The Relevance of Marxism Today was written by Alan Woods and Ted Grant in 1994. It explains all the factors that have led to the present crisis, and although the temporary and unprecedented credit bubble allowed the system to avoid a serious recession for an extended period of time, eventually all the factors explained in this article have come to the surface.
Socialist Appeal pamphlet, March 1994. Introduction to Marxism in Our Time, by Leon Trotsky
On the threshold of the twenty-first century, humanity stands at the crossroads. On the one hand, the achievements of science, technique and industry point the way forward to a dazzling future of prosperity, social well-being and unlimited cultural advance. On the other, the very existence of the human race is threatened by the ravishing of the planet in the name of profit; mass unemployment, which was confidently asserted to be a thing of the past, has reappeared in all the advanced countries of capitalism, not to speak of the nightmare of poverty, ignorance, wars and epidemics which constantly afflict two thirds of humanity in the so-called “Third World.”
The fall of the Berlin Wall and the collapse of the bureaucratic Stalinist regimes of Russia and Eastern Europe provoked a wave of euphoria in the West. The demise of Stalinism was heralded as the “end of Socialism.” The final victory of the “free market” was trumpeted from the pages of learned journals from Tokyo to New York. The strategists of capital were exultant. Francis Fukuyama even went so far as to proclaim the “end of history.” Henceforth, the class war would be no more. Everything would be for the best in the best of all capitalist worlds.
In the last few years we have witnessed an unprecedented offensive against the ideas of socialism on a world scale. The collapse of the bureaucratically controlled planned economies of the East was held up as the definitive proof of the failure of “communism,” and, of course, the ideas of Marx.
This is not the place to deal in depth with the reasons for the collapse of Stalinism. That will be done in a future work in this series. The fall of Stalinism came as no surprise to the Marxists, who had predicted it in advance. Indeed, Leon Trotsky already analysed the bureaucratic regime in the Soviet Union in the 1930s and, using the Marxist method, explained the inevitability of its collapse.
In the first place, Stalinism and socialism (or communism), so far from being identical, are mutually exclusive. The regimes in the USSR and its Eastern European satellites in many ways were the opposite of socialism. As Trotsky explained, a nationalised planned economy needs democracy as the human body requires oxygen. Without the democratic control and administration of the working class, a regime of nationalisation and planning would inevitably seize up at a certain point, especially in a modern, sophisticated and complex economy. This fact is graphically reflected in the falling rate of growth of the Soviet economy since the early 1970s, after the unprecedented successes of the planned economy in the earlier period.
However, what the Western critics of Marxism do not want to publicise is that the movement in the direction of a capitalist market economy in the former Soviet Union and Eastern Europe, far from improving the situation, has caused an unmitigated social and economic disaster.
It is true that the productive forces stagnated under Brezhnev. But what is the position now? Every index points to a catastrophe of unprecedented dimensions. If we take the last three years, there has been a decline of industrial production in Russia of about 40-45%. This is a staggering collapse—far worse than the slump of 1929-32 in the West. Investment fell by 45% in 1992, and an additional 12% in 1993, and continues to fall. Inflation topped 20% every month in mid-1993. The rouble has collapsed and the rate of exchange is now 1,250 to the dollar, and still falling.
This situation can only be compared to the effect of defeat in a devastating war. The effects on the population, which has rapidly been reduced to absolute misery, can best be shown in the sudden deterioration of life expectancy.
Under the planned economy, the people of the Soviet Union enjoyed a level of life expectancy, health care and education on a level with the most developed capitalist countries, or in advance of them. What is the position now?
The Financial Times of 14/2/94 carried a front page article with the title “Russia faces population crisis as death rate soars.” The article points out that: “In the past year alone, the death rate jumped 20 per cent, or 360,000 deaths more than in 1992. Researches now believe that the average age for male mortality in Russia has sunk to 59—far below the average in the industrialised world and the lowest in Russia since the early 1960s.”
These figures merely confirm what is self-evident: That the attempt to impose a “market economy” on the peoples of the former Soviet Union has been a finished recipe for destroying all the gains of the past seventy years, driving down living standards and plunging society as a whole into an abyss.
Of course, the apologists of capital assure us that all this will be temporary, that “in the long run” the market will create the conditions for prosperity. To which we can answer in the words of Keynes: “In the long run, we’re all dead.”
A few years ago, the Western media confidently predicted that capitalism was about to enjoy a new period of dazzling economic success, on the basis of new markets in Russia and Eastern Europe. These illusions have been rapidly shattered by reality. Under capitalism a “market” is not a question of the size of population. If that were so, then India and Africa would be huge markets. However, a market depends upon purchasing power—something which is noticeable by its absence in the ex-Stalinist countries. Far from providing new markets for capitalism, these countries represent a colossally destabilising factor, as most clearly shown by events in former Yugoslavia and the former USSR itself.
World Capitalist Crisis
Trotsky’s Introduction to “The Living Thoughts of Karl Marx” represents a classic restatement of the basic positions of Marxism. In all its essentials, it has been brilliantly confirmed by the present evolution of capitalism on a world scale. Nevertheless, for a whole period following the Second World War, it appeared to many to have been falsified by the march of events.
As Trotsky had predicted, the Second World War ended in a new revolutionary upsurge. In the period 1943-7, the working class moved time and again to transform society in Italy, France, Greece, Britain, Denmark and Eastern Europe. The betrayal of the revolution by Stalinism and Social Democracy provided the political basis for a recovery of the equilibrium of capitalism. This was the prior condition for the economic upswing which lasted from 1948 to 1974.
It must be emphasised that there is no such thing as a “final crisis of capitalism”. Marxism understands history as a struggle of living forces, not an abstract schema with a preordained result. If the working class does not overthrow it, the capitalist system will always find a way out.
The reasons for the post-war economic upswing have been explained by Marxists since the 1950s (see Ted Grant: “Will There be a Slump?”). There were many different factors, such as post-war reconstruction, the discovery of new industries during the war, and to some extent the increased involvement of the state (“state capitalism”) through arms expenditure, deficit financing and nationalisation, which, for a temporary period partially mitigated the central contradiction of private ownership of the means of production.
However, the main factor which acted as a motor-force driving the world economy was the unprecedented expansion of world trade. Thus, the Financial Times (16/12/93) pointed out that:
“Over the whole period between 1950 and 1991, the volume of total world exports grew twelve times, while world output grew six times. More startlingly still, the volume of world exports of manufactures rose twenty three times, partly because this is where trade liberalisation was concentrated, while output grew eight times.”
These figures clearly show how the rapid expansion of world trade in the post-war period acted as a powerful motor-force which drove the growth in output. This is the secret of the capitalist upswing from 1948-74. It means that, for a whole historical period, capitalism was able partially to overcome its other fundamental problem—the contradiction between the narrowness of the national market and the tendency of the means of production to develop on a global scale.
Now, however, this tendency appears to have reached its limits. In 1992, world trade grew by 6,5%. While this is a lower rate than in the period of the post-war upswing, it is nevertheless historically quite high. (In the period between the Wars it was nearer 2.5%.) Despite this, it did not stop Europe and Japan from sliding into recession. In other words, the growth of world trade no longer has the same effect as in the previous period.
During the period of capitalist upswing from 1948-74, we saw a staggering increase in the productive forces, fuelled and stimulated by an unprecedented expansion of world trade.
The capitalists, above all in Japan, the USA and Western Europe, were prepared to invest colossal sums in expanding the productive forces in pursuit of profit. The productivity of labour increased enormously as a result of a constant revolutionising of the means of production. New branches of industry were established—plastics, atomic energy, computers, transistors, lasers, robots, etc.
From a Marxist point of view, this was an historically progressive development, which creates the material basis for a socialist society. The strengthening of the working class and the squeezing out of the peasantry in Western Europe, Japan and the United States, also changed the class balance of forces within society to the advantage of the proletariat.
However, this period of capitalist expansion came to an end with the recession of 1973-4. Already in that period we saw the re-emergence of mass unemployment, not seen since the 1930s. The big movements of the working class in Greece, Portugal, Spain, Italy and Britain showed that the workers were beginning to draw revolutionary conclusions from their experience.
This was temporarily cut across by the boom of 1982-90. However, this boom was completely different to the economic upswing of 1948-74. Originally sparked off by the Reagan rearmament programme, the boom of the 1980s was of an unsound character. Whereas the parasitic service sector underwent a big expansion, the capitalists continued to close factories and lay off workers in all countries.
The boom was kept going by a massive expansion of credit, which, as Marx explains, can temporarily take capitalism beyond its limits, before bouncing back like an elastic band stretched almost to breaking-point. A further element in the situation was a colossal increase in the public deficit of the USA and other capitalist countries which fuelled the boom for a while, but which could not be sustained indefinitely.
Precisely these factors which served to prolong the boom of the 1980s have now turned into their opposite. Part of the reason why the Western world is finding it so hard to drag itself out of recession is because they used up during the boom mechanisms which capitalism uses to get out of a slump.
The uncontrolled expansion of credit has left the West with a painful hangover in the form of huge consumer indebtedness. In Japan, for example, for every 100 yen earned, 170 yen are owed. In the United States, for every dollar earned, a dollar two cents are owed, and so on.
