In the US the Big Three carmakers are effectively bankrupt. Chrysler, has already been rescued once some years ago by the US State, then it was bought by Daimler, who again sold it off recently because it was unprofitable. As I have been writing for some years now General Motors was unable to make a profit on its car production relying on GMAC its financial arm to make profits that covered the losses. Ford is not in much better condition. Even without the Credit Crunch, and the economic downturn that has ensued the Big 3 would have been in trouble. Now they are asking the State to bail them out to an initial tune of $34 billion, though economists Marz Zandy who gave evidence to the Congressional Panel looking at the bail-out said this figure would likely rise to well over $100 billion.
As I have pointed out in the past a large part of the reason for the losses of the Big 3 stems from the extent to which the lack of a socialised healthcare system in the US proves to be a burden on large companies whose organised workers have over the years been able to negotiate Health Insurance schemes paid for by the employer. It is one reason these companies favour the introduction of a European style socialised healthcare system, whereby the cost is shifted from their books on to that of the State, financed largely by workers Tax and Insurance payments. In the US as recent figures demonstrate there is a big difference between the actual wage cost faced by the Big 3, and their foreign competitors, even those based in the US. Those foreign competitors in the US face a wage cost of around $46 an hour, whereas the Big 3 one of around $69. The difference is the employers payment of Health Insurance and Pension costs. Its estimated that $2,000 of the price of each GM car goes just to cover the Health Insurance payments of its workers.
Over the last few years as the crisis of US manufacturing has become more apparent, managements have cut wages, and often scrapped or severely curtailed Pension and Health schemes for workers. One time GM subsidiary, and still large-scale parts supplier - Delphi - was one of those that I have referred to in the past. Often, these companies have used Chapter 11 Bankruptcy proceedings as the means to bring about these changes. Chapter 11 gives companies protection from creditors whilst they restructure, and it also allows them to get out of contracts signed with their workers. Its almost certain that the refusal of the Senate to back the bail-out for the car companies is part of such a negotiation that may lead the companies into Chapter 11, as a means of forcing huge pay cuts, and the scrapping of Health Insurance and pension schemes ofr their workers. Already Republican Senators are claiming hat the reason the bail-out was turned down was because the UAW had refused to accept cuts in wages or make other concessions.
But, in part this crisis is just one part of a global restructuring. Marxists should not mislead workers about the true nature of what is going on, or pretend that there is some simple solution that can be achieved on the back of just "more militancy". American and European workers are part of a global labour market that is now more extensive than it has ever been in the 200 odd year history of industrial capitalism. The laws of economics cannot be supended just by industrial militancy. Chinese car workers earning $10 a day, working with the latest equipment in the most modern factories are bound to be more profitable to Capital than workers in the US earning even just $46 an hour. The solution for workers lies not in "more militancy",nor in nationalistic solutions such as import controls and protection - which US unions and bosses are increasingly calling for - but political soluitons based upon workers ownership of the means of production, and increasing co-operation between such worker owned industries throughout the world as th basis for forging greater international working class solidarity. I wrote the following analysis two years ago, and it has proved remarkably accurate as a description of how things have developed since. The basic analysis of the Value of Labour Power in a globalised world I beleive is extremely relevant to current struggles.
The Value of Labour-Power, The Theory
According to Marx, the Value of Labour Power is determined, as for any other commodity, by the amount of average, socially necessary labour required for its production. In terms of Marx’s Economic Theory, this aspect has always been probably the most contentious. For one thing, this distinction, between “labour-power” as a commodity, and “labour” as the source and “labour-time” as the measure of exchange value, is at the heart of Marx’s explanation of surplus value, an explanation which had evaded all the other Classical Economists such as Smith and Ricardo. But there is another aspect of the theory, which has always made it open to criticism from bourgeois economists. Marx says that included in the value of labour-power is an historical and moral component. In other words, as time goes on, and society generally raises its productive capacity, and along with it living standards, the minimum, that workers consider a minimum amount for them to survive and reproduce future generations of workers, necessarily rises. In addition, because different countries have different cultures, different rates of economic development, this level will vary from country to country. Bourgeois economists point to this as being necessarily vague, compared to the orthodox derivation of wage levels based on the demand and supply of labour, and further point to the fact that, because of the centrality of Marx’s definition of the value of labour-power, this weakness extends to the whole of his theory, and explanation of surplus value.
