disaster a h e a d b u t p l o u g h i n g o n regardless.

Competition, accumulation and climate change W h a t explains this b e h a v i o u r ? T h e easy answer f r o m part o f the e n v i r o n m e n t a l m o v e m e n t has been " G r e e n w a s h " , that is, govern m e n t s arc simply p r e t e n d i n g t o care a b o u t the issue f o r reasons ol p o p u l a r i t y . T h a t will be true o f s o m e p o l i t i c i a n s . But it does not e x p l a i n the b e h a v i o u r o f all the m a j o r players in the system. M a n y o f t h e m , perhaps even m o s t , have c o m e to see that c l i m a t e change will w r e a k h a v o c o n the physical a n d biological e n v i r o n m e n t that the system operates in a n d therefore o n rhe system itself. They sec the need t o take a c t i o n , yet are h a l f paralysed w h e n it c o m e s to d o i n g so. N e i t h e r is the paralysis e x p l a i n e d s i m p l y by the pressure o n the p o l i t i c i a n s by l o b b y i n g , bribery a n d b l a c k m a i l by p a r t i c u l a r b i g c o r p o r a t i o n s w h i c h fear a loss o f profits f r o m a n y shift a w a y from carbon-based p r o d u c t i o n a n d t r a n s p o r t a t i o n . These c o r p o r a t i o n s are o f t e n p o w e r f u l l y placed a n d c o u l d , for i n s t a n c e , delay even r e c o g n i t i o n o f c l i m a t e c h a n g e by the US g o v e r n m e n t for several 310

The Runaway System

years. But they h a v e faced s o m e o p p o s i t i o n f r o m o t h e r capitalist nterests w h i c h d o h a v e a direct f i n a n c i a l interest i n t r y i n g to avoid c l i m a t e c h a n g e — t h e i n s u r a n c e c o r p o r a t i o n s , for instance. W h a t has t o be e x p l a i n e d is the relative ineffectiveness o f these counter-pressures. I he issues g o ro the heart of the system as it is currently structured. H i g h levels o f carbon-based energy are central t o virtually every p r o d u c t i v e a n d reproductive process w i t h i n the s y s t e m — n o t Mist t o m a n u f a c t u r i n g industry, b u t t o f o o d p r o d u c t i o n a n d distrib u t i o n , rhe heating a n d f u n c t i o n i n g of office blocks, getting l a b o u r power to a n d from* w o r k p l a c e s , p r o v i d i n g it w i t h w h a t it needs t o replenish itself a n d reproduce. To break w i t h the oil-coal e c o n o m y means a massive t r a n s f o r m a t i o n o f these structures, a p r o f o u n d reshaping o f the forces o f p r o d u c t i o n a n d rhe i m m e d i a t e relations of p r o d u c t i o n t h a t flow o u t o f t h e m . S o m e p e o p l e a r g u e t h a t such r e s t r u c t u r i n g takes place all the t i m e u n d e r c a p i t a l i s m , a n d t h a t ir is s i m p l y a q u e s t i o n o f gove r n m e n t s e n c o u r a g i n g it t o g o in o n e d i r e c t i o n rarher

than

another. T h i s essentially w a s the case p u t by C l i v e H a m i l t o n , del e n d i n g the m a r k e t a p p r o a c h o f the Stern r e p o r t in a p o l e m i c with George M o n b i o t : Stern is c o n f i d e n t that o n c e a p o w e r f u l signal is sent to the m a r k e t , then the m a r k e r w i l l find a w a y t o carry o u t rhe restructuring o f the energy e c o n o m y . There are reasons t o believe t h a t Stern is correct. I n fifty years t i m e the w o r l d will be dramatically different: if a strong signal can be sent n o w , there are g r o u n d s for o p t i m i s m . W h i l e w e currently have the technologies t o reduce the w o r l d ' s emissions s h a r p l y over rhe next decade or t w o , by 2 0 5 0 the m a r k e t — s u i t a b l y g u i d e d — w i l l present a set o f possibilities w e c a n n o t foresee. 12 W h a t is ignored by such a r g u m e n t s is that even if g o v e r n m e n t s d o develop effective price m e c h a n i s m s as signals t o e n c o u r a g e investment a n d p r o d u c t i o n in o n e direction rather t h a n another, they are signals t h a t h a v e t o c o m p e t e w i t h other s i g n a l s — t h o s e that c o m e Irom the pressure t o m a i n t a i n profitability f r o m existing carbonenergy intensive investment. A n oil c o m p a n y m a y begin t o establish d i v i s i o n s a i m e d at dev e l o p i n g c a r b o n free o r l o w c a r b o n energy. But it will also seek ro f i n d p r o f i t a b l e uses f o r its e x i s t i n g massive i n v e s t m e n t 1 he New Limits of Capital

in

c a r b o n intensive m e t h o d s (pipelines, refineries, crackers, drilling e q u i p m e n t ) . T h e s a m e goes for m a n u f a c t u r i n g a n d transport a t i o n c o m p a n i e s . T hey w i l l stick w i t h their existing h e a v y energy u s i n g e q u i p m e n t a n d b u i l d i n g s at last u n t i l they h a v e m o r e t h a n covered rhe cost o f their i n v e s t m e n t in t h e m — a n d w i l l invest m m o r e o f the same, unless the counter-signals f r o m the govern m e n t s are very p o w e r f u l . T h e b e h a v i o u r o f c o n s u m e r s c a n n o t be c h a n g e d b y a mete w a v e o f a price w a n d either. Price s i g n a l s a l o n e are n o t g o i n g to deal w i t h the 10 p e r c e n t o f c a r b o n d i o x i d e p r o d u c e d by cai j o u r n e y s , or the 18 p e r c e n t used in h e a t i n g a n d l i g h t i n g b u i l d ings1,—except

possibly

until

temperatures

have

risen

miu h

a b o v e the 2 degree level. People are s t u c k w i t h t h e i r e x i s t i n g , p o o r l y i n s u l a t e d h o m e s a n d p a t t e r n s o f d w e l l i n g a n d w o r k that m a k e t h e m d e p e n d e n t u p o n c a r travel unless g o v e r n m e n t s d o much more than provide "signals". There is a n even m o r e assertive version o f the a r g u m e n t about the capacity o f c a p i t a l i s m to successfully reshape itself t h a n rli.it p u t by H a m i l t o n . It h o l d s that the c o m p l e t e restructuring o f m dustry t o counter climate c h a n g e w o u l d be beneficial t o capitalism, since it w o u l d "create i n v e s t m e n t " . T h e e c o n o m i c p r o b l e m for c a p i t a l i s m in the 21st century is n o t , however, t h a t there is sonu shortage o f possible ways o f investment. It ts that such investments are n o t profitable e n o u g h . T h e system today, as w e have seen in the previous chapters, is d o m i n a t e d by giant firms based in p a r t i c u l a r states b u t operating across several states a n d s o m e t i m e s the system as a w h o l e . Each firm is c a u g h t between the need t o u n d e r t a k e big a n d expensive in vestments in order t o remain c o m p e t i t i v e a n d uncertainties about the p r o f i t a b i l i t y o f such investments. Investing in n e w f o r m s ol energy or m o r e energy efficient e q u i p m e n t a n d p r o d u c t s is not g o i n g t o o v e r c o m e that c o n t r a d i c t i o n . I n d e e d , d o i n g so w o u l d m a k e it worse for m a n y firms, p r o b a b l y m o s t . They c a n be relied o n t o pressurise s t a t e s — a n d to threaten t o relocate if necessar\ ro

minimise

price

signals

that

clash

with

profitability

G o v e r n m e n t s themselves, i d e n t i f y i n g w i t h n a t i o n a l l y based accu mulation,

will

resist

anything

that

interferes

with

national

competitiveness a n d g o a fair bit o f the w a y w i t h the d e m a n d s m a d e by firms. T h i s is w h y the " s i g n a l s " are so w e a k , a n d w h y those w h o rely o n i n f l u e n c i n g g o v e r n m e n t s , like Stern, e n d u p w a tering d o w n targets in order t o m a k e them seem " r e a l i s t i c " . 312

The Runaway Systeri

As G e o r g e M o n b i o t says, " S i r N i c h o l a s Stern spells o u t rhe • lire consequences o f t w o degrees o f w a r m i n g " b u t " t h e n recommends a target for a t m o s p h e r i c c o n c e n t r a t i o n s o f g r e e n h o u s e gases o f 5 5 0 parts per m i l l i o n " w h i c h w o u l d p r o d u c e " a t least a 77 percent c h a n c e — a n d p e r h a p s u p t o a 9 9 percent c h a n c e , depending

on

the

climate

model

used—of

a

global

average

t e m p e r a t u r e rise exceeding 2 ° C " a n d " a 2 4 percent c h a n c e t h a t temperatures w i l l exceed 4 ° C " . M Stern w a s u n w i l l i n g t o advise cuts o n rhe scale necessitated by Ins o w n c a l c u l a t i o n s because " p a t h s r e q u i r i n g very r a p i d emissions c u t s " were " u n l i k e l y t o be e c o n o m i c a l l y v i a b l e " , as w a s any target l o w e r t h a n 5 5 0 p p m . 1 ' T h e O b a m a election c a m p a i g n in 2 0 0 8 m a d e m a n y promises about

dealing

with

climate change.

Mainstream

economists

argued the recession itself p r o v i d e d a n o p p o r t u n i t y for d o i n g so t h r o u g h the s t i m u l u s packages. Bur w h e n the packages were pro, the picture w a s rather different: T h e packages o f t a x curs, credits a n d extra s p e n d i n g have been t r u m p e t e d for their e n v i r o n m e n t a l credentials by the governm e n t s p r o p o s i n g t h e m , bur a closer l o o k s h o w s t h a t green s p e n d i n g accounts for o n l y a small part o f rhe bigger initiatives. M u c h o f the s p e n d i n g will g o t o projects that w i l l , in fact, increase emissions, such

as n e w

r o a d s o r fossil

fuel

power

stations, w h i l e t o o little m o n e4v will be devoted t o low-carbon /

projects to m a k e a real difference, experts believe. For instance, Barack O b a m a , the US president, w a n t s § 2 7 b i l l i o n ( € 2 1 bill i o n , £ 1 9 b i l l i o n ) t o be spent o n n e w r o a d s , w h i c h w i l l raise traffic emissions. A l t h o u g h s o m e f u n d s will be spent o n develo p i n g low-carbon vehicles such as electric o r h y d r o g e n cars, the benefits gained will be o u t w e i g h e d by the emissions generated by the extra petrol-driven cars. 16 I'odd Stern, the US president's n e w chief c l i m a t e

negotiator,

claimed t h a t it w a s " n o t possible" for the US t o a i m for 25 t o 4 0 percent cuts by 2 0 2 0 , despite the I n t e r g o v e r n m e n t a l Panel o n C limate

Change

(IPCC)

calculating

that

"developed

nations

should a i m for 2 5 ro 4 0 percent cuts by then t o a v o i d d a n g e r o u s climate c h a n g e " . 1 In B r i t a i n " G r e e n c o m p a n i e s " w e r e " i n retreat, w i t h a w a v e of staff layoffs a n d p r o d u c t i o n c u t s " with " S i e m e n s , C l i p p e r t he New Limits of Capital 312

W i n d p o w e r a n d e v e n BP a m o n g the b i g n a m e s . . . r e a c t i n g to .1 s l o w d o w n in the c l e a n energy s e c t o r " . The " c r e d i t c r u n c h " w as "starving

wind

and

solar d e v e l o p m e n t s o f u r g e n t l y

needed

c a s h " a n d the s i t u a t i o n w a s " b e i n g exacerbated by prices crash i n g t o record l o w s i n the c a r b o n t r a d i n g m a r k e t " . " 1 N o n e o f this m e a n s that g o v e r n m e n t " s i g n a l s " have n o effect .11 all. They arc e n c o u r a g i n g n e w areas o f investment in things likewind

and

photoelectric

power

( b u t also in

energy-absorbing

biodiesel). N e w c a p i t a l s — o r i n n o v a t i v e old c a p i t a l s — a r e emerg i n g thar will fight f o r m o r e space a n d m o r e resources for their wares. Emissions w i l l p r o b a b l y rise less rapidly t h a n otherwise, al t h o u g h it is u n l i k e l y they will decline in the s h o r t t e r m . But the e q u i v o c a t i o n will persist w i t h g o v e r n m e n t s a n d industrialists p r o c l a i m i n g their c o m m i t m e n t t o resist climate c h a n g e o n e day a m i their d e t e r m i n a t i o n t o extract the m a x i m u m a m o u n t o f oil or coal f r o m the earth the next.

T h e needs of capital a n d the needs o f capitals T h e e x p a n s i o n o f c a p i t a l s in c o m p e t i t i o n w i t h each o t h e r — o r as M a r x p u t it, the self-expansion o f c a p i t a l — l e a d s t h e m t o a n orgs o f c a r b o n energy use just as they recognise it as self-destructive. T h e p h e n o m e n o n o f capitalism d a m a g i n g its o w n e n v i r o n m c n tal basis is n o t c o m p l e t e l y new, even if it has never occurred o n the scale it is today. In early 19th c e n t u r y c o m p e t i t i v e a c c u m u l a t i o n in Britain led to a lack o f concern a b o u t the physical h e a l t h , even the physical survival, o f c a p i t a l i s m s w o r k e r s . It w a s a neglect that w o u l d inevitably be d a m a g i n g t o y o u t h f u l industrial capitalism as well as to rhe w o r k i n g class, since it threatened t o e x h a u s t the s u p p l y o f fit a n d able l a b o u r p o w e r for e x p l o i t a t i o n . M a r x summed up what was happening: T h e capitalistic m o d e o f p r o d u c t i o n (essentially the p r o d u c t i o n o f surplus v a l u e , the a b s o r p t i o n o f s u r p l u s - l a b o u r ) , p r o d u c e s thus, w i t h the extension o f the working-day, n o t o n l y rhe dete r i o r a t i o n o f h u m a n l a b o u r p o w e r by r o b b i n g it o f its n o r m a l , m o r a l a n d physical, c o n d i t i o n s o f d e v e l o p m e n t a n d f u n c t i o n . Ii p r o d u c e s also the p r e m a t u r e e x h a u s t i o n

a n d death o f this

l a b o u r p o w e r itself. It extends the labourer's t i m e o f p r o d u c t i o n d u r i n g a given period by s h o r t e n i n g his actual lifetime. 314

The Runaway Systeri

hnt in d o i n g so, c a p i t a l i s m shortens the " d u r a t i o n " o f the " l a b o u r p o w e r " o f the i n d i v i d u a l worker, so m a k i n g it necessary t o replace ihis m o r e q u i c k l y t h a n otherwise, so that: the s u m o f the expenses for the r e p r o d u c t i o n o f l a b o u r p o w e r will be greater; just as in a m a c h i n e the part o f its value t o be rep r o d u c e d every day is greater the m o r e r a p i d l y the m a c h i n e is w o r n o u t . It w o u l d seem therefore t h a t the interest [of] capital itself p o i n t s in the direction o f a n o r m a l w o r k i n g day. 1 D i d this m e a n ^ h a t capitalists flocked to c a m p a i g n for shorter w o r k i n g h o u r s a n d m o r e h u m a n e c o n d i t i o n s in the factories a n d w o r k i n g class localities? A few, m o r e farsighted a b o u t the l o n g term needs o f c a p i t a l as w h o l e , d i d . M o s t , however, c a m p a i g n e d against a n y restrictions o n hours, even for children w h o w o u l d o n e il.iy b e c o m e m o r e p r o d u c t i v e , a d u l t , l a b o u r power. A g a i n M a r x s u m m e d u p the capitalist logic at w o r k : In every s t o c k j o b b i n g s w i n d l e everyone k n o w s that s o m e t i m e or other the crash m u s t c o m e , b u t everyone hopes that it m a y fall o n the head o f his n e i g h b o u r , after he himself has c a u g h t the s h o w e r o f g o l d a n d placed it in safety. Apres

mot

le

deluge!

