by Albert Langer
A 1981 analysis of why unemployment occurs under capitalism. Many references to the particular conditions in Australia at the time. Unemployment had reached its highest level since WW2 and there had been much debate in the media about the need for everyone to “tighten their belts” etc..
First published in August 1981 as an “Australian Political Economy
Movement” conference paper. (Adelaide 8-9 August.1981)
Republished subsequently by the Red Eureka Movement. (REM)
Part 7 was written one year after the original document.
Part 1: What is “unemployment”?
Part 2: What “normally” causes unemployment?
The Labour Market
The Unemployment Pool
Changes in the Level of Unemployment
Part 3: What regulates unemployment?
What Do the Unemployed Actually Do?
How Unemployment Regulates Wages
Booms and Busts
Wages and Class Struggle
Arbitration and Wage Indexation
Job Creation and Destruction
Part 4: Technological unemployment
Is It Technological?
Part 5: “Cyclical” Unemployment
Anarchy of Production
Planning and Money
Are Wages Too High?
Part 6: Solutions
“Giving Fraser the Razor”
Blowing Up the Balloon
Shorter Hours and Higher Pay
Expanding the Public Sector
Labor to Power with Socialist Policies?
Economic Consequences of Statism
Part 7: Revolution
We Need a Program
Expropriating Big Business
The Struggle for Control
Conservative economists and politicians generally argue that unemployment and inflation in Australia are the result of changes in the international economy, and that Australia has to adapt to those changes or things will get even worse. They say government economic policies must promote more rapid economic growth by stimulating profits and investment at the expense of real wages and social welfare.
Labour movement opponents of the current Liberal government have proposed a series of sometimes contradictory arguments in opposition to this line. Explicitly or by implication they suggest that unemployment is at least made worse by the present government’s economic policy, and could be improved if different policies were followed. Various proposals are advanced – such as:
for shorter working hours
redistribution of wealth from the rich
protection of Australian industry
limitations on technological change
government job creation schemes
improvements in the lot of the unemployed
measures to stimulate economic growth without attacking living standards
and so on.
These proposals have had little impact on public opinion. Given the manifest failure of its economic policies, there has been nothing like the mobilisation against the government that might be expected.
The reason is that these proposals do not make sense. They ignore fundamental facts about how capitalism works, and about recent economic and political history.
The capitalist system is not capable of restoring full employment in any of the ways suggested from the labour movement, and it is silly to pretend that it can. The only alternative to conservative policies will be communist revolution. That alternative must be made realistic.
Before deciding what could – and what could not – reduce unemployment, we first need to look at what causes unemployment. I am not very clear on that myself, but I still feel confident enough to reject various commonly accepted views on the subject. I will state my own provisional understanding rather baldly. Others can then point out its inadequacies, and we can go on from there.
This paper is thus a preliminary attempt, necessarily half-baked, and partly written for the purpose of self-clarification. It examines an issue that really needs to be considered in close connection with many other economic and social questions. It would have been better to have provided more facts and figures, examples and other evidence for the assertions below, as well as more explicit reference to other views. But we have to start somewhere.
Hopefully feedback will result in refinements and modifications of the arguments. Please do send comments.
Part 1. Emphasises that unemployment is specifically a problem connected with market economies. Then it gets slightly distracted to talk about science fiction and jellyfish.
Parts 2., and 3. Analyse the economic mechanisms that regulate “normal” unemployment, in order to explain the conservative arguments for “wage restraint” and why such arguments are wrong.
Part 4. Examines “technological” unemployment and shows that the increased unemployment now is not “technological”.
Part 5. Attempts an explanation of “overproduction” and “cyclical” unemployment (without great success).
Part 6.Considers various “solutions” from the labour movements, in the light of the earlier analysis, and rejects them all, but cheerfully, in view of part 7.
Part 7. Tries to give some concrete content to the idea that “the only solution is revolution”.
1. WHAT IS “UNEMPLOYMENT”
First, let us be clear about what unemployment actually means. Unemployment and employment are two sides of the same coin. Capitalism is based on wage labour. Workers sell their labour power to employers for money wages. They are “employed”, that is “used”, or “exploited”, to produce profits. They do not work for themselves, but are “employed” by others. Inherent in this is the possibility that some workers will be unable to find a buyer who is willing to purchase their labour power when it is offered for sale.
In fact unemployment is not only possible, but inevitable, in a capitalist or market economy. The labour market, like the other commodity and financial markets, is an essential mechanism regulating production and consumption by balancing supply and demand through price movements. Even at the height of prosperity there has to be some pool of unemployed for employers expanding their operations to recruit from. Otherwise they could only recruit from other employers by offering higher wages.
“Full employment” actually means “very little unemployment” – say 1% or 2% – just enough to stop a “wages explosion”. Any less unemployment than that is not “full employment” but a “labour shortage”.
The very term “market economy” implies an economy in which commodities, including labour power, may be offered for sale with no buyer. If there was a guaranteed buyer, then the transfer would be some sort of allocation, rather than a free market exchange.
So in a market economy, goods and services may be left unsold, capacities for production may be under-utilised, and workers may be unemployed. It all depends on the market – ie on whether somebody is willing to pay money for them.
For additional workers to be employed, an employer has to be able to make a profit out of employing them, by selling what they produce on the market at a price higher than their wages. If this is possible, then some employer, whether government or private, will do it. But on the other hand, if no profit can be made from employing additional workers, directly or indirectly, then they cannot be employed.
The government can pay them unemployment benefits, and it can call these benefits “wages”, but if the work done does not pay for itself on the market, it is not “employment”, and will require a continuing subsidy from revenue obtained by taxing real employment.
If there were any commodities with guaranteed buyers in a free market, then those commodities would be in short supply and their price would go up until there were no longer guaranteed buyers. That is actually what happens to wages when unemployment falls below a certain minimum. This is perfectly normal and completely unavoidable.
Most proposals for reducing unemployment lose sight of this essential fact. If it was possible to reduce unemployment by some simple measure to increase the number of jobs immediately available, then it would theoretically be possible to eliminate unemployment entirely by pursuing the same measures more vigorously.
However the basic nature of a market economy does not permit that. In fact it regenerates unemployment as part of its normal functioning. “Job creating” measures might work in some other kind of society, where work is done because a job needs doing, rather than because someone is willing to pay for it. But in a market economy, jobs are “created” by the market, and only by the market. Somebody has to pay.
In order to confirm that unemployment really is just the other side of employment and only occurs where work takes the form of wage labour, we can examine some societies which do not have a market economy.
Employment is so “normal” in our society that one tends to take it for granted and to look elsewhere for the explanation of unemployment. So it is worth reminding ourselves that employment and unemployment are characteristic features of only one kind of society – the capitalist or market economy.
Savage society was characterised by a primitive form of communism in which people worked together as a tribe. There were no employers and there was no question of finding or losing a job. You could starve to death, or get eaten, but you could not become unemployed. The fact that its quite common to hear modern society compared unfavourably with primitice society says something about how disgruntled people are with capitalism. In reality however the life of the “noble savage” (including the Australian Aboriginals) was, as Hobbes famously said, “nasty, brutish and short”. Nevertheless there was absolutely no reason why everybody in the tribe could not work at once. Unemployment was just not a possibility for people living in these societies.
Slave and feudal societies.
Slave society marked a considerable improvement, for civilisation, culture and so forth. This was so even for slaves since captives were no longer killed and eaten. There was still no unemployment. Even as recently as feudal society, for most of the population there was no such thing as employment and unemployment. A peasant or serf did not have to find a job. They simply worked the land and engaged in household industry. They could suffer from wars and famines, but not from unemployment. An artisan might have difficulty selling goods, but could not become unemployed. Again, reactionary romantics, including many supposed to be “left”, often look back on the cramped, narrow lifestyle of those times, as though it was some sort of “golden age” compared with modern society.
Modern society based on wage labour has opened up much wider horizons than anything that existed before it. But unemployment is part of the deal. Nevertheless it is a good deal compared with tribalism, or slavery, or being tied to the land.
Freedom to sell one’s labour power on an open market is an enormous advance over previous social systems in which people were born into their jobs and were therefore stuck with them for life. This freedom is the basis for all other freedoms.
However the deal is no longer good enough. We want more freedom and we will have to move beyond a market economy to get it. The current concern about unemployment is just one sign that the social system we have now is no longer good enough.
In future communist society people will not work for wages, but for social needs, as was the case in primitive communist society. They will not buy their requirements in exchange for money received as wages or profits, but will be given an allocation in accordance with their needs. Again, as in primitive communist society.
Unlike primitive communist society, people will not be ruled by “necessity” but will use their knowledge of natural laws to attain freedom from the blind working of “nature” or “fate”. Work as an obligation, and consumption as a right will not need to be enforced through commodity exchange, any more than they will need to be enforced through tribal sanctions.
Distribution will be “from each according to their ability, to each according to their needs”. The state as an apparatus of coercion will wither away since the government of people will give way to the administration of things. The free development of each will be the condition of the free development of all, and the long dark ages of the pre-history of humanity will have ended.
It is worth reminding ourselves that this is what the progressive movement is ultimately all about – something that often gets forgotten in the midst of day to day struggles.
Even some science fiction stories take it for granted that humanity is headed towards a sort of communistic society. Sci fi characters tend not to be looking for jobs, receiving wages, or buying things with money. In these stories people do various jobs and obtain supplies of accommodation, food, and other things they need, without buying and selling. Although social relations specific to capitalism are often imposed on sci-fi societies quite inappropriately, there is still no “private enterprise” in many of these visions of future society. Likewise “nations” often seem to disappear.
Needless to say, in such a future society there would be no question of unemployment, since there would be no labour market. Despite this there could be plenty of other problems – just check out the sci-fi literature for examples.
Further along, or for alien life-forms, the very concept of “society” gives way to a single organic whole, where there is no question of distribution “from” or “to” any separate individuals. This reminds us of the way in which single celled creatures first gathered into colonies and then evolved into jellyfish -like creatures and eventually some went on to develop into highly complex organisms.
But returning to the present millennium – communism will still not be a good enough deal once we have it! People will then be ready to demand something along the lines of “From each according to their inclination, to each according to their wildest dreams” – and other more radical proposals.
There will still be struggles and the need for revolutions. We cannot predict what new problems will arise as humanity continues transforming itself and eventually changes into, or gives way to something quite different from the present species.
But unemployment will certainly be a problem over and done with, once employment is over and done with. It is not a permanent problem and one day we will not have to worry about it, just as today in most advanced countries we do not have to worry about starvation.
Coming right back now to the present day, communism is long overdue and we still have unemployment – and it is growing. However in recent times we have actually seen examples of modern societies where unemployment was not a problem. These were societies that had consciously set out on the road towards a communist society and had begun abolishing the market economy. They had no difficulty controlling and then eliminating unemployment. This was despite the fact that they had started with extremely backward economies and first had to deal with even bigger problems such as starvation. There was not any unemployment in the Soviet Union when it was socialist, even at the height of the 1930’s Great Depression.
However today there is unemployment in some sectors of the Soviet economy and labour shortages in others (apparently with an overall labour shortage as existed in most western capitalist economies in the 1960’s.) Since Soviet economists admit there are labour shortages, there must be a labour market, and that implies the shortages will later be followed by surpluses, just as in the West.
In China the connection between a market economy and unemployment is more dramatically obvious. There was no unemployment at all in China from the 1950’s until recently. There may be arguments about how efficiently people were employed, but nobody seriously suggests there was actual unemployment.
Within a few years of the restoration and expansion of market relations (ie since 1977), mass unemployment exceeding 20 million people has become a major social problem. Previously investment was planned and regulated by a socialist state, with each enterprise responsible to the state plan and having no independent right to hire and fire. Now enterprises are “free” to take their own independent investment decisions and to hire and fire while at the same time, workers are “free” to be unemployed.
All this suggests that we must examine every proposal for reducing unemployment, according to its implications for a market economy. Unemployment is a problem specific to capitalism and it is no use looking at solutions that ignore the specific features of market economies. We need to figure out how the labour market actually works in a capitalist economy.
2. WHAT “NORMALLY” CAUSES UNEMPLOYMENT?
We shall argue that conservative economists are correct to stress that unemployment plays an essential regulatory role in a market economy. This contrasts with the usual “left” calls for government action to “create jobs”. But we will go on to show that “wage restraint” will not solve the problem either.
Such “restraint” would be unnecessary to keep “normal” unemployment within limits, because the unemployment itself would regulate wages. Something must have changed so that unemployment and wages are not regulated in the way they used to be.
A common way to look at unemployment is that there is a certain fixed number of jobs and a certain fixed number of people available to fill them, and some sort of mismatch has occurred. The suggestion here is that the unemployed are simply those workers who cannot be fitted into the jobs available for them. This idea leads to “commonsense” proposals to reduce the number of workers, or provide a better match between specific workers and specific jobs.
Solutions aimed at restricting the number of job applicants have historically had a powerful appeal. Discrimination against women, migrants, blacks and so on, can be in the immediate interests of men, native born, or whites, in the competition for a place at the front of the jobs queue.
Obviously such “solutions” cannot reduce unemployment, but they can determine who gets the jobs, and for the individual on the dole, that can be just as important. Efforts are already being made to promote these objective divisions of interest within the working class. Those efforts are serious and should be fought seriously. They can succeed.
There are always vacancies as well as people unemployed, so “solutions” which emphasise re-training and so forth are still popular. So is the idea that there are really plenty of jobs available, but “dole bludgers” are just refusing to fit into them because they want something better.
School leavers do have access to advice about how to be well groomed for a job interview and so on, although only cretins could imagine that if all the unemployed were better groomed, any more of them would get jobs quicker! This simply confirms that who gets the jobs is pretty important for the school leaver. Advice about how to find a job can be somewhat helpful in evening out the duration of unemployment and reducing the numbers who miss out on jobs altogether. But quite obviously it cannot reduce unemployment.
A lot of energy in left wing propaganda and agitation is spent trying to combat the above ideas but without attacking the underlying concept that there is a fixed number of jobs and workers. The “left-wing” and “right-wing” analyses are therefore just two sides of the same coin, sharing the same basic assumptions.
So we should not be surprised that the left makes no progress against the dominant right wing ideology.
What is the difference between saying there are too many workers or not enough jobs? These really amount to exactly the same thing. Yet that is all the left does say. The “not enough jobs” line is sterile, boring, and will get nowhere because it is just not true.
These ideas are wrong because neither the number of workers nor the number of jobs is at all rigid.
Under normal circumstances, the number of jobs adapts flexibly to the number of workers available to do them. In fact there is always plenty more work that needs doing, than the labour available to do it.
As capital is accumulated and society develops its productive forces, jobs that were previously left undone get attended to. The limitation is always the social labour time available to do things, rather than the number of “jobs”.
When the number of jobs fails to adapt to the number of available workers, this must mean that something has changed in the adaptive mechanism itself, and we must find out what. Just trying to “create jobs” would still leave us with an adaptive mechanism that was not working and that could recreate a new pool of unemployed.
This more sophisticated understanding of job creation in a market economy, lies at the heart of conservative arguments for wage restraint. Those arguments have never been satisfactorily answered from the labour movement, and are gradually being accepted by the trade union bureaucracy. There is thus an urgent need for them to be answered. Let us first consider how the adaptive mechanism is supposed to work.
The Labour Market
The workforce in modern industrial countries is extremely mobile. It is the product of centuries of capitalist development in which the technique and structure of production have changed so rapidly that people expect to change jobs many times during their working lives.
Nowadays many firms are so large that a good deal of movement between jobs takes place within the same firm. Some even have regular career services with a defined system for recruitment, promotion and transfer. There is also a certain amount of transfer between firms, directly from one job to another. But a great deal of movement between jobs still takes place via the pool of unemployment.
“Labour Turnover” includes workers changing jobs while searching for a better situation. It also includes the replacement of workers who have died or retired or otherwise left the labour force, by new workers entering the labour force for the first time.
These movements have no net effect on unemployment although many workers will pass through unemployment on their way between jobs, or on their way into the labour force. In addition to this however, there is a continuous process of new jobs being created and old jobs being destroyed. This does have a net effect on employment, and therefore on unemployment, although the effect can be in either direction.
In existing establishments, expansion or contraction of demand will create new vacancies or produce redundancies. Changes in demand may also result in new establishments being set up as an industry expands, or old ones being closed down as it contracts.
New techniques will be introduced with expansion, or when it is time for old plant and equipment to be replaced. Old techniques will be phased out with contraction, or when they have become so obsolete that it is more profitable to introduce the new technique immediately.
Investment in new production techniques requires a reorganisation of the labour process. Vacancies will be created for new positions that previously did not exist. Old staff positions no longer required will be abolished. Some workers will be transferred from old positions to new ones. Others will be retrenched, or not replaced when they leave. New workers, perhaps with different skills, will be recruited. New raw materials and components will replace those previously used. Work previously done “in house” when the volume was lower and the need for specialisation was less, will either be farmed out to new outside contractors or subsidiary establishments set up for the purpose.
Generally the new technique is introduced to increase productivity. The new team of workers will be able to turn more of their “inputs” into “outputs” at a lower cost and using less labour. There may be an increased demand for new inputs used by the new process, with a decrease in demand for the old inputs used by the old process. This may produce some net effect on total employment in the suppliers (and in their suppliers…)
If the output is relatively cheapened as productivity increases, then there may be a further increase in demand, which will again increase the demand for the products of the firms or departments that supply the inputs.
