We face a grave crisis in the history of humanity: a compound crisis of the global capitalist system with economic, social, imperial, and ecological dimensions. It is insoluble within the framework of competitive capital-accumulation. It threatens the very survival of industrial civilisation and a collapse into ‘barbarism’ and ‘the common ruin of the contending classes’; indeed, in some imaginable scenarios, it threatens the very survival of humanity in any form.
The historic task of the international working class – the emancipation of humanity by socialist revolution – has never been more urgent. Yet the traditional labour movement has been weakened by a generation of defeats and a decline in the confidence and combativeness of workers. The revolutionary left is small, fragmented, and inward-looking; its influence is less than at any time since the 1960s. The contradiction between the scale of the capitalist crisis and the industrial and political weakness of the working class provides much of the broad context for discussion of left-wing strategy.
This is the first of three short articles intended as a contribution to that discussion. None will offer an analysis of the current turmoil in the British revolutionary left. Much has been written about this, some of it useful, much of it worthless. The aim here is to take a broader view, returning to the Marxist tradition and placing us in the context of broader economic and social development. The three articles will deal respectively with a) the current capitalist crisis, b) the character of neoliberal society, and c) the balance of class forces today.
The permanent debt economy
We cannot make intelligent decisions about left-wing praxis in the present without a clear sense of both where we are going and how we might get there. We must start, therefore, with the current conjuncture, and the likely trajectory, of world capitalism.
I want to stress one basic argument about the current economic crisis: that it is a permanent condition that will define the epoch in which we are operating into the indefinite future. The capitalist system is a broken system of intractable stagnation-slump, such that, under the system, we face decades of austerity, privatisation, and impoverishment. The rest of this article is effectively an attempt to substantiate that claim. I begin with neoliberalism – the current phase in the development of capitalism – but I then place this phase in the context of the entire history of the system and attempt to identify the long-term tendencies which have condemned it to permanent stagnation-slump.
The neoliberal counter-offensive has, since the 1980s, inflicted important – if highly contested – defeats on the working class and enabled a dramatic shift in the distribution of wealth and power from labour to capital. But the gains in competitiveness and profitability have been undermined by the consequent deflation of demand.
Capitalists require low wages in the production process (in their own factories) and high wages in the realisation process (in the market where their goods and services are sold). That they cannot have both constitutes one of the central contradictions of the system. Its effect in the neoliberal era has been to intensify a long-term tendency towards ‘over-accumulation’ (too much productive capacity and output relative to demand) leading to low growth, stagnation, and slump. Overall growth rates since the 1970s have been only half those of the period before, and the system has been subject to increasing ‘turbulence’ and a succession of bubbles, crashes, and recessions.
The turbulence is caused by financialisation. The gap between supply and demand has been filled by debt. States, corporations, and households have become loaded with debt, the banking system has expanded into a gigantic casino, and the global super-rich have accumulated huge portfolios of electronic ‘wealth’. Even industrial conglomerates have become ‘financialised’, expanding less through productive investment than through financial speculation (often in their own shares) and through ‘mergers and acquisitions’ (often simply buying up privatised state assets).
Why has this happened? The neoliberal counter-offensive is rooted in the contradictions of the great post-war boom. Let us consider what has happened in
. Here and later I shall take Britain as an exemplar of what are in fact global trends. Britain
Rapid economic growth between 1948 and 1973 meant full employment, strong unions, rising wages, and a squeeze on profits. This culminated in a period of intensive class warfare between 1969 and 1985. At the beginning of this period, workers fought back hard against an employers’ offensive designed to weaken union organisation and drive down wages, winning a succession of major victories, notably in 1972, when the then Tory government’s pay policy and anti-union laws were smashed by militant mass strikes.
In the second phase of the struggle, shop-floor organisation was undermined by rising unemployment, wage controls, public-spending cuts, and a joint government-union ‘social contract’. Crucial to this was the election of a Labour government in 1974 and the forging of an alliance between Labour ministers and union leaders to clamp down on ‘unofficial’ strikes and the shop-steward-led ‘rank and file’ movement in industry.
