Zombie Capitalism Global Crisis and the Relevance of Marx

Yet the only source of value and surplus value for the system as a whole is labour. So if investment grows more rapidly than the labour force, it must also grow more rapidly than the creation of new value, and profit comes from this. In short, capital investment grows more rapidly than the source of profit. As a consequence, there will be a downward pressure for the ratio of profit to investment-on the rate of profit.

The reason for the growth of investment is competition-the need of each capitalist to push for greater productivity in order to stay ahead of competitors. But however much competition may compel the individual capitalist to take part in this process, from the point of view of the capitalist class as a whole it is disastrous. For, as we saw in the previous chapter, capitalists measure the success or failure of their undertakings not in terms of the total profit they bring in but in terms of the rate of profit.

Two objections are often raised to this picture of Marx's. The first is that technological advance does not always involve increasing the ratio of means of production to workers-that it can be "capital saving" rather than "capital intensive". If scientific knowledge is progressing and being applied as new technologies, then some of these technologies may employ less machinery and raw materials per worker than old technologies. At any one time there will be some new technologies that are capital-saving.

This is true. But it does not refute Marx. For there are likely to be a greater number of "capital intensive" rather than "capital saving" innovations. At any given level of scientific and technical knowledge some innovations may indeed be capital-saving. But when all these have been employed, there will still be other innovations (or at least capitalists will suspect there are other innovations) to be obtained only by increasing the level of investment in means of production. The fact that some technical progress can take place without any rise in the ratio of capital to labour does not mean that all the advantages of technical progress can be gained without such a rise. If an individual capitalist can increase the ratio of capital to workers he will be able to invest in and take advantage of innovations that need more capital as well as those that do not. If he cannot increase this ratio then he will benefit only from those innovations that do not-and he will lose out in competition with those who can. Since, in theory at least, there is no limit to the possible increase in the ratio of means of production to workers, there is no theoretical limit to possible innovation based on this method of competition.

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In the real world, every operating capitalist takes it for granted that the way to gain access to the most advanced technical change is to increase the level of investment in means of production or "dead labour" (including the dead labour accumulated in the results of past research and development). It is only in the pages of the most esoteric journals of political economy that anyone imagines that the way for the Ford Motor Company to meet competition from General Motors or Toyota is to cut the level of physical investment per worker. The capitalist usually recognises that you cannot get the benefits of innovation without paying for it.

For these reasons the average amount of means of production per worker, Marx's "technical composition of capital", will riseand with it the "organic composition of capital". Only one thing could stop the pressure for this rise: if for some reason there was a shortage of profit-seeking investment. In such a case the capitalists would be forced to forego hopes of achieving the innovations possible through greater investment and settle for those they might stumble upon by accident.

The second argument against Marx's account claims that changes in technique alone cannot produce a fall in the rate of profit. For, it is said, capitalists will only introduce a new technique if it raises their profits. But if it raises the profit of one capitalist, then it must raise the average profit of the whole capitalist class. So, for instance, Ian Steedman states, "The forces of competition will lead to that selection of production methods industry by industry which generates the highest possible uniform rate of profit through the economy" .34 The same point has been accepted by various Marxists economists over the last 40 years, for instance by Andrew Glyn,35 Susan Himmelweit,36 Robert Brenner37 and Gerard Dumenil and Dominique Levy38-and has been elaborated mathematically by Nobuo Okishio.39 They conclude that capitalists will only adopt capital intensive techniques that seem to reduce their rate of profit if that rate is already being squeezed either by a rise in real wages or by external competition. These things, not the organic composition of capital, hit the rate of profit.

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Marx's own writings provide a simple answer to any such argument: that the first capitalist to invest in a new technology gets a competitive advantage over his fellow capitalists which enables him to gain a surplus profit, but that this surplus will not last once the new techniques are generalised.

What the capitalist gets in money terms when he sells his goods depends upon the average amount of socially necessary labour contained in them. If he introduces a new, more productive, technique, but no other capitalists do so, he is producing goods worth the same amount of socially necessary labour as before, but with less expenditure on real concrete labour power. His profits rise.40 But once all capitalists have introduced these techniques, the value of the goods falls until it corresponds to the average amount of labour needed to produce them under the new techniques. The additional profit disappears-and if more means of production are used to get access to the new techniques, the rate of profit falls.41

The implications of Marx's argument are far reaching. The very success of capitalism at accumulating leads to problems for further accumulation. Eventually the competitive drive of capitalists to keep ahead of other capitalists results in a massive scale of new investment which cannot be sustained by the rate of profit. If some capitalists are to make an adequate profit it can only be at the expense of other capitalists who are driven out of business. The drive to accumulate leads inevitably to crises. And the greater the scale of past accumulation, the deeper the crises will be.

