Ted Grant (1913 – 2006)

Today is the third anniversary of the death of Ted Grant who died on July 20th 2006 aged 93.

Ted Grant was born in South Africa in 1913. Travelling
to Britain in search of broader horizons, he stopped off in Paris to
talk with Leon Sedov, Trotsky’s son. With Ralph Lee he formed the
Workers’ International League (W.I.L.), which subsequently fused with
the R.S.L. to became the Revolutionary Communist Party (R.C.P.) in the
war years.

After the war he defended Trotsky’s analysis of the
Soviet Union in that it was a deformed workers’ state – one in which
private property and capitalism had been abolished, yet where the
workers did not hold political power. He argued that the so-called
“communist” countries of Eastern Europe were in fact run on the same
lines as the Soviet Union, and he used the term Proletarian Bonapartism
to describe them.

During the 1960s he extended the analysis to the
colonial countries that had become “communist”. He argued that the
intelligensia of these countries looked towards Stalinism as a way to
develop their economies and alleviate the desperate conditions; but
since the masses had not been roused on a socialist programme, the
bureaucratic nature of these regimes was inevitable. Ted Grant was most famously the political editor of Militant and was expelled from the Labour Party in 1983. Throughout the 1990s he continued to contribute to Socialist Appeal and In Defence of Marxism. He died in 2006, after being an active Marxist for over 75 years.

In September of this year Wellred will publish the first volume of Ted Grant’s writings covering the 1930s and the first few years of the Second World War.

To mark this anniversary we are publishing an article from 1994 co-authored with Alan Woods.

The Relevance of Marxism Today (first published in 1994 as an introduction to Trotsky’s article ‘Marxism In Our Time)

On the threshold of the twenty-first century, humanity stands at the
crossroads. On the one hand, the achievements of science, technique and
industry point the way forward to a dazzling future of prosperity,
social well-being and unlimited cultural advance. On the other, the
very existence of the human race is threatened by the ravishing of the
planet in the name of profit; mass unemployment, which was confidently
asserted to be a thing of the past, has reappeared in all the advanced
countries of capitalism, not to speak of the nightmare of poverty,
ignorance, wars and epidemics which constantly afflict two thirds of
humanity in the so-called “Third World.”

The fall of the Berlin Wall and the collapse of the bureaucratic
Stalinist regimes of Russia and Eastern Europe provoked a wave of
euphoria in the West. The demise of Stalinism was heralded as the “end
of Socialism.” The final victory of the “free market” was trumpeted
from the pages of learned journals from Tokyo to New York. The
strategists of capital were exultant. Francis Fukuyama even went so far
as to proclaim the “end of history.” Henceforth, the class war would be
no more. Everything would be for the best in the best of all capitalist
worlds.

Ideological counter-offensive

In the last few years we have witnessed an unprecedented offensive
against the ideas of socialism on a world scale. The collapse of the
bureaucratically controlled planned economies of the East was held up
as the definitive proof of the failure of “communism,” and, of course,
the ideas of Marx.

This is not the place to deal in depth with the reasons for the
collapse of Stalinism. That will be done in a future work in this
series. The fall of Stalinism came as no surprise to the Marxists, who
had predicted it in advance. Indeed, Leon Trotsky already analysed the
bureaucratic regime in the Soviet Union in the 1930s and, using the
Marxist method, explained the inevitability of its collapse.

In the first place, Stalinism and socialism (or communism), so far from
being identical, are mutually exclusive. The regimes in the USSR and
its Eastern European satellites in many ways were the opposite of
socialism. As Trotsky explained, a nationalised planned economy needs
democracy as the human body requires oxygen. Without the democratic
control and administration of the working class, a regime of
nationalisation and planning would inevitably seize up at a certain
point, especially in a modern, sophisticated and complex economy. This
fact is graphically reflected in the falling rate of growth of the
Soviet economy since the early 1970s, after the unprecedented successes
of the planned economy in the earlier period.

However, what the Western critics of Marxism do not want to publicise
is that the movement in the direction of a capitalist market economy in
the former Soviet Union and Eastern Europe, far from improving the
situation, has caused an unmitigated social and economic disaster.

It is true that the productive forces stagnated under Brezhnev. But
what is the position now? Every index points to a catastrophe of
unprecedented dimensions. If we take the last three years, there has
been a decline of industrial production in Russia of about 40-45%. This
is a staggering collapse—far worse than the slump of 1929-32 in the
West. Investment fell by 45% in 1992, and an additional 12% in 1993,
and continues to fall. Inflation topped 20% every month in mid-1993.
The rouble has collapsed and the rate of exchange is now 1,250 to the
dollar, and still falling.

This situation can only be compared to the effect of defeat in a
devastating war. The effects on the population, which has rapidly been
reduced to absolute misery, can best be shown in the sudden
deterioration of life expectancy.

Under the planned economy, the people of the Soviet Union enjoyed a
level of life expectancy, health care and education on a level with the
most developed capitalist countries, or in advance of them. What is the
position now?

The Financial Times of 14/2/94 carried a front page article with the
title “Russia faces population crisis as death rate soars.” The article
points out that: “In the past year alone, the death rate jumped 20 per
cent, or 360,000 deaths more than in 1992. Researches now believe that
the average age for male mortality in Russia has sunk to 59—far below
the average in the industrialised world and the lowest in Russia since
the early 1960s.”

These figures merely confirm what is self-evident: That the attempt to
impose a “market economy” on the peoples of the former Soviet Union has
been a finished recipe for destroying all the gains of the past seventy
years, driving down living standards and plunging society as a whole
into an abyss.

Of course, the apologists of capital assure us that all this will be
temporary, that “in the long run” the market will create the conditions
for prosperity. To which we can answer in the words of Keynes: “In the
long run, we’re all dead.”