[After m e , the flood] is the w a t c h w o r d o f every capitalist a n d o f every capitalist n a t i o n . H e n c e C a p i t a l is reckless o f the health o r length o f life o f rhe labourer, unless u n d e r c o m p u l s i o n f r o m society. To rhe o u t c r y as t o the physical a n d mental d e g r a d a t i o n , the p r e m a t u r e d e a t h , the torture o f o v e r w o r k , it answers: O u g h t these t o t r o u b l e us since they increase o u r profits? 2 ' It t o o k concerted pressure o n c a p i t a l f r o m the outside, by successive acts o f legislation enacted by the s t a t e — i n part in response t o workers' a g i t a t i o n — f o r the r e p r o d u c t i o n o f l a b o u r p o w e r to be protected f r o m the ravages o f those w h o exploited it. It t o o k s o m e SO years before a n y t h i n g like fully a d e q u a t e protection of such reproduction

w a s in p l a c e — a n d

as we saw in C h a p t e r Five it

required the difficulties in m i l i t a r y recruitment t o b r i n g h o m e t o the state the h a r m w h i c h c a p i t a l h a d d o n e t o its c a n n o n fodder by its lack o f concern w i t h supplies o f l a b o u r power. Exactly the same logic as that described by M a r x is f o u n d in the a t t i t u d e o f c a p i t a l t o the p u m p i n g o u t o f c l i m a t e c h a n g e gases today. C a p i t a l i s t politicians m a k e beautiful speeches a b o u t the t he New Limits of Capital 314

need t o d o s o m e t h i n g , set u p c o m m i s s i o n s a n d intergovernmeui.il meetings, p r o m i s e t o reshape their o w n b e h a v i o u r — a n d then bow d o w n before interests w h i c h say rhat this or t h a t measure t o deal w i t h climate c h a n g e will be t o o costly for the e c o n o m y t o bear. H o w e v e r , there is o n e big difference between t h e tendency i<« destroy the s o u r c e o f l a b o u r p o w e r in the 19th c e n t u r y a n d v11« d e v a s t a t i o n o f the E a r t h s c l i m a t e todav. T h e d e s t r u c t i o n <•! l a b o u r p o w e r w a s w i t h i n the i n d u s t r i a l areas o f o n e country. Ii c o u l d be repaired by the i m p o r t a t i o n o f w o r k e r s f r o m the c o u n trysidc a n d I r e l a n d . A n d e v e n t u a l l y the n a t i o n a l state c o u l d act t< police the b e h a v i o u r o f i n d i v i d u a l capitalists in the interests <>l c a p i t a l as a w h o l e . There is n o g l o b a l state c a p a b l e o f enforcing its will o n all tin capitalist firms a n d n a t i o n a l states that m a k e u p the system. Each is a f r a i d t h a t t a k i n g the drastic measures needed t o m a s s i v e h reduce gas emissions will result in other firms a n d states seizing the o p p o r t u n i t y t o i n t r u d e o n its m a r k e t s . T h e issue o f c l i m a t e change becomes i n e x t r i c a b l y linked w i t h rhe other struggles w i t h i n tin w o r l d s y s t e m — t h e struggles between different n a t i o n a l l y based capitalist interests, between n a t i o n a l states a n d between classes. There will be m o r e a t t e m p t s at i n t e r n a t i o n a l a g r e e m e n t s , pei h a p s w i t h a few m o r e teeth t h a n in the past. It c o u l d h a r d l y be o t h e r w i s e as g r o w i n g n u m b e r s o f the system s c a p i t a l s begin t<» experience the p a i n o f c l i m a t e c h a n g e . But the a g r e e m e n t s w i l l a l w a y s been r i d d l e d w i t h w e a k spots because the different states will go into them with markedly different short a n d

medium

t e r m interests. T h e n a t i o n a l structures w i t h i n w h i c h a c c u m u l a t i o n takes place d e p e n d te> very different degrees u p o n c a r b o n energy. T h e US w a s self-sufficient in oil until the early 1970s, its structures o f a c c u m u lation a n d c o n s u m p t i o n became very highly d e p e n d e n t o n oil a n d t h a t m e a n s t h a t t o d a y it has 2 0 . 2 t o n s o f c a r b o n emission pet person; the m a i n West E u r o p e a n stares lacked d o m e s t i c oil re sources, developed rather different structures o f a c c u m u l a t i o n a n d c o n s u m p t i o n (with petrol, for instance, a b o u t three rimes rhe cost it is in the US), a n d se> have far o n l y 8 . 8 tems o f emissions pet person; C h i n a ' s r a p i d i n d u s t r i a l i s a t i o n a n d u r b a n i s a t i o n are based o n massive a m o u n t s o f coal a n d its total emissions are close t o that e)f the US figure, even t h o u g h its emissions per head in 2 0 0 4 were o n l y a little over a sixth o f the US figure a n d 4 0 percent o f the West European 316

figure/1 The Runaway System •

4

I hese e n o r m o u s differences m e a n t h a t measures that seriously tin hack o n emissions w o u l d hir firms based in different countries very differently. It this w h i c h explains w h y the E u r o p e a n U n i o n u e m e d m o r e c o m m i t t e d t o a c t i o n against c l i m a t e c h a n g e in the early 2 0 0 0 s t h a n the U S : its n a t i o n a l states stood t o gain from measures thar w o u l d proportionately hit US-based industries m o r e t h a n their o w n . T h e US figure is immensely i m p o r t a n t . " I n t e r n a t i o n a l institutions" for c o n t r o l l i n g the g l o b a l system c a n o n l y be effective insofar as their p r o g r a m m e s coincide w i t h the interests o f the USI ,ised capital, w i t h

its i m m e n s e military

power a n d

financial

influence. R e g i o n a l p o w e r s like R u s s i a , C h i n a , I n d i a or Western I urope m i g h t sometimes be able t o block regulation in US interests, but they c a n n o t substitute for it w i t h regulation o f their o w n . This applies as m u c h t o c a r b o n gas regulation as t o financial regulation through

the

IMF

or

trade

regulation

through

the

WTO.

Recognition by those w h o run the various parts o f the w o r l d system a b o u t the dangers o f climate c h a n g e will translate in practice t o fraught i n t e r n a t i o n a l n e g o t i a t i o n s in w h i c h each m a j o r state w i l l subordinate fighting climate c h a n g e t o the competitive interests o f the capitals based w i t h i n it. R e g u l a t i o n w i l l c o n t i n u e to be slow, ineffective a n d insufficient t o s t o p rhe destabilising effect of c a r b o n gases, n o t o n l y o n the climate, but o n the system as well. S o m e o f the i m m e d i a t e short-term effects o f c l i m a t e c h a n g e are already w i t h us. T h e m o s t i m m e d i a t e l y visible are those t h a t result directly f r o m rising temperatures: for instance, evidence t h a t glaciers are getting smaller, or t h a t m a n y species o f birds in Britain are laying their eggs a b o u t a week earlier t h a n in the 1950s. : : S o m e o f the m o s t i m p o r t a n t effects will be less direct t h a n these. C l i m a t e models suggest g l o b a l w a r m i n g causes shifts in ocean currents, in the a m o u n t o f w a t e r v a p o u r in the a t m o s p h e r e a n d a t m o s p h e r i c pressures, a n d rhat these in t u r n lead t o unexpected changes in weather patterns w i t h , for instance, m o r e frequent a n d m o r e powerful s t o r m s o n t h e o n e h a n d a n d d r o u g h t s o n the other. O n e c a n n o t d e d u c e f r o m this t h a t everv• short-term v a r i a t i o n in rhe weather is a result o f c l i m a t e c h a n g e , b u t rhe evidence is accumulating rhat b o t h hurricanes a n d d r o u g h t s are g r o w i n g in frequency. If the global w a r m i n g feedback m e c h a n i s m s kick in, such local catastrophes w i l l b e c o m e m u c h m o r e frequent. There will be m o r e c r o p failures, the f l o o d i n g o f rivers deltas a n d l o w l y i n g land areas, m o r e river i n u n d a t i o n s , m o r e desertification o f previous fertile areas, as well as shifts in patterns o f c u l t i v a t i o n . t he New Limits of Capital 316

Peak oil O n e o t h e r g r o w i n g ecological l i m i t t o c a p i t a l i s m is, paradoxically, tear t h a t rhe m a i n source o f c a r b o n gases at the m o m e n t , petro l e u m , m a y be r u n n i n g o u t . The n o r i o n o f " p e a k o i l " has been taken increasingly s e r i o u s l y — t h a t the p o i n t m a y b e a t h a n d at w h i c h oil p r o d u c t i o n c a n n o t rise a n y further ro meet g r o w i n g d e m a n d . The issue first c a m e i n t o p r o m i n e n c e back in 1998, after a n a m cle

appeared

in

the Scientific

American

which

predicted

«• 11

p r o d u c t i o n w o u l d peak w i t h i n ten years. Since t h e n there have been rebuttals a n d counter-rebuttals, w i t h v a r i o u s e c o n o m i s t s a n d geol ogists presenting very different scenarios for w h a t is h a p p e n i n g to oil reserves a n d p o t e n t i a l output.- 5 T h e a r g u m e n t s have ro a con siderable extent reflected the i m p a c t o f different interests. The g i a m oil firms tend t o exaggerate the extent o f the long-term supplies, since their share prices d e p e n d o n these. Their figures then conic u n d e r question f r o m those w o r r i e d a b o u t rhe long-term f u t u r e <>I rhe energy needs o f n a t i o n a l l y based c a p i t a l i s m s as well as from m u c k - r a k i n g critics o f the system as a w h o l e . A n d there arc consul erable difficulties in c o m i n g t o a n y exact c o n c l u s i o n as t o the real picture because rhe big oil p r o d u c i n g states conceal the real extern o f their reserves as they bargain w i t h each other w i t h i n O P E C a n d w i t h rhe oil c o m p a n i e s . As o n e critical report p o i n t s o u t : O n e o f the big questions still w a i t i n g for a n a n s w e r is rhe stare ol rhe oil p r o d u c t i o n i n rhe K i n g d o m o f Saudi A r a b i a ( K S A ) . M o s t likely, this issue will decide the t i m i n g o f w o r l d peak o i l . . . because o f the secrecy s u r r o u n d i n g the oil p r o d u c t i o n in the KSA. 2 4 Bur ir is possible t o d r a w r w o firm c o n c l u s i o n s f r o m the d e b a t e First, peak oil is likely w i t h i n rhe n e x t q u a r t e r century, a n d m a y be reached w i t h i n years rather t h a n decades, f o r c i n g reliance o n othei energy s u p p l i e s . T h e I n t e r n a t i o n a l Energy A g e n c y , rhe O E C D \ energy o r g a n i s a t i o n , l o n g resistant ro the p e a k oil a r g u m e n t , n o w accepts t h a t there w i l l be " a n i m m i n e n t 'oil c r u n c h ' in a f e w years t i m e " . 2 5 T h e Energy I n f o r m a t i o n A d m i n i s t r a t i o n ( E I A ) o f the I'S D e p a r t m e n t o f Energy c o n c l u d e d in J u l y 2 0 0 0 t h a t " w o r l d c o n v e n t i o n a l oil p r o d u c t i o n m a y increase t w o decades o r m o r e before it begins t o d e c l i n e " . But J o h n B e l l a m y Foster p o i n t s o u t , " T h e analysis itself, h o w e v e r . . . s u g g e s t e d t h a t a w o r l d oil peak c o u l d hi reached as early as 2 0 2 1 V * 318

The Runaway Systeri

I ffectively, w h i c h e v e r set o f figures o n e accepts, the b l i n d expansion o f c a p i t a l is close ro e x h a u s t i n g the s u p p l y o f its m o s t i m p o r t a n t r a w m a t e r i a l , o n e o n w h i c h a l m o s t all its p r o d u c t i o n •iud c o n s u m p t i o n d e p e n d . Peak oil does n o t signify its i m m e d i a t e disappearance: it w i l l c o n t i n u e t o be a v a i l a b l e for m a n y decades, bui the cost o f getting it w i l l rise a n d the conflicts over w h o has it .11 id w h o does n o t w i l l get m o r e intense. Regardless o f w h e n the peak w i l l be reached, states are w o r r i e d hi the here a n d n o w a b o u t f u t u r e " e n e r g y s e c u r i t y " . S o there have been repeated reports in the U S expressing such c o n c e r n s , g o i n g right b a c k t o the i n f a m o u s N a t i o n a l E n e r g y Policy r e p o r t in M a y 2 0 0 1 d r a w n b y a task force h e a d e d by vice-president C h e n e y . W i t h o u t m e n t i o n i n g p e a k o i l , it stressed c o n c e r n a b o u t g u a r a n teeing U S o i l supplies a n d u r g e d , " M a k e energy security a p r i o r i t y of

our V a d e

and

foreign

policy".27

A

February

2007

US

< l o v e r n m e n t A c c o u n t a b i l i t y ' O f f i c e report " a r g u e d t h a t a l m o s t all studies h a d s h o w n t h a t a w o r l d oil peak w o u l d o c c u r s o m e t i m e before 2 0 4 0 a n d t h a t U S federal agencies h a d n o t yet b e g u n t o address the issue o f t h e n a t i o n a l p r e p a r e d n e s s necessary t o face this impending emergency".2* I he term " e n e r g y s e c u r i t y " , like t h a t o f " d e f e n c e " , has a d o u b l e m e a n i n g w h e n used by g o v e r n m e n t s . It c a n m e a n p r o t e c t i n g the energy i n p u t o f d o m e s t i c a n d i n d u s t r i a l use. But it c a n also m e a n o p e r a t i n g policies t h a t a l l o w a d d e d pressure t o be a p p l i e d t o o t h e r states. S o , for instance, c o n t r o l over oil o u t f l o w s f r o m the M i d d l e I ast, o n e o f rhe g o a l s o f the US i n v a s i o n o f I r a q i n 2 0 0 3 , is m o r e a b o u t c o n t r o l o v e r oil s u p p l i e s w h i c h p o t e n t i a l r e g i o n a l challengers t o US h e g e m o n y d e p e n d o n t h a n a b o u t the US's o w n supplies. O n l y a b o u t o n e e i g h t h o f these c o m e f r o m the region (as a g a i n s t three e i g h t h s f r o m

Canada,

Mexico

and

Venezuela).

Significantly, the U S ensures it h a s bases o r reliable allies a t key p o i n t s o n i n t e r n a t i o n a l oil pipelines a n d oil r o u t e s — h e n c e , f o r instance, rhe bitterness o f its response t o the R u s s i a n assertion o f influence in the G e o r g i a - S o u t h O s s e t i a w a r o f A u g u s t 2 0 0 8 . A w o r l d a p p r o a c h i n g " p e a k o i l " is necessarily a w o r l d o f h e i g h t e n e d clashes between states a n d w i t h i n states, just as the w o r l d o f clim a t e c h a n g e is. T h e r e is a n i n e v i t a b l e i n t e r p l a y b e t w e e n rhe t w o . T o s o m e it m i g h t seem t h a r p e a k o i l , a n d t h e r i s i n g oil prices it w i l l b r i n g a b o u t , w i l l act as a c o u n t e r t o c l i m a t e c h a n g e . T h e r e m a y be a limited d o w n w a r d pressure o n oil c o n s u m p t i o n — a s , for instance, t he New Limits of Capital

319

h a p p e n e d in rhe case o f petrol c o n s u m p t i o n w h e n oil prices shm u p in m i d d l e o f 2 0 0 8 . 2 ' But there is n o a u t o m a t i c c a n c e l l i n g nl o n e effect by rhe other. Peak oil is c o m p a t i b l e w i t h a level of con s u m p t i o n o f oil as g r e a t as at present f o r m a n y years, w i t h

i

c o r r e s p o n d i n g build u p o f c a r b o n gases. xMeanwhile energy set n rity fears are l e a d i n g t o a n intensified search f o r m o r e oil, tin e x p a n s i o n o f the o t h e r c a r b o n gas source, c o a l , a n d t h e use «>l m a i z e or vegetable oils t o p r o d u c e c t h a n o l a n d biodiesel for trail p o r t fuel processes w h i c h can even increase g l o b a l c a r b o n gas emissions. "

