Against the Current, No. 163, March/April 2013
More Gridlock -- Or Worse?
— The Editors
Gun Control: Carnage in Context
— The Editors
Lincoln, Django and Abolitionism
— Malik Miah
Colombian Workers Injured and Fired
— Diana C. Sierra Becerra
Immigration Reform: The Good, the Bad and the Ugly
— Joaquin Bustelo
Voter Suppression Hits Mississippi
— Bill Chandler
- Rallying to Stop the Keystone XL Pipeline
Occupy Cincinnati as a Case Study
— Ursula McTaggart
Inside the Capitalist Crisis
— Charlie Post
What Is the "Working Class"?
— Sam Friedman
- Women in the Struggle
Reproductive Justice Needed
— Dianne Feeley
Feminism's March from Nation to Home
— an interview with Ninotchka Rosca
The Struggle Against Rape and Sexual Assault
— Soma Marik
Post-war Left Feminism
— Robbie Lieberman
Gerda Lerner, 1920-2013
— Linda Gordon
The Century of Rosa Parks
— Dianne Feeley
Indians, Leftists, and Rebellion in Bolivia
— Kevin Young
The Evolution of Evolution
— Ansar Fayyazuddin
The Metaphors of Movements
— Barry Eidlin
— The Editors
THE TALK PUBLISHED below was given in Spring 2012, and unfortunately its analysis stands the test of time. The bi-partisan austerity offensive — corresponding to the logical of capitalist profitability and accumulation — continues. We should not be confused by Obama’s refusal to lower federal income tax rates for the wealthiest households — their tax rate of 39.6% in 2013 is essentially the same (adjusted for inflation) as 1987 and remains around 57% of the rate before 1981. Nor should we be taken in by the pseudo-liberal rhetoric of Obama’s inaugural address — which promises “equality of opportunity” for people of color, women and the LGBT community, but no new programs to achieve actual equality of outcome.
Obama, during the strictly tactical debates on the “fiscal cliff,” signaled his willingness to enter a “grand compromise” that would essentially gut both Social Security and Medicare for those under 55. The radicalized middle classes in the “Tea Party” faction of the Republican Party [http://newpol.org/content/why-tea-party] no longer have the ability to undermine corporate capital’s desire to guarantee the “full faith and credit” of the U.S. state and, more importantly, U.S. capital by blocking a raising of the federal debt ceiling. However, we should expect even more cuts to social services, attacks on public (and the remaining private) sector unions as capitalist profitability remains low and the system faces the possibility of a “triple-dip” recession in the coming months.
WE ARE ALL too familiar with the global austerity drive. After a brief return to government intervention to save failing corporations, capitalists and their political representatives across the world have launched attacks on social services and the wages and conditions of public sector workers under the banner of “balanced budgets” and “eliminating government debts.”
In Europe, the traditional parties of the working class and left — the labor and social-democratic parties — have long ago abandoned the struggle for reform, embracing what our comrades there call “social-liberalism.” In the past three years, they have joined the parties of the center and right in attacking social programs and public employees.
In the United States, our ruling parties — both Democratic and Republican — have gone on an offensive against the remnants of the meager social welfare state. They have joined hands in assaults on the last bastion of U.S. organized labor, the public sector unions. Their differences are tactical — whether to completely smash the remnants of the welfare state and the public sector unions (Republicans) or to accept the willing cooperation of the union officialdom for a more gradual dismantling of public services and attacks on public workers’ living and working conditions (Democrats).
We are all also quite familiar with the impact of austerity. Already meager and inadequate social services, in the United States and globally, are being severely cut once again — even as mass unemployment and under-employment has actually increased the social need for these services. At the same time, public sector workers are facing wage cuts or freezes, attacks on pensions and health benefits, layoffs and speedups, as they — especially public school teachers — are demonized as the source of the current crisis.
A Racialized Crisis
We are also aware that austerity has not impacted all segments of the working class equally. People of color and women (in particular, single women with children) are especially hard-hit. Not surprisingly, the crisis and austerity have devastated communities of color across the United States.
