The Empire’s new clothes: US capitalism in its twilight years

Part 4 of China in the age of American decrepitude

I spent the year 2004 as a ‘supply teacher,’ filling gaps in the high schools of Nottingham, England. It was an interesting though strangely nightmarish time. Nottingham was a random destination, but I was happy to end up there, because twenty years earlier I had learned a little about the coal mining industry in the course of some modest work in solidarity with the British miners’ strike of 1984-85. Nottinghamshire had the richest seams of coal in the country, the most easily extracted; because of this, the miners there were convinced that the threat of closure hanging over other coal mines didn’t affect them, and so they had been largely been split away from the strike. They were mistaken.

British Coal Miners' Strike of 1984 | NC Theatre
British Miners’ Strike 1984-85. Photo: Martin Jenkinson

By the  time I arrived, the last of the British coal mines were either closed or in the process of closing. In a region that had been so heavily dependent on coal mining, I expected to find widespread unemployment and destitution. That was not what I found at all.

On the contrary, Nottingham in 2004 was bustling with economic activity. There were crowded streets and giant shopping malls, packed pubs and restaurants, people buying and selling things at what seemed to me – newly arrived from New Zealand – very high prices. All of this gave the city an unmistakable air of prosperity. One of the schools I taught at was in an old mining village a short distance from Nottingham city. The town’s two pits had long closed – but in their place there was a 24-hour shopping mall with two huge supermarkets, which provided employment to many of the students I taught. Absurdly cheap airfares to Paris, Venice, and Budapest were advertised on the backs of buses, and travels to Europe and beyond were a constant topic of conversation, including among the students.

There was ample evidence of social decay – not least in the schools, which resembled mental institutions where the unfortunate inmates, behind locked gates and razor wire, exhibited a range of antisocial behaviours. Bullying was rife. The students amused themselves at lunch times by throwing food at each other, and at the teachers whose job it was to stop it. A few of the students, and their parents, told me to ‘go back to Australia’ or threatened me with violence.  Others routinely, almost casually, accused me of being a paedophile – they had an unerring sense of the power of this accusation, and used it freely to express their resentment at their plight. Yet it was strangely difficult to talk about all these things beyond circles of people in direct contact with it. On all sides there was a wall of smug self-satisfaction such as always accompanies economic prosperity in capitalist societies.

As I struggled to make sense of all this, one question kept coming back to me: clearly, this economic activity all revolved around commerce, in particular a great whirl of retailing. But commerce creates no new value, it only circulates existing values. Wealth is created in production, and the productive industries had almost all been shut down. So where was all the wealth circulating in the Nottingham community actually coming from, and how did it end up there?

That same question comes back to me as I try to fathom the US economy today – and as the US follows the same downhill path taken earlier by the UK.

It is not easy to form a picture of what drives the US economy today – not so much because of its size or complexity, but because it has the appearance of floating on air. In a time not so far past, the colossal wealth in the US was relatively easily to connect to concrete things which we could see, handle, use, or eat: stock values of a corporation could be seen more or less to correspond with factories and production – cars, steel, hamburgers, coal, jeans, oil, or whatever. Bank payments could be seen to correspond more or less to trade, debts to deferred payments, and so on. I’m even old enough to remember the days when we lined up on payday to receive a packet containing paper tokens called cash, which we then took to the shop to exchange for food and other things we needed.

Pittsburgh steel mill in 1950s. Pittsburgh produced the steel used in the Empire State Building, Oakland Bay Bridge, Panama Canal Locks, and the St. Louis Arch. This mill closed in 1982.

Not so today. Today, for example, a major capitalist corporation called Facebook trades on the stock market for billions – as of August 2020 its market capitalisation was US$720 billion, double its worth of four years earlier. We all recognise the brand name. Yet I, and I suspect many others, would find it hard to explain what exactly this immense corporation produces, what its enormous wealth derives from, and what those billions represent. What did this doubling of its value in four years actually mean? If tomorrow the company crashed and had to sell off its assets to pay its creditors, what exactly would they sell to try and recoup the $720 billion? Is the value of such a corporation just imaginary – a kind of collective belief that if everyone else thinks it’s worth that much, and they are prepared to buy a piece of it at that price, then that must be what it’s worth? It is highly likely that a large part of its stock market capitalisation consists of such fictitious values, which would vanish into thin air in a crash – but in the meantime, this corporation draws in revenues and pays out wages to 60,000 people that are no less real than the cash I once earned.