A few years ago, the Western media confidently predicted that
capitalism was about to enjoy a new period of dazzling economic
success, on the basis of new markets in Russia and Eastern Europe.
These illusions have been rapidly shattered by reality. Under
capitalism a “market” is not a question of the size of population. If
that were so, then India and Africa would be huge markets. However, a
market depends upon purchasing power—something which is noticeable by
its absence in the ex-Stalinist countries. Far from providing new
markets for capitalism, these countries represent a colossally
destabilising factor, as most clearly shown by events in former
Yugoslavia and the former USSR itself.

World Capitalist Crisis

Trotsky’s Introduction to “The Living Thoughts of Karl Marx” represents
a classic restatement of the basic positions of Marxism. In all its
essentials, it has been brilliantly confirmed by the present evolution
of capitalism on a world scale. Nevertheless, for a whole period
following the Second World War, it appeared to many to have been
falsified by the march of events.

As Trotsky had predicted, the Second World War ended in a new
revolutionary upsurge. In the period 1943-7, the working class moved
time and again to transform society in Italy, France, Greece, Britain,
Denmark and Eastern Europe. The betrayal of the revolution by Stalinism
and Social Democracy provided the political basis for a recovery of the
equilibrium of capitalism. This was the prior condition for the
economic upswing which lasted from 1948 to 1974.

It must be emphasised that there is no such thing as a “final crisis of
capitalism”. Marxism understands history as a struggle of living
forces, not an abstract schema with a preordained result. If the
working class does not overthrow it, the capitalist system will always
find a way out.

The reasons for the post-war economic upswing have been explained by Marxists since the 1950s (see Ted Grant: “Will There be a Slump?”).
There were many different factors, such as post-war reconstruction, the
discovery of new industries during the war, and to some extent the
increased involvement of the state (“state capitalism”) through arms
expenditure, deficit financing and nationalisation, which, for a
temporary period partially mitigated the central contradiction of
private ownership of the means of production.

However, the main factor which acted as a motor-force driving the world
economy was the unprecedented expansion of world trade. Thus, the
Financial Times (16/12/93) pointed out that:

“Over the whole period between 1950 and 1991, the volume of total world
exports grew twelve times, while world output grew six times. More
startlingly still, the volume of world exports of manufactures rose
twenty three times, partly because this is where trade liberalisation
was concentrated, while output grew eight times.”

These figures clearly show how the rapid expansion of world trade in
the post-war period acted as a powerful motor-force which drove the
growth in output. This is the secret of the capitalist upswing from
1948-74. It means that, for a whole historical period, capitalism was
able partially to overcome its other fundamental problem—the
contradiction between the narrowness of the national market and the
tendency of the means of production to develop on a global scale.

Now, however, this tendency appears to have reached its limits. In
1992, world trade grew by 6,5%. While this is a lower rate than in the
period of the post-war upswing, it is nevertheless historically quite
high. (In the period between the Wars it was nearer 2.5%.) Despite
this, it did not stop Europe and Japan from sliding into recession. In
other words, the growth of world trade no longer has the same effect as
in the previous period.

During the period of capitalist upswing from 1948-74, we saw a
staggering increase in the productive forces, fuelled and stimulated by
an unprecedented expansion of world trade.

The capitalists, above all in Japan, the USA and Western Europe, were
prepared to invest colossal sums in expanding the productive forces in
pursuit of profit. The productivity of labour increased enormously as a
result of a constant revolutionising of the means of production. New
branches of industry were established—plastics, atomic energy,
computers, transistors, lasers, robots, etc.

From a Marxist point of view, this was an historically progressive
development, which creates the material basis for a socialist society.
The strengthening of the working class and the squeezing out of the
peasantry in Western Europe, Japan and the United States, also changed
the class balance of forces within society to the advantage of the
proletariat.

However, this period of capitalist expansion came to an end with the
recession of 1973-4. Already in that period we saw the re-emergence of
mass unemployment, not seen since the 1930s. The big movements of the
working class in Greece, Portugal, Spain, Italy and Britain showed that
the workers were beginning to draw revolutionary conclusions from their
experience.

This was temporarily cut across by the boom of 1982-90. However, this
boom was completely different to the economic upswing of 1948-74.
Originally sparked off by the Reagan rearmament programme, the boom of
the 1980s was of an unsound character. Whereas the parasitic service
sector underwent a big expansion, the capitalists continued to close
factories and lay off workers in all countries.

The boom was kept going by a massive expansion of credit, which, as
Marx explains, can temporarily take capitalism beyond its limits,
before bouncing back like an elastic band stretched almost to
breaking-point. A further element in the situation was a colossal
increase in the public deficit of the USA and other capitalist
countries which fuelled the boom for a while, but which could not be
sustained indefinitely.

Precisely these factors which served to prolong the boom of the 1980s
have now turned into their opposite. Part of the reason why the Western
world is finding it so hard to drag itself out of recession is because
they used up during the boom mechanisms which capitalism uses to get
out of a slump.

The uncontrolled expansion of credit has left the West with a painful
hangover in the form of huge consumer indebtedness. In Japan, for
example, for every 100 yen earned, 170 yen are owed. In the United
States, for every dollar earned, a dollar two cents are owed, and so on.

The bourgeois economists failed to predict this recession, which is the
longest and most severe since the Second World War. Of course, sooner
or later they will get out of it. However, it is proving to be
extremely difficult. With the exception of a very shaky recovery in
Britain and a rather more stronger one in the USA, the other economies
of Western Europe and Japan remain stubbornly depressed. The official
predictions of recovery are constantly postponed and revised downward.

The Economist (Dec.1993-Jan.1994) reports that: “The OECD now predicts
that average growth in its member countries will speed up (!) to 2.1%
in 1994 and 2.7% in 1995, after average growth of only 1.2% in each of
the past three years. Some countries will fare better than others. A
solid, if unspectacular, recovery is already underway in the United
States, Canada, Britain, Australia and New Zealand—the countries that
dipped into recession first. All five are tipped to grow by around 3%
or more in both 1994 and 1995.