The bourgeois economists failed to predict this recession, which is the longest and most severe since the Second World War. Of course, sooner or later they will get out of it. However, it is proving to be extremely difficult. With the exception of a very shaky recovery in Britain and a rather more stronger one in the USA, the other economies of Western Europe and Japan remain stubbornly depressed. The official predictions of recovery are constantly postponed and revised downward.
The Economist (Dec.1993-Jan.1994) reports that: “The OECD now predicts that average growth in its member countries will speed up (!) to 2.1% in 1994 and 2.7% in 1995, after average growth of only 1.2% in each of the past three years. Some countries will fare better than others. A solid, if unspectacular, recovery is already underway in the United States, Canada, Britain, Australia and New Zealand—the countries that dipped into recession first. All five are tipped to grow by around 3% or more in both 1994 and 1995.
“Continental Europe and Japan, however, remain obstinately in recession.”
Even a growth of 3% would be a miserable result. It would not mean a substantial fall in unemployment. Hence, the Financial Times refers glumly to “a joyless recovery.” But it is not even certain that they will attain this level of growth. A year ago the OECD predicted that Japan would grow by 2.3% in 1993, and 3.1% in 1994. Instead, Japan’s GDP actually fell by 0.5% in 1993 and the forecast for 1994 is only 0.5%. Compare these figures to the normal Japanese growth rate of 4-5% a year and we see the very profound nature of the crisis.
Even on the most optimistic estimates, unemployment in the OECD will remain (officially) at 8.5% for the next two years. In Europe, the average rate of unemployment will continue to rise to at least 11.5%. In other words, a sluggish (“joyless”) boom will solve none of the fundamental problems of the capitalist system. In fact, it will exacerbate them.
Whereas in the period of upswing from 1948-74 we had long periods of boom interrupted by shallow and short recessions, a very different picture is now emerging: of relatively weak periods of boom, characterised by low rates of investment, low growth and permanently high unemployment, which are only the prelude to increasingly deep and prolonged periods of slump. Such is the glittering prospect which capitalism offers to humanity on the eve of the new millennium.
One of the most malignant symptoms of the diseased state of capitalism in its epoch of senile decay is the appearance of mass organic unemployment.
During the period of capitalist upswing, mass unemployment was alleged to be a thing of the past. Through Keynesian deficit financing and “managed capitalism,” the capitalist cycle of “boom and bust” was supposed to have been overcome. Marx had been shown to be fundamentally wrong!
In point of fact, even in this period the capitalist cycle of boom and slump continued to exist. However, under conditions of general upswing, the small slumps or recessions which took place were generally short and shallow, and were hardly noticed by the masses.
In the 1950s and 60s, the average unemployment in the advanced capitalist economies of the OECD was about 2-3%. Most Western governments defined this as “full employment.” Now this situation appears as a dim and distant memory. Today, half the OECD countries have a jobless rate of 10% or more. Since the early 1970s, unemployment in the advanced capitalist world has more than doubled.
According to the official statistics, which deliberately falsify and underestimate the true levels of unemployment, a record 35 million people are our of work in the OECD. The real figure would be nearer 50 million or more, particularly if we add the “discouraged” workers who have given up looking for a job.
Unemployment in the European Union (EU) has increased inexorably over the past two decades from 2.4% in 1970, to 6% in 1980, to almost 12% at present. (about 20 million people—roughly the population of Greece and Portugal combined). In the USA, 6.5% are out of work and in Japan, too, unemployment is rising for the first time in decades. In fact, many economists consider that the true rate of unemployment in Japan is not the official 2.5% but nearer 10%. Bear in mind that unemployment in Japan has not exceeded 3% since the Second World War. Now all that is about to change.
The main point is that this unemployment is qualitatively different to anything we have seen since 1945. This is not “cyclical” unemployment which rises and falls with the normal trade cycle of capitalism. It is not even the “reserve army of unemployed” which, as Marx explains, is a necessary feature of capitalism.
This is a permanent, organic, or as the bourgeois economists call it, “structural” unemployment. The system is no longer able to absorb the large numbers of workers who enter the labour market each year. On the contrary, it cannot even keep in employment those who are already at work.
Even in periods of booms, like the boom of 1982-90, the capitalists behave like Luddites, destroying the means of production, closing down factories and throwing large numbers of workers onto the streets. In periods of slump, this situation gets worse. But even when the economy finally picks up, it is unable to reabsorb them.
Unemployment is a cancer which gnaws at the bowels of society. The atrocious waste represented by unemployment is shown by the fact that we are currently losing (on official figures) the equivalent of 35 million man-years of production every year.
In addition to this, the money spent on unemployment benefit and social security, insufficient as it is, serves to aggravate the problem of budget deficits which plague all Western governments. Since they cannot just let 35 million people and their dependants starve to death (not out of any charitable feeling, but because of fear of the social and political consequences), the capitalists are compelled to pay out huge sums of money for people not to work.
In the words of the Communist Manifesto, the bourgeoisie is “unfit to rule because it is incompetent to assure an existence to its slaves within its slavery, because it cannot help letting him sink into such a state, that it has to feed him, instead of being fed by him.”
Like some uncontrollable and terrifying epidemic, unemployment strikes the young and old, men and women, black and white, educated and uneducated, skilled and unskilled. Even the managerial strata, professional people and white collar workers who never thought they would be out of work—find themselves unceremoniously thrown on the scrap heap in the prime of life. For many 40 year olds (and even younger people) who lose their jobs now may never find work again.
As The Economist (7/7/93) put it: “Many who toiled long and hard to climb a career ladder are, indeed, finding that the rungs are falling away under their feet.”
The capitalists have no answer to the problem of unemployment. The old Keynesian recipes have been shown to be bankrupt. The huge budget deficits which exist in all capitalist countries (except Japan, for special reasons) means that deficit financing and “pump priming” to artificially boost demand through state expenditure is ruled out.
The dominant wing of the bourgeois have unceremoniously ditched the old Keynesian nostrums (which were, let us recall, supposed to have provided the definitive answer to Marxism).
“In the 1930s, when jobless rates soared above 20% in America and Britain, a British economist, John Maynard Keynes, argued that the cure for unemployment was to stimulate demand by increasing public spending or cutting taxes. In the 1950s and 1960s Keynesian demand management seemed to do the trick. Unemployment stayed low. But since the early 1970s, it has ratcheted up in each cycle. An increasing proportion of unemployment is clearly structural.” (The Economist, 12/2/92).
The fact is that, even in the event of a shaky recovery which seems likely in the next period, unemployment will not noticeably go down in most countries. It will remain an ugly and chronic ulcer, sapping the strength of society.
The Daily Express of February 11th 1994, in a article on the dire position of Britain’s manufacturing sector pointed out that more than 360,000 jobs had been lost in the industry during the recession in the three years to 1993, and that a further 47,000 were forecast to disappear in 1994, precisely in a period of recovery of the British economy. It goes on to predict that:
“Even though the industry is expanding, engineering companies will continue to cut workforces as new technologies force out the unskilled.” And this is no exception, but the rule, and not only in Britain. In 1993, nearly half the unemployed in Europe had been out of work for a year or more, with little or no prospect for improvement.
The situation in Japan, where until recently most workers thought that their jobs were guaranteed for life, is no better. Although the overall unemployment figures seem low by comparison with Europe, the underlying trend is sharply up. The Economist (18/12/93) points out that the number of full-time jobs in Japan increased over the year to October 1993 by a mere 0.1%. But since the workforce is growing by 0.5% a year, unemployment continues to increase: “The number of people registered as unemployed is up 20% on last year. Until September 1992, job vacancies outnumbered jobs seekers: now there are 67 openings per 100 job seekers,” and the article concludes pessimistically: “Unless the yen falls along with Japan’s trade surplus, the present troubles may soon seem mild.” In fact, the yen has risen, and Japan’s crisis has gone from bad to worse.
Machinery and the Working Day
Those of us with long enough memories can remember the days when the “experts” promised us a glorious vista of the future when, on the basis of applied science and technology, the burden of work would be done away with, hours reduced and the central problem of society would be what to do with our leisure time.
How ironic these arguments sound today! While million of unemployed languish in conditions of enforced “leisure,” other millions with the good luck to remain at work find themselves subjected to ever-increasing pressures to work longer hours with lower pay and worse conditions. and to spend the maximum exertions of their nervous system and muscle-power in the cause of greater “productivity” (read: “profitability”).
Yet, in truth, all the earlier predictions concerning the possibility for reducing the working day were correct. The potential for a universal reduction in working hours—and thereby the abolition of unemployment—is implicit in the spectacular advance of technology in the past few decades.
Let us consider the implication of industrial robots. There are 500,000 of these machines in the world at the present time. Japan, with just 0.3% of the surface of the world, and 2.5% of its population, possesses more than 300,000 of the total—double the number of five years ago.
In the USA, the number of robots has grown by 50% in the same period, according to figures published by the McKinsey Global Institute. Italy, France, Spain and other countries have likewise increased their number of robots.
The introduction of these machines means that the number of workers in a factory can be drastically reduced, while the productivity of those who remain, vastly enhanced by machinery, registers a substantial increase.
In France, for example, the two major car manufacturers have reduced their workforce by no fewer than 200,000 over the past twelve years, with an increased productivity of 12% in the same period. Similarly, the Peugeot factory in Spain reduced its 12,000 workforce by half over the last decade.