The countervailing tendencies

Marx's theory, it should be stressed, is an abstract account of the most general trends in the capitalist system. You cannot draw from it immediate conclusions about the concrete behaviour of the economy at any individual point in space and time. You have first to look at how the general trends interact with a range of other factors. Marx himself was fully aware of this, and built into his account what he called "countervailing tendencies". Two are of central importance.

First, there is increasing the rate of exploitation. If each worker contributes more surplus value this will counteract the fact that there are fewer workers per unit of investment. The increased exploitation could result from increasing the length of the working day (Marx's "absolute surplus value" ), cutting real wages, increasing the physical intensity of labour or a fall in the cost of providing workers with a livelihood as a result of increased productivity. In this case the capitalist could increase the proportion of each individual worker's labour that went into surplus value, even if the worker's living standard was not reduced. Such an increase in the rate of exploitation could counteract some of the downward pressures on the rate of profit: the total number of workers might not grow as fast as total investment, but each worker would produce more surplus value even if he or she did not suffer a wage cut or have to work any harder.

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There is, however, a limit to the capacity of this method to counter the downward pressure on profit rates-the number of hours in the working day. The number of hours per day that go into providing for the upkeep of the worker can fall from four to three, or from three to two, but it cannot fall below zero! By contrast investment in means of production can increase without limit.42

Take the example of a firm which employs a static workforce of 30,000. Even if it worked them as long as was physically possible each day (say, 1 6 hours) and paid them no wages, its daily profit could not exceed the value embodied in 30,000 x 16 hours labour. This is a limit beyond which profit cannot grow. But there is no such limit on the degree to which investment can grow (and with such a high level of exploitation there would be an enormous quantity of old surplus value to be turned into new enlarged investment). So a point will be reached where profits stop growing, even though competition forces the level of investment to continue rising. The ratio of profits to investment-the rate of profit-will tend to fall.

The second "countervailing factor" is that the increase in the productivity of labour means there is a continual fall in the amount of labour time-and therefore of value-needed to produce each unit of plant, equipment or raw materials. The "technical composition of capital" -the physical ratio of factories, machines, etc to workers-grows. But the factories, machines and so on get cheaper to buy. And so the expansion of investment in value terms would be rather slower than the expansion in material terms. This would counteract to some extent the tendency for the value of investment to outstrip the growth in surplus value.

There have been claims that this is more than just a "countervailing tendency" to Marx's law and in fact completely destroys it. Critics argue, using mathematical equations provided by Okishio, that technical progress means that goods are always being produced more cheaply than in the past.43 If a rise in the ratio of dead to living labour in a certain industry increases productivity, the price of its output will fall compared to the output of other industries. But that in turn will reduce the costs of investment in these industries and its ratio to labour. Lower investment costs will lower the organic composition of capital and raise the rate of profit.

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At first glance the argument looks convincing. It is, however, false. It rests upon a sequence of logical steps which you cannot take in the real world. Investment is a process of production that takes place at one point in time. The cheapening of further investment as a result of improved production techniques occurs at a later point in time. The two things are not simultaneous.44

There is an old saying, "You cannot build the house of today with the bricks of tomorrow." The fact that the increase in productivity will reduce the cost of getting a machine in a year's time does not reduce the amount a capitalist has to spend on getting it today. And if some other capitalist buys the cheaper machine, it immediately reduces the value of the machine owned by the first capitalist. While the new capitalist might be able to turn out goods in a more profitable way, the first capitalist has to deduct from his profits the loss in the value of his machine.45

When capitalists measure their rates of profit they are comparing the surplus value they get from running plant and machinery with what they spent on acquiring it at some point in the past-not what it would cost to replace it today. The point has added importance when it is remembered that the real process of capitalist investment takes place in such a way that the same fixed constant capital (machines and buildings) is used for several cycles of production. The fact that the cost of the investment would be less if it took place after the second, third or fourth round of production does not alter the cost before the first round of production.

The alleged disproof of Marx arises, as does the so-called transformation problem, from applying simultaneous equations to processes taking place through time. Simultaneous equations, by definition, assume simultaneity, with no passage of time.

