The ‘Implications’ of Paul Baran, Pt 3

Forty-six years after ‘Monopoly Capital’

The special July-August 2012 edition of Monthly Review, devoted to the critique of economics, not only includes Paul Baran’s “Implications” and correspondence between Baran and Sweezy that is invaluable in understanding the past of Marxist political economy and monopoly capitalism. It also contains an article by John Smith of Kingston University in London that points to the kind of Marxist economics that is necessary to understand the monopoly capitalism of the early 21st century.

“Monopoly Capital” was published 56 years after Rudolf Hilferding’s “Finance Capital” and 50 years after Lenin’s pamphlet “Imperialism.” The period of time that now separates us from “Monopoly Capital” is approximately the same as that separating Rudolf Hilferding’s “Finance Capital” and Lenin’s Imperialism from Marx’s “Capital.”

The world of ‘Monopoly Capital’

As we have seen, “Monopoly Capital” was very much a book of its time. It reflected the changes that had occurred between the era of Hilferding and Lenin and the time that “Monopoly Capital” was written in the late 1950s and early 1960s. Let’s review what those changes were.

The most important was the impact of the Russian Revolution of October 1917, which proved to be the defining event of the entire 20th century. For the first time in history, the working class seized and held state power for a substantial period of time. The working class held power long enough to embark on the construction of socialism. As a result, for the first time world capitalism faced a rival economic system that proved in practice, not just in theory, that capitalists are not necessary for modern industrial production.

The other defining event of the last century was the great Chinese Revolution of 1949. Only today can we fully appreciate the significance of this revolution. It began a process of shifting the center of human civilization from Europe and its “white colonies”—including the United States—toward Asia. The days of using the term “Asiatic” as a synonym for backwardness are gone for good.

These revolutions—and there were many others—forced the capitalist classes to make unheard-of concessions to the working classes of the imperialist countries in order to maintain capitalist rule. These revolutions also completely undermined the old European colonial empires—most importantly the British Empire. In contrast, the European empires were near the peak of their power when Hilferding published “Finance Capital” in 1910.

The rise of the U.S. Empire

The era of world wars that began in August 1914 and ended with the atomic bombing of Japan in August 1945 led to the centralization of military and political power in the hands of a single imperialist power, the United States. The rise of such a “world dictator” had become an objective necessity for imperialism. Even without nuclear weapons, the capitalist system could hardly have expected to survive for much longer if world wars had continued at the rate of one per generation.

By 1945, the United States enjoyed such overwhelming domination in industrial production, finance, and military and political power that no imperialist power could hope to challenge it any serious way either politically or militarily, as was later illustrated by the Suez crisis of 1956. (1)

In the economic sphere, the U.S. had been obliged, largely due to working class resistance, to junk its early plans to use state power to destroy the industrial economies of Germany and Japan in order to prevent an industrial resurgence of these imperialist competitors.

The importance of this should not be overlooked. If the de-industrialization plans had been carried out, Germany and Japan would have ceased to be imperialist countries. Instead, they would have been reduced to a semi-colonial if not an outright colonial status. This would have left only Britain and France as major satellite imperialisms.

Instead, in order to stave off new working-class revolutions in Germany, Japan and Italy, the U.S. was obliged to open its home market to its defeated axis rivals. Therefore, the former axis powers of Germany, Japan and Italy were turned into satellite imperialist states. The result was a resurgence of economic competition among the imperialist countries that was just beginning to be felt in a big way as “Monopoly Capital” was published in 1966. “Monopoly Capital” itself reflected and thus over-generalized the early post-World War II era, when the U.S. not only had a political and military monopoly—which it still retains—but a monopoly of industrial production, which is long gone.

Unlike the pre-World War II era, the political challenge to the American Empire that emerged out of World War II came from the socialist bloc headed by the Soviet Union, and from the movement that swept the old colonial and semi-colonial countries against both the retreating old-style European colonialism and the new American world empire with its neocolonialism. For example, when “Monopoly Capital” was published, the brutal U.S. war against Vietnam and the other Indochinese countries was in full swing.

Vietnam had been a colony of France, and the U.S. had built a neocolonial regime in the southern part of the country—”South Vietnam.” The great movement against the U.S. war in Vietnam was rapidly gaining momentum as “Monopoly Capital” was being published. I remember I purchased my first copy of “Monopoly Capital” as a young activist during the anti-Vietnam war movement.

The workers’ movement in the era of ‘Monopoly Capital’

It was also an era of unprecedented gains for the organized workers in the United States, Europe and Japan in terms of union organization and gains in both hourly and social wages. This in part reflected the class struggles in the United States in the 1930s that built the CIO industrial unions and the struggle against German Nazism during World War II in Europe. But it also reflected the pressure of the Soviet Union on the capitalist system.

Remember, the Soviet Union had been the first country to launch an earth satellite, in October 1957; put the first man followed by the first woman in earth orbit; and achieved many other space firsts. The Kennedy administration, fearing the political impact if the Soviet Union had landed a man—or worse a woman—on the moon before the U.S. did, felt obliged to launch the Apollo program to prevent such a “disaster.” (2) It seemed that an era of non-stop advances for the global working class had set in. There was, however, a downside to this. As often happens, success had bred complacency.

For example, in the U.S., home ownership by white (3) unionized blue-collar industrial workers was growing, a trend strongly encouraged by the U.S. government. The U.S. white working class was encouraged to rely on rising home values—actually the price of land that the houses were built on—to build “nest eggs” for their later years rather than push for comprehensive social insurance. But rising land—home—prices depended on the success of the U.S. world empire to meet the challenge of both the socialist nations and the national liberation movements of the “third world.” As a result, many, perhaps most, unionized white workers adopted a small-property-owner mentality.