The same technology can be applied to many other fields—the transformation of plastics, for example, or the textile industry. Even in the food industry, such operations as the packaging of cheese is done by robots, which can also be used to eliminate human participation in dangerous occupations. Robots mean greater quality, more flexibility in production, and speed.
The universal application of such technology in the context of a rational and harmonious plan of production, with the democratic involvement of the workers at all levels, would signify a complete transformation of the life of society.
The working week could immediately be reduced to a four day, thirty two-hour week without loss of pay, and at the same time production could be rapidly increased both in quantity and quality. Thereafter, the working day could be steadily reduced, thus providing the material conditions for such a flourishing of democracy, art, science and culture as the world has never seen.
This is precisely the material basis for socialism—a new and qualitatively higher form of human society. These are not utopian day-dreams, but conclusions which flow logically and inevitably from the present state of knowledge and the actual demands of the productive forces.
And yet, at every step reality knocks its head against the potential of production and technique. Instead of a world of leisure and self-fulfilment, we have a social nightmare of mass “structural” unemployment on the one hand and relentless, inhuman squeezing of labour power on the other. How to explain such a crying contradiction?
In the first volume of Capital, Marx explains that the introduction of machinery under capitalism necessarily means a lengthening of the working day. The purpose of employing machinery is to cheapen the product by economising on labour.
However, there is a contradiction implicit in this. The profits of the capitalist are extracted from the unpaid labour of the working class. The increase in the productivity of labour made possible by the introduction of machinery is achieved by a heavy initial outlay on costly machinery which, in themselves, add no new value to the end product, but merely import to it, over a period, bit by bit, their own value:
“Machinery, like every other component of constant capital, creates no new value, but yields up its own value to the product that it serves to beget.” (Vol. 1, p387)
The only way to ensure a greater return on this outlay, is to make his machinery work non-stop, day and night, with no interruptions, while simultaneously squeezing every atom of surplus value from the worker, both by lengthening the working day through overtime, the abolition of tea-breaks, etc. (“absolute surplus value”), and by enormously increasing the intensity of labour by speed-ups, productivity deals and all kinds of pressure (“relative surplus value”).
Thus, as Marx explains, “machinery, while augmenting the human material that forms the principal object of capital’s exploiting power, at the same time raises the degree of exploitation.” (Vol. 1, p395) And again: “If machinery be the most powerful means for increasing the productiveness of labour—i.e. for shortening the working-time required in the production of a commodity, it becomes in the hands of capital the most powerful means, in those countries first invaded by it, for lengthening the working-day beyond all bounds set by human nature.” (Vol. 1, p403)
Competition, the constant revolutionising of the productive forces and techniques, the desire to “corner the market” and get an advantage over others, were the factors which, in the past at least, compelled the capitalist constantly to re-invest in expensive machinery.
However, once having introduced new machinery, it is in the capitalist’s interest to use it to the maximum. It cannot be allowed to stand idle for an instant, partly because it deteriorates, and partly because it can quickly become obsolete. That is why, under capitalism, the introduction of machinery leads to greater exploitation and an increase in the working day.
The introduction of new technology to a given branch of production means that in that branch, for a time, huge super-profits can be earned. Later, however, the other capitalists catch up and the rate of profit is levelled out.
Ultimately, the amount of surplus value obtained by the capitalist depends upon two things: a) the rate of surplus value and b) the number of workers employed. However, the introduction of machinery tends to reduce the number of workers and therefore change the ratio of variable to constant capital. Machinery (constant capital), as we have seen, does not add any new value to the final product above and beyond what is already present in it. “Hence, the application of machinery to the production of surplus value,” Marx explains, “implies a contradiction which is immanent in it.” (Vol. 1, p407)
The Tendency of the Rate of Profit to Fall
In the Grundrisse, Marx refers to the tendency of the rate of profit to fall as “the most important law in modern political economy.” Nevertheless, Marx never considered this as an absolute phenomenon. In the third volume of Capital, he explains the tendencies which served to counteract this law. For example, Marx points out that the intensification of exploitation (“relative surplus value”) can restore the rate of profit, and also the tendency to cheapen the price of commodities, including machinery. We have seen precisely these factors operating in the recent period, as the capitalist attempt to increase their profit margins by squeezing every atom of surplus value from the sweat and nervous strain of their workers.
In other words, what we are dealing with is only a tendency which manifests itself over the whole history of capitalist development. Nevertheless, there can be long periods—even decades—in which the tendency of the rate of profit to fall is cancelled out by the counteracting tendencies already mentioned.
In his book The Current Crisis written in 1987, Mark Glick publishes the following figures for the long-term rate of profit in the United States:
Thus, from an historical point of view, we see that, leaving aside the inevitable cyclical fluctuations, the rate of profit now is lower than it was a hundred years ago. However, for whole periods this tendency has been reversed.
If we take the figures for the main capitalist countries during the period of the post-war upswing, when colossal sums were spent on new plant and machinery, the tendency of the rate of profit to fall is clearly revealed:
Profit Margins in Manufacturing Industry as a Percentage of the Value of Production:
1951 1960 1979 1973 1975 1977
Italy 25.2 16.5 19.9 3.6 3.3
West Germany 34.4 29.3 20.6 13.6 11.0 11.8
Japan 36.3 43.7 39.3 29.2 15.5 16.6
USA 25.9 19.6 16.2 17.7 17.5 18.6
Britain 30.8 27.4 16.1 17.7 4.7 9.6
The slight discrepancies between these figures and Glick’s are due to the fact that the statistics are often evaluated differently. However, the important thing is the trend, which is quite clear.
In the subsequent period, particularly the 1980s, this tendency was sharply reversed, as the capitalists of all countries took steps to restore the rate of profit. This was mainly done by drastically increasing the rate of exploitation. Employers took advantage of the huge “shakeout” of the early 1980s to squeeze extra surplus value from the workers who remained in employment. This was particularly true in Britain and the USA.
In general, the boom of 1982-90 represented the weakest investment cycle since the Second World War. Only in Japan and Germany was there a significant increase in capital investment. In the United States, investment in productive industry remained weak in comparison to the booms of the past. On the other hand, merciless pressure was exerted on the American workers to keep wages down and boost profit margins.
By such means, the capitalists have succeeded in partially restoring the rate of profit. But even so, the rate of profit is still far less than it was in the “golden age” of the 1950s and early 1960s. Nevertheless, the capitalists can accept, for a time, a reduced rate of profit, provided the mass of profit is maintained.
Some people imagined that a new period of capitalist expansion would be guaranteed by the opening of new fields of investment in the “information revolution.” This illusion has been rapidly shattered. The computer and software market has also rapidly reached saturation. In two years, the cost of personal computers fell by half, and the price of related products— spreadsheets, word processors, databases and the rest, is being dragged down after it.
In point of fact, this new area of production is a classic case which illustrates the correctness of Marx’s economic theories. The costs of developing complex new products are huge. Microsoft’s Access database alone cost about $60m. This can only be offset by a rapid increase in market share and a huge volume of sales.
However, with the appearance of overproduction and falling prices, profit margins have begun to fall. In the quarter to September 1993, Borland’s net profit margin sank to 2.6% of sales, down 4.2% a year earlier. The equivalent figures for Lotus were 7% and 14.6%. Even Microsoft anticipates a fall in its net profit margin to around 15% from falling sales of application software.
The capitalists can, for a time, tolerate the tendency of the rate of profit to decline, on condition that the mass of profit is maintained.
As we have pointed out, the Japanese capitalists for decades have led the world in investment in new machinery and technology. The long-term decline in the profitability of Japanese industry is a well-documented fact.
Between late 1986 and early 1991, capital investment in Japan accounted for two-thirds of GNP growth. According to investment experts Smithers and Co, the current slump in business investment in Japan is directly related to this phenomenon; the graph shows a continuing decline of the rate of return on physical capital: “it takes more and more investment to deliver a given increase in output. This fact has its counterpart in Japan’s declining long-term growth rate.” Before the “oil crisis” of 1974, the trend growth of real GNP was nearly 9%. Then it declined to 4%. One of the factors in this was “that the return on investment has declined sharply. Business investment became even less profitable in the most recent capital-spending binge.” (The Economist, 29/5/93).
“Experience in Europe and America suggests that a ratio of capital spending to GNP of about 12-15% is typical for a mature economy. Japan’s ratio peaked at 22% in 1991. Since then companies such as Toyota have announced steep reductions in investment. But capital spending still accounted for 20.5% of GNP in 1992. Further severe cuts seem inevitable, with consequences for both employment and consumer confidence, Smithers and Co. expects capital spending to fall by almost half before this adjustment is complete.” (Ibid)
All the big Japanese companies have seen their profits slashed. In the six months to September 1992, Matsushita (the world’s biggest electronic manufacturer) experienced a fall of 66% in pretax profits, NEC, 71%, Mazda, 72%, Nippon Steel, 74%. The average drop in pretax profits was 36%. Nissan saw its first ever loss since it was quoted on the stock exchange in 1951—a total of $114 million.
The result? Factories mothballed, wages frozen, bonuses paid in unsold goods and, for the first time in decades, Japanese workers sacked. In other words, the much-vaunted “Japanese model” has finally collapsed.
The aggressive exporting methods of Japanese companies are part of an attempt to restore profitability by intensive participation on the world market. On the other hand, together with massive investment in the most modern machinery, the Japanese capitalists have developed new techniques and working practices designed to squeeze the maximum productivity from the workers. Thus, the Nissan plant in Sunderland produces 80 cars per worker per year (the same as in Japan) compared to an average of about 45 cars in the European car industry. However, both the stepping up of pressure on the workers and the attempt to find a way out of the crisis through exports come up against insuperable barriers.