The decline in the value of their invested capital certainly does not make life any easier for the capitalists. To survive in business they have to recoup, with a profit, the full cost of their past investments, and if technological advance means these investments are now worth, say, half what they were previously, they have to pay out of their gross profits for writing off that sum. What they have gained on the swings they have lost on the roundabouts, with "depreciation" of capital causing them as big a headache as a straightforward fall in the rate of profit.46

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Capitalism is based not just on value but upon the self-expansion of the values embodied in capital. This necessarily implies a comparison of current surplus value with the prior capitalist investment from which it flows. The very notion of "self-expanding values" is incoherent without it. And the loss of value of the equipment and materials of production that have already been paid for is detrimental to the self-expansion of value.

The fall in the cost of investment might help the new capitalist. But he in turn is under pressure from still other capitalists who invest after him in still cheaper equipment. And all the time the existence of surplus value made in previous rounds of production and available for investment in still newer techniques serves to push up the ratio of investment to the labour force.

There is continual growth in the mass of surplus value seeking an outlet for investment. The more of this surplus value an individual capitalist can get hold of, the bigger the investments he can make and the more productivity-increasing innovations he will be able to introduce compared to his competitors. A capitalist may be able to buy today a machine which is twice as productive as one he paid the same price for a year ago. But that is no help to him if a rival is using greater accumulated surplus value to buy a machine four times as productive. The individual capitalist can stay in business only if he spends as much surplus value as possible on new means of production. If the means of production become cheaper, that only results in his having to buy more of them in order to achieve competitive success. So long as there is more surplus value available for investment than there was previously, the organic composition of capital will tend to rise, other things being equal.47 It makes no difference if the physical means and materials of production are cheaper-that just causes more of them to be employed.

Crisis and the falling rate

But if the depreciation of capital through increased productivity cannot by itself save the rate of profit, it can if it is combined with something else-the crisis. For the crisis involves some capitals being made bankrupt. They are then forced to dispose of their capital not just at its depreciated value, but for anything they can get, however little. The beneficiaries are those capitalists who survive the crisis. They can pick up means of production-accumulations of value-on the cheap, enabling them to restore their own rates of profit.

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In this way depreciation can ease the pressure on the capitalist system as a whole, with the burden of paying for it falling on those capitalists who were driven out of business, but not on those who remained. Those capitalists who die bear many of the costs of depreciation for the system as whole, making it possible for those who live on to do so with lower capital costs and eventually higher rates of profit than would otherwise be the case. "The crises are always but momentary and forcible solutions of the existing contradictions. They are violent eruptions which for a time restore the disturbed equilibrium" .48

There is a continual double interaction between the long-term tendency for the rate of profit to fall and cyclical crises. The rise in the ratio of investment to labour employed as new investment takes place during periods of expansion exerts a downward pressure on the rate of profit, just as it is under pressure from rising raw material prices and wages. This can have a direct effect, with the fall in the rate of profit causing firms to stop investing, so causing recession in the capital goods industries which then spreads elsewhere. Or it can happen indirectly if firms are successful in protecting the rate of profit temporarily by forcing down real wages. In that case, firms in the consumer goods industries cannot sell all their goods-or, as Marx puts it, they cannot "realise the surplus value" that they have exploited-and their profits fall, again producing recession.49

But the crisis in turn leads to some firms going bust and provides opportunities for other firms to buy up their equipment and raw material and take on workers at lower wages. If enough firms go bust, the crisis itself can work to completely counteract the long-term downward tendency of the rate of profit. In short, the decline in the rate of profit helps produce the cyclical crisis, but the cyclical crisis helps resolve the long-term decline in the rate of profit.

Marx's account of the falling rate of profit was not published until 1 1 years after his death and did not have a big impact on the analyses of his followers in the next two decades. It barely featured in the most important works of Marxist analysis by Rosa Luxemburg, Vladimir Lenin and Nicolai Bukharin. It was accepted by Rudolf Hilferding but was not central to his analysis. 50 It was not until the 1920s that a concerted attempt was made to use it to analyse the long term trajectory of the system by the Polish-Austrian Marxist Henryk Grossman. He was reacting to the propensity of many Marxists to deny that capitalism was inevitably heading to a great crash, a "breakdown". He took up the argument in the form in which it had been put by the Austrian social democrat Otto Bauer, who claimed to show that capitalism could expand indefinitely, using schema from Marx in Volume Two of Capital depicting the interrelation between different sectors of capitalist production.51