A wave of political conservatism engulfed the never very class-conscious unionized U.S. industrial working class. Similar trends towards de-radicalization—especially but not only in West Germany—were also becoming apparent among the West European and the Japanese working classes.

The negative effects of the imperialist “consumer societies” on the class consciousness of the West European working class was inevitably reflected in the eastern half the continent. East European workers had a natural tendency to compare their standard of living with their fellow Europeans rather than with the living standards of the workers of, let’s say, India. Since workers in Western Europe were increasingly acquiring such consumer items as automobiles that were undreamed of before World War II, the Eastern European workers wanted them as well.

The same tendencies began to affect the Soviet working class as well. It was all too easy for the workers in the countries that were building socialism to begin to take for granted such gains as full employment and free medical care, which had been won only as a result of the revolutionary struggles of the working classes of the Soviet Union in earlier decades. Whether they realized it or not, the West European and U.S. working classes were also the beneficiaries of the struggles of the Soviet working class.

From the viewpoint of today, we see that in the imperialist countries of the United States, Western Europe and Japan, but also the countries of Eastern Europe and the Soviet Union, the workers were enjoying something of a deceptive “fool’s paradise” where both past gains and continued rises in the standard of living were taken for granted. Very few understood the great danger to the gains of the workers both East and West represented by the survival of capitalism in most of the world.

As we saw last month, both Paul Sweezy and Paul Baran even believed that a slow but progressive rise in real wages was a basic feature of the capitalist system. The authors of “Monopoly Capital,” however, were well aware of the highly negative trends bred by the “consumer society” among the working class of the United States—where both Sweezy and Baran lived when they wrote “Monopoly Capital.”

Sweezy and Baran wrote: “The answer of traditional Marxist orthodoxy—that the industrial proletariat must eventually rise in revolution against its capitalist oppressors—no longer carries conviction. …their organized cores in the basic industry have to a large extent been integrated into the system as consumers and ideologically conditioned members of the society.” (p. 363)

No doubt, taken historically, these lines reflect the single biggest error in all of “Monopoly Capital.” However, at the economic flood tide of the American Empire these lines did indeed also reflect an element of reality.

Depression aftermath breeds Keynesian illusions

The other big change since the time of Hilferding and Lenin was the impact of the Great Depression and the Keynesian stabilization polices that had grown out of it. It was widely believed, not only among bourgeois economists but by their Marxist critics as well, including the authors of “Monopoly Capital,” that increased spending by the capitalist government could always provide enough “monetarily effective” demand to eliminate unemployment.

This implied that it was possible, at least in theory, for the capitalist government to follow a “full employment” policy. (4) How else could the apparently hopeless unemployment crisis of the 1930s give way to the relatively near to full employment of the 1950s and 1960s?

The extent to which this transformation was essentially cyclical and therefore temporary was simply not understood. Even today, the Monthly Review school has not been able to shake off the influence of Keynes and Kalecki. (See, for example, this post.)

The role of bank capital

Hilferding (5) and Lenin both put great emphasis on the role of bank capital. Well before the era of monopoly capitalism, Marx, and before Marx utopian socialists like Henri de Saint-Simon (1760-1825), believed that the development of the capitalist banking system would lead to a planned socialist economy. While Marx did not share Saint-Simon’s illusions about a gradual peaceful transition from the anarchy of capitalist production to a socialist planned economy, he did believe that the capitalist banking system by creating a system of universal bookkeeping was creating the apparatus that once the working class won political power would make possible the planned economy of socialism.

But because of the abundance of money capital that resulted from the 1930s Depression, the power of the banks was less brutally apparent than it had been before the Depression, not to speak of the last few years. As a result, “Monopoly Capital” played down the role of the banks and largely ignored the credit system. Ernest Mandel’s “Marxist Economic Theory,” written around the same time, also refers to the “reduced role” of bank capital.

Indeed, the very title “Monopoly Capital” reflected Baran and Sweezy’s belief that Rudolf Hilferding and to some extent also Lenin had exaggerated the role of the banks and bank capital. Remember, Hilferding had titled his book “Finance Capital,” reflecting his belief that the domination of the banks was the most striking feature of early 20th-century monopoly capitalism.

Today, correcting the neglect of the role of bank capital and the credit system in general in “Monopoly Capital,” John Bellamy Foster, Sweezy’s successor as the leader of the Monthly Review school, uses the term “monopoly-finance capital.” Since the last crisis (2007-09), it is precisely in the sphere of bank capital that the growth of monopoly has been most dramatic.

Decline of the old workers’ movement

The greatest change between today and the era of “Monopoly Capital” has been the drastic decline in what I will call the “old workers’ movement.” The workers’ movement of the era of “Monopoly Capital” was very strong in terms of organization compared to anything that had gone before. It ranged from the powerful industrial unions of the United States, such as the United Mine Workers, the United Auto Workers and the United Steelworkers, to the mass Communist Parties of France and Italy. And it included the most powerful union of them all, the union that had conquered state power, the Union of Soviet Socialist Republics.

But all these workers’ organizations had one thing in common. By the 1960s, they were headed by men—they were all men—who were more and more drifting away from—or had long abandoned or never held to—the class-struggle principles that had guided the founders of these workers’ organizations. In one form or another, “peaceful coexistence” between capital and labor was declared the new “guiding principle.” (6)

The complacent class collaborationists who headed the workers’ movements of the day, believed that the gains the workers had won in the preceding decades through often violent class struggles were now irreversible. As a result, class struggle, if it hadn’t disappeared altogether, would in the future be carried out by peaceful means. Marx’s warnings to the contrary were completely disregarded by the worldly wise workers’ “leaders” of the 1960s.

