Value-Creation and the Crisis Today



The recent implosion of the real estate bubble in the USA and related credit crisis have not yet triggered a collapse of the global capitalist economy but they do bring us one step closer to it. Marx’ value-theory is an indispensable instrument to understand what is happening. It allows us to see how the tenacity of the capitalist mode of production is directly related to its development of new methods of exploitation, new terrains for value-creation. But it also makes it possible to understand how capitalists, in their unceasing hunt for surplus value, are making capitalism more obsolete and are raising the obstacles that make its economic breakdown inevitable, to new heights. The following article analyses the evolution of the conditions for value-creation from the emergence of Fordism to the present-day impasse, from which only a working class revolution offers a way out.

Introduction: On Relative Surplus Value

In Capital, vol.1, Marx attaches great importance to the distinction between absolute and relative surplus-value (SV), which he clearly defines:

He goes on to explain that the second is a function of the rise in productivity in those branches of industry which determine the value of labour-power, adding that a rise of productivity in sectors which neither directly nor indirectly produce means of subsistence, does not alter the value of labour-power and therefore does not increase relative surplus-value. From this follows that the increase of relative surplus-value is not a conscious, direct method by which the generic capitalist seeks to increase his profit but rather a by-product of capitalism’s general tendency of raising productivity: “When an individual capitalist cheapens shirts, for instance, by increasing the productivity of labour, he by no means necessarily aims to reduce the value of labour-power and shorten necessary labour-time in proportion to this. But he contributes towards increasing the general rate of surplus-value only in so far as he ultimately contributes to this result.” (p.433)

Even though it is mainly a by-product of capitalism’s technological drive rather than a consciously sought result, Marx considers relative SV the main source of profit for capitalism when it develops a specifically capitalist production process, when it becomes the real subsumption of labour (the real domination of capital). So when he explains this transition, he begins by recalling the importance of relative SV:

There is an apparent contradiction between this quote (from “Results of the immediate process of production”, the chapter of Capital, vol. 1 that he decided not to include when that work was published) and the first ones (from part 4 of volume 1). In the first, Marx is saying that the capitalist, by lowering the value of his product does not automatically create more relative SV, that he does so only to the extent that this contributes to a reduction of the value of labour-power in general. In the second, he seems to be saying that he does: when the individual capitalist lowers the value of his product, he writes, “surplus-value is created for him”. It’s easy to misunderstand this as implying that the cheapening of the product is itself creating SV, which would mean that its source would not be labour power but technology. That would contradict the very basis of his value-theory, in which there is no other source of SV but labour-power. But that is not what he meant. The confusion arises in part because he is explaining things on the basis of analyses that are not part of vol. 1 but vol. 3, which is probably the reason why he decided not to include “Results…” in vol. 1. But Marx did not mean to deny that the rise of relative SV under the real domination of capital is due to anything else but the reduction of the relative value of labour-power or to imply that going under the market-value creates SV for capital as a whole. Rather, he wanted to point to the genesis of the shift from absolute to relative SV as the principal source of profit growth, and explain it as a result of a change in the basic method by which capitalists seek to increase their profits. Whereas under formal domination this method consisted mainly in reorganizing production on the basis of buying labour-power, changing peasants and craftsmen into workers and making them work as many hours as possible, now the principal method became cheapening the individual value of the commodity under its market-value in order to obtain a surplus-profit which results from a transfer of SV on the market, in the phase of circulation. That is a form of redistribution of SV, not of its creation, but the more this becomes the dominant method of seeking profit, the more means of subsistence are cheapened by the general rise of productivity, so that the paid portion of the working day shrinks in proportion to the unpaid portion.

It’s important to distinguish what drives capitalists from what makes capitalism a success or failure. The conditions for the incentive to produce and the overall conditions for accumulation are related but not the same. We have analyzed elsewhere how real domination creates a widening gap between the growth of exchange value and use values which places obstacles before capitalism, in its phase of production (tendential fall of the rate of profit) and (dialectically linked to it) in its phase of circulation (overcapacity) which it cannot overcome except through massive devalorization in crisis and war. These obstacles confront capitalists as a force from outside like stormy weather but meanwhile their drive remains to obtain profits by going under the market value and to seek the conditions to make that possible. It should be noted that, the more homogeneous the conditions of production become, the more extra-capitalist producers and capitalist producers with a relatively low OCC (‘organic composition of capital’, the ratio of indirect, past labour to direct, living labour) are marginalized, the more difficult that becomes. In Capital, vol. 3 Marx remarks, if the whole world production would be in the hands of a few giant companies, “the vital flame of production would be altogether extinguished.”

