Last week’s Militant reprinted another selection from New International no. 10 explaining the phenomenon of deflation, which is increasingly marking the capitalist economy. The excerpts below are reprinted by permission, copyright © 1994 by New International.  
 
Cumulative consequences of falling average rate of profit
The imperialists’ crisis of capital accumulation will soon enter its third decade. Like the preceding period of capitalist expansion, it has stretched across several business cycles of recession and upturn. Its consequences have been and continue to be far reaching:
1. Intensified interimperialist competition

The downward pressure on profit rates intensified price competition among capitalists, including on an international level. This broke down the de facto industrial monopoly held by the U.S. capitalists coming out of World War II.

When the U.S. rulers entered the war they were producing about one-third of the world’s manufactures; they emerged less than four years later with that figure having leapt to one-half. That edge in their share of the world market encouraged U.S. capitalists to defer major costly postwar investment in modernization of plant and equipment in industries such as steel and auto. It enabled them to maintain price levels on the world market well above actual production costs, collecting monopoly rents in the form of superprofits.

By the end of the 1960s, however, the monopoly position of the U.S. capitalists had been challenged in one industry after another: steel, auto, farm equipment, electronics, aerospace, computer-related technology, garment, and textile. Initially the U.S. rulers faced increasing competition in the world market primarily from their Japanese, West German, and other imperialist allies. By the 1970s price competition was even growing with industrial capitalists in a handful of semicolonial countries such as South Korea, Hong Kong, Singapore, and Taiwan. Competition for markets in cereal grains and other farm commodities has come not only from imperialist rivals, but also—as a result of the “green revolution” and a reorientation of agriculture toward the world market—from capitalists in some semicolonial countries. Stiffer competition has forced U.S. and other capitalists to bring prices down on both manufactured and agricultural commodities, reinforcing the squeeze on profit rates.

Marx’s observation that “it is the fall in the profit rate that provokes the competitive struggle between capitals, not the reverse” has been confirmed once again by the events of the past twenty-five years.¹  
 
2. Overproduction and excess capacity
This interimperialist competition is sharpening in a world capitalist market plagued by overproduction of commodities and excess industrial capacity.

The big-business media has stressed that manufacturing in the United States, after falling to a low of 68 percent utilization of plant and equipment during the 1982 recession, was functioning on average at about 83 percent of capacity in May 1988. What is rarely noted is that this “high” is actually the lowest level of capacity utilization at the peak of an upturn in the business cycle in the United States since the mid1960s. By contrast, capacity utilization in 1966 went above 91 percent; in 1973, to nearly 88 percent; and in 1979, to 85 percent.²

The capitalists continue to have too much industrial capacity. They are plagued by overproduction of commodities: that is, by more output than they can sell at a high enough profit to justify expanding their productive plant and equipment. The employers have made working people pay the price through mounting work reorganization, speedup, plant shutdowns, and layoffs as they drive along the only road open to them: increasing absolute surplus value (lengthening the workday) and relative surplus value (intensifying labor through speedup and adding so-called labor-saving machinery) as much as the relationship of class forces will permit.

In the auto industry alone Ford has closed fifteen plants since 1979 and eliminated 30 percent of its employees; General Motors has announced plans to shut down at least 15 percent of its existing plant capacity and eliminate some 100,000 workers in the next few years. Seventy-five meatpacking plants were shut down between 1980 and 1985, with speedup and retooling in the remaining packinghouses resulting in increased output with a quarter million fewer workers. The workforce in steel has been cut in half with the shutdown of many mills in Pittsburgh, Birmingham, Baltimore, Gary, Chicago, and elsewhere.

The overproduction and excess capacity affecting the ruling classes in the imperialist countries is reflected not only in mounting plant shutdowns and layoffs, but also in the stagnation of trade on the world market. World trade has fallen from a yearly growth rate of nearly 9 percent between 1963 and 1973 to less than half that over the subsequent fifteen years.

Overproduction, excess capacity, plant closings, unemployment, intensification of labor, and decelerating world trade, however, have nothing to do with what billions of the world’s working people need and can use. Workers and farmers are in need of food, clothing, housing, means of transportation, books, medicine, and many other goods that advances in labor productivity make less and less time-consuming to produce but that the producers themselves are less and less able to afford.

As Marx observed about the history of capitalism: “Since capital’s purpose is not the satisfaction of needs but the production of profit . . . there must be a constant tension between the restricted dimensions of consumption on the capitalist basis, and production that is constantly striving to overcome these immanent barriers. Moreover, capital consists of commodities, and hence overproduction of capital involves overproduction of commodities. . . .