F o o d a n d capitalism T h e years 2006-8 p r o v i d e d a h i n t t h a t c a p i t a l i s m is c r e a t i n g an other ecological barrier to itsel f — t h a t o f n o t being able t o produce e n o u g h f o o d for those w h o live w i t h i n it. S o a r i n g f o o d prices raised questions as to w h e t h e r it w a s b e g i n n i n g to e x h a u s t its l i pacitv t o keep f o o d p r o d u c t i o n rising, as c o m m e n t a t o r s pointed in r a p i d l y d e c l i n i n g rates o f g l o b a l f o o d o u t p u t growth. 3 1 T h i s w a s n o t the first t i m e there h a v e been such concerns M a l t h u s h a d argued in the early years o f industrial c a p i t a l i s m thai there w a s n o p o i n t in raising the living s t a n d a r d s o f the mass of the p o p u l a t i o n , since this w o u l d p r o m p t t h e m to have m o r e children at a faster rate t h a n f o o d p r o d u c t i o n w o u l d rise t o feed them. M a r x a n d Fngels rejected this view that a natural barrier t o h u m a n welfare existed as a n a p o l o g y for e x p l o i t a t i o n by a defender of tlu system. But they d i d h o l d , as w e h a v e seen in C h a p t e r Three, that capitalism itself created obstacles t o f o o d provision once it h a d de veloped

beyond

a certain

point. This was

because capitalist

a g r i c u l t u r e removed the nutrients necessary for fertility f r o m the soil m o r e r a p i d l y t h a n it replaced them. 5 2 M a r x a n d Engels d i d n o t pur rhe issue at the centre o f then analysis o f c a p i t a l i s m for the simple reason that they c o u l d see that by rhe 1860s a n d 1870s the system was c a p a b l e o f substituting foi the d e p r e d a t i o n s o f agriculture in its old established lands by tlu p r o d u c t i o n o f foodstuffs in N o r t h A m e r i c a , w i t h the o p e n i n g up o f the prairies ro agriculture. T h e issue became o f m a r g i n a l con cern ro m o s t M a r x i s t s after their death because the use o f mineral fertilisers w a s able t o c o m p e n s a t e for the loss o f n a t u r a l nutrients. W o r l d w i d e f o o d p r o d u c t i o n kept a h e a d o f p o p u l a t i o n g r o w t h 319 The Runaway Systeri

light t h r o u g h to the e n d o f the 2 0 t h century. There were horrific 11mines a n d persistent long-term m a l n u t r i t i o n for h u n d r e d s of millions o f people, b u t these were a result n o t of under-production hut o f class-induced poverty. Signs o f i m p e n d i n g a b s o l u t e f o o d shortages in S o u t h a n d Hast Asia in the 1960s were o v e r c o m e by i he " G r e e n R e v o l u t i o n " — t h e i n t r o d u c t i o n o f n e w grain types dependent o n big i n p u t s o f fertiliser a n d increased irrigation. These were n o r m a l l y c o m b i n e d w i t h the spread o f various f o r m s o f capitalist a g r i c u l t u r e in place o f the subsistent peasant farmer. T h e increases in f o o d yields were very r e a l — i t is stupid o f s o m e " o r g a n i c " critics o f m o d e r n agriculture t o c l a i m o t h e r w i s e — w i t h wheat yields g r o w i n g between 3 a n d 4 percent a year between rhe iiiid-l 9 6 0 s a n d the m i d - 1 9 8 0 s , a n d rice yields between 2 a n d 3 percent. But over the last t w o decades the increases h a v e fallen until they are b a r e l y a h e a d o f (declining) p o p u l a t i o n

growrh:

" O u t p u t f r o m the Green R e v o l u t i o n has reached a ' p l a t e a u " . I ver greater quantities o f fertiliser are required to increase o u t p u t , water sufficiency becomes a g r o w i n g p r o b l e m , c o n c e n t r a t i o n o n a very n a r r o w range of c r o p types increases the dangers f r o m p l a n t diseases, a n d w o r l d acreage devoted to f o o d is n o t g r o w i n g . As a World Bank Development Report admits: M a n y agriculture-based c o u n t r i e s still d i s p l a y a n a e m i c I

capita agricultural growth

and

little structural

per

transforma-

t i o n . . . T h e s a m e applies t o vast areas w i t h i n countries of all types. R a p i d p o p u l a t i o n g r o w t h , d e c l i n i n g f a r m size, falling soil fertility, a n d missed o p p o r t u n i t i e s for i n c o m e diversification a n d m i g r a t i o n create distress as the p o w e r s o f agriculture for develo p m e n t remain low. 34 I he p r o b l e m is nor t h a t s o m e h o w , after 2 0 0 years, M a l t h u s has been v i n d i c a t e d . M e a n s exist t o raise f o o d o u t p u t t o c o p e w i t h w o r l d p o p u l a t i o n , expected ro g r o w a n o t h e r 5 0 percent a n d then slowly decline. T h e p r o b l e m is the existing " s t r u c t u r e o f agricultural a c c u m u l a t i o n " . 3 5 G l o b a l agriculture since the mid-1970s has been increasingly structured by a h a n d f u l o f agribusiness corporations,

mainly

based

in

the

US,

that

control

agricultural

i n n o v a t i o n , s u p p l y i n g the i n p u t s (seed varieties, fertilisers, pesticides, a g r i c u l t u r a l m a c h i n e r y ) for the w o r l d ' s f a r m e r s , b i g a n d small. T h e i r interest is i n k e e p i n g t h o s e i n p u t s s t a n d a r d i s e d (so k e e p i n g d o w n their o w n costs o f p r o d u c t i o n ) , w i t h as lirtle regard I he New Limits ot Capital

for p a r t i c u l a r local g r o w i n g c o n d i t i o n s as possible. T h e i r reseat J i has " f o c u s e d o n i n n o v a t i o n s t h a t reduced costs r a t h e r t h a n en hanced

yields". ' The

result

has

been

little

in

t h e wa\

i n n o v a t i o n t o suit the needs o f the w o r l d ' s 4 0 0 m i l l i o n sin.ill f a r m e r s — e x c e p t t o preach G M c r o p s as a m a g i c s o l u t i o n , regard less o f their p o t e n t i a l side-effects o n

local ecologies a n d tin-

i n a p p l i c a b i l i t y of t h o s e so far d e v e l o p e d t o c o n d i t i o n s in vei\ w i d e parts o f the w o r l d . M e a n w h i l e , i n d i v i d u a l d e v e l o p i n g conn tries have reduced a g r i c u l t u r a l investment t o a r o u n d 4 percent nl G N P c o m p a r e d w i t h 10 percent in 1 9 8 0 . ; Yet, as R o n a l d Trosile o f rhe US D e p a r t m e n t o f Agriculture's e c o n o m i c research unit says, " i t w a s always p u b l i c l y f u n d e d research that w a s m o r e likely t o concentrate o n i n n o v a t i o n s that w o u l d increase yields a n d prn d u c t i o n , p a r t i c u l a r l y in parts o f the w o r l d w h e r e farmers ,tte u n a b l e t o pay royalties for n e w varieties o f seeds'V* T h e dangers to the w o r l d ' s f o o d s u p p l y were b r o u g h t home sharply in 2007-8 w h e n grain prices i n t e r n a t i o n a l l y surged, creat ing rhe risk o f starvation for h u n d r e d s o f millions o f people. Rising f o o d prices were h u r t i n g m a n y o f those small farmers w h o bought as well as sold f o o d . " F o o d security" suddenly joined energy seen ritv as a concern for g o v e r n m e n t s . In the short term the ability nl farmers in E u r o p e a n d N o r t h A m e r i c a t o cultivate l a n d w h i c h h.id been left idle u n d e r "set a s i d e " schemes raised the possibility ol filling

s o m e o f the g a p s in the g l o b a l f o o d s u p p l y a n d there were

limited falls in s o m e prices by the b e g i n n i n g o f 2 0 0 9 — a l t h o u g h n o t t o the level o f t w o years earlier. T h e crisis w a s m o r e likely t o be a n o m e n for rhe f u t u r e — t h e threat o f i m m e n s e h a r d s h i p t o h u n d r e d s o f m i l l i o n s o f people t h a n the i m m e d i a t e onset o f g l o b a l catastrophe. 1 ' The "real risk r e m a i n e d o f a " f o o d c r u n c h at s o m e p o i n t in the future, w h i i h w o u l d fall p a r t i c u l a r l y h a r d o n i m p o r t - d e p e n d e n t c o u n t r i e s a m i o n p o o r people e v e r y w h e r e " , reported o n e study. 4 " I n d i c a t i o n * were that the f o o d price rises o f 2006-8 h a d n o t s i m p l y just been i result o f speculation d u r i n g rhe last phase o f the m i d - 2 0 0 0 s b o o m Early in 2 0 0 9 a report c o u l d tell h o w " f o o d prices are poised to rise a g a i n " as long-term "resource scarcity trends, n o t a b l y climate c h a n g e , energy security a n d falling water a v a i l a b i l i t y ' ' , w o u l d put pressure o n prices a n d p r o d u c t i o n . 4 1 T h e f o o d shortage o f 2 0 0 8 s h o w e d the w a y in w h i c h the dil ferent elements o f crisis e n d e m i c t o c a p i t a l i s m in the 21 st centui v can interact w i t h each other. F o r the s h o r t a g e w a s n o t just as .i 322

The Runaway• System i

result o f the e x h a u s t i o n o f the benefits o f the G r e e n R e v o l u t i o n . It was also a p r o d u c t o f the p r o b a b l e effects o f c l i m a t e c h a n g e , w i t h »rop failures in A u s t r a l i a d u e to d r o u g h t a n d in E u r o p e d u e to llooding; o f the typically perverse capitalist w a y t o offset c l i m a t e • hange a n d energy security by d e v o t i n g a t h i r d o f the US m a i z e drop a n d h a l f the E u r o p e a n oil seed c r o p t o rhe p r o d u c t i o n o f bioluels; 42 o f the rising oil price, w h i c h

forced u p the costs o f

li rtilisers a n d fuels o n w h i c h 21st century f a r m i n g d e p e n d s ; a n d of rhe sharpness o f the b o o m p a r t o f rhe c a p i t a l i s t cycle in rhe r a l l y a n d m i d - 2 0 0 0 s , w h i c h massively increased m i d d l e class meat c o n s u m p t i o n , especially in C h i n a . It is rhe sort o f interaction o f the e c o n o m i c , rhe e n v i r o n m e n t a l and the political we s h o u l d expect t o see repeated a g a i n a n d a g a i n in the 21sr century, p r o d u c i n g recurrent, very deep social a n d political crises that f r a m e the choice between global c a t a s t r o p h e a n d revolutionary c h a n g e .

I lie New Limits of Capital

( HAPTER THIRTEEN

The runaway system and the future for humanity

A n t h o n y G i d d e n s p u b l i s h e d a b o o k w i t h a strange title in 1999 at the h i g h p o i n t o f illusions in g l o b a l i s a t i o n a n d the " n e w e c o n o m i c p a r a d i g m " . H e w a s ( a n d still is) Britain's best k n o w a c a d e m i c advocate o f t h e " t h i r d w a y "

t h a t ditches o l d social

democratic

a t t e m p t s t o t a m e c a p i t a l i s m a n d w a s a p t l y described as " T o n y lllair's c o u r t s o c i o l o g i s t " . ' Yet the title w a s The Runaway

World. It

conveys the i m a g e o f a b o l t i n g horse, w h i c h g o v e r n m e n t s , social m o v e m e n t s a n d i n d i v i d u a l s a l i k e c a n n o t s t o p b u t have t o try t o b a l a n c e o n precariously. T h e best they can d o is t o try t o influence where it is t a k i n g t h e m by s p u r r i n g it o n it w i t h i n v e s t m e n t s in cial c a p i t a l o n the o n e side a n d r e i n i n g it in w i t h c u t b a c k s in welfare e x p e n d i t u r e s o n the other. Yet the succession o f crises a n d wars t h a t h a v e p u n c t u a t e d the last f o u r decades showT t h e futility of s u c h efforts. T h e r u n a w a y w o r l d is, in fact, the e c o n o m i c system as M a r x described it, the Frankenstein's m o n s t e r t h a t has escaped f r o m h u m a n c o n t r o l ; the v a m p i r e t h a t saps the l i f e b l o o d o f the l i v i n g bodies it feeds off. Its self-expansion has indeed led it t o e n c o m p a s s the w h o l e g l o b e , d r a w i n g all o f h u m a n i t y i n t o its cycles o f c o m p e t i n g in order ro a c c u m u l a t e a n d a c c u m u l a t i n g in order t o c o m p e t e . Its e x p a n s i o n has been m a r k e d , as m u c h in the 21st c e n t u r y as in the m i d - 1 9 t h c e n t u r y w h e n M a r x d i d his research for

Capital,

by firs a n d starts, by frenzied f o r w a r d m o t i o n s u d d e n l y interrupted by d e e p crises. R u n n i n g t h r o u g h the cycles o f e x p a n s i o n a n d recession has been the o t h e r feature M a r x p o i n t e d to: d o w n w a r d pressure o n p r o f i t a b i l i t y c a u s i n g c a p i t a l i s t s t o try t o c u t back o n wages a n d w e l f a r e benefits a t the s a m e t i m e as pressuring p e o p l e 325

ro w o r k harder, even t h o u g h in d o i n g so this cuts i n t o the mark* i for c o n s u m e r g o o d s p r o d u c e d by other capitalists. W e have mvii h o w these elements c a m e together t o produce the great s l u m p the inter-war years, renewed crisis in the m i d - 1 9 7 0 s , a n d rhe long d r a w n o u t Japanese crisis o f the 1990s. W e saw also h o w they pr«» duced the debt e c o n o m y b u b b l e c u l m i n a t i n g i n the great crash ol 2007-9. W e will see this h a p p e n a g a i n repeatedly, in one form <w other, in the decades ahead. In s o m e i m p o r t a n t ways, the system is even m o r e c h a o t i c than in M a r x ' s a c c o u n t . T h e very size o f the units that m a k e it u p mean , that it has lost s o m e o f its o l d flexibility. The destruction o f some capitals t h r o u g h periodic crises w h i c h o n c e gave n e w life to those that remained n o w threatens t o pull these d o w n as well. Life sup p o r t systems p r o v i d e d by the state m a y be a b l e keep the system from c o m p l e t e collapse bur c a n n o t restore it t o long-term vigom A t best they p r o v i d e a feverish spell o f brief exhilaration before set a n o t h e r collapse. A n d cost the o f p r o v i d i n g the life s u p p o r t »v> tems sooner or later stretches the resources o f the state close to breaking point. M o d e r n states are creatures o f the c a p i t a l i s t system, e v o l v i n g t o service the needs o f the g e o g r a p h i c a l clusters o f c a p i t a l s that c o n s t i t u t e it. T h e m o r e these clusters d e p e n d o n their relations w i t h the rest o f rhe g l o b a l system, the m o r e they need t h e p o w e r o f states t o p r o v i d e f o r t h e i r interests w i t h i n it. Yer each stale c a n o n l y a c h i e v e this g o a l b y p r e s s u r i s i n g o t h e r states, a n d in t h e process a d d i n g t o the i n s t a b i l i t y o f the system as a w h o l e . T h e m e a s u r e s n a t i o n a l states t a k e t o a i d the c a p i t a l s based w i t h i n t h e m d u r i n g a crisis necessarily i n f r i n g e o n the interests o f c a p i t a l s based in o t h e r states, i n c r e a s i n g the i n s t a b i l i t y snll further. T h e i r s i g n i f i c a n c e is n o t l i m i t e d t o a p a r t i c u l a r eco n o m i c crisis. T h e y p r o v i d e a foretaste o f w h a t rhe rest of rhe 21st c e n t u r y is g o i n g t o be like. C a p i t a l i s m is a restless system. W h e t h e r in b o o m or s l u m p , m peace or war, in a great city or the r e m o t e c o u n t r y s i d e , it never stands still. C o m p e t i t i v e a c c u m u l a t i o n touches a n d t h e n , w h e n it has h a r d l y

r e m o u l d s everything it finished,

r e m o u l d s it all

a g a i n . T h e very speed o f c h a n g e itself has e n o r m o u s i m p o r t a n c e . It m e a n s t h a t rhe relative e c o n o m i c weights o f the different states w i t h i n w h i c h the units o f c a p i t a l are based are c o n t i n u a l l y i n flux, just as the states have to try t o intervene t o protect their capitalists f r o m rhe recurrent c o n v u l s i o n s o f rhe g l o b a l system. 326

The Runaway Systeri

The p r o b l e m is acute for rhe US, at the t o p o f the g l o b a l hierari hy. Its position h a d d e p e n d e d o n its being the p o l i c e m a n for the whole system, offering general protection, M a f i a style, t o the other i uling classes, w h i l e using t h a t p o s i t i o n t o privilege the position o f I IS based capitals. Crises m a k e those capitals need t h a t privileged position m o r e t h a n ever. T h e failures in the " w a r o n t e r r o r " m e a n t that already in the m i d - 2 0 0 0 s other states felt m o r e e m p o w e r e d to challenge such privilege, s h o w n by C h i n a ' s increased s w a y in Africa, Russia's in parrs o f the f o r m e r U S S R , a n d the B R I C S in global trade negotiations. T h e n c a m e the crisis t h a t began in 2 0 0 7 with w i d e s p r e a d predictions that it w o u l d d e n t US g l o b a l hegem o n y even m o r e just as m a n y o f its great c o r p o r a t i o n s l o o k e d to ihat h e g e m o n y t o help t h e m o u t . US i m p e r i a l i s m m i g h t be t e m p o r a r i l y chastened as it contemplated the w a y in w h i c h s o m e o f its recent adventures

have

rebounded to its d i s a d v a n t a g e — j u s t as the V i e t n a m W a r d i d . But it can n o t a b a n d o n its g l o b a l p o s i t i o n , even if d e f e n d i n g it leads to further assertions o f military m i g h t in other poorer countries, w i t h devastating a n d destructive consequences. Increased t r o o p deployments were m e a n t t o ensure the retreat f r o m Iraq did n o t t u r n i n t o r o u t in A f g h a n i s t a n . Significantly, Barak O b a m a ' s first b u d g e t increased, rather t h a n decreased, m i l i t a r y e x p e n d i t u r e . A n d so d i d the budgets a n n o u n c e d in the s a m e m o n t h for Russia a n d C h i n a . I he b l o o d y r o a d w h i c h led f r o m Korea t o V i e t n a m a n d

from

V i e t n a m t o Iraq is n o t yet at a n e n d . But that is n o t all. T h e " n e w " , e n v i r o n m e n t a l , limits o f capital will react back u p o n its old e c o n o m i c limits. C l i m a t e change, peak oil a n d global f o o d shortages will a d d t o the overall e c o n o m i c instability o f the system expressed in the boom-bust cycle, die d o w n w a r d pressure o n the rare o f profit a n d the flows o f capital from industry to industry a n d country t o country. W e had a glimpse o f this in the first half o f 2 0 0 8 . Rising f o o d a n d energy prices p r o d u c e d an inflationary surge w h i c h added to government difficulties in dealing with rhe credit c r u n c h at the same t i m e as causing protests, riots a n d strikes in a score o f countries. W e can expect m a n y m o r e clashes within a n d between states as p r o b l e m s o f food security a n d energy security lead to shifts in surplus value f r o m some sections o f capital to others a n d p r o v o k e p o p u l a r outrage. A n d all rhe time c l i m a t e change t i p p i n g p o i n t s can suddenly i m p a c t unexpectedly o n hundreds o f m i l l i o n s o f people's lives, in m u c h the same w a y that e c o n o m i c crises a n d wars d o , b u t even m o r e destructively. The Runaway System and rhe Future for Humanity

327

T h e starkest r e c o g n i t i o n o f the possible consequences c a m e f r o m the US D e p a r t m e n t o f Defence, the P e n t a g o n , at rhe tirm

]

w h e n rhe official p o s i t i o n o f the US g o v e r n m e n t w a s still t o refusi t o recognise the reality o f climate change. It w a r n e d o f rhe danger o f " f o o d shortages d u e t o decreases in net global a g r i c u l t u r a l prod u c t i o n " , "decreased availability a n d q u a l i t y o f fresh water in key regions d u e to shifted p r e c i p i t a t i o n patterns, c a u s i n g m o r e freq u e n t floods a n d d r o u g h t s " , a n d

"'disrupted access t o energy

supplies d u e ro extensive sea ice a n d s t o r m i n e s s " . T h e o u t c o m e , as it saw it, w o u l d be a n increased occurrence of resource w a r s a n d civil wars: As g l o b a l and local carrying capacities are r e d u c e d , tensions c o u l d m o u n t a r o u n d the w o r l d , l e a d i n g t o t w o f u n d a m e n t a l strategies: defensive a n d offensive. N a t i o n s w i t h the resources to d o so m a y build virtual fortresses a r o u n d their countries, preserving

resources

for

themselves.