One of the ultimate causes of capitalist crisis is over-production. The working class can never purchase the total product of its labour. The capitalists cannot increase wages to the point where its surplus value is eliminated, since the pursuit of surplus value is the motor-force of the entire system. Other things being equal, if the real wages of the working class increase, the capitalists’ profits will fall, producing a collapse of investments, the life-blood of the system.
In the recent period we have seen a ferocious struggle to push down real wages, while simultaneously forcing up the productivity of labour. In the United States, for example, real wages have not risen in twenty years. In British manufacturing industry, the workforce has been reduced from six million to four million over the past decade, yet the level of production remains the same. And this has been achieved without the massive introduction of new machinery, which would have been a progressive development.
However, the relentless squeezing of the workers to achieve higher rates of profit is reaching its limits. There is a point beyond which the workers’ physical ability to produce cannot go. The drive to go beyond these limits will inevitably produce an explosion.
Even leaving this out of account, from a strictly economic point of view, the continuing “shake-out” of workers from the factories creates new contradictions. On the one hand, the rise in unemployment reduces demand and thereby deepens the crisis. On the other hand, since surplus value can only be produced by human labour, at a certain point the expulsion of workers from the factories must lead eventually to a fall, not only in the rate of profit, but in the mass of profit.
The attempt to find a solution by increased participation in world markets also has a limit, insofar as the capitalists of all countries are attempting to do the same thing.
Compared to these points, the trusts of Marx’s day were mere child’s play. The The only solution is to attack the workers’ living standards. We see this tendency in all countries at the present time. However, this merely gives rise to new contradictions. To the extent that they succeed in cutting wages, on the basis of the “need to be competitive” in one country, the competitive advantage will be cancelled out, all the capitalist countries will be back to square one, but the masses of all nations will be worse off.
The attempt to solve the problem by increased participation on world markets has led to an ever fiercer struggle between the USA, Europe and Japan. Such is the sharpness of the conflict that, in any other historical period, it would have already led to war. In the modern epoch, for reasons explained by the Marxists in the past, a world war between the main imperialist nations is virtually ruled out (although “small” wars such as the Gulf War and the Yugoslav conflict are inevitable). Instead, we have the threat of trade wars, and the increasing division of the world into rival blocs, dominated by the USA, Japan and Western Europe.
The ferocious struggle for competitive advantage, the desperate attempt to boost profit margins, means that each national capitalist class will seek to put extra pressure on its workers. Wages, hours, conditions, social reforms, trade union rights—all the gains of the past—are under attack. This is a recipe for class struggle.
Concentration of Capital
It is ironic that, precisely in this epoch, when the entire world economy is dominated by huge multinationals, the apologists of capital try to show that the future lies with small enterprises, or, to use their favourite catch-phrase, “small is beautiful.”
This wishful thinking is like the day-dreams of a decrepit old libertine who tries to forget his present ailments by recalling the vigour of youth. However, the youthful phase of capitalism is gone beyond recall.
Marx explains how free competition inevitably begets monopoly. In the struggle between big and small capital, the result is always the same: “It always ends in the ruin of many small capitalists, whose capitals partly pass into the hands of their conquerors, partly vanish.” (K. Marx, Capital, Vol. 1, p. 626)
Today, the vast power of the monopolies and multinationals exercises a total stranglehold on the world. With the access to staggering sums of money, their economies of scale, their ability to manipulate commodity prices and even their power to determine the policy of governments, they are the true masters of the planet.
The brilliance of Marx’s method is shown precisely from the fact that he was able to predict the inevitable tendency towards monopolisation when “free competition” was still the norm.
Nowadays, despite the demagogic twaddle of journals like The Economist about “small is beautiful,” there can be no question of this general historical tendency being reversed. Quite the contrary. The last few decades have witnessed an unprecedented tendency towards the concentration of capital.
The broad historical tendency towards the concentration of capital is absolutely incontrovertible. If we take the percentage of total assets held by companies in the United States, for example, we get the following result:
100 biggest 200 biggest
1925 34.5 ----
1939 41.4 58.7
1954 41.9 50.4
1968 48.4 60.4
At the present moment in time, no less than nine-tenths of the US economy is in the hands of the top 500 companies, and 80% of that is in the hands of the 100 biggest. A US Senate report of 1980 further revealed that the controlling interests of the stocks of these companies was in the hands of just two dozen big financial institutions. In turn, these companies are controlled by each other. For example, over a third of the shares of Citibank were held by just twenty-four of its leading “competitors.”
The figures for Britain are no less illuminating. Let us take the percentage share of the largest 100 firms in manufacturing:
The situation as regards Germany is no different. In 1982, firms with over 200 employees accounted for only 11.9%. By 1991 it was 45.1%.
Small may or may not be “beautiful,” but the plain fact is that firms with over 500 employees overwhelmingly predominate in all major capitalist economies as against small enterprises, accounting for 49% of manufacturing in France, 66% in Britain, 60% in West Germany and a staggering 71% in the USA.
The only exception is Japan, with 33%, but this is more apparent than real, since the large number of small firms are heavily dependent on the monopolies, and really represent auxiliaries of the industrial giants. At the present time, Japanese small firms are going bust at the rate of more that 1,000 each month. A similar position exists in Europe.
An editorial in The Economist (18/7/92) points out that “there were 3.6% million more small and middle-sized enterprises in the European Union in 1989 at the start of the decade.
“Now the gap is back, and widening. Many small firms have collapsed as economies stagnated and the share prices of the survivors have done less well than those of the big companies. Banks have cut their lending.” And this is the voice of the journal which used to wax lyrical about the small and medium firms which were allegedly going to represent the future of the “free market economy”!
Yet these figures do not tell the whole story. In the recent period, especially during the boom of the 1980s, the tendency towards the concentration of capital has been enormously accelerated, as the big monopolies made huge fortunes out of take-over bids, often accompanied by all kinds of fraud and corrupt practices—leverage bids, junk bonds, asset stripping, insider dealing, and so on. This kind of speculative fever, the urge to “make a fast buck” out of non-productive activity, and not at all the creation of real wealth through investment, is what characterises the present period of capitalism.
In Britain, where the capitalist class has operated in an entirely parasitical way for years, the “merger-mania” revealed itself in a particularly crude way throughout the “Thatcher decade,” coinciding with the wholesale dismantling of manufacturing industry. Thus, in 1979 there were 534 takeovers, with a total value of £71.6 billion. By 1987, that figure had risen to a staggering 1,125, with a total value of £715.5 billion—ten times as many.
The same phenomenon can be seen on a global scale. In the first nine months of 1990, the number of world-wide mergers and acquisitions stood at 6,883. The following year, despite the recession, the corresponding figure was still 6,151. The process of the concentration of capital proceeds apace, despite all the propaganda about “free enterprise.”
In Britain, fifty big companies control 90% of international trade. On a different level, one third of world trade is in the hands of giant multinationals with truly staggering sums of capital at their disposal. The speculative movement of this capital around the world can make or break governments. The power of the big monopolies was revealed by the crisis of the European Monetary System (EMS), when the manipulation of billions in the international money markets compelled the devaluation of the pound, the lira, the peseta, and other currencies.
In the period of capitalist ascent, the bourgeois played a progressive role in developing the productive forces, investing in industry, science and technology. In the epoch of capitalist decline, we see a very different picture emerging. Speculative activity and investment in the parasitic service sector is displacing investment in productive activity as a source of profit. When huge fortunes can be made by a single telephone call by a currency speculator, why bother to risk capital in costly machinery which may never make a profit?
Gambling on the stock exchange has reached epidemic proportions. Nearly $200 billion a year goes to finance speculative takeovers in the United States alone. While factories were being continuously closed, in the period 1989-91 more than half of world-wide investment was dedicated to services. While part of this was of a productive character (transport and other parts of the productive infrastructure which is incorrectly included under the heading of “services” by the bourgeois analysts), the majority, from junk-food shops to banking and insurance, was parasitic and non-productive.
Every day about $1,000 billion exchanges hands on the foreign exchange markets. Yet only 5-7% of this represents real production and exchange deals. The rest is made up of massive speculation in international currencies, where fortunes are made in a matter of hours without the need for any productive activity, whatsoever.
To understand the explosive growth is speculative activity, between 1980 and 1990, the volume of world-wide cross-border transactions in equities increased at a compound rate of 28% a year, from $120 billion to $1.4 trillion a year. Currency trading has grown by more than a third since April 1989, when a central bank survey estimated net daily turnover at $650 billion—and that was double the previous survey’s estimate for 1986.
The vast sums of money handled by the big banks, and used mainly for speculative purposes, is shown by the following figures. In 1980, the level of international lending (including domestic deals in foreign currency) was $324 billion. By 1991, despite the sharp cut-back in lending to Third World countries, as a result of the debt crisis, that figure had increased to a staggering $7.5 trillion.
To give an idea of the meaning of these figures, it is necessary to remind ourselves that in 1980, the combined gross domestic product of the 24 OECD countries (the entire developed capitalist world) was $7.6 trillion. In 1991 it was $17.1 trillion. So in one decade, the stock of international bank lending rose from 4% of total OECD GDP to 44%.
