Will China Save Capitalism?



This article, which is also available at the Mute Magazine website, is a slightly modifed version of the one which appears in Internationalist Perspective # 55.

All over the world, the capitalist states are taking austerity measures to slow the growth of their debts. It is obvious that this policy, since it slows consumption, can't in itself sustain the growth required for capital accumulation. Where, then, can the necessary economic stimulus come from? For lack of alternatives, eyes are turning eastward. It seems that history, the supreme ironist, has chosen ‘communist' China as global capitalism's saviour

What Crisis?

The current crisis is more than a mere cyclical occurrence in the process of capital accumulation, it's the result of the obsolescence of the very basis of the capitalist mode of production, the value-form. It is the value-form which forces capitalists to continue to use abstract labour time to measure wealth, while the creation of real wealth has become less dependent on the amount of labour time used than on general knowledge and its application in production. This prediction of Marx (in the Grundrisse) is fully realised today. It is in this developing contradiction that he saw the historical limit of capital. It has become absurd for humanity to base decisions on what to produce, how, how much, where and for whom, on the law of value. This absurdity manifests itself in the simultaneity of generalised overproduction and extreme poverty, in the increasing incapacity of capital to exploit the labour power at its disposition, causing an accelerating expulsion of workers from production, while money seeks a false security in financial bubbles. It manifests itself in efforts to impose an artificial scarcity of goods that would otherwise be abundant and of no value (such as digital goods). It manifests itself in the inability of capital to stop the destruction of the environment, although it knows that the resulting disasters are becoming ever more threatening. It manifests itself in its inability to overcome its own crisis. It manifests itself ever more clearly, but the capitalists, and others who view the world through their own window, do not see it. They cannot see it. Capital is subjected to the law of value like an animal is subjected to its own nature. It cannot solve a problem whose solution calls for its abolition. It therefore can do nothing against its crisis except fight its symptoms, blow hot and cold, alternate stimulus measures and austerity measures and delay the inevitable descent. That these efforts could produce recoveries, we never doubted. Moreover, irrespective of the measures taken, the capitalist economy always follows a cyclical course, even when the general trend is towards deepening crisis. It is hardly necessary to argue that this is the case today. The crisis is worsening and recovery has a hard time hiding it.

The Metamorphosis of Value

The accumulation of capital is going through cycles in which value morphs from money into commodities and from commodities back into money: M - C - M'. Money, M (abstract value), is the starting point. It buys commodities, C, the means of production whose value is transmitted in the commodities resulting from their productive use. These new commodities are sold which transforms the value again into money, M'. The only reason why the initial money, M, was transformed into C, is that M' is greater than M. The transformation is profitable.

Marxist analysis reveals that the source of profit is surplus value, the difference between the value of the living labour power that the capitalist buys (which, like for all commodities, is equal to the quantity of abstract labour necessary to reproduce it) and the value it creates for him (the quantity of abstract labour performed). The higher the productivity, the less labour time is needed to produce the equivalent of wages, thus the greater the part of the workday that produces surplus value. But this surplus value can never arise from more than a part of the workday. The technological development which increases productivity also decreases the value of living labour in production relative to that of past labour (technology, equipment, infrastructure). Of this living labour, surplus value is only a part and it therefore must decline with it. Since profit = surplus value, this is a problem, especially in a world that operates more and more on automated processes. Productivity does not save capitalism, on the contrary, it ripens and further accentuates its contradictions. The more it increases and the more these increases become widespread, the more the value of what is produced declines relative to the value of the capital invested in production.

It creates another problem in the next phase of the cycle of value, the transformation of commodities back into money, C - M'. This does not happen automatically. The increase of productivity slows the production of value, but accelerates the production of use values. Unproductive consumption can always be expanded, but productive consumption remains limited to the use values needed for production. These do not increase because the ability to produce them increases. The essential market consists of the demand for capital goods and consumer goods necessary for the reproduction of labour power. It's their expansion that makes the expansion of value in the next cycle possible. It's this market that, over time, is incapable of following the acceleration in productivity. The general overproduction of technology (visit cities like Detroit if you need proof) and especially of labour power (nearly 2 billions of unemployed) testify to it.

