You are on page 1of 424

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 2 3 4 5 Marx's Concepts M a r x a n d his Critics T h e D y n a m i c s o f the System 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 State S p e n d i n g a n d the System 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 The Long B o o m T h e end o f the g o l d e n age Part Three: T h e N e w A g e o f G l o b a l Instability 9 10 11 T h e Years o f D e l u s i o n G l o b a l C a p i t a l in the N e w Age F i n a n c i a l i s a t i o n a n d the Bubbles that Burst Part F o u r : T h e R u n a w a y System 12 13 14 The N e w Limits o f Capital 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 W h o Can Overcome? Notes Glossary Index 307 325 329 353 393 403 229 255 277 143 161 191 21 41 55 87 121

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 Fire Last Revolution: History Time: of the and World After (Bookmarks 1999 a n d Verso Lost 2 0 0 S ) , Revolution in the list 1968 Century ( 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

Germany

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

e d i t o r o f International

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 across Europe and North America. Chinese Unemployment 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

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 ot International a n d comSettlements. T h e p o l i t i c i a n s , industrialists, financiers

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 put 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 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
4

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 intervention 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 firmsin 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 fully at the b e g i n n i n g o f the 19th century. 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

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 second v o l u m e

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 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 Capitalthe g r o w t h o f mon 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 Socialism 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 m o r e fully in Explaining the Crisis. 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

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 rhe 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 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 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

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

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 yearsthe 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.

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 othersmoney ( 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 " ) tinued to trust the b a n k s .
Mrtrx's Concepts 27

accept those

notes from

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

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 con-

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 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 process seeing 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 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 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 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

prothat

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 -

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 also a system Manifestos of compulsive wrote a c c u m u l a t i o n . T h e Communist which M a r x

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 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 inunder

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

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 themselvessometimes 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 givesthat 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 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

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

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 discrepanciesand 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 value. total value, or total profit did not

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

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 yearsthere 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 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 prolonged factors... 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 talist 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

their...

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 capi-

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

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

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, per 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

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 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

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

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 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

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

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 capitalist 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 quer in Times or rhe Economist, Britain, Nigel rather t h a n p r o p a g a n d i s i n g to who once embraced the was the masses. So the long-time Conservative chancellor o f the excheLawson, " 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 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 ists w h o 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 bust, or rhe occasional outburst of popular caused t o the mass o f the p o p u l a t i o n , the distress t o those capitalwent 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 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 physical 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 ment (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 investin 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 ratesthe 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 ,
1 1 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 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

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

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 self-expansion 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 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 sec1

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

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 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

Bellamy

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, his d e a t h , in the m i d - 1 9 2 0 s .
82 Understanding the System: Marx and Ik-yond

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

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 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. blood and brain,

\ 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 forcesthe 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 totalisingI 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 lc 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 Michits " 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 had 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

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 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

"property

concentrated in the h a n d s o f a few giant capitalist groups"'. 1 4 This

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 received 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 financeno d o u b t influenced 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 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

"divide"

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 companies, industry and thus b a n k i n g . . . u n i t e the entire a state capitalist "natrust.

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 becoming 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<y ondMarx: Monopoly, War and rhe State 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 re1111reel 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 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, 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

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

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

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 human 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 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 be m a d e theoretically w a t e r t i g h t . 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

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 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 "nat 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. international

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
4

of national

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

capitalism are best satisfied... T h e n a t i o n a l state is typical 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 establishment f o r the first t i m e o f centralised structures they were all " c i t i z e n s " ) / the 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 The fact t h a t the new structures functioned 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 ing 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 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 , includnetworks, 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 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 m 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 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 accucommercial 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

figuresalliances

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

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
llc yond 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 resourcesparticularly 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 toaggregates. In an M a r x insuch

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

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 other 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, "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 crisesthe 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 ( 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

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

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 capitalistsas 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 n n .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
llcy ond 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 -industrial 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 productionand the r e q u i r e m e n t to an 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 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 respectit 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 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*

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,

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 disproductive and unproductive labour in a between

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 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

would grow

in q u a n t i t y

as

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 exploitersresources 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

implicationsincluding

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 caterised, 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) (d) (e)

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. Those devoted t o sales, advertising, etc. 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) (g)

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 " . 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. 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

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

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 or capitalists' productive either workers' consumptionideally

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 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

under

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 servicesand for the p e o p l e w h o s u p p l y it. There is a widespread tendency for Marxistsas well as some nonM 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 values. H e a l t h services a n d u n e m p l o y m e n t benefits both 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 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

1929.'