“It is not that too many means of subsistence are produced in relation to the existing population. On the contrary. Too little is produced to satisfy the mass of the population in an adequate and humane way. Nor are too many means of production produced to employ the potential working population. On the contrary…. Periodically, however, too much is produced in the way of means of labour and means of subsistence, too much to function as means for exploiting the workers at a given rate of profit.”³  
 
3. Declining capital investment in capacity-increasing plant and equipment
Over the past decade there has been a sharp decline in the rate of new investment by U.S. capitalists in capacity-increasing plant and equipment. Factory closings and layoffs have registered the competitive pressures on the rulers to shed less productive capacity. Large amounts of value have been destroyed in the process. But stagnating profits continue to make it less worthwhile for the capitalists to invest in building new factories and purchasing major new industrial technologies that would expand productive capacity. There has been no extensive preparation by finance capital to draw new labor power in substantial amounts into expanded and modernized sectors of industrial production.

When the 1974-75 recession began, investment in construction of new factories was 172 percent higher in the United States than it had been thirteen years earlier. Over the thirteen subsequent years, however, the rate of growth in new factory construction has been cut more than half. And since the sharp 1981-82 recession, annual investment in new plant has actually fallen by nearly 25 percent, from $17 billion in 1981 to $13 billion in 1987. Adjusted for inflation over those six years, the drop in real terms has been much steeper.

Instead of expanding productive capacity, manufacturing investment during the post-1982 upturn in the business cycle has focused on upgrading and retooling a part of existing plants and equipment.⁴ This investment in “laborsaving” technology has resulted, as intended, in brutally labor-intensifying reorganization of work, from meatpacking to paper production. This speedup takes a devastating toll on health and safety, means longer hours for workers who remain on the job, and leads to permanent layoffs for many other workers. While Washington boasts that the U.S. economy has created 15 million new jobs since the upturn at the end of 1982, there has been a decline of nearly 1.5 million jobs in mining and manufacturing over that same period. And the average length of the workweek in industry has risen from thirty-nine to forty-one hours, with many factory workers putting in fifty, sixty, or more each week.

The most important revelation from the October 1987 crash was not what was happening on the world’s stock and bond markets, but the destabilizing worldwide impact of what was not happening in the expansion of capital investment in capacity-increasing industrial plant and equipment….  
 
9. Rising unemployment and growing relative surplus population
The capitalists’ falling average rate of profit results not only in “surplus” plant, “surplus” food, and other “surplus” capital and commodities, but also in what Marx described as a “relative surplus population.” The layoffs of wageworkers and dispossession of agricultural producers proceed at an accelerating pace and outstrip capitalism’s capacity to absorb this surplus labor power into new employment. The expanding reserve army of the unemployed becomes a source of pressure used by the capitalists to intensify the labor and hold down the wages of employed workers, and to increase competition among all workers.

“The overwork of the employed part of the working class swells the ranks of its reserve,” Marx explained, “while, conversely, the greater pressure that the reserve by its competition exerts on the employed workers forces them to submit to over-work and subjects them to the dictates of capital. The condemnation of one part of the working class to enforced idleness by the overwork of the other part, and vice versa, becomes a means of enriching the individual capitalists.”⁵  

1. Capital, vol. 3, p. 365. For how these trends have played out since 1988, see the article, “Imperialism’s March toward Fascism and War” [in New International no. 10].

2. In October 1994 the U.S. government capacity utilization figure reached 84.9 percent. Although the official consumer price increase index remained at among the lowest levels since the early 1960s, the rising capacity figures in 1994 were among the factors cited by Federal Reserve Bank board members as they made their sixth hike in interbank interest rates for the year, announced in mid-November. They conjured up the specter of overstretched production lines, sudden shortages, and consequent spikes in prices.

The truth about these capacity utilization figures, however, is that over time they reveal less, not more, about the actual functioning of capitalist production. First, these figures do not include factories, mines, and equipment that have been shut down by capitalists for now but can be brought back into production as profit needs dictate. Second, the official figures do not account for increased production achieved through longer hours (absolute surplus value) and increased productivity (relative surplus value), as described in this section. Finally, the figures are limited to mines, mills, and factories located in the United States, failing to take account of the growing share of parts and supplies turned out in U.S.-owned plants abroad for use in domestic production.

3. Capital, vol. 3, pp. 365-67.

4. Spending in 1993 on what the U.S. Commerce Department itself defines as “expansion”—new factories and buildings that require more workers—ran at little more than half the pace as that during periods of capitalist expansion in the 1960s. Once outlays on cost-cutting computer and information processing equipment are subtracted from equipment expenditures (for the period from the March 1991 upturn in the U.S. capitalist business cycle through June 1994), then investment for that period in new, capacity-expanding equipment actually declined 5 percent and spending on the construction or expansion of factory buildings declined more than 25 percent.

5. Capital, vol. 1, p. 789.  
 
 
Front page (for this issue) | Home | Text-version home