Fordism

Since there are conflicting definitions of that term, let me clarify what I mean by it: industrial mass production with mechanical technology at its center and the constant increase of the scale of production as its never ceasing purpose; the large, integrated and centralized company is its typical form of appearance, the assembly-line its hallmark, repetitious, monotonous work whose content and pace is dictated by the machine characterizes the labour process and Taylorism characterizes the management of that labour process.

The first real assembly-line was introduced in a Ford-plant in 1913, but this was preceded by several decades of changes in the production process in that direction. Fordism expressed the general tendency of capitalism to raise labour productivity by lowering the value of commodities while increasing their volume, and as such realized its general tendency to reduce socially necessary labour-time, thereby realizing its latent tendencies to falling profit-rates and overproduction.

These obstacles do not exist on a merely abstract theoretical level but in the real world. As such, they are also a function of the concrete, specific characteristics of capitalism as an historical product, such as the presence of counter-acting factors to the tendential fall of the rate of profit (like the potential metabolism with extra-capitalist production) and the development of the economic-political structure of capitalism at a given point in history. This explains why the instances of massive devalorization in the 20th century occurred when they did and why Fordism knew its apogee only after the Second World War, when the Bretton-Woods framework created for the first time a vast global (more or less) free trade zone with a common, expansive world currency, serving both as means of circulation and means of payment. No longer hemmed in by national borders (or at least much less than before), no longer hampered by the vagaries of national currencies or the tight restrictions of the gold standard (although the dollar remained, in theory, tied to gold, and all other main currencies thus indirectly also), the productivity-raising potential of Fordism was finally unleashed, creating a vast increase of relative SV-extraction.

This explains the strength and duration of the post-war boom. But with the homogenization of Fordist production conditions in North-America, Western Europe and Japan, the growing marginalization of underdeveloped countries and the impediments created by the cold war context to the expansion of the world market, the same twin obstacles returned by the late 1960’s. To these difficulties must be added the strong resistance of the working class to the intensification of the labour process which Fordism made technologically possible. The high cost of un-utilized productive capacity made Fordism, by its nature, particularly vulnerable to strikes as well as to stagnation of market expansion. Furthermore, global overcapacity leads to chronic stagnation, even for the strongest capitals. As Marx explains in Capital vol. 3, in conditions of overcapacity, the social value is determined by the most favorable conditions of production, eliminating the surplus profit which those would yield under normal circumstances. The incentive to speculate replaces the incentive to invest.

The world currency was also the currency of a particular nation, which created the irresistible possibility for the U.S. to use its position to try to spend its way out of trouble, at the expense of the entire dollar-zone. This forced the U.S. to untie the dollar from the gold standard (formally in 1971, de facto earlier) after which monetary expansion went out of control. The impossibility of resolving capitalism’s contradictions by throwing money at them resulted in the stagflation of the 1970’s and, by the end of the decade, brought the world economy at the brink of paralyzing hyper-inflation. It was time to try something else.

Post-Fordism

It is not a perfect term since it seems to suggest that Fordism is a thing of the past which is hardly the case. Nevertheless, in the 1980’s, something different emerged at the cutting edge of capitalism. But the changes in the mode of production proper were only part of it. A seismic shift in the overall structure of world capitalism (the end of the cold war, the end of China’s autarkic course and the resulting globalization) provided the context for post-Fordism to thrive.

The changes were guided by several goals:

The main characteristic of the post-Fordist mode of production is that automation replaces mechanical technology at the nexus of production. While the first large scale development of automation dates already from the late 1950’s, it accelerated enormously since the 1980’s with the development and widespread application of information technology (IT). Together with this, the importance of applied science in general in the production process grew enormously and thus also the role of what’s been called immaterial or cognitive labour. This entailed a huge change in the composition of the working class, whose most decisive component now embodies what Marx foresaw:

While Marx, in my opinion, meant with “the social individual,” the whole working class (and thus including the Fordist worker who remains an essential component of the production process), his description is particularly apt in regard to the post-Fordist worker. That his enormously productive collective labour is the foundation-stone of much wealth today seems clear. That post-Fordist production yields huge profits is also clear. But what does it mean for the creation of value? After all, direct labour time may no longer be the great foundation-stone of wealth, but it remains the measuring rod, the foundation-stone of the law of value.

Post-Fordism and Value-creation

Let’s examine how post-Fordism, and the globalization (new division of labour) which it helped to make possible, have affected the creation of surplus-value.

1. It diminished the value of constant capital C (machinery, infrastructure, raw materials) and thus increased profits (S/C+V) by leading to cost savings on many levels. It has led to greater efficiency of resources, a faster turnover of capital, lower storage costs, lower transportation and communication costs, etc.

