ONE OF THE STRANGER SIGHTS in today’s banking crisis is the sudden popularity of Karl Marx. The Manifesto is flying off the shelves, and business execs are boning up on Marx’s crisis theory in much the same way that they used to lap up Sun Tzu’s Art of War, or parrot Heraclitus’ saying that there is nothing permanent but change.
Today’s economic dislocation, though, does not correspond to the crisis of overaccumulation that Marx explained in the third volume of his book Capital. Marx’s analytical reconstruction of capitalism was made at a time of great forward momentum in industrialization, made under the discipline of what he called the ‘capitalist mode of accumulation’.
Abbreviating his argument, we could say that Marx anticipates that as capital accumulates, non-productive investment in ‘dead labour’ (technology, raw materials, plant and so on) tends to crowd out investment in ‘living labour’. But ‘living labour’ is the only source of new value. When capitalists replace workers by machines they kill the goose that lays the golden egg. The consequence is a crisis of overaccumulation as the investment in capital leads to falling profit rates, which in turn results in a contraction of investment, and then a recession and the destruction of capital.
Capital, Volume III was of interest to me and my comrades in Britain in the 1980s, since we (rightly, I think) saw the economic crisis that had begun in the 1970s as a crisis arising out of overaccumulation, along the lines that Marx had set out. All around us, capitalism was clearly in crisis. But Marx’s explanation was such a threatening proposition that all intellectual work was dedicated to showing that on the contrary, capitalism was the only viable way of organizing production. Nowadays there is more of a tendency to exaggerate the crisis tendencies, and the collapse of capitalism is announced on a regular basis since the 1988 recession, or the 1998 difficulties in East Asia and Russia, the dot.com collapse in 2001, and so on.
People forget, though, that it was quite exceptional back in the 1970s and 1980s even for those who called themselves Marxists to insist on the rightness of Marx’s theory of overaccumulation. In fact, the ‘Marxists’ for the most part used up a lot of time trying to show that Marx was wrong about overaccumulation, or even that he never said (or meant) what he wrote in the third volume of Capital.
The Labour Party identified with state spending to improve working people’s lives – and their own status as brokers, delivering popular consent up to the capitalists – so they were more committed to capitalism’s survival than its collapse. The Labour Party then was quite a propaganda machine: it pumped out scores of books and pamphlets setting out plans for restructuring capitalism on socialist lines, like the Alternative Economic Strategy. The ‘official’ Communists were committed to an alliance between the trade unions and small business, against parasitic (often meaning foreign) capital. Their journal Marxism Today was so embarrassed by its title that they put a picture of Marx being pelted with tomatoes and rotten eggs on the front.
The International Socialists had committed themselves to the point that state spending (in particular, arms spending) would offset the dwindling of productive labour as a share of capitalist investment (see International Socialism 11, Winter 1981)—though any fool could see that state spending was a drain on profits, not a boost to them. Those who defended Marx’s theory of overaccumulation were treated as dissidents. Marxist crisis theory in those days was about as easy to find as the local Al Qaida representative.
There were a few people back then who did champion Marx’s theory. There was Paul Mattick, who came from Germany as a young acolyte of Rosa Luxemburg’s to work among the anarchists and socialists in Chicago. His book Marx and Keynes, as his son recalls, was mostly ignored in 1969 when it was published. To read Henryk Grossman’s Law of Accumulation and Breakdown of the Capitalist System, a restatement of Marx’s theory of crisis in those days, you had to get a hold of a grubby document, run off on a Roneo printer, that Jairus Banaji had translated in the seventies. In 1992, Tony Kennedy tidied it up for publication by Pluto Press. I did some of the copyediting on that, back when we were both working on the journal Living Marxism. Anyway, you can imagine how a title called Living Marxism went down in 1992, just as ‘Communism’ was collapsing in the East. People were about as interested in overthrowing capitalism as they were in contracting AIDS.
So, you might think that I would be glad to hear that Marxism was making a comeback. But unfortunately, not only has what Marx had to teach us been largely misunderstood, but his own theory of overaccumulation, right as it was in his time, and even in the 1970s, is not a very good guide to understand what is happening today. I have to smile a little to myself when I see all of the Trotskyist sects organizing meetings on the crisis. The one thing that they all seem to agree (just as they denied it when it was true) is that Marx has explained that the ‘rising organic composition of capital’ – the way that investment in dead labour crowds out investment in living labour – means that the ratio of profit to total capital invested must fall (Marx’s celebrated law of the Tendency of the Rate of Profit to Fall, or ‘TRPF’ to the mechanically minded).