Expansion of markets is generally a consequence of relative cheapening through increased productivity, and at the same time a condition for new techniques to be introduced. “The division of labour is determined by the extent of the market”. Often within the same establishment, there will simultaneously be expanding demand which increases employment, and reorganisation that decreases it. The total staff size may either grow or shrink as a result.
This sort of thing is happening all the time, and may not even be noticed as “labour saving technological change”. Especially if the change only increases output with the same size workforce, instead of leading to redundancies.
However labour productivity and the real gross national product per worker are able to grow each year only because of these changes. Growth rates have been very high in the whole post-war period, because these changes have been taking place very rapidly.
The long term tendency has been for the total labour force to grow more rapidly than the population. Labour saving technological change has meant more output per worker together with more employment overall. However this simply implies the overall rate of economic growth has been faster than the rate of productivity increase. Any particular change may result in either more or less total employment, and there is no guarantee that changes in employment taking place simultaneously throughout the economy will automatically balance each other in any way.
Both changes in demand and changes in technique can produce a net change in total employment. If there was no unemployment pool, there would be no leeway for changes in total employment to occur as a result of job creation and destruction. There must be leeway, so there must be an unemployment pool.But its size is another question.
The Unemployment Pool
As well as the normal labour turnover, there is a continuous stream pouring into the pool of unemployment as a result of positions that have become redundant (whether their previous occupants were sacked, or the position was just not filled when they left).. There is also a continuous stream emptying the pool of unemployment as a result of new vacancies that have been created.
In fact there are a number of interconnected pools and streams for different occupations, industries and localities. And these are also interconnected with the pools of people in the education system or otherwise not in the labour force as well as with the flows of migrants to and from other countries.
The effect of changing demand on the numbers of jobs available for people of various skills and occupations in various localities, is reflected in the filling and emptying of their unemployment pools. People who cannot find a job in one pool are forced to transfer to another by doing things such as changing their usual occupation or residence, acquiring new skills that are more in demand, and so on.
The pools of people “not in the labour force” can also be forms of “hidden” or “latent” unemployment. Women for example, are drawn into wage labour more extensively during periods of peak labour shortage, and pushed back into “home duties” when unemployment is growing. Likewise people may stay on at school longer, or retire earlier, as a result of unemployment.
On a world-wide scale, the movement of people off the land and away from petty production into industrial wage labour jobs is accelerated by labour shortages.
This movement is retarded or even reversed during a depression. Thus countries like Australia which normally absorb immigrants from agricultural areas like southern Europe, will put up barriers to immigration when there is unemployment at home. People left marginally employed, on or off the land in the agricultural areas are also part of the unemployment problem.
The modern capitalist economy is very flexible and has a number of mechanisms for adapting to changes in the level of economic activity and consequent changes in the demand for labour. Thse include adjustments in overtime hours worked, part-time and casual employment, wage rates, labour turnover, work intensity, production techniques and so so.
Only when the other adjustment mechanisms have already been stretched considerably, do substantial unemployment or labour shortages appear directly. Both unemployment and labour shortages are therefore signs of some relatively severe disproportion which must be stretching things. Since each firm hires and fires independently and plans its investment program independently, there is no reason why at any given time the total numbers pouring into the pool of unemployed should be equal to the numbers drained out of it. Some other mechanism must therefore maintain the balance.
After all, why should the number of jobs created in the tertiary sector, just happen to balance the number of jobs lost in manufacturing, plus the additional numbers of women entering the labour force, and so on? Nevertheless, these independent statistics did balance for many years, and we must find out why they did, before we can find out why they now do not.
As will be explained later, the expansion and contraction of unemployment is itself part of the mechanism that regulates the price of labour power, the rate of profit and the balance between production, consumption and investment.
There just is not any government authority that can regulate the number of new jobs being created, or the number of old jobs being destroyed each year – and there cannot be such regulation in a market economy.
Therefore there is not any way that the government can directly determine the number of unemployed.
Changes in the Level of Unemployment
It is difficult to separate job creation and destruction from other labour turnover, and difficult to separate the effects of new technology from expansion and contraction of demand. But labour turnover is very high, and some of it is the result of jobs being created and destroyed.
If people change their jobs an average of once every four years, then the number of job changes each year is equal to a quarter of the entire workforce. If the average duration of unemployment is six months, then twice as many people pass through unemployment each year on their way to a job (or on their way out of the labour force due to discouragement), as the number of unemployed at any given time. Only a small proportion of labour turnover needs to be due to job creation and destruction, for any imbalance between the two to have a rapid effect on net employment and unemployment.
One would naturally tend to think that if all those who happen to be out of work at the moment were to go abroad, or had jobs specially created for them, then there would be no unemployment. But the above analysis suggests that only a slight mismatch between the numbers of jobs being created and destroyed, would very quickly recreate a large pool of unemployed. Just to keep the number of unemployed static, whether at twenty thousand or two million, there would have to be perfect equality between the large number of jobs being destroyed each year, and the large number being created.
It follows that one should not just think in terms of a match between the numbers of jobs and workers, but also a match between the rates of job creation and destruction. In fact, when there is no dramatic continuing change in the level of unemployment, there must be just such a nearly perfect match between job creation and destruction.
How is it brought about? Why does not the number of unemployed fluctuate wildly, all the time? Only if we know how unemployment is normally regulated can we find out why that regulation is not working the same way now.
3. WHAT REGULATES UNEMPLOYMENT?
Somehow, the size of the pool of unemployed itself must regulate the rates of job creation and destruction. Otherwise the number of unemployed would fluctuate wildly all the time. We shall find out later how the regulation works normally, and why it is not working now. But we already know that unemployment must be some sort of regulator. The larger the pool of unemployment, the more jobs must get created and the less must get destroyed. Otherwise we cannot account for the usual balance eventually reached between these two quite independent rates.
Moreover, we know the mechanism usually tends to reach a balance with only a relatively small pool of unemployed. Therefore the mechanism must continue increasing the rate of job creation and/or reducing the rate of job destruction, as long as there is a certain amount of unemployment. It does not usually stop working with half the workforce still unemployed, just because unemployment is not still increasing.
Finally, we know that whatever this mechanism is, it does not always work. Right now, a small pool of unemployment is not balancing the rates of job creation and destruction. We await each month’s statistics with bated breath to find out whether unemployment has risen or fallen, and we usually find that it has risen. We know that periodically capitalism goes through major upheavals called economic crises, in which a large part of the labour force does get left unemployed for a long period. Our explanation of the balancing mechanism must account for that too.
Whatever the mechanism may turn out to be, we know that as long as it still is not working normally, no amount of artificial “job creation” can prevent the continuing mismatch between normal job creation and destruction from quickly recreating a large pool of unemployed. The only effective remedy for unemployment must be one that gets this balancing mechanism to work again. On this point we can agree with conservative economists. But what is the mechanism, why is it not working normally, and how can it be made to work again?
According to conservative economists the mechanism is simply that increased unemployment tends to pull down wages until it is profitable for capitalists to employ more workers. They conclude that the remedy is push down wages and increase profitability until the unemployment is absorbed.
That sounds quite plausible. If it is true, communists have no reason to deny it. We never claimed that capitalism could permanently maintain full employment without periodically pushing down wages to boost profits. Our answer would simply be that we do not feel like pushing down wages and boosting profits, thank you very much. We would prefer to abolish wages and profits and establish communism.
But a mystery remains as to why the mechanism should not be working, and why the remedy does not seem to work either! To resolve that mystery we shall first have to examine how unemployment regulates wages, and then how wages regulate employment and unemployment. We shall find that there is indeed a close connection between unemployment and wages, and between wages and job creation. But it is not as simple as the conservatives make out, it mainly works in one direction, and it does not work all the time. Most important, we shall find that we can not increase employment simply by pushing down wages. First let’s look at what the unemployed actually do to see how unemployment can regulate wages.
What Do the Unemployed Actually Do?
Under normal circumstances most of the unemployed are not just a stagnant “pool” but an active part of the “stream” moving from one job to another. They form a part of the stream that is temporarily banked up looking for outlets. They are an active part of the stream because they spend their time looking for jobs, not just rotting.
Unemployment is normally a period between jobs rather than a permanent status. When there was “full employment”, half the unemployed at any given time got jobs within four weeks. By 1978 more than a quarter had been waiting for over six months and another quarter for over three months. In a sense, one can measure how “normal” unemployment is, by its average duration, more than by the total numbers involved. It really is not a big problem if the economy is so dynamic that large numbers of people are changing their jobs each year, and they are spending a couple of weeks unemployed between each job. But it is very different when there are actually less people changing jobs than usual, but they are spending a longer time looking.
When unemployment increases slightly, it usually means that people moving from one job to another, or from school to work and so on, have to spend a longer time looking. But it does not immediately mean that a larger number of people are outside the labour force altogether.
Of course some unemployed workers do end up outside the labour force altogether, and even become permanently unemployable as a result of demoralisation. The larger the pool of unemployment, the larger the section of it that ends up stagnating instead of flowing back into employment, and the more peoples’ lives are ruined in this way.
Increasingly the unemployment we have got is taking on the features of a stagnant pool, rather than a flowing stream. This is compounded by the sharp reduction in normal labour turnover as people are reluctant to leave their old jobs unless they have new ones lined up. This stagnant unemployment is a different thing altogether from the “normal” unemployment that somehow regulates the rates of job creation and destruction. Nevertheless, we must first understand how “normal” unemployment does regulate these rates, before we can understand why the new unemployment does not.
The important thing about normal unemployment is that a larger part of the labour force is spending more time looking for work, and not that a section of the population has ceased to be part of the labour force. Hence the concept that the unemployed form a “reserve army of labour” that plays an active role in capitalist production, just as reserve armies play a vital role, and are not simply “inactive” in military battles. Some soldiers are in battle, and others are available to be deployed where required. Some workers work, and others are available to work where they are required. Both those in active service and those in reserve are necessary for things to go smoothly.
An important difference is that reserve armies of soldiers are deployed where their officers decide they are needed. With conscious military planning, reserves can be kept to a minimum and troops transferred directly from one front to another as required. Unemployed workers have no officers and are expected to find their own jobs. (Although there is now a fair bit of “manpower planning” and so forth).
The economic function of the unemployed is to look for work. Those that do not are no longer “unemployed”, but are “not in the labour force”. Those that do will normally find a job eventually. Their place in the unemployment pool may then be taken by someone else looking for employment. How long it takes, and what proportion miss out entirely, depends on the level of unemployment. But the unemployed individuals economic function does not change, their basic situation does not depend on the level of unemployment.
It is important to realise this when attempting to organise the unemployed. One reason they are very difficult to organise is that even now, most of them are not permanently unemployed – and the ones with enough initiative to get organised are also likely to get jobs quicker than average. On the other hand those that do become permanently unemployed can end up getting demoralised and dropping out of the labour force so they are no longer “unemployed” either, and are pretty hard to get involved in anything.
Let’s face it, unless things are really desperate, an individual unemployed worker can get more immediate benefit out of looking harder for a job than out of agitating against the government. The harder you look, the more chance you have of eventually getting to the front of the queue leading back into employment.
How Unemployment Regulates Wages
By looking for work, the unemployed play a vital role in the labour market. Their number determines the ease with which employers can recruit labour for expansion or replacement. That recruitment is going on all the time, even when there is a net reduction in the total number of jobs. There are always vacancies as well as people unemployed (and isolated examples of unfilled vacancies are always pointed to even though there are many times as many people looking for work as there are jobs available). The proportion of unemployed workers to job vacancies determines the average speed with which vacancies can be filled, just as it determines the average length of unemployment.
If vacancies cannot be filled fast enough any other way, then employers will bid up the price of labour by competing with each other to fill their vacancies. As in any other commodity market, this will continue until the supply of labour increases to fill the vacancies, or until the demand for labour has fallen (more likely, since the size of the labour force is relatively inflexible). The demand for labour will fall when the price has been bid up high enough, because investments that would have required more labour will cease to be profitable at the higher wage rate. So less jobs will be created and more will be destroyed. This includes of course the accelerated shift to less labour intensive production techniques.
We will examine the details shortly, but the important point to note is that unemployment only regulates wages in one direction. In fact unemployment only regulates wages when there hardly is any! As soon as there is enough unemployment to avoid a “wages explosion”, additional amounts will not significantly increase the ease with which employers can fill their vacancies.
There is no reason to believe that increased unemployment will cause employers to bid less for labour, or will cause unions to accept less. It may be that with really massive unemployment, union solidarity will be broken down. It may also be that the same slack demand for labour that has created unemployment will also make it unprofitable for employers to bid as much for labour as before. But these are both entirely separate questions. All we know for sure about unemployment as a regulator is that lack of unemployment will drive wages up and that will in turn force employment down.
This one-sided regulation is quite sufficient to explain the observed fact of a normal balance between job creation and destruction with very little unemployment. As long as markets are expanding and there is a tendency for the demand for labour to increase, that tendency will be checked by the size of the available labour force, but will permit full employment and real wages rising together with productivity.
This leaves open the question of whether other factors can also push unemployment and wages up or down and whether unemployment can coexist with high and low wages. That is as it should be, since we know that something other than the normal mechanism must account for the abnormal situation of high unemployment.
By way of contrast, the usual explanation that low wages will increase demand for labour, and high unemployment will push wages back down, explains too much. This would imply that any unemployment will correct itself, when it manifestly does not.
The usual explanation also implies that we should never expect to find increasing demand for labour alongside increasing relative wages. Yet that is exactly what has been happening with increased female labour force participation alongside equal pay.
Finally, the mechanism we have described gives no reason to believe that lowering real wages will automatically produce an increased demand for labour. All it says is that excess demand for labour (more than is available), will cause wages to go up. It does not follow that reduced wages would cause demand for labour to go up. That is also as it should be. Despite all predictions from the conservative camp, unemployment has continued rising while real wages have continued falling.
Since our unemployment regulator only explains one side of wages and unemployment, we need to look elsewhere to find what causes the abnormal movements in a crisis.
First, let us look at what happens before a crisis, namely a boom.
Booms and Busts
In a boom, real wages can even increase faster than productivity, so that the share of wages compared to profits will rise and the rate of exploitation will fall. This actually happened in the 1974 “wages explosion”. That was certainly a “boom” even though there was considerable unemployment at the time. Conversely, when demand is slack, unions have little bargaining power and the share of wages, or even the absolute level of real wages, will fall. That is happening right now.
When the economy is booming there is a general tendency for firms to increase their demand for labour power, raw materials and other inputs, in order to meet the demand for their output. This drains the pool of unemployed, reduces warehouse stocks, increases plant capacity utilisation and drives up wages and other prices. The increased demand for inputs and increased consumer spending can itself feed the boom to a certain extent, by further increasing demand.
But when the price of labour and other inputs is rising faster than the price of firms outputs, profit margins are reduced. There is then a general tendency for firms to cut back their investment and expansion, or even undertake contraction. This reduces the demand for labour and other inputs, and eventually recreates a pool of unemployed as well as stockpiles of other commodities and excess production capacities. Prices and wages are then forced back down (relatively).
These movements occur in individual sectors, but also in the economy as a whole. One firm’s inputs are another firm’s outputs and changes in demand act across the board. The balance between production, consumption and investment depends on movements in wages, prices and the rate of profit. This “balance” is always dynamic since it is precisely the imbalances that bring into play the factors for restoring a balance. Hence there is an unending succession of booms and busts in the economy as a whole and in particular sectors of it.
A problem with the above description of booms and busts is that it seems to describe a self-regulating mechanism that would automatically correct for unemployment or labour shortages by moving wage rates, or the capital intensity of investment, in the appropriate direction. So one would expect things to never get all that far out of balance. Indeed capitalism does work like that, a lot of the time, and normal “fluctuations” in the economy can be adapted to quite smoothly. But there must be more to it than that, when we have a “crisis”. Before going into that, we will look at wages, and then look at the normal balancing mechanism in more detail.
Wages and Class Struggle
Conservative economists assume that left to itself, capitalism always works smoothly, and when it does not, they therefore argue that there must be some institutional factor which is preventing prices from clearing market – for example, unions preventing wages from adjusting to the level of unemployment. Hence the calls for “wage restraint” and polemics against the unions.
To some extent this is hypocritical. Conservative economists are generally well aware that the level of wages is determined by the demand for labour, and not vice versa. They could not really believe that wages are greatly influenced by the effect of polemics against unions. They know that the only effective way to bring down wages is through reduced demand for labour, and that means increased unemployment. So it is quite illusory to talk of unemployment and “wage restraint” as alternatives. They go together.
Even though union leaderships might be very willing to go along with “wage restraint”, the employers themselves will bid up the price of labour power if there is not enough unemployment to hold it down. The propaganda for bringing down wages is really propaganda for accepting mass unemployment.
References here and elsewhere to “unemployment” holding down wages are not meant to imply that competition from the unemployed is the restraining factor. While union solidarity remains effective, there is little such competition. It would be more accurate to say “slack demand for labour” holds down wages. But generally (although not always), slack demand for labour is closely associated with unemployment. So the shorthand reference to”unemployment” is near enough.
Illusions about what determines wages are often spread from the labour movement, and especially its left wing, who sometimes picture the level of wages and conditions as primarily determined by the outcome of sharp class struggles on the shop floor.