2. It has diminished the value of variable capital V (labour power) by reducing the value of the commodities which workers need (and thus increased the rate of relative SV).

3. It has increased the intensity of labour. IT made possible a deeper penetration of the law of value inside the production process and a much closer management and control of that process (‘post-Taylorism’ is even more ruthless and controlling than its predecessor).

4. It has greatly enhanced the mobility of capital and thereby altered the balance of forces between capital and labour in the former’s favour, which has also helped to increase S/V.

5. It led to the transfer of a large part of Fordist production to previously underdeveloped parts of the world, China in particular. Conditions there, made accessible by geo-political changes and the steep decline of transportation and communications costs as well as other technological developments, opened the door to a vast increase in both absolute and relative surplus value extraction. The increased metabolism with extra-capitalist producers and low OCC-capitalism should be stressed in this regard. It is these backward conditions which determine what the means of subsistence are but for high OCC production they represent very little value. The historically unprecedented possibility to combine the living conditions of low productivity-society with the technology and production methods of high productivity-society yields a very high rate of SV. The vast majority of the commodities thus produced are cheap consumer goods destined for the market of developed countries. So they lower the value of labour power there (increasing relative SV) and are a main reason why inflation staid so low for so long (another one is the global context of overcapacity, which, as Marx explains in Capital vol. 3, brings the social value of a commodity down to the value of those which are produced under the most favorable conditions, in other words, the cheapest). Furthermore, this transfer was relatively painless because the simultaneous move of developed capital into post-Fordist production created a division of labour, a complementary development. To this could be added the market that their development provided for the developed countries, but as we shall see further, as impressive as it is, it has severe limits.

6. It has, together with the global reorganization of capital which it helped to bring about, greatly facilitated the penetration of the law of value into areas that were not yet commodified, and thereby it opened important new avenues for value creation. Examples include the displacement of family farms by agribusiness, the displacement of services (in the marxian sense: labour that is directly consumed rather than creating a commodity that enters into the flow of capital) by service-industries, as well as the appearance of new services and goods as a direct result of its development, and even the displacement of labour exchanges done freely between family members, friends and neighbours by commodified exchanges.

All these factors have stimulated value-creation to a great extent (quite aside from the question of who benefited from this). But like all periods of innovation, it had its “sturm und drang”-period, after which the effect began to diminish, in part because of the homogenization it accomplished. In China, wages are rising, pushed up inevitably because changes in the very world the workers inhabit (technification of cities, destruction of the semi-proletariat which obtains part of its means of existence by farming on small plots of land) increases the value of labour power, despite the decline in industrial employment caused by the decay of low OCC-production, and the continuing flight of millions of unsettled peasants to the cities. Furthermore, the demand of the new Fordist production in China for prime resources, oil in particular, in combination with the prospect of their depletion becoming more realistic, is pushing up their prices, increasingly neutralizing China’s export’s beneficial effect on inflation. Inflation is rising rapidly in China. And in India too. Despite the growth of call centers there, the number of jobs being created by IT is lower than the number of indebted farmers committing suicide. In model-city Bangalore, the slums are growing much faster than the prosperous parts of town. Expulsion and destruction are inevitable companions of post-Fordism’s globalization.

While it’s true that the usual suspects stay on the cutting edge in IT, we are witnessing a generalization of its myriad applications throughout the globalized chain of production. This homogenization accelerates the pace in which gains in productivity are generalized. That means that the value savings which those gains allow, are lost more quickly because of the decline of the social value (the social reproduction cost) of the commodity. The faster this decline happens, the more a gap tends to open between the value of the capital advanced for production and the (social) value of the commodities resulting from production.

Marx emphasized that the effect of the increase of the OCC and the productivity-gain it causes, is two-edged. On the one hand, it increases SV/V, the rate of surplus value, by reducing necessary labour-time (the value of the goods that constitute the value of labour power). On the other, it diminishes the weight of living labour in production, and therefore also of the part of it that is unpaid, surplus value. From the pace of living labour’s decline depends whether a rise of a part of it (SV/V) can compensate the decline of the total (V+SV). Which force is the strongest today? The characteristics of automation are such that the second is increasingly winning. This is especially clear in the most emblematic product of post-Fordism, digital goods and software in particular. Their growing role –as means to obtain profit, as components of the production process, tools to create wealth, tools for creativity, communication and consumption- in society cannot be denied. It is true that the creation of these goods requires a lot of labour power. This labour power is exploited by capital, its value and surplus value is crystallized in the commodity that results from it. But this value is fleeting. No matter how many hours have been spent to create a particular digital commodity, the value of its copy is, like of any other commodity, equal to the value of the direct and indirect labour spent to make it plus (average) profit on the capital advanced. In the case of digital goods, it is almost nothing. What Marx wrote about machines: “However young and full of life the machine may be, its value is no longer determined by the necessary labour-time actually objectified in it, but by the labour-time necessary to reproduce either it or the better machine. It has therefore been devalued to a greater or lesser extent” (Capital vol.1, p.528) is true for all commodities. The fact that digital commodities may be highly profitable should not deceive us. Their producers obtain SV, but it comes from their customers.