In the third phase of the struggle, with shop-floor organisation substantially weakened, and a new hard-right Tory government elected in 1979, the British ruling class launched an all-out offensive to break union power and restore the rate of profit. The year-long miners’ strike of 1984-1985 was the centrepiece of this offensive.
The Thatcher government was in the vanguard of neoliberalism. The National Union of Mineworkers was the strongest bastion of the British labour movement. Other leading battalions of the British labour movement, notably the dockers and the printers, succumbed soon after. The neoliberal counter-revolution – deregulation, privatisation, tax cuts for the rich, welfare cuts for the poor, the slow fiscal strangulation of public housing, health, and education provision – began to unroll.
But cutting wages – personal wages and the tax-funded ‘social wage’ – reduces demand at the same time as it increases corporate profit and the wealth of the rich. Capitalists have more surplus to invest, but workers have less money to spend. One way round this is for workers to borrow to compensate for falling real earnings. Rising household debt is both profitable for banks and a mechanism to sustain aggregate demand for the system as a whole. This is one of the basic reasons that neoliberal capitalism is a debt junkie.
But it is not the only one. Financialisation is rooted in other pathological complexes of late capitalism. To understand why this is so – and why the crisis, in consequence, is so intractable – we must take a short detour through Marxist theories of capitalist crisis.
A redundant theory
Some Marxists have focused, especially since the 1950s, on the long-term tendency for the rate of profit to fall under capitalism, claiming that this leads to increasingly intractable crises and the eventual collapse of the system. The argument originates with Marx in Volume III of Capital, where he discusses both ‘the law itself’ and various ‘counteracting factors’.
Marx, it must be said, never completed his theoretical work on capitalist crisis. His notes, edited into a publishable text by Engels after his death, have the character of work-in-progress. Nonetheless, his provisional hypothesis of a long-term tendency for the rate of profit to fall (TRPF) has been given as the basic underlying cause of capitalist crisis by a number of leading Marxist commentators, most notably by the late Chris Harman.
The argument is as follows. The organic composition of capital rises over time, i.e. the mass of machinery (‘constant capital’) operated by each worker (‘variable capital’) gradually increases. The surplus-producing component of investment (‘living labour’ as opposed to the ‘dead labour’ represented by machines) therefore decreases as a proportion of total investment. In consequence, the rate of profit has a long-term tendency to fall.
This is an important and useful insight, but in reality matters are far more complex. Marx identified a number of ‘counteracting factors’ that offset the TRPF in practice: more intense exploitation of labour; reduction of wages below their value; cheapening of the elements of constant capital; the relative surplus population; foreign trade; and the increase in share capital.
This is neither a comprehensive nor a coherent list (reflecting its origin as unprocessed data in Marx’s notebooks). It lumps together a hotchpotch of factors that operate in different registers. It also seems to relegate processes which are full-blown ‘tendencies’ in their own right to subordinate status as ‘counteracting factors’.
A basic error has in fact occurred. The rising organic composition of capital in physical terms (the growing mass of machinery), which is an undoubted empirical fact, has been conflated with a rising organic composition of capital in value terms, which is an entirely contingent matter. It is contingent because two other things are happening at the same time.
First, the productivity of labour is rising. Because production becomes more mechanised with each new round of investment, each worker ends up producing more. This is true of both the capital goods and the consumer goods industries. This being so, there is no inherent reason why the organic composition of capital should rise at all in value terms. Does a robot on a car assembly line today cost more in relative terms – relative, that is, to the cost of labour – than, say, a spinning jenny in the 1840s? Do the labour-intensive industries of the modern world – think of Glasgow call-centres, Dhaka clothing sweatshops, and Shenzhen electronics factories – imply a shrinking proportion of ‘variable capital’ being expended on ‘living labour’?