No Value Without a Hoard

When these bottlenecks reappeared in the 1970s, after ‘the thirty glorious years' made possible by the war and the expansion of the global market under the aegis of the dollar, the general tendency was to inflate, to support demand, to stimulate M - C. The law of value punished this cheating with accelerating inflation.

Attempts to get it under control on the back of the working class faced intense resistance. The growth of fictitious capital in the circulation of commodities devalued money and thus encouraged it to leave circulation. It discouraged M - C, productive investment, because inflation made the real value of future prices unpredictable, and encouraged speculative investment. M preferred to stay M, instead of transforming itself into commodities. But it couldn't.

Capitalism cannot survive without a 'treasure'; money must be able to be withdrawn from circulation without losing its value to be re-injected at the right time. But money, abstract value, is not stable. Its power lies in its ability to transform itself into other commodities. Therefore the value of the monetary hoard remains dependent on real valorisation, on value creation, which can only happen in the phase C , in production. Otherwise, it becomes paper or less. Inflation signals that this valorisation decreases relative to the money in circulation. If hoarded money is dragged down by the loss of value of money in circulation, panic ensues. Accumulation loses its purpose. Money desperately seeks refuge in gold or old paintings and tries to protect itself with exorbitant interest rates that are strangling the already crippled production ... it's one of the possible paths to breakdown.

Value is an objective abstraction, that is, a social construction that has taken on the appearance of being objective, to be an intrinsic feature of things. It is not. In the end, it is a belief system that collapses when money cannot be hoarded.

The restructuring of capital that began in the 1980s brought inflation under control, boosted the rate of surplus value and thus the rate of profit, and restored confidence in hoarding. In other texts we have analysed in greater detail how this was done.(1) Amongst other things, we pointed to the crucial role played by globalisation: the global integration of production chains and markets, deregulation and globalisation of financial capital, the emergence of post-Fordist production in advanced countries and the massive displacement of Fordist industry to low-wage countries.

China to the Rescue

China was by far the country most transformed the most by this restructuring. In a few decades, it has changed from a failed attempt at autarkic state capitalism into the second largest economy in the world and the largest industrial producer. In 1990 it produced 3 percent of the world's industrial output, 20 years later 19.8 percent, overtaking the US who has held that position for 110 years.(2) China's dramatic expansion has benefited the advanced capitals in several ways: its cheap products were the main reason why inflation remained low, the combination of its low wages and modern technology brought huge profits to Western and Japanese investors, and the realistic threat to move production to China helped to curb wages in the advanced countries. On the expansion of the world market, its impact has also been crucial: less by the opening of its domestic market (which is certainly large and growing, but limited by the extreme poverty of the majority of its population) than by its indirect and paradoxical effect on the market of its customers. Because its expansion was driven by external trade, and because the state kept the lid on Chinese wages and thus on the consumption of the working class, since their low level is its main competitive weapon, each year China obtained a growing trade surplus. As in other countries before it (especially Japan), whose industrial development depended on the US market, China used these profits to accumulate a hoard consisting of dollars, public debt and US securities.

By hoarding these dollars, China withdraws them from circulation, and thereby keeps the dollar stronger than it otherwise would be. That's the main reason why China does this: to defend its competitive position on the market towards which its industry is essentially oriented. For the same reason it buys American public debt, thus giving the Fed the means to stimulate demand by lowering interest rates. China's strategy, whether it likes it or not, is based on its confidence in the US dollar as the guardian of value.

By selling commodities under the value they would have if they would be produced locally, and by accepting a payment that is largely hoarded instead of demanding an immediate equivalent, China, and other countries in a similar position, not only directly stimulate the purchasing power of their export markets, but also do so indirectly by facilitating an inflation of their assets. American capital led the dance. With its interest rates approaching zero (which wouldn't have been possible without the demand of China and Japan for its debt) its tax giveaways, its deregulation, privatisation, the commodification of services and finances, it inflated the demand for its real estate and securities and thus their price. The trust in the capacity to hoard value was fully restored. In 2004 the economist Stephen Roach estimated that 80 percent of the net-savings of the world flowed to the US. A growing part of the global profits were siphoned away from general circulation into the American hoard. After the crisis erupted, the ‘neoliberal' policies which had stimulated this arrangement came under heavy fire, since the crisis had revealed its speculative essence. But what was the alternative from a capitalist point of view? The measures that should have been taken according to the capitalist left, more productive investment, if necessary directly by the state, and higher wages to stimulate demand, surely would have meant that the threats of overproduction and accelerating inflation would have returned much sooner.