But, in fact, this criticism of Marx’s theory, and his definition of the value of labour-power, is based on a misconception, and fundamental misunderstanding of Marx’s economic theory. The fact is that this apparent vagueness is not just restricted to Marx’s definition of the value of labour-power. It is also true of his definition of another, if anything more fundamental, aspect of his theory, and that is the amount of average socially necessary labour required for production. Marx points out that labour-power, like all other commodities, is not homogenous. Some labour-power is skilled, it takes more labour to produce and maintain than other forms of labour-power, and is consequently more valuable than unskilled labour-power. This complex labour has to be reduced to simple labour if the products it produces are to be measured by the same yardstick. But how is this to be done, how are we to know whether the labour power of a plumber is worth 1.5, 2.5, or 3.5 times that of the plumber’s mate? Marx says, that, in fact, a priori, we cannot know, we can only know after the fact, after the labour-power has been consumed and the product goes to market. The market will then determine the value of the product, and thereby the value of the different quantities of complex and simple labour used in its production. But more than that, even if only simple labour is used in the production of a commodity, we cannot know, a priori, what the amount of average, socially necessary labour required is. The reason being that this in itself depends on the demand for the particular commodity. If more of this commodity is produced than there exists demand for then labour-power has been wasted in producing this surplus amount. In short Marx’s theory accepts from the beginning the idea that central to determining these fundamental quantities is the market, and is therefore, supply and demand.
But that does not at all mean that Marx’s theory might just as well be replaced by orthodox theories of supply and demand; quite the contrary. Orthodox theory starts from supply and demand as given but does not question what determines supply and demand, or at least to the extent that it does, it does so only in terms of subjective assessments of motivations, which, as Marx comments, in Theories of Surplus Value, only pushes back the problem a further stage, because we then have to ask what is the objective basis of these subjective valuations, what causes market participants to arrive at these particular valuations rather than some other. Marx’s theory explains that objective basis; it explains the origins of supply and demand not in these subjective valuations, that only create further questions, but in objective production relations.
This might seem a paradox, but in reality it is not. Marx sets his theory in a historical context, true to his historical materialist method. He demonstrates the reason for exchange values being determined by average, socially necessary labour time by looking at how the commodity emerged as an economic category. Marx defines Value in a number of different ways, and unfortunately in his writings he sometimes mixes them up. Firstly, there is use-value, what orthodox economists would call utility. That is anything which someone finds useful. Not all use-values are commodities. Air is a use value, but is not a commodity because it is not produced in order to be sold. The fundamental difference between the economic theory of Marx and the Classical Economists, compared to that of orthodox economics is that for the former this use value, other than being necessary in order for something to become a commodity – because there is no point producing something nobody wants – has no real significance because it cannot be measured and does not affect the objective value of commodities. For orthodox economics, however, it is this use-value or utility which is central to determining the value of a commodity.
Marx sets out that the first form of exchange is, in fact, that of labour with nature. It is this exchange, which establishes Value. Value is separate from Use-Value and Exchange Value. If a farmer can produce 10 tons of potatoes in 100 hours then the value of 1 ton of potatoes is 10 hours labour. If in the same time he can produce 20 tons of carrots then 1 ton of carrots has a value of 5 hours of labour time or ½ ton of potatoes. But this is not an exchange value; it is specific to this one producer. However, it forms the basis of exchange-value, because once we cease to look just at this one single producer and instead look at all producers of potatoes and carrots in the economy, and once these producers begin to exchange their products, we then begin to look at socialised labour, and it is the aggregate of this socialised labour that allows us to measure how much labour, on average, is required to produce a ton of carrots or a ton of potatoes. In an economy based on peasant production, with very little exchange taking place, exchange value does not form an overriding concern for the producer, instead value and use value is more important for him in deciding whether to use his labour in producing potatoes or carrots. Once exchange begins to form a significant aspect of economic life, however, that changes, now the individual producers’ decisions are deeply affected by whether they can produce potatoes or carrots with more or less labour than the average. If they can produce potatoes with less labour than the average but not carrots there is a definite advantage for them in producing potatoes and exchanging them for carrots.
In this early development of the commodity, therefore, the question of producing more than the market requires, and therefore the question of wasted labour in production does not arise. Moreover, because all producers know pretty well from their own experience how much labour is required, on average, to produce the relatively narrow range of traded goods, they can easily make the necessary calculations of relative values. With the emergence of specialist merchants, who have a vested interest in knowing these relative values, because it is from exploiting them that they make a profit, the determination of exchange values from average necessary labour time becomes even more systematised.