Second, the rate of exploitation can rise. Only if workers are exceptionally well organised and combative – only, indeed, if they are actually on the offensive – will wages automatically rise in line with increased labour productivity. This is hardly ever the case in the history of the system. Wages are almost always ‘catching up’ – if that – reflecting the simple reality that the working class is the subordinate class under capitalism. This means that there is no inherent reason why the organic composition of capital should rise in value terms. Indeed, capitalists invest in labour-saving machinery precisely with the expectation that wages will not rise commensurately.
All three factors operate in the same register, viz in the production process where surplus-value is generated. In other words, when capitalists invest in new machines, three things happen at the same time: the organic composition of capital rises; the productivity of labour rises; and the rate of exploitation rises. None of these three factors automatically has priority over the others; none of them can be regarded as the tendency, with the others merely ‘counteracting factors’.
In the history of capitalism, profits rise and fall. When they rise, the system booms. When they fall, there is slump. But falling profits are a symptom of crisis, not its underlying cause.
The centralisation and concentration of capital
The TRPF became a central focus for many Marxist economists from the 1950s onwards, as an explanation of crisis in the context of the Second Great Boom (1948-1973). Its effect was to reassure revolutionaries at the time that, despite appearances, the system had not solved its problems and crisis would eventually return. Yet in the light of recent developments, its limitations are apparent.
The second generation of Marxists, including Lenin, Trotsky, and Luxemburg, made little use of the TRPF in their analysis of imperialism and capitalist crisis. Of particular significance is the fact that Trotsky, when directly addressing the problem of slump in the early 1920s, and again in the early 1930s, makes no explicit use of the TRPF in his account of economic developments.
The analysis of capitalism developed a century ago to explain imperialism, war, and slump was based on a quite different observation by Marx: that there was a long-term tendency towards ‘the centralisation and concentration of capital’ (TCCC). That focus was sustained by later generations of Marxist economists, notably those associated with the long-running Marxist journal Monthly Review, particularly Paul Sweezy and Paul Baran in the Cold War era, and Fred Magdoff and John Bellamy Foster more recently.
The argument is as follows. Capital accumulation is competitive, and because larger corporations can achieve greater economies of scale, they tend to drive smaller rivals out of business. Production becomes ‘concentrated’ in large factories, with ownership ‘centralised’ in large corporations. By the late 19th century, in
Germany, the , and other advanced capitalist economies, entire industries might be dominated by a mere handful of giant firms. US
The size of these corporations was decisive: they were big enough to control the national economy and shape state policy. Major firms in each sector formed cartels or trusts, dividing the market between them, and fixing output, prices, and profits. Because access to credit was a precondition of large-scale investment, finance capital rose in tandem with monopoly capital; industry and banks became interdependent. The power of the industrial cartels and banking syndicates, moreover, transformed the role of the state, which became a major investor in industry (e.g. in railway construction), a primary market for industry (e.g. with arms contracts), and an imperial protagonist on the world stage on behalf of native capitalists, seeking access to raw materials and markets in competition with great-power rivals.
It was the TCCC that shaped the imperial capitalism of c.1875-1935 that produced the Scramble for
Africa, the First World War, and the Great Depression. It was the TCCC which underlay the state-managed capitalism of c.1935-1975, when the state became a leading economic actor, providing infrastructure, running key industries, regulating capital flows, managing aggregate demand, and providing the education, healthcare, housing, and welfare to sustain a skilled, motivated workforce.
A central feature of neoliberal capitalism in the period since (c.1975 onwards) has been the way in which the continuing centralisation and concentration of capital has meant that the dominant corporate form has burst its national limits and now operates as a fully-fledged multinational (or ‘denationalised’) firm within a worldwide market. Finance, investment, and trade, in the past more firmly anchored within individual nation-states, have become truly globalised.
This does not mean that states have become less necessary to the functioning of capitalism; it means their role has been reconfigured. The economic management and welfare functions of the state have declined. But the state continues to be a market for capital (e.g. arms contracts or infrastructure projects), a conduit for the transfer of surplus from workers to capitalists (e.g. bank bailouts or NHS privatisation), and an imperial protagonist for specific capitalist interests (e.g. the British state protecting the City or the German state its manufacturing industry); and in some respects these state functions have grown in importance since the 1970s. Not least, the state remains a vital coercive apparatus, its repressive role becoming ever more urgent as austerity and privatisation tear apart the social fabric.