The ‘neoliberal' arrangement at least had the advantage of holding back these threats for a while. It counteracted the tendential overproduction, by giving money other destinations than productive investment. It counteracted inflation by sucking money out of general circulation. And it made the rich even richer - especially the traders in money and everything that can be easily monetised. ‘The real profits are not made by producing,' said a Wall Street man, ‘they're made by buying and selling.' Or even by doing nothing, since the prices of shares and real estate rose every day. It became quite rational to go into debt, since the rise of ‘values' more than compensated for the low interest obligations - if you had money. If you didn't it was still expensive to run up debt; but for the rich, it paid for itself and then some. No surprise then that the illusion took hold that capital can accumulate in the form M - M', without having to pass through that annoying phase C.

But in reality, it is only in this phase that value is created, that the value invested in means of production C and labour power V transforms into C+V+S (surplus-value), that abstract labour is added to the value of capital. Thanks to the inclusion of China and other low wage countries and thanks to the relative decline of wages in the advanced countries, the creation of value grew, but not at the dizzying speed of the hoard.

The value of the hoard is not an objective fact but an article of faith. To defend the faith in its hoard is the primary objective of the capitalist state. That is the faith for which the crusades of our days are waged: to project power; to reassure the shareholders.

The False Promise of Austerity

When the crisis pierced the bubble and showed that the apparent enrichment was to a large extent due to the insertion of fictitious value in the cycle of value, the capacity to hold value once again became doubtful. It took an historically unprecedented acceleration of spending, and thus of debt-creation, on the part of the strongest countries to support the financial institutions, to avoid a collapse of faith in the private hoard. Faith in the state is what saved them. But, to confront the consequences of the growth of fictitious capital, much more fictitious capital was created. And it continued. With its ‘quantitative easing' policy the Fed continued to support the prices of public debt and mortgages by buying them for hundreds of billions from the banks with money it created out of thin air. Recently, the EU (European Union) created hundreds of billions of euros to save its most indebted member-states from bankruptcy. Even the countries where draconian austerity measures are imposed didn't stop creating more debt. They can't function without it; at the very least they need to refinance their old debts. None of them has a budget without a large deficit. More often than not, their deficit is increasing, only at a slower pace than earlier. So public debt keeps swelling, while austerity undermines the expansion of the market and the creation of new purchasing power and therefore also the receipts of the state so that more debt must be created ... in this way, the crisis of confidence in the capacity of private capital to hoard value is transformed into a crisis of confidence in the state as guardian of value. This crisis already severely affects the weakest competitors and is moving towards the centre of the system.

Those trillions of new debts are commodities, which must compete with all other commodities to find buyers. Their growing supply demands a growing portion of the purchasing power, so less remains for other commodities; this increases the saturation of markets, which discourages productive investment and thus the creation of new value.

Austerity serves to improve the brand image of the country, to inspire trust in its future ability to pay its debts. The growth of public debt means that the competition between them for capital is intensifying on the basis of that trust. The larger the supply of debt of the ‘save havens' like the US, the more countries whose debts are more risky are forced to try to improve their ability to pay with austerity measures to remain competitive in the debt market and avoid becoming the victim of a flight of capital.

So the goal of austerity is to convince the capital markets that it is profitable to buy its public debt, that its capacity to hoard value remains intact. But this strategy remains based on the illusion that M can become M' without an expansion of value in the C phase. It bets that the economy can pay for exponentially growing debts without a corresponding growth of production. It's a short-term strategy: the savings create space to pay the creditors but they don't stimulate the creation of new value. On the contrary, they reduce it and thereby reduce the future capacity to re-pay debts.