Less

fortunate

nations,

especially those w i t h a n c i e n t enmities w i t h their n e i g h b o u r s , m a y initiate struggles for access to f o o d , clean water, or energy. U n l i k e l y alliances c o u l d be f o r m e d as defence priorities shift a n d rhe goal is resources for survival rather t h a n religion, ideology, o r n a t i o n a l h o n o u r . . . There w o u l d be " a n increasingly disorderly a n d p o t e n t i a l l y violent w o r l d " . 2 T h i s will be disorder in a w o r l d in w h i c h eight o f the biggest stares possess nuclear w e a p o n s t h a t are targeted at others, scores have " c o n v e n t i o n a l w e a p o n r y " m u c h m o r e destructive a n d hor rific t h a n t h a t o f the Second W o r l d W a r , a n d p r o l i f e r a t i n g civil nuclear energy can p r o v i d e c o n v e n t i o n a l w e a p o n s w i t h deadly targets. T h e

runaway

system

threatens

more

than

devastating

p e r i o d i c s l u m p s a n d horrific w a r s . Ir p u t s i n t o q u e s t i o n the very possibility of sustaining h u m a n life o n E a r t h . T h e system o f alienated l a b o u r is a p p r o a c h i n g its highest p o i n t o f destructiveness. T h e question is w h e t h e r those w h o p r o d u c e t h a t l a b o u r are c a p a b l e o f seizing c o n t r o l o f its w e a l t h a n d subjecting it t o c o n s c i o u s c o n t r o l

328

The Runaway Systeri

|

< HAPTER FOURTEEN

Who can overcome?

I lie decisive q u e s t i o n . We live in a system w h i c h is u n s t a b l e , w h i c h breeds e c o n o m i c irises a n d w a r s , a n d w h i c h is e a t i n g u p the very e n v i r o n m e n t a l basis it s t a n d ? o n . T h i s is g o i n g t o lead its c o m p o n e n t n a t i o n a l sectors i n t o repeated social a n d p o l i t i c a l crises in the c o u r s e o f the 11st century. Just as the 2 0 t h c e n t u r y w a s a c e n t u r y o f w a r s , civil wars a n d r e v o l u t i o n s , so t o o is the 21st century. But this leaves open a d e c i s i v e — t h e d e c i s i v e — q u e s t i o n . W h a t forces exist t h a t arc c a p a b l e o f t a k i n g o n the system a n d t r a n s f o r m i n g rhe w o r l d ? F o r classical M a r x i s m , the a n s w e r w a s s i m p l e . T h e g r o w t h of c a p i t a l i s m w a s necessarily a c c o m p a n i e d b y the g r o w t h o f the class it e x p l o i t e d , the w o r k i n g class, a n d this w o u l d be at the centre o f rhe revolt against the system. It w a s n o t the first e x p l o i t e d a n d oppressed class in

history. B u t it differed

from

the 2 0 0

or

so

generations o f peasants a n d slaves t h a t preceded it in very i m p o r tant respects. C a p i t a l i s t e x p l o i t a t i o n w a s c o n c e n t r a t e d in h u g e w o r k p l a c e s in g i a n t i n d u s t r i a l c o n u r b a t i o n s , g i v i n g t h e w o r k i n g class p o w e r a t decisive p o i n t s in the society in w h i c h it f o u n d itself. Such e x p l o i t a t i o n t e n d e d t o p r o d u c e h o m o g e n e i t y in rhe conditions o f its m e m b e r s as c a p i t a l repeatedly reduced different f o r m s o f c o n c r e t e l a b o u r t o a b s t r a c t l a b o u r . A n d c a p i t a l required an exploited class that has a level o f c u l t u r e — o f literacy, n u m e r a c y a n d k n o w l e d g e o f the w o r l d at l a r g e — g r e a t e r n o t merely t h a n preceding e x p l o i t e d classes, b u t also t h a n m o s t p r e c e d i n g r u l i n g classes. These factors c o m b i n e d ro create the p o t e n t i a l i t y for it to take control o f society as a w h o l e i n t o its o w n h a n d s in a w a y t h a t w a s not true o f its predecessors. But p o t e n t i a l i t y w a s n o t actuality. T h e d e v e l o p m e n t o f capitalism w a s n o t a s i m p l e s m o o t h u p w a r d process t h a t h a d its i m p a c t o n the e x p l o i t e d class it created. There w a s unevenness over t i m e , 329

w i t h rhe c o n c e n t r a t i o n o f w o r k e r s i n t o centres o f e x p l o i t a t i o n d a r i n g b o o m s a n d rhe e x p u l s i o n o f s o m e from those cent its d u r i n g s l u m p . There w a s geographic unevenness, w i t h s o m e cen tres arising in c o n n e c t i o n w i t h n a t i o n a l states before others, a m i then sometimes d e c l i n i n g as new centres s u p p l a n t e d t h e m . These forms o f capitalist unevenness led to unevenness w i t h i n the work i n g class, w i t h different levels o f skill a n d p a y m e n t arising, with c o m p e t i t i o n for jobs a n d security o f e m p l o y m e n t between diffei e n t g r o u p s of w o r k e r s , w i t h sections o f workers i d e n t i f y i n g with the p a r t i c u l a r state t h a t controlled t h e m because it seemed a l o c u s f o r a c h i e v i n g r e f o r m s o f the system. Nevertheless, f o r classical M a r x i s m , this w a s a class w h i c h w o u l d be driven t o u n i t e periodi cally by the very pressures o f the system u p o n it. Skill differentials which

h a d arisen at o n e p o i n t w o u l d

be eroded a t

another

C o m p e t i t i o n between workers w o u l d f a d e as they f o u g h t togethci to achieve o v e r r i d i n g c o m m o n goals. N a t i o n a l ideologies w o u l d lose their h o l d in the face of the horrors o f imperialist wars. This n o t i o n , rhar the w o r k i n g class provides rhe agency that can c h a n g e society, has been challenged even m o r e t h a n M a r x s ac c o u n t o f the e c o n o m i c d y n a m i c of the system. M a r x w a s a brilliant e c o n o m i s t a n d a pioneering sociologist, the a r g u m e n t goes, bur lei I i n t o a n a p o c a l y p t i c vision o f the f u t u r e w h i c h ascribed a meta physical

role t o

the

working

class.

The

spread

of

modern

c a p i t a l i s m , the a r g u m e n t continues, has n o t been a c c o m p a n i e d In rhe g r o w t h o f the w o r k i n g class, the c o n d i t i o n s o f those workers t h a t d o exist have n o t been h o m o g e n i s e d , a n d rhey d o n o t develop a consciousness in o p p o s i t i o n to the system. S u c h c o n t e n t i o n s w e r e a l r e a d y very w i d e s p r e a d d u r i n g tinl o n g post-war b o o m . As a n o t a b l e s o c i o l o g i c a l s t u d y o f British workers told: A m a j o r a n d recurrent t h e m e — a n d most n o t a b l y in liberal qua? ters—| was] t h a t o f the incipient decline a n d decomposition

of

rhe w o r k i n g class. As rhe d e v e l o p m e n t o f industrial societies c o n t i n u e d , it was suggested, the w o r k i n g class, u n d e r s t o o d as .1 social s t r a t u m w i t h its o w n distinctive w a y s o f life, values a n d goals, w o u l d b e c o m e increasingly eroded by the m a i n currents o f change. T h e very idea o f a w o r k i n g class h a d been f o r m e d in, a n d in fact belonged t o , the infancy o f industrial society: in the era to c o m e it w o u l d steadily lose its empirical referent. Social in equalities w o u l d n o d o u b t persist; but these w o u l d be modified 330

T h e Runaway Systeri

.1 nd structured in such a w a y t h a t the society o f the f u t u r e w o u l d he an o v e r w h e l m i n g l y "middle-class" society, w i t h i n w h i c h the divisions o f the past w o u l d n o longer be recognisable. 1 So pervasive were these a r g u m e n r s t h a t they influenced the thinking o f radicals such as t h e A m e r i c a n sociologist C W r i g h t M i l l s a n d revolutionaries like H e r b e r t M a reuse, w h i l e f a s h i o n a b l e sociologists generalised the a r g u m e n t a b o u t "post-industrial society" 10 rhe a d v a n c e d c o u n t r i e s as a w h o l e . T h e y all l o o k e d rather foolish w h e n French w o r k e r s u n d e r t o o k the biggest general strike in history so far in M a y 1968 a n d w a v e s o f i n d u s t r i a l struggle s w e p t t h r o u g h Italy, B r i t a i n , x\rgentina, S p a i n a n d P o r t u g a l in the years 1969-75. Yet the a r g u m e n t revived in rhe 1980s a n d 1990s as the restructuring o f c a p i t a l i s m t h r o u g h crisis d e c i m a t e d m a n y o l d established sectors o f the w o r k i n g class a n d industrial defeat led t o a w a n i n g o f class c o m b a t i v i t y . L a c l a u a n d M o u f f e were s w i m m i n g w i t h the tide o f intellectual o p i n i o n w h e n they asserted in a n i n f l u e n t i a l w o r k in the mid1980s, " I t is i m p o s s i b l e t o d a y t o talk a b o u t the h o m o g e n e i t y o f the w o r k i n g class a n d ro trace it t o a m e c h a n i s m inscribed in the logic o f c a p i t a l a c c u m u l a t i o n " . 4 So t o o were M i c h a e l H a r d t a n d A n t o n i o N e g r i w h e n they c l a i m e d in 2 0 0 0 t h a t " t h e i n d u s t r i a l w o r k i n g class" h a d " a l l bur d i s a p p e a r e d f r o m view. It has n o t ceased t o exist, b u t it has been displaced f r o m its privileged position in the capitalist e c o n o m y " . Yet, n o t for t h e first t i m e , the c o m m o n sense a m o n g philosophers has d e p a r t e d f r o m e m p i r i c a l reality. A detailed study o f the w o r l d ' s w o r k f o r c e in t h e m i d - 1 9 9 0 s by D e o n F i l m e r c a l c u l a t e d t h a t o f 2 , 4 7 4 m i l l i o n p e o p l e w h o p a r t i c i p a t e d in the g l o b a l nond o m e s t i c l a b o u r force, 8 8 9 m i l l i o n w o r k e d for w a g e s o r salaries, 1,000 m i l l i o n p e o p l e m a i n l y for their o w n a c c o u n t o n the l a n d , a n d 4 8 0 m i l l i o n for their o w n a c c o u n t in i n d u s t r y a n d services. 6 Probably about

10 percent o f t h o s e e m p l o y e d w i l l h a v e been

m e m b e r s o f the n e w m i d d l e class w h o receive m o r e v a l u e t h a n they create in return for h e l p i n g t o c o n t r o l rhe mass o f w o r k e r s . T h i s m e a n s there were a r o u n d 7 0 0 m i l l i o n w o r k e r s , w i t h a b o u t a t h i r d in " i n d u s t r y " a n d t h e rest in " s e r v i c e s " . T h e total size o f the w o r k i n g class i n c l u d i n g their d e p e n d a n t s a n d those w h o have retired m u s t h a v e been b e t w e e n

1.5 a n d 2 b i l l i o n . M o r e recent

figures f r o m the U n i t e d N a t i o n s D e v e l o p m e n t P r o g r a m m e suggest a g l o b a l t o t a l for t h o s e in i n d u s t r y s u b s t a n t i a l l y h i g h e r W h o Can Overcome?

than 331

F i l m e r s . * A n y o n e w h o believes w e have said " f a r e w e l l " t o tin* class is nor living in the real w o r l d . M a r x m a d e a distinction between a class w h i c h exists in itself as an objective element in the social structure, shaped by the rela tions o f people to rhe m e a n s o f m a k i n g a livelihood, a n d a class /• itself, w i t h a consciousness o f its position a n d o f its interests in o p p o s i t i o n t o rhose o f a n o t h e r class. T h e key c o n c l u s i o n t o draw f r o m all the figures is that the w o r k i n g class exists as never befoir as a class in itselfwith

a core o f p e r h a p s 2 billion people, or .1

third o f the g l o b a l p o p u l a t i o n . O n t o p o f this there are very large n u m b e r s o f peasants, u p to 50 percent, w h o d o some w a g e labour a n d so are subject t o m u c h of the same logic o f the system as the workers. T h e global proletariat and semi-proletariat c o m b i n e d a it the m a j o r i t y o f the p o p u l a t i o n for the first time in history. But we need to g o b e y o n d these general figures if we are 1 •» grasp rhe potential for the world's workers t o challenge the system. It is necessary first t o look h o w changes in the system are c h a n g i n g different sectors o f workers.

T h e " a d v a n c e d " countries: the effects o f restructuring T h e repeated restructuring o f p r o d u c t i o n m e a n s that the w o r k i n g class in rhe advanced countries t o d a y is different in m a n y respects ro that 4 0 or 5 0 years ago. But this does n o t justify the claim thai the w o r k i n g class has disappeared as a result o f "deindustrialisa r i o n " , the "post-industrial society", or the "weightless e c o n o m y Take, for instance, the w o r l d ' s biggest single e c o n o m y , that o! the US. There w a s m u c h p a n i c a b o u t " d e i n d u s t r i a l i s a t i o n " in the 1980s in the face o f challenges t o US industrial pre-eminence in fields like car p r o d u c t i o n a n d c o m p u t e r s . But in 1998 the n u m b e i o f w o r k e r s in industry w a s nearly 20 percent higher t h a n in 19"^ I, r o u g h l y 50 percent higher t h a n in 1950 a n d nearly three times tin level o f 1900. B a l d o z , Koeber a n d K r a f t noted at rhe b e g i n n i n g ot this century, " M o r e A m e r i c a n s are n o w e m p l o y e d in m a k i n g cars, buses a n d parts o f t h e m t h a n at a n y rime since the V i e t n a m W a r . Even after the recession o f 2001-2 h a d led t o a massive r a t i o nalisation

of

industry,

with

rhe

loss

of

about

one

in

six

m a n u f a c t u r i n g jobs, the industrial w o r k i n g class h a d far f r o m dis appeared. Industrial p r o d u c t i o n in 2 0 0 7 was 8 percent higher than in 2 0 0 0 a n d 3 0 percent higher than in 1996, 10 a n d the US remained 332

The Runaway Systeri

the w o r l d s biggest single centre o f m a n u f a c t u r i n g , w i t h a fifth of world o u t p u t (the c o m b i n e d old E u r o p e a n U n i o n o f 15 states was it head w i t h a quarter), 1 1 despite m u c h

talk o f

manufacturing

m o v i n g t o the T h i r d W o r l d in its entirety. The Japanese figures were even m o r e a s t o u n d i n g . T h e industrial workforce m o r e t h a n d o u b l e d between 1950 a n d 1971 a n d w a s m o t h e r 13 percent higher in 1 9 9 8 . T h e fall in industrial employment in a n u m b e r o f countries over the last three decades does not signify d e i n d u s t r i a l i s a t i o n o f the w h o l e o f the o l d a d v a n c e d industrial w o r l d .