This is certainly true to a greater extent than for other commodities. Because of the social elements in wages determination, worker militancy can effect wages more than farmer militancy can effect the price of wheat or supermarket rapaciousness can effect the price of groceries. A militant union can secure more for its members than a weak one and a militant workforce can enjoy a higher standard of living than a more servile one in a country with a comparable level of economic development.
There is an element of real bargaining, and extra-economic factors can also influence the outcome – for example fascist governments that suppress unions, or the threat of revolution. Even so, on a world scale it is clear that the level of wages corresponds very directly to the level of economic development in various countries.
The main variable in wage determination is the degree of unionisation and solidarity among the workers. If they are solid, they can get the full value of their labour power – its monopoly price. If they are not solid, they can be forced to accept anything below that – right down to minimum physical subsistence level. Unionisation has been and remains enormously important in raising workers above physical subsistence level and securing the value of their labour power. Smashing unions is still a goal for employers to force workers wages below their value and extract surplus profits.
But once unionisation is well established, unions cannot secure any more than the value of labour power. Like any other monopoly, they cannot charge what they feel like, but only “what the traffic will bear”. In this case “the traffic” is what employers will bid to secure extra labour.
In particular, the main effect of the “level of class struggle” is in determining the overall level of labour conditions for the whole nation. It has much less effect on wages in any particular industry or workplace. Even at a national level, class struggle probably has a greater impact on normal working hours and work intensity and on “social conditions” generally, than on actual wage rates.
Since there is free movement of labour between occupations and industries, the level of wages and conditions in any industry is influenced far more by the overall state of the labour market, than by the level of militancy in the particular industry. Workers in low paying industries will look for jobs in high paying ones, producing a labour shortage in the low paid industry which can only be eliminated by offering higher wages.
The bargaining position of a union also depends more on the demand for its members labour than on the dedication of its leadership. We are talking about variations a few percentage points above and below the wage rate determined by “market forces”. Failure to fight could halve wages compared to their “market” rate. But fighting harder could not double them above the market rate, because the market rate is not some arbitrary figure, but the maximum employers can be made to pay before their investment would be diverted elsewhere. Provided a union does fight, it will get more or less the market rate.
There is a parallel with land rent. Landlords can surrender part of their rent, or have it taken from them in taxes. But they cannot compel capitalists to pay a rent that will leave them with less than the average rate of profit on the capital they invest in the land. The capitalists just would not invest in that land.
Real wages have doubled in Australia since World War II, yet it is not a fundamentally different kind of society. They doubled because of economic development, not because of a sudden upsurge in militancy. Indeed the value of labour power has probably not changed very much. The increase in real wages has resulted directly from the relative cheapening of consumer goods, due to increased productivity.
Arbitration and Wage Indexation
The Australian Arbitration system provides elaborate rituals according to which wage rates are supposed to be determined by impartial judges on the basis of principles of equity. Token 24 hour strikes are an important part of those rituals and feed the illusion that wages are determined by some combination of industrial strength and skill in advocacy.
But arbitration is simply an attempt to measure the bargaining strength of the two sides, without them having to actually waste energy to prove that strength by fighting it out each time there may have been some change. The factors investigated in Arbitration Commission hearings, include the “state of the economy”, “productivity”, “capacity to pay”, “cost of living” and especially “work value” and “relativities”. These are precisely the factors that effect the market determined wage rates. The token strikes are a part of that measurement process rather than a form of real class struggle.
The Commission is trying to determine what the market wage rates objectively are. It does not “set” them. When the Commission guesses wrong, it is soon proved wrong by industrial trouble and/or over award payments and/or sectoral labour shortages or unemployment. Adjustments in the “awards” are then required.
The farce of “wage indexation” is a good illustration. When the Commission really did try to “set” wages according to uniform “guidelines”, it failed miserably. Unions and employers, and finally even the government urged it to allow wages to reflect market forces.
There is no reason to believe that the overall level of wages has been kept either artificially high or artificially low by the Arbitration Commission. The Commission itself is well aware that its centrality in the wage fixing process depends critically on how well it estimates actual labour market conditions. It has as much power to “set” wages as the Prices Justification Tribunal had to “set” (or even “justify”) prices, and less power than the Reserve Bank and the Treasury have to “set” interest rates. These institutions can help smooth things out in their respective markets, and they can stuff things up. But they cannot change the overall direction of market movements.
“Rigidities” have allegedly been introduced into the Australian wage structure by the Commission’s fixed “relativities” between occupations and skills. But this has not prevented wages moving in response to changing demands for labour, nor has it prevented labour moving in response to changing demand. It has simply ensured that the wage movements are slowed down and take the form of over award payments rather than awards. Less flexible “relativities” have encouraged more “manpower planning” to cope with shortages and surpluses of particular occupations, instead of the clumsier process of a change in relative wages having to indirectly attract labour from one occupation to another. Likewise, any “rigidity” in overall wage levels could only produce a time-lag in the effect of underlying market movements.
Leaving aside the hypocrisy, conservative economists do believe that bringing down real wages is an essential part of any program for economic recovery. They have masses of quite genuine statistics to prove that wages have increased more than productivity, the share of wages in Gross National Product has increased and so on. They rightly conclude that there is a “real wage overhang” keeping the economy out of balance, even though the purchasing power of wages may be declining.
Therefore, they see unemployment as necessary to bring down real wages, although they prefer not to emphasise that aspect, but just talk about “wage restraint”. But if more unemployment will bring down wages, why hasn’t it? Why is any “program” for economic recovery necessary at all?
The weak point in conservative arguments is that they do not explain what has changed. It is not good enough to just point out that there is a “real wage overhang” since the “wages explosion”. Why is there, and why have “market forces” not corrected it? Before answering that, we need to look at the normal adjustment mechanism in some detail.
Capitalist production is always a process of production for the purpose of accumulating more capital. One part of profits is spent unproductively by capitalists, maintaining themselves and their retainers “in the manner to which they have become accustomed”. That can be fantastically expensive if you look at the lifestyles of Jackie Onassis and the like. But is a very small proportion of total profits, because there are very few really wealthy capitalists.
The more important part of profits is accumulated as new capital. This does not mean it goes into their pockets, or is hoarded into a pile of gold. It is invested in expanding the wealth and power of the individual capitalist, and incidentally developing the productive forces of humanity.
Capital investment means buying more labour power and raw materials to produce more goods, to be sold for more profits (some of which will allow the capitalist to “become accustomed” to an even more lavish lifestyle, and most of which will be invested to expand further). It is a process of continually expanded reproduction. If there was a fixed supply of labour and a fixed technology, this expanded reproduction would become impossible. The new capital would be trying to recruit workers already employed by the old capital, and it would have no market for its products. Only simple reproduction would be possible, with no net investment.
Even if we allow for increasing supplies of labour, a fixed technology would still only permit expanded reproduction at exactly the rate of labour force growth, with no increase in capital or output per worker.
In fact some “models” of the process of capital accumulation are based on assumptions like that. Naturally, they have not been able to explain very much about real economic growth, which always involves new technology with an increasing social division of labour and more capital and more output per worker.
Real capitalism is always expanding. Hence imperialism. Capital can expand intensively or extensively. It can expand extensively by employing more workers, even with the same technology and the same capital per worker. That is important in the third world where there are still reservoirs of peasants who are not employed as wage workers, and it has been important in pulling women out of the household and into wage labour. It also absorbs population increases.
But capitalism also expands intensively, by investing more capital per worker. This implies new technology and a development of the productive forces, and has made capitalism a far more dynamic and progressive social formation than previous ones which went on reproducing themselves without constantly revolutionising the technique of production.
The increasing organic composition of capital implies a falling rate of profit. Here is not the place for a detailed discussion of that, but it is worth mentioning that the difference in internal rates of profit between more developed and less developed countries is equalised by imperialist capital export and import.
A fuller treatment of capital accumulation should examine it internationally. This is very necessary to combat the narrow nationalist outlook so common in the Australian “left”. Suffice it to say that the unemployment we are suffering in Australia is clearly part of a worldwide problem and will require a worldwide solution. Our industries are not just “foreign owned”. They are part of an integrated world capitalist economy. We should think big.
At any given time, there is always a range of known techniques that can be used for production. This range is also always being extended by the discovery of new techniques, which usually involve the use of new intermediate products and hence an increasing social division of labour. But even without new inventions, there is a range of different ways of doing things, some of which will be economic while others are not.
At lower wage rates and a higher average rate of profit, a given labour intensive technique may be cheaper than a capital intensive technique for doing the same job, even though the capital intensive technique is more productive.
For example, third world countries with little capital invested in roads and so on, are forced to use more labour intensive techniques, even though the more advanced methods used in wealthier countries are already known. It can actually be cheaper to use donkeys for transport until capital is available for investment in building roads and truck plants, producing trucks, training drivers and so on. That capital will not be available until the rate of profit on that kind of investment is higher than on alternatives. As more capital is accumulated, the alternatives with higher rates of profit become saturated, the rate of profit goes down, wages go up, and eventually it becomes cheaper to use a truck. It was always more productive to do so.
One day it may be cheaper to use aircraft for regular inter-city transport. We already know how to, but truck drivers’ wages are not high enough, and the rate of profit is not low enough to justify the massive capital investment required.
Increasing returns to scale often dictate a change in technique when a market has reached a certain size. A road will then be replaced by a railway for example. The railway has greater productivity, but the capital investment required is not economic at low volumes of traffic.
Often increasing returns to scale are associated with a greater social division of labour. Special functions are split away from general purpose establishments and achieve a higher productivity while handling the greater volume. A special repair shop will only become economic with a certain level of repairs. Designs will be produced in-house until their volume permits a specialised design firm to do the job more efficiently.
An increase in the scale of operations as more capital is invested and markets expand, may not be regarded as a change in technique. But there will almost always be changes associated with it, like those mentioned above. In most industries the days are long gone when expansion simply meant that more establishments would be set up using essentially the same techniques.
This increasing social division of labour implies more interconnection between different sections of the economy. Each is producing for all, and all for each. It does not imply greater occupational specialisation. On the contrary it requires greater flexibility in the labour force as they change repeatedly from one job to another.
New capital can be invested in the same old techniques to employ more workers using the same old sort of plant to turn the same old raw materials into more of the same old products. But this is only possible if more workers are available. It always creates jobs, provided there is a market for more of the old product. But it creates no new market and assumes that for some reason the market for the old product has increased.
Otherwise new capital can only be invested in more productive techniques that allow fewer workers (usually using more fixed plant and machinery) to turn more raw materials and intermediate products into more products per worker. This destroys some of the old jobs and creates more or less new ones according to whether the output is increased faster or slower than the labour productivity is increased. That depends on how fast the market expands, which depends partly on how much the new techniques cheapen the product (relatively).
New capital intensive investment is always expanding the market, since it does relatively cheapen the product (or the old technique would continue in use), and since it creates a demand for the additional new plant and intermediate products required by the new technique. If there was no technological progress, capitalism would in fact reach the state of stagnation implied by most economic models, since there would be no expanding market for expanded reproduction.
If output is expanding slower than productivity, the result of capital intensive investment will be less workers employed in that sector of industry. If that is happening overall, the result will be an increasing pool of unemployment since more jobs are being destroyed than created. If output is expanding faster than productivity, then labour intensive investments must be expanding employment.
Job Creation and Destruction
Now we can see how a small pool of unemployment normally maintains a balance between job creation and destruction. As profits are continually being invested to become new capital, old jobs are continually being destroyed and new jobs are continually being created. The balance depends on the relative profitability of capital intensive and labour intensive production techniques in new investment.
As long as wages keep increasing at exactly the right rate to keep on gradually tipping the balance towards capital intensive techniques, investment can continue, with increasing capital per worker, even though the labour force is not growing as fast as capital is being invested (provided there is a market for the products).
Otherwise, if wages fail to grow fast enough, the existing techniques would continue being used by new investments, and this will absorb the pool of unemployed until competition for labour drives up wages and restores a balance.
If wages grow too fast, due to labour shortages, there will be a tendency to switch more rapidly to capital intensive techniques which reduce the demand for labour. Slack demand may then force wages down, but even if it does not, there will be no renewed upward pressure until the labour market has again been tightened by further accumulation.
The point is that in “normal” balance, the demand for labour is directly regulating wages so that demand equals supply. It follows that there can be no such thing as “too many workers” or “too few jobs”. The number of jobs will adapt to the number of available workers as capital accumulates. Likewise, wages will not be “too high” or “too low”. They are determined by the demand for labour. It seems then that “everything is for the best, in the best of all possible worlds”. Mass unemployment is impossible as the textbooks insist.
But this process of adaptation only applies to new capital investments. The existing capital investments can only adapt to labour shortages and surpluses, or changes in wage rates and the rate of profit, within fairly narrow limits. A steel mill cannot employ very much more or less labour according to wages rates. Its design is more or less fixed. Changes can only effect the design of new steel mills, or extensions to plant capacity, and the decision to expand steel production at all.
Lower wages will not encourage existing steel mills to hire more workers. It will only encourage designers of future steel mills to continue using more obsolete, labour intensive techniques. That will only create more jobs when, and if, an increased demand for steel causes more investment in expansion of steel mills.
Thus if there is some disturbance to the normal relationships, unemployment can increase, regardless of wage rates. Contrary to the conventional wisdom of economists, there is no automatic mechanism that would quickly restore a balance. The automatic mechanism can quickly cope with labour shortages, by choking off new labour intensive investment. But it cannot quickly cope with labour surpluses. The unemployment will be absorbed when, and only when, new investment has created new jobs, and that may take some time.
4. TECHNOLOGICAL UNEMPLOYMENT
One reason unemployment can increase is because of sudden technological changes effecting a substantial sector of the economy. We will look at that first, and then consider the other major reason – “overproduction”. Most new technology tends to be developed “ahead of its time”. It will gradually come into use in the way described above, as economic conditions ripen. But if a new invention is economic to make use of at existing wage and profit rates, then it will not have to wait for more capital accumulation before being introduced. Instead of gradually displacing the old technique as conditions change, there will be a sudden scrapping of old methods in favour of the new ones.
This process may be “controlled” by monopolies with heavy capital investments in obsolete technology. They may obstruct the process and then later “discover” patents they have been sitting on for years, when it suits their investment plans. However this presumably is not the sort of “control” on technology that anybody would admit to advocating.
Generally the “structural adjustment” required by a sudden change in technique will only require a rearrangement of ongoing capital investment between other industries and the one that is changing.
If a new technique actually requires more capital to be invested in the changing industry, and less labour, then there will be a net diversion of investment from other industries. But at the same time, there can still be enough investment in the rest of the economy to absorb the displaced labour. That investment will continue using more labour intensive techniques, since the labour is available for it to do so. Productivity will grow more rapidly in the industry that is changing, and more slowly in other industries.
But if sectors involving a substantial part of the labour force are affected simultaneously, there may be more jobs being destroyed by the new techniques than are capable of being generated by the current amount of new investment.
If jobs are being destroyed faster than the economy as a whole is expanding, there will be increased unemployment until capital accumulation catches up.
The same general principles apply to other “structural adjustments” due to changes in demand. The shift from manufacturing to mining in Australia would be an example and this can also be considered as “technological change”.
There has been no reduction in the volume of manufactured goods in Australia – just higher labour productivity requiring fewer workers to produce them.
One point however, is that the capital previously directly and indirectly employing the workers who have been made redundant, will itself be freed by any changeover.
This capital is immediately available to increase the rate of expansion of the economy and employ additional workers in other sectors. That may not be much compensation for individual workers who have been thrown out of work eitherpermanently or temporarily.- but it does mean there should be no long delay waiting for capital accumulation to catch up. Because of this point, “technological unemployment” should not be a major problem in a modern capitalist economy. “Manpower planning” and “structural adjustment” should ensure that labour is rapidly re-trained, and capital rapidly redeployed, with far less upheaval than in the days of “laissez-faire”.
This has in fact been the experience during the post-war boom which involved very rapid technological change and structural adjustment. An enormous displacement of labour from manufacturing and primary industry to tertiary sectors took place in every advanced capitalist economy, without producing mass unemployment.
By comparison the “resources boom” shift from manufacturing to mining is quite minor. However it is is more noticeable because it is happening at a time when demand for labour is slack and unemployment is high. This does not mean it is a cause of unemployment. Obviously it is not because although unemployment is growing worldwide, the “resources boom” is local to Australia.
However since the resources boom is happening here and now, and there is unemployment here and now, it does provide something for people to waffle on about instead of analysing the capitalist system seriously.
Is it Technological?
The above suggests very strongly that the current high levels of unemployment is not “technological unemployment”. If it was, then one should be able to point to the specific new techniques that are rapidly displacing labour in particular sectors of the economy, and then discuss measures to cope with that.
There is a great deal of speculation about the future impact of microprocessors and so on, but no evidence that they are the cause of the sudden jump in unemployment which occurred simultaneously throughout the western world from the early 1970’s. It is quite clear that whatever changed then was in the “state of the economy” rather than in the field of technology.
Capitalism has not implemented microprocessors and other labour saving devices nearly as fast as would be possible, and it may be that when the barriers are finally broken down, there will be some technological employment, as a result. There will certainly be a devaluing of existing investments, which is what is obstructing things at present.
But so far microprocessors have been introduced at a snail’s pace compared with their potential and their introduction could not possibly be the cause of the rising unemployment we are currently experiencing.