So Marx’s theory shows the historical basis on which the determination of exchange value arises, but he then shows how this is affected by the development of society away from this simple commodity production, to the development of a market, the introduction of money etc. which complicates matters, but does not at all change that fundamental basis of the objective determination of exchange values. Marx does not at all suggest that in a modern capitalist economy the prices of commodities can be equated with their exchange values for that simple reason alone, but he also shows how the further complication of the centrality of the profit motive, and the drive of Capital to always move to those areas where the rate of profit is highest, causes prices to further deviate from exchange values, again the role of supply and demand is crucial to the working out of that process. But all of this complexity remains just that, complexity built upon the fundamental basis of exchange value determined by the amount of average socially necessary labour required for production.
Orthodox economics further misunderstands Marx in that another argument against him is, “well if the theory of Exchange Value cannot tell you what prices should be what is the point of it?” Of course, for orthodox economics which is all about this detailed analysis of the movement and determination of prices that is a relevant criticism. But Marx was not concerned with that. His concern was to understand and explain the fundamental working of the system, to lay bare the way in which the working class was exploited by the system, and the driving forces within it. That is a far more important thing to explain than merely the movement of prices, but is for that very reason why orthodox economics sets it aside as politics rather than economics, as though the two can in reality be separated.
Consequently, although all market prices within a capitalist economy vary from exchange-values, although all of this complexity makes it difficult to determine the underlying exchange values, the exchange values of all these commodities, including the exchange value of labour-power, remain determined at root by the labour required for their production. Labour-power as with any other commodity can be overproduced, indeed capitalism always tries to maintain a surplus of labour in order both to control wages, and also because it requires a certain amount of frictional unemployment so that new businesses or expanding businesses have an available pool of labour on which to draw. Consequently, as with other commodities, if demand for labour rises significantly, due to an economic expansion, wages can rise, sometimes above the level consistent with the efficient accumulation of Capital, and above the value of labour-power. Conversely, if there is a recession the demand for labour falls, and wages are pushed down, sometimes below the value of labour-power.
What are the fundamental aspects for determining this exchange value, for determining what the average amount of labour time is for the production of labour power? There is clearly an absolute minimum i.e. that amount which is necessary for workers to feed, clothe and shelter themselves in order to survive and reproduce not just their own labour power on a day by day, week by week, year by year basis, but also to reproduce future generations of workers. In the 19th century when industrial capitalism first began to develop in Britain this purely subsistence level was pretty low, and in fact the standard of living for workers fell significantly at the beginning of the 19th century only recovering to previous levels after around 1860. Marx shows how it was only due to early marriages, and a large increase in reproduction together with intermarriage of urban workers with healthier workers from the surrounding countryside that the working class could be sustained during this period. He quotes one MP who reported that 9 generations of workers had been wiped out in the space of what would normally have been just 3. In order for this working class to be sustainable longer term more than just the bare minimum was required. In addition as capitalism developed workers were differentiated. On the one hand what had been skilled jobs became unskilled jobs minding machines. On the other hand those involved in making those machines and other technical jobs needed not just more skill but higher levels of education, and as commerce developed more educated workers were required as clerks, supervisors, administrators etc. All of the education and training for these workers raised the cost of their production.
A further complexity arises. As Britain became the workshop of the world during the 19th century the demand for labour rose, more effective Trade Union organisation meant that workers could demand higher wages, and the huge profits that British industry was making due to its virtually unassailed position in the world economy meant that companies could buy off discontent by granting them. Furthermore, even with these higher wages the huge amounts of Capital which backed up British workers by this time meant that British workers were far more productive than their foreign counterparts, there was little incentive to replace British workers with more lower paid foreign workers because, in terms of unit labour costs, British workers were still cheaper.
Imperialism
Despite this last comment Capital did seek to expand overseas. Initially, this expansion had been undertaken under feudalism by Merchant Capital. Merchant capitalists were often pirates, and privateers with Royal patronage. They sought out exotic products from foreign lands to trade, to enrich the lives of their patrons, they sacked foreign ships providing booty, a share of which came back to the Crown, and they engaged in the Triangular Trade taking slaves to the West Indies, and bringing back Sugar, tobacco and spices. In the form of the great monopolies, again set up under Royal Patronage, such as the East India Company and the Hudson’s Bay Company they set up bases in India, and elsewhere using their own military force, and from where they bought up food and raw materials at low prices and sold manufactured goods at high prices. These businesses had no interest in developing the economies of these foreign countries only of buying low and selling high.