These figures give a true picture of the power of the big banks and monopolies on a world scale. At the last count, in 1990, there were approximately 35,000 “transnational corporations” with 147,000 foreign affiliates. However, in reality, a handful of giant monopolies predominate. The parasitic and speculative character of these monopolies explains why the boom of 1982-90 had an entirely different character to the post-war upswing.
Benjamin Friedman of Harvard University points out that between 1980 and 1989:
“Corporations were borrowing not to invest but to finance transactions— including mergers, acquisitions, stock repurchases and leveraged buy-outs— that merely paid down their own or other corporation’s equity. As a result, the corporate sector’s aggregate net worth declined by more than one-fourth compared to the size of the economy.”
Marx explains that the bourgeois in the end are dealing in “phantom figures”—interest and speculative activities which would swallow up the whole production of the world. The statistics show that the fever of speculation vastly exceeds the actual level of production on a world scale. Marx also warned that this process cannot be prolonged indefinitely, but as we now see in Japan, inevitably leads to a collapse of production, once the speculative bubble is burst.
The destiny of million of human beings is in the hands of these monstrous monopolies, guided purely and simply by the predatory instinct to make “easy money” by non-productive means. The collapse of the EMS and the permanent instability of world finance markets are a graphic illustration of this power, which is an additional factor for instability, threatening at any time to engulf the world in a new financial crisis, which, given the precarious and unsound state of world capitalism, could end in a deep slump.
“To put it at its mildest, governments have no grounds for complacency about the risk of another depression. Today’s financial markets are more than capable of assembling the preconditions, and economic policy may not be able to cope if the do...
“Global capital flows are one of the biggest reasons to fear that a financial upset might cause a deep, worldwide recession.” (The Economist, 19/9/92).
Overproduction and Slumps
The sickness of the system is shown by the phenomenon of excess capacity which affects all the main capitalist economies. In Marx’s day, the crisis of capitalism manifested itself in periodic crises of over-production. Under modern conditions, the big monopolies have the necessary technology to calculate in advance the available market for their products. Therefore, they have tended to reduce production before getting to the point of actual over-production.
The fact that the capitalists are not capable of fully utilising the productive capacity even in a boom is a graphic illustration of the Marxist assertion that the productive forces have grown beyond the narrow limits of private ownership and the nation state.
However, the situation at the present time is even worse. Instead of excess capacity we see the re-appearance of actual over-production in a number of areas, not only agriculture, where the “food mountains” appear as an obscene insult to the starving millions in the Third World, but cars, computers and many other commodities.
In the Communist Manifesto, written in 1847, Marx and Engels accurately described the kind of crisis which we now see:
“In these crises a great part not only of the existing products, but also of the previously created productive forces, are periodically destroyed. In these crises there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity—the epidemic of over-production. Society suddenly finds itself put back into a state of momentary barbarism: it appears as if a famine, a universal war of devastation had cut off the supply of every means of subsistence: industry and commerce seem to be destroyed and why? Because there is too much civilisation, too much means of subsistence, too much industry, too much commerce. The productive forces at the disposal of society no longer tend to further the development of the conditions of bourgeois property; on the contrary, they have become too powerful for these conditions, by which they are fettered, and so soon as they overcome these fetters, they bring disorder into the whole of bourgeois society, endanger the existence of bourgeois property. The conditions of bourgeois society are too narrow to comprise the wealth created by them. And how does the bourgeoisie get over these crises? On the one hand by enforced destruction of a mass of productive forces; on the other, by the conquest of new markets, and by the more thorough exploitation of the old ones. That is to say, by paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented.” (Marx and Engels, Selected Works, Vol.1, pp.113-4).
These lines are as fresh and relevant today as when they were written, over 140 years ago.
Just take the state of the car industry, where hundreds of thousands of workers have been thrown on the scrap heap because the market is saturated. The Japanese car makers had obtained a big advantage over their foreign rivals partly on the basis of investing in modern technology, partly by a more ruthless and “scientific” squeezing of relative surplus value from their workers.
The Japanese monopolies, with their strong emphasis on modern machinery, were prepared to put up with a relatively low rate of return on investment, made up by a greater volume of sales through exports.
However, most families in Japan, the USA and Western Europe now possess at least one television, a car, a video, hi-fi equipment, etc. The tendency to expand the market artificially through credit has reached its limits, leading to a general crisis of debt.
In this situation, there has been a fall, not of the rate, but of the mass of profit. In the past, every Japanese car made 83,000 yen in profit. The figure is now about 15,000 yen. Moreover, Japanese car manufacturers had developed a productive capacity based upon the assumption of a 10-15% market growth every year. In fact, market growth has been at most 2-3% in the recent past.
Western Europe’s car market declined by 16% in volume terms in 1993, giving rise to a vicious price war between car companies trying to dump their surplus products. Only the biggest and most powerful companies can survive in such a situation, and not all of them.
The Economist (5/2/94) explained the seriousness of the position:
“The underlying proof of the European car industry’s problems is surplus manufacturing capacity of about 2 million cars a year. If all Europe’s plants were manned and equipped to run at full stretch, the overcapacity could be 3.5 million cars a year.”
For a period of almost four decades after the Second World War the capitalist system experienced a new lease of life for reasons outlined above. This was reflected in increasing living standards for a large part of the population in the advanced capitalist countries.
In the Introduction to the Living Thoughts of Karl Marx, Trotsky deals with the so-called “theory of increasing misery,” which the bourgeois critics of Marx have utilised to try to discredit Marxism, pointing triumphantly to the increased living standards of the workers of the West in comparison to the past.
However, Marx never denied that, under certain conditions, wages could rise. Such an assertion would be utterly childish. On the contrary, he went to some lengths to explain how wages inevitably rise in certain periods of capitalist development, and fall in others. But even in the most prosperous periods of capitalism, the relative improvement of living standards can never abolish surplus value, and can never change the social position of the worker:
“But just as little as better clothing, food and treatment, and a larger peculium (a slave’s allowance—EG and AW), do away with the exploitation of the slave, so little do they set aside that of the wage-worker. A rise in the price of labour, as a consequence of accumulation of capital, only means, in fact, that the length and weight of the golden chain the wage-worker has already forged for himself, allow of a relaxation of the tension of it.” (K. Marx, Capital, Vol. 1, p. 618)
When the capitalists are making super-profits from the labour of the working class, when demand is rising and order-books are full, and when the workers feel strong enough to combine, through their trade unions, to demand an increased share in the product of their labour-power, then the capitalist can agree to part with some of the booty.
At best, an increase in wages in a favourable period would signify a relative reduction in the amount on unpaid labour “given” by the worker to the capitalist. What it can never mean is the abolition of exploitation. On the contrary, a growth in wages is frequently accompanied by an increase in the rate of exploitation, and a relative worsening of the position of the worker vis vis the capitalist.
Workers are generally interested in the amount of cash they receive in wages, and what it can buy. They are not so conscious of the amount of labour they give in return, in the form of overtime, productivity deals and the rest of it. As long as the money is there at the end of the week, workers can, for a time at least, put up with a killing pace of work, which undermines their health, family and social life. Nor are they aware that, while their wages are increasing absolutely, the profits of the bosses are increasing relatively even more.
The fact that a worker can afford to buy a television or a second-hand car (on credit) does not alter his or her position vis a vis the capitalist. Above all in the period of monopoly capitalism, the idea that a worker can “better himself” by working hard is a farcical illusion.
Marx referred to the tendency of capitalism to depend increasingly on the labour of women and children. Nowadays, child labour is supposed to have been abolished in the advanced capitalist countries. Nevertheless, it still enters into the composition of capital through the products of the Third World, where extensive and horrific exploitation of children still exists.
However, the exploitation of women and young people is an important and growing factor in the economic life of advanced capitalist countries. How many working-class families could maintain their present standard of living without wives, sons and daughters contributing to the household income with the income from low-paid jobs?
Under modern conditions of production, sheer physical strength is frequently less important than agile minds and hands. This means the possibility of widespread exploitation of women and young people, usually taken on at low wages on the basis of part-time employment means that the clock is being put back a hundred years.
“Women still account for a lamentably small share of senior jobs; but lower down the ladder, things are different. In Britain, the number of women in work has increased by 18% since the late 1970’s, while male employment has fallen by 7%. Britain now has almost as many female employees as male ones, though many are part-timers. In America, too, women have taken the larger share of America’s new jobs since the late 1970’s. On current trends, a ‘typical’ worker in America and Britain will be a woman by early in the next century.” (The Economist, 11/12/93).
The participation of women in the productive process is the prior condition for their emancipation from the narrow confines of the home. The entry of women workers into the ranks of industry represents a new and vital source of strength for the working class and the labour movement. However, despite the boastful tone of this bourgeois editorial writer, the crude reality of female labour, now as in Marx’s time, is one of blatant exploitation in every sense of the word.
“The rise in female employment is welcome—both for the new employees and for the economy as a whole,” gloats the leader writer. But then he lets the cat out of the bag: “Nonetheless, the slump in demand for unskilled labour and the influx of female workers have combined to depress pay for unskilled and part-time jobs. Men are less willing to work for very low pay.” (The Economist, 11/12/93).