Today, industrial unions in the United States are without exception a shadow of their former selves. The Soviet Union and its socialist allies in Eastern Europe are no more. The West European Communist Parties have either shattered altogether, as is the case in Italy, or are a shadow of their former strength such as is the case in France.

Even the Social Democratic parties have declined in strength. In China, where it was widely believed that capitalism had been abolished for good as a result of the Great Revolution of 1949, capitalist exploitation now reigns on a scale that dwarfs anything ever seen. However, China has also seen a huge expansion of industrial production. This stands in dramatic contrast to the collapse of industrial production in the former Soviet Union and Eastern Europe, as well as the decay of industrial production in the imperialist countries.

John Smith, the GDP illusion and today’s imperialism

John Smith’s article in Monthly Review is entitled “The GDP Illusion.” What is GDP? Every three months, the U.S. government issues its estimate of what is called the Gross Domestic Product of the United States. Did the GDP grow as much as economists expected, did it grow more or did it grow less? Or did it even decline? Any “unexpected” result, whether up or down, will almost certainly be reflected in a sharp movement of stock market prices over the following day or so. If the GDP declines for two or more quarters, this will as a rule mean that the economy will later be declared to have been in an official “recession” by the National Bureau of Economic Research and the mass media.

But what is the GDP and what does it actually measure? Textbooks define the Gross Domestic Product as the value of the total amount of goods and services that are produced in a country. The prices of all goods and services produced, including steel, machine tools, corporate stocks, software programs (7), bonds, and insurances policies, are added up. Exports are then added on to this total and imports subtracted. The resulting figure is the Gross National Product, or GNP. Profits that are earned aboard and remitted into the country are then subtracted and any profits earned within the country but transferred to another country are added. The result is the Gross Domestic Product.

A distinction is then made between the GDP before adjustment for inflation—deflation has rarely occurred since the concept of the GDP was developed—and after such adjustment. Suppose prices as measured by the government have risen 3 percent and the GDP has risen 6 percent. A 3 percent “deflater” is subtracted from the 6 percent, which yields a “real” GDP growth of 3 percent. These figures are issued quarterly but are annualized. The media then reports that the U.S. economy grew at an annual rate of 3 percent in the X quarter of the current year.

In the United States as well as Britain over the last 40 years, we have seen the destruction of whole industrial districts. In the 1960s, cities such as Buffalo, Pittsburgh and Cleveland were mighty centers of heavy industry. Today, these cities are throughly de-industrialized, their great mills and factories that dominated the markets of the world when “Monopoly Capital” was written are gone. And with the old factories and mills have gone millions of well-paying union jobs. The other great industrial center in the U.S., Detroit, Michigan, the center of the U.S. automobile industry, has also been in steep decline—though in Detroit de-industrialization has not gone as far as it has in the former centers of the U.S. steel industry.

De-industrialization has not only affected old industries like steel that blossomed in the late 19th century. In Silicon Valley, California, the factories—or fabs as they are called—that produced computer chips and those that assembled computers have largely gone elsewhere. Those that remain are generally experimental factories used for the development of new products. Once the products are perfected, the new types of commodities will as a rule be mass produced elsewhere, generally in Asia.

Yet despite the dramatic shrinkage of material production over the last 40 years in both old and new industries in the U.S., the U.S. government quarter after quarter reports—outside of recessions—that U.S. real GDP has risen to new records. But how can this be? Up until now, Marxists have tended to accept or at least have not challenged the claim that GDP somehow measures the real growth in the wealth produced in a given country. John Smith explains why this is a big mistake.

When the real GDP expands by say 3 percent, exactly what has increased by 3 percent? If you ask a professional economist, the answer will be that “value added” has risen by 3 percent. But as regular readers of this blog should know by now, value as defined by the neo-classical marginalist economists and value as defined by Marx are two completely different things.

The rival theories of value

The bourgeois classical economists recognized two types of value—use value and exchange value. How are use values measured? Each type of use value has its own unit of measurement. For example, bushels of corn, tons of steel, yards—or meters—of linen, troy ounces of silver or gold, and barrels of oil.

The classical economists also recognized exchange value, the amount of other commodities or money that a given commodity exchanges for. According to the classical economists, exchange value was determined by the amount of labor it takes on average to produce a given type of commodity of a given quality.

Value according to Marx

Marx improved on the classical theory of value. In his mature writings, he distinguished between value, which he defined as embodied abstract human labor measured in terms of time, and its value form, exchange value. Marx explained that value must take the form of exchange value. Exchange value is always measured in the use value of another commodity. Except during the earliest stages of barter, commodity values are measured in terms of the use value of a commodity that serves as the universal equivalent, such as gold.

Today’s (bourgeois) economists completely reject any notion of value of the second type—labor value—and re-define the value of the first type—use value—as representing the relative psychological satisfaction that a consumer will receive if he or she can obtain one additional unit of the given type of commodity. It is the total “economic value” as defined by our neoclassical marginalist economists that the GDP purports to measure.

A brokerage selling stocks and an investment bank selling some other type of “financial product” are just as productive of “economic value,” our economists explain, as a steel mill or a farm growing corn and cattle. The U.S. economy as measured by GDP has continued to grow, our economists explain, as material production within the U.S. has declined, because the U.S. economy has been shifting from relatively “low value-added” manufacturing to “high value-added” services, such as financial “products.”

Alan Greenspan in his book “Age of Uncertainty” has explained that each unit—dollar of constant purchasing power—of the U.S. GNP has grown “lighter” as material production has declined relatively and even absolutely. Therefore, according to Greenspan’s twisted logic, the decay of material production in the U.S. represents not economic decay but economic progress! It is therefore quite natural, according to the economists, that the U.S. economy has continued to grow even while material production within the U.S. has declined. But again, how can this be?

