FIVE YEARS ago the banking system in the United States and Britain nearly collapsed. It was saved by massive government interventions; it was capitalism that almost broke down and was rescued by the state. If governments have to intervene to save big financial institutions that means, by definition, that markets have failed. That means that capitalism has to be propped up by the state.
One would have thought that in these circumstances, Karl Marx, the most effective critic of the capitalist system, would have some perspectives to offer. Instead, ironically, we see the publication of a book proclaiming the irrelevance of Marx’s ideas to the present-day conditions – and receiving much praise in reviews in several journals and newspapers.
I am referring to the book Karl Marx: A Nineteenth Century Life by Professor Jonathan Sperber who teaches history at the University of Missouri, the United States. Professor Sperber’s principal contention is summed up in the ‘Introduction’ to the book. He writes: ‘... it is time for a new understanding of him [Marx] as a figure of a past historical epoch, one increasingly distant from our own: the age of the French Revolution, of Hegel’s philosophy, of the early years of English industrialisation and political economy stemming from it. It might be that Marx is more usefully understood as a backward-looking figure who took the circumstances of the first half of the nineteenth century and projected them into the future than as a sure-footed and foresighted interpreter of historical trends. Such are the premises underlying this biography.’
What Marx meant by ‘capitalism’, Professor Sperber writes, was not the contemporary version of it, and the bourgeoisie Marx dissected was not today’s class of global capitalists. According to him Marx ‘certainly did understand crucial features of capitalism, but capitalism that existed in the early days of the nineteenth century, which both in its central elements and in the debates of political economists trying to understand is distinctly removed from today’s circumstances.’ Capitalism, according to Professor Sperber, has changed so much that Marx’s insights into the working of capitalism are irrelevant to our understanding of the present-day conditions.
Capitalism has certainly undergone some major changes since Marx’s day. In Marx’s time the typical business was family owned and family managed; its size was not such that its failure would have dire economy-wide repercussions. Today we have enterprises whose reach extends across the globe – think of the large oil companies, the banks, Google, Microsoft, large automobile manufacturing companies, and so on. And the failure of one bank can bring down the banking system and with it the economy. In Marx’s day the business and the state were distinct; today the state is almost interlocked with big business. One could go on.
From around 1844-45 until his death Marx’s theoretical endeavours were aimed at understanding the working of contemporary capitalism. In this work he attempted to identify certain long term trends or tendencies in capitalism. Some of these tendencies arose from the very nature (‘essence’) of capitalism, others were contingent on a number factors that could possibly go one way or the other. In this short essay, I am concerned with the first type that are fundamental to the validity of Marx’s analysis of capitalism. And I direct attention to two insights into the same tendency which, I claim, provide invaluable help in understanding the working of the capitalism of the 21st century. The first of these insights refers to what Marx called the ‘the Industrial reserve army’. Capitalism, for its expansion, requires a large reservoir of cheap labour; unemployed or under-employed labour on which it can draw so that wages are kept low, high profits can be maintained, and capital accumulation can proceed without any hitches. Imagine what will happen if in an economy (isolated from rest of the world) labour is fully employed. Any expansion would have to depend on the increase in population to satisfy the demand for of an expanding economy. Generally, increase in population will not be enough for meeting the increasing demand for labour. Shortages of labour will develop, the bargaining power of labour will be greater, wages will rise, and that will have an adverse effect on profits and investment. An expanding capitalist economy, if it has to keep expanding, needs supplies of ‘surplus’ labour to keep the bargaining position of workers in check, and to keep wages at a level that do not threaten profits and accumulation. That is in simple terms Marx’s idea of the reserve army of labour.
Looking at this phenomenon historically, Marx observed that in the early and initial phase of European capitalist development, that is, before widespread factory production, capitalist industry, as it expanded, could draw on unemployed and under-employed labour that was found in agriculture and traditional activities. That labour – potential source of cheap labour – constituted the industrial reserve army. Modern industry as it expanded drew on this reservoir of cheap labour and in this way wages were kept low, profits were kept high and a high rate of capital accumulation was maintained.
