Wednesday, April 7, 2010

Capitalism's murderous recovery demands labor unity and a scientific socialist perspective

Marxism and the crisis - a strategy for the Left

growth chart
Every economic crisis has its own peculiarities. No individual crisis conforms exactly to our general theory. Specific work is necessary to comprehend the pattern of each crisis.

The left’s analysis of the crisis has much strength but in some important respects it has failed to chart accurately the shape of this crisis as it has emerged.

If this were a shallow crisis perhaps this would be no more than regrettable. Weaknesses could be addressed over time without much harm being sustained. But this is not, as everyone now agrees, a shallow crisis. It is already, even if a recovery were starting right now, the most serious crisis of our lifetimes.

Mistaking important aspects of the crisis will have immediate and possibly long-lasting consequences. So it is important that we swiftly identify those elements of our analysis that are wrong and correct them. This short article aims to contribute to that discussion.

Use and abuse of the falling rate of profit

What is the purpose of the theory of the falling rate of profit in Marx’s political economy? The main purpose of the theory is to demonstrate why, over time, the capitalist system is not a self-correcting mechanism. Its point is to show why economic crises are endemic but cannot restore the viability of the system.

If there were no such thing as the falling rate of profit the defenders of the capitalist system could argue that however regrettable the damage caused by slumps might be they restore the conditions of economic growth. They could then claim that over time the system is progressive since although the cathartic moments of crisis are unfortunate they lead to renewed periods of growth. There would be no reason why the system could not go on forever simply passing through phases of expansion and contraction.

What the theory of the falling rate of profit points out is that this rosy picture is false. The falling rate of profit means that the system finds it more and more difficult to cleanse itself through crises. It underlines the fact that the measures that must be taken in order to accomplish this cleansing are increasingly damaging and destructive. The most obvious of these is the attempt to drive down the cost of labour power in order to raise the level of profit. But this is not the only aspect of the law. Marx’s law also outlined the various counter-acting tendencies that worked to restore the rate of profit.

Marx was adamant that the tendency of the rate of profit and the counteracting influences be treated as a single process and that a long historical timescale was necessary in order to judge their effects. As he wrote in Capital Vol III:

"We have thus seen in a general way that the same influences which produce a tendency in the general rate of profit to fall, also call forth counter-effects, which hamper, retard, and partly paralyse this fall. The latter do not do away with the law, but impair its effect. Otherwise, it would not be the fall of the general rate of profit, but rather its relative slowness, that would be incomprehensible. Thus, the law acts only as a tendency. And it is only under certain circumstances and only after long periods that its effects become strikingly pronounced."[1]

It follows that we should not treat the question of the increasing cost exacted by the system for restoring its profitability as simply one which refers to the depth of each slump. Other methods that the system has developed for dealing with the decline in the rate of profit - for instance the permanent arms economy that underpinned the long post war boom~can be as destructive as a slump but in ways which are social, political and imperial as well as narrowly economic.

The operation of the falling rate of profit and the measures taken to offset it can therefore tell us about the long-term tendencies in the system, its historic limits. It can, at a closer level of analysis, also tell us about the nature of whole phases of capitalist development~the post war boom, for instance. What it cannot tell us is why a particular slump is more serious than the one which preceded it. For this purpose a much closer, more specific and more mediated analysis is necessary.

Trotsky applied this approach is his writings on booms and slumps in the 1930s. These articles are often treated as if the only point that Trotsky was making was that crises do not necessarily have a radicalising effect on workers. This certainly an important point, but it is not the only important point that Trotsky makes. Crucially he outlined two broad considerations that are vital in understanding the relationship between the longer term phases of capitalist development and the pattern of booms and slumps. [2]

First, following Marx, he argued that we have to look at the boom and bust cycle against the longer term background of capitalist development. Second, Trotsky argued that we have to look at the economic crisis in a wider political framework. We have to look at the way in which imperialism, the crisis in the governmental system, party politics and, crucially, the consciousness and combativity of the working class all interact with economic downturns. We can think of the recession as a beam of light and the political conditions with which it interacts as a prism. The same beam of light can be refracted in very different ways depending on the kind of prism it hits.

Trotsky looked first at the relationship between the broader phase of capitalist development and individual recessions. Trotsky compared the economic upswing that he was analysing in the early 1920s with the upswing analysed by Karl Marx and Frederick Engels in the aftermath of the 1848 revolutions across Europe. In the 1850s the upswing marked the beginning of a prolonged period of capitalist expansion – “an entire epoch of capitalist prosperity which lasted till 1873”, as Trotsky described it.