Facebook says it will lift its news ban in Australia - Los Angeles Times
In the four years to August 2020, Facebook doubled its market capitalisation to US$720 billion. What that figure of $720 billion represents is not so easy to see. Photo: Andrew Harnik AP

The whole discussion of economics thus has a strange ‘emperor’s new clothes’ feel to it, where everyone engaged in the discussion is afraid to admit that they have no idea what these dollar numbers signify, afraid to state the obvious or ask naïve questions. Bourgeois economics takes for granted that if something can be exchanged for money, it must be real. Since this is not an unreasonable assumption to make in personal daily life, it seems like a reasonable enough assumption to make regarding the economy – just as I never doubted that I could exchange the paper tokens in my pay packet for food or anything else.

So it’s easy to buy in to the language of bourgeois economics and treat its categories – including brand names, information, debts, confidence, knowledge, data, intellectual property, Gross Domestic Product, cryptocurrencies, and the like – as if they are real things: since these things are ‘assets’ that can be ‘monetised’ like anything else, they must be real. In the language of economics, they can even acquire human emotions and become sentient. Markets express their disapproval of political decisions, prices get the jitters at the outbreak of wars, currencies crave stability. Since we all wear clothes and know what they look like, we are all invited to admire the empire’s new clothes.

Here is a list of the top ten US companies by revenue in 2020, as determined and categorised by the Fortune 500 list. I have added the names of the associated capitalist billionaires for the purposes of easier identification.

RankNameIndustryAssociated billionaire
1WalmartRetailWalton family
2AmazonRetailJeff Bezos
3Apple Inc.Electronics industryFormerly Steve Jobs
4CVS HealthHealthcare 
5UnitedHealth GroupHealthcare 
6Berkshire HathawayConglomerateWarren Buffet
7McKesson CorporationHealthcare 
8AmerisourceBergenPharmaceutical industry 
9Alphabet Inc.TechnologyLarry Page, Sergey Brin
10ExxonMobilPetroleum industryRockefeller dynasty (earlier)

The first thing that strikes me about this list is the weight of commercial capital. The top two companies, Walmart and Amazon, are retailers pure and simple.  They buy at wholesale prices from manufacturers or from other merchants, distribute, advertise, and sell to final consumers at higher retail prices. Their profits are derived from the difference between the wholesale and retail prices. As the biggest supermarkets and online retailers, they have enjoyed various special advantages as a consequence of the Covid pandemic, as more buyers turn to online shopping, and as smaller retailers close during lockdowns, directing more business their way: since the pandemic began Amazon’s worldwide workforce has grown from 800,000 to 1.3 million; Walmart was already the world’s largest private employer, with 2.2 million employees. As Lenin notes in his pamphlet Imperialism, it is a general rule that monopolisation advances during a crisis.

Amazon’s primary market is the United States (about two-thirds of its sales by value), but its reach is global – and at least partly it evades tax regimes in the countries to which it sells. There are more than 2.5 billion visits to its website each month.  It dispatches goods from warehouses in more than twenty countries. Its website search engine is partly geared to fees paid by sellers – a new form of advertising for the monopoly age: can you imagine a supermarket which is so dominant that, say, Coca Cola pays the supermarket a fee to get them to place the Coca Cola display in a prominent place in the shop? Amazon, having ruined thousands of independent booksellers, is currently expanding into brick-and-mortar bookshops.

As well as being a retailer of all kinds of goods, Amazon sells its own high-profile electronic product, the Kindle E-reader. But it does not make Kindles – these are made in China by Taiwanese-owned Foxconn, a manufacturing capitalist which operates vast plants, contracted to Amazon. Amazon’s profits on the device come both from retailing it, and from sales of the books published in the Kindle format.