In the sphere of production, the emphasis is on cost reduction as well: savings are made on employment, wages, materials and unproductive costs. Especially the first two have made the recovery possible. In this recovery, however, the lost jobs have not come back: more is now being produced by fewer workers than before. This reflects an increase in the rate of exploitation (S/V), but also an increase in the organic composition of capital (C/V). This was not a result of a boom in technological investment. A reduction of V (labour power) was already technically feasible earlier but it took the excuse of the crisis to impose it. This trend further diminishes the demand for consumer goods on the part of the working class, thereby sharpening the problem of the realisation of value; and it diminishes living labour in relation to past labour in production, thereby sharpening the problem of the creation of value.

For capital, there is just one way to defend itself against the devalorisation that the law of value demands: make the working class pay for the crisis. But the unprecedented wave of strikes in China and other Asian countries last year, the massive revolt this spring in Arab countries, the strong resistance against austerity by the proletariat in Greece and other European countries, show that this will become increasingly difficult - and risky too. States are constrained by their fear that a point will be reached where social control escapes them. Already, young proletarians who occupy the plazas of Spain are beginning to wonder whether another world is possible than the world of value.

But for capital, there is no alternative. None of the scenarios that its apologists invent offer an escape from the iron cage in which the law of value imprisons it. In other texts, we analysed why ‘green technology' will not save it, and why information technology, monopolisation and artificial shortages will not save it.(3) Then there is the hope placed on China. China seems rich and in dire need of just about everything: the perfect market to revitalise the global economy.

The Limits of the Chinese Locomotive

Will China save capital from drowning? To a large extent, it already has done so during the last quarter of a century, as we saw earlier. But evidently, its beneficial effect for global capital has not prevented capital from descending into its worst crisis since the 1930s. So to get it out of this crisis, this beneficial effect would have to increase. But the opposite is happening. Both as a source of surplus value, and as a market, China's beneficial effect is diminishing: the former because of the rising value of labour power, the latter because of its own growing indebtedness and inflation.

The Rise in the Value of Labour Power

China's beneficial effect was primarily based on its abundant supply of dirt cheap labour power, well disciplined with the help of Confucius and Stalin. It's weakening because the development of China has changed its society and this is pushing the value of labour power higher.

The majority of the workers who make all these cheap products that keep inflation down in the West are migrants (that is the case for 80 percent of the miners, 70 percent of the construction workers, 68 percent of the industrial workers and 60 percent of service employees). They are between 150 and 200 million strong and they came from the vast interior of the country, in a huge but well orchestrated exodus, aimed at providing the necessary labour power for the ‘global assembly line.' The first generation of migrants consisted of peasants and other villagers who never knew anything else but a world of poverty. The value of labour power is determined by its cost of reproduction, but they differ from one society to another. In the interior of China, as in India, where the society has been characterised by general poverty for many generations, the consumer goods that are socially considered necessary for the reproduction of labour power are minimal. That's what makes the value of its labour power so low for capital.

The way in which Chinese capital has managed the labour force clearly shows that its aim was to prevent this from changing. For this, it used the ‘Hukou' registration system that ties the worker to the place he/she comes from. That means that the migrant worker has no right to benefits such as health insurance, except ‘at home' (where they often don't exist), no right even to stay when he/she becomes unemployed. There is a strong resemblance to the ‘homeland' system under South Africa's Apartheid regime, and with the treatment of undocumented workers everywhere. The Hukou system is designed to meet several objectives: the artificial determination of the value of labour power on the industrialised coast by the conditions of the hinterland; the creation of division within the working class; to make workers vulnerable to intimidation; and prevent the migration from the interior becoming an avalanche.

The sons and daughters of the first generation are still considered ‘migrants' under the Hukou system, but they live in a different world than their parents and have few links with their place of origin. They are urbanised young people who live in an environment that is much more technologically developed, complex and rich. An environment that is also transformed by the extravagant consumption of all those newly rich they see around them.(4) The emergence of an industrialised society implies a change in the value of its labour power: the consumer goods seen as necessary for its reproduction inevitably expand. The young generation no longer accepts the Hukou system and the conditions that stem from it.(5) Because of its pressure, this system was already decomposing and the strike wave of last summer may have delivered it a fatal blow. Wages were already rising considerably in the industrialised coastal regions, even for migrants (between 2003 and 2009 by almost 80 percent). And it has continued: in the last two years wages in the coastal regions rose by 50 percent.