Of course new technology is continuously destroying jobs. That is the whole point of it – finding ways to do things with less human effort. But this has been going on for centuries and cannot be the explanation for recurring sudden increases in unemployment.
Since the end of the second world war, technological change has been extremely rapid. The steady growth in GNP and real wages would not have been possible without it, since increased real output per person necessarily implies labour saving technological change. It seems though that the sudden increase in unemployment in the early 1970’s, has sparked off renewed concern about technological change.
Certainly there was no sudden acceleration of technological change around that time which could be responsible for the heightened interest. What has changed is that the workers made redundant by greater productivity are not being re-employed by new investment.
There has been a slackening in investment rather than an acceleration in productivity and technology. (As a matter of fact the rate of productivity improvement has actually been declining – for reasons explained later. A minimum requirement for “technological” unemployment would be accelerating productivity growth).
Apparently people do not notice how rapidly technology is changing when there is no unemployment, but their attention is attracted by unemployment. It is far easier to waffle on about technology than to face up to the need for an entirely new social system.
If there had been a sudden acceleration of technological change in the early 1970’s, there is no reason to suppose that it would not have simply meant even faster growth rates with very little unemployment, as occurred in the 1950’s and 1960’s. Indeed, since it is new technology that provides a market for expanded reproduction, we could say that technological change has not been rapid enough for new investment to provide jobs.
It follows of course that we cannot reduce unemployment by measures to restrict or “control” technological change. The unemployment that is causing concern just is not “technological” to start with. As will be shown later, the unemployment we are worried about is “cyclical”, and due to “overproduction”.
But even if there was a situation of “technological unemployment”, the appropriate response would be to insist on using the benefits of improved technology for shorter hours, higher living standards, re-training of workers made redundant, and faster social progress generally.
This would be the logical result of labour saving technology in a socialist society.
Capitalism has been able to partly deliver those results in the past, and if it is no longer able to do so, this is an argument for socialism. It is certainly not an argument for “controlling” human progress to suit the pace allowed by capitalism!
What prevents the use of technological progress for social progress now, is not some acceleration in the rate of technological progress, but rather a jamming up of the economic machinery of the capitalist market economy.
There is no reason to suppose that the machinery could be unjammed by slowing down technological progress. Only extreme reactionaries (eg most of what passes for the “left” in Australia), would want to try. On the contrary, slowing down technological progress would just put another spanner in the works.
It would further restrict the expansion of markets desperately needed to unjam the machinery.
Some people say they support technological progress in general, but do not know what else to do but oppose it when there is an immediate threat to peoples’ livelihoods. The short answer is that people are not on the dole because “a machine has taken their job”. They are on the dole because for some reason capital is not being invested to employ them.
Even in a particular work place situation with redundancies, the appropriate demands are for new jobs, not some way to hang on to the old ones that we just do not need doing any more. The result of the latter strategy would be gradually deteriorating conditions for everyone since the redundant employees really have no bargaining power in the long run.
Most jobs are not “lost” through direct retrenchments. Fighting retrenchments, while sometimes necessary, cannot directly involve many unemployed workers, such as school leavers, who have never been made redundant. A lot of the carry on about technology is just reactionary drivel which effectively distracts attention from the real workings of the capitalist market economy.
Even worse is the stuff coming out of the “left” about “deskilling”, destruction of “craftsmanship” and so forth. According to these ideas, people’s jobs are getting more and more menial. If this was really true it would imply that the working class will become so degraded as to become incapable of ever taking power.
The truth is that we are starting to notice how menial our jobs are because we are becoming more intelligent and capable of running things ourselves. Most jobs now require more intelligence than before, and this situation is creating more intelligent workers who are beginning to understand how ridiculous it is to go on doing them for bosses.
The modern proletariat is a class specifically created by modern industry with its requirement for rapid changing of jobs and skills. Continuous technological change has produced a working class more educated, skilled and flexible than ever before in history. Our perspective should be able to look forward to the proletariat taking command of modern industry and not to look backward to some “good old days” when things were much worse and people were much less clever that they are nowadays. Communism will not restore craft labour.
Some people are explicitly opposed to any new technology that saves labour, even if the present staff of an establishment is fully protected and agrees to the change. They put forward the slogan “its not our job to sell”. Meaning that jobs need to be preserved for school leavers and so on.
This slogan is based on the idea that the working class is still involved in some sort of guild system, passing on fixed “jobs” from one generation to the next. The plain fact is that things have not been like that since the middle ages.
There are very few jobs in Australia that are the same as in our parents’ time, and there will be very few that will be the same for our children. Workers improve their position within capitalism by changing their jobs, not by “preserving” them. The proletariat is a revolutionary class, not a conservative one.
If it cannot improve its lot within the existing society then it will overturn that society, not fight to stop it developing. Those who want to fight to “preserve jobs” at the expense of social development should call themselves “reactionaries” because that is the correct dictionary term for their philosophy.
They have no right to call themselves “progressives”, let alone “socialists”. If they had their way with “preserving jobs” we definitely would be still in the middle ages. Reactionaries want to “control” technology because they sense that it is making the existing social relations obsolete. Progressives want to “unleash” technology, and for the very same reason.
5. “CYCLICAL” UNEMPLOYMENT
Well, we have established that the normal adjustment mechanisms in the labour market will not necessarily eliminate unemployment, and we have shown that the unemployment we have now is not “technological”. We have conceded that there is a “real wage overhang” but not conceded that lower real wages would reduce unemployment. We have not yet answered the question of why things have changed from the “normal” regulation of unemployment, nor what can be done about it.
We will now attempt to explain what is meant by “cyclical” unemployment and how this involves a “crisis of overproduction”. Unfortunately the explanation below is not very clear or complete. Generally a good test of whether you really understand something is how well you can explain it to others. So I guess I am not very clear on this stuff myself. Any queries and comments on the following material would be especially welcome.
First of all, what’s new? Why is the labour market not regulating unemployment like it used to? The conventional wisdoms about unemployment just take it for granted that since there is something wrong with the labour market then both the cause of the problem and the solution to it must also lie in the labour market. But in fact they do not, because unemployment and wage rates are not the only things out of kilter.
The labour market is not operating normally because forces outside the labour market have changed the way in which jobs are being created and destroyed. We must therefore look outside it to explain those changes.
Unemployment is part of the mechanism that regulates wages, prices, the rate of profit and the balance between production, consumption and investment. However it would be a gross oversimplification to pretend that it is the sole, or even the main factor.
Unemployment is not even the only factor regulating wages, let alone regulating the economy as a whole. In addition to the labour market, other markets are also out of balance.
Commodity prices are at record levels and still rising, financial markets have record interest rates, foreign exchange market are all over the place, and so on. Something has really gone quite wrong, and it is something that effects all aspects of the economy.
We will argue that what is wrong is “overproduction”. The fundamental cause is the basic anarchy of a market economy. Nothing very much can be done about it except passing through another major economic crisis – or overthrowing the system and building a new one.
Anarchy of Production
It is often assumed that the output of capitalist industry is simply divided between wages and profits.
From one side this leads to the idea that profitability can be simply restored by cutting wages. From the other side it leads to the idea that increasing wages would “stimulate demand”. Once again we have both “left-wing” and “right-wing” prescriptions resting on the same faulty analysis.
In fact only a small part of the total output of industry goes into consumption goods purchased either from wages or profits. The bulk of the output consists of means of production which are used either to replace those used up in the previous period, or for investment in expanding production in the next period.
The “Gross National Product” is not the total output, but output net of all the intermediate products produced and consumed in further production. Even the GNP includes investment as well as consumption. Cutting wages will not solve the problem of realising profits by selling the total output on the market. The product has to be sold before the proceeds can be divided up between wages and profits.
Raising wages also will not solve that problem. Most of the total output is bought by capitalists as means of production, and their ability to buy it depends critically on profits, which would be reduced further by raising wages.
For reproduction to proceed smoothly, the demand for means of production as replacement and new investment must provide a market for those means of production that have actually been produced. The profits made selling goods and services on the market must provide the investment funds to buy them on the same market. Surplus value is produced when products are made, but profits are not realised until the products are sold.
The demand for consumer goods and services by capitalists and workers must correspond to the consumption goods that have been produced. The increase in demand for consumer goods from one period to the next must correspond to the investment that has been made in the previous period to meet that demand. The investment in industries producing consumer goods depends on previous investment by industries producing the necessary means of production, and so on.
Not only the profits, but the cost of production itself, can only be realised if the products are sold on the market. The sale of each firm’s output depends on some other firm (or consumer), buying these products as inputs. The money to buy the inputs depends on the sale of the outputs.
Production has become highly socialised, with every firm directly or indirectly dependent on every other firm through the immensely complex social division of labour. The gigantic means of production operated by huge labour forces are geared to production for the whole of society. They are basically social means of production only useable in common. Yet the physical exchange of necessary inputs and outputs between different establishments is entirely dependent on free market relations.
Any disproportions will result in goods unsold, profits unrealised and investments not made – whether wages are high or low. Sever disproportions will result in suppliers unpaid, bankruptcies and market collapses. This cannot be rectified simply by cutting wages, if there is no market for what has been produced.
In a full scale crisis, products can be virtually unsaleable at any price,and may be dumped on the market by bankrupt firms unable to pay their creditors. Not only can profit margins become too small, and then disappear entirely, but the value added can disappear too, so that production would not be worthwhile even with zero wages. *In fact the value of raw materials (plant and stock) etc can also disappear so that a finished product will fetch more as scrap for its component materials than it will on the oversaturated market for that product. Whole steel plants and shipbuilding yards were scrapped in this way during the last depression.
What ensures that the proper proportions will be maintained so that exactly those goods are produced that are required? Very simple. It is a market economy, so the market regulates it. If demand for a particular product exceeds supply, the price will go up. If production becomes more profitable than average, capital will be attracted to that industry instead of others. Profit is what regulates the economy and profit is all that regulates it. The miracle is not that this sometimes breaks down in a crisis, but that it ever hangs together at all!
Planning and Money
Actually of course, things are not quite that fragile. There is a lot of leeway because firms can go on producing even at less than the average rate of profit, so long as they do not make a loss. They can even bear a loss for some time, as long as they do not go bankrupt. They can even keep trading after they have become insolvent, as long as nobody knows. Goods that are not sold to final buyers can still be sold to wholesalers, or accumulated in inventory.
The credit system is extremely flexible and can be stretched to cover disproportions in particular sectors, and also in the economy as a whole. This is a major topic in itself, quite central to understanding overproduction and crises, but unfortunately it can not be covered here.
But all this leeway and flexibility also implies that disproportions can continue developing for some time before they break out in a crisis.
It will seem to highly profitable firms that their market is still expanding, when actually the demand is coming from firms that are already operating on reduced profit margins, or are insolvent, and from wholesalers which are not actually able to sell the goods to final buyers, and so on. Faced with this apparently “expanding” market the profitable firms will expand their investment, which in turn stimulates demand in other sectors and keeps the whole boom going. But the margins get narrower, credit gets tighter and eventually the whole thing blows up *(implodes).
Another aspect is that production is far more planned than it used to be. Whole sectors of the world economy are each under the management of a single centralised transnational corporation. Governments and international organisations play important co-ordinating and planning roles. There are serious efforts to predict the demand, supply and prices of everything that is produced, and to use these predictions for quite long range planning of production and investment.
But these forecasts and plans still revolve around the market. Nobody allocates the total social product between the different sectors of industry and individual establishments. They buy and sell it from each other because they each privately own a different part of it. Their relations are money relations.
When money breaks down, the “social fabric” unwinds, because money is the social fabric of a market economy. The more large scale and long term the plans, the more fundamental the disproportions that can develop before the crisis actually breaks out.
Again, we need to study the essential nature of money to understand why it breaks down in a crisis, but that will not be gone into here. We tend to take money for granted, as though it is perfectly natural that everything produced should have a price. Yet the social relations expressed by money are extremely difficult to grasp and absolutely fundamental to the nature of market economies.
If any single regulator can be considered decisive in a capitalist economy, it is the real average rate of profit. This is what determines the flow of investment from one sector to another and regulates a balance between production and consumption. Wages are one factor influencing profitability, but others are just as important.
In “equilibrium”, higher wages means lower profits, but we are now discussing “disequilibrium” and very often the same factors that push profits above and below their “natural” rate, will push wages in the same direction, until the underlying real movement forces a change in direction for both.
What determines the creation and destruction of jobs is the extent and labour intensity of investment. Investment depends on profitability, in which wages are only one factor. The price at which the output can be sold is just as big a factor.
Over the whole period of the capitalist business cycle we find a general trend up and down in the rate of profit with corresponding trends in employment, prices, interest rates and so on. When the business cycle lasted only five or ten years, these movements were very obvious. But since we have not had a full scale crash since the 1930’s, the changes appear to be long term secular movements rather than features of a business cycle.
Yet the usual pattern can be seen of an apparent high rate of profit with rising prices followed by overproduction, falling profit margins, increasing unemployment and so on.
A characteristic feature is the gradual stretching of credit as overproduction intensifies, until the whole structure becomes top heavy and topples over. While Keynesians are clamouring for more credit expansion, the structure of debt has already become far more top heavy than in any previous period. Most corporations now run on ratios of debt to equity in excess of 80%. There is no room for the slightest drop in prices and profitability without actual bankruptcy.
Another feature is the gradual increase in unemployment until the actual crisis breaks out and intensifies unemployment enormously. This unemployment is “cyclical” because it reaches a peak at the depths of a depression and is a minimum at the height of prosperity. It reflects an overall state of demand in the economy that moves quite differently from the “normal” regulation of wages and unemployment during the phase of prosperity.
There is not the slightest sign of a reversal in these trends and no reason to believe they can be reversed except by the outbreak of a full scale crisis. Just as the labour market is unregulated and must correct its own fluctuations, so there is no overall authority that can ensure a balance between production and consumption, savings and investment, borrowing and lending. In general terms, production creates its own market, and it is theoretically possible for capitalist production and accumulation to continue indefinitely. Theories of “underconsumption” are quite wrong.
But periodic overproduction is inevitable, for reasons explained here. It is only the overproduction itself, and its effect on the rate of profit, that can bring into play the mechanism for restoring a balance. The mechanism for restoring a balance is a collapse in the rate of profit, that is to say, the balance is restored by having an economic crisis.
During a boom, excess demand pulls up prices, including wages, and there is an overinvestment of capital so that more capital is being invested than can ultimately return the expected rate of profit.
More workers may also be attracted into the labour force. This may go on for a long time, with various ups and downs, as the demand for investment goods and services feeds itself, and as credit is stretched.
Each firm can only estimate its market from previous trends and price movements. It has no “guaranteed buyers” for the same reason that labour does not. Planning must proceed on the basis of an assumed expansion of markets, and generally that assumption is self-fulfilling.
The general expansion of investments itself creates a market for the goods produced and allows the expansion to continue. *Every firm is continuously engaged in a relative overproduction, producing more than it knows it has a market for. Yet while the economy is expanding generally, the consequences of a miscalculation will only be a local loss of profits and not bankruptcy or market collapse.
As long as business is brisk, capitalism hardly seems to be obstructing the growth of the productive forces at all. There is no barrier to production beyond the capacity of labour, natural resources and existing plant and stockpiles to produce more goods. But eventually the shit hits the fan and plant is installed to produce goods and services that just cannot be sold at the expected profit margins.
Then the nice “demand pull inflation” that was stimulating increased production turns into nasty “cost push inflation” with the opposite effect. It has to, since one firm’s costs are another firm’s demands. All that can postpone the equation between input “costs” and output “prices” is continued intensification of the excess demand of the boom, and the same factors that postpone it must intensify the crash when it comes.
It turns out then that there is a barrier to capitalist production, namely profitability. Goods can only be produced if they can be sold for more than it cost to produce them. When too many are produced to keep prices at that level, profits disappear and so does production.
It turns out then that for a long time investment has been taking place in the wrong proportions between the sectors producing consumer goods and those producing means of production. More should have gone to producing the means of production for producing more means of production. Less should have gone into directly producing consumer goods because the market there is mainly wages and the workers are not very rich.
But this could not have been noticed before, because production was being expanded more or less uniformly on the assumption of uniformly expanded demand. Why should anyone think that capitalist production has to produce a higher and higher proportion of means of production instead of a balanced output including the final consumer goods themselves?
When the boom stops feeding itself and stops being fed, there is a sudden collapse in the rate of profit and a “crisis of overproduction”. Consumer goods sectors crash because there is not a market for the amount that has been produced (not that we could not benefit from a higher standard of living, but we have not got the money to pay for it). Sectors producing means of production also crash because nobody is buying means of production to expand their capacity to produce goods that cannot be sold.
In the subsequent “bust”, wages are one of the things that have to come down before a new boom can begin, but a lot of other adjustments have to occur too. The crisis involves destroying or devaluing a large part of the overinvested capital and restructuring the whole economy.
When the crisis is over, capital has been restructured in favour of means of production so that much more productive techniques are used, with a higher organic composition of capital. This lays the basis for the next boom with a much higher standard of living than the last one.
Monopoly capitalism is much more flexible than laissez-faire capitalism and has mechanisms for relatively smooth variations of output to correspond to demand. Minor fluctuations will not produce large price movements or great changes in installed plant capacity, but only changes in plant utilisation, inventory levels, and credit stretching. As with the labour market and unemployment or labour shortages, these flexible mechanisms have to already be stretched considerably, before disproportions will actually show up as overproduction and reduced profits.