Incidentally, the same Tory hypocrites who bewail the rise in crime and anti-social behaviour among young people and the “decline of the Family” allegedly caused by women working, turn a blind eye to the effect of capitalist crisis on the family. “Relate”, the marriage guidance charity, reports a 50% increase in its workload over the past five years. Unemployment and mounting debts are having a “devastating effect on family life,” it says.
Thus, even in the best period, the rise in living standards is accompanied by increased exploitation, by a relative decline in the workers’ position relative to the capitalists, and by the super-exploitation of women and young people in low-paid jobs which are increasingly of a casual or temporary character.
However, the illusion of “prosperity” is now being rapidly undermined. The inexorable spread of unemployment means that even the relative gains of the past, the little pleasures which afford some consolation, which make life more civilised, are threatened. Not only these things, but even the roof over people’s head can be taken away almost at a moment’s notice. Thus, society is afflicted by an increasing sense of insecurity and malaise.
All the gains of the past are under threat, as the capitalists try to boost their profit margins at the expense of the working class and the poorest sections of society. The unemployed, the aged, the sick are faced with the continuous attacks on the welfare state. Those workers who are “fortunate” enough to have a job are faced with a general assault on wages and conditions.
In Britain, which once boasted one of the most developed welfare systems, the Tory government has abolished the Wages Councils, established by Winston Churchill in 1910, which were intended to protect the wages of millions of low-paid workers. Everywhere, the employers take advantage of anti-trade union laws to push down wages.
A recent report by Dr. Neil Millward of the Policy Studies Institute, commissioned by the government’s Department of Employment provoked the Financial Times (15/2/94) to comment: “The increasingly unregulated labour market is returning to the way it was in the 19th century before trade unionism... The study suggests the sharp decline in workplace trade unionism since 1980 (with a fall from 58 per cent to 40 per cent in membership) has not led to any spontaneous move by employers to introduce alternative forms of worker representation or joint consultation.” Instead, the report states, they “appear to be moving towards the situation in which non-managerial employees are treated as a ‘factor of production’.”
Since when have workers been treated as anything else? However, there is no doubt that the bosses, in Britain and elsewhere, are taking advantage of mass unemployment, and reactionary anti-union laws and other forms of “deregulation” to try to carry through a real counter-revolution on the factory floor. Even the conservative Financial Times is compelled to recognise that “Management is growing increasingly autocratic in its wielding of autocratic power.”
The report adds that:
“The recent growth in inequality in wages and earnings which has been widely observed to be greater in Britain than in almost any other developed economies is being matched by a widening in the inequalities of influence and access to key decisions about work and employment.”
According to figures published recently by Mr. Nick Adking, a statistician at the Department of Social Security, the real income of the poorest 20% in Britain fell by about 3%, after housing costs, between 1979 and 1990-91. On the other hand, the richest 20% saw their incomes go up by 49%, in the same period. In 1990-91, the poorest 20% depended on state benefits for 69% of their income.
The abolition of wages councils in 1993 has resulted in a substantial drop in pay rates, according to the Low Pay Network, which found that 18.1% of jobs were paying below the minimum rate previously established. In some sectors, the position was much worse: “The survey, covering 1,500 vacancies at 45 Jobcentres found that 27.1% of jobs in the retail sector were paid below the last wages council rate, followed by hairdressing with 20.8%, the clothing industry with 13.8% and hotel and catering with 12.2%.
“It found underpayment ranging from an average of 9.2% in the clothing sector to an average of 22.6% in hairdressing, where the last set rate was 2.88 an hour.
“Before abolishing the wages councils, the government argued that removing the statutory minimum wage would have little impact on wage levels or employment.” (Financial Times, 14/2/94).
According to the official figures, the average Briton saw his or her real income rise by 25.4% since 1979. But this disguises a huge increase in living standards for the better-off, and, at the other extreme, a rapid process of impoverishment.
It is true that many workers, in the last period, have been able to purchase things like videos, dishwashers, hi-fi equipment and the like which would have been unthinkable for an earlier generation. This creates a sensation of well-being and “prosperity.” However, on the one hand, this partly reflects the general cheapening of commodities, manifested in rapidly falling prices of what were previously considered luxury items (computers are a good example). On the other hand, the consumer boom of the 1980s was achieved at the cost of a colossal increase in indebtedness through credit which, as we have seen, is one of the reasons why the present recession has been prolonged.
Take Japan, for instance. In 1986, Japanese households had debts worth 92% of their annual post-tax incomes. The figure for the USA was about the same. By the end of the decade, Japan’s ratio had jumped to 116%. But the trouble with credit, as every worker knows, is that eventually it has to be paid back—and with interest. It is a way of taking capitalism beyond its normal limits. But at the end of the day, the price must be paid in the form of a deepening of the crisis. According to some estimates, the burden of debt repayment in Japan has cut consumer demand by around 2% since 1990. Britain and America experienced a similar phenomenon earlier on.
In other words, the absolute increase in living standards during the boom was achieved in the advanced capitalist countries, on the one hand by workers toiling extra, stretching themselves to the limit, working overtime, week-ends and so on. On the other hand, it was achieved by the cheap labour and exploitation of women and young people. Finally, it was the result of the “artificial paradise” of credit, which ended up in a nightmare of debt.
All this, of course, refers to the workers in average or “well-paid” jobs. But at the bottom end of the scale, we see the relentless spread of poverty, and even the creation, at the lowest level, of a kind of “under-class” of people who are, in effect, excluded from the right to a civilised existence.
In London and Paris we have the scourge of homelessness and a large number of young people with no job, living on the streets in conditions reminiscent of Victorian times—easy prey to crime, drug addiction and prostitution.
The Economist (11/4/92) carried an article describing the conditions of the urban poor in the United States:
“These crumbling vertical ghettos, housing 20,000 people, all of them black: another 5-7,000 live as illicit stowaways. It is down there, in that wasteland of smashed windows and stale urine, that America’s most pathological ills are concentrated. The statistics speak plainly of how 50 years of public housing has failed to help those it was meant to help: ... Nine-tenths of households have a single parent, so parental authority is spread thin. Nearly everyone depends upon government assistance of some sort. This housing was meant to provide shelter of last resort. Yet many families have lived in it for three generations.” These lines refer to the Robin Taylor Homes in Chicago, but they could refer to any one of a thousand such “inner city areas,” and not only in the United States. The article goes on:
“The Housing Act of 1949 promised ‘a decent home and a suitable looking environment for every American family.’ During the economic boom of the 1980s, the country’s poorest fifth got poorer and housing assistance rose. The number of poverty level households assisted grew by 161% between 1974 and 1989 to 2.4 million according to the joint centre for housing studies at Harvard University. But the growth in poverty outstripped the growth in Federal Resources. Over 5 million renters and 4 million home owners live, unassisted, below the poverty level.
“In the past, housing used to be like the car market: through deterioration units become cheaper, and so affordable for the poor. No longer. The number of housing units that were rented for less than $250 a month (in 1989 dollars) fell from 8.6 million in 1974 to just 6 million in 1989. A lot of ‘low cost’ housing became gentrified during the 1980s. In poor neighbourhoods, even more housing promised landlords so little prospect of return that buildings have been abandoned, reinforcing urban decay.
“The cost of housing now lies at the heart of America’s poverty. More than three quarters of renters bellow the poverty level and more than half of poor home owners spend more than half their income on housing costs. It would take $20 billion to clear up America’s housing and make it ready to sell.
“But consider this. Some 56% of Federal housing subsidies or 49.9 billion dollars goes (mostly in the form of mortgage interest relief) to the richest fifth of Americans each year. Just $14.9 billion goes to the poorest fifth. The disparity is absurd, visibly so.”
The same journal (21/3/92) dealt with the spread of diseases, like tuberculosis in the poor urban areas of the most developed capitalist country:
“The United States thought it had eradicated TB. Yet the disease has already reached epidemic proportions in New York city: Doctors estimate that there were almost 5,000 new cases last year, 35% more than in 1990 (the most recent year for which an official tally is available), and about 300 deaths. More than one in six of America’s TB sufferers is in New York city.
“Measles and syphilis struck last year too, and the struggle against AIDS goes on all the time. Now the resurgence of TB threatens to overwhelm the city’s health officials. The long decline in TB stopped in New York at the end of the 1970s, but it is only in the last couple of years that the disease has one more spread rapidly. The HIV virus, homelessness, poverty, and drug abuse all make people more vulnerable. The disease has been incubated in the city’s overcrowded prisons, hospital wards and shelters. Two out of three sufferers are young blacks or Hispanics. New Yorkers have a worse record than the people of most Third World countries when it comes to completing treatment. In Tanzania, Malawi and Mozambique, according to the World Bank, the completion rate (for TB) is 80%; in East Harlem, with one of the highest rates of infection, it is 11%.”
Marx and Engels pointed out over a century ago that the bourgeoisie was compelled to take action to introduce better sanitation into the workers’ districts when the epidemics of disease begun to spread to the “respectable” middle class areas. The article goes on to point to the risk of court actions against the New York City council, and comments: “New York cannot afford them. Even less, however, can it afford to let TB spread—as it will—to plush offices and nice homes.”
Behind the righteous indignation of the bourgeois against the so-called “law of increasing immiseration” lies an uncomfortable awareness that, in fact, there has been a tendency to reduce a significant layer of society to absolute poverty.
While the rich have grown richer, the poor have sunk to a level which literally approaches the type of conditions we associate with the novels of Charles Dickens—or the chapters in Marx’s Capital on Machinery and the Working Day—among the greatest examples of social criticism in the whole of political literature.