But the atrophy of the state’s ability to manage and regulate the economy – as opposed to having to ‘deregulate’ at the behest of global capital – is a defining characteristic of the current phase of capitalist development.
The stagnation-slump economy
There is a long-term tendency towards ‘over-accumulation’. In Marx’s day, in the mid 19th century, industrial capitalists created factories for mass production based on steam power and new labour-saving machines, and this resulted in a mass of small and medium-sized firms competing in national and colonial markets. No firm was big enough to dominate the market. Therefore, any capitalist who abstained from competition – who failed to invest in new techniques and remained reliant on outdated machines and inefficient methods – would be driven out of business by more enterprising, low-cost rivals. It was this dynamic system of competition that powered capitalism’s First Great Boom between 1848 and 1873.
But monopoly capitalism does not work that way. Capitalists hate uncertainty because it is risky and they can lose a lot of money; they crave managed markets and guaranteed profits. When a handful of firms dominates an industry, they can achieve this by forming a cartel or trust, either formally constituted (as in the early 20th century), or through informal networks and tacit understandings (as now). The aim is to control the market and fix the price. Better that each giant firm has a guaranteed share of the market, and that each enjoys a guaranteed price for its products, than that they should engage in cut-throat competition and all be damaged. This is the basic reason that prices rise but rarely fall in modern capitalism, and that inflation has become endemic.
But this has further consequences. With the pressure of competition reduced, the drive to invest in new technology is also reduced. This reinforces the growing risk-aversion of capitalist corporations as they get bigger. The greater the scale of operation, the greater the level of investment necessary to bring new world-class plant on line. An oil refinery, power station, steel mill, or car plant represents massive long-term investment with an eye to uncertain future markets. Boardroom decisions about such matters are no longer the stuff of buccaneering free-market capitalism; they are shrouded in the caution of corporate bureaucracies with much to lose. Safety first becomes the watchword.
The financial fix
Here, too, in monopoly capitalism’s long-term tendency to stagnation, we find the taproot of financialisation. The modern corporation is awash with surplus capital. Some of this gets invested in secondary activities like marketing. Reduced price competition need not mean reduced competition per se; it can mean a huge expansion of advertising, branding, packaging, and so on, in an effort to expand market share without the risks inherent in price competition. But much of it gets redirected into ‘mergers and acquisitions’, asset stripping, financial speculation, and so on. There is a vast expansion of the (misnamed) ‘financial services industry’, and an explosion of (parasitic) creativity in devising ever more elaborate ‘financial products’ – because there is so much surplus capital swilling around the system.
To summarise, over-accumulation is characteristic of monopoly capitalism for three main reasons. The first is the eternal contradiction whereby capitalists seek to drive down wages in their own factories yet require high wages in the economy as a whole to generate demand for their products; as explained above, the success of the neoliberal counter-offensive has widened this contradiction and necessitated a ‘permanent debt economy’ to fill the gap.
The second is the way in which price-fixing enables big corporations to extract additional surplus from workers at the point of consumption; indeed, a central characteristic of neoliberal capitalism is a huge expansion in what might be termed ‘financialised’ exploitation.
The third is the risk-aversion of the corporate giants, which means that far too small a proportion of the rising surplus is invested in developing industrial capacity.
Financialisation is an expression of all three of these processes: it sustains demand in the form of debt; it is an alternative source of profit because debt is a commodity like any other; and it can therefore absorb the rising mass of surplus capital which is not being invested in new means of production.
This neoliberal reconfiguration of capitalist development has had a substantial impact on the current character of class exploitation and therefore on the predominant shape of the class struggle today. Crucially, it has contributed to a broad (if uneven) shift of locus from the workplace to the city.