Amazon (followed by Microsoft, Google, Alibaba, and others) is also expanding into cloud storage of electronic data, building huge warehouse-sized “server farms” at multiple locations across the world as cloud-based technologies expand. Amazon has already cornered 50% of this market. Of course, these installations are not ‘farms’ – except perhaps in the sense of ‘cash cows’ – nor are they factories. Once built, they employ very little labour of any kind, and no productive labour. They are another form of commercial capital, and the rents they extract are part of what Marx calls the ‘costs of circulation.’

Apple, the third largest, is categorised by Fortune as ‘electronics industry’.

One part of the 1.29-million-strong workforce of Hon Hai Precision Industry Company, better known as Foxconn

We tend to think of Apple as a manufacturer of Apple computers, phones, etc, because of the prominence of the Apple brand name – and because at one point it did manufacture computers at its own factory in the US. But today Apple itself manufactures nothing – not in the US, nor in any other country. Despite the ‘designed and made in the USA’ hype that the company exudes, the manufacturing of its electronic hardware is almost entirely outsourced, that is, contracted out, mainly to Taiwanese companies, especially Foxconn, which assembles them in gigantic factories in China. Even the small fraction of its production that takes place in the US is outsourced. An industrial capitalist without factories is a strange contradiction, like a restaurant without a kitchen – although this is an increasingly common phenomenon in the US and the other old imperialist countries in the age of outsourcing.

Apple also gains a further significant fraction of its revenues from the Apple app store, where it functions as a retailer, selling games and other apps developed by third party software makers, taking a 30% fee in the process. This arrangement has just been successfully challenged in court

Apple is based in, and famously associated with, Silicon Valley, a kind of world-wide headquarters of the computer and telecommunications industries in California. It is true that a part of what happens in Silicon Valley (and its offshoots in Oregon, Texas and Arizona) is productive labour – especially the making of semiconductors, but also the creative work involved in computer and software design, in the workshops of Apple and similar companies. It is beyond my capabilities to investigate and separate Apple’s various strands of revenue in detail. But from a fairly superficial observation, it seems that the chief ‘products’ of Silicon Valley are monopolies and brand-names. These are key to the profits of Silicon Valley companies, including Apple, and I will look at this more closely later.

Apple’s headquarkers in Cupertino, California, opened in 2017. Apple does no manufacturing itself, but outsources all the production of its computers and phones, mostly to Foxconn and others which operate factories in China. Photo: Noah Berger, Reuters


Fourth, seventh, and eighth on the list are companies whose prime business is as wholesalers or retailers of pharmaceuticals. So it seems someone’s doing well from the profit-driven pay-up-or-die “health care” system! According to Fortune, these companies are also enjoying additional pandemic-related benefits, through their participation in the Covid vaccination process. Some of them also deal in medical equipment. UnitedHealth Group, fifth on the list, is mostly a health insurance company – that is to say, a buyer of these same pharmaceuticals. Who would have guessed that there was so much money to be made from buying and selling pharmaceuticals, that four of the top ten US companies would be engaged in marketing this one single category of commodities? Somehow, in the process of turning the thousands of Mom-and-Pop neighbourhood pharmacies into a few giant monopolies, vast streams of wealth have been found. We will return to look at the source of this stream later.

Ninth on the list, Alphabet, is Google’s parent company. How exactly does Google earn its revenue? Ultimately, from advertising. From Google’s point of view, the Google search engine and the Chrome browser are primarily platforms for selling advertising, both directly, through the search engine itself and Google-owned apps like YouTube, but also through taking a fraction of the revenue from the targeted ads that pop up on other web pages and phone apps, which are aimed at you on the basis of what you have searched for and the websites you visit. Facebook operates in a similar way; its “capital” consists of the demographic data it gathers from its billions of users, which it markets to advertisers. There is a far-reaching technological advance involved with this. These forms of advertising are now a $350 billion industry, and are rapidly displacing all others, since they are so much more efficient in reaching the intended market demographics. Printed newspapers and others which depend on other indiscriminate forms of advertising are being driven to the wall as advertising becomes increasingly monopolised by Google, Facebook, Twitter and a handful of other similar online giants. 