The International Socialist’s Chris Harman is a bit like the Ancient Mariner in Coleridge’s poem: he is condemned to recount (badly) the theory of the overaccumulation of capital over and over again, as punishment for having insisted that it was not happening when it was. The only trouble is that he is telling us that it is happening, when it is not.
Of course, it is true that companies are all posting profit warnings. If we look at the returns on US business, they are lower than they were in the 1960s. But, in itself, a decline in profit margins does not prove that capital has overaccumulated.
Think about the problem. Marx saw profit falling not as an absolute sum, but as a ratio to the total capital investment. The rate of profit fell because the share of investment in surplus-generating labour (‘variable capital’) declined relative to non-surplus generating ‘constant capital’ (machinery, raw materials, plant). Is that what has been happening in the run up to today’s banking crisis? No.
On the contrary: Investment in machinery is very low. What we saw in the period 1985-2005 was a prolonged period of extensive, not intensive growth. That is to say that far from putting more money into machinery and less into labour, the tendency was rather the other way around.
That was a period of what the International Monetary Fund called ‘job-rich growth’. Or to put it another way, growth was labour-intensive, not capital-intensive. Between 1996 and 2006, the world labour force grew by 421 million jobs, from just under 3.6 billion to just over 4 billion (Key Indicators of the Labour Movement, International Labour Organization).
‘Job-rich growth’ was a worldwide phenomenon. Between 1988 and 2008 US payroll employment grew from 104 million to 138 million, much more than the growth in the natural population. Europe saw similar growth. That expansion was met by immigration, and by the recruitment of previously-excluded women and minorities into the workforce. Then we were talking about full employment, not unemployment.
At the same time, investment in new technologies was, against most people’s perception, very low (see Edgerton, The Shock of the Old, Oxford University Press, 2006).
In Britain, amazingly, the average productivity of labour actually fell, as a larger proportion of the workforce moved over into more labour-intensive and less capital-intensive jobs, service sector jobs, with lower levels of technological investment: changing sheets in hotels, or flipping burgers rather than assembling cars.
As far as the culture, or perhaps the ideology, of the times goes, this retreat from industry is supported by all kinds of environmentalist, or ‘small-is-beautiful’ ideas, as well as ideas about a leisure society, that is redressing the ‘work-life balance’ in favour of human relations.
The East is a bit different. There, production has certainly expanded. That is good for capitalism – and in the long run it is good for working people in the West and in China, too. There is a lot of resentment in Europe and America about China’s success, and some of that is dressed up in the bogus terms of concern for labour rights or for the environment. Such criticisms seize on details which, however justified, are really just used as excuses to rubbish China’s growth, out of jealousy, not to put too fine a point on it.
China’s growth, and the growth in Vietnam, Malaysia and Korea that preceded it, has been very important not just because it put some vigour back into capitalism, filling Wal-Mart’s shelves (their industrial capitalism supporting our consumer capitalism, so to speak), but also because it has enhanced all of our lives.
But what China’s growth did not do was significantly to increase the productivity of industrial labour by displacing workers with machines, leading to overaccumulation.
Even though many peasants did lose their livelihoods, for the most part the story of China’s growth is of a further extension of capital accumulation across the east, by the creation of new points of production, recruiting a new labour force, not of an intensification of capitalism with industrialization forcing labour out. Indeed, the world’s industrial workforce has massively expanded, as capital has spread out across the globe, incorporating those formerly under-invested regions of the world ruled by the Stalinists. To understand the sea-change in capitalism that occurred around 1985-1995 you cannot look at ‘objective’ economic categories in isolation from the subjective factor.
The condition for capitalism’s extensive growth in the preceding period was the worldwide and historic defeat of the old, left wing-led, opposition. Both in the labour movement (and Socialist Parties) of the developed world, and in the Nationalist and Stalinist governments and movements of the Second and Third World, the left wing opposition to capitalism was definitively beaten.
There were lots of local factors in the defeat, the disintegration of Third World nationalism in the face of capital investment from the West, the failure of the Stalinist societies to meet the competition of the West either in arms or consumer goods, the trade unions’ inability to defend their members interests, and the radical left’s fatal hesitancy whenever the danger that they might actually take power appeared on the horizon (one might think here of the ‘68 events, and the street militancy of the seventies that followed, when ‘new’ leftists dared to think of revolu tion, but retreated into guerilla tactics, or cultural politics, rather than challenge the hold of the ‘old’ left over the working class).