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 the d e m a n d figures. and 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 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 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 omy, which began experiencing an economic were in 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 econdownturn 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 est". 1 1 He " s o m e w h a t sceptical o f the success o f a is best k n o w n for explaining the merely of 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 weakness 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 il 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 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 crisisthat 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

radical

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 Again a militarised state-dominated economy

investment.'4

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 1943even when measured in 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. T h e w a r econcould noted, It

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 >! 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

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 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 . 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 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 Either w e d o it or they crush u s " / ' 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
u

working

population...

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. 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

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 growthcreated 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 "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

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

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 Struggle for Power a n d The of Socialism 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 Marxw 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 1 1 1 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 It w a s this w h i c h 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 . : 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, I 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. 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 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 " 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

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 expansionall 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

(
I

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 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 I a b o v e their gross profits, the enterprise will u n d e r t a k e invesrm 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 ersgave 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 supplementand even partially supplantthe 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 farmsan 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 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 forceeffectively, 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 itselfthe 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

force

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 setall 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 stareeven 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 applied 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 b e g a n ro 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 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

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 buying consentwere 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 you 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 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 capitalismsor, 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 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 (through minimum 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 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 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 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 the or

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
r

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 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 Israelfostered 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 travestyas 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 what path of capital accumulation. The the I uropean economies, for instance, have long been ro a high degree dependent o n h a p p e n s in the US e c o n o m y w i t h o u t 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 1970s a t h i r d o f is w o r k f o r c e w a s in industry, w i t h o n l y a n d by the mid-1980s the Economist 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 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

1 1 1 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 are quite good... has Substantial been capitalist industrialisation already

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 restand 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 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 .
1970s

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 now to be i m p o s s i b l e broke upon the was supposed

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, later p u t it, they s u d d e n l y realised rhat: Economic Policy

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 1 1 1 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 Michl,16 A n w a r Dumenil
0

Nevertheless, and Ertugrul Levy, U f u k

Shaikh

Ahmet Tonak,1" Gerard

and

Dominique

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 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 by Bob 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 . ' 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 senseand 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 it 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 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 13.2 69 and percent; in 1953 the figures h a d o n l y been 3 . 6 a n d 6 . 5 percent re

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 elsethe 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 dedependent byand

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 up 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 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 economy 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 recessionand 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*> In K a z a k h s t a n (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 / " 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 criseswere 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 " 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

pro-

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 systemeither 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 1960-69 1970-79 1980-90 1991-2000 36.2 24.5 24.9 14.5 Non-financial corporate 25.4 20.5 16.7 10.8

Return on gross nott-residential stock 1 1960 1970 1980 1990 28.3 18.0 7.8 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 fcctiveKeynesian 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 sectorssaw 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 Singaporeregistered 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 lollowing a similar export-oriented parh u n d e r the

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 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 readers t h a t Brazil w a s t h e great rising T h i r d W o r l d national country 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 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 r o w i n g heavily in i n t e r n a t i o n a l financial 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 borm 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 countriesChina/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 1 1 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 1 1 1v

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 repressionrhe 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 a n d servicesback 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

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

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 state o w n e d .
Graph: Economic Growth of Industrial Predictions (~)x Countries () As Against LV1T

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

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", and
22 1 *

freedom"

" 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 N c \ \ 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 Newsnight

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

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 , vulnerable", stated the Economist. " 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 Times. But again

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 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 than before. T h e I n t e r n a t i o n a l 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.<i percent, c o m p a r e d w i t h 6.9 percent in 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; China. 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 tion plants o f Greater Buenos Aires.
232 The New Age of Global lnstabilitx

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 refrigera-

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 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: banks

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 Am... 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 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 everuntil 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 systemeven 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 systemeither 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 1948-59 1959-69 1969-73 1969-79 1979-90 1990-2000


%

Non-farm/ non-man 0.110 0.118 0.109 0.107 0.094 0.107

Son-financial

corpns 0.143 0.150 0.108 0.103 0.090 0.101 0.091

>0.250 0.246 0.166 0.135 0.130 0.177 0.144

2000-2005

Evolution of capital intensity and capital stock'

(Average annual growth rate) 1980-90 United States Capital stock Capital/labour ratio Japan Capital stock Capital/labour ratio Germany Capital stock Capital/labour ratio France Capital stock Capital/labour ratio Italv
4

1990-9 S 2.6 0.6 4.2 4.7 2.6 3.7 2.0 2.3 2.7 3.5 1.6 1.2

1995-98 3.3 1.0 3.6 4.4 2.3 3.1 2.0 2.3 2.7 3.4 1.6 1.0

3.0 1.1 5.7 4.9 2.6 2.9 2.0 2.3 2.8 2.7 1.8 1.8

Capital stock Capital/labour ratio

United Kmgd om

Capital stock Capital/labour ratio

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

80-

70-

60-

50 1970 1975 1980 1985 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 statesand firms o p e r a t i n g in rhose stateswere 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 Australia Canada France Germany Italv