Even more stretching is required before overproduction could result in the sort of market collapse that used to occur quite regularly in the days of laissez-faire. But since there is no other overall regulator, that stretching is bound to occur, until it does produce the crisis needed to restructure the economy and restore a balance. Since the end of laissez-faire capitalism, crises have been much less frequent but far more devastating, when the flexible limits are eventually overstretched.
Are Wages Too High?
In the period between boom and bust, it is possible for the share of wages in GNP, and real wage costs per unit output, to be higher than usual, even while real wages are falling and unemployment is growing. Conservative economists conclude that this must be the cause of the problem, and the solution must be to push real wages down faster.
But wages appear to be “high” because profits are low. Real profits are falling because overproduction means the goods cannot be sold at their usual profit margins, even if nominal accounting profits at inflated prices are still “record”. This alone implies a higher relative share for wages. The real problem is how to raise profits, and that depends more in this case on prices than wages.
If there was simply a “fluctuation” in demand, with a smooth corresponding adjustment of production and employment, then there would be no problem. Real wage costs would not depart from their normal trend. This has been the experience in previous recessions in Australia, such as 1951-52 and 1960-61. But “overproduction” implies that the unsaleable goods have actually been produced, or the plant capacities to produce them have actually been installed, so that profit levels remain depressed and the ratio of wages to output is changed.
Overproduction implies that the prices of firms’ outputs cannot go up fast enough compared with the prices of their inputs, and this is described as “cost-push inflation” rather than the “demand-pull inflation” of the boom. But it really reflects a situation where there is not a sufficient market for the goods that have been produced. The result is excess capacity as firms cut back their production to keep prices up, and lower labour productivity since the labour force is not reduced in proportion to the restriction in production.
This lower labour productivity resulting from capitalist anarchy becomes the subject of sermons to the workers on not being too greedy. The underlying cause of changes in the relative share of labour in the GNP and the real cost of labour per unit output, is the overproduction and overinvestment, not any imbalance in the labour market. Nevertheless, the effect is similar to labour shortages having driven up wages (which indeed is one of the many things that does happen when overinvestment reaches its peak at the height of the boom),. The response is a slackening in job creating investment and increased unemployment.
One feature is that investment can become more capital intensive than normal, based on the apparently high real cost of labour per unit output. This can destroy jobs faster than they are being created. The unemployment created in this way can and does produce lower real wages since it implies a “slacker” demand for labour. The normal operation of the labour market, will bring down wages until this particular source of increased unemployment is no longer operating, even though the apparently high relative cost of labour is due to output restrictions rather than high real wages.
But the more important reason for growing unemployment is that since profit margins are not high enough on the overproduced goods, there is a lack of funds for any investment that would create new jobs at all – whether labour intensive or capital intensive.
Will Lower Wages Reduce Unemployment?
Lower real wages cannot increase employment since high wages were not the cause of investment drying up. So the apparent imbalances in the labour market continue growing and unemployment continues increasing without being able to produce any equilibrium.
Indeed it is even possible for real wages to rise during a depression, despite mass unemployment. This can occur because it is not wages, but markets, that are limiting investment and employment. Firms can continue their (reduced) production levels despite high wages, and will not expand production and increase employment just because wages come down. Unemployment exerts a downward pressure on wages, but since the employers demand for labour is not highly dependent on wage levels, that pressure can be counteracted.
Wage rates are determined far more by variations in the demand for labour with price than by variations in its supply. Thus the predictions of orthodox economists have been totally confounded by the simultaneous expansion of female employment together with equal pay, and by the trade unions present capacity to fight for shorter hours and higher wages despite more unemployment.
In both these situations we have a level of demand for labour that is not sharply dependent on its price. The first during a boom and the second at the end of one.
Even when the demand for labour is falling, it need not produce a fall in wages unless the demand depends on the wage rate. A firm that has already cut staff to reduce output and has excess capacity, will not necessarily cut staff further if wages go up. The same output will still be required to maximise profit, and the same staff will be required to achieve that output, even if profit is further depressed by increasing wages.
Thus even while the total demand for labour is reduced, that demand may become less “slack” – less variable according to wages, and the bargaining position of workers who are still employed may actually improve. Wages can still rise to the point at which it becomes more profitable to use less labour intensive techniques, or to cut back production and employment further. Given excess capacity, there may be considerable room for wages to rise before either of those points is reached.
Here the distinction between “slack demand” and “unemployment” as a cause of falling wages becomes important. Real wages actually rose at times during the last depression, despite mass unemployment. They also rose sharply during the “wages explosion” of 1974, despite increasing unemployment. They have still not fallen a great deal. The conventional conservative theory of wages and unemployment finds it difficult to account for these facts and compensates for this difficulty by hysterical attacks on unions.
Mass unemployment can compel a reduction in real wages, after working class organisation has been smashed. It can do this by compelling workers to accept wages that are less than the value of their labour power (ie less than the “marginal product” of labour they can obtain as unionists selling at a monopoly price). But that in itself is not enough to restore equilibrium. Unemployment will continue until the overinvestment and overproduction has been worked out of the system. More drastic cuts in real wages will not change the fact that goods are not being sold profitably enough for new investment to absorb the unemployment.
Further cuts in real wages will certainly increase profits, and will be welcomed by employers, but no amount of cuts can make investment profitable when there is no market for more goods. Even at zero wages, nobody is going to build new car plants, when the cars already produced are piling up unsold, or are being sold at low profit margins. More cars may be sold because they are cheaper with lower wages, but not enough more to absorb the excess capacity and encourage new investment. The lower wages will simply increase profits without increasing investment. By keeping up wages in a depression, unions are not doing the unemployed out of a job, but simply depriving capitalists of surplus profits.
Keynesians argue that excess production capacity implies a “slack” in the economy which leaves room for employment to be increased by government action to stimulate demand, without necessarily pulling up prices. But this misses the whole point of the adjustment mechanisms that have produced the excess capacity in the first place.
Excess capacity has appeared because market demand does not allow firms to raise their output prices enough to maintain profit margins. Any stimulation of demand must therefore produce a rise in prices before it will produce an increase in output. There would be “slack” if plant was being underutilised because of a fluctuation in demand and the normal adjustment to it. But there is no “slack” when profit margins have already fallen. There is just “excess capacity”.
Once excess capacity has appeared, attempts to stimulate demand by extending credit with the budget deficit, amount to buying up the overproduced goods on the “never-never”. Extending credit means extending debt. Ultimately there has to be a real market or the postponement of bankruptcy by extending credit only adds to the size of the crash when it finally comes.
That of course may not be such a bad thing. There is no harm in demonstrating what heights of prosperity could be achieved by the permanent boom of socialism at the expense of a deeper crash by capitalism when it fails to maintain that prosperity. But we are already at a stage where the credit has been rather fully extended. While governments should and will continue to extend it as long as they can, that may not be all that long. Governments go bankrupt too.
The next phase of the business cycle, which we have not seen yet, involves market collapses to restructure production and get rid of the overinvestment. This is not the place to enter into a detailed analysis of the nature of capitalist crisis, and the particular characteristics and timing of the coming one. This would also involve considering the expansion and contraction of credit, the operation of financial and capital markets and so on. It would also be necessary to explain inflation and the real and apparent movements of relative prices. In any case I do not understand it well enough to say much more.
But the implication of all this for unemployment is simple. The whole world economy is out of balance and only an overall crisis will restore that balance. It is not just a matter of pushing down wages until the labour market is back in balance. Nor are there any other easy solutions.
At the moment we have both rising prices and growing unemployment and that is seen as a unique phenomenon different from any previous cycle of boom and bust. But in fact it is simply a more long, drawn out version of the usual pattern. The boom has basically ended and unemployment has started to grow. But the “bust” has not happened yet and we have not yet got a real crisis or massive unemployment. There is still real economic growth and rising prices and even room for some renewed mini-booms because the next phase of the business cycle has not yet begun. During the late 1920’s unemployment also started to rise while prices were still going up and before the actual crash.
The “price mechanism” we learn about in orthodox economics textbooks does work. A market economy, a capitalist economy, can develop the productive forces to higher and higher levels without central planning. But a pool of unemployed fluctuating between small and large is an essential part of how it works. The price mechanism does not prevent market collapses and economic crises. Crises are an essential feature of the way it works. Booms end in busts and busts pave the way for booms because there is no other regulatory mechanism in a market economy.
The “balancing mechanisms” and regulators of a market economy all sound quite neat and clever. But they are proving extremely destructive. What an incredibly archaic way to regulate an economy in this day and age!
The Great Depression of the 1930’s was the only way that the “roaring twenties” could end. That depression and the Second World War paved the way for unparalleled prosperity in the 1950’s and 1960’s. The post war boom was longer and reached greater heights than any previous boom in the history of capitalism. The period of teetering on the edge between boom and bust has been longer than any previous such period in history. We can reasonably expect that the coming crisis and depression, which is certainly not here yet, will be very much deeper than the 1930’s.
The above background on the nature of unemployment is important because it suggests what could and what could not be solutions to the problem.
It follows from the above analysis that the unemployed form an essential “reserve army of labour” as necessary to ensure a continuous supply as the existence of stockpiles of commodities in the warehouses or unused production capacity in the plants. The size of this reserve army does not depend primarily on government policy, but on the objective state of the economy and the phase of the business cycle that it is in.
Australia is part of an interlocked world capitalist market where capital flows freely according to the rate of profit, and where movements in interest rates, prices, wages, and unemployment therefore take place in parallel among all the advanced western capitalist countries together. It would obviously be nonsense to blame the overall state of the Australian economy on the particular policies of any government here, since the same situation exists throughout the western world.
The conservatives are right to say Australia has to adapt to changes in the world economy or the situation will get worse. They are also partly right to say that to stimulate investment and reduce unemployment profits must be improved at the expense of real wages and living standards. But they are wrong to pretend that there will be much improvement without a major economic crisis.
Unemployment has grown because overproduction and insufficient expansion of markets has reduced profit margins and therefore reduced investment. Any “solution”must therefore involve expanding markets to increase profitability. That is the crucial fact which emerges from studying the causes of unemployment.
A lot of people in the labour movement do not like admitting this and instead come up with all kinds of fancy arguments suggesting that capitalism is really a wonderful system capable of continuously improving living standards and providing jobs for all – if only the government would follow correct economic policies.
Those arguments are very mysterious and technical, involving “multipliers”, “accelerators” and various tricks with mirrors. But you only have to look around at the real world to see they are bullshit. For what possible reason would the capitalists be ignoring this wonderful advice on how to keep their system going, if it could really work?
The conservatives are openly admitting that capitalism is a rotten system which needs to grind people down in order to keep going. They are admitting that full employment and rising living standards are not permanently compatible with the capitalist system, which has its own requirements contradictory to social needs. They are actually admitting that production for profit is the cause of our problems.
On that point every socialist, revolutionary or not, must surely agree with the conservatives. Only the wettest “liberals” could join the Labor Party in insisting that there is really nothing wrong with the capitalist system itself – the problem is that wrong economic policies are being followed.
Socialists will not disagree with conservatives about the existence of statistical facts, like the decreased share of profits in the GNP, “real wage overhang” and so on. We will not join the Labor Party in arguing that it can all be fixed by magic tricks with mirrors.
Where we do disagree with conservatives is about whether capitalism is such a wonderful system that we should put up with unemployment and reduced living standards just in order to keep it going a bit longer.
Where revolutionary communists will disagree with other “socialists” is whether capitalism is just getting worse in a gradual way that would make it possible to introduce socialism peacefully, or whether it is heading for major upheavals which make a violent break between the old system and the new, both necessary and possible.
Now let us consider some of the various “solutions” that have been proposed for unemployment according to the simple criteria – “will this proposal increase profitability”. If it will not, then we know from the analysis above, that it will not work.
Giving Fraser the Razor
Attempting to blame each other for the state of the economy happens to be one of the daily preoccupations of Government and Opposition politicians, and unfortunately the left generally goes along with this charade.
Conventional wisdom has it that government job creation schemes, more stimulation of the economy through deficit spending, and various specific adjustments in economic policy could improve the situation. Only Fraser’s “razor gang” mentality prevents these solutions being adopted.
In Britain the state of the economy is being blamed on the Thatcher Government, by business as well as labour. But tightfisted “monetarist” governments have come to power in Australia, Britain and the USA as a result of the previous failure of their opponents to improve the state of the economy. They may conceivably make things worse. But their predecessors have not done too brilliantly either. It will be interesting to see what happens in France. Does anybody on the left seriously imagine that France will now escape the economic difficulties embracing the rest of the capitalist world, because it has a more ‘progressive’ government?
At the first Australian Political Economy Movement conference in Sydney, there were a number of papers purporting to explain unemployment and economic crisis as an inherent feature of capitalism. None of them even suggested that the personal malevolence of Malcolm Fraser was a cause of the problem – let alone the cause.
Nevertheless, the conference plenary session adopted a resolution loudly denouncing the Fraser Government for causing our economic difficulties with its wrong policies!
If that is the response of people at a political economy conference, it is not surprising that the left generally completely capitulates to Labor Party views about the economy. The general feeling is that somehow or other, it must be Malcolm Fraser’s fault, even though unemployment actually grew much more rapidly under Whitlam than it has under Fraser.
Even people who know better tend to go along with this because there does not seem to be much else to do. Demonstrations and agitation have to have a target, and Malcolm Fraser, with his callous attitudes, makes a good one.
If we cannot blame government policy, what can we do? It is in the Labor Party’s interest to pretend that Fraser’s policies are the cause of unemployment. But the only way Labor could do better than Fraser at reducing unemployment would be if they know how to make industry more profitable. There is no evidence that they do, and no reason to doubt that Fraser is doing as much to increase profitability as he possibly can.
Certainly we should give Fraser the razor, along with Bill Hayden, Bob Hawke and the rest. It will improve public morale no end. But it will not bring down unemployment. Only improved profitability and expanded markets can do that.
Blowing Up the Balloon
The main thrust of objections to the Fraser Government’s economic policies seems to be that they could do more to stimulate the economy by increases in government spending. They are accused of wilfully refusing to do so because of dogmatic adherence to “monetarist” theories, and general hostility towards the working class.
Actually this argument amounts to dogmatic adherence to Keynesian theories that have long been discredited by the course of events. All the governments of the western world have been stimulating their economies by increases in government spending, and it simply is not working any more. Keynesian economic policies now amount to little more than attempting to prolong the “boom” phase of the capitalist business cycle by deliberately encouraging the overextension of credit to finance overproduction and overinvestment.
Credit expansion has deferred the crisis, and intensified the most prolonged boom in history. But only at the expense of deepening the structural imbalances that the crisis is needed to resolve, and therefore making the crisis far more intractable when it does come. There comes a point when it just does not work any more. If it still worked, they would still be doing it.
When asked what would happen in the long run, Keynes replied that in the long run, we are all dead. Glib claims that more deficit financing to stimulate the economy are the answer, are simply an assertion of faith, flying in the face of all recent experience. The conservative Ford Administration in the USA ran a breathtaking $60 billion deficit, and it has not done any more than postpone the problems.
Attempting to stimulate the economy by more government spending has been compared to trying to stop a balloon collapsing by blowing into it harder. At a certain point when a balloon is being inflated, the fabric tears and air starts rushing out the hole. You can keep the balloon’s shape for a little while by blowing harder, but the air keeps rushing out and the hole gets larger. Eventually the balloon has to collapse and the only thing to do is to let it go and patch the hole before re-inflating it again – if the hole has not got too big to patch while you were uselessly blowing air through it.
If government spending is paid for by taxation, then it is just a transfer of resources from one sector of the economy to another, with no necessary increase in employment, although the projects may be well worthwhile for other reasons. If the money is borrowed on the open market, then it drives up interest rates and diverts funds from other investments. If it is effectively “borrowed” from the Reserve Bank, then credit inflation can be the only result. The trick can not be done by mirrors.
“New Deal” policies did help speed up recovery from the last depression. But mainly by helping to keep prices up in those industries where they had collapsed more than necessary due to insufficient monopoly concentration. The “New Deal” stopped dumping, put a final end to “laissez-faire” and thoroughly established the system of state monopoly capitalism. But today nearly all industry is pretty well monopolised. Even the farmers have strong cartels, and with rampant inflation, dumping can hardly be an immediate problem.
Really it has been a remarkable performance since the last depression. Despite predictions of capitalist stagnation since the end of the fifteenth century, and with a social system straight out of the sixteenth century, the bourgeoisie has managed to sustain economic growth for another fifty years at a pretty fair pace.
While pathetic by future standards, the rate of economic growth has been sufficient for conservatives and reactionaries (including most of the “left”) to actually complain and want to slow it down. What more can state capitalist policies be expected to achieve? Permanent survival of capitalism?
When people say that government policy is responsible for unemployment being more than it should be, they usually argue that there should be a certain increase or decrease in interest rates, the exchange rate, taxes, deficits or what have you.
Perhaps there should be. Who knows and who cares? The argument always revolve around the fact that any effect in one direction is counteracted by other effects in the opposite direction.
Quite clearly there is some underlying movement in the economy itself that makes the adjustments in government policy necessary. People argue about whether interest rates should be marginally increased or decreased, but they have gone up from 2.1% on two year government securities in 1950 to 10.8% in 1974 on their own volition and for objective reasons. Nobody seriously suggests that any government policy could successfully halve today’s interest rates, let alone restore them to their 1950 levels.