There are already capitals that are leaving these regions to set up shop where wages are still lower, as in Vietnam or Bangladesh, or in China's interior. But there too, the changes in living conditions resulting from industrialisation are pushing wages higher. Furthermore, the growing combativity of the Chinese proletariat has had an impact on the consciousness of workers in the region. In Vietnam and Bangladesh, the number and intensity of workers' struggles has shot upwards in 2010. Today, borders are less and less capable of preventing such contagion. News travels fast outside of the controlled media, as the events in the Maghreb have shown. In Vietnam, wages are rising as fast as in China. In Bangladesh, the minimum wage was increased by 85 percent last year. In China's interior wages are still considerably lower than in the coastal provinces, but they are rising at a faster pace.(6)

So it appears that capital's capacity to combine modern technology with ever-lower wages, which sustained its rate of profit for at least two decades, has reached its limit. It's true that there are still places on earth where the value of labour power is lower (in particular in India) but there, other factors, such as the lack of infrastructure (roads, ports, power, etc.) poses severe limits. So the hope that the cheap labour power of China and similar countries will revitalise global capital is not based on perceivable trends in the real economy. It's true that this could change if Chinese capital were to succeed in pushing the price of its labour power far under its value, but for the moment conditions are not in its favor.

The Stimulus Policy Created a Bubble

The vertiginous growth of its exports in the past decade made it possible for China to reduce the share of wages in the GNP dramatically, while conceding a rise of wages at the same time. The expansion of the pie was large enough to accommodate a growth of the purchasing power of workers even though wages became a smaller part of the pie. Today, that's no longer the case.

The Chinese economy, as it is structured around its export sector, obviously suffered huge losses when its markets shrank after the crisis burst open. The state, concerned about the social consequences of a slowdown of the economy, reacted with an ambitious stimulus programme. Only the US spent more. But while the US created money to back up its treasury, American assets, China did so in the first place to stimulate investment. State-run banks unleashed a lending spree which led to a construction boom of unprecedented proportions. Spending on fixed-asset investment is now equal to nearly 70 percent of the nation's gross domestic product. It is a ratio that no other large nation has approached in modern times (in the US, the figure has hovered around 20 percent for decades). But did this exponential growth of credit lead to a corresponding growth of value? Apparently not: more and more debts are no longer paid off. The money that was created in their name is fictitious, yet it circulates. Debt, speculation and inflation, are forcing China to end, or at least sharply reduce, its stimulus policy. The hopes of those who see in China a market that will continuously expand will be rudely disappointed.

China's stimulus measures have helped significantly to soften the crisis of advanced capitalism. When China buys, day after day, billions of dollars, it gives the Fed the flexibility to create money at a faster pace. China does it to curb the devaluation of the dollar vis-à-vis its own money, the Renminbi (RMB), also known as Yuan, in order to protect its competitive position on the American market. More precisely: many companies in the coastal provinces which produce for the external market already operate with a razor-thin profit-rate. Their contracts are in dollars but they pay their suppliers in RMB. A sharp devaluation of the dollar would be a fatal blow to them.

So it's not surprising that China used its stimulus program to reduce its dependence on Fordist production, by trying to become a producer at the cutting edge, where profits are less derived from the low value of labour power than from technological rent (i.e., a market advantage). The efforts it has made towards this goal, such as the modernisation of its infrastructure, were beneficial for the exports of the advanced countries, especially for Germany, the leading producer of modern technology. Its exports to China have increased by 40 percent since 2009. From a country with antique trains, China became an importer of HSTs (high speed trains). But now it is becoming an exporter of HSTs. That changes the game. The privileged sectors are becoming crowded. China becomes an exporter of green technology, while its factories vomit poison into the air as if there were no tomorrow.

