Part 5 of China in the age of American decrepitude
Towards the end of the twentieth century United States capitalism was increasingly beset by a crisis of profitability. At the root of this was a law of capitalist development described by Karl Marx in Capital: the tendency of the rate of profit to fall. (See Capital, Vol 3, Part 3, Chapters 13 to 15).
Attempts to render Marx’s scientific precision in simpler language often come to grief, but I will attempt it nonetheless, since it is a very important tendency. It rests on the law of value, through which the prices of commodities are determined by the quantity of labour embodied in them.
The rate of profit is the ratio of the profit a capitalist makes, relative to the quantity of capital invested. If two capitalists each make a million dollars profit, but the second one does so while investing less capital, the second one has a higher rate of profit.
Let us suppose that there are ten capitalists competing in a national market to produce toothbrushes; a similar product, in similar factories, with similar machinery and a similar number of workers for each toothbrush produced. The average price of the toothbrushes will be determined by the number of workers and hours of labour required to make each toothbrush. That is the law of value.
Then suppose one of these capitalists invests in a new machine, which allows him to produce twice the number of toothbrushes with the same number of workers. For a time, this capitalist will be able to sell his toothbrushes at the same price as before – the same price as all his competitors – while spending, per toothbrush produced, half the amount on wages. He thus gains an advantage over his competitors. This is how capitalist competition constantly drives technological advancement.
Over time, competitive pressures will compel the other capitalists to introduce the new machine too. As this happens, the price of toothbrushes will start to fall, and by the time the last of the ten capitalists brings in the new machine, the average price of a toothbrush (excluding, for the purposes of this explanation, the cost of inputs such as raw materials) will be half what it was before. This is because the productivity of labour has doubled, and therefore each toothbrush now embodies only half the quantity of labour.
Assuming that they can sell all the toothbrushes they produce, the capitalists may still be earning the same profits as before, even though the price per toothbrush has halved, since their labour costs per toothbrush are also halved. (Their mass of profits may even increase, if the toothbrush market expands and they can increase production.) But they will be earning these same profits in proportion to a greater quantity of capital invested, since the amount of their capital investment has increased by the cost of the new machine. Their rate of profit has therefore fallen.
This process is at work wherever the capitalist mode of production prevails. Marx calls it a tendency of the rate of profit to fall, because when faced with a falling rate of profit, the capitalists have a few ways of holding back or reversing it for a time. They can increase the hours or intensity of work, that is, increase the surplus value each worker creates. Or they can reduce the value of wages, thereby increasing the proportion of surplus value in the day’s work.
There are certain limits on the degree to which they can reduce wages. Labour-power also has a value: the cost of feeding, housing and reproducing the worker. Short of a historic defeat of the working class, wages can fall below that value only temporarily (as they might do in a period of recession, for example, when the competitive pressures of unemployed workers drive wages down below their value). But the capitalists can also partially get around these constraints by shifting production to a country with historically lower wages.
Even with means such as these available to them, the capitalists find themselves with decreasing opportunities to invest their capital profitably in production. A growing pile of capital therefore seeks an outlet in forms of investment that can be more profitable – but unproductive: speculation on stock markets and currency trading, trading in fictitious capital and paper values of all kinds, real estate speculation, among others. None of these investments creates new value. They simply re-divide the pool of surplus value – ultimately they are simply forms of gambling, with a loser for every winner. But they can, for a limited time at least, be more profitable than industry.
Following the massive destruction of productive capacity in Europe and Japan in World War 2, and because of that destruction, capitalist production in the US and the rest of the imperialist world entered a long phase of expansion. In the US the average rate of profit peaked quite early in this expansion, in the early 1950s, but the slow fall in the rate of profit after that point was for a long time masked by an increasing mass of profits, as markets expanded domestically and internationally.