A recent study by a children’s charity revealed that basic social security benefit paid to more than 1.5 million families in Britain does not even pay for the diet prescribed for a child in a Victorian workhouse.
The Food Commission costed the diet of a child in a workhouse in the East End of London in 1876 and arrived at the figure of £5.46 a week at today’s prices. This compared to £4.15 a week allowed in income support for a child under 11.
Tony White, the charity’s chief executive commented: “It is appalling, as we approach the year 2,000, that even an 1876 workhouse diet is too expensive for the families of one in four of our children.”
Marx wrote about the terrible conditions of the mainly women workers in the garment trade in the East End of London. The abolition of the wages councils and the drastic reduction of factory inspection under the Tory government means that, in all probability, the conditions of the (mainly Asian) women workers in these trades will be all too similar.
And not only in Britain. In California, one of the most prosperous and “liberal” states of the most powerful and wealthy nation on earth, we have the same phenomenon—the “agony of toil, slavery, ignorance, brutality and mental degradation,” of which Marx wrote. Thus, The Economist (12/2/94) reports:
“The garment industry in California has long depended on seamstresses, usually Chinese immigrants, toiling in back alley sweatshops for illegally low rates of pay.” For a dress retailing at $150, a seamstress will “probably pick up about $6.”
“In December (1993), a sweep through 71 shops in San Francisco and Oakland found more than half of them in violation of minimum-wage standards. Sewing jobs for Esprit, Liz Claiborne, Izumi and other glittering names were being done by underpaid workers.”
It tends to be forgotten that all the gains made by the working class in the past were obtained through struggle. The ruling class has never conceded anything without a fight. It is true that, in a period of economic upswing, the capitalists can afford to part with a small part of their profits, so long as they continue to enrich themselves at the expense of the working class. But now that the period of upswing has ended, they have launched an all-out offensive to eliminate the conquests of labour.
In the United States, even during the “Reagan boom,” of the 1980s, unit-labour costs in manufacturing industry actually declined by an average of 6.4% a year (in 1985-93).In Germany and Japan they rose 4.2% and 6.6% respectively in the same period. But now the German and Japanese capitalists want to pursue the same policy. Chancellor Kohl lectures the German workers, complaining that they are “over-paid,” “lazy” and work too few hours.
The capitalists of all other countries are singing the same song. Fred Lempers of the Netherlands Chamber of Employers recently stated that Dutch companies were hoping that the minimum wage (2,163 guilders, or $1,141 a month) would “at least be halved.”
In Belgium, the imposition of a series of austerity plans provoked a general strike in November 1993. The attempt of the Spanish government to impose deregulation of the labour market also provoked a 24-hour general strike.
Everywhere you look, the capitalists and their governments are attempting to find a way out of the crisis at the expense of the working class. The illusions in a future based upon full employment and prosperity which became widespread in the advanced capitalist world on the basis of nearly four decades of economic upswing, are swiftly disappearing:
“The American tradition is based on the expectation of rising wealth. Large parts of the population are now faced with the reality of being poorer than their parents, or even their grandparents. The price of industrial competitiveness may thus be the lowering of expectations, not only for wages but for working hours and conditions. In the US, the lesson is proving painful. Europe, for the most part, has yet to confront it.” (Financial Times, 7/2/94).
The “Third World”
The period since the Second World War has been one of uninterrupted turmoil in the underdeveloped capitalist countries. The people of Africa, Asia and Latin America, amounting to two thirds of the human race, derived little benefit from the fireworks display of economic growth in the industrialised West. They remained hungry spectators at the feast of world capitalism.
Even the relative development of industry made possible by the world economic upswing of 1948-73 did not prevent a fall in national income for most of these countries, leading to a general economic and social crisis.
Nominally independent, they are even more enslaved than before. The economies of these countries are tied by a million chains to the chariot of world imperialism, which exercises its domination through international trade and the mechanisms of the world market based on the exchange of more labour for less.
According to figures published by the UN Development Programme for 1992, the gap between rich and poor countries has increased inexorably over the past decades. Since 1960 the share of the world’s gross product of the richest 20% grew from 70.2% to 82.7%. This means that the industrialised capitalist countries are now 60 times wealthier than those countries where the poorest 20% live. The gap between the two has doubled in the last thirty years.
However, even these figures understate the reality. In the advanced countries of capitalism, millions live in poverty, while the Third World has its share of wealthy parasites and exploiters. The same report reveals that the difference of income between the world’s richest billion and the world’s poorest billion is more than 150 to one.
In the last decade of the 20th Century, despite all the wonders of modern science, two thirds of humanity live on the border line of barbarism. Common diseases, such as diarrhoea and measles kill seven million children a year. Yet this can be prevented by a cheap and simple vaccination. 500,000 women die each year from complications during pregnancy, and perhaps another 200,000 die from abortions. The ex-colonial countries spent only 4% of their GDP on health—an average of $41 a head, compare with $1900 in the advanced capitalist countries.
According to United Nations reports, more than 6 billion people will inhabit the earth by the year 2,000. About half of them will be under the age of 20. Yet most suffer from unemployment, lack of basic education and health care, overcrowding and bad living conditions. An estimated 100 million children aged 6 to 11 are not in school. Two thirds are girls. Incidentally, even in the USA UNICEF estimates that 20% of children live below the national poverty line. However, the situation in third world countries has reached a horrific level.
As many as a 100 million children live on the streets. In Brazil, this problem has been “solved” by a campaign by the police and murder squads to exterminate children for the crime of being poor. Similar atrocities are being carried out against homeless people in Colombia.
One million children have been killed, 4 million seriously injured, and 5 million have become refugees or orphaned as a result of wars in the past decade. In many ex-colonial countries, we have the phenomenon of child labour, often amounting to slavery. The hypocritical protests in the Western media do not prevent the products of this labour from reaching Western markets and increasing the capital of “respectable” western companies. A typical example was the recently published case of a match factory where children, mostly girls, work a 6 day-60 hour-week, with toxic chemicals, for three dollars. A letter to the Economist of the 15th September 1993 pointed out that: “Parents do realise the value of education for the future of their children but often their poverty is so desperate that they cannot do without the wages of their labouring children.”
The main reason for the grinding poverty of the third world is the two-fold looting of the resources through the terms of trade, and the trillion dollars debt owed by the third world to the big western banks. Just to pay the interest on the debt, these countries have to export food needed by their own people and sacrifice the health and education of the people. According to UNICEF, debt repayments have caused incomes in the third world to fall by a quarter, health expenditure by 50% and educational expenditure by 25%. Despite the hypocritical outcry against the destruction of the Amazonian rainforest, Brazilian economists have proved that this is mainly motivated by the need to raised cash for agricultural exports, such as beef, raised on reclaimed land. The financing for such export projects comes from the World Bank and other international financial organisations.
The plight of the third world was vividly expressed in the 1989 UNICEF report:
“Three years ago, former Tanzanian president Julius Nyerere asked the question, “must we starve our children to pay our debt?” That question has been answered in practice. And the answer has been “yes”. In those three years hundreds of thousands of the world’s children have given their lives to pay their countries’ debts, and many millions more are still paying the interest with their malnourished minds and bodies.”
Impasse of Capitalism
Before the war, Trotsky referred to the capitalist class “tobogganing towards disaster with its eyes closed.” The same could be said of capitalism today, after an interval of more than half a century.
Since World War Two, bourgeois governments have tried everything from Keynesianism to Monetarism, and every conceivable combination in between. The Keynesian experiment was responsible for an explosion of inflation at the end of the 1970s and forced them to beat a hasty retreat.
Since then, we have seen the monetarist reaction, which was allegedly going to restore sound finance and balanced budgets. What was the result? In Britain, the application of monetarist policies under Thatcher led to a collapse of industry, from which it has still not recovered. From 28.4% of GDP in 1971, manufacturing industry fell to 23.1% in 1989. Those employed in manufacturing fell from 8.4 million in 1969 to 5.1 million in 1990. On the other hand, the parasitic banking sector increased from 9.3% in 1971 to 18.7% in 1989.
At the same time, in all the advanced capitalist countries, there has been an inexorable rise in budget deficits, and this in spite of sharp cut-backs in state expenditure. Last year, the average budget deficit of the OECD countries stood at 4.2% of GDP—a huge increase from 1% of GDP in 1989. Worse still, their total public sector debt rocketed to about 63% of GDP (up from 42% in 1980). The interest on this debt alone represents a colossal drain on the resources of society.
In the European Union, the average budget deficit increased from 3% of GDP in 1989 to about 7% in 1993—the highest level since the Second World War, and even bigger, proportionately, than America’s (4.4%).
Moreover, the OECD reckons that as much as three-quarters of America’s budget deficit, and two-thirds of Europe’s is “structural,” and will persist even when the economy picks up again.
Given this situation, a return to Keynesian methods of deficit financing would provoke an explosion of inflation. On the other hand, attempts to cut the deficit will decrease demand, thereby aggravating the crisis.
The fact that these staggering deficits were piled up during the boom of 1982-90 is a further indication of the sickness of the system. In the past, deficits were used by the Keynesians to get out of slumps by “creating demand.” Now Western governments cannot do this because the deficit was allowed to get out of hand in the previous period.