A Cursed Treasure

At first sight, it seems so simple. China has huge needs and huge financial reserves. Just do the math and everyone benefits. But it is only simple if you think money and value are the same. If China decides to become a cutting edge producer in all areas, using its financial reserves to buy the best technology in all sectors, it would be for a time - before this ends in gigantic overproduction - a huge market of the last resort for the rest of the world. But it can't.

These financial reserves are debts and money of other countries, especially the US. To what degree does this money represent real value or only fictitious capital? Its partially fictitious character remains hidden in the hoard, as long as the faith in it remains intact, but it would appear clearly as soon as China attempted to bring the amount of dollars needed to realise that plan into circulation. By taking huge reserves of dollars out of the sterility of its coffers where they can do no harm, to throw them into the global economy, China would achieve the opposite of what it wants: a sharp devaluation of the dollar which would destroy the profit rate of its export industry and would devalue its own financial reserves, with a worldwide acceleration of inflation to boot. And if it were to use its hoard not for massive investments but to finance a general rise of purchasing power, the consequences would be equally catastrophic: the price of labour power, which remains its main competitive weapon, would shoot up, inflation and speculative investment, which already have reached alarming levels because of the accelerated monetary creation, would become unstoppable. It's as if there was a curse on China's hoard: these trillions of dollars will keep their value only as long as they remain untouched.

The Fear of a Human Avalanche

There is another reason why China cannot make this 'easy sum'. It could, for example, raise its agricultural sector to a point where it would be as productive as that of the US. Technically, nothing stands in its way. But instead of doing this, China is prospecting Africa and Brazil to buy land to start modern capitalist farms there, far away from home. Because doing this at home would mean the expulsion of hundreds of millions who would flee to the cities. That is the social nightmare that the ruling class wants to avoid at all costs. The same is true in many other sectors. China can't be reduced to an industrial zone in the south and subsistence farming in the interior. The majority of companies, employing a majority of the working class of the country, are capitals of a low organic composition (C/V); that is, employing lots of workers but at low productivity. They have survived, thanks to the low value of V, labour power (reinforced still by Maoist rule, when the value of labour power meant enough to survive just until tomorrow, the ‘iron bowl' and nothing more), and thanks to the fact that China's internal market is only partially opened to outside competition. But also thanks to loans from the banks, that is to say, from the state.

During the last three decades, the state has stopped supporting many thousands of those companies. This not only in order to cut expenses but also to feed - not too much, not too little - the stream of labour power needed by the rapidly expanding Fordist industry in the south. But there are still millions of them. To support them was the main goal of China's stimulus program. This has not prevented thousands of them from going under, but it kept alive many others. It did so by giving them orders (infrastructure projects, of which a principal goal is to be able to move large numbers of migrants to and from the industrial zones) and especially by giving them loans of which it is clear that a large part will never be repaid.

According to the IMF, China's rate of debt/GDP is 22 percent, a lot lower than that of the US or the EU. But this figure does not include the debts of the thousands of investment companies formed by local governments that invested in infrastructure projects but also in the survival of companies that, from the point of view of value, no longer have a reason to exist. These investment companies are, like all capitalist entities, engaged in a ferocious competitive battle between them to attract capital. According to the calculations of the economist Victor Shih of Northwestern University, their debts amounted to 11.4 trillion RMB (1,7 trillion dollars) by the end of 2009, or 35 percent of China's GDP. Taking into account the open credit lines already assigned to them, they would rise by another 12.7 trillion RMB by the end of this year, to a total of 3.7 trillion dollars. Already 28 percent of these loans are ‘non-performing'. A recent report by the investment bank UBS predicted that the local government investment companies would generate $460 billion in loan defaults over the next few years. ‘Most of the government entities that borrow can't even make the interest payments on the loans', Shih recently said to The New York Times . When these debts are included, China's rate of debt/GNP was 75 percent at the end of 2009 and would be 97 percent by the end of 2011, higher than that of the US today (94 percent).(7) So the hope resting on the assumption that China can play the role of locomotive because it doesn't have to carry excessive debts which force the other large economies to austerity policies, seems unjustified. Like elsewhere, in China the state desperately tries to compensate for the lack of creation and realisation of value by accumulating debts and we can see that its capacity to do so is eroding. Its efforts have led to excessive indebtedness, an inflation-rate (officially still below 6 percent, in reality at least double that) that threatens its capacity to monetise value, and speculative bubbles, especially in real estate.(8)

For these reasons, China has decided to end its stimulus program. Since last fall, the state has ordered the banks to drastically tighten their loans, and has begun to consolidate - i.e liquidate - thousands of local investment companies. Its economy is beginning to cool. At the same time, the pressure for higher (or less low) wages continues. Workers in transportation, services and white-collar jobs who did not get the raises that the industrial workers obtained, claim it's their turn now.

