Accumulation and Control of Labor

Against the Current, No. 79, March/April 1999

Hillel Ticktin

BOB BRENNER HAS written a book that is clearly important and I respect him for tackling the issues and working on them so assiduously.  His work is clear and I have found it very useful in clarifying my ideas but I find it hard to agree with it.

Bob starts with the rate of profit and argues that it has declined over time and hence caused problems in the accumulation of capital.  I will argue instead that capital’s present difficulties flow from a breakdown in the system of controlling labor that was inherent in the Cold War.

Capitalism is not some mechanical operation running down as the profit rates turn down, nor does it break down at some particularly low rate of profit.  One could argue that as long as profits are positive, capitalism could manage, providing that depreciation covers part or all of obsolescence.  (Here we are using profits in the generic sense of surplus value.)

Yet profits are a resultant of forces, rather than an independent variable.  The class struggle determines the allocation of value between profits and wages.  The cost of raw materials, such as oil and the metals imported from abroad, depend on the state of class struggle in the countries of origin together with the terms of trade with the United States, which, in turn, is crucially dependent on America’s Imperial role.

Rises in productivity permit the capitalist class to appropriate more value and raise profits, but only if the workers are unable to resist the relative shift in the allocation of value.  There is no third force that benevolently assists both capitalist and worker, such as productivity or reduced competition.  Bob does not make this latter argument, but he does not base himself on value analysis and so lays himself open to ambiguity.

Profit and Class Struggle

Bob has correctly argued that profit is not solely determined by the rise and fall of wages, but that does not mean the class struggle plays no role in the formation of profit.  Furthermore, if he can argue that international capitalist competition can lower profits, then there is no real reason why a sustained working class victory may not lower profits and vice versa: a defeat may increase profits.

In principle, surplus value in a particular country or series of countries can be reduced, if the forms of control of labor are breached, even if only for a limited historical period.  I would argue, further, that we live in an epoch of declining capitalism and one of the features of that decline is precisely the limitations of the law of value and hence of the controls over labor.

Bob’s argument, that inter-capitalist competition could have reduced the profits of the U.S. capitalist class for an historically short period of time, is entirely sustainable but he does not make the case.

Capitalism After World War II

Somewhat curiously, in Bob’s account the capitalist class appears to have no conscious historical role. Profits and the rate of profit are something that happens to them.

I argue that the capitalist class went for growth after the war in order to preserve the capitalist system.  But there were specific conditions that made growth and long-run, largely uninterrupted accumulation possible, and there were particular consequences that were crucial for the evolution of capitalism.

In the first place, capitalism cannot accumulate under conditions where it simply redistributes its surplus value back to wages.  This is because the decline in profits so engendered has no end within capitalism.  Its logic is the overthrow of the system itself.

Secondly, for capital to function as capital there must be a reserve army of labor.  Yet the post-war economy largely abolished the reserve army of labor in the developed countries.  Surplus populations of unemployable people, in drug hazes or simply in the ghettos, or stuck in particular regions, or prison, or taking care of the family, do not constitute a reserve army. People on welfare who do not want to work are not a reserve army.

Postwar capitalism did not remove the surplus population of unemployed or unemployment in the third world, but they did not impinge on the workers of the developed world.  The United States always had more of a reserve army than did Western Europe but it was far more limited than the capitalist class had been used to in the prewar years.

Immigration plus racism and sexism played important roles in controlling the work force.  In Western Europe the importation of labor also played an important role. But for such importation to replace the role of the reserve army, it needed to lead to native workers being dismissed and then some being re-employed at lower wages.  In other words, there had to be a replacement for the controlling function of the reserve army of labor beyond the internal divisions within the class.

Centrality of the Cold War

Hence contemporary capitalism had to have two conditions of accumulation: control over the working class but secondly, demand for its goods.  The only commodity that has fulfilled the latter task has been the military one.

But war is not enough.  The First World War and later Vietnam showed that the workers do not accept wars fought in the interest of the capitalist class for very long. Thereafter, only `popular’ wars-generally accepted by the population-or limited wars, or wars that weren’t actually fought, would do.

The Cold War fit the needs of the capitalist class admirably.  As it happened, it also fit the needs of Stalin and Stalinism.