But by the middle of the 19th century industrial capital dominated commercial capital, and the industrial capitalist class had supplanted the political control of the feudal aristocracy. The huge increase in productive capacity that occurred following the introduction of the steam engine led to the first crises of overproduction, and by the 1840’s, productive capacity had grown to such an extent that not even the world market was sufficient to absorb the production of the English textile mills. The overproduction took 3 years to clear from the world market, and thousands of textile workers starved to death. From the perspective of Capital, huge amounts of Capital lay idle, unable to employ workers at wages that would produce profits. All of this Capital was being wasted unless it could find somewhere that it could be employed profitably. The only place that could be was overseas, where its employment would not only utilise low wage labour, but would, by the fact of that employment, also generate demand for its products. And so by the last half of the 19th century the drive was on to establish colonies which were not just sources of cheap raw materials, not just markets for British manufactures, but were also places where Capital could be profitably employed, though at first in those areas where it was already doing business – production of food and industrial crops, and extractive industries. And as other countries in Europe, such as Germany and France, rapidly industrialised they joined in this search for colonies, for protected markets and sources of cheap food and raw materials, and outlets for their excess Capital too. It was to lead to World War I.
This mad scramble to divide up the world obviously attracted the attention of Marxists at the time. It led Lenin to write “Imperialism, the Highest Stage of Capitalism”. In truth, I have always found it to be more a piece of good political propaganda than incisive economic analysis. In large part it relies on Hilferding’s “Finance Capital” for most of the economic thrust, and Hilferding’s work was more relevant to Germany than for other economies. Personally, I have always felt that Kautsky’s analysis was better. Certainly, Kautsky’s concept of the need for Capital to acquire control over a much greater quantity of land the more industrial development occurs is well rooted in Marx.
See here.
Kautsky and Colonialism
And for the reasons given in the post above I think that Kautsky’s concept of Ultra-imperialism has been borne out in large part.
Back in the late 1970’s, when I was studying Economics at University, the issue of Imperialism was hotly debated, especially within the context of Development Economics. One of the arguments against the Leninist theory was that the majority of foreign investment by “imperialist” states was not into developing economies, but into other “imperialist” states. But in actual fact this argument missed a number of important considerations. The most obvious thing to say is that Lenin always argued that the truth was concrete. It is highly likely that he would have reframed and updated his argument in the light of the facts of the world of the 1980’s compared to that of the 1920’s. It’s a pity that some of those that blindly follow his writing of the 1920’s don’t do the same. One of the ways he would undoubtedly have updated his writing would have been to take account both of the role of the US as a world hegemonic economic and military power, and to take account of the development of Europe as an economic bloc.
In the post war world, the US completely dominated the capitalist world economy. The capitalist economies of Europe had been decimated and each of the countries was massively in hock to the US, some like Britain as a result of Lend Lease. Had Stalin accepted the offer of assistance through the Marshall Plan, Eastern Europe would have been in hock to the US too. Instead, the peoples of Eastern Europe suffered terrible hardship as a result of the annihilation of a large part of their working populations, and the wholesale destruction of agricultural and industrial productive capacity during the War, on a scale unimaginable even in Western Europe, let alone the US. Through the Marshall Plan, and its direct military and political involvement in Germany and Japan, the US spread the tentacles of US capital throughout these devastated economies. The development of new corporate structures that led to the establishment of multinational companies facilitated this process. And something approaching Kautsky’s ultra-imperialism began to develop, with the added incentive of the solidarity of capitalist states against the threat of Stalinism.
But within that process another was taking place. Within Europe, and to an extent a similar process was occurring in parallel in Asia, the forces that originally led to the creation of a national market, were now exerting themselves on a larger scale. European companies were being forced to merge, and form alliances across European borders in order to obtain the same economies of scale as their American counterparts, and in order to compete with them. Trade restrictions between European countries needed to be reduced in order that European countries could obtain the advantages of a sizeable home market, comparable to that enjoyed by US companies. And a political framework, that of the Common Market, needed to be put in place to facilitate all of that. Consequently, the flows of Capital between these countries should not be seen in terms of foreign investment, but as Capital investment inside what was in reality a single European market, long before that phrase was being used.
And in the post war period there was plenty of opportunity for such Capital investment within the confines of that European economy. Not only was there scope because of the destruction of World War II, but in terms of exploitable labour there remained sizeable peasant populations in France, Germany and Southern Europe still capable of being drawn into the circuit of Capital without the cost and risk of seeking out cheap labour in often rebellious developing countries.
This confluence of circumstances actually presented Labour in the developed economies with a goldilocks scenario in this post war period. From 1949 the world economy entered a Long Wave upswing, which like all past Long Waves lasted for around 25 years until around 1974.