Some China-watchers think that the anti-inflation measures that China is taking now are too little and too late to get inflation under control; and that a climate of ‘stagflation' would make it very difficult for the state to maintain its grip on society. It's not up to us to predict whether China will make a ‘hard' or ‘soft landing'.(9) But in both cases, the high hopes invested in its market will land hard.

China will continue to grow, but less than before. Like elsewhere, this growth will create fewer jobs than it will destroy. Out of fear of social convulsions, China tries to limit this tendency, but this is becoming increasingly difficult. In China, like elsewhere, the great worry of the ruling class is: how will we manage all this superfluous variable capital. Not just the migrants and other refugees from rural poverty, but also the millions of graduates for whom there is no more place in the economy.(10)

We see the same thing elsewhere. Everywhere, the nightmare of capitalism becomes, what will we do with all those people? Where can we stockpile them, how can we keep them quiet? How to separate the superfluous from those we need? How to prevent them from engaging in revolt? How to make them disappear?

For the moment, capital is focusing on reducing their cost. It is well aware of the impossibility of creating new debt to replace the old non-performing ones endlessly, or, in other words, of the impossibility of continuing to hide, with fictitious capital, that the capital in the hoard is (to a growing extent) fictitious. So by reducing its costs, it seeks to create the financial space to defend the confidence in the capacity of its debts to hold value. In the past three years, trillions of dollars, euros, yens and RMBs have been created to support the private hoard undermined by bad debts, and trillions more to impede a deflationary spiral towards depression. Never has so much money been created in so much time. This has put a brake on the deflationary pressure without however eliminating it. It remains a bubble economy. Capital, M, continues to skip the phase C to get to M' and by doing so, it undermines M'. All the money creation, the tax breaks and other presents to the possessors of capital can hide this only for a limited time.

So the pendulum swings from stimulation to austerity. China is ending its stimulus program, the US has ended its ‘quantitative easing' policy and in Congress, the emphasis is on cutting expenses, the EU's willingness to bailout its most debt-ridden members seems to have reached a limit and everywhere central banks are taking measures to restrict loans, to defend their hoard.

At the same time, the proletariat, the population that has only its labour power to sell in order to survive, neither in China nor elsewhere is in the mood to sacrifice itself and is discovering new ways to fight, to communicate, to resist.

A collision is inevitable. As Bette Davis said: ‘Fasten your seatbelts. It's gonna be a bumpy ride.'

Sander


This section does not appear in the print version of Internationalist Perspective.

A Short Glossary of Marxist Concepts

All of the Marxist categories, e.g. value, the commodity, capital, wage-labour, abstract labour, are historically concrete, in contrast to the metaphysical categories of political economy, which are eternal, a-historical, and universal.

Value-Form

Value is the socially established form that the products of human labour assume as commodities, goods and services produced for exchange, in contrast to the tangible use that the same objects may have. In present-day capitalist society, the value-form has spread beyond the immediate process of production and exchange to penetrate virtually the totality of human social relations and thought processes, to the point where social relations based on the value-form, on commodity exchange, appear largely self-evident, normal, and ‘natural'. What makes the exchange of commodities possible is that they are all commensurable in terms of the labour that it takes to produce them, which permits the establishment of their value, which appears as an intrinsic property of the good or service.