Unlike the classical economists and Marx, the neo-classical economists claim that all the factors of production—capital, labor and land—produce value according to their relative scarcities. Each factor of production is then compensated in proportion to the value that the last unit to be employed of the given factor of production added to the product.

Therefore, the economists claim, assuming “free competition,” workers are paid in the form of wages the exact value that their labor creates; capital, represented by its owners—the capitalists—is paid (8) in the form of “interest” according to the value that the capital created; and the land, represented by the landowner, is “compensated” in the form of rent, which is exactly equal to the value that the land creates.

Notice that according to this theory no “factor”—class—exploits another “factor”—class. This is the theory of value, John Smith explains, that the Gross Domestic Product is based on. The great beauty of the marginalist theory of value is precisely that it denies the exploitation of one class by another. Smith shows that the neo-classical marginalist theory of value as used in the calculation of GDP is just as useful in covering up the exploitation of one nation by another.

Types of capitalists

Just as there are different forms of capital, there are different types of capitalists that correspond to the owners of the different forms of capital. Industrial capitalists own productive capital. Productive capital consists of the value of the means of production—machinery, factory buildings, raw and auxiliary materials plus the purchased labor power of the workers. Merchant capital consists of the value of commodity capital. Virtually every industrial capitalist is also a merchant capitalist, since he is the owner of his finished product before he sells it to either a final consumer or to a mercantile middleman.

Finally, there are the money capitalists, owners of money or securities, who receive interest and dividends. An industrial capitalist is always, in practice, to some extent a money capitalist as well, because a portion of his total capital, even if only a small portion, has to be in the form of money or in the form of interest-bearing securities or bank accounts and so on.

Merchant capital

To understand the difference between the neoclassical marginalist definition of economic growth and the Marxist one, we have to examine merchant capital. If we assume that the rate of profit is equalized, a given amount of capital measured in terms of money will yield the same amount of profit in a given period of time, let’s say a year. This will be true whether we are looking at the capital of an industrial capitalist or of a merchant capitalist.

Remember, by merchant capital we mean capital that deals with changes in the title of ownership of commodity capital. Insomuch as the merchant physically ships and stores commodities, the merchant actually functions as an industrial capitalist. Therefore, most merchant firms are not “pure” merchants, just as real-world industrial capitalists are not “pure” industrial capitalists but are to a certain extent merchant and money capitalists as well.

Here I have been assuming “free competition” and a complete equalization of the rate of profit. There is no monopoly except the monopoly of the means of production in the hands of the capitalist class, without which capitalism could not exist.

Monopoly

But what happens if we introduce monopoly? Let’s assume the monopolist is a merchant. In this case, the monopolistic merchant buys commodities from the industrial capitalist below the price of production. The industrial capitalist, though an exploiter himself, will in turn be exploited by the monopolistic merchant. If the monopolistic merchant and the exploited industrial capitalist are in different countries, the exploitation of one country by another country is introduced.

In this case, a huge amount of the surplus value produced in the exploited country is transferred to the exploiter country. The industrial capitalist of the exploited country can try to recoup through “deduction”—that is, paying his workers a wage that is below the value of their labor power. If he cannot do this, he will end up making less than the average rate of profit, and if the exploitation at the hand of the merchant capitalist is severe enough, he might suffer an actual loss. Such a situation will be unsustainable in the long run, since a capitalist who does not make a profit will not remain a capitalist.

Merchant capital according to the neo-classical marginalist theory of value

A neo-classical marginalist economist will look at things completely differently. The economist would say that it is not a question of monopoly. Instead, our economist will argue that in the above case the industrial capitalist is adding less economic value than the merchant capitalist is. In common economic lingo, the merchant capitalist is engaged in a high value-added activity compared to the low value added by the industrial capitalist. How do we know this, we might ask our economist. Our economist will explain that market prices reflect relative scarcities and so show this to be the case. Therefore, just like our economists deny the exploitation of class by class, they also deny the exploitation of nation by nation.

Let’s take a concrete example that John Smith mentions in his article, the case of Apple Inc. Apple is, at the time of this writing, in terms of stock market value measured in U.S. dollars the largest company in the history of the world. This means that it would take more dollars to buy up all the stock of Apple than it would to buy up any other corporation that ever existed. The high price of Apple stock is not simply the case of a speculative bubble—though an element of speculation may be present—but reflects the enormous monopoly profits that Apple is making.

But how exactly does Apple make such high profits? Apple only sells very high-quality products. The buyer of an Apple device, whether a desktop or laptop computer, a tablet computer, a tiny “iPod” computer designed to play music, or a smartphone computer (9), can be pretty sure that the computer device they purchase won’t fall apart in a few months. In return, Apple charges high prices relative to the price that would yield Apple merely the average rate of profit. Apple’s stock price has not gotten to where it is today by making “only” average profits.

Apple’s customers—and many are fanatically devoted to the company and its products, an attitude encouraged by Apple’s massive advertising campaigns as well as the mass media—are willing to pay prices that are above the level that would only yield Apple the average rate of profit because they know that the products will be of high quality. None of this would surprise either Baran or Sweezy if they came back to life today.

While in its early years Apple was largely an industrial capitalist corporation that manufactured its own products, today it is mostly a merchant, design and software writing company. True, workers in Apple stores that warehouse and load Apple products onto the store shelves produce value and surplus value. To that extent, Apple is still an industrial capitalist. But Apple has evolved from being primarily an industrial company to being primarily a merchant capitalist. The process by which a mostly industrial capitalist corporation is transformed into a largely merchant capitalist corporation has a name. It is called “hollowing out.”