“Continental Europe and Japan, however, remain obstinately in recession.”

Even a growth of 3% would be a miserable result. It would not mean a
substantial fall in unemployment. Hence, the Financial Times refers
glumly to “a joyless recovery.” But it is not even certain that they
will attain this level of growth. A year ago the OECD predicted that
Japan would grow by 2.3% in 1993, and 3.1% in 1994. Instead, Japan’s
GDP actually fell by 0.5% in 1993 and the forecast for 1994 is only
0.5%. Compare these figures to the normal Japanese growth rate of 4-5%
a year and we see the very profound nature of the crisis.

Even on the most optimistic estimates, unemployment in the OECD will
remain (officially) at 8.5% for the next two years. In Europe, the
average rate of unemployment will continue to rise to at least 11.5%.
In other words, a sluggish (“joyless”) boom will solve none of the
fundamental problems of the capitalist system. In fact, it will
exacerbate them.

Whereas in the period of upswing from 1948-74 we had long periods of
boom interrupted by shallow and short recessions, a very different
picture is now emerging: of relatively weak periods of boom,
characterised by low rates of investment, low growth and permanently
high unemployment, which are only the prelude to increasingly deep and
prolonged periods of slump. Such is the glittering prospect which
capitalism offers to humanity on the eve of the new millennium.

Mass Unemployment

One of the most malignant symptoms of the diseased state of capitalism
in its epoch of senile decay is the appearance of mass organic
unemployment.

During the period of capitalist upswing, mass unemployment was alleged
to be a thing of the past. Through Keynesian deficit financing and
“managed capitalism,” the capitalist cycle of “boom and bust” was
supposed to have been overcome. Marx had been shown to be fundamentally
wrong!

In point of fact, even in this period the capitalist cycle of boom and
slump continued to exist. However, under conditions of general upswing,
the small slumps or recessions which took place were generally short
and shallow, and were hardly noticed by the masses.

In the 1950s and 60s, the average unemployment in the advanced
capitalist economies of the OECD was about 2-3%. Most Western
governments defined this as “full employment.” Now this situation
appears as a dim and distant memory. Today, half the OECD countries
have a jobless rate of 10% or more. Since the early 1970s, unemployment
in the advanced capitalist world has more than doubled.

According to the official statistics, which deliberately falsify and
underestimate the true levels of unemployment, a record 35 million
people are out of work in the OECD. The real figure would be nearer 50
million or more, particularly if we add the “discouraged” workers who
have given up looking for a job.

Unemployment in the European Union (EU) has increased inexorably over
the past two decades from 2.4% in 1970, to 6% in 1980, to almost 12% at
present. (about 20 million people—roughly the population of Greece and
Portugal combined). In the USA, 6.5% are out of work and in Japan, too,
unemployment is rising for the first time in decades. In fact, many
economists consider that the true rate of unemployment in Japan is not
the official 2.5% but nearer 10%. Bear in mind that unemployment in
Japan has not exceeded 3% since the Second World War. Now all that is
about to change.

The main point is that this unemployment is qualitatively different to
anything we have seen since 1945. This is not “cyclical” unemployment
which rises and falls with the normal trade cycle of capitalism. It is
not even the “reserve army of unemployed” which, as Marx explains, is a
necessary feature of capitalism.

This is a permanent, organic, or as the bourgeois economists call it,
“structural” unemployment. The system is no longer able to absorb the
large numbers of workers who enter the labour market each year. On the
contrary, it cannot even keep in employment those who are already at
work.

Even in periods of booms, like the boom of 1982-90, the capitalists
behave like Luddites, destroying the means of production, closing down
factories and throwing large numbers of workers onto the streets. In
periods of slump, this situation gets worse. But even when the economy
finally picks up, it is unable to reabsorb them.

Unemployment is a cancer which gnaws at the bowels of society. The
atrocious waste represented by unemployment is shown by the fact that
we are currently losing (on official figures) the equivalent of 35
million man-years of production every year.

In addition to this, the money spent on unemployment benefit and social
security, insufficient as it is, serves to aggravate the problem of
budget deficits which plague all Western governments. Since they cannot
just let 35 million people and their dependants starve to death (not
out of any charitable feeling, but because of fear of the social and
political consequences), the capitalists are compelled to pay out huge
sums of money for people not to work.

In the words of the Communist Manifesto, the bourgeoisie is “unfit to
rule because it is incompetent to assure an existence to its slaves
within its slavery, because it cannot help letting him sink into such a
state, that it has to feed him, instead of being fed by him.”

Like some uncontrollable and terrifying epidemic, unemployment strikes
the young and old, men and women, black and white, educated and
uneducated, skilled and unskilled. Even the managerial strata,
professional people and white collar workers who never thought they
would be out of work—find themselves unceremoniously thrown on the
scrap heap in the prime of life. For many 40 year olds (and even
younger people) who lose their jobs now may never find work again.

As The Economist (7/7/93) put it: “Many who toiled long and hard to
climb a career ladder are, indeed, finding that the rungs are falling
away under their feet.”

The capitalists have no answer to the problem of unemployment. The old
Keynesian recipes have been shown to be bankrupt. The huge budget
deficits which exist in all capitalist countries (except Japan, for
special reasons) means that deficit financing and “pump priming” to
artificially boost demand through state expenditure is ruled out.

The dominant wing of the bourgeois have unceremoniously ditched the old
Keynesian nostrums (which were, let us recall, supposed to have
provided the definitive answer to Marxism).

“In the 1930s, when jobless rates soared above 20% in America and
Britain, a British economist, John Maynard Keynes, argued that the cure
for unemployment was to stimulate demand by increasing public spending
or cutting taxes. In the 1950s and 1960s Keynesian demand management
seemed to do the trick. Unemployment stayed low. But since the early
1970s, it has ratcheted up in each cycle. An increasing proportion of
unemployment is clearly structural.” (The Economist, 12/2/92).