With continued expansion over time a point was reached when this source of cheap labour dried up. Now with modern factory production and rapid developments in technology, the capitalist economy developed a response to deal with the problem. This response was increasing mechanisation. It was not the case that before this period there was no mechanisation. The difference between the two situations was that now this procedure played a greater role than before. It came into full play. Economists have a word for this, ‘capital-labour substitution’. That is, when wages rise relatively to profits producers find it profitable to invest in new methods that ‘save’ on labour. According to Marx, the capitalist economy now created unemployment, recreated the reserve army of labour.
Associated with this phenomenon – relative reduction in the demand for labour – is another. Periods of rapid growth in the economy tend to be followed by a set-back; there is decline in profits and therefore reduction in investment and, as a consequence, reduction in the demand for labour. This is the phenomenon of booms and slumps or recessions. During recessions, with high unemployment, the bargaining power of workers is sharply reduced.
This is how the capitalist system works to keep in check workers’ wages and to maintain profits and rate of accumulation. This insight of Marx’s (I will put it no stronger than that) is still relevant.
After the Second World War this phenomenon took an international dimension. European economies had been devastated by war and faced the task of reconstruction. Domestic supply of labour was not sufficient for the task. The mechanism of ‘capital-labour substitution’ could not work in this situation. The reservoir could not be created at home. But there were large reservoirs of cheap labour in less developed countries. Thus, Germany imported labour from Turkey, Britain from India, Pakistan, the West Indies, and France from North Africa. (The Germans invented a rather nice word for their imported labour – Gastarbeiter, Guest Workers. Note that guests are expected not to over stay the hospitality of the host.) The mechanism of the industrial reserve army worked quite effectively during this period.
But there was a limit to how many ‘guest’ workers could be accommodated and imported from countries with vast reservoirs of cheap labour. From the late 1970s, the international dimension of the industrial reserve army took a different, extended form. If more and more Bangladeshis could not be imported into the developed world, then capital from the developed world will go to Bangladesh. (Of course there are other considerations- apart from cheap labour – that influence foreign investors’ choice of the location for their operations.) Thus, we see that an enormous amount of manufacturing industry – and services (call centres, for instance) – from developed countries has been transferred to ‘labour-rich’ countries to utilise the reservoirs of cheap and docile labour. Jack Welch, a former CEO of the American company General Electric put it nicely when he said: ‘Ideally you would put your manufacturing plant on a barge so that it could move around the world as wages and currencies fluctuate.’
I think I have said enough to show that the insight Marx provided in his discussion of the reserve army of labour is as valuable for understanding the working of capitalism today as it was when he discussed it. (The idea of the reserve army is discussed in volume one of Marx’s Capital, chapters 25 and 26.)
The second insight of Marx into the working of modern capitalism relates, as indicated, to the same phenomenon as the first, the drive of capitalism to expand. They have been discussed separately for ease of exposition. The phenomenon is what we today call ‘globalisation’; this is the same thing as the expansion of capitalism across the world.
According to Marx capitalism is a system that is dynamic and it cannot be conceptualised without its international dimension. The subject was discussed the first time when Marx and Engels presented the material conception of history in a comprehensive manner. (In fact, this is the most comprehensive statement that exists.) This was in the volume with the title German Ideology written in 1845-46 – Marx was 28 years old and Engels two year younger. The book was not published until 1932.
Let me quote from this volume. About the first phase of capitalist development, they wrote: ‘Intercourse with foreign nations was the historical premise for the first flourishing of manufactures ... Manufacture and the movement of production in general received an enormous impetus through the extension of intercourse which came with the discovery of America and the sea-route to the East Indies. The new products imported thence, particularly the masses of gold and silver which came into circulation, had totally changed the position of classes towards one another, dealing a hard blow to feudal landed property and to the workers; the expeditions of adventurers, colonisation, and above all the extension of markets into a world market, which had now become possible and was daily becoming more and more a fact, called forth a new phase of historical development...’