See: Kondratieff’s Long Waves , and
Workers and Inflation
That upswing created the conditions for a huge increase in the demand for labour – witnessed by the encouragement of immigration, and moves to bring women into the workforce. In both the US and Europe the working class increased in size, and strength and real wages rose. Partly in response to the strengthened position of Labour that demanded and obtained improvements in its conditions, and also partly because of its need to maintain a healthy workforce faced with labour shortages, in Europe large measures of social welfare were instituted. In the US too some measures of social welfare were instituted or improved, and workers were able to obtain deals with the major employers for free health insurance etc. Those that didn’t had to make do with Medicare and Medicaid.
At the same time Capital was restricted in its foreign ventures. On the one hand former colonies were struggling for and usually obtaining political independence. And often linked to such struggles Stalinism was gaining political and strategic advantage in many developing countries. Although, the potential profits from investment in these low wage economies were high, the risk of losing everything was correspondingly high too. And even where that was not the case, there were problems of infrastructure or instability that had to be weighed against the advantages.
When Marx had looked at defining the value of labour power in the 19th century it was quite reasonable for him to recognise that the historical and cultural component could differ considerably from country to country because by and large Capital continued to be invested within the confines of its own national economy. The value of labour power in some other country could only play a significant role if Capital could move in significant quantities to that other country. In fact, its likely in 1850, that the difference in the standard of living between an industrial worker in a textile factory in Britain, and that of a Chinese peasant was less than that between an industrial worker in Britain now, and the same industrial worker in China. In the period after the Second World War it was increasingly the economy of Europe which was relevant rather than the individual European national economies in terms of defining the value of labour power, and increasingly Capital could move across these European boundaries in order to utilise the lower cost labour, and maximise its profits. The media was full of stories of the more efficient (i.e. lower cost) German car worker compared to the British, and the risk to jobs this presented, just as now the same argument is presented in terms of jobs being lost to workers in Poland or some other lower cost area.
Consequently, although wages in the US and in Europe, including that part made up of the social wage, rose significantly during this period, this remained consistent with the rules of Capital Accumulation because the same conditions, by and large, were being created throughout these economies. There is no magical figure for the rate of profit to ensure efficient Capital Accumulation, in the end it is determined by class struggle – though there is likely to be some level of the rate of profit below which capitalists see no point in investing their capital, and instead use it for unproductive consumption or speculation. But so long as there is exploitable labour that is not currently being exploited, as long as there is labour that is lower cost, that can be more profitably exploited, then, all other things being equal, Capital will move to exploit that labour, and the wages of the displaced labour will fall.
The world has lots of unexploited labour, lots of labour that is currently paid wages far below those paid to workers in developed economies. What made all other things not equal was the risks involved in that foreign investment, the lower skill of the foreign workers, the lack of infrastructure in the economies etc. The problem of skills was largely addressed by the siting of production of mature products in developing countries; products where the skilled element, the design and development, had already taken place, and where mechanisation and machine production had now been introduced to permit mass production, so that only unskilled machine minding labour was required. The problems of infrastructure were addressed partly by siting developments in coastal areas close to shipping lanes, particularly in specially developed enterprise zones, and partly by the extension of credit facilities tied to contracts for civil engineering carried out by companies based in the developed country lending the money. In fact, rather than Imperialism being the Highest Stage of Capitalism, the title at least of Bill Warren’s book, “Imperialism, Pioneer of Capitalism”, was closer to the truth of the way in which “Imperialism”, as the investment of productive capital overseas, was clearing a path to the indigenous development of Capitalism throughout the world.
In reality, Kautsky more closely described this understanding of Imperialism, as essentially an economic phenomenon, than the political definition used by Lenin. That is not surprising given Lenin’s view that Politics dominates Economics. And, at root, it is that perspective which has led to the mistaken views of the idiot anti-imperialists. If Imperialism is a political phenomenon, in the Leninist tradition, then imperialist domination must inevitably be political domination. The fact that this political domination has long ceased to be a fact, therefore, has to be denied, has to be fudged, alluded to without reference to facts, or implied as necessarily flowing from economic domination, unequal terms of trade etc.
The collapse of Stalinism, the economic development of a number of sub-imperialist economies in South America, and in Asia, and the ideological triumph of neo-liberalism in a world where a badly led international working class had suffered an historic defeat during the 1980’s – coincident with the maturing of the down swing of the Long Wave began in 1974 – and the lack of credible ideological alternatives, created the conditions in which Capital could be safely and very profitably invested in a whole host of low wage economies around the globe. The final touch that was needed was the increasing importance of technological, and intellectual production; forms of production which were ideally suited to the rapid movement of Capital from one location to another in a way that the old heavy industrial production was not. The scene was set for the development of globalisation.