The fact is that, even in the event of a shaky recovery which seems
likely in the next period, unemployment will not noticeably go down in
most countries. It will remain an ugly and chronic ulcer, sapping the
strength of society.

The Daily Express of February 11th 1994, in a article on the dire
position of Britain’s manufacturing sector pointed out that more than
360,000 jobs had been lost in the industry during the recession in the
three years to 1993, and that a further 47,000 were forecast to
disappear in 1994, precisely in a period of recovery of the British
economy. It goes on to predict that:

“Even though the industry is expanding, engineering companies will
continue to cut workforces as new technologies force out the
unskilled.” And this is no exception, but the rule, and not only in
Britain. In 1993, nearly half the unemployed in Europe had been out of
work for a year or more, with little or no prospect for improvement.

The situation in Japan, where until recently most workers thought that
their jobs were guaranteed for life, is no better. Although the overall
unemployment figures seem low by comparison with Europe, the underlying
trend is sharply up. The Economist (18/12/93) points out that the
number of full-time jobs in Japan increased over the year to October
1993 by a mere 0.1%. But since the workforce is growing by 0.5% a year,
unemployment continues to increase: “The number of people registered as
unemployed is up 20% on last year. Until September 1992, job vacancies
outnumbered jobs seekers: now there are 67 openings per 100 job
seekers,” and the article concludes pessimistically: “Unless the yen
falls along with Japan’s trade surplus, the present troubles may soon
seem mild.” In fact, the yen has risen, and Japan’s crisis has gone
from bad to worse.

Machinery and the Working Day

Those of us with long enough memories can remember the days when the
“experts” promised us a glorious vista of the future when, on the basis
of applied science and technology, the burden of work would be done
away with, hours reduced and the central problem of society would be
what to do with our leisure time.

How ironic these arguments sound today! While million of unemployed
languish in conditions of enforced “leisure,” other millions with the
good luck to remain at work find themselves subjected to
ever-increasing pressures to work longer hours with lower pay and worse
conditions. and to spend the maximum exertions of their nervous system
and muscle-power in the cause of greater “productivity” (read:
“profitability”).

Yet, in truth, all the earlier predictions concerning the possibility
for reducing the working day were correct. The potential for a
universal reduction in working hours—and thereby the abolition of
unemployment—is implicit in the spectacular advance of technology in
the past few decades.

Let us consider the implication of industrial robots. There are 500,000
of these machines in the world at the present time. Japan, with just
0.3% of the surface of the world, and 2.5% of its population, possesses
more than 300,000 of the total—double the number of five years ago.

In the USA, the number of robots has grown by 50% in the same period,
according to figures published by the McKinsey Global Institute. Italy,
France, Spain and other countries have likewise increased their number
of robots.

The introduction of these machines means that the number of workers in
a factory can be drastically reduced, while the productivity of those
who remain, vastly enhanced by machinery, registers a substantial
increase.

In France, for example, the two major car manufacturers have reduced
their workforce by no fewer than 200,000 over the past twelve years,
with an increased productivity of 12% in the same period. Similarly,
the Peugeot factory in Spain reduced its 12,000 workforce by half over
the last decade.

The same technology can be applied to many other fields—the
transformation of plastics, for example, or the textile industry. Even
in the food industry, such operations as the packaging of cheese is
done by robots, which can also be used to eliminate human participation
in dangerous occupations. Robots mean greater quality, more flexibility
in production, and speed.

The universal application of such technology in the context of a
rational and harmonious plan of production, with the democratic
involvement of the workers at all levels, would signify a complete
transformation of the life of society.

The working week could immediately be reduced to a four day, thirty
two-hour week without loss of pay, and at the same time production
could be rapidly increased both in quantity and quality. Thereafter,
the working day could be steadily reduced, thus providing the material
conditions for such a flourishing of democracy, art, science and
culture as the world has never seen.

This is precisely the material basis for socialism—a new and
qualitatively higher form of human society. These are not utopian
day-dreams, but conclusions which flow logically and inevitably from
the present state of knowledge and the actual demands of the productive
forces.

And yet, at every step reality knocks its head against the potential of
production and technique. Instead of a world of leisure and
self-fulfilment, we have a social nightmare of mass “structural”
unemployment on the one hand and relentless, inhuman squeezing of
labour power on the other. How to explain such a crying contradiction?

Marx’s “Capital”

In the first volume of Capital, Marx explains that the introduction of
machinery under capitalism necessarily means a lengthening of the
working day. The purpose of employing machinery is to cheapen the
product by economising on labour.

However, there is a contradiction implicit in this. The profits of the
capitalist are extracted from the unpaid labour of the working class.
The increase in the productivity of labour made possible by the
introduction of machinery is achieved by a heavy initial outlay on
costly machinery which, in themselves, add no new value to the end
product, but merely import to it, over a period, bit by bit, their own
value:

“Machinery, like every other component of constant capital, creates no
new value, but yields up its own value to the product that it serves to
beget.” (Vol. 1, p387)

The only way to ensure a greater return on this outlay, is to make his
machinery work non-stop, day and night, with no interruptions, while
simultaneously squeezing every atom of surplus value from the worker,
both by lengthening the working day through overtime, the abolition of
tea-breaks, etc. (“absolute surplus value”), and by enormously
increasing the intensity of labour by speed-ups, productivity deals and
all kinds of pressure (“relative surplus value”).

Thus, as Marx explains, “machinery, while augmenting the human material
that forms the principal object of capital’s exploiting power, at the
same time raises the degree of exploitation.” (Vol. 1, p395) And again:
“If machinery be the most powerful means for increasing the
productiveness of labour—i.e. for shortening the working-time required
in the production of a commodity, it becomes in the hands of capital
the most powerful means, in those countries first invaded by it, for
lengthening the working-day beyond all bounds set by human nature.”
(Vol. 1, p403)

Competition, the constant revolutionising of the productive forces and
techniques, the desire to “corner the market” and get an advantage over
others, were the factors which, in the past at least, compelled the
capitalist constantly to re-invest in expensive machinery.