It h a d

112 m i l l i o n

i n d u s t r i a l jobs in

1998'-—25

million m o r e t h a n i r u l 9 5 1 a n d o n l y 7.4 m i l l i o n less t h a n in 1971. l o n i Negri's Italy m a y n o t have been in the s a m e league as the US or J a p a n , but i n d u s t r i a l w o r k e r s h a d certainly n o t d i s a p p e a r e d . I here were 6.5 m i l l i o n in 1 9 9 8 , d o w n o n l y o n e sixth since 1971. 1 3 These fig&res for industrial e m p l o y m e n t , it s h o u l d be a d d e d , underestimate the e c o n o m i c i m p o r t a n c e o f industry in general a n d m a n u f a c t u r i n g in particular. As B o b R o w t h o r n has rightly noted: A l m o s t every conceivable e c o n o m i c activity in m o d e r n society m a k e s use o f m a n u f a c t u r e d g o o d s . . . M a n y o f rhe e x p a n d i n g service industries m a k e use o f large a m o u n t s o f e q u i p m e n t .

4

r h e small decline in the total industrial w o r k f o r c e is n o t because industry has b e c o m e less i m p o r t a n t , b u t because p r o d u c t i v i t y per employee in i n d u s t r y has risen m o r e q u i c k l y t h a n i n "services". Slightly fewer m a n u f a c t u r i n g w o r k e r s are p r o d u c i n g m a n y moreg o o d s t h a n three decades ago. 14 T h e industrial w o r k e r s are as imp o r t a n t for the capitalist e c o n o m y t o d a y as i n the early 1970s. Cilib statements like those o f H a r d t a n d Negri a b o u t their declining significance c o u l d n o t be m o r e w r o n g . T h e usual d i s t i n c t i o n between " i n d u s t r y " a n d "services" obscures m o r e t h a n it reveals. "Services" is a catch-all

residual

category o f everything t h a t does n o t fit i n t o rhe sectors o f i n d u s t r y a n d agriculture. So s o m e o f the shift f r o m " i n d u s t r y " t o the "service sector" a m o u n t s t o n o m o r e t h a n a c h a n g e i n rhe n a m e given to essentially similar jobs. S o m e o n e (usually a m a n ) w h o w o r k e d a typesetting m a c h i n e for a newspaper publisher 3 0 years a g o w o u l d have been classified as a p a r t i c u l a r sort o f industrial w o r k e r (a " p r i n t w o r k e r " ) ; s o m e o n e (usually a w o m a n ) w o r k i n g a w o r d processing t e r m i n a l for a n e w s p a p e r publisher t o d a y will be classified as a "service w o r k e r " . But the w o r k p e r f o r m e d W h o Can Overcome? 332

remains

essentially the s a m e , a n d the final p r o d u c t m o r e or less identical R o w t h o r n u n d e r t o o k a statistical b r e a k d o w n o f t h e total "ser vice" category for the O E C D as a w h o l e . There w a s a small fail in " t o t a l g o o d s a n d goods-related services'*—from 76 percent o f all e m p l o y m e n t in 1970 t o 6 9 percent in 1990. 16 But this w a s certainly n o t a revolutionary t r a n s f o r m a t i o n in the w o r l d o f w o r k . There are m a n y other jobs characterised as "services'* that are essential t o a c c u m u l a t i o n in the m o d e r n w o r l d — e s p e c i a l l y , as wc s a w in C h a p t e r s Five a n d Seven, health p r o v i s i o n a n d the educa t i o n service. T o d a y there are over 10 m i l l i o n e m p l o y e d i n health a n d e d u c a t i o n a l services in the US ( a r o u n d o n e in 13 of the work force), a n d US c a p i t a l i s m c o u l d n o t f u n c t i o n w i t h o u t t h e m . A n d the long-term trend is for m o s t o f t h e m t o be forced increasingly i n t o c o n d i t i o n s c o m p a r a b l e t o those o f industrial a n d r o u t i n e office w o r k e r s , w i t h p a y m e n t by results, assessment a n d appraisal systems, increased concern w i t h t i m e k e e p i n g , a n d e n h a n c e d disci pline codes. There is the m y t h t h a t the "service" sector w o r k f o r c e is m a d e u p o f well p a i d people w i t h c o n t r o l over their o w n w o r k i n g situ.i tion w h o

never need to get their h a n d s dirty. So

Guardian

c o l u m n i s t Polly Tovnbee writes: W e h a v e seen the m o s t r a p i d c h a n g e in social class i n recorded history: rhe 1 9 7 7 mass w o r k i n g class, w i t h t w o t h i r d s ol people in m a n u a l jobs, s h r u n k t o o n e t h i r d , w h i l e the rest mi grated u p w a r d s i n t o a 7 0 percent h o m e - o w n i n g , w h i t e collar m i d d l e class.' If Toynbee h a d looked at the Office for N a t i o n a l Statistics' Living /;/ Britain

2000 she w o u l d have f o u n d 51 percent of m e n a n d 38 pei

cent o f w o m e n in its various " m a n u a l " o c c u p a t i o n a l categories. This is because the "service industries" include refuse workers, hos pital ancillary workers, dockers, lorry drivers, bus a n d train drivers, a n d postal workers. Alongside them are a huge n u m b e r o f w o m e n 50

percent—in

the

"intermediate

and

junior

non-manual

categories, where wages are typically lower t h a n in most m a n u a l o i cupations a n d w o r k i n g c o n d i t i o n s often at least as h a r d . In the US in 2 0 0 1 , 50 percent o f the 103 m i l l i o n employees in service related ck cupations h a d m a n u a l or routine clerical or similar jobs. 1 ' Togethei w i t h the 3 3 m i l l i o n workers in traditional m a n u a l industries they m a d e u p three quarters o f the country's workforce. 334

The Runaway Systeri

Two

related processes are t a k i n g

economies ( a n d m a n y

place in all

"non-advanced"

"advanced

ones). T h e t r a d i t i o n a l

m a n u a l w o r k i n g class is p u t u n d e r m o r e a n d m o r e pressure as c a p ital tries t o squeeze its directly p r o d u c t i v e l a b o u r so as t o get m o r e profits f r o m it. At the s a m e t i m e , the new " n o n - g o o d s - p r o d u c i n g service" w o r k i n g class is subject to p r o l e t a r i a n i s a t i o n as capital sets o u t to reduce the costs t o it o f n o n - p r o d u c t i v e a n d indirectly productive functions. Each crisis in the last f o u r decades has involved s u d d e n increases in u n e m p l o y m e n t — i n s o m e cases p e r m a n e n t — a n d w i p i n g o u t o f o l d established centres o f p r o d u c t i o n

the

(factories,

docks, minfcs, etc). C a p i t a l a n d its a p o l o g i s t s h a v e then tried t o take a d v a n t a g e o f w o r k e r s ' feelings o f insecurity t o r e m o u l d their lives a r o u n d its o w n c o n t i n u a l l y c h a n g i n g requirements. Its slogans h a v e b e c o m e " f l e x i b i l i t y " in l a b o u r i n g t i m e , m e t h o d s o f work a n d l a b o u r markets, all justified by the c l a i m that " l i f e t i m e e m p l o y m e n t belongs ro a past a g e " . M u c h a c a d e m i c research has accepted its message, a n d " T h i r d W a y " social democrats a n d those o n the " a u t o n o m i s t " left h a v e t a k e n it for a n

unquestionable

iruth. Typical—and

the

excessively

influential—is

sociologist

M a n u e l Castells w h o argues there is: Structural u n s t a b i l i t y [sic] in the l a b o u r m a r k e t s everywhere, a n d the r e q u i r e m e n t for flexibility o f e m p l o y m e n t , m o b i l i t y o f labour, a n d c o n s t a n t reskilling o f the w o r k f o r c e . T h e n o t i o n o f the stable, predictable, professional career is e r o d e d , as relat i o n s h i p s between c a p i t a l a n d l a b o u r are i n d i v i d u a l i s e d

and

c o n t r a c t u a l l a b o u r c o n d i t i o n s escape collective bargaining.-11' I he c l a i m a b o u t the ability o f c a p i t a l i s m t o destroy industrial jobs instantaneously is a vast exaggeration o f w h a t is h a p p e n i n g w i t h restructuring. As w e have seen in C h a p t e r Ten it takes t i m e a n d effort for c a p i t a l t o l i q u i d a t e industrial investment in o n e parr o f the w o r l d a n d shift it t o a n o t h e r — a n d n e w investment is still pred o m i n a n t l y w i t h i n the triad o f rhe a d v a n c e d countries, a l t h o u g h the emergence o f C h i n a as a m a n u f a c t u r i n g centre is a d d i n g a n e w twist t o t h a t pattern. Even in the electronics industry, in w h i c h c o m p o n e n t s a n d m o s t final p r o d u c t s are very light a n d c h e a p to m o v e , there was n o t a n u n a m b i g u o u s m o v e f r o m centralised prod u c t i o n in the a d v a n c e d countries t o c o n t r a c t i n g o u t i n the G l o b a l S o u t h in the 1990s a n d early 2 0 0 0 s : W h o Can Overcome?

335

A l t h o u g h the p r o p o r t i o n o f p r o d u c t i o n b e y o n d the Triad « E u r o p e , N o r t h America a n d J a p a n w a s high, a n d w a s indeed as sociated with i n t e r n a t i o n a l rather t h a n local m a r k e t s , ir was confined to a few East Asian countries. At the s a m e t i m e , the " d o m e s t i c " p r o d u c t i o n w o r k f o r c e in the US c o n t i n u e d t o grow. In general, capital still finds it m o r e profitable t o locate itself in the regions w h i c h h a d industrialised by the mid-20th century. Worke rs m a y usually be better p a i d there, but a c o m b i n a t i o n o f established skill levels a n d existing investments in p l a n t a n d i n f r a s t r u c t u n m e a n s they are also m o r e p r o d u c t i v e , p r o v i d i n g m u c h m o r e sui p l u s v a l u e for the system t h a n m o s t o f their p o o r e r brothers and sisters in rhe T h i r d W o r l d . This explains w h y rhe picture for most o f L a t i n A m e r i c a in the 1990s w a s o n e o f very s l o w average g r o w t h or s t a g n a t i o n , a n d for m o s t o f Africa o f a b s o l u t e decline. The most i m p o r t a n t i m p a c t o f o f f s h o r i n g a n d rising i m p o r t s has n o t been their role in destroying jobs, b u t in h e l p i n g employers to destroy workers* confidence in rheir capacity to defend c o n d i t i o n s , wages a n d w o r k i n g h o u r s . A s t u d y by K a t e B r o n f e n b r e n n e r f o u n d t h a t d u r i n g the eco n o m i c u p t u r n o f the 1990s A m e r i c a n w o r k e r s felt m o r e insecure a b o u t their e c o n o m i c f u t u r e t h a n d u r i n g the d e p t h s o f the 1 9 9 0 1 recession. " M o r e t h a n h a l f o f all e m p l o y e r s m a d e threars to close all or part o f the p l a n t " d u r i n g u n i o n o r g a n i s i n g drives. But a f t e r w a r d s " e m p l o y e r s f o l l o w e d t h r o u g h o n the threat a n d shin d o w n all o r part of their facilities in fewer t h a n 3 p e r c e n t " ol cases.In

o t h e r w o r d s , it is in the interests o f e m p l o y e r s to

o v e r e m p h a s i s e h o w p r e c a r i o u s j o b s are in o r d e r t o demoralise w o r k e r s a n d l o w e r t h e level o f resistance. T h o s e voices o n the left w h o exaggerate t h a t insecurity c a n a d d to t h a t d e m o r a l i s a t i o n , rather t h a n c o u n t e r i n g it w i t h a recognition o f the counter-factors t h a t p r o v i d e w o r k e r s w i t h c o n t i n u e d strength if they have the confidence t o d e p l o y it. T h e evidence does n o t justify a picture of a u n i f o r m , relentless spread o f precarious jobs. T h e crisis of the early 1990s did cause a substantial increase in " p r e c a r i o u s " jobs in Western E u r o p e . But t h a t still left 82 percent in p e r m a n e n t jobs, as against o n l y 18 per cent in n o n - p e r m a n e n t j o b s — a p r o p o r t i o n t h a t r e m a i n e d almost u n c h a n g e d between 1995 a n d 2 0 0 0 . There has a h u g e v a r i a t i o n between c o u n t r i e s , b u t a 2 0 0 1 ELO study o f Western E u r o p e as a w h o l e c o n c l u d e d that: 336

The Runaway Systeri

The evidence s i m p l y does n o t sustain rhe view that w e are witnessing the emergence o f a " n e w " k i n d o f e m p l o y m e n t relations, seen in the " e n d o f the career " a n d the " d e a t h o f the p e r m a n e n t j o b for life". 2 4 O n e survey i n 2 0 0 0 s h o w e d o n l y 5 percent o f British e m p l o y e e s on t e m p o r a r y contracts, 2 5 w h i l e the n u m b e r o f p e o p l e w h o h a d w o r k e d at the s a m e w o r k p l a c e for m o r e t h a n ten years h a d risen I r o m 2 9 t o 31 percent. 2 6 Even in S p a i n , w h i c h h a s the h i g h e s t level o f " p r e c a r i e r y " in E u r o p e , 6 5 percent o f w o r k e r s h a v e perm a n e n t jobs. C a p i t a l c a n n o t m a n a g e w i t h o u t workers w h o have certain skills a n d it prefers w o r k e r s w h o have s o m e sense o f responsibility for the j o b . It takes employers t i m e t o train people a n d they are rarely keen to*lose t h e m if they c a n a v o i d it. They therefore d o n o t always treat w o r k e r s as " d i s p o s a b l e " , even w h e n it c o m e s t o semiskilled a n d unskilled labour. T h e y c a n benefit f r o m a generalised insecurity m a k i n g the m a j o r i t y o f w o r k e r s w i t h relatively secure jobs fear that they m a y lose t h e m . But t h a t does nor m e a n t h a t capital can really dispense w i t h such w o r k e r s . A n d t h a t m e a n s they have the potential t o p u t u p resistance t o its d e m a n d s , even if they are often n o t a w a r e o f it.