But it is in the nature of information in general, and of the inherently communicative structure of IT in particular, to invite sharing, and thereby to pull the market price of digital commodities down to their next to nothing market value. That’s why the IT-sector is the most glaring example of the growing tendency to monopoly-capitalism (which has echoes in the periods preceding World War One and the 1920’s). The steep increase in the use of patents, copyrights, licences etc to commodify the knowledge that leads to surplus profits (Microsoft takes out 3000 patents a year), implies the need for a world order in which their price can be enforced, and the untamable tendency of the market to subvert this, of the law of value to pull the price down to its real social value, can be checked. This, together with the desire for control over resources, weighs heavily on geopolitics and on American military strategy in particular.

Marx called the devaluation caused by a fast decline of reproduction costs “moral depreciation”. It does not affect only digital goods. The faster the pace of technological innovation and of its integration in production and consumption, the more constant capital loses its value before it has transferred its value into other commodities. The more technological innovation is chased for the surplus profits that it yields, the more the capitalist investor is willing to bear the cost of moral depreciation. In an earlier text, I called this hidden overproduction. It is one of the principal ways in which the market-barrier manifests itself today.

The market-barrier manifests itself not in the form of an absolute limit to the consumption power of capitalist society but in the form of growing disproportionalities. The high rate of technological innovation of post-Fordism has accelerated a long-term tendency of real domination to over-accumulate producer goods and under-accumulate consumer goods, of which moral depreciation is an expression. Another disproportionality created by the drive for surplus profit is caused by its own success, paid for by the reduction of the value of labour power as well as with the SV of other capitalists who must buy at a price above the value. With concentration of wealth on one side, creating a steep increase of demand for all sorts of luxury goods and thus a higher rate of profit in the production of goods destined for unproductive production, and a relative decline of the demand for productive consumption on the other, the proportionality achieved by the market further deviates from the proportionality required for accumulation (analyzed in Capital vol.2) and further mortgages value-creation. To this should be added a rise of unproductive, ‘faux frais’ in general, which includes the costs of maintaining order and projecting power. The cost of the wars in Iraq and Afghanistan are approaching $1 trillion. The costs of anti-terrorist protection and of controlling excess population go far beyond that (in the US more than 1 % of the adult population is in prison). In addition, there is the rise in costs which capitals on the cutting edge must incur to stay on the cutting edge. Many global companies spend more capital on marketing than on production in order to create a socially perceived, artificial scarcity (for example, the difference between “Nikes” and simply sneakers) that yields surplus profits.


Car factory in Germany



The Present Crisis

Despite the relative success of capitals on the cutting edge to create, for themselves, new markets yielding surplus profits, the overall context remains one of overwhelming overcapacity. Nevertheless, capitalism avoided a collapse, thanks to the fall of the value of labour power. But to keep the world economy growing in the face of global overcapacity, it had to be fed by an exponentially growing monetary expansion. This was what happened in the 1970’s too, but during that period monetary expansion was aimed more at slowing the erosion of general purchasing power, because of the high cost of unused production capacity in the Fordist economy. The 1980’s began with an abrupt curtailment of the growth of money in circulation to rein in inflation. But public dept continued to grow at an accelerating rate, while state expenditures shifted from supporting the social wage to unproductive spending such as armaments. Even more important was the expansion of the financial sector. With the elimination of most restrictions on the mobility and activities of financial capital, it grew enormously, creating all sorts of financial instruments promising to preserve and expand the value parked in them. Since all that money did not circulate goods, it did not raise their prices, so it caused no general inflation. Its fictitious character would manifest itself in other ways.

The first winner of the post-Fordist era was Japanese capital which was very successful in the 1980’s in lowering the individual value of the commodities of its export-sector under the social value by pioneering post-Fordist reforms. Japan amassed huge profits but experienced growing difficulties in investing them in a way that did not disrupt the foreign markets, in the first place the American market, on which it depended and that did not cause inflation to rise in its domestic economy. The alternatives were to keep hundreds of billions of dollars in the bank (subject to huge losses when the dollar was devalued) or to park them in property whose price was perceived as able to resist the general trend of diminishing value; in other words, to speculate. Japanese capital did both. Speculation feeds on itself because the rising demand it engenders delivers massive profits at first. Because this is a pyramid-game, it always ends in even more massive losses. When the bubble burst, Japan sank into protracted stagnation. That this did not lead to depression was mainly due to the fact that, globally, post-Fordism continued to expand and Japan remained a first-rate competitor.