Infographic: The Incredible Size of Google's Advertising Business | Statista
Google’s advertising revenue exceeds the entire amount spent on advertising in China – and every country except the US. Source: Statista


Advertising also creates no new value (or rather, only infinitesimal amounts – it could be argued that the artwork etc involved is productive labour).  Google’s billions are created elsewhere. Like Apple, Google also functions as an ordinary retailer through its Google Play app store.

The labour employed by commercial capital creates no new value or surplus value. The profits accrued to commercial capitalists, commonly referred to as their mark-up, are derived from a share of the surplus value created in the production process – which is largely outside of the operations of these companies. Commercial capital performs a necessary role in the circulation of capital. The industrial capitalist sells his product to the merchant, rather than sell it directly to the final consumer himself, because selling to the merchant speeds up the process of returning his capital to the production process.

Strictly speaking, retailing is not entirely commercial capital. Marx calls it a hybrid form (Capital Vol. 3, p400), because there are aspects of retailing, including transportation, storage and warehousing, which Marx calls ‘production processes that are continued in the circulation sphere” (Capital Vol 2 p214) and which therefore do actually add value to the commodity. But these giant retailers are not making their profits primarily from trucking and warehousing – the source of their huge profits is in commerce, not the small part of the production process that takes place under their own roof.

The fact that labour employed in commerce is unproductive does not mean that the workers employed by commercial capital are not exploited. Commercial workers, like any others, work part of the working day to provide for their own needs, and part unpaid labour for the merchant. As the highly-exploited workers in the Amazon warehouses can attest, the pressure on them to extend the unpaid portion can be as intense as in production. For the unpaid labour of the commercial worker determines for the merchant their share in the surplus value created in production. (Capital Vol 3, p 407-8)

Insurance likewise creates no new value. The 330,000 employees of UnitedHealth group do no more than share in and re-distribute the surplus value created in the production process, elsewhere in the world economy. Nonetheless, the unproductive labour of these 330,000 people is counted as part of the United States’ Gross Domestic Product, on an equal basis as those engaged in productive labour. In an economy where such unproductive processes as these weigh so heavily, GDP becomes increasingly useless as a guide to the state of economic activity.

Boeing factory in Everett, Washington. There are still substantial industries in the US, but today they are dwarfed by retailers, advertisers, insurers and speculators

Berkshire Hathaway’s Warren Buffet is commonly called an ‘investor,’ and Berkshire Hathaway is called a ‘conglomerate.’ The parent company Berkshire Hathaway owns an eclectic and constantly-changing bunch of subsidiaries, from businesses as diverse as food, batteries, clothing and furnishings to retailing and car insurance, and stocks in many others including Kraft Foods, Bank of America, and American Express. It is the largest ‘financial services’ firm in the world by revenue. Berkshire Hathaway earns its income not only or primarily through the profits generated by the industries it owns, but by speculating in the rise and fall of stock values. Its portfolio included airlines, for example, until last year: at beginning of the Covid-precipitated collapse of world passenger travel, Berkshire Hathaway sold off its airlines – something the airlines themselves cannot do. Like other forms of gambling, this produces no new value. 

More or less invisible in the list of corporations lies a much broader layer of ‘investors,’ rentiers of the purest kind, the later generations of ‘old-money’ industrial fortunes in oil, railroads, and so on. Now diversified in their investments, often into banking, and partly hiding their billions in family trusts and charitable foundations, descendants of the big industrial capitalists of the past – Rockefellers, Vanderbilts, and Gettys among others, idle away their days, drawing the interest payments and dabbling in politics like the Rockefeller dynasty, or more commonly, “philanthropy” – that wonderful euphemism for people with more money than they know what to do with.