T h e n e w w o r k i n g classes o f the " T h i r d W o r l d " A r o u n d 6 0 percent o f the w o r l d ' s industrial w o r k e r s are o u t s i d e the " a d v a n c e d " countries o f the O E C D , w i t h p e r h a p s 25 percent in C h i n a , a b o u t 7 percent in India a n d a r o u n d 7 percent in L a t i n America. 2

Such statistics d o n o m o r e t h a n p r o v i d e a s n a p s h o t of

the e n o r m o u s c h a n g e b r o u g h t a b o u t by the sweep o f capitalism's self-expansion across the w o r l d . Sixty years a g o 8 0 percent o f the w o r l d ' s p o p u l a t i o n lived in the c o u n t r y s i d e ; a n d 3 0 , 4 0 , or even 5 0 percent w o r k e d o n rhe l a n d even in countries t h o u g h t o f as " a d v a n c e d " like France, Italy or J a p a n . Today close t o h a l f the w o r l d s p o p u l a t i o n live in t o w n s a n d I

cities, a n d the u r b a n p o p u l a t i o n is a m a j o r i t y even i n countries people often t h i n k o f as r u r a l — 8 4 percent in Brazil, 76 percent in M e x i c o , 6 3 percent in E c u a d o r a n d 6 3 percent in Algeria. ' U r b a n i s a t i o n a n d the spread o f m a r k e t relations are not necessarily the same as the g r o w t h o f w a g e labour. 1 People w o r l d w i d e W h o Can Overcome? 336

have been leaving rhe countryside at a m u c h greater rate t h a n tin g r o w t h ot stable l i v e l i h o o d s for t h e m in m o d e r n sectors ot tin e c o n o m y . T h i s is especially true i n c o u n t r i e s w h e r e

economu

g r o w t h is slow or negative. T h u s wage e m p l o y m e n t fell in absolute terms in several A f r i c a n countries d u r i n g rhe 1980s, : " a n d halt tin 11011-agriculture w o r k f o r c e o f Africa is self-employed. J 1 Even m C h i n a , w i t h its rapid rate o f a c c u m u l a t i o n , the e m p l o y e d w o r k i n g class has e x p a n d e d m o r e slowly t h a n e c o n o m i c g r o w t h / 2 But m general, the slowness o f j o b g r o w t h s h o u l d n o t be identified with "deindustrialisation".33 There has been g r o w t h o f w a g e l a b o u r in m u c h o f the G l o b a l S o u t h but it has been s p a s m o d i c , a p r o d u c t o f the c h a o t i c ups a m i d o w n o f capitalist industrial g r o w t h . A n d in very m a n y cases, a m g r o w t h in m o d e r n industry w i t h " f o r m a l " e m p l o y m e n t has been o v e r s h a d o w e d by w h a t has been h a p p e n i n g in the " i n f o r m a l sector of very small businesses. T h e j o i n t share o f i n f o r m a l a n d small business activities o f non-agricultural e m p l o y m e n t in Latin A m e r i c a as a w h o l e rose f r o m 4 0 percent in 1980 to 5 3 percent in 1 9 9 0 , ' w h i l e in Brazil h a l f the o c c u p i e d u r b a n p o p u l a t i o n w e n n o t " f o r m a l e m p l o y e e s " , a l t h o u g h m o r e t h a n h a l f o f the i n f o r m a l w o r k f o r c e were w a g e workers. ' In I n d i a g r o w t h h a s been even m o r e c o n c e n t r a t e d in the in f o r m a l " u n o r g a n i s e d " sector, w i t h o u t w o r k p l a c e r i g h t s , w h i l e 4 0 percent o f the u r b a n p o p u l a t i o n is s e l f - e m p l o y e d — w o r k i n g in f a m i l y businesses, u s u a l l y w i t h o u t their o w n p r e m i s e s , or as v e n d o r s , r i c k s h a w d r i v e r s , cart p u l l e r s a n d rhe like.** In C h i n i r o o the i n f o r m a l sector has m u s h r o o m e d — w i t h rhe n u m b e r ol u r b a n w o r k e r s n o t o f f i c i a l l y classified a n d d o i n g t h i n g s " i n tin informal

sector

(such

as street

vending,

construction,

and

h o u s e h o l d services)" g r o w i n g by 7 9 m i l l i o n b e t w e e n 1995 a n d 2 0 0 2 . By 2 0 0 2 they a m o u n t e d to 4 0 percent o f u r b a n emplo\ m e n t . ; r In a d d i t i o n t o — a n d o f t e n m e r g i n g i n t o — t h o s e i n the i n f o r m a l sector, there are e v e r y w h e r e rhose d e n i e d a n y o p p o r r u nities f o r e m p l o y m e n t by m o d e r n c a p i t a l i s m : the u n e m p l o y e d w h o t y p i c a l l y m a k e u p 10 percent or m o r e o f the w o r k f o r c e in T h i r d W o r l d cities. 38 T h e failure o f regular e m p l o y m e n t in the cities t o a b s o r b rhe vast influx o f l a b o u r f r o m the c o u n t r y s i d e f o l l o w s f r o m rhe logic o f c a p i t a l i s m . C o m p e t i t i o n o n a g l o b a l scale has caused capitalists to t u r n to " c a p i t a l intensive" forms o f p r o d u c t i o n w h i c h d o n o t req u i r e massive n u m b e r s o f n e w workers. 338

The Runaway Systeri

M a r x described very well the process by w h i c h the i n f o r m a l sector g r o w s , l o o k i n g at British society 150 years a g o : . . . T h e a d d i t i o n a l c a p i t a l f o r m e d in the course o f a c c u m u l a t i o n attracts fewer a n d fewer labourers in p r o p o r t i o n t o its magni-

I

tude. T h e o l d capital...repels m o r e a n d m o r e o f the l a b o u r e r s formerly e m p l o y e d by it.*v

I his d y n a m i c produces a " s t a g n a n t " c o m p o n e n t o f " t h e active

labour a r m y " w i t h " e x t r e m e l y irregular e m p l o y m e n t " : Its c o n d i t i o n s o f life sink b e l o w the average n o r m a l level o f the w o r k i n g class; this m a k e s it at once the basis o f special branches o f capitalist e x p l o i t a t i o n . . . c h a r a c t e r i s e d by m a x i m u m o f working t i m e , ? n d m i n i m u m o f w a g e s . . . Its extent g r o w s , as w i t h the extent a n d energy o f a c c u m u l a t i o n the creation o f surplus-popu l a t i o n advances. 4 0 In general, the suffering o f a very large c h u n k o f the u r b a n masses in T h i r d W o r l d countries c o m e s n o t f r o m being super-exploited by large capital, but from the fact that large capital does n o t see a w a y of m a k i n g sufficient profits o u t o f e x p l o i t i n g t h e m at all. T h i s is most clearly the case in m u c h o f sub-Saharan Africa. After squeezing w e a l t h o u t o f the c o n t i n e n t d u r i n g the p e r i o d f r o m the onset o f the slave trade to the e n d o f e m p i r e in the 1950s, those w h o r u n the w o r l d system ( i n c l u d i n g local rulers w h o m o v e their o w n m o n e y to E u r o p e a n d N o r t h A m e r i c a ) are n o w prepared t o write o f f m o s t o f its people as " m a r g i n a l " to their r e q u i r e m e n t s — e x c e p t in the all-important local enclaves w h e r e r a w materials, especially oil, are to be f o u n d .

T h e relation o f the f o r m a l a n d i n f o r m a l sectors T h e unevenness o f industrial e x p a n s i o n a n d the m u s h r o o m i n g o f the i n f o r m a l sector c a n lead to c o n c l u s i o n s a b o u t rhe i n c a p a c i t y o f w o r k e r s to organise a n d fight t h a t very m u c h parallel the orthodoxies a b o u t "precariousness" in the o l d industrial countries. It is a s s u m e d o n rhe one h a n d t h a t those w o r k e r s w i t h stable j o b s in the f o r m a l sector are privileged l a b o u r aristocrats—as o n e report o n n o r t h east Brazil purs it, t o " b e f o r m a l l y e m p l o y e d is a l m o s t a W h o Can Overcome?

339

privilege, since less t h a n h a l f o f those w h o w a n t such a situation are in fact ' e n j o y i n g ' it V

At the same t i m e it is assumed that those

in i n f o r m a l sector suffer f r o m "social e x c l u s i o n " a n d are not p a h l e o f self-organisation. W o r k i n g in the f o r m a l sector certainly has a d v a n t a g e s over w o r k i n g in the i n f o r m a l sector. In I n d i a w o r k e r s in the " o r g a n i s e d sector" get p a i d a g o o d deal m o r e (30, 4 0 o r even LOO percent) m o r e t h a n those in rhe " u n o r g a n i s e d sector". 4 2 In C h i n a ,

workers

in large-scale industry w e r e p r o v i d e d until the late 1990s w i t h tin " i r o n rice h o w l " o f a g u a r a n t e e d i n c o m e p l u s certain h o u s i n g , sickness a n d pension benefits—all things denied t o people m i g r a i ing f r o m the c o u n t r y s i d e t o seek jobs. E m p l o y e r s have n o t , however, p r o v i d e d such things o u r o f tin g o o d n e s s o f their heart. T h e y need a certain stability in then l a b o u r force, p a r t i c u l a r l y w h e n it c o m e s t o skilled w o r k e r s w h o they d o n o t w a n t t o be p o a c h e d by rivals d u r i n g times o f b o o m . ' In m a n y industries, the m o r e stable a n d experienced a w o r k f o r c e , the m o r e p r o d u c t i v e it is. C a p i t a l is prepared to c o n c e d e highet wages t o certain o f rhe w o r k e r s in those industries because by d o i n g so it is able t o m a k e m o r e profits o u r o f t h e m . H e n c e the a p p a r e n t c o n t r a d i c t i o n — s o m e sections o f the w o r l d ' s w o r k e r s art both better p a i d rhan others, a n d m o r e e x p l o i t e d . But by the saim r o k e n , w o r k e r s in the f o r m a l sector have the capacity to fight back against capital in a w a y w h i c h it fears. T h e g r o w t h o f the i n f o r m a l sector rarely m e a n s the destruc t i o n o f the f o r m a l o n e . T h e i n f o r m a l w o r k f o r c e in Brazil's most i m p o r t a n t i n d u s t r i a l city, S a o P a u l o , g r e w by nearly 7 0 percent in t h e 1990s, b u t the n u m b e r o f " f o r m a l " w o r k e r s e m p l o y e d in rhe p r i v a t e sector still r e m a i n e d m o r e t h a n f o u r t i m e s higher t h a n rhe n u m b e r o f " i n f o r m a l " workers. 4 4 It is w r o n g , as p e o p l e like P a u l o

Singer d i d ,

to write o f

"deproletarianisation'V

R a t h e r w h a t is h a p p e n i n g is a r e s t r u c t u r i n g o f the w o r k f o r c e , w i t h the h i v i n g o f f by b i g f i r m s o f s o m e tasks ( u s u a l l y relatively u n s k i l l e d a n d therefore easily p e r f o r m e d by a f l o a t i n g workforce)

to

small

firms,

labour-only

contractors

and

the

s u p p o s e d l y self-employed. Far f r o m the g r o w t h o f rhe i n f o r m a l w o r k f o r c e benefiting the w o r k f o r c e in rhe f o r m a l sector, ir has been a c c o m p a n i e d by an in creased e x p l o i t a t i o n o f w o r k e r s in this s e c t o r — a n d in m a n y cases by a d e t e r i o r a t i o n in wages a n d c o n d i t i o n s . T h i s has been most m a r k e d in A f r i c a , where the scale o f the decline in real wages for 340

The Runaway Systeri

those w i t h jobs in the 1980s w a s so great as to beggar belief. A report in 1991 t o l d o f : a s h a r p fall in real w a g e s . . . a n average 3 0 percent decline between 1 9 8 0 a n d 1 9 8 6 . . . In several countries rhe average rate has d r o p p e d 10 percent every year since 1980... O n average the m i n i m u m w a g e fell 2 0 percent over t h a t period. 4 6 In Latin A m e r i c a real industrial wages fell by m o r e t h a n 10 percent in the 1980s, w h i l e they d i d so in the f o r m a l sector in I n d i a in the late 1990s. 47 T h e use o f the i n f o r m a l sector t o batter workers in the f o r m a l sector has led t o the widespread a s s u m p t i o n t h a t i n f o r m a l sector workers are powerless. B u t capital faces a p r o b l e m here t o o . T h e more it relies o n t h e m , the greater their p o t e n t i a l capacity t o resist its d e m a n d s . In India those parts o f the i n f o r m a l sector t h a t have been t a k i n g o n w o r k f r o m the f o r m a l s e c t o r — " i n t e r m e d i a t e g o o d s p r o d u c i n g activities in the u n o r g a n i s e d sector, eg basic chemicals, non-metallic m i n e r a l p r o d u c t s , metal p r o d u c t s , a n d e q u i p m e n t sectors, have witnessed rises in wages as well as p r o d u c t i v i t y " — i n d i c a t i n g that " w o r k e r s ' b a r g a i n i n g p o w e r in these segments is n o t as b a d as it is m a d e o u t t o be". 4 8 T h e p h e n o m e n o n o f casual e m p l o y m e n t is by n o m e a n s n e w in the history o f c a p i t a l i s m . C a s u a l e m p l o y m e n t has often played a n i m p o r t a n t role in certain industries. A n d f o r m s o f c o n t r a c t l a b o u r are verv o l d — i t w a s c o m m o n in the textile factories o f the industrial r e v o l u t i o n . In the mines in b o t h the US a n d Britain in the 19th century overseers or foremen ( " b u t t y m e n " ) w o u l d recruit workers a n d p a y them o u t of a s u m given to t h e m by the m i n e owners. Such casual workers m a y n o t a l w a y s have felt themselves to be part of the w o r k i n g class. They were often detached f r o m the struggles o f other sections o f t h a t class for years, even decades, at a time. Yet the potential for struggling w i t h i n those sections w a s a l w a y s there, a n d w h e n it t u r n e d i n t o reality the struggle c o u l d be very bitter, w i t h a n a l m o s t insurrectionary tinge. Frederick Fngels observed precisely this d e v e l o p m e n t in 18S9 w h e n L o n d o n ' s dockers struck for rhe first time. H e wrote: H i t h e r t o the East E n d h a d been in a state o f poverty-stricken s t a g n a t i o n , its h a l l m a r k being rhe a p a t h y o f men w h o s e spirit h a d been broken by hunger, a n d w h o h a d a b a n d o n e d all h o p e . . . W h o Can Ovcrcomc?

341

A n d n o w , this g i g a n t i c strike o f the m o s t d e m o r a l i s e d element• o f the l o t , the d o c k labourers, n o t the regular s t r o n g , e x p e n enced, relatively well-paid men in steady e m p l o y m e n t , bur those w h o have h a p p e n e d t o l a n d u p in d o c k l a n d , the J o n a h s w h o h a v e suffered s h i p w r e c k in all o t h e r spheres, starvelings bytrade, a welter o f b r o k e n lives h e a d i n g straight f o r utter ruin A n d this dully d e s p a i r i n g mass o f h u m a n i t y w h o , every m o r n i n g w h e n rhe d o c k gates are o p e n e d , literally

fight

pitched

harries t o be first t o reach the c h a p w h o signs t h e m o n . that mass h a p h a z a r d l y t h r o w n together a n d c h a n g i n g ever)' day, h.r successfully c o m b i n e d to f o r m a b a n d 4 0 , 0 0 0 strong, m a i n t a i n discipline a n d inspire fear in the p o w e r f u l d o c k c o m p a n i e s . . . Engels' p o i n t is very i m p o r t a n t in the 21st century. Internationally there have been three decades o f defeat a n d d e m o r a l i s a t i o n for workers right across the w o r l d . This bred a fatalism a b o u t the pos sibility o f fighting, w h i c h w a s reflected in a mass o f studies w h i c h depicted the suffering o f the p o o r a n d rhe oppressed, s h o w i n g t h e m always as victims, rarely as fighters. T h u s there are masses of materials sponsored by the I n t e r n a t i o n a l L a b o u r O r g a n i s a t i o n o n "social e x c l u s i o n " — a t h e m e w h i c h suits the bureaucrats w h o run such bodies. T h e m e s like the " c a s u a l i s a t i o n " a n d " f e m i n i s a t i o n o f the w o r k f o r c e b e c o m e stereotyped, a c a d e m i c ways o f dismiss i n g possibilities o f struggle—even

if s o m e o f those

carrying

t h r o u g h the studies try to escape f r o m rhe p a r a d i g m in w h i c h they are t r a p p e d . T h i s tendency t o see the u r b a n p o o r a n d rhe p e r m a nent workers as w o separate g r o u p s hermetically sealed off from each other is particularly prevalent a m o n g N G O activists. T h e reality is m o r e c o m p l e x . S l u m districts themselves are rarely h o m o g e n o u s in their social m a k e u p . P e r m a n e n t w o r k e r s live in t h e m a l o n g s i d e casual workers, the poorest sectors o f rhe self-em p l o y e d , the u n e m p l o y e d a n d even s o m e sections o f the petty bourgeoisie. M i k e D a v i s tells h o w : T h e t r a d i t i o n a l stereotype o f the I n d i a n pavement-dweller is a destitute peasant, n e w l y arrived f r o m the c o u n t r y s i d e , w h o sin vives by parasitic b e g g i n g , bur as research in M u m b a i

has

revealed, a l m o s t all ( 9 7 percent) h a v e at least o n e b r e a d w i n n e r . 7 0 percent h a v e been in the city at least six years... I n d e e d , many

pavement-dwellers

are

simply

workers—rickshaw

m e n , c o n s t r u c t i o n l a b o u r e r s , a n d m a r k e t p o r t e r s — w h o are 342

The Runaway Systeri

c o m p e l l e d by their j o b s t o live in the o t h e r w i s e u n a f f o r d a b l e heart o f the m e t r o p o l i s . I eo Z e i l i g a n d C l a i r e C e r u t i p o i n t o u t t h a t recent research o n Soweto in S o u t h Africa s h o w s that " i n ~8.3 percent o f h o u s e h o l d s there w a s a m i x o f a d u l t s w h o were e m p l o y e d , self-employed a n d u n e m p l o y e d T h e y c o n c l u d e that: the S o u t h A f r i c a n t o w n s h i p a n d s l u m m i g h t be viewed as a m e e t i n g p o i n t for trade u n i o n i s t s , university students, graduates, the u n e m p l o y e d a n d i n f o r m a l traders. T h o u g h the spectre o f u n e m p l o y m e n t affects all layers o f society, these g r o u p s are n o t p e r m a n e n t l y cut o f f f r o m each o t h e r a n d can be f o u n d in the same h o u s e h o l d s u p p o r t i n g each other. 1 The picture is similar for El A l t o , the satellite city o f rhe Bolivian c a p i t a l , La Paz. It c o n t a i n s h u n d r e d s o f t h o u s a n d s o f m a i n l y ind i g e n o u s A y a m a p e o p l e w h o have m o v e d t o the city f r o m the c o u n t r y s i d e or closed d o w n tin m i n e s , a n d w h o s e efforts t o someh o w m a k e a living for themselves are characteristic o f the i n f o r m a l sector in such cities everywhere in the T h i r d W o r l d . Yet El A l t o is also " t h e principal industrial z o n e o f the La Paz r e g i o n " , 5 2 w i t h 54 percent o f the region s industrial w o r k f o r c e a n d an increase o f 80 percent in the n u m b e r s e m p l o y e d i n industry in the last ten years. W h a t is significant is " t h e c o m b i n a t i o n

between

'informality'

a n d / o r small businesses based o n f a m i l y l a b o u r o n the o n e h a n d a n d the degree o f i n c o r p o r a t i o n of the l a b o u r force in wage l a b o u r in p r o d u c t i v e tasks o n the o t h e r " , so t h a t n e i g h b o u r h o o d forms o f o r g a n i s a t i o n have a class (as well as an i n d i g e n o u s ) content. 5 3 U n d e r these circumstances, struggles by workers have the capacity to act as a focus for all discontents o f the great m a j o r i t y o f those living in the slums. So in S o u t h Africa a series o f protests a n d riots over the delivery o f basic services created a n a t m o s p h e r e in w h i c h : the p u b l i c sector general strike in J u n e 2 0 0 ~ w a s the largest strike since the e n d o f a p a r t h e i d , p u l l i n g m a n y people i n t o trade u n i o n a c t i o n for the first time. T h e p o t e n t i a l cross-fern Iisation o f these s t r u g g l e s — o f c o m m u n i t y a n d w o r k p l a c e — d o e s n o t live o n l y in the m i n d o f activists, b u t , as the survey suggests, expresses the real h o u s e h o l d e c o n o m y o f c o n t e m p o r a r y S o u t h Africa.' 4 W h o Can Overcome? 342