However, once having introduced new machinery, it is in the
capitalist’s interest to use it to the maximum. It cannot be allowed to
stand idle for an instant, partly because it deteriorates, and partly
because it can quickly become obsolete. That is why, under capitalism,
the introduction of machinery leads to greater exploitation and an
increase in the working day.

The introduction of new technology to a given branch of production
means that in that branch, for a time, huge super-profits can be
earned. Later, however, the other capitalists catch up and the rate of
profit is levelled out.

Ultimately, the amount of surplus value obtained by the capitalist
depends upon two things: a) the rate of surplus value and b) the number
of workers employed. However, the introduction of machinery tends to
reduce the number of workers and therefore change the ratio of variable
to constant capital. Machinery (constant capital), as we have seen,
does not add any new value to the final product above and beyond what
is already present in it. “Hence, the application of machinery to the
production of surplus value,” Marx explains, “implies a contradiction
which is immanent in it.” (Vol. 1, p407)

The Tendency of the Rate of Profit to Fall

In the Grundrisse, Marx refers to the tendency of the rate of profit to
fall as “the most important law in modern political economy.”
Nevertheless, Marx never considered this as an absolute phenomenon. In
the third volume of Capital, he explains the tendencies which served to
counteract this law. For example, Marx points out that the
intensification of exploitation (“relative surplus value”) can restore
the rate of profit, and also the tendency to cheapen the price of
commodities, including machinery. We have seen precisely these factors
operating in the recent period, as the capitalist attempt to increase
their profit margins by squeezing every atom of surplus value from the
sweat and nervous strain of their workers.

In other words, what we are dealing with is only a tendency which
manifests itself over the whole history of capitalist development.
Nevertheless, there can be long periods—even decades—in which the
tendency of the rate of profit to fall is cancelled out by the
counteracting tendencies already mentioned.

In his book The Current Crisis written in 1987, Mark Glick publishes
the following figures for the long-term rate of profit in the United
States:

1899—22% 1939—7%
1914-18—18% 1945—23%
1921—12% 1948—17%
1929—17% 1965—18%
1932—2% 1983—10%

Thus, from an historical point of view, we see that, leaving aside
the inevitable cyclical fluctuations, the rate of profit now is lower
than it was a hundred years ago. However, for whole periods this
tendency has been reversed.

If we take the figures for the main capitalist countries during the
period of the post-war upswing, when colossal sums were spent on new
plant and machinery, the tendency of the rate of profit to fall is
clearly revealed:

Profit Margins in Manufacturing Industry as a Percentage of the Value of Production:

The slight discrepancies between these figures and Glick’s are due
to the fact that the statistics are often evaluated differently.
However, the important thing is the trend, which is quite clear.

In the subsequent period, particularly the 1980s, this tendency was
sharply reversed, as the capitalists of all countries took steps to
restore the rate of profit. This was mainly done by drastically
increasing the rate of exploitation. Employers took advantage of the
huge “shakeout” of the early 1980s to squeeze extra surplus value from
the workers who remained in employment. This was particularly true in
Britain and the USA.

In general, the boom of 1982-90 represented the weakest investment
cycle since the Second World War. Only in Japan and Germany was there a
significant increase in capital investment. In the United States,
investment in productive industry remained weak in comparison to the
booms of the past. On the other hand, merciless pressure was exerted on
the American workers to keep wages down and boost profit margins.

By such means, the capitalists have succeeded in partially
restoring the rate of profit. But even so, the rate of profit is still
far less than it was in the “golden age” of the 1950s and early 1960s.
Nevertheless, the capitalists can accept, for a time, a reduced rate of
profit, provided the mass of profit is maintained.

Some people imagined that a new period of capitalist expansion
would be guaranteed by the opening of new fields of investment in the
“information revolution.” This illusion has been rapidly shattered. The
computer and software market has also rapidly reached saturation. In
two years, the cost of personal computers fell by half, and the price
of related products— spreadsheets, word processors, databases and the
rest, is being dragged down after it.

In point of fact, this new area of production is a classic case
which illustrates the correctness of Marx’s economic theories. The
costs of developing complex new products are huge. Microsoft’s Access
database alone cost about $60m. This can only be offset by a rapid
increase in market share and a huge volume of sales.

However, with the appearance of overproduction and falling prices,
profit margins have begun to fall. In the quarter to September 1993,
Borland’s net profit margin sank to 2.6% of sales, down 4.2% a year
earlier. The equivalent figures for Lotus were 7% and 14.6%. Even
Microsoft anticipates a fall in its net profit margin to around 15%
from falling sales of application software.

The capitalists can, for a time, tolerate the tendency of the rate
of profit to decline, on condition that the mass of profit is
maintained.

As we have pointed out, the Japanese capitalists for decades have
led the world in investment in new machinery and technology. The
long-term decline in the profitability of Japanese industry is a
well-documented fact.

Between late 1986 and early 1991, capital investment in Japan
accounted for two-thirds of GNP growth. According to investment experts
Smithers and Co, the current slump in business investment in Japan is
directly related to this phenomenon; the graph shows a continuing
decline of the rate of return on physical capital: “it takes more and
more investment to deliver a given increase in output. This fact has
its counterpart in Japan’s declining long-term growth rate.” Before the
“oil crisis” of 1974, the trend growth of real GNP was nearly 9%. Then
it declined to 4%. One of the factors in this was “that the return on
investment has declined sharply. Business investment became even less
profitable in the most recent capital-spending binge.” (The Economist,
29/5/93).