Because of the racialization of the capitalist labor market, people of color are massively over-represented among the unemployed and underemployed — making them particularly vulnerable to the dismantling of the already scanty welfare state. People of color as recipients of questionable “sub-prime” mortgages are also facing the brunt of foreclosures across the United States. Finally, people of color — especially women — are also over-represented among public employees and particularly hard-hit by the attacks on public sector employment, wages and conditions.
Austerity and the increasing inequality it produces require increased repressive policing. The growing number of unemployed and underemployed youth need to be disciplined. Programs like New York’s infamous “stop and frisk” are key weapons in capital’s arsenal. The growth of private security and vigilante forces to protect the middle class and wealthy against working and poor people has also produced a sharp increase in racist violence, as seen in the recent murder of Travyon Martin in Florida.
Historically, people of color — youth in particular — have been the prime target of capitalist state policing. With austerity, white working class people who protest social service cuts and attacks on unions have become targets of repressive policing — as in police repression of Occupy encampments and the Longview ILWU strike in Washington state.
Is Austerity Rational for Capital?
Despite the consensus among capitalists and pro-capitalist politicians about the necessity of austerity, there are many on the left — including self-described socialists — who see austerity as an irrational and counter-productive strategy for capitalism. The argument holds that austerity is irrational and that government stimulus of consumer demand could restore accumulation and employment.
On the liberal/old-school social democratic left, Paul Krugman has led the critique of austerity as a strategy that will only deepen the economic stagnation that has gripped the capitalist world. In his numerous op-ed pieces in the New York Times, Krugman has argued that austerity, like that imposed in Greece, has only resulted in higher unemployment and slower growth across Europe.
If austerity is indeed irrational and the best way to resolve the crisis is to increase demand through government stimulus programs, increased social welfare and higher wages, then there is a solution to the current economic crisis that could benefit both capital and labor. The promise of a “win-win” solution to the crisis flows from the claim that it was a lack of effective consumer demand that produced the current crisis.
This argument — known as “under-consumptionism” — has a long history. Among its advocates are well-known revolutionaries like Rosa Luxemburg and the liberal economic theorist John Maynard Keynes. It has tended to be the main argument of the reformist left since World War II, holding that if the state can balance the interests of capital for profits and labor for higher consumption, then crises can be avoided or smoothly resolved to the mutual benefit of labor and capital.
But whatever the political implications of under-consumptionist theory, the question remains whether it provides a factually verifiable explanation of the crisis.
Neoliberal Boom & Current Crisis
First, we have to start with the actual movement of the rate of profit — what the Marxist economist Anwar Shaikh has described as the heart-rate of capitalist accumulation — over the past 60 years.
The rate of profit can be expressed as a simple fraction. The numerator of the fraction is the total value of unpaid labor — surplus-value (S) — pumped out of working people [essentially the value that labor produces beyond the value of wages paid – ed.]. The fraction’s denominator is the capitalists’ investment costs in buildings, machinery and raw materials — constant capital (C) — and wages or variable capital (V). Thus, the rate of profit is:
We can also view the rate of profit as the relationship between the amount of surplus value produced to wages, called the rate of exploitation (S/V), — and the ratio of constant to variable capital—the organic composition of capital (C/V). As a fraction this would be:
Put simply, the higher the rate of exploitation (S/V) and the lower the organic composition of capital (C/V), the higher the rate of profit. The lower the rate of exploitation, and the higher the organic composition of capital, the lower the rate of profit.
Figure 1 and 6 give us the Actual/Trend Rate of Profit and the Rate of Profit of Enterprise for U.S. Nonfinancial Corporations from 1947-2007.*
The general rate of profit is the measured gross of monetary profit minus interest paid divided by the capital stock. The rate of profit of enterprise is general rate of profit minus the rate of interest. According to Shaikh, the rate of profit of enterprise “is the central drive of accumulation, the material foundation of the ‘animal spirits’ of industrial capital.” This is the average rate of profit capitalists earn from productive investment — rather than investing in financial instruments.