But, he added, the period after the Russian Revolution and the First World War was a period of capitalist decline in which “upswings can only be of a superficial… character, while crises become more and more prolonged and deeper going”. Trotsky’s general point was this:

“The movement of economic development is characterised by two curves of a different order. The first and basic curve denotes the general growth of the productive forces…
On the whole, this curve moves upward through the entire development of capitalism. This basic curve, however, rises upward unevenly. There are decades when it rises only by a hair’s breadth, then follow other decades when it swings steeply upward… In other words, history knows of epochs of swift as well as more gradual growth of the productive forces.”

Trotsky argued that the second curve showing the boom and bust cycle must be “superimposed” on this first curve if we are to correctly understand the likely impact of an economic crisis.

Trotsky’s analysis makes clear why the transition from boom to bust needs an analysis in a different register to the falling rate of profit. Crises tend to cleanse the system of its immediate crisis of profitability; they temporarily restore the conditions for profitable investment, as Marx makes clear in Capital Vol III. But an individual crisis is not caused by the declining rate of profit in an immediate sense.

An analysis based on the theory of the declining rate of profit can tell us whether we are in a period of generally more severe crises (as we have been since the 1970s) or of less severe crises (as we were during the long boom). But it cannot be used in a mechanical and immediate way to explain why this particular crisis is just so deep or not so deep. This is for two reasons. Firstly the theory of the rate of profit has to be understood in all its complexity. Marx discussed both the general abstract tendency to depress rates of profit as a result of the rising organic composition of capital (dead labour replaces living labour and this depresses the rate of profit because living labour is the only source of surplus value).

But the law also contained a discussion of the countervailing tendencies~the ways in which the system attempts to mitigate this downward pressure on profit. Crises were one such mechanism because they destroy capital and restore the rate of profit. But so, Marx argued, was financial speculation and colonial expansion. Building on an insight by Tony Cliff, Mike Kidron developed the Permanent Arms Economy theory to explain how arms production can under certain historical conditions also have this effect.[3]

So it is obvious that we should not treat this approach as a general law which then has certain ‘exceptions’. Something like the permanent arms economy that lasts for 30 years and defines a whole imperial epoch can hardly be described as an ‘exception’. These are parts of the law not exceptions to it. This is how the system works and the ‘exceptions’ are the normal malignant functioning of the system, as much part of its inhumanity and destructiveness as economic crises.

What is necessary is to examine for each era how the whole law, the tendency of the rate of profit to decline and the tendencies that the system develops to deal with this pressure, define the political economy of that epoch. It is a mechanical, reductionist and economistic reading of Marx to diminish his political economy to mere ‘economics’ by attempting to simply read the movement of the business cycle from the declining rate of profit and to fail to use the broader conceptual framework that Marx gave us to describe the economic, social, political and imperial dimensions of the crisis.

Secondly the immediate oscillations of the business cycle are determined by causes other than the falling rate of profit the shortage of labour and the overproduction of commodities at the peak of the cycle and by the opposite at the pit of the cycle. The precise factors governing the severity of any particular slump must be examined specifically in order to explain the depth and nature of each crisis and cannot be simply read-off from the general tendency of the rate of profit to fall.

Some current defences of Marx’s theory are too narrow. They refer to some of the countervailing tendencies but they do not make them central to our analysis. Repeated references to the general tendency of the rate of profit to fall as a direct cause of this economic crisis are a mistake~a bit like referring to the law of gravity to explain why this particular apple fell from this specific tree at this precise moment. At the very least we need to know about a few other things~the season of the year, the ripeness of the apple, the force of the wind, the age of the tree and so on. If we rely too much on (at the right level perfectly correct) generalities we end up explaining everything...and nothing. If the rate of profit has been falling since the 1970s why is it this crisis, rather than the crisis of 2001 for instance, that has been the deepest for a generation?