The expansion of commerce and with it of manufactures accelerated the accumulation of capital; created the big bourgeoisie, first of merchants and then of manufacturers. The old methods of production concentrated in guilds crumbled in the face of competition from manufactures.
It is not necessary here to go into a detailed discussion of the stages through which the process of globalisation underwent. It has been proceeding since the earliest development of this mode of production. There have been interruptions caused by European wars and economic recessions or depressions, particularly the one that occurred in the 1920s and the 1930s. The process became rather subdued during the Cold War, but as the great stagnation set in in the Soviet Union, during the Brezhnev era, the pace quickened. Towards the end of the 1970s and early 1980s, with the deregulation of financial institutions, privatisations of public assets, the process of globalisation achieved a momentum not seen since the early period of capitalism that witnessed the beginning of European colonial expansion across the globe. The late 1970s is of course also the time when the Communist Party of China changed course. This gave an enormously powerful boost to the process.
As suggested, Marx’s insight into the process of globalisation arises out of the manner in which he conceptualised capitalism. In every class society labour produces a surplus of output over and above what it consumes (and raw materials, etc.) This surplus product is appropriated by the ruling, propertied class. In pre-capitalist societies this surplus product was, generally speaking, used for the luxury consumption of the propertied class, wars, etc. Capitalism was different from these earlier societies in a number of respects. But let us direct attention to two of these (which are related to each other).
First, capitalism was a rational system in its methods of production; this in the sense that capitalist producers operated on the basis of a careful calculation of costs and benefits of their methods of production, and aimed at maximising the surplus product, increasing labour productivity and profits. This approach to production required a different – scientific – way of thinking that looked at traditional ways of doing things critically. (This rational approach to production then spread to other spheres of life).
Second, producers (capitalists) re-invested a large proportion of the surplus product to expand production and increase the productivity of labour by adopting new methods of production. This was capital accumulation, a unique feature of the capitalist mode of production, a new phenomenon in the history of mankind. Capitalists were driven to accumulate as a result of competition among themselves. It was a world of the survival of the fittest, the principle of individualism taken to its limit. (On this principle, see the article in viewpointonline.net, no. 152)
It was this way of conceptualising capitalism – seeing it as dynamic and expansive – that led Marx to his theory of capitalism. The tendency for the individual capitalist enterprise to grow in size and then go across its national borders in search of new markets and raw materials is built into the structure of capitalism. This tendency has of course been intensified since the technological developments since the 1980s. If the large capitalist enterprise today straddles the world, it is not simply because its leaders are ambitious for themselves, and they want to earn more money for themselves. It is a tendency they cannot escape. If today they earn annual incomes measured in millions of pounds, it is not just greed; it is fundamentally because the turnovers of their businesses run into billions of pounds. (The manager of the Chelsea football club was reported in the Guardian newspaper to earn 8.5 million pounds annually. Football is big, international business).
The notion that capitalism has an inherent tendency to become international, global was restated with great force in The Communist Manifesto, published in 1848: After referring to the discovery of America, the rounding of the Cape, colonisation, etc., it added: ‘The need of a constantly expanding market for its products chases the bourgeoisie over the whole surface of the globe. It must nestle everywhere, settle everywhere, establish connections everywhere.’
In a nutshell: The tendency for capitalist enterprises to expand and increase in size rests on the fact that there are clear advantages in being large, in terms of costs, in terms of market power, and in the struggle with competitors; it is, to repeat, the world of the survival of the fittest. Over time as these enterprises grow in size, they find that domestic markets are too small for their operations. They are thus led to find markets – and resources – in other countries. And these considerations lead them to locate their operations across the world.
I hope I have said enough to show that Marx’s observations on certain aspects of capitalist development are as relevant to our understanding of the world today as they were when The German Ideology and The Communist Manifesto was written.