/ 979 13.2 14.5 22.0 25.4 21.2 25.1 16.4 13.8

1995 16.1 18.0 29.1 28.7 22.8 34.0 22.5 15.8

Sweden United Kingdom United States

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 Mexicans Americans British French Dutch

2,380 1,848 1,82* 1,689 1,441 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 takes time with most sorts of industrial production 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 (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. Times, The Thai crisis, w r o t e M a r t i n W o l f in the Financial 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 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

output

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. foreign 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 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 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

million

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 Stareseffectively 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

35- 30-f 2000

Net exports (right scale)

-5

-4-0

2002

2004

2006

^ 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 17.4 percent in

multinational 1990 to 5 0 . 8

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

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 percentand 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 enterprisesand 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 wards. And it w a s a grave m i s t a k e t o believe t h a t 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 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 marketexporting 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 0.87 percent 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 (ie f o r m a l ) 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; in rhe " o r g a n i s e d " 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, people .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 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 industrial previously 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 Countries where the s t a t i f i c a t i o n of industry had 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 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 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 , 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 w h e r e computer 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", Week.11
2.57

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

Cilobal Capital in the New Age

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 . '
C ilobal 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 (TNCs) 2003

firms.20
corporations

of the world's largest transnational

Top 100 T N C s Top 50 T N C s Those based in United States United Kingdom Japan France Germany Small European countries

55.8 47.8

45.8 69.2 42.8 59.5 49.0 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 phe ' 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

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
C ilobal 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 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 semiconductor company with was no longer and NEC Texas (Japanese) but ^ntel (American), Motorola a n d received s t r o n g

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"largely succeeded in turning America's military had

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.
C ilobal 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 statesand 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
C ilobal 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 staresand 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
C ilobal 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 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 antagoreached 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 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 . 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 Croatian independence and then the US Bosnian independence, even t h o u g h

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 of gross non-residential private investment'" a n d "official figures...excluded 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
C ilobal 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 to advance other statesand positions. the capitals The most operating important from West 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 their own 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 C ilobal Capital in the New Age

The New Ape of Global Instabilirv

1 1 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 finance had

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

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(>

1 1 1 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 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 financial

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 arled 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 systemrevenues 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 quired i n t e r n a t i o n a l financial financial c o n n e c t i o n s across borders. I t ren 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 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 sortsthe 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

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

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 countries] 1 industrial

1960-69 1970-79 1980-89 1991-2000

5.0 percent 4.2 percent percent 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 ac1 1 \ 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 expanded 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 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

happened

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 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.

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

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 accrued f r o m services".' grew w i t h
284

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 T h e Economist has t o l d o f the US's cur possibh rently biggest m a n u f a c t u r i n g firm, General Electric, that its "profits rhe sort o f predictable c o n s i s t e n c y . . . m a d e

The New Age of Global lnstabili(>

b y . . . m a k i n g good any unexpected shortfall w i t h

last-minute finance

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 jGE's revenue".-' 1 I

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 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 spheresrepeated 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 financial 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 had and 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 " " 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 " " 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 possessingwas 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 .
The New Age of Global lnstabili(>

286

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 the India's Golden " 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

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 financiers 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 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 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

bubble

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 assetsthat 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 , 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 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 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

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

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 last a t t e m p t t o rely o n the m a r k e t w h e n corporations Lehman 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 it a l l o w e d Brothers t o g o b u s t a decision praised by the Financial

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 in the pages o f rhe Financial mone tarists a n d m o d e r a t e Keynesians alike, w i t h repeated discussions 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 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
4

stop that

Failed

blamed "rhe gods of

finance",

called for increased regula financial institutions, and

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

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 Peter G o w a n ' s The Global Gamble, 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 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 investment for

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 economically financial investment cannot 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 macrosubstitute 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 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(>

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

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 riseto 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 decadesfinancial 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 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 These insights need t o be developed t o t a k e ac financial 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 centurv.

institutions a n d o f financial crises in the late 2 0 t h a n d earlv 21st

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 Fine has a r g u e d , thar financial " M a s t e r s o f the U n i v e r s e " gorged h a d the effect o f d r i v i n g a accumulation"," m a k i n g it 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 financialisation fictitious " w e d g e . . . b e t w e e n real a n d

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 financial "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 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 up capital"/

t o soak

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 figuresbeing reached. It t o o k another 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 European refused t o sign u p . T h e

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 5C".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 will price resist signals anything that that clash with profitability with national 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, interferes 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 usedof 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 e4 v 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 v 1 1 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 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

medium

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 1 1 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