These graphs allow us to identify three distinct phases of the movement of profitability:
1947-1966: Postwar boom sees a slow decline in the general trend rate of profit, but a steady rate of profit of enterprise.
1966-1982: “Stagflation Crisis” sees sharp declines in both the general trend and the rate of profit of enterprise (14% in 1966 to -5% in 1982).
1982-2007: “Neoliberal Boom” sees a steady general trend rate of profit and a sharp increase in the rate of profit of enterprise (-5% in 1982 to 10% in 2005).
What ended the “Stagflation Crisis” of the 1960s and 1970s and led to the “Neoliberal boom” of the past 25 years?
• Waves of bankruptcies — destruction of less efficient and less profitable firms in the sharp recession of 1980-82, followed by waves of corporate reorganizations, mergers and acquisitions, etc. This radically reduced the value of the capital stock (“devalorization” of constant capital) reduced the organic composition of capital, the denominator of the rate of profit.
• Extremely low interest rates raised the rate of profit on enterprise.
• Depression of wage increases and a radical increase in the rate of exploitation, the numerator of the rate of profit.
Figure 2: Hourly Real Wages and Productivity shows how hourly productivity (the rate of exploitation) rose sharply in the boom, while real wages were either stagnant (until 1997) or lagged far behind the increased rate of exploitation.
Figure 3: Actual and counterfactual Rate of Profit shows that if capital had not “taken matters into their own hands” — reducing wage increases beneath the rate of increase of productivity — the rate of profit would have continued to fall. Instead, the increased rate of exploitation led to higher profits during the neoliberal boom.
Most of us are familiar with the main ways that capitalists increased the rate of exploitation in the 1980s, 1990s and first decade of the 21st century — “lean production.” Union-busting, two-tier wages and benefits, and radical changes in work rules which allowed the generalization of lean production — division and simplification of tasks, multi-tasking, speedup, etc. (http://www.solidarity-us.org/leanproduction) Lean production allowed capitalists to raise output per hour (rate of exploitation) while keeping real wages stagnant or rising at a slower rate than productivity.
Another factor reducing wages and increasing the rate of surplus-value was the creation of global production chains — what is generally called “globalization.” We should remember that 75% of global investment remains within the country of origin, and 90% of foreign direct investment flows from one industrialized country to another. Thus Ford or General Motors invests, three-quarters of their investments are in the United States, and nine-tenths of their overseas investments are in Western Europe, Canada, Australia and Japan.
Most of the 5-10% of global investment that flows from the global north to the global south is concentrated in the more labor-intensive, wage sensitive parts of production, for example auto parts and electronic components. These operations are moved to the global south to take advantage of lower wages — ensuring a rising rate of exploitation in the core of the world economy.
Put simply, stagnant real wages and an increasing share of national income flowing to capital was one of the key driving forces of the capitalist expansion of 1982-2007.
The current crisis is not the result of stagnant or inadequate demand, but the over-accumulation of capital. As capitalists compete, they introduce labor-saving machinery and technology in order to reduce costs. However, what individual capitalists do to pursue competitive advantage ultimately leads to too much capital invested — an over-accumulation of capital that depresses average profitability for all capitalists. [A similar analysis is presented in both Shaikh and David McNally’s The Global Slump: The Economics and Politics of Crisis and Resistance. (Oakland, CA: PM Press, 2011).]
While austerity will lead to short-term pain — growing unemployment and a fall-off in accumulation — it will lay the basis for long-term gains. Put another way, the same mechanisms that restored profitability in the neoliberal boom — destruction of inefficient capitals and an increase in the rate of exploitation — are necessary to restore profitability today.
The Rationality of Austerity
Austerity and attacks on workers’ wages and working conditions are logical and rational policies for capitalists faced with declining profitability rooted in over-accumulation of capital.
Again, in the short-run austerity and wage cuts depress economic growth and raise unemployment through the reduction of effective demand. However, this short-term pain is part and parcel of the measures capital must take to restore profitability and accumulation in the long-term.