In Bolivia, EI A l t o w a s at the centre o f the near uprisings that dre\\ together miners, teachers, peasants a n d i n d i g e n o u s organisations ro o v e r t h r o w t w o g o v e r n m e n t s in 18 m o n t h s . In Egypt late in 2 0 0 6 a strike o f 2 4 , 0 0 0 w o r k e r s in the M i s r S p i n n i n g factory in M a h a l l a al-Kubra: triggered a w a v e o f workers' protests across Egypt, crossing dil ferent sectors o f the e c o n o m y a n d industries, f r o m M a h a l l a to K a f r a l - D a w w a r t o Shibin a l - K u m , f r o m s p i n n i n g a n d weaving to cement to the railways a n d u n d e r g r o u n d a n d p u b l i c transpot i workers. T h e strike wave w e n t from rhe p u b l i c sector t o rhe pi i vate, t o the civil service, f r o m the o l d industrial areas to the new t o w n s , in all provinces. Ir w e n t f r o m the textile sector to engi neering, t o chemicals, t o b u i l d i n g a n d c o n s t r u c t i o n , to transpor i t o services. The strikes had a w i d e i m p a c t also, reaching sectors w h i c h d o n o t have a culture o f protest, such as teachers, doctors, a n d civil servants, a n d even ro slum-dwellers such as those from Q a l a ' a t al-Kabsh a n d the villagers f r o m Al-Atsh. 55 Such e x a m p l e s s h o w that the w o r k i n g class i n the T h i r d W o r l d is n o t c o n d e m n e d to the divisions a n d passivity emphasised by social exclusion a n d N G O a c c o u n t s . T h e incessant tearing a p a r t o f old patterns o f e c o n o m i c a n d social by c a p i t a l i s m as it restructures itself o n a w o r l d scale does n o t s i m p l y cause suffering. Ir also ere ates the potentiality for resistance t h a t c a n find s u d d e n expression w h e n people least expect it. There is, in fact, a pattern o f such struggles g o i n g back to the first i m p a c t o f capitalist industrialisation in such countries, recorded, for instance, in the collection Peasants

and Proletarians

edited b\

C o h e n , G u t k i n d a n d Brazier 3 0 years ago.'* There are i n n u m e r a b l e e x a m p l e s f r o m recent decades t o bear o u t t h a t picture. W e must expect m a n y m o r e as e c o n o m i c crisis interacts w i t h c l i m a t e change a n d crises o f f o o d security t h r o u g h o u t the rest o f this century.

F r a g m e n t a t i o n , bitterness a n d revolt But it is also i m p o r t a n t t o recognise t h a t people's bitterness against poverty a n d oppression can burst o u t in other ways. T h e fragmen tation o f people's life experiences in the w o r l d ' s slums all t o o often leads to different g r o u p s t u r n i n g o n each other, as M i k e D a v i s says 344

The Runaway Systeri

T h o s e engaged in informal-sector c o m p e t i t i o n u n d e r c o n d i t i o n s o f infinite l a b o u r supply usually s t o p short o f a total w a r o f all against all; conflict, instead, is usually t r a n s m u t e d i n t o ethnic, religious or racial violence. T h e g o d f a t h e r s a n d l a n d l o r d s o f the i n f o r m a l sector (invisible in m o s t o f the literature) intelligently use coercion, even c h r o n i c violence t o regulate c o m p e t i t i o n a n d protect their investments... I he reality o f such developments c a n n o t be denied by a n y o n e w h o has read accounts o f rhe interethnic a n d Sunni-Shia riots t h a t periodically paralyse rhe Pakistan city o f K a r a c h i , o f the history o f u t a c k s o n rhe Chinese p o p u l a t i o n s o f M a l a y s i a a n d I n d o n e s i a , o r of the w a v e o f attacks o n Z i m b a b w e a n refugees in the very South African cities described by L e o Z e i l i g a n d Claire C e r u t i . T h e city o f M u m b a i provides a g r a p h i c e x a m p l e o f h o w rhe m o o d can shift. A semi-spontaneous upsurge f r o m b e l o w by the workers in the city's textile mills in 1 9 8 2 developed i n t o o n e o f the biggest p r o l o n g e d strikes in w o r l d history, lasting a year, i n v o l v i n g h u n d r e d s o f t h o u s a n d s o f w o r k e r s a n d d o m i n a t i n g the political life o f India's c o m m e r c i a l a n d industrial capital as it built n e t w o r k s of s u p p o r t g o i n g right back i n t o the villages f r o m w h i c h m a n y o f the w o r k e r s h a d o r i g i n a l l y c o m e .

D u r i n g rhe strike there w a s

unity between t h e different religious a n d caste g r o u p s that m a k e u p the mass o f B o m b a y ' s l o w e r classes. But the strike w a s defeated. In the a f t e r m a t h Shiv Sena, a political o r g a n i s a t i o n built by turning the local M a r a t h i speakers against other g r o u p s a n d

then

H i n d u s against M u s l i m s , rose t o a d o m i n a n t p o s i t i o n in w i d e areas o f the city. T h i s c u l m i n a t e d in m u r d e r o u s riots against the M u s l i m p o p u l a t i o n in 1992-3. Unity in struggle h a d created a sense o f solidarity w h i c h then exerted a pull o n the vast mass o f rhe i n f o r m a l workers, self-employed, the u n e m p l o y e d p o o r a n d the impoverished sections of the petty bourgeoisie. T h e defeat led t o rhe sectional attitudes a n d c o m m u n a l conflicts of the petty bourgeoisie influencing rhe self-employed, the u n e m p l o y e d a n d w i d e layers o f workers. This w a s a vivid e x a m p l e o f h o w there are t w o different directions in w h i c h the despair a n d bitterness t h a t exist a m o n g the " m u l t i t u d e s " in the great cities o f the T h i r d W o r l d can go. O n e direction involves workers struggling collectively a n d p u l l i n g millions o f other i m p o v e r i s h e d people b e h i n d t h e m . T h e other involves d e m a g o g u e s e x p l o i t i n g the sense o f hopelessness, d e m o r a l i s a t i o n W h o Can Overcome? 344

a n d f r a g m e n t a t i o n t o direct the bitterness o f o n e section o f tin impoverished

mass against other sections. T h a t

is w h y

tin

w o r k i n g class c a n n o t s i m p l y be seen as just a n o t h e r grouping w i t h i n " t h e m u l t i t u d e " o r " t h e p e o p l e " , a n d o f n o i n t r i n s i c tin p o r t a n c e f o r the struggle a g a i n s t the system. N o r c a n w o r k e i struggles b e seen b y those w h o o r g a n i s e t h e m as i m p o r t a n t s i m p l y because o f their e c o n o m i c c o n t e n t . T h e i r struggles a n i m p o r t a n t precisely because t h e y h a v e t h e c a p a c i t y t o p r o v i d e .1 d i r e c t i o n for all t h e bitterness a m o n g the mass o f p e o p l e other wise w i t h o u t h o p e as they try t o s u r v i v e in t h e s l u m s o f tin w o r l d ' s megacities.

T h e peasantry T h e d e v e l o p m e n t o f the capitalist f o r m o f p r o d u c t i o n has cut the life-strings o f small p r o d u c t i o n in agriculture; small p r o d in t i o n is irretrievably g o i n g t o rack a n d r u i n . . . W e foresee tininevitable d o o m o f the small p e a s a n t . . / " So w r o t e Engels in the m i d - 1 8 9 0 s . T h e massive g r o w t h o f tin world's cities over the last half century has v i n d i c a t e d m u c h o f the r e a s o n i n g b e h i n d Engel's statement. T h e peasantry is as absent t o d a y f r o m N o r t h W e s t c o n t i n e n t a l E u r o p e as it w a s from E n g l a n d in Engels" day. B u t the s h r i n k a g e g l o b a l l y has been m u c h slowei t h a n M a r x a n d Engels expected. Peasants still a m o u n t to a b o u t .1 third o f the w o r l d ' s p o p u l a t i o n . T h e reality, across m u c h o f Latin A m e r i c a , as in nearly all o f A f r i c a a n d S o u t h a n d East Asia, is that h u n d r e d s o f m i l l i o n s o f i n d i v i d u a l small farmers are c l i n g i n g 011 to the l a n d w h i c h they o w n or rent. T h e y find themselves caught a g a i n a n d a g a i n in a vice, as rising prices for energy a n d fertiliser inputs squeeze t h e m f r o m o n e side a n d c o m p e t i t i o n f r o m capitalist f a r m s w i t h m o d e r n e q u i p m e n t presses t h e m o n the other. A n d tht discontent bred b y this c a n still m a k e the peasantry a n i m p o r t a n t political fact in m a j o r countries in the G l o b a l S o u t h . Even in Latin A m e r i c a , where rhe peasantry s h r a n k by h a l f between the 1960s a n d the 1 9 8 0 s , " it has been peasant-based rebellions against capi talism t h a t have c a u g h t the i m a g i n a t i o n s o f p e o p l e a r o u n d tin w o r l d , w i t h the Z a p a t i s t a s in s o u t h e r n M e x i c o , the M S T landless w o r k e r s ' m o v e m e n t in Brazil a n d a big section o f the m o v e m e n t w h i c h swept E v o M o r a l e s to the presidency o f Bolivia in 2 0 0 6 . 346

The Runaway Systeri

These m o v e m e n t s have led m a n y activists t o a d o p r w h a t are sometimes called " n e o - p o p u l i s t " views. 6 0 These see rhe peasants .is the agent o f social c h a n g e , o r at least a c o m p o n e n t in the agency o f the " m u l t i t u d e " . A n d s o m e t i m e s the f u t u r e o f w o r l d f o o d p r o d u c t i o n is also seen as lying w i t h t h e m , since f o o d prod u c t i o n per hectare is often greater o n small peasant plors t h a n o n larger holdings. 6 1 But missing f r o m this recognition o f rhe persistence o f rhe peasantry as a force, even if a d e c l i n i n g o n e , is rhe w a y in w h i c h it has been c h a n g e d p r o f o u n d l y by c a p i t a l i s m , a l t h o u g h nor necessarily in rhe w a y w h i c h - M a r x a n d Engels expected. H a m z a A l a v i a n d l e o d o r S h a n i n p o i n t e d o u r in the late 1980s that " t w o alternative forms o f a g r i c u l t u r a l p r o d u c t i o n " h a d developed w i t h i n capitali s m — o n the o n e h a n d " f a r m i n g based o n w a g e l a b o u r " , a n d o n the other " a f o r m o f o r g a n i s a t i o n o f p r o d u c t i o n based o n rhe family f a r m w h i c h is i n c o r p o r a t e d i n t o the capitalist m o d e o f production".

In

this

second

form,

"The

peasant

economy

is

structurally integrated w i t h i n the capitalist m o d e o f p r o d u c t i o n " a n d " s u r p l u s v a l u e is extracted f r o m the peasant t h r o u g h

the

agency o f c o m m e r c i a l c a p i t a l a n d credit i n s t i t u t i o n s " a n d "contributes

to

capital

accumulation—but

outside

the

peasant

e c o n o m y f r o m w h i c h ir is d r a w n " . 0 2 T h e peasantry t h a t has been d r a w n i n t o the circuits o f capitalism i n this w a y is n o t a h o m o g e n o u s g r o u p , b u t differentiated internally o n the basis o f size o f l a n d h o l d i n g , o w n e r s h i p o f equipm e n t a n d levels o f d e b t . A t o n e e x t r e m e are those w h o

have

m a n a g e d , by o n e m e a n s or another, t o t r a n s f o r m themselves i n t o petty a g r i c u l t u r a l capitalists, at the other the landless labourers. Between them lies a bigger or smaller layer o f those w h o rely o n f a m i l y labour, p e r h a p s e m p l o y i n g w a g e l a b o u r occasionally, perhaps supplementing

their

household

incomes

by

agricultural

l a b o u r for others. L a b o u r o u t s i d e a g r i c u l t u r e c a n be i m p o r t a n t for the p o o r a n d m i d d l e p e a s a n t s . Figures f r o m

15 d e v e l o p i n g c o u n t r i e s in the

1980s s h o w e d n o n - a g r i c u l t u r a l i n c o m e a m o u n t e d 3 0 t o 4 0 percent o f total rural h o u s e h o l d i n c o m e ; in C h i n a it increased f r o m 10 percent in 1 9 8 0 ro 35 percent in 1995"* a n d " a c q u i r i n g nonagricultural

j o b s h a s b e c o m e c r u c i a l t o a v o i d i n g the fate ot

p e a s a n t life a n d e s c a p i n g rural p o v e r t y " ; 6 4 in E g y p t 25 percent o l rural h o u s e h o l d i n c o m e c a m e f r o m " w a g e s o u t s i d e the v i l l a g e " i n the 1980s.*< W h o Can Overcome? 346

N o t all peasant h o u s e h o l d s are integrated i n t o the w i d e r econ o m y in the s a m e w a y . For m a n y there are o n l y t h e m o s t m e n i a l f o r m s of w a g e l a b o u r . But a m i n o r i t y m a y establish links with those in p r i v i l e g e d p o s i t i o n s — d e l i v e r i n g s u p p o r t f o r politicians, d o i n g favours for big l a n d o w n e r s or m o n e y l e n d e r s , m a n i p u l a t i n g s u p p o s e d l y t r a d i t i o n a l family, clan o r tribal n e t w o r k s . A differeu t i a t i o n arises between peasant h o u s e h o l d s as struggles over land are tied i n t o the conflicts in the w i d e r e c o n o m y , a t a local, a na t i o n a l or even a g l o b a l level. 66 S u c h d i f f e r e n t i a t i o n m e a n s t h a t w h a t are c o n v e n t i o n a l l y de »

scribed as " p e a s a n t m o v e m e n t s " d o n o t h a v e a s i n g l e a u t o m a t k trajectory o f o p p o s i t i o n t o c a p i t a l i s m a n d the r u l i n g classes. T i n l e a d e r s h i p in p e a s a n t m o v e m e n t s o f t e n c o m e s f r o m t h o s e w h o h a v e been m o s t successful in e n l a r g i n g their h o l d i n g s a n d accu m u l a t i n g e n o u g h c a p i t a l t o e m p l o y l a b o u r pow r er r a t h e r t h a n sell it. T h e y h a v e s u f f i c i e n t f r e e d o m f r o m d a i l y t o i l a n d sufti c i e n t c o n n e c t i o n s t o w i d e r society t o t a k e rhe i n i t i a t i v e w h e n u c o m e s t o m o b i l i s i n g o t h e r s . H a m z a A l a v i n o t e d l o n g a g o that p e a s a n r r e v o l t s t e n d t o be led by m i d d l e p e a s a n t s , n o t

poor

p e a s a n t s o r l a n d l e s s labourers. 6 7 T h e p e n e t r a t i o n by c a p i t a l i s m of the c o u n t r y s i d e m e a n s t h a t it c a n , in f a c t , be t h e petty agri cultural

capitalists

who

head

peasant

movements,

putting

f o r w a r d d e m a n d s like l o w e r prices for fertilisers t h a t benefit themselves d i s p r o p o r t i o n a t e l y . T h a t is nor the o n l y direction in w h i c h revolts f r o m t h e c o n n tryside c a n g o . T h e d i f f e r e n t i a t i o n o f the p e a s a n t r y o f t e n m e a n s that rhe m i d d l e a n d p o o r peasants are u n d e r pressure f r o m those w h o will use political c o n n e c t i o n s t o drive t h e m f r o m the l a n d — caste H i n d u l a n d o w n e r s in I n d i a , local p a r t y cadres in C h i n a , chiefs c o n n e c t e d t o state a p p a r a t u s e s in A f r i c a , soya b a r o n s in Brazil. T h e result can be uprisings directed against the petty agrai ian capitalists a n d n o t led by t h e m . B u t such uprisings then have ro c o n f r o n t the forces o f the stare, w h i c h try to isolate t h e m in par ticular localities, relying u p o n the very w a y in w h i c h the peasant h o u s e h o l d gets a l i v e l i h o o d — b y l a b o u r i n g t o p r o d u c e a harvest from

its o w n

plot of l a n d — t o

disperse the protests. So rhe

Z a p a t i s t a insurgency r o c k e d rhe M e x i c a n state, b u t t h a t d i d not prevent the state effectively sealing rhe m o v e m e n t o f f in

the

L a c a n d o n jungle w h e r e it r e m a i n s isolated a decade a n d h a l f later. T h e v a r i o u s M a o i s t m o v e m e n t s o f d a l i t s (the f o r m e r " u n t o u c h a b l e s " ) , tribal peoples, rhe landless l a b o u r e r s a n d p o o r peasants in 348