In Capital and his other economic writings, Marx correctly focused on the new form of capitalist exploitation in the factory, ‘at the point of production’ as it were. But this, of course, was overlain on older forms of exploitation, which did not disappear. In The Communist Manifesto, Marx and Engels noted in passing that no sooner does the worker receive ‘his wages in cash than he is set upon by the other portions of the bourgeoisie, the landlord, the shopkeeper, the pawnbroker, etc’. Engels, in The Condition of the Working Class in England, makes frequent reference to the way in which workers in 1840s
were exploited as consumers. Manchester
So exploitation takes place during both production and consumption. The relative proportions vary depending on the configuration of capital in any particular social formation, and neoliberal capitalism, a ‘financialised’ debt-junkie prone to stagnation and slump, is more dependent on exploitation during consumption than the state-managed capitalism of the Second Great Boom with its high rates of industrial investment and growth. The process of exploitation/accumulation at the point of consumption takes many forms.
Taxes levied on workers are recycled as contracts and subsidies to private business. At the same time, tax rates on the rich and the corporations are slashed, and most, in any case, ‘off-shore’ their profits in one of the many tax havens that have swelled to form an intricate and impenetrable global web.
Monopoly prices are charged by handfuls of giant firms that collude to fix the market in most major commodities. Prices rise but hardly ever fall in a world of mega-corporations with no incentive to engage in price wars and every incentive to act collectively to manage the market, control prices, and maintain profits.
House prices soar and the flow of mortgage payments to banks and rent payments to private landlords skyrockets. Loan sharks from Wonga to Visa encourage workers and the poor to stack up debts and keep interest flowing.
In these and numerous other ways, working people are fleeced by neoliberal profiteers. This is what Marxist geographer David Harvey has called ‘accumulation by dispossession’. This realm of exploitation in consumption (as distinct from in production) is ever expanding as public provision shrinks. What liberal economist John Kenneth Galbraith called ‘private wealth and public squalor’ has been reconfigured by 35 years of privatisation, as public services are sold off and public need is commodified and commercialised by vampire corporations.
Let the global housing crisis serve as an example. Wherever you look, it is different city, same story: soaring prices in prime urban locations in a market driven by the neoliberal elite – the rich and the middle class, the top 20% or so who keep getting richer – while the workers, the poor, and the young are either driven out altogether or crippled by mortgages and rents they cannot afford.
The effect is a partial shift of the main battle-lines in the class struggle from the workplace to the community. If workers are exploited by rising prices at the point of consumption, taxes and/or prices may become the focus of struggle, and therefore community mobilisation the mechanism. The Poll Tax Revolt of 1989-1991 is a recent example of a successful struggle of this kind. Many contemporary forms of state and corporate fleecing provoke widespread anger – the rising price of food, energy, transport, and housing; the use of tax revenue to bail out banks and subsidise private business; corporate tax-dodging and the corruption of the political elite; the selling to profiteers of healthcare facilities, educational services, student debt, and just about anything else one can think of. Financialisation means that neoliberal capitalism in all its manifestations is politically toxic.
The rise of the Global East
Capitalism is a dynamic, competitive, ever-changing system. At certain moments in its development, the balance of economic power shifts decisively from one geopolitical region to another. Such a shift is taking place now, in the early 21st century.
The entire history of the system bears witness to the rise and fall of imperial powers.
built the biggest European empire in the 18th century, and then led the Industrial Revolution in the 19th, becoming ‘the workshop of the world’. But British capitalism was overhauled by German and Britain US capitalism at the end of the 19th century, and was then bankrupted and transformed into a financial dependant of the as it became overextended fighting two world wars to defend its empire in the first half of the 20th century. US
US and the Soviet Union emerged from the Second World War as the dominant imperial powers. The was the more powerful of the two in economic terms. Nonetheless, largely because of the cost in military terms of maintaining it, this supremacy was short-lived, and the US share of global production has declined from around 50% in 1945 to about 20% today. This relative decline, especially when set against the rapid growth of Chinese capitalism – with Chinese GDP expected to exceed that of the US before the current decade is out – has created a new fracture-line in global politics. US
Growing competition from developing industrial economies (‘the Global East’) has provided the essential backdrop to neoliberalism inside the Western states. Western capitalism can no longer afford the high wages and welfare provision of the Second Great Boom. Working-class living standards are being hammered down in a ‘race to the bottom’ with the rising sweatshop economies of the Global East. The ‘precariatisation’ of the Western working class is, along with the privatisation of public services, part of a long-term programme to re-engineer Western society in conformity with the evolving imperatives of global capital. Tory politicians like Cameron and Osborne make no bones about this: they speak openly of a permanent restructuring of the social order so as to remain ‘competitive’ in world market terms.