Globalisation
The world economy moves upwards in long cycles lasting between 40 and 60 years linked to the cycles of innovation, exploration, and investment in long term capital projects. But this process is uneven across the globe. In particular, each new major upswing tends to see new dynamic economies emerging. First was Britain, then came Germany and the US, after World War II came Japan, and in the current cycle China. The reason for this is fairly straightforward. An economy that has developed and become dominant sees wages rise. During the downswing of the long cycle, wages fall, but some of the gains of the previous period tend to be held on to. In addition capitalists that have invested heavily in equipment tend to want to hold on to it, to squeeze out the last bit of usefulness. When a new upswing arises those economies, which have been developing in the interim, start from a position of having a workforce whose wages are lower, and their new more dynamic entrepreneurs are in a position also to adopt, from scratch, the new machines and techniques developed during the innovation cycle that precedes it. The result is that these economies are in a position to out compete their older rivals, and to grow more rapidly.
In addition, the higher rate of profit in these economies means that excess Capital from the older economies is drawn towards these newer more profitable outlets. Once the Long Wave ended around 1974 the pressure to search out new sources of profit was intensified. The goldilocks scenario for the working class in the West, which had existed since World War II, was coming to an end. The high cost of labour, including those elements of the social wage, was no longer compatible with the needs of Capital. For some of the more decrepit capitalist countries such as Britain the effects were already being seen by the mid to late 60’s, and Government’s began to try to cut back Public Expenditure i.e. the social wage, and the first attempts to limit the power of workers were introduced – In Place of Strife. The more dynamic US economy, assisted by its global economic dominance, was able to continue for some time longer, but it too was in trouble by the mid 70’s, only partly due to its expenditure on the Vietnam War. The even more dynamic Japanese economy kept going longer still, and US and European businessmen began to visit Japan to try to learn from it – the period known as AJ, After Japan, when these businessmen came back trying to implement Quality Circles etc. But the problems were far greater than could be cured with Quality Circles.
Only by seriously cutting back on wages – both the money wage and the social wage -could the problems be addressed, the rate of profit increased and efficient capital accumulation be restored. Those attacks came on the working class in the US and Europe in the 1980’s. Unemployment soared as the price of labour had risen above what Capitalism could now tolerate consistent with its own economic rules. Real wages fell by various methods, speed up, casualisation, workers employed in lower paid jobs, etc. and of course cuts in the social wage. In the US real wages have been falling for 20 years.
But during the 1980’s a number of newly developing economies also began to emerge mostly in Asia, known as the Asian Tigers. These economies became the focus of investment both by western firms, and of their own, rapidly developing, domestic bourgeoisie. At the same time the economic downturn in the world economy also had its effect within the Stalinist bloc. In fact, it was probably the sharp fall in the price of oil on the world market, as economic activity retrenched, that was the final nail in the coffin of Stalinism in Russia, which derived considerable amounts of hard currency from its oil sales. Increasing, opposition within the Stalinist states eventually led to their collapse. Probably because of witnessing the growth of the Asian Tigers, and, also recognising the dangers which the failure to meet the needs of its people had had in Eastern Europe, the Chinese Stalinists also began to make a turn towards the market, to encourage foreign investment into special Enterprise Zones etc.
The problem for Capital however remained, these developing economies were good places to invest in order to make big profits from low wage – and increasingly highly skilled and educated – workforces, but those profits could only be realised if the products could be sold. Although these developing economies were rapidly developing their own middle class, the markets in these countries were far too small to absorb the huge volumes of products emanating from them.
The solution was, at least in the short term, rather clever, and reflects the extent to which capitalism has become much smarter in its operation. In all previous downswings in the Long Wave, interest rates have eventually fallen. The reason is that as economic activity falls the demand for credit falls. Modern capitalist economies, no longer hamstrung by monetary policies tied to the Gold Standard, and with freely floating exchange rates, can push interest rates down to levels even lower than those that would have come about anyway. In the late 1980’s, Japan facing a world economy in decline, had kept its economy going by keeping interest rates low. But the effect was, in fact, to send money after speculative returns in the housing and stock markets, and, in turn, the inflated prices of these assets, on Banks balance sheets, allowed banks to keep lending money, and to maintain growing bad debts. That could only last so long, and eventually in 1990 the Japanese Bubble burst sending the Japanese economy into a deflation, which lasted until this year.