The challenge was to make the working class the subject of history, not just an object of capital accumulation. But as bravely as people fought, and as many were the advances made, the decisive challenge failed; the working class did not take control, and in the long retreat that followed the working class subject was forced out of history. A crisis of confidence – defeatism – was the dominant mood on the left.
The defeat of the working class subject was the condition for the extensive growth of capitalism we have been living through, and its bias to low-productivity toil over high-productivity industry. In the west, the defeat of the unions held wages down, making it cheaper to recruit more workers than to buy more machines. Unlike the high-wage post-war boom years, employers had no incentive to replace workers by machines (in Marx’s terms, the organic composition of capital was not rising). In the east, combative nationalism fell away, making it much easier for capitalists to recruit armies of new workers into greenfield factories.
This was what I looked at in my book, The ‘Death of the Subject’ Explained (2002), which is for the most part a criticism of the postmodern philosophy that was popular at the time. There is something a bit suspect about dodging off into the realm of philosophy to discuss a real problem. Who is The Subject, wearing his grandiose capital letters as if it was some higher being than you and me? In other times we might have called ‘the retreat from subjectivity’ the ‘struggle for working class leadership’, only now there is no such struggle. The question was whether the working class would become an active agent shaping history.
The concept of subjectivity irritates some people I know because it seems classless. But that is itself a sign of the times: there is no clarification of the competing interests of the different classes. As the historian E.P. Thomson explained, the working class is not an objective factor alone, for it only has a real existence in so far as it defines itself in the struggle against capital. As the working class internalized the defeats of the period, Society lost its most dynamic influence. Paraphrasing Marx, Adorno said, apathy, too, is a material force when it grips the masses.
What is more, the crisis of confidence that had its origins on the left was met with a mirroring, mutually conditioning collapse of confidence on the right. That was why the End of the Cold War did not just penalize the left wing actors. Bush Sr became the first President not to win a second term because his continuation of Reaganomics was not equal to the moment. In Britain the Conservative Party staggered on through the 1990s before giving way to the era of anti-ideological politics, and its magician Tony Blair.
The age of anti-politics was better at saying what it was against than saying what it was for. It was against extremism, and against racism; it was against militarism, so much so that it would, with a heavy heart of course, send the troops in to get rid of the weapons of mass destruction; it was anti-sexist, and basically devoid of any strong feeling whatsoever. All of the weird trends of our time: the infantilisation of the public, the dumbing-down of the public discourse, the excessively fragile, victim-centred outlook that seeks to take all of the conflict out of life and love, all of these are in the end a manifestation of that singular retreat from Subjectivity which dominates our age. Unfortunately, even the radical left rode to town on a tiger of anti-politics. The dominant motif of the anti-war movement was its activism, and hostility to politics. The left is happiest appealing for help for the victims, oblivious to the fact that in doing so it is consolidating the defeat of political agency from below and enhancing state power over us at every turn.
But, more important even than the retreat from political agency, was the capitalists’ retreat from industrial production. This is a better way to understand the economic difficulties that contemporary capitalism faces, than rehearsing Marx’s overaccumulation theory.
For more than a decade, the capitalist class in the West has been working with an outlook that is hostile to industry. In Britain, as in the US and elsewhere, capitalists found it easier making money by breaking up industries than building them up. There always was a kind of disgust at the real business of industry from the capitalists. They would move their homes away into the country, so that they did not have to smell the stench of the factory.
But today, the capitalists disdain for production is much more explicit. This was the meaning of all the ‘Lean Production’, or ‘small firm’ business theory (see Tony Smith, Lean Production: A Capitalist Utopia, 1994). This was the ‘post-material’ fantasy that I criticized in my booklet Need and Desire in the Postmaterial Economy (1998).
What most capitalist ideologues are interested in today is how they can lay claim to ‘value streams’ (what we used to call ‘surplus value’) quite independent of any dynamic relation to the production process. That was the meaning of the whole fixation on ‘The Brand’, a peculiarly fetishised idea of the claim to surplus value on the basis of owning the trademark or license, while contracting out the messy business of actually bottling the coca-cola.
They did put a lot more people to work, though typically that work was not in industry, but in the burgeoning service sector. The domestic service that we thought belonged to a pre-democratic past turned out to be one of the fastest growing sectors. Supermarkets and shopping centers were built, while their products had to be imported. These new jobs were low-skilled, underproductive toil that was dressed up as post-industrial service sector growth.