The recessions in the middle and late 1970s marked the end of that expansion phase; by the end of the 1980s the crisis of industrial profitability had become acute: the 1987 worldwide stock market crash marked the beginning of a period of depression. This turn to a downward segment in the curve of capitalist development, to use Trotsky’s term, was accompanied by the first Gulf War, led by the US at the head of a coalition that included all its main imperialist rivals – the final appearance on the planet of such a broad military coalition under US command.
The US capitalist class unleashed a massive and relentless downward pressure on wages in US industry, combining union-busting and wage cuts with speedup and longer hours, along with sweeping plant closures in steel, car manufacture, meatpacking, paper, mining, and other industries. The closures increased competition among workers for jobs, making it far harder to win a strike. But to drive down wages sufficiently to restore the rate of profit and open a new phase of expanding production and accelerating capital accumulation in US industry would demand even more savage blows than these.
To achieve that result would have required using the methods of civil war to inflict crushing historic defeats on the working class, smashing its ability to fight back. Such a war would entail the risk of widespread social conflict and political instability. Bonapartist political figures (Ross Perot) and incipient fascist movements (Patrick Buchanan) stepped into the electoral arena, preparing to take on the job, and won the support of a significant minority. A new military command was set up, the Northern Command, with responsibility for deployment of the armed forces in the continental United States. But the ruling class hesitated to launch such a class war, fearing – with ample justification – that they were too weak to carry it through to completion.
The result was a period of rapid industrial degeneration in the US, as it headed down a similar path already taken by Japan, and the UK and Europe, for the same reasons, a decade or so earlier. Entire industries, like steel and shipbuilding, either shut down entirely or were reduced to a small fraction of their former output; whole regions were left economically devastated. Capital exports accelerated: across a range of industries, production was relocated to manufacturing platforms in low-wage countries – Mexico, Brazil, and above all the industrialising countries of Asia: Korea, Taiwan, China, and in a more restricted set of industries, Vietnam, Thailand, Malaysia, Indonesia and India.
At the same time capital shifted into unproductive but more profitable forms of investment – commerce, loans and ‘financial products’ in a bewildering variety of forms, real estate speculation – anything but production. On the one hand, under these speculative pressures the market capitalisation of unproductive outfits like Facebook, which seemed to promise profits arising from new technologies, grew out of all proportion to their assets and earnings; bubbles in real estate prices multiplied. On the other, it led to ballooning levels of corporate and household debt, further destabilising the financial system. The financial crisis of 2007-9 which followed the collapse of Lehman Brothers bank, and the recession which followed, was the immediate result of this process, but by no means resolved it. This ballooning debt remains probably the most unstable and vulnerable aspect of world capitalism – but it is beyond the scope of this series to consider this in detail.
This process even developed its own ideology – from academia came gushing down the claptrap about the ‘knowledge economy,’ the ‘post-industrial society’ and the ‘information age’. These were the bourgeoisie’s attempts to rationalise an essentially irrational course – to do what Apple does: design and sell commodities proudly bearing the all-important logo… while someone else actually makes the stuff. To make profits, while by-passing the unpleasantly unprofitable business of production itself. Increasingly detached from the hard facts of material production, the universities in all the old imperialist countries – for all the talk about gearing them to the centrality of science and technology – became whirlpools of anti-scientific speculation and reactionary ideology.
The industrial abdication of the United State was the prime condition for the rise of China from the 1990s onwards. It brought investment capital flooding into China, and simultaneously removed, or at least drastically weakened, the chief competitor and jailer of Chinese capitalism. (The competitor in Japan had been similarly struck down a decade earlier.) Ironically, it was then China’s growth that blunted the onset of the depression conditions in the United States and granted US and world capitalism a thirty-year reprieve.
The world working class also entered a strange thirty-year state of limbo – neither storming heaven, nor descending into hell. The three decades of China’s meteoric industrial rise coincide with the longest unbroken period of retreat by the international working class movement in the history of capitalism. Or, more accurately, a decade of retreat, followed by two decades of class stalemate.