But, having decimated Labour Movements in the 1980’s, Capital in the US and Europe was able to use the same kind of low interest rate policy to stimulate demand for its products – products which increasingly were being produced by low wage labour in developing economies. On the one hand, it had reduced real wages, thereby reducing the extent to which workers could buy its products, it had reduced that even further by transferring their jobs to low wage economies around the world, but now it was making up for that by creating new – usually low paid – service based jobs, and was stimulating demand by a massive extension in credit.
An almost symbiotic relationship was established. Usually, an increase in money supply (actually supply of money tokens to be correct) reduces the value of money and thereby leads to inflation.
See:
Gold Why Its price is Soaring
But no rise in inflation occurred because the consumer goods now being bought were being produced in these new low wage economies. Even better, from the perspective of Capital, the increase in the availability of Credit – as it had done in Japan – found its way not into the inflation of consumer goods, but of asset prices (the prices of consumer goods were inflated in the sense that, without the expansion of money to buy imported consumer goods, prices would have deflated). House prices, and Share prices soared, and in turn this asset appreciation made the owners of those assets, which by the 1990’s included many working class let alone middle class people, feel richer, and more importantly encouraged them to borrow even more money against these assets. This process has been most marked in the US and Britain where housing plays a peculiar role – in many parts of Europe housing is often rented. Recent reports put personal debt in Britain at £1 trillion, a level twice as high as in the rest of Europe.
In short Western Economies – the US and UK in particular - have taken on more of the character of what Marx described as fictional economies. Workers are increasingly employed in service sector jobs. They buy things produced by workers in low wage economies with borrowed money. Some of this money is money they borrow themselves, either going directly into debt, or effectively selling part of the assets they have built up over the last 50 years – one of the most evil examples of this, is the way parents are being encouraged to borrow against the houses they actually own, in order to enable their children to raise a deposit on an overpriced house – or is money that the government borrows to cover an increasing trade deficit, and which in turn finds its way into their wages. The reason that the trade deficit, particularly in the US and UK is rising, is precisely because the imported goods are not paid for by exports, because of the large number of workers employed not in exporting industries, but in service sector jobs, serving other workers who are also working in service sector jobs. The whole thing resembles the old shell game.
In the last phase of the down leg in the long cycle this build up of debt is usually blown off in a final crisis. That happened in the Asian economies in the late 90’s. It has not happened in the US or Britain, and in both countries debt is at historically high and dangerous levels. In the US, the housing market is now in serious decline, and the effects are starting to be seen in the economy as the potential for consumer borrowing based on housing equity has disappeared. In the UK, there has been an increase in mortgage defaults, and this is likely to accelerate as interest rates rise further. With the Government deliberately encouraging people to take on debt through student loans etc., this problem could become serious for ordinary working people, and even sections of the middle class.
It is not new, and probably reflects a deliberate strategy.
See.
Fool Me Once
What happens next depends largely on whether the rapidly rising wages in China, India and other developing economies, and the efforts of the governments in these economies to that end, succeed in creating a large enough domestic market to take up the slack of declining demand from the US, allowing it time to slowly liquidate this debt as the world economy grows, without it resulting in a major crash.
The Value of Labour Power, The Reality
What implications does all this have for determining the value of Labour-Power in practice now? Huge variations in the value of labour-power from one economy to another continue to exist. The reasons for that have been given above. There is bound to always be some friction, which prevents Capital freely moving from one economy to another in search of lower priced labour-power. But increasingly, globalisation is greatly reducing that friction. The increase in the importance of intellectual and technological production makes the reduction in that friction even greater in importance, and hence the huge movement towards call centres etc. in India together with many computer related jobs. The massive historic infrastructure of developed capitalism in terms of educational facilities, health systems, road and communication systems, trained workforces etc. means that labour employed in these economies continues to have productivity advantages over labour in developing economies, thereby reducing unit labour costs. But the rapid industrialisation of developing economies is rapidly removing that advantage, and, as production moves to new types of specialism, the old skills of workers in developed economies become less and less relevant – hence the policies of capitalist governments in trying to encourage more young people to stay in higher education etc. In addition, these new types of industry rely less on the old forms of communication such as roads, rail and sea networks, and instead on the Internet and mobile communication technology in which, if anything, these newly developing economies have an advantage.
Capital also takes into account risk factors when deciding where to locate, and has in the past had to balance high potential profits against high risks investing in developing economies. Those risks have tended to be greatly reduced in the last 20 years.