The great expansion of the financial sector meets this elite distaste for industry. Banking, insurance, stockbroking, futures trading and the mysterious trade in esoteric financial instruments are all businesses that are many removes from manufacturing. Entrepreneurs feel a lot more comfortable weaving money out of thin air than they do organizing the ugly business of production. The brokers’ analyst Alan Smithers explained how Britain’s earnings from financial intermediation had superseded those of industry in the nineties. ‘Leave that to the Koreans’ our Trade and Industry advisor Charles Leadbeater said, we are all in the thin air business (he means intellectual property) these days (Living on Thin Air, 2000). Well, lo and behold! You cannot live on thin air.
In my country, especially (but where Britain leads most delusions follow) the entrepreneurial class dedicates its energies to getting money out of licenses and intellectual property rights over the industry of others. And if they cannot lay claim to cash they have not earned in the developing world in the name of ‘intellectual property,’ then they have worked out a thousand ways to wring money from the government, demanding revenues from ‘public-private finance initiatives’ and so on. What they do not do is make stuff people want.
One of the great failings of the left has been that rather than challenge the main trend of capitalism, they have reinforced it. At a time when capitalism has retreated from production, the radicals’ main demand is that they retreat further. And here it is the ideology of environmentalism that has done the most damage. The environmentalists think that they are anti-capitalists. But they are not. At best what they are doing is attacking industrial capitalism.
But capitalism is in retreat from industry. The environmental movement is only affirming the prejudice of the Institute of Directors that the capitalists are on the right course. I call this new anti-productive capitalism Green Capitalism. They want to make money by deindustrialising. Istvan Meszaros’ concept of a ‘declining rate of utilisation’ under capitalism would have been a useful insight if he had developed it more.
In October I debated green policies with the Institute of Directors in the City of London. It is remarkable how committed to the environment these modern capitalists are. Why should they not be? Banks and other financial institutions have a tiny carbon footprint – because they do not move anything but legal titles of ownership. Imagine a scale of values that puts Banks as the most virtuous and something really useful, like agri-business or manufacturing industries as the most horrid. They might be in freefall, begging trillions from the finance ministers, but the banks can flatter themselves that they are, without doubt the very greenest of industries.
The current economic crisis is not a crisis of capitalist overaccumulation as Marx analysed it. It is a crisis of green capitalism, of the retreat from production. For twenty years, business has been learning the mantra that production is bad and consumption is good, until it has succeeded in leaving the cupboard bare. It is not that industrial technology has crowded out value-creating labour, a process Marx discovered in the Victorian Age and that continued into the twentieth century; rather it is that labour-squandering activities like recycling, alternative energy, land conservation, as well as non-productive businesses, like financial intermediation, consultancies and personal services have crowded productivity out of the economy. Whatever legacy these investments leave for humanity, their contribution to capitalist expansion has definite limits.
The economic dislocation has international dimensions because the dynamic sectors of production are geographically distant from the centers of consumption – the China to Wal-Mart route that those despised fast-moving lumpy consumer goods travel along. That means that value accumulated in Chinese savings banks must be recycled back to the West in the form of credit, which in turn fuels the evasion of industry in the West.
To put it another way, the current economic failure is not so much the outcome of objective categories of the organic composition of capital. It is a failure of capitalist Subjectivity. That seems to me unavoidably the case. As every commentator notes, the banking collapse was first and foremost a collapse in confidence among banks themselves. That does not mean that it can be wished away by a collective suspension of disbelief. The reason that financial confidence is such a vital issue is that so many capitalists have fled production for finance, giving the finance sector inordinate importance. The Subjective retreat from production itself becomes an objective factor.
The astute financial journalist Daniel Ben-Ami analyzed these changes best in his book Cowardly Capitalism (2001). And Benjamin Hunt’s The Timid Corporation, based on some excellent interviews with corporate heads, extends that picture. The defining characteristic of capitalism in the current period, Ben-Ami explained, was loss of confidence. This was why the UK finance sector acceded to new regulations and the oversight of ‘top people’s pay’ reviews, Corporate Social Responsibility audits brought in business consultancies to make the decisions that they were too afraid of.
Years of underperformance are a better explanation for the economic challenges we face today than trying to make Marx’s theory of capitalist overaccumulation fit the lackluster growth rates of the past two decades. The defeat of the working class was not just a disaster for us; it was generalized into a crisis of humanity itself. The Death of the Subject explains the retreat of capitalism from production. The contemporary economic crisis is a crisis of Green Capitalism, definitive proof that we cannot live on thin air. | P