Abstract Labour

Abstract labour is what establishes the value of a determinate commodity, in contrast to the concrete labour that produces it as a use value. Abstract labour, then, is labour stripped of its specific, concrete, qualitative, features - though it is neither just a social average nor a substance that is physically contained in the commodity itself, the ‘product' of the burning of so many calories expended in its production by the worker. It is, rather, a real abstraction, not a mental abstraction, contained in the actual social relations of production, in which the concrete labour of masses of workers is transformed into a social labour, objectified in commodities as expressions of value, and assuming a thing-like, reified social existence.

Fictitious Capital In one sense, all financial capital is fictitious since its value, its power to represent real commodities, ultimately depends on fiction, on ‘faith in money-value as the immanent spirit of commodities' (Marx). But money is also ‘only a different form of the commodity' and must therefore expand together with the value of the commodities it represents. To the extent that financial capital's expansion is disconnected from the expansion of value of the commodities it represents, it is fictitious. More specifically: fictitious capital is capital neither invested in the physical means of production, infrastructure, or the wages of workers, but rather in assets (stocks, bonds, securities) that are expected to yield profits at some future time. It constitutes claims to future production and the profits that this may generate - paper claims to wealth. While the existence of fictitious capital is inherent in the development of a capitalist banking and credit system, its actual development in present-day capitalism in the form of both public and private debt necessary to sustain economic activity constitutes a huge and unsustainable burden on future earnings that may never be repaid or which creates credit bubbles the bursting of which constitutes a formidable threat to the very stability of the capitalist system.




Footnotes 1. See, amongst other texts, ‘Value Creation and the Crisis of Capital', Internationalist Perspective 49 Spring/Summer 2008.

2. But the US produces almost as much, 19.4 percent, with almost a tenth of the labour force: there are only 11.5 million industrial workers left in the US. So the productivity-gap remains considerable. See, Financial Times, 13 March 2011.

3. See ‘Capitalism, Technology and the Environment', Internationalist Perspective 50 Winter 2009; Sander, ‘Artificial Scarcity in a World of Overproduction: An Escape that Isn't', Mute Vol2 #16.

4. Of the 15 largest economies, China is second in income inequality, after Brazil. It's a sad irony that the greatest inequalities of the world are managed by the ‘Communist Party' and the ‘Party of Workers'.

5. v Mary E. Gallagher who interviewed young migrants at different moments described the change this way:

The iconic figure of a young, shabby farmer making his way to the city for a limited amount of time with limited ambitions and expectations for his time there is giving way to young people who see the city as their future and, if not their birthright, as something that they have earned. Unlike their parents or elder siblings who compared their fortunes to what ‘would have been' if they had stayed in the countryside, these younger migrants compare themselves to their urban counterparts. Differences in treatment are no longer as readily acceptable. Their expectations for the future are wider and different than earlier generations. Future plans rarely include returning to the countryside as farmers.

See, ‘We are not Machines: Teen Spirit on China's Shop floor', in The China Beat, 23 August, 2010.

6. New York Times, 31 May 2011.

7. His conclusions are of course challenged by Chinese economists loyal to the state whose principal argument is: ‘Given that the Chinese government has commenced its exit from the stimulus policy, Shih's extrapolation that the debt will continue to balloon in the next two years makes little sense.' Xu Yisheng's ‘How Victor Shih Gets China's Debt So Wrong', China Stakes, 25 March 2010,

To the degree that this is correct, China's public debt will rise less than Shih thinks but its growth and its imports will slow and bankruptcies will spread.

8. The last one is in part instigated by the state. It inflates the bubble because it profits from it: ‘Through taxes, fees and property sales, local governments are raising more and more at the expense of the household sector's income and purchasing power. Local governments are essentially on a treadmill of raising more and more revenue to fund fixed investment. So it needs land prices to rise higher and higher, resulting in a massive and nationwide property bubble.'

Andy Xie, ‘Rebalancing cannot wait', Caixin Weekly, 11 March 2011.

9. According to a recent poll of investors, a ‘hard landing of China' is seen as the greatest risk for the financial markets today. ‘China hard landing is biggest threat', Financial Times, 20 March 2011.

10. In 1998 the higher education institutions delivered 830,000 graduates, in 2009 6 million. Between 1982 and 2005, the number of graduates rose sevenfold while the number of white collar jobs rose from 7 to 13 percent.


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