Let us look at two factors that Marx analyses as counteracting tendencies to the fall in the rate of profit which have both postponed a more serious crisis since the 1980s and prepared the depth of the crisis which is now upon us. The first is speculation, including financial speculation. Marx argues:

“If the rate of profit falls, ...there appears swindling and a general promotion of swindling by recourse to frenzied ventures with new methods of production, new investments of capital, new adventures, all for the sake of securing a shred of extra profit which is independent of the general average and rises above it.”[4]

The second, says Marx, is foreign trade:

“foreign trade develops the capitalist mode of production in the home country, which implies the decrease of variable capital in relation to constant, and, on the other hand, causes over-production in respect to foreign markets, so that in the long run it again has an opposite effect.”[5]

In modern parlance Marx is pointing to the effects of finacialisation, globalisation and imperialism. It is to the credit of some Marxists, like Costas Lapavitsas and John Bellamy Foster for instance, that they have been tracking the effects of financialisation.[6] But we need more work that also ties in the imperial dimensions of the crisis. Marx himself was clear that when it comes to the conflict over how the crisis will be resolved and exactly whose capital will be destroyed, this will be a struggle involving political power as well as economic strength:

“How is this conflict settled and the conditions restored which correspond to the ‘sound’ operation of capitalist production? The mode of settlement is already indicated in the very emergence of the conflict whose settlement is under discussion. It implies the withdrawal and even the partial destruction of capital... Although, as the description of this conflict shows, the loss is by no means equally distributed among individual capitals, its distribution being rather decided through a competitive struggle in which the loss is distributed in very different proportions and forms, depending on special advantages or previously captured positions, so that one capital is left unused, another is destroyed, and a third suffers but a relative loss, or is just temporarily depreciated, etc.”[7]

From re-visiting Marx’s original account of the falling rate of profit we can see that its effects are cumulative and result in the periodic destruction of capital values, which then restores the rate of profit by lowering the ratio of fixed to variable capital once more. The point about seeing the law as a whole is that this can either be done by an economic crisis (bankruptcies, slashing the value of capital, cheapening capital goods) or by war (physical destruction of capital) or by waste production (arms production in the case of Permanent Arms Economy) which diverts capital that would otherwise lower the rate of profit into non-productive use. One of the ways the system ages is that the methods of destroying capital become increasingly malignant, increasingly 'political' as well as purely economic. This is one sense in which the crises in the system get 'worse' as it ages.

Thus the effect of the falling rate of profit is cumulative but not in a narrowly economic sense (i.e. the slumps are always deeper) since the long boom shows that this is not true. But the overall cost of maintaining profitability (slumps, plus waste production, plus war) does increase over time. This then leads us back to a conjunctural analysis of a period of crisis when the economic cost, the waste factor and the imperial register coincide in a malignant form (unlike the Cold War when they, arguably, coincided in a less explosive form for the system).

Confusion over the role of state spending

The left’s attempts to explain the nature of the current crisis have been hamstrung by an inability to describe whether or not the state has the power to mitigate the crisis by essentially Keynesian methods. Even International Socialism argued:

“The increased importance of state expenditures—and the willingness of central banks and government to spend rapidly in trying to cope with the crisis—means there is a base level of demand in the economy which provides a floor below which the economy will not sink, which was not the case in the early 1930s’’.[8]

If this were true, however, a Keynesian solution to the crisis would be viable. Marxists wish to reject this conclusion. So the article goes on to say:

“But there is an important second difference that operates in the opposite direction. The major financial and industrial corporations operate on a much greater scale than in the inter-war years and therefore the strain on governments of bailing them out is disproportionately larger.”[9]

So should we then conclude that, although the state has more resources to deal with the crisis, this will ultimately be unsuccessful because the size of the units of capital is so great that even the increased resources of the state will not be enough to save them? Apparently not, otherwise what would be the meaning of the phrase in the first quotation which says “there is a base level of demand in the economy which provides a floor below which the economy will not sink”. And the figures given for the share of state spending in national wealth indicate that even though corporations are larger, state spending is larger still. In the end, in spite of these figures, the analysis in the International Socialism concludes:

“For the moment all we can do is extend the ‘bail out’ metaphor: the pails being used are bigger than ever in the past but the pool of debt they have to dispose of is also much deeper.”[10]

On the one hand the state has great resources to mitigate the crisis, on the other hand the crisis is very deep...but then again the state has great resources...but then again the crisis is very deep! This is an explanation which is no explanation at all. Keynesianism might work...or it might not! It is this confusion which led Socialist Review to argue last year that:

“The response of capitalist governments and their central banks has been to look for some desperate ploy to keep borrowing going. One way to do so is to cut interest rates so as virtually to give money to the banks to lend to people... Another way is to increase government borrowing...”. “It is just possible”, the argument ran, that despite the difficulties for the capitalist governments, “that such measures will defer the crisis, as they did at the end of the 1980s and 1990s. But they will not be able to do more than that”.[11]

In fact the crisis was not deferred at all but rapidly deepened. The problem here lies in seeing the crisis as mainly ‘economic’ and state as its possible ‘saviour’. In fact the crisis is both economic and political. It engulfs both the economy and the state. And the state itself is both an economic and political entity. The left’s analysis of the crisis would be stronger if we centred it on the fact that any really deep crisis must become a crisis for the state as well as an economic event.