The next bubble exploded in South-East Asia with strong reverberations in Latin America and Russia (which later recovered thanks to the rising oil price). The enormous devalorization which property (including labour power) in these countries suffered reinforced the safe haven-appeal of assets in the central countries. This, and the cutting edge position of American capital in the most profitable sectors of production, as well as the size of the U.S.-market, created an ever growing stream of savings to the US. By 2004, 80% of the net-savings of the world flowed to the US.

But a growing size of the expansion of the U.S. market was supported by nothing. Year in year out, the U.S. consumed more than it produced, now to the tune of more than $800 billion a year, a figure which vastly underestimates the amount of the value-transfer. In return, the rest of the world acquired stocks, bonds, treasury-notes and other debt-certificates as well as other property, with a nominal value of many trillions of dollars. The U.S. was the only country which could do that, because of its control over the world currency. But it also seems to have consciously stimulated the safe haven-effect through its global policies, as well to have encouraged the inflation of its assets, in particular with various policies to stimulate demand for its unproductive FIRE (Finances, Insurance, Real Estate) sector. Inevitably, it grew dependent on it. By 2004, it needed its ‘fix’ of $2.6 billion of foreign capital a day, just to keep going.

So that was the basic mechanism that kept the train on the tracks: the US kept market expansion alive, the profits were spread more globally, but a huge and growing part of these profits had to remain hoarded, unable to reenter into circulation or its fictitious origin would be exposed by inflation.

But the promise to capital that is hoarded in financial assets and real estate is that it will be kept alive, that it will be protected from devalorization in a world in which the overall direction is towards falling values. The promise is kept as long as demand is rising strongly. But when it begins to peter out, the speculative nature of the undertaking is revealed. The U.S. was not the only country whose paper value grew disproportionally. That the expansion of money was untethered from the blunt instrument of the gold standard was inevitable and logical. But in order to circulate value and retain credibility as a means of payment, the expansion of money had to remain tied to the expansion of value. That was not the case. Money transactions related to material goods production counted 80% of the total global transactions in 1970, a ratio which by 1997 had already dropped to 0.7%. In the U.S., since 1985, money has been growing more than six times faster than production.

Last year, the declining global demand for U.S. stocks and bonds, and the desperate attempts to keep up demand in real-estate by offering ever cheaper mortgages (many of them sold with deceit and without regard to the buyer’s ability to pay), showed what was coming: Another exploding bubble, but now at the centre of capitalism.

With house-prices falling, already more than 10% of American home-owners owe more in mortgage-obligations than what their house is worth. Millions are facing foreclosure. The continuing decline threatens to wipe out several trillions of household-wealth. The asset-deflation is not limited to real estate but is spreading to the credit market and beyond. Nobody has any idea how big the losses could be in the parallel financial markets. For example, the market of credit default swaps (derivatives), total $45.5 trillion, more than twice the size of the entire US stock market. It consists of trade in contracts that promise payment in case of a company defaults, which can be sold, by both parties of the contract and get traded over and over again, without any guarantee that the buyer of the contract will be able to pay in case of default. The more the US sinks into a recession, the faster this market will deflate.

With so much wealth evaporating, the non-payment of countless transactions and the banks forced to tighten their loaning practice, the crisis snowballs to the production sector, leading to a wave of bankruptcies and rising unemployment, and inflation fostered by the attempts to slow the tide by increasing public spending and lowering interest rates. A painful downturn of the American economy, and by extension of all the other economies depending on it, is inevitable.

It would be easy to imagine a credible scenario of how this crisis could spiral into becoming the great depression of the 21st century. Quite a few intelligent persons do. They may be right. But they may also underestimate how the capacity of the global capitalist class to act in concert when push comes to shove, has grown since the previous depression. I don’t think the US can pull itself up by its own bootstraps. It must count on the dependency of its trading partners on the American market. On the fact that they have no alternative to the present global trade patterns, and thereby are obliged to come to the rescue and invest in the recovery of the American economy. The crisis itself will have a considerable tonic effect for the strong who survive it. But nothing will be solved. This crisis is a milestone, marking the beginning of a new phase, characterized by increasingly intense economic shocks which could set the scene for increasingly intense class struggle.

Sander

March 4 2008


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