China still a country exploited by imperialism

Apple has most of its products assembled in China from parts produced in many other mostly oppressed countries by the Foxconn Corporation. This raises an interesting question. Why doesn’t Foxconn sell its products directly to the U.S., European and other customers under its own name? Why does it need Apple at all? Instead of Mac, Macbook, iPod, iPad, iPhone and so on, why not a Foxconn desktop, Foxconn laptop, Foxconn music player and Foxconn smartphones? If we had to give a one-word answer, it would be: imperialism.

Commodities that Apple sells and designs—but does not actually produce—are safeguarded by both hardware and software patents. A patent is a state-enforced monopoly that is granted to a person—including a corporation, which is a full person under U.S. law. Such a “person” can grant another “person” the right to produce the patented products but only under terms dictated by the patent holder.

If Foxconn attempted to sell its products independently of Apple, it would certainly be hit with lawsuits claiming that it was violating Apple’s patents, as we recently saw in the case of the South Korean company Samsung, which was recently sued successfully by Apple for violation of its patent rights.

If Foxconn attempted to defy these patents—like early U.S. industrial capitalists often defied British patents—it and other Chinese companies would lose their access to markets of “the Empire”—which include U.S., European and Japanese home markets and the markets of the other World Trade Organization countries as well—that is, virtually all other markets of the world. China is utterly dependent on its access to these markets for its continued economic development.

Even if Foxconn managed to design its own products, and assuming it could avoid falling afoul of U.S., European and Japanese patent laws—no easy thing—it would have to market a product largely unknown to consumers.

In theory, it could gradually build up a Foxconn “brand name” much as Apple has. But in order to do this, it would have to launch a costly advertising campaign and perhaps bribe the media to write favorable articles about its “great products.” It would take a long time—if ever—before the “Foxconn” brand name would be as valuable as the Apple brand name. This would be all the more difficult because the U.S. media would likely run a kind of “anti-advertising” campaign against Foxconn claiming that its products are of far lower quality than the products sold by U.S.-based corporations.

Together these factors make it virtually impossible for Foxconn and other Chinese industrial capitalists to sell their products except through Apple and a few other monopolistic trading-design-software corporations headquartered in the imperialist countries on terms set by the latter.

John Smith on Apple and the high-tech industry

“What contribution,” John Smith asks, “do the 300,000 workers employed by Foxconn International in Shenzhen, China who assemble Dell’s laptops and Apple’s iPhones—and the tens of millions of other workers in low-wage countries around the world who produce cheap intermediate inputs and consumer goods for western markets—make to the profits of Dell, Apple, and other leading western firms?”

For example, Smith explains, “in 2006, the 30Gb Apple iPod retailed at $299, while the total cost of production, performed entirely overseas, was $144.40….” So while it is clear that even if we take into account the value added—as defined by Marx and not the marginalists—in shipping and warehousing, the better part of the value of the iPod that was in reality produced in China and other oppressed countries showed up in the U.S. GDP. Smith calls this “value captured.” Or, in even plainer language, we could call it “value stolen” from the Chinese and other peoples oppressed and super-exploited by the U.S. world empire.

U.S. stocks up Chinese stocks down

Smith writes: “Meanwhile, in what one study called a ‘paradox of assembler misery and brand wealth,’ Hon Hai’s [the Taiwan company that owns Foxconn—SW] profits and share price have been caught in the pincers of rising Chinese wages, conceded in the face of mounting worker militancy, and increasingly onerous contractual requirements, as the growing sophistication of Apple’s (and other firms’) products increase the time required for assembly. While Apple’s share price has risen more than tenfold since 2005, between October 2006 and January 2011 Hon Hai’s share price slumped by nearly 80 percent. The Financial Times reported in August 2011 that ‘costs per employee [are] up by exactly one-third, year-on-year, to just under US$2,900. The total staff bill was $272m: almost double gross profit…rising wages on the mainland helped to drive the consolidated operating margin of the world’s largest contract manufacturer of electronic devices…from 4–5% 10 years ago to a 1–2% range now.’”

Chinese imperialism?

Apple has succeeded so far in transferring the entire “burden” of rising—though still absolutely very low—Chinese wages onto the shoulders of the Chinese industrial capitalists. (10) This, by the way, is one indication that the view that China is now a full-fledged imperialist nation in its own right is, to say the very least, premature!

According to GDP, Smith explains, the labor of the workers of the oppressed nations that actually produced the lion’s share of Apple’s huge profits contributed no value “whatsoever.” Instead of measuring the actual production of the U.S. and other imperialist nations, Smith continues, the GDP figures are actually “a veil that conceals the increasingly parasitic and exploitative relation between northern capitals and southern living labor—in other words the imperialist character of the global capitalist economy.”

Low-tech commodities and China

Smith also examines a low-tech commodity: “a T-shirt made in Bangladesh and sold in Germany for €4.95 by the Swedish retailer Hennes & Mauritz (H&M). H&M pays the Bangladeshi manufacturer €1.35 for each T-shirt, 28 percent of the final sale price, 40 euro cents of which covers the cost of 400 grams of cotton raw material imported from the United States; shipping to Hamburg adds another six cents per shirt.

“The remaining €3.54 counts towards the GDP of Germany, the country where the T-shirt is consumed, and is broken down as follows: €2.05 provides for the costs and profits of German transporters, wholesalers, retailers, and advertisers (some of which will revert to the state through various taxes); H&M makes sixty cents profit per shirt; the German state captures seventy-nine cents of the sale price through VAT at 19 percent; and sixteen cents covers ‘other items.’”

T-shirts and the real tendency of wages under capitalism

The Bangladeshi “[w]orkers at the factory, 85 percent of whom are women, earn just €1.36 per day for a 10—12 hour shift.” That’s €1.36 per day, not per hour! This, by the way, shows that contrary to what Baran and Sweezy believed, the tendency of capitalist production is not to gradually increase the real wages of the workers and even to share a growing portion of the surplus value with them.