Adroit handling or misguided policies could make a good situation better, or a bad situation worse, or vice versa. But in a market economy it is the market, not government policy, that determines the overall situation. And we are talking about a world market, completely outside the control of any group of governments, let alone the Australian Government.
A government that raises interest rates when it should be lowering them, or vice versa, can certainly make things worse. The same goes for other economic variables that government policy can influence.
But the best a government can do is get its economic policy absolutely right, all the time. In that case they will avoid precipitating any crisis before it is unavoidable, which is not quite the same thing as having “control”. No amount of “fine tuning” can determine the overall direction that the world economy is moving. Nor can it change the fact that interest rates and other variables must be adjusted in accordance with that movement and not against it.
“Fine tuning” has been likened to trying to straighten a piece of string by pushing it. The sort of “controls” available to governments are just not capable of determining economic developments. If you want to straighten a string you need to be able to pull both ends, not just push. If you want to control unemployment, you have to have complete central planning of investment and employment and indeed, production and consumption generally. The economy needs a new engine and new steering, not just “fine tuning”.
There is a branch of mathematics called “control theory” which investigates what observations one needs to be able to make, and what variables one needs to have control of, to determine the future path of a complex dynamic system.
Economists have a “simpler” procedure which consists of counting the number of “variables” and “policy instruments” and hoping they are equal. To predict the future course of the economy they do a lot of plotting straight lines through two points.
The fact is that even very simple dynamic systems are extremely difficult to observe and predict, let alone “control”. It is sheer stupidity to imagine that anything so complex as a modern market economy can be effectively controlled by anything so simple as government monetary and financial policies superimposed on market price movements.
A system like this is bound to have oscillatory movements and catastrophes. It is like trying to damp out ripples in a pond by making counter ripples. You will get pretty interference patterns, but nothing very stable.
Before you can control any dynamic system you have to at least be able to predict what the effect of any changes you make will be. If anyone knew how to predict that, for the world market, they would not be wasting their time giving economic advice to governments. Literally billions of dollars could be made by speculation on the commodity and financial futures markets if anyone knew how to predict what the world market would do next, let alone control it. The funds you could accumulate from speculation would give you far more control over subsequent market movements than any amount of government policy.
There seems to be no obvious reason why anybody on the left should want to enter into the argument about whose policies for fine tuning the economy would work better. But if we are to do so, there seems no compelling reason to enter on the Labor Party side of that debate.
There is good evidence that the conservative parties are better at that kind of thing than the Labor Party is, because they have more idea of what it is all about. At least they understand that the name of the game is “profits” and are therefore trying to make the capitalist economy work the only way it can. Labor Governments do end up adapting themselves to economic reality, and working as hard as they can to boost business profits. But it does not seem to come naturally, and we have to put up with an awful lot of hypocritical mumbo-jumbo about the workers’ interests, before they get on with it.
Labor Party supporters make persistent efforts to prove that the other party’s economic policies are stupidly wrong. This proves only one thing. It proves that these people, even if allegedly “Marxist”, have a very deep faith that capitalism can be made to work much better, and that their party is the one to do it.
Most voters understand how capitalism works, better than the Labor Party does, and they are aware that conservative parties know more about economic management than reformist parties do. That is one major reason so many workers vote for the party that frankly upholds the interests of their bosses. If people did not accept the basic idea of having bosses, they would be working for a revolution, not voting Labor.
Labor supporters seem to have a mental block about it, but Fraser is Prime Minister because he won by a landslide, not because John Kerr put him there.
People voted for Fraser because the economy deteriorated much more sharply under Whitlam than it did under McMahon. One statistic tells the story.
Unemployment rose by more than 100 for every day Fraser was in office, according to Bill Hayden speaking at the last Federal elections. It did, but unemployment rose by 150 for every day Labor was in office.
Another fact confirms that part of the reason for this sharp deterioration was Labor’s policies and not just objective conditions. The fact that Labor has abandoned nearly all the economic policies advocated by Whitlam and adopted those advocated by Fraser.
Bill Hayden fought the last election on policies to cut taxes and put money back in people’s pockets, reduce government spending, impose wage restraint and so on – exactly the policies that Fraser won with. It is hardly surprising that most voters preferred to let Fraser implement those policies himself, even though he obviously has not been doing much good with them either.
In government, Labor even had a policy of discouraging foreign investment – in a completely open economy largely dominated by foreign capital. When that policy actually started to work, and foreign capital dried up, Labor supporters complained about a conspiratorial “strike by capital” that was aimed at bringing down their Government. How contradictory and inane can one get?
That is a good illustration of how bad government handling can make a bad situation worse. But Labor supporters are well aware than even if the Whitlam Government had handled economic policy perfectly, instead of stuffing it up, unemployment would still have grown dramatically because of the general state of the world economy. Why should we not admit the same about Fraser?
Public opinion turned against the Labor Party because of the mess it was making, and also the mess it was not making but was blamed for anyway. The media mobilisation of that public opinion was carried out by the same newspapers that brought Labor to power in 1972 with viciously personal attacks on McMahon, and “It’s Time” as the front page headline. In 1972 McMahon was blamed for unemployment too. It was not his fault, was it?
To gain control of the Senate, which he had never tried to abolish, Whitlam resorted to open bribery of an opposition member, Senator Vince Gair, in the tradition of banana republics and dictatorships everywhere. When the Parliamentary opposition tried for force the Labor Government to elections by cutting off supply, that Government tried to rule without the consent of Parliament or the people.
Rather than face a democratic election, Whitlam was even prepared to ask the Queen of England to intervene in Australian politics; to sack an Australian constitutional official appointed by Whitlam himself, and allow Whitlam to rule by decree.
If a conservative government had done any of those things, Labor supporters would rightly have been outraged. But Labor supporters prefer to forget about the economic incompetence that cost them their chance in government. They prefer to distract attention from their undemocratic manoeuvres by a loud-mouthed phony republicanism – as though Kerr had caused the constitutional crisis by insisting on elections, rather than Whitlam by refusing to hold them.
Labor supporters adopt the classic conservative and reactionary argument, that an unpopular government should be given a guaranteed period in office so that voters can not throw it out before they find out what was really good for them after all.
After the Kerr business a lot of people suddenly realised what they ought to have known before. That Parliamentary forms do not mean very much and the conservative parties will use every dirty trick to stay in power. It ought to have also taught another lesson – that the Labor Party shares the same basic philosophy.
Neither party is so committed to Parliamentary government that it would fight against Parliament being replaced by military rule in the face of a genuinely revolutionary opposition.
It is sickening how people on the left pretend the economy is crook because of Fraser, when they know perfectly well it is an international problem. We should stop supporting Labor Party lies and start telling the truth about how the capitalist system really works.
Of course we need a target to fight. But if we do not know what that target is, then we had better take time off to find out, instead of just whingeing impotently about Fraser.
Shorter Hours and Higher Pay
Campaigns for a shorter working week and higher real wages have been put forward as a solution to unemployment. The argument is that higher wages will allow workers to buy more goods and so force employers to hire more workers. Likewise shorter hours will require more workers even to produce the same amount as now.
Of course we should fight for shorter hours and higher pay. That will become more difficult as unemployment increases. But it is still possible to win victories, even when there is mass unemployment, for reasons explained earlier. But the effect will be to reduce profits further, not increase them. So it cannot be a solution for unemployment.
In a communist society, any accidental “unemployment” could certainly be eliminated by reducing the amount of work done more rapidly than had been planned. Alternatively, people could work the same hours, but the extra workers could produce more goods so that everyone’s standard of living would rise. But that is because workers would not be “employed”. They would not be used by the owners of means of production to make a profit. They would be the “employers”, using the means of production to satisfy their own social needs.
In a capitalist society production is carried out for profit, not needs. General Motors can certainly be compelled, under some circumstances, to pay its workers more, or let them work shorter hours. But they are in the business of making money, not just making cars. If they can not make more money they are not going to hire more workers just so the workers can buy more cars.
There is no such thing as “overproduction” in the abstract. Whatever Friends of the Earth might say, it is not as though we have too many consumer goods or houses or schools or anything else. Nor have we too many means for producing them. Living standards are abysmally low is most of the world, and nothing to write to another planet about here in Australia. It is just that too much has been produced to be sold at a profit, and that is not a problem you can solve by reducing profits further.
Expanding the Public Sector
Calls to expand the public sector, are becoming more common, (especially from public sector unions!). This is partly just a reaction to government policies aimed at expanding the private sector at the expense of the public sector. But there is also some suggestion that in itself, expanding the public sector would create more jobs and reduce unemployment.
Government job creation schemes either have to be paid for by the rest of the economy, in which case they provide no net investment, or else they have to pay for themselves. In that case they have to sell their products on the market that is already suffering from overproduction and overinvestment. As far as employment is concerned, there is no difference in principle between expanding either the public or the private sector. The problem is that both are contracting, because they both face a lack of markets. Why should one be able to find markets when the other cannot?
In fact, of course, the public sector has expanded quite dramatically and will no doubt continue to do so. There are lots of things capitalist state enterprises can do better than capitalist private enterprises. But this has not prevented unemployment from growing and there is no reason to expect that it will. In Britain for example, some of the biggest layoffs have been in nationalised industries like British Leyland and the British Steel Corporation.
Whether a firm is publicly or privately owned, in a market economy its ability to provide jobs will still depend on its profitability and that will depend on selling its goods on the market. When there is overproduction it affects government owned enterprises exactly the same way as private ones.
It sounds plausible for Australian car workers to demand that the car industry be nationalised to safeguard their jobs. But how has that helped British car workers? What are railway workers supposed to do when their jobs are threatened? Demand that the railways be nationalised? In Britain some coal miners have actually been demanding that their industry be sold to private enterprise because the government is unable to invest funds in keeping their jobs.
Nationalisation is probably a good thing for all sorts of reasons, but reducing unemployment is not one of them. One need only look at Poland or Yugoslavia to realise that even economies completely dominated by the public sector, can have pretty much the same kinds of economic problems as the “mixed economies” of the west. The economic laws applicable to market economies apply whether the capitalise enterprises are owned by shareholders, bondholders, or the state.
There have been some instances of bankrupt firms being taken over by their workers to preserve their own jobs. The Clydeside shipyards, Lipp watch factory and Lucas Aerospace are well known examples. There is also a traditional “co-operative movement” associated with the labour movement, and a movement for workers control and/or “self-management’. Capitalists themselves are also trying to incorporate workers’ representatives in management functions, with extensive legislation for this purpose in West Germany and some other West European countries, and in Yugoslavia and China.
To some extent, workers’ co-ops can positively represent the new form of social production emerging within the old. Just as the emergence of huge transnational corporations and nationalised industries points towards the socialisation of industry, but more antagonistically.
If workers’ demonstrate that they can manage industry better than capitalists, that is certainly worth demonstrating, to pave the way for getting rid of capitalism in future. It may even save specific jobs in specific cases. But so, for that matter, could any other improvement in the management of an ailing firm.
Obviously improvements in the competitive position of a specific firm cannot reduce, but only displace, the unemployment resulting from overproduction in the economy as a whole. Other workers’ in the same industry will lose their jobs as a result of competition from the firm whose management has improved. This may encourage further takeovers, and be well worthwhile, but there is no need to pretend it will reduce unemployment.
Bankrupt industries may not be the best placed to attempt demonstrations of the superiority of workers’ management. If the prospects for a firm are so poor that its owners are prepared to let the workers’ have it, then they must be very poor indeed. The workers will quickly find themselves facing the same problems of finding a market for their products, that the previous management was unable to face.
The workers’ may do better, since they will show more initiative and will know how to increase productivity and so on. But they may also find themselves accepting worse conditions than they would put up with from their former bosses. (Many self-employed people do put up with longer hours etc – the compensation of not having bosses being well worth it). In the end they may find that they too are forced to carry out layoffs.
If we want practice at running industry ourselves, why not start by taking over some really profitable ones, instead of lame ducks? Presumably we cannot because the state power would be used to prevent us. So it comes back to a question of overthrowing the state. I
In itself a co-op need not be anything especially progressive. For example, the ultra-reactionary health funds in Australia are supposed to be owned by their contributors. So are some insurance companies and agricultural marketing organisations. Within a market economy a genuine workers’ co-op is certainly a more progressive form of organisation than the traditional structures, but it still only amounts to the workers collectively being “their own boss”. It does not abolish the status of workers as “employees” of “their” firm, who are “employed” (used, exploited) by it.
In Yugoslavia the entire economy consists of enterprises nominally under workers’ control, but exchanging products with each other, and allocating investments, through the market as in any other market economy. Yugoslavia has one of the highest unemployment rates in Europe, as well as a very high rate of economic emigration.
If all the firms in an entire capitalist economy went bankrupt and were taken over by their workers, to sell each other goods on the market, they would all remain bankrupt. When the working class does take over industry, it will do so collectively as a class, and abolish the market economy, not ” be their own bosses” within it.
To abolish unemployment, we need to abolish the market economy. Any measures that train workers in economic management are beneficial to that, but none can solve the problems of a market economy without actually abolishing it.
We should support workers who take over their bankrupt firms, just as we should support workers fighting for shorter hours or higher pay, or unemployed youths looting shops, but we need not pretend that any of these activities will reduce unemployment.
Labor to Power with Socialist Policies?
Perhaps a Labor Government with more radical policies could solve the problem? Instead of capitulating to business pressure, they could really hit hard with resources taxes, nationalisation, and a siege economy protected from overseas influence. By taking control of the commanding heights of the economy, they could force industry to provide employment whether it is profitable or not.
This sort of program has gained some support in the British Labor Party. Presumably it could become popular here too, although events in Britain may pre-empt that. The “left” program has won some support from traditional Labor Party activists, because of the obvious bankruptcy of previous policies. But it has also been imposed on the British Labor Party by fairly manipulative means, by people who know they cannot get as much support for their program by going to the working class directly, as they hope to get by working through the Labor Party. It is not a socialist approach, let alone a revolutionary one, because it is based on making social changes from above, without the support and against the wishes of the only people who can really change society – the masses themselves. If it could succeed, the result would be a more bureaucratic and less democratic society – a corporate state, not socialism.
There is an ideological convergence between the interest of the bureaucratic bourgeoisie in state owned industries, trade union bureaucrats, state employed intellectuals and so on, in promoting this “statism” as “socialism”. A more fascist face of a similar basic ideology can be seen in Eastern Europe and in the French Communist Party. The techniques of demagogy and manipulation also have a lot in common.
A feature of this approach, is an identification between “socialism” and “government controls”. The solution to practically any problem is supposed to be a government regulation compelling private industry to act more in accord with the public interest. That identification is promoted heavily by ideologists of the right, like Milton Friedman, who exploit resentments against “big government” and bureaucratic regulations”.
In fact government regulations are required in a market economy because of the inherent antagonism between the interests of each separate producer, to maximise their own profit, and the public interest in things like a better environment, safe working conditions, better products and so on. The regulations are effective by making it more profitable for firms to modify their behaviour in the public interest, than to go on ignoring the public interest. The same effect is achieved by various selective taxes, allowances and so on. Where regulations cannot overcome the limitations of production for the market, the bourgeois state itself will step in and provide a “public service” – such as roads, broadcasting, education and so on.
There is always a need for more regulations, because the bourgeois state is unwilling to interfere with the private interests of various sections of the bourgeoisie as much as it should. So naturally, progressives often find themselves involved in campaigns for more government regulation to restrict some particular abuse or other. Likewise there is always a need for more “public services” because the bourgeois state is always reluctant to assume responsibility for an activity that might have been carried out by some particular section of the bourgeoisie. So we find ourselves involved in campaigns for more public services.
In these campaigns, the interests of sections of the bourgeoisie tied to state capitalism, often coincide with those of the working class. This is nothing new – a lot of social progress within capitalism has depended on one section or another of the ruling class breaking ranks from the others. But we should not delude ourselves that the bureaucrat bourgeoisie and their trade union hangers-on are in any way “socialist”.
The statist approach can never turn private production for profit into its opposite – social production for use. Regulations are symptoms of the basic antagonism persisting, while the elimination of unemployment and economic crisis requires a removal of that underlying antagonism. We need to abolish private production, not just provide more public services.
A socialist economy would actually require less regulations and controls than a market economy. Even the “public sector”, and as such enterprises became genuinely “public” they would cease to be separate enterprises having separate interests from the “public” at all. You do not make regulations governing your own conduct at home, so why should you do so at work?
The result of the “left” influence on the British Labor Party has of course already been a sizeable swing of Labor support to the new Social Democratic Party, even though the Labor Party has not yet fundamentally broken with its traditional “labourism”. This will presumably produce a Labor Party and trade union backlash against the “left” program that is alien to the traditional outlook of Labor Party supporters. Alternatively, the present two party structure in Britain may be replaced with a new one, leaving the “entrists” once again out in the cold, and the traditional Labor supporters once again bankrupt. You cannot change people’s political consciousness by stacking their party meetings, and most workers prefer their present bosses to the proposed new ones.
Economic Consequences of Statism
Let us leave aside the political aspect and look at the economic consequences of a statist program being implemented. Remember, we are not talking about a popular revolution in which the working class takes command of society and re-organises it. If that was the aim, the method would not be through the Labor Party. We are talking about policies to be implemented by a parliamentary government, with the existing state machine still in place, and with the working class still tied to its traditional organisations. Viewed in that light, we have an excellent recipe for a Chile style disaster.