Far from increasing public spending, they are continually cutting back, despite the fact that in countries such as Britain, the infrastructure (health, schools, roads, railways, housing) is falling to pieces. Even the meagre “benefits” of the unemployed, invalids, single parents and old age pensions are singled out for attack. And still the budget deficit continues to grow, as a result of the fall in production and huge interest repayments.
The bourgeois economists contradict themselves continually. On the one hand they argue that there is “not sufficient demand” in the economy, while simultaneously arguing in favour of a cut in demand in the form of wage cuts and slashing public expenditure. Wherever they turn, they are trapped between the twin evils of inflation and deflation. In other words, whatever they do will be wrong.
In the long term, the outlook for capitalism is hopeless. However, that does not mean that it will automatically disappear. Capitalism always moves through booms and slumps. It is like breathing in and out. It accompanies capitalism from the cradle to the grave. However, the vigorous respiration of a healthy child is not the same as the painful wheezing of senile decrepitude. The capitalist system is sick, and the sickness is terminal.
Karl Marx explained over a hundred years ago that the final barrier to capitalist production is capitalism itself. It is true there is no “final crisis” of capitalism. It is true that, until it is overthrown by the working class, it will always find a way out. But, in finding a way out, the bourgeois always increase the contradictions of the system and ultimately make matters worse.
For reasons which we have outlined above, the capitalist system, after four decades of expansion, is now reaching its limits. The long period of relative peace and prosperity in the advanced capitalist countries is drawing to a close. Halfway through the last decade of the twentieth century—a century already characterised by two world wars and untold calamities for the human race—the world is faced with a new period of wars, civil wars, revolution and counter-revolution. In the course of this period, the destiny of humanity will be settled, one way or another.
What “way out” can there be for capitalism? As Lenin used to say, the truth is always concrete. The bourgeois have tried Keynesianism and Monetarism. Both ultimately failed—the second far more quickly than the first. They can try a mix of both these witches brews. That will bring them the worst of all worlds—a mixture of inflation and deflation, which will rapidly provoke new social and political convulsions.
Over many decades, all the contradictions have been piling up. Now they must pick up the bill. In 1914 and 1939, they took to the path of war to attempt to resolve their problems. But the existence of terrifying weapons of destruction—nuclear, chemical, biological—means that an all-out war between the major powers would necessarily end in mutual annihilation. Since the capitalists do not wage war for the fun of it, but in order to conquer markets, raw materials, territory and spheres of influence, this road is effectively blocked, at least as long as the working class and its organisations remain intact.
This means that the contradictions of capitalism must express themselves in an ever sharper conflict between the classes. The bourgeois of every country are agreed on one thing: it is necessary to drive down living standards, to slash state expenditure, to destroy the welfare state because “we” (that is to say, the capitalist system) cannot afford it. That means that they threaten to eliminate all those things which make life bearable for the majority of people, all those elements which make for at least a semi-civilised existence.
“The revolution needs the whip of counter-revolution,” Marx used to say. The counter-offensive of capital will have a profound effect on the working class, which has accumulated colossal power over the past few decades. The general strikes in Spain, Belgium and Italy are a warning that the workers will not stand idly by to watch their living standards destroyed.
The next period will see big battles between the classes that will put the struggles of the past in the shade. Once again, the workers will begin to move through the mass organisations of the class, beginning with the trade unions, to attempt to transform society. Sooner or later, they will take power in one country or another, as they did in Russia in 1917. When that happens, it will transform the world far more quickly than in 1917-21. The basis will be laid for the victory of socialism on a world scale.
For a Workers’ Democracy!
“Owing to the extensive use of machinery and to the division of labour,” wrote Marx and Engels in the Communist Manifesto, “the work of the proletarian has lost all individual character, and, consequently, all charm for the workman. He becomes an appendage of the machine, and it is only the most simple, most monotonous, and most easily required knack, that is required of him.” (Marx-Engels, Selected Works, Vol.1, p.114).
In the days of Ancient Rome, a slave was described as “instrumentum vocalis”—a “tool with a voice.” Nowadays, the position of most ‘free’ workers is not much better. Not only the deadly monotony and exhausting work of the production line, but also the soul-destroying nature of the work of many white-collar workers working with computers in large offices which, in effect, increasingly resemble factories. And this is the way most people spend their lives, if they are lucky enough to find work at all!
Yet the development of technique means that it is possible to abolish, or reduce to a minimum expression, this kind of inhuman toil. The word “robot” comes from the Czech “robotnik,” which means “a slave.” That is just what industrial robots are. They do not sleep, they do not stop for a tea-break or lunch, they work ceaselessly 14 hours a day, performing their tasks with great flexibility and to the highest standard. In fact, just as the boss would like the worker to be!
It is quite possible nowadays to have big factories with no workers at all, other than those required for maintenance. The general introduction of industrial robots to large-scale industry therefore potentially represents the greatest labour-saving revolution in history.
Under capitalism, such a development would lead to unemployment on an unimaginable scale, and ultimately provoke the collapse of the whole system. Hence, although the technology exists and also, as we have seen, huge amounts of capital which is not being put to productive use, the introduction of the new technology has been extremely slow and uneven.
The same economic system which dooms 50 million people in the industrialised countries, and further hundreds of millions in Africa, Asia and Latin America to a life of enforced idleness and misery, and which systematically destroys the means of production, closing down factories like so many matchboxes, also prevents the utilisation of technology which could transform the lives of the peoples of the world.
One of the most striking features of modern capitalism is the way in which it has united the whole world under its control. The prediction of the authors of the Communist Manifesto has been borne out in an almost laboratory pure fashion. The international division of labour has been carried to an extreme. The world market exercises an irresistible pull on all national economies. No power, not the USA, not Russia nor China can tear itself free from it.
Under capitalism the “New World Order” manifests itself as the ruthless domination of a handful of imperialist powers, headed by the United States, and a few hundred giant multinationals, which treat the semi-colonial countries of Africa, Asia and Latin America as their feudal fiefdoms. For the masses of the Third World, capitalism is, in the phrase of Lenin, “horror without end.”
Yet the case for a genuine New World Order is really unanswerable. It is not only the means of putting an end to the crazy economic imbalances and the crying social injustices which are an endless source of human misery, wars and conflicts. It is a matter of absolute necessity for the very survival of the planet.
The blind search after short-term gain for the monopolies leads to the rape of the world’s resources and the destruction of the environment. Not just the felling of rain-forests, but the systematic poisoning of the food we eat, the water we drink, the air we breathe. In the first volume of Capital, Marx already pointed to this destructive tendency of the profit system. But now it has reached a critical point. If this rampage is allowed to continue unchecked, the future not just of the human race, but possibly of life on earth could be placed in terrible danger.
The reality is that the productive forces have long outstripped the limits of private ownership and the nation state. In order to realise the astonishing potential of modern industry, science and technique, it is necessary to achieve a system based upon the harmonious planning of production on a global scale. The prior condition for this is the overthrow of the dictatorship of the big banks and monopolies, and its replacement by a genuine regime of workers’ democracy.
The development of production and new techniques enters in contradiction with the old idea of the worker as a mere appendage of the machine. In order to make the best use of sophisticated techniques, and achieve a high level of quality, it is necessary to achieve the conscious participation of the workers at all levels. In effect, this fact is recognised, although in a distorted way by the latest Japanese production concepts. Even the most sophisticated robots can never attain the same level of creative consciousness as a human being, although it may be far more efficient at performing mechanical tasks. The necessity for democratic workers’ control and management, far from being a Marxist utopia, flows inevitably from the demands of modern production itself.
“Instead of mindlessly carrying out a single, repetitive operation, tomorrow’s car worker is more likely to be a team member with many skills and greater responsibilities...
“For some car firms, survival will depend on how successful they are at promoting teamwork throughout their organisations. People are so much dexterous, flexible and inventive than robots—which is why the Japanese believe that automation should help people to work in factories rather than replace them. Robots alone could not achieve the Holy Grail of flexible production.” (The Economist, 17/10/92).
Of course, in practice, the intention of the Japanese monopolies is to invent a new way of squeezing more surplus value out of the workers. Despite the fine words printed above, about robots helping people to work in factories, the big Japanese car-makers did not hesitate to lay-off workers once their profits were affected.
In a genuine socialist planned economy, the general introduction of the new techniques would be used to reduce the working day to a minimum expression. This would provide the material basis for a qualitative advance of human civilisation.
The Greek philosopher Aristotle said that “Man begins to philosophise when the necessities of life are provided.” By philosophise we mean the ability to think in general, to lift one’s eyes, above the worries and immediate pressures of every day existence, to seek a broader horizon, to contemplate life, nature, and the Universe. In present-day society, the minds of men and women are oppressed by the struggle for survival—whether or not they will find work, whether they will be able to pay the bills at the end of the month, find a roof over their heads, obtain provision for sickness and old age. Only when these degrading obsessions are eliminated will men and women become genuinely free human beings, able for the first time to realise their full potential.
Trotsky once asked the question: “How many Aristotles are herding swine? How many swineherds are sitting on thrones?”
Throughout history, the mass of humanity have been deprived of access to free time, education and culture which would permit them to contribute to society’s store of knowledge. It is a crime of class society that such a vast reservoir of human talent is wasted. By releasing it, socialism would prepare the way for such a blossoming of culture, art and science as has never been seen in human history. Humanity would draw itself up to its full height. This would mark the end of human prehistory and the commencement of the true history of the human race.