The Runaway Systeri

India are a n n o y i n g t o I n d i a n c a p i t a l i s m , hut so l o n g as they are restricted t o remote c o u n t r y areas n o m o r e a n n o y i n g t h a n a g n a t bite is to a healthv a d u l r . 9

Yet the very p e n e t r a t i o n o f the c o u n t r y s i d e by c a p i t a l i s m m a k e s more possible t h a n ever before links between the poorer sections of the peasantry a n d the u r b a n w o r k e r s . F o r it m e a n s that rhe p o o r peasant h o u s e h o l d s have, t h r o u g h m i g r a t i o n , f a m i l y m e m b e r s in the cities. J u s t as w o r k e r s ' struggles can p r o v i d e a focus for the bitterness felt by all the g r o u p s w h o live in the s l u m s o f the cities, so t o o they c a n d o so for the h u n d r e d s o f m i l l i o n s w h o still t o i l o n remote patches o f l a n d . But w h e t h e r that possibility becomes an actuality d e p e n d s o n w o r k e r s fighting t o w i n w i t h d e m a n d s t h a t reach o u t t o rhe poorer layers in the t o w n s a n d c o u n t r y s i d e alike. %

W h o can o v e r c o m e ? It is the very d e v e l o p m e n t o f c a p i t a l i s m that shapes a n d reshapes rhe lives o f those it exploits, creating the objective circumstances t h a t can t u r n a disparate mass o f people w h o sell their l a b o u r p o w e r i n t o an increasingly self-conscious class " f o r itself". T h i s class is the potential agent for c h a l l e n g i n g the c h a o t i c a n d destructive d y n a m i c o f c a p i t a l i s m because c a p i t a l i s m c a n n o t d o w i t h o u t it. T h e mistake o f M o u f f e a n d L a c l a u — a n d t h o u s a n d s o f other sociologists,

philosophers

and

economists

who

write

that

rhe

w o r k i n g class has lost its central place w i t h i n the system—is that they d o n o t grasp rhe elementary p o i n t m a d e by M a r x . T h e system is a system o f alienated l a b o u r t h a t has taken o n a life o f its o w n , a n d c a p i t a l c a n n o t survive w i t h o u t m o r e l a b o u r t o feed it, just as rhe v a m p i r e c a n n o t survive w i t h o u t fresh supplies o f b l o o d . There have been phases in the history o f rhe system w h e n it has h a d the m e a n s t o b i n d the mass o f people t o it, either by repression or by keeping t h e m relatively c o n t e n t . H i t l e r o n the o n e h a n d a n d Stalin o n the other did seem to rule o n the basis of mass repression d u r i n g w h a t the Belgian-Russian r e v o l u t i o n a r y V i c t o r Serge called the " m i d n i g h t in the century".** It w a s possible for a British p r i m e minister, H a r o l d M a c m i l l a n , to tell people they h a d " n e v e r h a d it so g o o d " , a n d for m o s t w o r k e r s t o concur, even if g r u d g i n g l y , d u r i n g the 1950s. I h a v e tried t o s h o w t h a t the d y n a m i c o f rhe system is g o i n g t o m a k e it difficult for c a p i t a l i s m t o cement its control p e r m a n e n t l y over the mass o f people by either m e a n s . W h o Can Overcome?

349

Its very restlessness m e a n s that it c a n n o t a l l o w those it exploii to r e m a i n in any degree o f c o n t e n t m e n t for any great length «»l time. As rhe r u n a w a y system lurches f r o m b o o m t o s l u m p a n d rru s t o boost profits a n d write off debts in a w i l d a t t e m p t ro l u r c h b a d a g a i n it dashes the very hopes o f a secure life that it has e n c o u i aged in the past. It insists the mass o f the people h a v e to w o r l longer for less, to accept rhey m u s t lose their jobs because bankers lost their heads, t o resign themselves to h a r d s h i p in o l d age. t o giv< u p rheir h o m e s to the r e p o m e n , ro g o h u n g r y on peasant plots s«» t o as to pay the m o n e y l e n d e r a n d rhe fertiliser supplier. People w i l l react against this. S o m e were already d o i n g so as I w r o t e these w o r d s . T h e last s p u r t o f the m i d - 1 9 9 0 s o n w a r d s li nance-fuelled b o o m s a w s p o n t a n e o u s riots against rising f o o d and energy prices in a score o f countries. T h e first m o n r h s o f its new recession saw protests, riots a n d strikes against its effects. Ir c o u l d nor be otherwise. All such m o v e m e n t s can p r o v i d e p e o p l e w i t h the c o n d i t i o n s for l e a r n i n g for themselves a b o u t the potentialities ol class struggle against the system. A n d the interaction o f recurrent crises—economic,

military, e c o l o g i c a l — i s

repeatedly g o i n g

to

create c o n d i t i o n s t h a t breed further d i s c o n t e n t even if capitalism does s o m e h o w finally emerge from the present crisis inract. It bears repeating a g a i n a n d again that the wealthiest society in h u m a n history, the U n i t e d Stares, o p e r a t e d over the last three decades before the current crisis b r o k e by p u s h i n g d o w n the living s t a n d a r d s o f those w h o l a b o u r w i t h i n it. T h a t t o o w a s rhe pattern o f J a p a n f r o m the early 1990s o n . They are e x a m p l e s w h i c h those w h o rule over Western E u r o p e have set o u t to e m u l a t e , a n d any success they have will create similar pressures o n those presiding over c a p i t a l a c c u m u l a t i o n in rhe n e w l y industrialising societies ol East a n d S o u t h East Asia. T h a t does n o t necessarily m e a n t h e n m i g h t n o t be spells in w h i c h s o m e parts o f the system m i g h t seem better t h a n in the recent past to m a n y w h o live w i t h i n t h e m . Such w a s the case in the m i d t o late 1980s a n d the m i d t o late 1990s. a n d it m a y well h a p p e n a g a i n . But in rhe " r u n a w a y w o r l d " o f cap italism in the 21st century they c a n n o t last long, a n d the crises that bring their s u d d e n end can raise discontent to massive levels. L e n i n laid o u t c o n d i t i o n s t h a t he s a w as necessary for societv ro enter a

ik

p r e - r e v o l u t i o n a r y c r i s i s " . T w o are g o i n g t o b e fill

filled a g a i n a n d a g a i n in this century. T h e r u l i n g class w i l l n o t be able c o n t i n u e w i t h t h i n g s in the o l d w a y . A n d the mass o f people w i l l n o t feel a b l e t o p u r u p w i t h t h i n g s in the o l d w a y . These t w o 350

The Runaway Systeri

elements have p r o d u c e d very i m p o r t a n t social u p h e a v a l s in the decades since the d e m i s e o f rhe l o n g b o o m — f r o m I r a n in and

Poland

in

1980-81, t h r o u g h

to

Russia

in

1979

1989-91,

to

Indonesia in 1 9 9 8 , ro A r g e n t i n a a n d then Venezuela a n d Bolivia in the vears after 2 0 0 1 . T h e escalation o f crisis in O c t o b e r 2 0 0 8 m

led President S a r k o z v o f F r a n c e t o w a r n f e l l o w rulers o l the d a n g e r o f " a E u r o p e a n 1 9 6 8 " . W h e t h e r his w a r n i n g w a s right or w r o n g in the s h o r t t e r m , w e w i l l see massive social u p h e a v a l repeatedly in the decades a h e a d . B u t w h a t has so far been l a c k i n g has been a t h i r d e l e m e n t L e n i n focused o n , the subjective o n e : a p o l i t i c a l c u r r e n t a b l e t o w i n p e o p l e in their masses t o rhe n o t i o n o f a r e o r g a n i s a t i o n o f society a n d p r e p a r e d t o t a k e decisive a c t i o n at key m o m e n t s in l e a d i n g p e o p l e t o fight f o r it. T h e absence o f such a c u r r e n t is itself a p r o d u c t o f o b j e c t i v e processes, s o m e o f w h i c h are described in this b o o k . T h e last great w a v e o f insurgency a g a i n s t the system in rhe late 1960s a n d early 1970s failed t o break t h r o u g h . 6 9 R e s t r u c t u r i n g o f the system t h r o u g h crises disorganised m a n y o f rhe forces involved in t h a t insurgency just as defeat d e m o r a l i s e d the left. T h e d e m o r a l i s a t i o n w a s m a d e m o r e p r o f o u n d by the w a y rhe great m a j o r i t y o f those o n the left w o r l d w i d e identified w i t h the societies o f the o l d Eastern bloc, societies w h i c h h a d , in fact, been a b s o r b e d i n t o rhe system s d y n a m i c o f c o m p e t i t i v e a c c u m u l a t i o n a n d w h i c h suffered m o r e t h a n m o s t f r o m rhe crisis o f the state capitalist phase o f the system. It w a s as if m u c h o f the left h a d t o be b o r n afresh w h e n the latest p h a s e o f insurgency began t o take o f f w i t h the C h i a p a s rebellion in M e x i c o a n d a w a v e o f p u b l i c sector strikes in France in 1 9 9 5 , rhe d e m o n s t r a t i o n s against capitalist g l o b a l i s a t i o n o f 19992 0 0 1 a n d the m o v e m e n t against the Iraq w a r in 2002-3. Bur being b o r n afresh also m e a n t h a v i n g ro learn afresh. Typically, activists talked a b o u t fighting g l o b a l i s a t i o n or n e o l i b e r a l i s m , n o t capitalism. But the r u n a w a y system has itself created the objective c o n d i t i o n s for yet a n o t h e r shift. As 1 write this, rhe sheer scale o f rhe crisis facing the w o r l d system is forcing even those w h o run the system t o talk a b o u t capitalism, a n d h a v i n g t o recognise t h a t M a r x h a d s o m e t h i n g t o say a b o u t it l o n g before Keynes. M a n y o f the n e w g e n e r a t i o n of activists h a v e b e g u n t o study his w r i t i n g s a n d m a n y o f rhe o l d e r g e n e r a t i o n suddenly find they have a n audience t o pass w h a t they have learnt o n to. W h o Can Overcome? 350

T h a t in itself does n o t guarantee that the subjective element will arise to m a k e sure t h a t the next great revolts against the system .11 e n o t c o n t a i n e d by it. For t h a t t o h a p p e n , those w h o study capital ism have to b e c o m e a n integral part o f a m o v e m e n t o f those w h u suffer f r o m it. W h a t w e can say w i t h certainty is t h a t w i t h o u t siu h a m o v e m e n t the w o r l d by rhe end o f this century is g o i n g t o be m tolerable for the m a j o r i t y o f those w h o live in it. A s the yonn): M a r x p u t it, " P h i l o s o p h e r s have interpreted the w o r l d in many ways. T h e p o i n t is to c h a n g e i t . "

352

The Runaway Svsrem •

#

Notes

Introduction 1 For a summary of the various attempts to measure happiness, see Iain Ferguson, "Capitalism and Happiness", International Socialisn^kl 17, 2008. 2 3 4

1 5 6

7

8

9

10

11

12

Washington Times, 24 October 2008. Bank of International Settlements, Annual Report, June 2007. Quoted in Randall E Parker, Introduction, Economics of the Great Depression (Edward Elgar, 2007), px. Quoted in as above, p95. Interviewed in Randall E Parker, Economics of the Great Depression, p95. A Marshall, The Principles of Economics, 8th edition (London. 1936), p368. Joan Robinson, Further Contributions to Economics (Oxford, 1980), p2. See, for instance, Gillian Ten, "Curse of rhe Zombies Rises in Europe Amid an Eerie C a l m " , Financial Times, 3 April 2009. Karl Marx, Economic and Philosophical Manuscripts of 1844. http://www.marxists.org/archive/ marx/works/1844/manuscnpts/ labour.htm K M a r x and E Engels, Collected Works, Volume 34 (London, Lawrence and Wishart, 1991), p398. http://www.marxists.org/archive/ marx/works/1848/communistmanifesto/chOl .htm

13 Put together by Engels from manuscripts M a r x left in an incomplete state. 14 Also edited by Engels after M a r x s death. 15 Available today as the Grundrisse, Theories of Surplus Value, and his Notebooks for 1861-3. 16 This is the basis of rhe so-called "transformation problem". 17 Willem Buiter, Financial Times, 17 Seprember 2008. 18 Arun Kumar provides a very useiul account of how rhe conventional figures provide a distorted view of India, in "Flawed Macro Statistics", in Alternative Economic Survey, India 2005-2006 (Delhi. Daanish, 2006). Chapter One: Marx's Concepts 1 Usually called "horticultural societies" by anthropologists. 2 Adam Smith, The Wealth of Nations, Book One, Chapter 4, available at http://www.econlib.org/ library/Smith/smWN.html; see also David Ricardo, On the Principles of Political Economy and taxation (Cambridge, 1995), p l l . 3 Karl Marx, Capital, Volume One (Moscow, Progress, 1961), pp35-36. 4 It has, however, been partiallyrecognised by some dissident mainstream economists belonging to the so-called Austrian school. So rhe conservative enthusiast for the "free market" Friedrich von Hayek put considerable emphasis on the physical distinctiveness of

353

commodities which cost the same price in his account of the business cycle. See. for example, his Prices and Production (London, 1935). 5 Followers ot Piero Sraffa (18981983), an Italian economist at Cambridge University who did not sec Ins own system as departing from Marx's, though people like Ian Steedman have used his writings in this sense. 6 This was the conclusion arrived at by "Analytical Marxists" like G A Cohen and Lric Olin Wright. See, for instance, G A Cohen, "The Labour Theory of Value and the Concept of Exploitation", in Ian Steedman and others, I'he Value Controversy (London, Verso,

Competition is taken for granted since commodity production assumes the competitive sale ot commodities, bur there is no account at this stage of its furtho impact. In rhe same way, C h a p t n One does not deal with capital although Marx later insists thai n »• only in a capitalist society that "being a commodity is the dominant and determining characteristic of its products' (Capital, Volume Three Moscow. Progress, 1974, p857). For a fulh rounded exposition of how competition between capitals subordinates each of them to tinlaw of value, see Capital, Volume Three, p8.58; and Marx's posthumously published manuscript. "Results of the Direct Production Process", K Marx anil I Engels, Collected Works, Volume 34, pp355-4f>6, available at http:// www. mar x i sts.o rg/a rchi ve/ma r x/ works/1864/economic/mdex. htm

19811, pp202-223. Adam Smith, The Wealth of Nations, Book One, Chapter 5, available at http://www.econlib.org/ Library/Smith/sin W N . h t m l 8 Marx, Capital, Volume One, p39. 9 Marx, Capital. Volume One, p39. 10 Some translations into English use rhe archaic word "aliquot" for proportionate, adding considerably ro the difficulty of Marx's work for new readers. 11 Karl Marx, "Letter to Kugelman" (I I July 186S), in Karl Marx and Frederick Engels, Collected Works, Volume 43 (New York, 1987). 12 Marx, Capital. Volume One, p~75. 13 The use of the word "embodied" sometimes causes confusion. For clarification, see Gughelmo Carchedi, Frontiers of Political Economy (London, Verso, 1991 J% ppl00-l'01. 14 See also 11 Rubin, Essays on Marx's Theory of Value (Montreal, Black Rose, 1990), p71. 15 This is nor always immediately obvious from Marx's exposition in Chapter One of Capital. This involves him analysing the commodity in abstraction from other features of the capitalist system which he deals with later.

354

16 I"7 18 19

Marx, Capital, Volume One. Marx, Capital, Volume One, p72. Marx, Capital, Volume One, p"~4. Figures for biggest 2,000 companiefrom "The Big Picture", http://ww\\ Forbes.com, 4 September 2008.

20 Adam Smith, The Wealth of Nations, Book One. Chapter 8. 21 As above. 22 It was one of the points with which he disagreed with Ferdinand l.assalle, and it also caused him to write a pamphlet directed to an English work