Every measure proposed is designed to transfer economic power from private industry to a government hostile to private industry, without actually expropriating private property. The present owners and managers of industry are to be directed to carry out economic policies hostile to their own interests. But why on earth should they comply?
In themselves, the measure proposed as an “alternative economic strategy” could only reduce profitability and jam up the economy completely. Not capitulating to business pressure must mean reducing profits and therefore reducing private investment and job creation. “Controlling” foreign investment must mean less foreign investment and so less jobs.
Legal nationalisation would just mean saddling the government with a lot of businesses that were already in trouble, plus additional debts to pay off their owners. If capitalism survives the coming crisis it will certainly be with a great deal more nationalisation and state capitalism, but that would be part of the emergency re-structuring after the crisis, not a means of preventing it.
Perhaps the aim of crippling business profitability would not be legal nationalisation, but to force capitalists to hand over their enterprises to the government without compensation. A roundabout sort of expropriation. But if the aim is expropriation, this is a rather odd way to go about it. Expropriation means confiscating the property, worth thousands of millions of dollars, of the class that has up till now ruled society. That class has shown a definite tendency towards hysteria when its property rights are even mildly infringed upon, let alone denied entirely. What on earth is the point of leaving them in charge of industry while you are expropriating them? If they are not kept under lock and key, surely they should not actually be the people asked to implement government directives against their basic interests?
What else could they do except sabotage things in every possible way, and ensure the government is blamed for the economy being in a far worse state than it was before? In war, when one army defeats another, the first thing it does is confiscate the losing side’s weapons. It does not put them in charge of guarding the armories and performing sentry duty. The bourgeoisie’s weapons are its control over industry (not to mention its military weapons).
If our aim is to confiscate the property of the ruling class, then we need our own state and our own army to establish that state. Trying to do it through cabinet ministers in their state, surrounded by their officials and their armed forces, seems rather odd. It sounds like just a complicated way of getting those ministers killed, and anyone silly enough to be associated with them, killed also.
Fortunately, the chances of a Labor Party with “left” policies gaining office seem quite remote. So we need not worry too much.
Unlike other “solutions” proposed from the labour movement, increased tariff protection could have an immediate positive impact on employment in Australia. By restricting other countries from access to Australian markets, the opportunities for employment creating investment in Australia are necessarily widened, at the expense of course, of jobs in other countries.
It is amazing how “leftists” put forward the most blatantly chauvinistic proposals for displacing unemployment from Australian to Asian workers, with pious references to opposing their low wages, exploitation by fascist regimes etc.
Apart from elementary class solidarity, the catch with protectionism is of course, that it cuts both ways. It is to the selfish advantage of any country to restrict its markets. But when all countries do it the result is a loss of markets for all.
While world trade is expanding, there is an increasing “cake” and different countries have been able to agree on how to divide it up. As the crisis intensifies pressures for protectionism will become stronger even though everybody knows the result will damage everyone. So will the pressure for trade wars, and real wars.
Protectionism is inevitable as world trade spirals downwards, but we have no interest in promoting it.
In their newspapers some political groups urge “militant struggle” as the workers answer to the “employer’s offensive”. It is not entirely clear what this means, if it means anything. But presumably it must be intended to suggest that layoffs and the like are not the result of blind market forces, but are some kind of conscious conspiracy by the capitalist class in order to weaken the working class. By fighting back hard enough, workers can force employers to abandon their “offensive” and restore full employment.
This is obvious nonsense, nor worth discussing. But it does raise the question of how much can be achieved by resistance to layoffs and cutbacks. The answer is, of course, that “if you don’t fight, you lose”. People have to fight or they get ground down, and you can win specific improvements by fighting.
But you cannot change the overall working of the system by this sort of fight. Since we are going to be forced into all kinds of defensive struggles, often losing ones, it is pretty important to be developing an offensive strategy that can win as well. Otherwise it gets rather demoralising. We need to be able to say what could be done about the economic situation as well as just resisting its consequences.
Instead of that, trade unions tend to just resist and lose, in a fairly hopeless sort of way, or even turn the battle against other sections of workers. Often, trade union responses to unemployment ignore the fact the employed and unemployed workers are both part of the same labour force, with common class interests. Trade unions often emphasis protecting the jobs of people who already have them, and especially those who have had them longest – at the expense of school leaves, housewives, part-timers, casual workers and others who need jobs, and perhaps need them more desperately than those protected by “seniority”.
Like demarcation disputes, these trade union efforts can be very “militant” without any positive result. Trade unions are basically conservative organisations concerned with selling their members’ labour power at the best price they can get. We should aim to unite the employed and unemployed workers rather than just protecting the separate interests of employed workers from unemployed ones.
Militant struggles against redundancies, factory occupations and so on, can also suffer this problem to a certain extent. Even if they can actually save the particular job at stake, which is unusual, they can not reduce the size of the pool of unemployed and can only displace unemployment from one group of workers to others, often within the same industry, or even the same firm.
Employers may conceivably be forced to keep a particular factory open, although that is often just as hard as finding new jobs. But it is pretty difficult to change the fact that the total amount of labour required in an industry has declined. The question will be whether a particular factory gets closed down or other factories stop taking on school leavers to replace retirements. Either way, unemployment will grow, but it will affect different groups of workers directly.
The same applies to struggles against “the cuts”. The plain fact is that the government is forced to cut its expenditure because it just has not the resources to sustain it. There is no conspiracy. Nevertheless, what gets cut where, and how much of the brunt is suffered by who, will be influenced by class struggle. So it is worth fighting back. As long as the fight is not just suggesting that some other, more vulnerable section of the working class should cop the lot.
Just saying “cut defence” sounds like an easy way out. But the whole defence budget would not make all that much difference, and it avoids some hard questions about how to deal with Soviet aggression. In practice, if the budget cannot be increased, struggles against the cuts will, whatever people might say and want, just divert cuts from health to education, or education to welfare, or welfare to health.
If we want to not only oppose any cuts at all, but also demand improvements in welfare and public services, we need to have definite proposals about how this can be achieved. We should certainly support militant defensive struggles. But they cannot be put forward as a general answer to unemployment and economic decline.
This whole paper so far may sounds rather pessimistic and deterministic. It seems unemployment is inevitable and there is nothing that can be done. But that is only true if your perspective for “something” is for some reform within the capitalist system. Things are grim for reformism, but not for revolution.
Recognising the inevitability of certain laws under capitalism is not deterministic. It implies that the way out is to abolish capitalism. Revolution is a voluntaristic act that must be carried out consciously. The next section, to be published later, (editor’s note: this refers to part 7) discusses revolution. It suggests how the economic situation could be resolved by revolution and suggests that revolution is a perfectly matter of fact “solution” that makes far more sense than the others that have been put forward.
Draft 4. August 1982
(Note: A number of comments on earlier drafts of this section have pointed to the conclusion that it really ought to be rewritten completely. However, it seems better to get the thing out, and allow others to comment as well. Please bear in mind that this was originally intended to simply round off the paper “Unemployment and Revolution” in DB 11, by suggesting that revolution is a more “practical” solution to the problem of unemployment, than the various other “left” schemes to deal with it, that were analysed there. It is not intended to satisfy people’s desires for a meaningful answer to the general problem of “revolution”, but merely to say something about what a revolution could do about unemployment. Unfortunately everything, like everything else, is related to everything, as well as being a class question…, which makes it very difficult to complete an acceptable article about anything…)
In its normal state, capitalism has become an obsolete oppressive system that ought to be got rid off. A relatively small minority recognise this and are consciously anti-capitalist, but the masses continue trying to satisfy their needs within the system rather than by overthrowing it. So there is no real possibility of overthrowing that system and attempts to do so degenerate into futile reformism and/or terrorism, whatever the “revolutionary” rhetoric.
But during periods of economic crisis, the contradiction of capitalism sharpen and the possibility of actually getting rid of it arises. A substantial proportion of the population is drawn into active political struggle as they confront questions of what society is to do to get out of its impasse. There is no crisis that the ruling class could not resolve if it was allowed to, but with the masses politically active, the possibility arises of the ruling class not being allowed to, and of people taking things into their own hands.
In boom conditions, capitalism develops the productive forces at its maximum rate. That may be far slower than would be possible for a communist society, but there is no basis for comparison, so the obstruction is not so noticeable.
The “development of the productive forces” is not some abstract question. It means concretely that the wealth of society is increasing, not just materially, but also culturally and in every direction. Opportunities for development are open and people who want to better their own situation can do so by grasping those opportunities. Most workers can expect better jobs, with a higher standard of living and better conditions. Capitalists can find opportunities for profitable investment. International trade is expanding and the different nations, classes and sectional interests are fighting over their share of an expanding “cake”. Such fights may be acute, but there is always room for compromise about who benefits more, when nobody is actually asked to accept being worse off than they are already. Reforms may be fought bitterly, but there is scope for reform without shaking the whole system apart. Within a “pluralistic society”, there can still be “consensus”.
In crisis conditions all this is reversed. The cake is contracting and the fight is over who is to bear the loss. Among capitalists the fight is over who is to survive and who is to eat whom. Between capitalists and workers there is no room for compromise. Reforms become impossible and even past achievements may be rolled back. “We can’t afford these luxuries any more”. Within the working class too, there is less unity as people find themselves in “hard times” where it is “everyone for themselves”. The “social fabric” unravels, consensus breaks down and capitalist society stands revealed as based on sharply antagonistic interests.
The last major capitalist crisis was the Great Depression of the 1930’s. Subsequent economic fluctuations; including the present one, have not amounted to much more than “recessions”; so the inevitability of capitalist crisis has been forgotten until the next crisis again smashes the illusion. But even in “recession”, the sharpening of contradictions can be seen, together with the complete inability of the reformist “left” to come up with any serious alternative program. All the signs point to a gathering crisis, much deeper than the 1930’s, and the necessity for a serious revolutionary alternative opposed to trying to patch capitalism together again.
Internationally, overproduction intensifies the struggle for markets between imperialist nations as well as between individual financial groups. International conflicts that could have been resolved peacefully become intractable because the economic barriers have gone up and there is no room to manoeuvre. The “underdog” or “latecomer” imperialists can no longer hope for a place in the sun by peaceful competition in an expanding market. They can only expand at the direct expense of the established “status quo” powers and so they seek a re-division of the spoils by force. Despite its costs and risks, for them war becomes a more attractive alternative to economic collapse.
On questions of war and peace, the general “left” attitudes are perhaps even worse than the whining domestic demands that capitalists should continue running things but should do so more humanely and with less unemployment. Just as they shut their eyes to the real impossibility of continuing capitalist prosperity and “demand” a boom economy, they also shut their eyes to the real inevitability of imperialist war and “demand” peace. Pretending that the Soviet superpower is not aggressive, and that its arms build-up is not preparation for war, but a figment of Reagan’s imagination, becomes another way of avoiding the critical issues of war and revolution.
Workers have no stake in the existing imperialist division of the world nor would they have a stake in the proposed new one, they do however, have a stake in opposing aggressive predatory wars and the accompanying overt denial of national and democratic rights. (The first world war was a different situation not arising directly from an economic crisis, in which both sides had essentially similar expansionist aims). As we had to fight the fascist powers in the second world war, we would have to fight any fascist power that launched a third world war. (Although the Soviet Union still describes itself as “socialist, if it actually launched a third world war, the correct description of “social-fascist” would be more widely understood.)
If we fail to defeat social-fascist war preparations, we could be stuck with fascist domination holding up social development for decades. If we fail to organise independently around our own revolutionary program, we could be stuck with social development continuing sporadically in capitalism’s self-contradictory manner, lurching forward to the next crisis and the next war. If we get our act together, while the bourgeoisie’s act is in a mess, then we have a world to win.
All this relapse into the barbarism of crisis and war occurs as on obvious result of capitalism itself. Workers are unemployed, goods and services are unsaleable, plant capacity stands idle, and consumers are forced to do without, for no “unavoidable reason”. All that stops the continued expansion of wealth and opportunities is the capitalist system of production for private profit. All that is needed for the unemployed workers to use the idle plant to produce goods that people want and need, is a communist system of production for use instead of profit.
We Need a Program
Obviously we are not in a revolutionary crisis right now, and no question of overthrowing any western government arises immediately.
But a major economic crisis and/or a world war would certainly lead to a revolutionary crisis. The question of an alternative to capitalism will certainly be posed. Capitalism will survive if we let it. Crises can resolve the contradictions temporarily and allow a new period of expansion until the next crisis. The outcome of the 1930’s crisis was the post-war boom, not communist revolution in western countries. In retrospect this appears hardly surprising, since the Communist Parties devoted themselves to fighting fascism on a purely defensive basis, and advanced slogans like “Make the Rich Pay” that implied no intention to abolish capitalism.
In its present state of confusion, the left in advanced countries is hardly capable of even fighting fascism let alone challenging the bourgeoisie for power, let alone winning that challenge. There is even a strong tendency to be “soft” on social fascism and adopt a tolerant, apologetic or defensive attitude towards the overt denials of national and democratic rights by the Soviet Union. This can only make it easier to undermine those rights in the West as well. Certainly no movement unable to defend bourgeois democracy against (“socialist”) fascism can hope to overcome the limitations of bourgeois democracy and replace it with communism.
Fortunately however, the confusion on the left is so great there is at least a chance the existing “left” movements and ideologies will disintegrate completely before the actual crisis breaks out, and there will be room for something new and genuinely revolutionary to emerge.
The task of building a revolutionary left is at present primarily destructive – exposing and undermining the reactionary ideology of the present “left”. But we need to at least think about construction at the same time. The aim of destruction is to open the way for a revolutionary left that is fighting for progress rather than reacting against capitalism, and that is quite serious about winning political power to actually implement the social changes it is fighting for, instead of whining about the present rulers of society.
It has been said often enough that there can be no blueprints for the future because the people themselves will decide how to build the new society as they are building it. Fundamentally I agree with that, and will therefore refrain from attempting to present any blueprints. Nevertheless, it is appropriate to put forward a few ideas for discussion about what a revolutionary government might do to start building socialism. Consistent refusal to do so suggests that we are not fair dinkum about having an alternative. “No blueprints” is often a cop-out excuse for “no ideas”.
Revolutionaries need to have a “program” that is more than an analysis of the present society and a promise for the future. We need to develop a clear statement of the concrete measures a revolutionary government would aim to take, so people can decide whether or not they want to fight for a revolution. Too many “parties” talk about “revolution” in the abstract, and none at all seem to be serious about it concretely.
These days people are rightly cynical about the “policies” and “programs” of political parties, whether “revolutionary” or not. Revolutionary Leninist ideas are widely discredited by the sterility of their apparent supporters, and Marxist concepts that sum up important truths from the history of revolutionary struggle seem empty because they have been repeated so often as banalities. One hesitates therefore to use the word “program”, let alone “party”, for fear of being taken for yet another loony with pat simplistic answers to all the world’s problems.
Nevertheless, in a crisis situation, people will judge according to how the measures proposed by revolutionaries compare with those advocated by the existing regime. It will be a very real life and death question for a revolutionary party to have clear policies to deal with unemployment and similar questions. If the revolutionaries do not form a political party that aims to take power from the old regime then the old regime must continue. It will not just disappear in a burst of anarchist enthusiasm. If the revolutionary party does not propose policies that are more desirable and effective than those of the old regime, then why should anyone support a revolution? Even if there was a revolution, there would be a counter-revolution when the new regime failed to solve the problems that had discredited the old regime in the first place.
So, we need to go beyond denouncing what the existing regime is doing and start offering constructive alternatives, even though any such proposals are bound to be half-baked at this stage. Reformists will make constructive proposals as to how the present regime should deal with problems, with or without a change in the political parties administering the regime. Revolutionaries will make proposals about how a new regime, a workers’ state or “dictatorship of the proletariat”, would cope with these questions.
Only left sectarians will talk about revolution in the abstract, without having in mind anything so mundane as taking political power and running the joint. But unfortunately the “revolutionary” organisations in western countries are overwhelmingly sectarian. Their concern is to defend their own organisations and “principles” and not to make revolution. A discrete veil is usually drawn over the question of what a revolution might actually do about unemployment or anything else for that matter, because the alleged “revolutionaries” have no idea what they would do, and have not even thought about it. This does not worry them much, because they are not serious about actually establishing a new regime, but only wish to denounce the present regime more extravagantly than a “mere reformist” would denounce it.
So, let us talk about what communist revolutionaries should do, if we had the political power to do it. No doubt anarchists will disapprove, and insist that discussion of government policy implies we are bureaucrats no better than the old regime. But the choice society faces at present is between revolutionary government or counter-revolutionary government, and the road to abolishing all government lies first through establishing a revolutionary government (but certainly doesn’t end there). Therefore if we want to eventually abolish the state, we need to start exchanging views about proposed government policy now. The reformists talk about government policy because they are perfectly serious about governing, and there is nothing “unrealistic” about this intention of theirs. Revolutionaries should do so too, for exactly the same reason. Those who disdain to talk about government policy obviously have no belief in either reform or revolution, but only a slave’s inclination to whinge occasionally.
The discussion below will not go into the many problems of building a new society and transforming human nature. It will not sketch any exciting vision of how wonderful a new society could be, but will discuss the more mundane problems of what a revolutionary government could do about unemployment in a society that still had not been transformed. Obviously this is not the main point of a revolution. It would be just as boring to have a revolution simply against unemployment as it would be to have one to improve living standards. But this is an article specifically about unemployment.