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Grossman claimed to prove, as against Bauer, that if these schema were applied over a sufficiently large number of cycles of production a point would be reached at which the rate of profit would be too low to allow production to continue without cutting into workers' real wages and the consumption of the capitalist class itself. This would happen because "the scope of accumulation expands . . .in proportion to the weight of the already accumulated capital" even as the rate of profit tends to decline. Eventually a point would be reached where sustaining accumulation absorbed all existing surplus value, leaving none for the luxury consumption of the capitalist class, and then beginning to eat into the value needed to sustain the working class.52

Alternatively, if surplus value was used on an increasing scale to maintain the rate of profit on existing investment, there would be a collapse in the mass of surplus value available for new investment. The industries catering for investment would not be able to function. There would be "absolute over-accumulation" and "a state of capital saturation in which the over-accumulated capital faces a shortage of investment opportunities and finds it more difficult to surmount this saturation" .53 In either case the system would no longer be able to reproduce itself.

There have been many objections to Grossman's arguments.54 It is not clear from his argument why the rate of expansion of investment has to remain constant from one cycle to another, rather than slowly decline in response to the decline in the rate of profit and in doing so reduce the tendency of the organic composition of capital to rise. In that case the "breakdown", it might seem, could be postponed for a very long time. Further, Grossman's book is ambiguous about whether his theory proves the inevitability of crisis or the inevitability of a complete breakdown of the system. He recognises that the crisis can counteract the tendency of the rate of profit to fall, but still concludes that:

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the mechanism as a whole tends relentlessly towards its final end with the general process of accumulation . . . Once these counter-tendencies are themselves defused or simply cease to operate, the breakdown tendency gains the upper hand and asserts itself in the absolute form of the final crisis. 55

Yet it is possible to see hypothetical circumstances in which Grossman's arguments would apply. Intense competition between capitals-itself intensified by falling profit rates-could compel each to invest in ever more expensive means of production so as to obtain the advanced technology that is a precondition for survival. In this way the technical prerequisites of successful competition would contradict the possibility of maintaining profitability; the embodiment of capital in certain use values would contradict the possibility of expanding its value. Resistance from the working class could prevent restoration of profit rates through the method of paying for labour power at below its reproduction costs. And something might prevent the usual boom-recession cycles from driving some firms out of business and easing the long-term problems of others. Grossman's theory can then show how the falling rate of profit can produce deep problems for the system, without being treated as definitive proof that capitalism has to collapse of its own accord.

The concentration and centralisation of capital

The second long-term process recognised by Marx was what he called the "concentration and centralisation" of capital.56 It is not difficult to grasp what is involved. Concentration refers to the way in which exploitation enables individual capitals to accumulate and so grow larger. The small firm becomes a big firm and the big firm becomes a giant-providing it can survive each cyclical crisis. Centralisation refers to the way in which each crisis weeds out some capitals, leaving those that remain controlling a bigger part of the whole system.

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This process has important implications-not all of which were fully drawn out by Marx himself. The bigger the individual units of capital and larger the proportion of the system as a whole they constitute, the greater will be the impact on the rest of the system every time one of them goes bust. If a small firm stops making profits and goes bust, this will destroy only a small part of the market for other, previously profitable, small firms that supply it. There will be a very limited domino effect. If, however, one of the giants of the system goes bust, it can have a devastating impact on other previously profitable big firms that depended on it for their own markets, and on any banks or other firms that have lent it money. The domino effect becomes an avalanche effect.

At the same time, however, the very size of firms can provide them with protection from market forces up to a certain point. The individual acts of labour within a great capitalist enterprise are not directly in competition with individual acts outside it. Instead managerial decisions determine how they relate to each other. As Marx puts it:

In manufacture . . . the collective working organism is a form of existence of capital. The mechanism that is made up of numerous individual detail labourers belongs to the capitalist . . . Manufacture proper not only subjects the previously independent workman to the discipline and command of capital, but, in addition, creates a hierarchic gradation of the workmen themselves . . . Not only is the detail work distributed to the different individuals, but the individual himself is made the automatic motor of a fractional operation _. . . 57

The great enterprises are like islands within the system where the relation between the work done by individuals is organised by a plan, not by the interrelation of their products through the market:

What . . . characterises division of labour in manufactures? The fact that the detail labourer produces no commodities. It is only the common product of all the detail labourers that becomes a commodity. Division of labour in society is brought about by the purchase and sale of the products of different branches of industry, while the connexion between the detail operations in a workshop is due to the sale of the labour power of several workmen to one capitalist, who applies it as combined labour power . . . While within the workshop, the iron law of proportionality subjects definite numbers of workmen to definite functions; in the society outside the workshop, chance and caprice have full play in distributing the producers and their means of production among the various branches of industry.58

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