“Experience in Europe and America suggests that a
ratio of capital spending to GNP of about 12-15% is typical for a
mature economy. Japan’s ratio peaked at 22% in 1991. Since then
companies such as Toyota have announced steep reductions in investment.
But capital spending still accounted for 20.5% of GNP in 1992. Further
severe cuts seem inevitable, with consequences for both employment and
consumer confidence, Smithers and Co. expects capital spending to fall
by almost half before this adjustment is complete.” (Ibid)

All the big Japanese companies have seen their profits slashed. In
the six months to September 1992, Matsushita (the world’s biggest
electronic manufacturer) experienced a fall of 66% in pretax profits,
NEC, 71%, Mazda, 72%, Nippon Steel, 74%. The average drop in pretax
profits was 36%. Nissan saw its first ever loss since it was quoted on
the stock exchange in 1951—a total of $114 million.

The result? Factories mothballed, wages frozen, bonuses paid in
unsold goods and, for the first time in decades, Japanese workers
sacked. In other words, the much-vaunted “Japanese model” has finally
collapsed.

The aggressive exporting methods of Japanese companies are part of
an attempt to restore profitability by intensive participation on the
world market. On the other hand, together with massive investment in
the most modern machinery, the Japanese capitalists have developed new
techniques and working practices designed to squeeze the maximum
productivity from the workers. Thus, the Nissan plant in Sunderland
produces 80 cars per worker per year (the same as in Japan) compared to
an average of about 45 cars in the European car industry. However, both
the stepping up of pressure on the workers and the attempt to find a
way out of the crisis through exports come up against insuperable
barriers.

One of the ultimate causes of capitalist crisis is over-production.
The working class can never purchase the total product of its labour.
The capitalists cannot increase wages to the point where its surplus
value is eliminated, since the pursuit of surplus value is the
motor-force of the entire system. Other things being equal, if the real
wages of the working class increase, the capitalists’ profits will
fall, producing a collapse of investments, the life-blood of the system.

In the recent period we have seen a ferocious struggle to push down
real wages, while simultaneously forcing up the productivity of labour.
In the United States, for example, real wages have not risen in twenty
years. In British manufacturing industry, the workforce has been
reduced from six million to four million over the past decade, yet the
level of production remains the same. And this has been achieved
without the massive introduction of new machinery, which would have
been a progressive development.

However, the relentless squeezing of the workers to achieve higher
rates of profit is reaching its limits. There is a point beyond which
the workers’ physical ability to produce cannot go. The drive to go
beyond these limits will inevitably produce an explosion.

Even leaving this out of account, from a strictly economic point of
view, the continuing “shake-out” of workers from the factories creates
new contradictions. On the one hand, the rise in unemployment reduces
demand and thereby deepens the crisis. On the other hand, since surplus
value can only be produced by human labour, at a certain point the
expulsion of workers from the factories must lead eventually to a fall,
not only in the rate of profit, but in the mass of profit.

The attempt to find a solution by increased participation in world
markets also has a limit, insofar as the capitalists of all countries
are attempting to do the same thing.

Compared to these points, the trusts of Marx’s day were mere
child’s play. The The only solution is to attack the workers’ living
standards. We see this tendency in all countries at the present time.
However, this merely gives rise to new contradictions. To the extent
that they succeed in cutting wages, on the basis of the “need to be
competitive” in one country, the competitive advantage will be
cancelled out, all the capitalist countries will be back to square one,
but the masses of all nations will be worse off.

The attempt to solve the problem by increased participation on
world markets has led to an ever fiercer struggle between the USA,
Europe and Japan. Such is the sharpness of the conflict that, in any
other historical period, it would have already led to war. In the
modern epoch, for reasons explained by the Marxists in the past, a
world war between the main imperialist nations is virtually ruled out
(although “small” wars such as the Gulf War and the Yugoslav conflict
are inevitable). Instead, we have the threat of trade wars, and the
increasing division of the world into rival blocs, dominated by the
USA, Japan and Western Europe.

The ferocious struggle for competitive advantage, the desperate
attempt to boost profit margins, means that each national capitalist
class will seek to put extra pressure on its workers. Wages, hours,
conditions, social reforms, trade union rights—all the gains of the
past—are under attack. This is a recipe for class struggle.

Concentration of Capital

It is ironic that, precisely in this epoch, when the entire world
economy is dominated by huge multinationals, the apologists of capital
try to show that the future lies with small enterprises, or, to use
their favourite catch-phrase, “small is beautiful.”

This wishful thinking is like the day-dreams of a decrepit old
libertine who tries to forget his present ailments by recalling the
vigour of youth. However, the youthful phase of capitalism is gone
beyond recall.

Marx explains how free competition inevitably begets monopoly. In
the struggle between big and small capital, the result is always the
same: “It always ends in the ruin of many small capitalists, whose
capitals partly pass into the hands of their conquerors, partly
vanish.” (K. Marx, Capital, Vol. 1, p. 626)

Today, the vast power of the monopolies and multinationals
exercises a total stranglehold on the world. With the access to
staggering sums of money, their economies of scale, their ability to
manipulate commodity prices and even their power to determine the
policy of governments, they are the true masters of the planet.

The brilliance of Marx’s method is shown precisely from the fact
that he was able to predict the inevitable tendency towards
monopolisation when “free competition” was still the norm.

Nowadays, despite the demagogic twaddle of journals like The
Economist about “small is beautiful,” there can be no question of this
general historical tendency being reversed. Quite the contrary. The
last few decades have witnessed an unprecedented tendency towards the
concentration of capital.

The broad historical tendency towards the concentration of capital
is absolutely incontrovertible. If we take the percentage of total
assets held by companies in the United States, for example, we get the
following result:

At the present moment in time, no less than nine-tenths of the US
economy is in the hands of the top 500 companies, and 80% of that is in
the hands of the 100 biggest. A US Senate report of 1980 further
revealed that the controlling interests of the stocks of these
companies was in the hands of just two dozen big financial
institutions. In turn, these companies are controlled by each other.
For example, over a third of the shares of Citibank were held by just
twenty-four of its leading “competitors.”