Remember, the two necessary conditions for the restoration of profitability are:
• Sharp increase in the rate of exploitation (S/V)
• Destruction of inefficient and uncompetitive firms in order to destroy unprofitable constant capital and reduce the organic composition of capital (C/V).
Austerity, wage cuts and demands for work-rule givebacks contribute to raising the rate of exploitation in two ways.
• Lower wages, speed-up, multi-tasking, and the like all raise the rate of surplus-value directly. Workers work longer and harder for less. This is crucial both in the private sector — where unions have almost shriveled — and the public sector, the last bastion of organized labor in the United States.
• Austerity — in particular social service austerity — increases competition among workers for jobs. Social welfare, however punitive and inadequate, provides an alternative to workers who are unemployed or underemployed. They are not compelled to compete immediately with the employed for jobs. As welfare is cut back, more workers are coerced onto the labor-market, increasing competition for declining numbers of jobs and forcing down wages across the board.
Austerity also contributes to the destruction of inefficient and uncompetitive firms. In the 1970s, capitalists and policy-makers across the world discovered that if state spending and deficits increased in a period of low profits and accumulation, the result is inflation without growth — stagflation.
Not only did Keynesian stimulus not bring a new wave of healthy accumulation in the 1970s, inflation allowed less efficient capitals to survive the competitive battle without reorganizing production — without introducing new machinery or reorganizing work. Inflation and its resulting fluctuation of price differentials between inputs and outputs loosened market discipline over capitalist producers.
The shift to neoliberal austerity in the late 1970s and early 1980s sharply reduced the rate of inflation and increased market discipline over capitalists. Not only did the shift to neo-liberal/monetarist policies (the “Volcker Shock” named for the U.S. Federal Reserve Chairman) spark the recession of 1980-82 and the resulting wave of bankruptcies, but it radically reduced the rate of inflation.
Capitalists who sought to survive the competitive battle were compelled to introduce new technology and reorganize work along the lines of “lean production.” Those who failed were forced into bankruptcy — further reducing “excess capacity” and relieving the over-accumulation of capital.
Today capitalists and their political representatives, across the established political spectrum, quite logically and rationally pursue the policy of austerity. Put simply there is no “win-win” solution to the current economic crisis. Either capital will discipline its own ranks and impose sharp declines in working class living standards or working conditions, or the economic stagnation and instability we have experienced since 2007 will continue.
The logic and rationality of austerity for capital explains why it is embraced by the entire political establishment not only in the United States (both Democratic and Republican variants) but across the capitalist world by conservatives, centrists and social-democrats. There are no “enlightened” or “progressive” capitalists with whom working people can ally against austerity.
Let us be clear — revolutionaries should support any and all demands for increased social spending and improved wages and benefits. Our main difference with reformists and liberals is not the demands we make, but how we organize to win them.
Only an independent, mass and militant movement of working people — one capable and willing to engage in massive social disruption, in particular disruptions of production — will be able to stop the austerity drive of capital. The inability of the forces of official reformism (labor officials, middle class leaders of women, queers and people of color, liberal politicians) to organize these sorts of struggles is what has led them to abandon the struggle for reform.
So far we have seen mass protests against austerity. In Europe, we have seen the official labor movement launch limited, one-day general strikes; while the masses of un/under-employed youth have occupied public spaces. In the United States we saw massive protest actions in Wisconsin and the Occupy Movement.
While these protests shifted public discussion and rekindled hope that there is an alternative to austerity, they have not effectively stopped the austerity drive. Developing a strategy and tactics that can help transform these protest movements into mass struggles against austerity is the political challenge all of us in the socialist and anti-capitalist left face.
*All charts are from Anwar Shaikh, “The First Great Depression of the 21st Century,” in L. Panitch, G. Albo, V. Chibber (eds.), Socialist Register 2011: The Crisis This Time (New York: Monthly Review Press, 2011), pages 44-63.
March/April 2013, ATC 163