Of course, there is still some substantial productive industry in the US, and this barely peeps into the top ten list: the world’s largest oil extraction industry is in the US, and is represented by ExxonMobil at tenth on the list. Some of this oil is transported on the world’s largest rail network, represented by Berkshire Hathaway, which includes railroads in its portfolio. Ford, General Motors and other car manufacturers; Chevron and other oil companies; AT&T and other telecommunications companies; Boeing and Lockheed Martin aerospace; Cargill, Coca Cola and Pepsi and other food and beverage processors;  Pfizer, Merck and other pharmaceuticals manufacturers; Caterpillar machinery; General Electric; Delta, American and United airlines are below the top ten, but in the top 100 companies.

Using hydraulic fracturing safely and reliably for over 60 years |  ExxonMobil Russia
ExxonMobil hydraulic fracturing rig. The world’s largest oil extraction company only just makes it to tenth on the list.


But today these industries are dwarfed by the retailers, advertisers, speculators and insurers.

A blurred reflection of this transformation of the US economy can be found in the statistics of the Federal Reserve Economic Data (FRED) in the graph below. Like all the categories of bourgeois economists, these statistics obscure the important differences of class, lumping together workers with their administrators and bosses. However they give a rough indication of the decline of manufacturing in the US. According to this source, out of 157 million people in the US workforce, the number employed in “manufacturing” was 12.9 million – while the number in “professional and business services,” for example, was 21.5 million, and a further 24.3 million in “education and health services.”

The decline in the percentage of the workforce employed in manufacturing does not exactly equate to the relative decline of manufacturing – obviously it also partly reflects the replacement of workers by machines within the manufacturing industries, through robotisation and similar processes. However, in this connection there are two important points to note: first, similar processes of replacing workers by machines are also occurring in non-manufacturing occupations, from computerisation of office work to replacement of security guards by CCTV cameras. More importantly, value can only be created by living labour, so that ultimately, even if each manufacturing worker now commands a vastly more productive array of machinery than before, a decline in the numbers of workers in production does mean a decline in the value created.

The percentage of US workforce employed in manufacturing has fallen steadily since the 1970s

These top ten companies – engaged overwhelmingly in wholesale trading, retailing, advertising, marketing and insurance, rather than productive industry – create little new wealth. The immense wealth they have at their disposal has been created elsewhere in the world, by the living labour of workers in China, Mexico, Korea, Brazil, Taiwan, Bangladesh, and many other countries.

Lenin observes that “Capitalism, which began its development with petty usury capital, is ending its development with gigantic usury capital.” The same could be said in respect of merchant capital, whose origins pre-date industrial capital, and which returns in gigantic form as capitalism nears its extinction. Commerce, the last sector of the capitalist economy to become fully monopolised, has rapidly been transformed by a handful of gigantic monopolies with global reach.

The top ten firms are not the whole economy of the United States, of course, but this line-up does give a good indication of the parasitic character of the US economy today. The United States, which for most of the twentieth century was the industrial powerhouse of the capitalist world, has been transformed into a bloated bloodsucking tick on the body of Asian industry. In the words of Lenin a century ago in Imperialism, the highest stage of capitalism, “The export of capital, one of the most essential economic bases of imperialism, … sets the seal of parasitism on the whole country that lives by exploiting the labour of several overseas countries and colonies.”

How and why did the US change from the world’s foremost industrial power to its present parasitic existence? And how exactly does the wealth created in China and the other low-wage industrial countries end up generating these colossal revenues in the United States? In the next post I will outline briefly what I think are the main channels of appropriation.

TO BE CONTINUED

2 responses to “The Empire’s new clothes: US capitalism in its twilight years

  1. Communism sucks, James. Ask anyone who had to live through the nightmare.

    Of course monopoly capitalism does as well but that’s because they’re both the same thing.

    Rich

    • Rich, I am in frequent contact with people who ‘live through’ and fully support the Cuban revolution – and today, that is the only place in the world where the working class rules. (And no, it’s not the same thing as monopoly capitalism – if it was, the Cubans would not have had to put up with the unrelenting sixty-plus years of economic strangulation and military threats from its monopoly-capitalist neighbour to the north.)

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