The figures for Britain are no less illuminating. Let us take the
percentage share of the largest 100 firms in manufacturing:

The situation as regards Germany is no different. In 1982, firms
with over 200 employees accounted for only 11.9%. By 1991 it was 45.1%.

Small may or may not be “beautiful,” but the plain fact is that
firms with over 500 employees overwhelmingly predominate in all major
capitalist economies as against small enterprises, accounting for 49%
of manufacturing in France, 66% in Britain, 60% in West Germany and a
staggering 71% in the USA.

The only exception is Japan, with 33%, but this is more apparent
than real, since the large number of small firms are heavily dependent
on the monopolies, and really represent auxiliaries of the industrial
giants. At the present time, Japanese small firms are going bust at the
rate of more that 1,000 each month. A similar position exists in Europe.

An editorial in The Economist (18/7/92) points out that “there were
3.6% million more small and middle-sized enterprises in the European
Union in 1989 at the start of the decade.

“Now the gap is back, and widening. Many small firms have collapsed
as economies stagnated and the share prices of the survivors have done
less well than those of the big companies. Banks have cut their
lending.” And this is the voice of the journal which used to wax
lyrical about the small and medium firms which were allegedly going to
represent the future of the “free market economy”!

Yet these figures do not tell the whole story. In the recent
period, especially during the boom of the 1980s, the tendency towards
the concentration of capital has been enormously accelerated, as the
big monopolies made huge fortunes out of take-over bids, often
accompanied by all kinds of fraud and corrupt practices—leverage bids,
junk bonds, asset stripping, insider dealing, and so on. This kind of
speculative fever, the urge to “make a fast buck” out of non-productive
activity, and not at all the creation of real wealth through
investment, is what characterises the present period of capitalism.

In Britain, where the capitalist class has operated in an entirely
parasitical way for years, the “merger-mania” revealed itself in a
particularly crude way throughout the “Thatcher decade,” coinciding
with the wholesale dismantling of manufacturing industry. Thus, in 1979
there were 534 takeovers, with a total value of £71.6 billion. By 1987,
that figure had risen to a staggering 1,125, with a total value of
£715.5 billion—ten times as many.

The same phenomenon can be seen on a global scale. In the first
nine months of 1990, the number of world-wide mergers and acquisitions
stood at 6,883. The following year, despite the recession, the
corresponding figure was still 6,151. The process of the concentration
of capital proceeds apace, despite all the propaganda about “free
enterprise.”

In Britain, fifty big companies control 90% of international trade.
On a different level, one third of world trade is in the hands of giant
multinationals with truly staggering sums of capital at their disposal.
The speculative movement of this capital around the world can make or
break governments. The power of the big monopolies was revealed by the
crisis of the European Monetary System (EMS), when the manipulation of
billions in the international money markets compelled the devaluation
of the pound, the lira, the peseta, and other currencies.

In the period of capitalist ascent, the bourgeois played a
progressive role in developing the productive forces, investing in
industry, science and technology. In the epoch of capitalist decline,
we see a very different picture emerging. Speculative activity and
investment in the parasitic service sector is displacing investment in
productive activity as a source of profit. When huge fortunes can be
made by a single telephone call by a currency speculator, why bother to
risk capital in costly machinery which may never make a profit?

Gambling on the stock exchange has reached epidemic proportions.
Nearly $200 billion a year goes to finance speculative takeovers in the
United States alone. While factories were being continuously closed, in
the period 1989-91 more than half of world-wide investment was
dedicated to services. While part of this was of a productive character
(transport and other parts of the productive infrastructure which is
incorrectly included under the heading of “services” by the bourgeois
analysts), the majority, from junk-food shops to banking and insurance,
was parasitic and non-productive.

Every day about $1,000 billion exchanges hands on the foreign
exchange markets. Yet only 5-7% of this represents real production and
exchange deals. The rest is made up of massive speculation in
international currencies, where fortunes are made in a matter of hours
without the need for any productive activity, whatsoever.

To understand the explosive growth is speculative activity, between
1980 and 1990, the volume of world-wide cross-border transactions in
equities increased at a compound rate of 28% a year, from $120 billion
to $1.4 trillion a year. Currency trading has grown by more than a
third since April 1989, when a central bank survey estimated net daily
turnover at $650 billion—and that was double the previous survey’s
estimate for 1986.

The vast sums of money handled by the big banks, and used mainly
for speculative purposes, is shown by the following figures. In 1980,
the level of international lending (including domestic deals in foreign
currency) was $324 billion. By 1991, despite the sharp cut-back in
lending to Third World countries, as a result of the debt crisis, that
figure had increased to a staggering $7.5 trillion.

To give an idea of the meaning of these figures, it is necessary to
remind ourselves that in 1980, the combined gross domestic product of
the 24 OECD countries (the entire developed capitalist world) was $7.6
trillion. In 1991 it was $17.1 trillion. So in one decade, the stock of
international bank lending rose from 4% of total OECD GDP to 44%.

These figures give a true picture of the power of the big banks and
monopolies on a world scale. At the last count, in 1990, there were
approximately 35,000 “transnational corporations” with 147,000 foreign
affiliates. However, in reality, a handful of giant monopolies
predominate. The parasitic and speculative character of these
monopolies explains why the boom of 1982-90 had an entirely different
character to the post-war upswing.

Benjamin Friedman of Harvard University points out that between 1980 and 1989:

“Corporations were borrowing not to invest but to
finance transactions— including mergers, acquisitions, stock
repurchases and leveraged buy-outs— that merely paid down their own or
other corporation’s equity. As a result, the corporate sector’s
aggregate net worth declined by more than one-fourth compared to the
size of the economy.”

Marx explains that the bourgeois in the end are dealing in “phantom
figures”—interest and speculative activities which would swallow up the
whole production of the world. The statistics show that the fever of
speculation vastly exceeds the actual level of production on a world
scale. Marx also warned that this process cannot be prolonged
indefinitely, but as we now see in Japan, inevitably leads to a
collapse of production, once the speculative bubble is burst.