In short, the process of globalisation means that increasingly the value of labour-power will be set in a global market place rather than in terms of national or even regional markets. Whilst real wages in China and other developing economies are rising at four or five times the rate of wages in developed economies, where any real increase at all is taking place, wages in these economies remain a fraction of those in the West. The consequence is that real wages in the West will continue to be under pressure for some time. Where economic advantage remains that can be offset, but only a small percentage of economic activity – certainly in terms of employment – is in areas where such economic advantage continues to exist.
In order for labour-power to be valued correctly as a commodity, then the seller of that commodity must have only that commodity to sell; must be a proletarian. If workers, for whatever reason, are not forced to sell labour-power, as their only means of existence, then wages will rise above the value of labour-power. To a certain extent in the West such a condition has always existed. Marx relates how, until even the last third of the 18th century, even landless labourers were able to live off the common land thereby providing for much of their needs to an extent that allowed them to offer their labour-power for sale for just a few days a week, and at wages which prevented the small capitalists from making a profit. In much of Europe, workers retained some link to the countryside, either as was common until fairly recently in Germany owning small holdings as well as working in the towns, or having families that remained as peasant farmers in the countryside. The ability to continue to provide at least some aspect of the workers subsistence by such means reduces the extent to which workers are forced to sell their labour-power, and thereby modifies its value. The development of savings, of home ownership, and the establishment of even basic levels of unemployment benefit has had a similar effect. All of these things enable labour-power in the West to have a higher value than elsewhere. But, for the reasons outlined above, the consequence will be slower economic growth, and continued attacks on wages in order to bring them into line with the wages paid in the global market. The encouragement of debt, which is another means of expropriating the property workers in developed economies have accumulated since the War, the introduction of casualisation, speed-up, and the extension of the working day and life are examples of that process.
The 1980’s should have seen capitalism enter a huge crisis similar to that of the 1930’s. Its use of monetary and financial measures averted that as Mandel sets out in “The Second Slump”. That allowed Capital to engineer its attack on Labour in a more managed fashion. But the consequence for Western Capital is an enfeebled economy whose recovery in the current Long Wave upswing will be delayed and muted. The big workers struggles will be in the newly emerging economies where such restrictions do not exist, and where Labour can stride forward confidently with its demands. For workers in the West, however, continued attacks remain likely on wages and conditions, as well as on the social wage even as the world economy grows rapidly, and, as the cycle matures, inflation develops again. The boom in the world economy will filter through to these economies especially in certain sectors giving a typically combined and uneven picture, and giving rise to a mixture of struggles, which are both defensive and offensive in nature.
Postscript
The development of worker-owned industries is another example, of how, a similar influence on the deermination of the Value of Labour Power can come about. In gaining ownership of the means of production, workers are no longer dependent, solely, on wage income for their existence. A part of their income can now be derived from that portion of profits, which formally would have gone as dividends to Capitalists. This is not an insubstantial amount. Moreover, to the extent that workers mobilise their own Capital from their Pension Funds they also reduce dependency on Finance Capital, and the drain from profits that would go to meet interest payments. Similalry, to the extent that they develop institutions such as the Co-op Bank as sources of such loan capital, they retain these funds within the circuit of worker owned Capital. As Marx puts it in the Grundrisse, this is the process by which Labour becomes transformed from being solely, "Not-Capital", and Capital is transformed from being "Not-Labour".
The greater efficiency of Co-operative production, the degree to which workers can supplement wages with that portion of Profits, which would have previously gone to Dividends etc., and the fact that such worker owned enterprises are no longer driven solely by a drive to maximise the Rate of Profit means that the Imperialistic drive to export Capital is reduced. Demand for labour remains higher than it would previously have been, and these better conditions and wages within the Co-operative sector also act as pressure to icnrease wages in the Capitalistic sector of the economy.
Of, course, there are limitations on this. The higher rate of profit that may be achieved in foreign low-cost production, will enable greater Capital Accummulation, and the potential thereby of bringing about even lower prices of production, to a degree to which even the greater efficiency of Co-operative production could not compete. But, no new Mode of production comes into the world without such struggles that prove it superior to that which exists. Capital faced similar problems competing against Fedualistic and Guild Production. It will mean workers being able to be flexible and adaptable in introducing new types of production etc. in order to stay ahead of the game, of being even more inventive in the way they use Fixed Capital - which Marx described in Capital as the main way in which the Lancashire Co-operatives had been able to operate more efficiently than their private counterparts. But, these lessons will also need to be explained to workers in the process, as a basic requirement for the need to spread Co-operative production more widely, to achieve greater economies and efficiencies by merging Co-operative enterprises together not just in the same line of production, but through vertical integration, especially by linking up internationally.
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