Instead, the real tendency of capitalist production is, as Marx explained, to drive down wages to the lowest possible minimum—bare biological subsistence. When wages rise above biological subsistence in one part of the world, like they are beginning to do in parts of China, capital simply shifts production to other countries where wages are at or very near biological subsistence.

The U.S. Empire and the race to the bottom

The worldwide U.S. world empire facilitates this process and allows capital to best realize its tendency to drive the real wages of workers right down to the minimum as part of a “race to the bottom.” The Empire forces countries to follow “neo-liberal” polices that are designed to drive down or keep wages at the biological subsistence level. If wages rise anyway, there are always other countries within this global empire where wages are lower. Whenever the imperialist media complains of “human rights violations” in an oppressed country and beats the drums for a “humanitarian intervention,” such as in Syria today, we must always keep these facts in mind.

For example, besides the next to nothing wage of the Bangladeshi worker, another basic democratic right is being violated here, a work day of more than eight hours, which makes it virtually impossible for the workers to participate in political life. Interestingly enough, the New York Times and other imperialist media, though very concerned about the violation of democratic rights—whether real or alleged—in Syria at the present time, are not complaining about the “violation of human rights” in Bangladesh as a result of the largely female garment workers being forced to work 10- to 12-hour shifts.

In this case, the super-profits that are earned show up as part of the GDP of Germany—though the real production is carried out in Bangladesh. By the way, it is the ability to appropriate these gigantic super-profits that for now reconciles Germany’s monopoly capitalists—the folks that brought us the Third Reich—to the American world empire.

It isn’t only wage workers who are brutally exploited. Smith also gives the example of coffee, where it is small commodity producers rather than wage workers proper who are subject to the brutal exploitation whose fruits show up in the GDP of the U.S. and its imperialist satellites:

“Most of the world’s coffee is grown on small family farms, providing employment worldwide to 25 million coffee-farmers and their families, while two U.S. and two European firms (Sara Lee, Kraft, Nestlé, and Procter & Gamble) dominate the global coffee trade. Those who cultivate and harvest the coffee receive less than 2 percent [emphasis added] of its final retail price. In 2009, according to the International Coffee Organization, the roasting, marketing, and sale of coffee added $31 billion to the GDP of the nine most important coffee-importing nations—more than twice the total export earnings that year of all coffee-producing nations.”

Here it is the unpaid labor of small coffee producers in extremely oppressed countries that is showing up in the GDPs of the United States, the European Union, Japan and so on.

The tendency of capital is therefore to transfer the actual production of commodities to the countries where the rate of surplus value is highest. However, not all production can be transferred to the poor countries. For example, nobody has yet found a way of building a house in Bangladesh and have it pop up in California. Meatpacking also must be performed near the point of consumption. And, of course, your local MacDonald’s must be located near where you live and not on the other side of the globe.

As peasants continue to be driven off the land, very often the only jobs they can find are those that offer wages that are at biological subsistence levels or even lower, assuming there are jobs at all. If they can’t find jobs in their own countries, they are forced to emigrate, either legally or illegally, to the imperialist countries. Here they get jobs in industrialized agriculture, meatpacking plants and service establishments like fast-food restaurants and hotels.

Though they aren’t paid the kind of wages that garment workers get in Bangladesh—if they were, they wouldn’t leave their home countries—they are still paid at rates far below the going rate for “white” workers. This will especially be the case where the workers are so-called “illegals.” In this case, the workers will likely be paid a wage below the legal minimum wage, since “illegal” workers are afraid to report illegally low wages and hours of work to the authorities for fear they will be deported.

Industrial production shifts to the ‘South’

“The resulting outsourcing phenomenon,” Smith writes, “has transformed the imperialist economies, accelerating the declining weight of industrial production in their GDPs. Most significantly it has transformed the global working class: in just three decades, the South’s industrial workforce has moved from numerical parity with the ‘industrialized countries’ to now constituting 80 percent of the global total. According to Gary Gereffi, a ‘striking feature of contemporary globalization is that a very large and growing proportion of the workforce in many global value chains is now located in developing economies. In a phrase, the centre of gravity of much of the world’s industrial production has shifted from the North to the South of the global economy.'”

Without a coffee break

There are growing indications, especially since the 2007-09 crisis, that the leaders of U.S. capitalism are becoming alarmed about the ever greater de-industrialization of the U.S. and its imperialist satellites. Of late, the capitalist media have therefore been looking for signs that this trend is somehow reversing. Typical of these “hopeful” articles is a piece by John Markoff that appeared in the August 18, 2012, New York Times:

“At the Philips Electronics factory on the coast of China,” Markoff wrote “hundreds of workers use their hands and specialized tools to assemble electric shavers. That is the old way.” (11)

And what is the new way? Referring to a factory in Drachten, the Netherlands, Markoff writes: “One robot arm endlessly forms three perfect bends in two connector wires and slips them into holes almost too small for the eye to see. The arms work so fast that they must be enclosed in glass cages to prevent the people supervising them from being injured. And they do it all without a coffee break—three shifts a day, 365 days a year.”

“All told, the factory here has several dozen workers per shift,” Markof informs us, “about a tenth as many as the plant in the Chinese city of Zhuhai.” “Many industry executives and technology experts say Philips’s approach is gaining ground on Apple’s,” Markoff writes.