After the overthrow of the revolutionary governments in Grenada, Burkina Faso and Nicaragua in the 1980s, there were no new revolutionary victories, and no new revolutionary proletarian leaderships emerged. In all the old imperialist countries membership of the trade unions dwindled to historic low ebbs, and strike struggles sharply declined. Mass bourgeois workers parties under the banners of Labour, Communism or Socialism either shattered or transformed into ordinary liberal bourgeois parties with a narrow middle class base. Even some revolutionary leaderships, like the Sandinista Front in Nicaragua and the Palestine Liberation Organisation, went the same way. Degenerated and deformed workers states in Russia, Eastern Europe, and China finally collapsed; capitalist property relations were fully restored in those countries. Movements of students, farmers, women and oppressed nationalities, which had been integrated with or allied to the workers movement, declined or broke all ties to the working class; reactionary Islamist and rightist and national-chauvinist leaderships filled the void in many places, at terrible cost to the oppressed worldwide. Revolutionary working class currents, including the only revolutionary working class leadership still holding state power – in Cuba – found themselves more isolated than ever. Marxism lost its appeal to younger generations: the ideology of the fighting working class makes little sense while the working class itself remains in a state of quiescence.
This is not just a coincidence. The rise of China and the simultaneous decline of the United States, represents a turn in what Trotsky calls the ‘curve of capitalist development’. The old organisations of the labour movement were built on the old relationship of forces, both between the classes and between the imperialist and semicolonial nations, that prevailed during the previous, rising segment of the curve. Those relationships ruptured in the early 1990s. As industry in the old imperialist countries withered, so did the corresponding social weight of the workers organisations in those industries. It became much more difficult for workers in the old imperialist countries to win a strike while the industries themselves were being dismantled. At the same time, the China-led ‘rising tide’ of capitalism ‘raised all boats’ on a world scale to some degree, softening and slowing the onset of depression conditions in the declining old imperialist countries. Cheap goods from China proliferated on the market, softening the impact of wage cuts. The value created in Chinese industry flooded into the old imperialist centres, permitting an expansion of employment in retailing and the like, softening the impact of the job losses in industry.
Workers in the old imperialist countries sensed these shifts, their class self-confidence ebbed; with the sharp decline in struggles of all kinds, experience and continuity with earlier struggles was lost. Such deep-going and many-sided breaks with the past are characteristic of a turn in the curve of capitalist development. This particular break is comparable to the break which occurred at the outbreak of the Great War a century ago, when the parties of the Second International shattered, and to which Lenin turned his attention in “Imperialism.” The material roots of the rupture must be sought in the underlying economic shifts, just as Lenin sought to explain the 1914 rupture.
At the same time, this was a period of colossal growth of the world working class, especially in Asia but also in parts of Africa and the Middle East, as a result of the historic urbanisation and proletarianization of millions in Korea, Indonesia, Cambodia, Bangladesh, India, and above all in China itself. Workers in this region, particularly garment workers in Bangladesh and Cambodia, and farmers in India, have waged some hard-fought struggles, including some in the industrial zones of southern China. In Vietnam, nearly a hundred thousand workers in the single industry of footwear manufacture, including 80,000 at a single factory making shoes for Nike, Adidas and other big brands, struck in 2015 – a sure sign of the future. These struggles are preparatory in character – they have not yet coalesced into a broader working class movement, neither in China nor elsewhere. But the stage has been set for much more massive workers struggles in the future.
This was the most swift and far-reaching overturn of the patterns of world capitalism since World War 2, and it is far from fully played out. Yet the full implications of these changes have been concealed by their seeming ‘success.’ For despite this sudden and massive industrial decline, the United States continues to rank as one of the world’s wealthiest imperialist nations, and by the measure of Gross Domestic Product, remains the world’s largest economy. How is it that wealth still flows into this economy at such a great rate, when it produces relatively so little value itself?
That will be the question I examine in the next post.