The permanent crisis
Only once in its history has capitalism experienced what might be considered ‘normal’ growth – i.e. relatively fast economic expansion in conditions of free-market competition. This was during the First Great Boom of 1848-1873. Then the system crashed, and growth remained sluggish and unemployment high through the Long Depression of 1873-1896. A new phase of expansion was made possible only by imperialism and arms expenditure, and the resulting tensions culminated in the First World War; this, of course, was the deeply pathological system analysed by Lenin and other second-generation Marxists.
The world economy slumped after the war. Unemployment never fell below a million in
in the interwar period. The ‘Roaring Twenties’ were a debt-fuelled speculative frenzy. When the bubble burst in 1929, the system was plunged into the Great Depression, with one in ten out of work in Britain Britain, one in four in the US, and one in three in . Germany
The depression was ended by state capitalism, arms expenditure, and the Second World War. That there was no return to slump in 1945 was the result of a very specific conjuncture of circumstances: the global dominance of the US and the dollar; continuing high levels of arms expenditure during the Cold War; pressure from below for radical reform to prevent a ‘return to the 1930s’; and new techniques of state economic management developed during the depression and the war. This combination of circumstances gave rise to the Second Great Boom of 1948-1973.
Once launched, it was, to some degree, self-sustaining, as rising wages created demand for increased production. But this was in no sense ‘normal’ growth. The ‘permanent arms economy’ rested on the cone of a nuclear missile. Rising living standards were overshadowed by the risk of nuclear Armageddon and by a succession of protracted colonial and proxy wars that killed millions.
State-managed ‘welfare’ capitalism unravelled in the 1970s.
hegemony was weakening. New industrial economies were emerging. Powerful unions were squeezing profits. The happy conjuncture of the late 1940s came apart and the pathology of the system resurfaced in a rash of new contradictions. The neoliberal counter-offensive and the permanent debt economy have been the result. US
I draw three main conclusions from the preceding analysis:
1. The modern capitalist system is sluggish, stagnant, and prone to slump. It is in permanent crisis, with austerity, privatisation, and a race to the bottom now hard-wired into its basic functioning. As an economic system, it threatens mass impoverishment, a growing risk of world war, and eventual environmental catastrophe. There appears to be no middle way: no reformist fix comparable with the state-capitalist/Keynesian remodelling of the system in the 1940s. Revolutionaries therefore have to argue openly for international working-class revolution, as well as uniting in common struggle and in broad coalitions with those influenced by reformist ideas.
2. Neoliberalism/financialisation has reconfigured class exploitation and restructured class society in ways likely to have an impact on the shape of the class struggle in the period ahead. The workplace and the unions remain central to the struggle, but they no longer represent its sole primary locus. Growing exploitation at the point of consumption has created a new terrain of mobilisation and resistance. The city as a whole has become a major battleground alongside the workplaces.
3. Explanations of the crisis in terms of a long-term tendency towards the centralisation and concentration of capital encourage us to see the system as a multi-dimensional whole, a complex web of contradictions, with numerous points of collision between the rulers of the world and the mass of humanity. In particular, it encourages us to think not just of exploitation at the point of production, but also at the point of consumption; and not just of the workplace as a locus of struggle, but also of the city as a whole.
It will also be apparent that I am indebted to two generations of theorists associated with Monthly Review; their ongoing analysis of capitalist development is, in my view, indispensable. I must also acknowledge a debt to the insights of David Harvey.
The second article in this series will explore the nature of neoliberal capitalist society.