There were, early on in the Cold War, a number of Marxist theorists of the war economy.  Paul Sweezy produced one analysis, later modified by his book on Monopoly Capital; Michael Kidron and his followers in the British SWP produced another, called the Permanent Arms Economy.  Joan Robinson argued the case on Keynesian grounds.

Since then there have been a number of empirical accounts of the importance of the war economy.  Bob tends to brush this analysis aside.  To a degree, I can understand his impatience with them because the analyses sometimes tended to the bizarre, like that of Kidron, or did not develop much of the theory needed to underpin the analysis, as in the case of the Monthly Review school.

The Cold War analysis needed to show how the class struggle was turned against the workers in the time of the Cold War, permitting control over wages by the capitalist class.  It is not that profits rose or fell but simply that they were not threatened by labor because of the nature of the Cold War itself.  This was a crucial precondition to permit Bob to talk of profits falling because of competition.

Now, I do not agree with Bob on the role of competition in reducing profits, but he does not make his case unless he can argue why labor was so ineffectual in this period.  He does argue against the view that wage rises have reduced profits over time. There is indeed no class struggle in Bob’s account.  Even if Bob were correct he would have to demonstrate how the ruling class contained the workers in the period under review.

There were five aspects of the Cold War which were crucial in maintaining the global economy.

  1. Ideological disciplining of the population with the doctrine of anti-Communism-large parts of which were manifestly accurate.  It was clear that the position of workers in the Stalinist countries was considerably worse than in the United States, and that workers in these countries were subject to high levels of both oppression and exploitation.

    As much of the so-called left supported the former USSR, they were marginalized.  On the other hand, workers accepted the taxation required to support the Cold War. They also accepted the disciplining of the workforce that went with the Cold War. They rejected the left as enemies.

    This was much less true on the continent of Europe, although this ideology was sufficient to cause splits in the trade unions and allow the emergence of Christian Democratic Parties.

  2. Direct political control over the organizations of the workers through Communist Parties and Social Democratic Parties.  The CPs became increasingly dependent, even if indirectly, on Stalinism both internally and externally.  This applied largely to Western Europe, but even where Communist Parties were small they often had disproportionate influence on trade unions and various popular struggles.  As their chief function was to protect the USSR, they generally tended to sell out the various struggles in which they were engaged or else take an extremist and hopeless position.

    The Social Democrats always prevented any working class struggle from going beyond certain limits.  At first they served as adjuncts of the American ruling class, often financed by particular U.S. institutions, but their lack of a working class base forced them over time to interact with the Stalinists, with whom they shared a common authoritarian viewpoint.

  3. The Cold War functioned to provide an apparently unlimited demand for military goods, which in turn propped up demand for all goods, but particularly for heavy industry or producer goods.  Hence the sectoral imbalance between producer and consumer goods industries was overcome and underconsumption was greatly reduced.  The rate of profit was raised through the public sector setting purchase prices for the military goods that were above the price of production.
  4. The Stalinist countries acted as a counter-cyclical source of demand for wheat, machinery and other goods.
  5. A hierarchical structure was established with the American ruling class being dominant, using both official economic and military organizations as well as regular conventions of the ruling class itself.

Thus the ruling class established cohesion on the basis of its possible future demise, allowing it to organize the world economy in a way it had not been possible to do otherwise.  It could impose its will on refractory sections and it could take swift measures to deal with economic or political problems.

Under this system, the working class was disciplined and order was maintained in the world economy.  In the immediate postwar years, labor was also disciplined by the after-effects of the world war, the historical legacy of the depression and of fascism.  But these effects became less and less important as Stalinism declined.

Decline of Cold War Strategy

Trotsky made the point that the future militancy of the working class is often first shown through other movements, such as the student movement.  Indeed such was the case by the seventies.

Even though workers in the United States were not able to turn the tide of the class struggle in the late sixties and early seventies, this couldn’t be sustained indefinitely.  Only an ostrich could fail to see that the struggles over Vietnam and the working-class struggle in Europe must spill over into working class action in time, even in the United States.

The U.S. ruling class-an Imperial Ruling Class-took on the responsibility for the capitalist system as a whole.  It could see that although it was winning the class struggle of the time, it could not hold the fort much longer with its Cold War strategy.  That strategy was called Keynesian but it was, in fact, a pragmatic response to the conditions of the time, theorized by economists as Keynesianism.