The rapid growth of capitalism in China combined with the growing struggles of Chinese workers against super-exploitation is beginning to raise wage rates in China, though they remain wretchedly low by the standards of the imperialist countries. Capital reacts to any rise in wages either by relocating production to areas where wages are lower—in China from coast to interior regions—or by replacing machines with workers. The cost price for the capitalist is represented by C + V. Here C stands for constant capital used up and V stands for variable capital, defined as the purchased labor power, which alone produces surplus value—something that we know even if Markoff does not.

Each industrial capitalist—corporation—is forced by the pressure of competition to lower the cost price C + V—that is, the labor that the industrial capitalist actually pays for—as much as possible. To the extent V rises, it becomes cheaper to replace V with C, all else remaining equal. On average, the industrial capitalists must pay the full value for C—dead labor—but only a portion of the value creating V—living labor—the rest being surplus value.

As wages rise, it becomes cheaper for the individual industrial capitalists—here the Philips Corporation—to replace V—for example, cheap labor in China—with C, perhaps in the form of robots controlled by powerful artificial intelligence software.

But as this process becomes generalized among the industrial capitalists, the organic composition of capital rises. A combination of a rising organic composition of capital, unless offset by a sufficient rise in the rate of surplus value, means a fall in the rate of profit. This is the famous law of the tendency of the rate of profit to fall.

By setting “free” additional workers, a rising organic composition of capital enables the industrial capitalists to once again increase the rate of surplus value, and then halt or at least slow down the replacement of workers with machines. To the extent that capital succeeds in this, it counteracts the tendency of the rate of profit to fall; to the extent it fails, the rate of profit declines.

Marx explained that capitalists pit workers against machines. Under the conditions of today’s imperialism, competition is now three sided. The capitalists pit the workers in the old “industrial”-imperialist countries against the super-exploited workers of the global “south”—and the workers of both the countries of the global south and the imperialist countries against ever more powerful machines controlled by ever more powerful software.

One thing that the industrial capitalists cannot do—whatever their spokespeople like Markoff claim to the contrary—is to simply abolish the working class by replacing all workers—or most workers, anyway—with machines. This is because capitalism remains a system of accumulating capital—accumulated labor—by transforming surplus value into new capital. Unlike socialist accumulation, which is a process of accumulating material use values—both means of production and means of personal consumption—capitalist production is a system of accumulating unpaid human labor—surplus value.

Capitalist spokespeople like Markoff are right that Philips’ method of replacing human labor with high-tech machinery represents the future—actually it represents the socialist future. But as long as the capitalist system exists in any form, it will never be able to carry this out to its logical conclusion, even if the advance of science and technology makes it possible. This is the why capitalist production has to sooner or later give way to socialist production.

The importance and limits of the category of surplus value

Smith’s great article in the summer issue of Monthly Review illustrates how powerful the category of surplus value is, not only for analyzing the 19th-century capitalism of Marx’s time but the very latest developments in today’s monopoly capitalism.

Let’s review some basic categories. Surplus product is the material use values that are consumed whether productively or in terms of personal consumption by the class or classes of non-workers. Surplus product implies exploitation of the direct producers, but it does not necessarily mean capitalist exploitation. For example, feudalism, chattel slavery and the traditional societies of Asia were based on various forms of exploitation of the direct producers by a ruling class of non-workers.

These pre-capitalist exploiting classes appropriated a surplus product from the direct producers. Under capitalism, the value of every commodity, no matter what class its final consumer belongs to, consists of three parts. One part replaces the value of the purchased labor power of the worker. The second part represents the transfer of value from the constant capital that is used up in its production and transferred to the produced commodity. And finally there is the additional value that represents the unpaid labor that the worker must perform if her labor power is to have a use value for an industrial capitalist purchaser.

Once the exchange of commodities is completed, the material use values of the commodities end up in the hands of their final consumers. Some of the commodities will be the “wage goods” that are necessary to reproduce the labor power of the workers, some of these commodities will replace in use value terms the use values that are used up in the process of production, and finally we have the surplus product that is consumed either productively though the expansion of the means of production or personally by the capitalists and their hangers-on. The latter is the surplus product.

John Smith’s article illustrates the extent to which modern imperialism is both a brutal system of exploitation of class by class but also a system of exploitation of nation by nation. It should be emphasized that the capitalist system since long before monopoly capitalism has always been in part a system of the exploitation of nation by nation, but never to the extent it is today.

But it also shows that even against its will, monopoly capital’s constant search for still more unpaid labor in the form of surplus value inevitably forces it to hand to the oppressed nations not only the means of their liberation but also the means of liberating the super-exploited working class of the oppressed nations from both imperialism and the native capitalists.

And it also demonstrates that without the super-exploitation of the oppressed nations, the increasingly crisis-ridden but not yet dead “consumer societies” of a handful of imperialist nations—the U.S. and its satellite imperialisms of Western Europe, Japan, Canada, Australia, and New Zealand—would utterly collapse. Therefore, all the conditions are coming together for the birth of a truly internationalist workers’ movement, the kind of movement that Marx, Engels and Lenin in their time struggled to bring into existence.

Posted September 30, 2012

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1 In 1956, Egypt under President Gamal Abdel Nasser nationalized the Suez Canal. In a bid to hold on to the canal and in the case of France maintain its colonial control of Algeria, Britain, France and Israel invaded Egypt. Washington ordered them to withdraw. To underline U.S. power, the Eisenhower administration momentarily withdrew support from the British pound leading to a run on the British currency. The U.S. also made a few threatening gestures toward British forces in the Mediterranean. London, Paris and Israel had no alternative but to bow to Washington’s marching orders. This showed that just like the defeated axis powers—(West)Germany, Japan and Italy—France and Britain though nominal victors in World War II had also effectively been reduced to satellites of the U.S. world empire.

2 We now know that the Soviet Union before Kennedy announced the Apollo project did not actually have a plan to land cosmonauts on the moon.