This is true in two senses. It must become a crisis for the state because the scale of intervention required can threaten to undermine the stability of the state economically. This has subsequently made clear by the collapse in Iceland and the depth of the crisis engulfing Greece, Portugal and Spain. This crisis also threatens the current ideological defences of the state because it raises the issue of nationalisation.

The state is also threatened in a second sense by the increased tension between it and rival states during a severe recession. This has become clear in the increased tension between the US and China over both economic issues and political issues like climate change. Thus we should not see the crisis as primarily affecting the economy and then see the state as the force which can bail it out. We should see the crisis as one which effects both economy and state simultaneously, although differently.

Strategic thinking - can't pay won't pay

Some of these theoretical weaknesses are reflected in the recent lack of strategic thinking about what the left should be doing. After the Seattle demonstration of 1999 it was clear that although the recovery in the industrial struggle was slow, there was a political upturn. This was demonstrated by the rise of the anti-capitalist movement, the anti-war movement, activism around global warming and third world debt and active disillusion with Labourism. The correct strategy for revolutionaries was to use the tactic of the united front to build this resistance, carry socialist argument to a wider audience and, crucially, to use the growing political confidence of the class to lift its confidence in the industrial sphere. This was the origin of the idea of ‘political trade unionism.’

The onset of the recession and the recent increase in struggles related to it show how correct this approach was and is. Many of the struggles against the recession~most obviously the Vestas factory occupation~have been as much political struggles as narrowly economic strikes. They have involved political issues, been motivated by political activists and have campaigned using the very same types of organisations as the political movements.

It would be strange then if at precisely this moment the left should choose to move away from this perspective. We need to stand back and take serious stock of where we are. The essential points are these:

  1. The political radicalisation that began in 1999 is, under the impact of the recession, spreading more widely throughout society and helping to lift the level of industrial resistance. There is a growing threat from the right, but it will only become dominant if the left fails to provide leadership on the central question of the recession.
  2. We need a wider theoretical debate so that our analysis of the crisis is broadened to effectively integrate the new dimensions of the economic crisis and its social and imperial dimensions into our analysis.
  3. Politics remains central. But this does not simply mean socialist propaganda, however valuable this is. It means a renewed commitment to united front work on political and economic issues.
  4. The war, as the demonstrations over Gaza in January 2009 and the continued crisis over Afghanistan show, is central to British politics. It will remain central to any notion of political trade unionism.
  5. The recession requires an initiative on a class wide, national basis which tries to involve the widest possible layers in the labour movement in generalising the resistance to the recession.
  6. The resistance at Visteon, Vestas or in the postal strikes, for instance, would have been stronger still if there was an already existing nationally organised network of supporters to whom they could have turned for support, meetings, collections, delegations and so on.
  7. Such a network would provide a much wider audience for revolutionary ideas than can be obtained by propaganda means alone. The creation of such a network is the best possible guarantee that the recession will not pass the left by without there being any qualitative increase in its size. In the years ahead the creation of such a network is likely to be crucial in raising the level of working class resistance and building mass support for socialist politics in the face of the greatest crisis of world capitalism since the 1930s.

Notes

[1] K Marx, Capital, Vol. III (London, 1954) p.239.

[2] For Trotsky’s views see: http://www.marxists.org/archive/trotsky/1924/ffyci-1/ch19b.htm and http://www.marxists.org/archive/trotsky/1924/ffyci-2/06.htm and http://www.marxists.org/archive/trotsky/germany/1932/320914.htm

[3] Michael Kidron, Western Capitalism Since the War (London, 1970), Michael Kidron, Capitalism and Theory (London, 1974).

[4] K Marx, Capital Vol III, p.259.

[5] Ibid., p239.

[6] See, for instance, John Bellamy Foster and Fred Magdoff, The Great Financial Crisis, Causes and Consequences (New York, 2009).

[7] K Marx, Capital Vol III, p253.

[8] International Socialism 121, p37.

[9] Ibid.

[10] Ibid, p45.

[11] Socialist Review, February 2008.

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