The destiny of million of human beings is in the hands of these
monstrous monopolies, guided purely and simply by the predatory
instinct to make “easy money” by non-productive means. The collapse of
the EMS and the permanent instability of world finance markets are a
graphic illustration of this power, which is an additional factor for
instability, threatening at any time to engulf the world in a new
financial crisis, which, given the precarious and unsound state of
world capitalism, could end in a deep slump.

“To put it at its mildest, governments have no grounds
for complacency about the risk of another depression. Today’s financial
markets are more than capable of assembling the preconditions, and
economic policy may not be able to cope if the do…

“Global capital flows are one of the biggest reasons
to fear that a financial upset might cause a deep, worldwide
recession.” (The Economist, 19/9/92).

Overproduction and Slumps

The sickness of the system is shown by the phenomenon of excess
capacity which affects all the main capitalist economies. In Marx’s
day, the crisis of capitalism manifested itself in periodic crises of
over-production. Under modern conditions, the big monopolies have the
necessary technology to calculate in advance the available market for
their products. Therefore, they have tended to reduce production before
getting to the point of actual over-production.

The fact that the capitalists are not capable of fully utilising
the productive capacity even in a boom is a graphic illustration of the
Marxist assertion that the productive forces have grown beyond the
narrow limits of private ownership and the nation state.

However, the situation at the present time is even worse. Instead
of excess capacity we see the re-appearance of actual over-production
in a number of areas, not only agriculture, where the “food mountains”
appear as an obscene insult to the starving millions in the Third
World, but cars, computers and many other commodities.

In the Communist Manifesto, written in 1847, Marx and Engels accurately described the kind of crisis which we now see:

“In these crises a great part not only of the
existing products, but also of the previously created productive
forces, are periodically destroyed. In these crises there breaks out an
epidemic that, in all earlier epochs, would have seemed an
absurdity—the epidemic of over-production. Society suddenly finds
itself put back into a state of momentary barbarism: it appears as if a
famine, a universal war of devastation had cut off the supply of every
means of subsistence: industry and commerce seem to be destroyed and
why? Because there is too much civilisation, too much means of
subsistence, too much industry, too much commerce. The productive
forces at the disposal of society no longer tend to further the
development of the conditions of bourgeois property; on the contrary,
they have become too powerful for these conditions, by which they are
fettered, and so soon as they overcome these fetters, they bring
disorder into the whole of bourgeois society, endanger the existence of
bourgeois property. The conditions of bourgeois society are too narrow
to comprise the wealth created by them. And how does the bourgeoisie
get over these crises? On the one hand by enforced destruction of a
mass of productive forces; on the other, by the conquest of new
markets, and by the more thorough exploitation of the old ones. That is
to say, by paving the way for more extensive and more destructive
crises, and by diminishing the means whereby crises are prevented.”
(Marx and Engels, Selected Works, Vol.1, pp.113-4).

These lines are as fresh and relevant today as when they were written, over 140 years ago.

Just take the state of the car industry, where hundreds of
thousands of workers have been thrown on the scrap heap because the
market is saturated. The Japanese car makers had obtained a big
advantage over their foreign rivals partly on the basis of investing in
modern technology, partly by a more ruthless and “scientific” squeezing
of relative surplus value from their workers.

The Japanese monopolies, with their strong emphasis on modern
machinery, were prepared to put up with a relatively low rate of return
on investment, made up by a greater volume of sales through exports.

However, most families in Japan, the USA and Western Europe now
possess at least one television, a car, a video, hi-fi equipment, etc.
The tendency to expand the market artificially through credit has
reached its limits, leading to a general crisis of debt.

In this situation, there has been a fall, not of the rate, but of
the mass of profit. In the past, every Japanese car made 83,000 yen in
profit. The figure is now about 15,000 yen. Moreover, Japanese car
manufacturers had developed a productive capacity based upon the
assumption of a 10-15% market growth every year. In fact, market growth
has been at most 2-3% in the recent past.

Western Europe’s car market declined by 16% in volume terms in
1993, giving rise to a vicious price war between car companies trying
to dump their surplus products. Only the biggest and most powerful
companies can survive in such a situation, and not all of them.

The Economist (5/2/94) explained the seriousness of the position:

“The underlying proof of the European car industry’s
problems is surplus manufacturing capacity of about 2 million cars a
year. If all Europe’s plants were manned and equipped to run at full
stretch, the overcapacity could be 3.5 million cars a year.”

Living Standards

For a period of almost four decades after the Second World War the
capitalist system experienced a new lease of life for reasons outlined
above. This was reflected in increasing living standards for a large
part of the population in the advanced capitalist countries.

In the Introduction to the Living Thoughts of Karl Marx, Trotsky
deals with the so-called “theory of increasing misery,” which the
bourgeois critics of Marx have utilised to try to discredit Marxism,
pointing triumphantly to the increased living standards of the workers
of the West in comparison to the past.

However, Marx never denied that, under certain conditions, wages
could rise. Such an assertion would be utterly childish. On the
contrary, he went to some lengths to explain how wages inevitably rise
in certain periods of capitalist development, and fall in others. But
even in the most prosperous periods of capitalism, the relative
improvement of living standards can never abolish surplus value, and
can never change the social position of the worker:

“But just as little as better clothing, food and
treatment, and a larger peculium (a slave’s allowance—EG and AW), do
away with the exploitation of the slave, so little do they set aside
that of the wage-worker. A rise in the price of labour, as a
consequence of accumulation of capital, only means, in fact, that the
length and weight of the golden chain the wage-worker has already
forged for himself, allow of a relaxation of the tension of it.” (K.
Marx, Capital, Vol. 1, p. 618)

When the capitalists are making super-profits from the labour of
the working class, when demand is rising and order-books are full, and
when the workers feel strong enough to com