3 In the U.S., only in the 1970s—a decade after “Monopoly Capital” was written—were government programs that encouraged home ownership finally opened to African Americans.

4 It seems that Paul Baran was actually somewhat less “Keynesian” than Sweezy. The Baran family was living in Germany during the infamous hyper-inflation of 1923 and could hardly have been unaffected by this disastrous episode. The German hyper-inflation seems to have left a lasting impression on Baran. Sweezy, in contrast, had only experienced the Depression first hand.

In his “Political Economy of Growth,” published in 1957, Baran expressed the belief that deficit spending by the central government would lead to hyper-inflation sooner or later and therefore did not believe that deficit spending could stabilize capitalism for very long. However, Baran like Sweezy believed in the so-called balanced budget multiplier, which holds that increased government spending if financed by taxes—not deficits—has a multiplier of one. This implies that the capitalist government if it wishes can achieve “full employment” if it is willing to increase taxes and spending until “near to full employment” is achieved. As reflected in the “Political Economy of Growth,” Baran did not believe that the government would actually follow such “full employment” policies.

5 Hilferding defined “finance capital” not simply as bank capital but as bank capital invested in industry, which transformed the banker into an industrial capitalist. Just like “Monopoly Capital,” Hilferding’s “Finance Capital” reflected the conditions of his time and country—Germany in the opening years of the 20th century. Unlike British and U.S. banking, in Germany commercial banking was united from the beginning of German capitalism with investment banking in “universal banks.” At the time Hilferding wrote “Finance Capital,” German capitalism was growing extremely rapidly, and German industry was often short of funds and thus forced to resort to large-scale bank financing of its investments. These gave a handful of monopolistic German banks tremendous power over German industry.

In “Imperialism,” Lenin gave a more balanced view of the relationship between banking and industrial capital, emphasizing the merger of banking and industrial capital in the formation of “finance capital” and its associated financial oligarchy. In contrast to Baran and Sweezy of “Monopoly Capital” and Ernest Mandel of “Marxist Economic Theory,” Lenin also put great stress on the role of bank capital.

Today, we see that the German “model” of universal banking indeed represented the trend of monopoly capitalism, while the traditional Anglo-American “model” of separate investment and commercial banks reflected the past of “free competition.”

Lenin, like Marx, tended to see the long-term tendencies of capitalist development, while Hilferding, Baran, Sweezy and Mandel often confused passing cyclical phases with long-term structural trends.

6 In 1961, the 22nd Congress of the Communist Party of the Soviet Union replaced the revolutionary program written in 1918, still formally in effect, with a new, thoroughly opportunist one. This program began with the false premise that the Soviet Union had already achieved the lower stage of communism or socialism and was now in transition to the higher stage of full communism.

It promised among other things that the Soviet Union would achieve full communism within 20 years. The program promised that around the year 1980 the Soviet people would have the highest standard of living in the world and hard manual work would be a thing of the past. All this while capitalism and imperialism continued to peacefully coexist with a now fully communist Soviet Union!

This wretched program helped pave the way for Gorbachev and Yeltsin when its promises of a consumer paradise without hard work and full communism within 20 years through peaceful coexistence with the exploiters proved empty.

7 Here we see a contradiction. A quick check on the Internet showed that I can download a copy of Microsoft Windows 7—soon to be replaced by Windows 8—for $69.99. The operating system I use on the computer on which I am writing this—the Unbutu 12.04 distribution—I can download for $0.00—that’s right, for free. Ubuntu is not a “toy” operating system either. It is a variant of the powerful GNU/Linux operating system that among other things runs the world’s most powerful super-computers. There are many other forms—distributions—of the GNU/Linux operating system that can also be downloaded for no charge and run on your computer.

As material use values—that is, real wealth—GNU/Linux and Windows 7 do about the same thing. They provide the basic software on which other computer programs such as web browsers, word processors and music and video players run—many of them also available for download with no charge on the Internet. Yet downloading a copy of Window 7 adds $69.99 to the GDP while a copy of Ubuntu 12.04 adds nothing. This is already enough to show that the GDP is invalid as a measure of the amount of “wealth” that is produced in a country.

8 What exactly is the capitalist who earns “interest” on capital compensated for? The economists explain that the capitalist is “compensated” for “abstaining from consumption” or “waiting.” Since the capitalist doesn’t consume all his wealth in the form of items of personal consumption but saves a portion, this enables society to preserve and increase its capital. Okay. But what about the landowner? Unimproved land is a product of nature. No “abstention” by the landowner will increase the quantity of unimproved land. So exactly what is the landowner being compensated for when he receives rent on his land?

The late 19th-century French economist Leon Walras, a pioneer of neoclassical marginalism, was at least consistent on this question and advocated the nationalization of land. But how do our present-day marginalists who support private property in land answer this question?

9 All these devices are actually general-purpose computers that in principle, given enough time and memory, could run any possible computer program.

10 Hon Hai, the owner of Foxconn, is based in Taiwan. But remember, Taiwan is a province that was stolen from China, first by Japan in 1895 and now forcibly kept separate from China by the naval and air forces of the United States. Ironically, between 1949 and 1971, the U.S. media insisted on calling Taiwan “free China,” because the counterrevolutionary forces of Chiang Kai-shek managed to retreat there and were protected by the U.S. Army and Navy. That aspect of the situation is unchanged. However, today the U.S. media claim that Taiwan is not a part of China at all but a separate nation, even though the vast majority of its inhabitants are ethnic Chinese!

11 Ironically, the member of the Philips family who founded this firm in the 19th century was a first cousin of Karl Marx. The examples that Markoff raises enable us to illustrate some of the basic laws of motion discovered by that Philips family relative, Karl Marx.

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