There was no other alternative but to return to the position before the war, with a reserve army of labor, switching away from industrial capital towards finance capital.  This was an equally pragmatic and sensible change in strategy, which was theorized by economists as monetarism.

In fact, a full reserve army of labor could not be restored without massive political cost, and growth continued at a lower level.  Although investment into industry continued to be positive except in the United Kingdom, the overall tendency in the world economy was towards a decline in growth rates as money was transferred to finance capital.

Individual industrial company profits would tend to decline as more money was paid to finance capital in rent, interest, insurance etc. But they would also tend to decline as the dividends increased in accordance with the demands of finance capital and the net profit over amounts paid out to shareholders was used for investment in finance capital rather than productive capital.

Contradictions of Growth

Capitalism, however, had changed its structure.  The period of growth, and the rise in the standard of living, unprecedented in the history of capital, meant that capital related more directly to the production of consumer goods, while capital as a whole now based its strategy on predictable growth.

Capital had become organized as opposed to simply being anarchic.  In this respect, as Hilferding had foreseen, finance capital as abstract capital had the ability to encapsulate the tactical and strategic needs of capital.

Capital was now caught in an insoluble conflict.  Growth needed to turn down to the point of being negative, in order to re-establish a true reserve army and through the reserve army control over the working class.

But this would hit at the profits and indeed the very existence of a substantial proportion of capital.  The heavy research and development overheads of firms, the need to keep trained and skilled labor, the necessity of maintaining worker loyalty, the requirements of predictability given the need to place orders many years in advance of purchase, all militate against a regular cycle in the economy.

The socialization of production, in other words, had reached a point where capital could not be capital.  The pragmatic solution adopted after 1973 was that of a limited growth.  Whenever that growth was threatened the government stepped in. Thus Reagan induced the boom of 1981-82 through massive military spending, the Reagan government stopped the downturn on Wall Street in 1987, and the government effectively nationalized Continental Illinois bank and the Savings and Loans.

Dynamics of Downturn

For a Marxist it is obvious that money cannot create value and hence the apparent creation of money in finance capital was itself an illusion, which would have to come to an end sooner or later.  That time approached with the end of the Cold War.

In reality the downturn in the World Stock Exchanges of October 1987 presaged the world downturn which followed.  It was postponed two years because of government support, partly through the pumping of money into the economy.

Japan has never recovered.  Indeed most European economies recovered only weakly.  Germany, in particular, was hard hit by its failure to convert its new Eastern section into a viable capitalism.  The massive unrest in France was a direct consequence of this failure.

The end of the Cold War destroyed the previous forms of control over the working class.  Capital had thought that the celebration over the demise of the Soviet bloc would replace the anti-communism that had served as such a potent ideology before.  In fact, the shift to the market not only knocked out Germany but also failed conspicuously in the former USSR.

Indeed capitalism in the former Soviet bloc only had any success where there was investment in new factories in countries like Poland and Hungary.  Nonetheless, ten years later, only Poland can boast of having a GNP higher than it was in 1989 and even that may be questioned because the calculations of GNP include the unproductive sectors.  In short the former triumphalism has given way to doubts about the market itself.

At the same time, the arms sector is now thirty per cent below what it was in 1986, with all the consequences that follow.  It can act as a floor below which the economy cannot sink, but it cannot prevent the emergence of massive overcapacity in the world economy or the huge glut of goods in practically in every sector of the world economy.

Because the United States became the primary external market to which its client economies necessarily turned, the failure of the United States market to expand at rates commensurate with the rate of growth of these economies, most particularly in East Asia, meant that they were bound to crash.

In effect, the United States had avoided the initial downturn by shuffling off crucial parts of the division of labor to East Asia. The enormous capital surplus in the United States has gone into an inflation of asset and share prices.  The disjunction between a surplus of capital and ever more limited opportunities for investment must inevitably collide.

If the arms industry cannot soak up the excess machinery on the market, and its workers and its suppliers’ workers cannot buy the consumer goods on the market, there is a glut and no way out of it.

Why the Falling Profit Rate?

Bob appears to see a decline in the rate of profit in the United States as the crucial factor in the evolution of American capitalism.  His decline is not that of one version of classical Marxism, arising out of a rise in the organic composition of capital, but rather caused by the failure of U.S. capital to replace its capital sufficiently quickly in order to compete with external capital.

Marxists before now have remarked on the way one country replaces another as the dominant capitalist power because the first country fails to invest in order to raise productivity.  The problem with this argument in relation to the present time is that U.S. capital has remained the dominant industrial power throughout the postwar period.  In aerospace it was only recently that it had any real competition and even that competition, from Airbus in the EU, owes much to European Union (EU) assistance, as Boeing keeps complaining, rather than higher productivity.

The United States has remained dominant in pharmaceuticals, aerospace, mainframe computers, PCs, central processing unit chips (Intel) and indeed most `non-memory chips.’ From the absurdities of Coca Cola, through Philip Morris cigarettes, to mass chemicals produced by DuPont or pharmaceuticals manufactured by Merck, the United States is dominant even if challenged in particular sectors.

This dominance has remained a feature of the world economy since before the Second World War. If we compare the United States to Great Britain, which lost its industrial dominance by the end of the last century, we can see that the decline of industry in the premier country is not automatic.

The United Kingdom consciously shifted from industry to finance capital, a large part of which went overseas, in part to finance the industrial development of Germany, the United States and Sweden.  By so doing capital outmaneuvered the working class of Britain.

U.S. capital has attempted to do the same thing but only to a limited degree, by exporting capital and raising the rate of profit through high returns from overseas investments.  The very competition that Bob discusses forced U.S. capitalists to reinvest internally, raising their productivity above that of their competitors.

The United States, however, was caught in its own imperial form. Japan, Germany and the East Asian countries were allowed to export to the United States with relatively low forms of protection in order to allow those countries to develop their own industry, behind their own protective walls.  The U.S. capitalist class, in other words, actually brought about its own competition.

The countries involved, Japan and Germany in the first instance, were defeated in the war and have continued to have troops on their soil to the present day. The Cold War was clearly crucial in this relationship, for the ruling class sought to develop indigenous capitalist classes sufficiently powerful to ward off any threat from the working class.

The end of the Cold War has undone this bargain.  The United States now demands that these countries open their economies to the United States.  Japan has been compelled to finance the United States on a vast scale while the United States is not prepared to assist Japan in its present straits.  The previous propaganda about the success of the capitalist tigers has been replaced by propaganda about failure due to the excessive use of the state, where markets would supposedly be more successful.

Summing Up the Breakdown

Finally I may sum up our differences as follows:

  1. Whereas for Bob, there is a counterposing of the relative high profits of the non-manufacturing sector to manufacturing, the usual Marxist position would put the profits of the two sectors together as parts of the surplus value extracted and then work out the rate of profit.  When we do put them together we obviously cannot get the same pattern as when we do not.

    It is important to remember that total surplus value includes the expenditures made in such unproductive sectors as retail, finance capital, advertising, insurance, etc., and not just their profits.  The banking sector, much of the retail sector, advertising, insurance, and property are part of finance capital and obtain their profits from the productive sector.

    Bob may still be correct in these more general terms but he has not tried to prove it.

  2. Bob is also absolutely right to insist on the rate of profit as crucial to accumulation, but (as already shown) we differ on what determines the rate of profit and how conscious the capitalist class is of its own interests.

    In my view the capitalist class took a conscious decision to concede to the workers at the end of the Second World War by choosing growth and full employment.  Such a regime was inherently conflictual and broke down when its main political economy-that of a Cold War predicated on Stalinism-began to malfunction, at approximately the same time of which Bob speaks of a falling rate of profit.  At that point the capitalist class took evasive action by going for finance capital, resulting in low growth and low profits in the productive sector.  For a substantial sector of the finance capitalist class this did lead to a higher rate of profit.

  3. The end of Stalinism and so the Cold War has ended once and for all the old postwar period of stability, making for a highly volatile capitalist system.  It is also a period of far greater potential for the working class than for over seventy years.

Hillel Ticktin is the editor of the journal Critique, Reader in Russian and Eastern European Studies, and Chair of the Centre for the Study of Socialist Theory and Movements at Glasgow University.

ATC 79, March-April 1999