In the first phase of communist society, the period generally known as “socialism”, there would still be wage labour and commodity exchange through money. It would be quite impossible to abolish these social relations left over from capitalism all at once.
People would not work if they were not paid for it, and they would grab whatever they could get if they did not have to pay for what they consumed. Production would still be geared to market exchange. Basic social relations would still be bourgeois. There would be a bourgeois society in which the bourgeoisie no longer held political power.
A revolutionary government would presumably come to power only as a direct result of a profound political and social crisis, like the last Great Depression. Very likely too, it would arise in the aftermath of a devastating world war. Either way, or both ways, the new regime would be faced with severe economic dislocation including unemployment, as well as all the problems of a regime born in civil war. So what should it do about unemployment?
Obviously a revolutionary government should not attempt to deal with unemployment by any of the methods currently proposed from the labour movement. It could not simply reduce working hours, or raise wages, or increase government spending etc. From the previous analysis we know that these measures would not work in a market economy.
“Revolution” does not mean that we would “demand” that the multinationals do this or that. It means that we, the working class or its advanced sections, take over the running of industry and make the decisions ourselves. To eliminate unemployment, a revolutionary government would have to proceed with abolishing the market economy.
That will be a long struggle and there will certainly be setbacks. The democratic revolutions in Europe were spread over hundreds of years interrupted by various wars and counter-revolutions. They culminated in the establishment of the modern imperialist powers and not some “utopia”. That result was a lot better than the medieval feudal societies that existed before. The democratic revolution was worthwhile and the sordid power struggles undermining feudal power were important. The Russian and Chinese revolutions suffered reversals too. But they, and their power struggles, were worthwhile. The coming Communist revolution will also be protracted and tortuous. But it has to start somewhere and we ought to be discussing it now.
It may seem odd to be discussing concrete economic policy for a regime that is nowhere near existing yet. But it is no more odd than the usual discussions of how to make capitalism work better, or how to retreat from it.
Expropriating Big Business
The first step towards abolishing the market economy and eliminating unemployment, would be to establish state control of the labour market by expropriating the big businesses that employ the large majority of workers. It would not be a matter of “kicking out the multi-nationals”, but of taking them over, and advancing on the basis they have already laid.
Most likely it would have to be done on an international scale. The world economy is already “transnational” and we certainly would not want to retreat from that to any kind of economic autarchy in the name of “independence”.
Expropriation of capitalist property obviously relates to what the revolution could do about many other concrete problems as well, and also relates to implementation of the maximum program, towards socialism and communism. But in an immediate sense, the state taking over most industry is not in itself socialism, but can be state capitalism. It is only a pre-condition for socialism and a pre-condition for abolishing the market economy. Nevertheless, we will not discuss other aspects of the transition to communism here.
In Australia, like other advanced capitalist countries, a very large part of the labour force, about one third, already work for the state at one level or another, or for public corporations like Telecom, or government owned corporations like Qantas. These are already state capitalist industries.
Most of the rest of the labour force is employed by large corporations, often transnationals, whose owners play hardly any direct role in administering them, but are purely passive shareholders or bondholders. These firms could be converted to state capitalism by simple decrees transferring ownership to the revolutionary government, and by the cancellation of government debts. They would remain capitalist because they would still be employing labour to use it for making profit by selling goods on the market. But expropriation without compensation would undermine the economic basis of the old bourgeoisie, and pave the way for communism. It would make the state responsible for hiring and firing the bulk of the Australian labour force, and therefore place the state in a position where it could take responsibility for employment and unemployment.
Many other workers are employed by small firms that are really little more than outside workshops for the big corporations, or “self-employed” in the same, completely dependent, situation. It would be difficult to simply establish state capitalism in these enterprises by decree. But taking over the big corporations on which they are dependent, means making them dependent on state owned enterprises. Control of the big firms would make it possible for the state to influence hiring and firing by the small firms, and so establish state control of that part of the labour market indirectly.
Naturally there is no great problem for a capitalist state to nationalise capitalist industries when it is necessary to the continued survival and development of capitalism – and no great benefit either. A revolutionary state doing it for revolutionary purposes is another matter.
The major obstacle to all this would of course be the state power of the previous regime, including local and foreign armies, navies and air forces, as well as terrorists, saboteurs etc. But we are talking about measures to be taken by a new state that rests on the power of the armed working class, so we may assume that these obstacles are being overcome through revolutionary civil and national war.
There are still a number of major economic obstacles that would persist even after victory in a revolutionary war. Let us look at a few examples.
First, the directors and top management of big industry, whether public sector or private, would side with the present ruling class against a revolutionary government. Unlike the owners as such, these people do play an important role in the actual organisation of production, and can not simply be dismissed by decree.
Second, many lower level executives, engineers, public servants and so on, who play an essential role in production, could not be relied upon by a revolutionary government, even though they have no direct stake in the other side. They see themselves, and are seen by others, as “middle class” (although their real status might be better described as upper strata of the proletariat, since their income is obtained from wage labour, not property ownership).
Third, there are substantial sectors of the economy, even in the most advanced capitalist countries, where people are still self-employed or work for small employers who do play a direct and important role in the actual organisation of production – for example, farmers, shopkeepers, professionals such as doctors, and a good deal of small manufacturing, construction and services enterprises. These could not simply be taken into government ownership be decree, nor are they all directly dependent on firms that could be. They would have to remain for some time as a “private sector” (quite different of course from the present “private sector”dominated by huge transnational corporations).
Certainly capitalism is already replacing small shopkeepers with supermarket chains, and family farms with agribusiness. Doctors will eventually be forced to work for salaries and so on. But it takes time, and a workers’ state would want to do it less blindly and destructively, and with more attention to the problems faced by the people concerned, than under capitalism.
As long as there was a private sector, relations between it and the state sector would have to be based on commodity exchange through money, and this would remain true even when privately owned businesses were being transformed into co-operatives as part of the process of socialisation. In connection with the private sector, there would still be a labour market. This would continue until the state sector was able to offer jobs doing everything that needs to be done, on terms more attractive than the private sector. That could be quite a long time.
Fourth, there are links between the ownership of bigger industries and smaller ones, and even links to the savings, superannuation and insurance funds, and housing and consumer finance, of ordinary workers and working people. We cannot simply expropriate shareholdings and assume we have hit only big capitalists.
These problems all have to be faced up to, if we are serious about solving unemployment, because we cannot solve unemployment without expropriating capitalist private property in this wholesale way. International ramifications are left aside, on the assumption that we are talking about some sort of world revolution, at least in the advanced capitalist countries together. But that whole question needs to be gone into as well.
It may be repetitive to again emphasise that eliminating unemployment requires wholesale expropriation of capitalist private property. But usually this central point is left out entirely. The “socialists” and “communists” who agitate about unemployment without focussing on this issue, must in fact be demanding a solution within capitalism. They could not possibly believe in socialism or communism, or they would mention it at least occasionally, if only in their prayers.
Assuming we are able to solve the above problems, how would the establishment of state capitalism allow the revolutionary government to deal with unemployment? And how could it avoid becoming some drab,boring and repressive system like East Germany?
Economically, it would be a “fairly straightforward”(!) question of subordinating the state capitalist enterprises to a unified central plan, instead of production for the market. Socially and politically, this would be part of the same process that transforms capitalist production for profit into communist production for use, and wage labour into communist labour for the common good.
Since most workers would be employees of state enterprises, “manpower planning” or rather “labour force planning” could be carried out seriously. Instead of independent hiring and firing from a pool of unemployed, there would be a planned allocation of labour. Individual workers would all be permanent employees of the public service, not liable to hiring and firing as in private industry.
At present, about 5% of the labour force are in career public services and there are also career services in some corporations like Telecom and BHP. In general these workers do not get hired and fired according to the needs of capital investment in their industries. Their firms manage such a large sector of the economy in a centralised way, that they are able to engage in labour force planning alongside their other investment planning and transfer and promote workers within the firm’s career structure. There seems no reason why similar personnel practices could not be very quickly extended from 5% of the workforce to 80% or 90%, thus establishing complete state control over the labour market. (A large section of the Japanese labour force are “permanent” employees already, with another large section being “casuals”to provide the slack necessary in a market economy).
This would not in itself eliminate unemployment, as witness the present staff ceilings and cutbacks in the public service, and the redundancies from the state sector dominated economies of the Soviet bloc and China. But it would create the minimum organisational prerequisite for the government to take responsibility for unemployment. After all, if the government is not the main employer, it is not responsible for employment, so how can it be responsible for unemployment?
As well as control of the labour market, the revolutionary government would have in its hands, all the operating revenue and profits of big industry, and therefore the decisive funds for investment. Instead of the present anarchic distribution of investment through the capital markets, there could therefore be a planned allocation through the state budget. This, and this alone, makes it possible to eliminate unemployment, simply by making full employment an essential criterion of planning. As long as firms decide their investments privately, and hire and fire accordingly, there can be no real “labour force planning”. Once investments are centrally allocated, then the labour force can be planned too.
A single central plan would co-ordinate the requirements for labour of different occupations and skills in each industry and locality, and indeed in each establishment. The plan would take into account changes in labour force participation, the education system, immigration and emigration flows etc. The same plan would allocate funds for investment, together with the labour force required by that investment.
Far from discouraging new technology, to save jobs, the plan would facilitate its speediest implementation, to provide leisure. But the same plan that provided funds for a labour saving innovation in a particular industry or establishment, would also provide for the transfer and re-training of those workers made redundant, and the investment of funds in the industry that is to employ them, or the reduction in working hours that goes together with increased productivity.
The decisive point is that things would not just be left to “sort themselves out” through the interaction of wages, prices and profit rates on investment, and the consequent formation and absorption of a pool of unemployed. No matter how much state ownership and “planning” there may be in a market economy, if production and investment decisions are at all regulated by “the market”, they must to that extent be allowed to “sort themselves out” through market movements, including unemployment.
A fundamental distinction should be recognised, between this kind of central planning, in a state owned economy, and the sort of bureaucratic planning implied by “statist” proposals mentioned earlier. Here we are not talking about government “controls” imposed on separate, privately owned enterprises from above, while those enterprises are still basically geared to employing workers to produce goods for sale at a profit on the market. We are talking about a transformation of the enterprises themselves, in which they cease to be separate entities, and become social property working to a common social plan. That involves a political struggle, by the workers in the separate enterprises and in the whole society. It implies a social revolution as profound as abolishing the ownership of slaves by slaveowners.
The same distinction should be recognised between the central planning we are talking about, and that which exists today in the Soviet bloc and China. The “economic reforms” of the 1950’s in the Soviet bloc, and more recently in China, established the same kind of relationships between central planning authorities and separate enterprises geared to the market, as were described as “statist” rather than “socialist” in section 6 above. Some forms remain similar to socialist central planning, but the content is commodity market relations and even the forms increasingly resemble those common in the west.
The injustices of slavery and serfdom were eliminated by abolishing the social institutions of slavery and serfdom themselves, not by prohibitions against maltreatment of slaves and serfs. The injustices of wage labour, including unemployment, will be eliminated by abolishing the social institution of wage labour itself, not by directions to employers to treat their workers better.
The planned allocation and transfer of labour need not be bureaucratic like the present public service, although it probably would be at first. It can be made far more flexible than the freest labour market, simply by leaving enough vacancies unfilled all the time, to allow a wide choice of jobs. Industrial conscription has been required in both capitalist and socialist economies under wartime conditions, but it can never be the peacetime norm in any post-feudal society.
Under capitalism, easy job changing only occurs in boom conditions. In a planned economy it can be deliberately maintained all the time, at the expense of some loss of efficiency in the establishments that have unfilled vacancies (but with an overall gain in efficiency due to labour mobility).
Imbalances would inevitably occur, but could be corrected by revision of the plan. Apart from other miscalculations, the plan would also have to take into account unplanable variations in the demand for labour by the relatively small private sector, just as it would also have to correct for other anarchic movements in market forces generated from that sector.
Even capitalism is normally able to maintain an approximate balance between the demand and supply for labour, with only the market price mechanism as a regulator. So there seems no reason to doubt that unemployment could be rapidly abolished with central planning. This has been the case even in relatively backward socialist countries like China, where the state sector was a relatively small part of the economy compared with agricultural co-ops. Only since the widening of market relations between separate enterprises has mass unemployment become a problem there.
In advanced capitalist countries like Australia, a revolutionary government would immediately have control over a far larger state sector than either the Soviet Union or China had when they were socialist. The remaining private sector would be insignificant in comparison, so there should be little problem.
At first however, the relations between state owned enterprises would still be market relations, just as the relations between Qantas,TAA,Vicrail and the SEC are market relations today, with all the anarchy and waste that implies. The struggle to subordinate them to the plan, would be part of the struggle to solve the basic economic problems of transition to communism.
Simply directing state owned enterprises to adhere to a central labour force plan could not work while they were still basically oriented towards a market economy. If the products have to be sold on a market, and there is no market to sell more of that product, then its no good having the government telling a state owned firm to hire more workers. Those workers might just as well be paid unemployment benefits direct – their services are not required.
Labour force planning can only work to the extent that labour power is not a commodity that is purchased to produce other commodities for sale on the market. When production is being carried out by society as a whole, rather than by separate enterprises engaged in commodity exchange, then society can allocate its labour time,as well as other resources. To the extent that separate enterprises exchange their products, then they must buy their labour power too, and to the extent that labour power is bought and sold, it cannot be allocated according to a central plan.
A necessary requirement for centralised labour force planning would of course be centralised wage fixing. Enterprises could not be free to determine their own wage rates if labour is being allocated between them according to a central plan. Otherwise the allocation of labour would be influenced by wage rates as in any other market economy. At the same time, as long as people still work for wages rather than for the public good, wage incentives will be required to attract workers from one industry or occupation to another, if unemployment or other forms of coercion are not to be used.
Clearly wages and wage relativities must be fixed centrally – as though the present Arbitration system really did perform the function it purports to. But this also implies moves towards an abolition of wages as payment for the sale of labour power.
In a fully communist society, income would not depend on “wages” at all. Instead of price and wage fluctuations and unemployment, any imbalance in economic planning would simply result in shortages in facilities available for people engaged in various projects, and/or surpluses of things people do not really want. Annoying, but not a major social problem.
But even in the early stages of transition, wages could conceivably be paid directly from the central budget, together with other “welfare” income. In that case enterprises would not “hire” their labour force directly, but from an employment bureau (as occurs now with some kinds of labour such as temporary staff). The rates paid by firms to the employment bureau need have no direct relation to the combined wages and welfare payments paid out of the state budget to the workers concerned. Imbalances can result in state subsidies to employment (or penalties on it), rather than unemployment (or labour shortages).
Similar proposals have been made for capitalist governments to encourage or discourage employment by altering taxes on wages. But there is really very little scope for that when the government’s own revenue is dependant on those taxes. Moreover such adjustments could not cope with mass unemployment due to overproduction. It is a very different matter when the government revenue coincides with the whole revenue of big industry, and when central planning ensures a basic balance between production and consumption, leaving only minor deviations to be compensated.
When production is geared to social needs rather than profits, it is quite feasible to cope with increased labour productivity by simply reducing the hours of work required for given wages. Eventually, as technology continues to develop, and social attitudes change, very little work would be performed in “exchange” for wages. But from quite early on, the funds available for investment and job creation would not depend on profits, but could be allocated, just like wages and welfare payments, directly from the total revenue. Productivity increases that increase the total revenue can be used any way society wants. Cutting working hours in a non-market economy would not have the “paradoxical” effect of choking off investment and increasing unemployment due to reduced profits. Nor would increasing foreign aid or social welfare or wages have that effect. The total size of the “pie” would be the only constraint once there was no mechanism for the economy to “jam up” whenever “profits” had an insufficient slice.
With the transition from wage labour to communist labour, an increasing proportion of incomes would be based on needs (or desires), rather than payment for work (as a matter of right not charity). Correspondingly, work would have to be an increasingly voluntary activity. Wage and welfare increases, and reduction in working hours, could then be planned together with the necessary investments in consumer goods industries, with additional flexibility provided by the increasing “social wage” of”public goods”. When work has become a voluntary community service, there is of course no question of a “labour market” to require a “labour policy”.
In making the transition, it would be necessary to arrange social services, foreign aid, public benefits, wages, insurance and housing and consumer finance, as well as investment, as allocations from total revenue all at the same time. In expropriating big industry, the revolutionary government would take the whole of that revenue into its hands directly, including those “profits” previously paid out through taxation or via insurance funds to provide pensions etc.
Universal social welfare coverage financed from current revenue rather than “funds”, would compensate for most “savings” tied up in shareholdings etc, and small property owners could have their property redeemed rather than expropriated. The maximum number of people should gain from the expropriation of big industry and only a tiny minority should be losers. “Labour Policy” would have to embrace policy on these questions too.
The Struggle for Control
The social revolution required to transform capitalist enterprises into communist collectives obviously involves far more than government decrees transferring ownership. The revolution itself would have produced workers’ councils in many establishments, which would have taken over responsibility for management from the previous authorities. But that only establishes pre-conditions for the transformation, without actually solving the problem itself. Moreover, in many enterprises the workers’ councils would be weak or non-existent, or a screen behind which the old bosses are still in charge, since revolution develops unevenly.
While the left is in opposition, it seems natural to assume that all problems of control should be resolved by “decentralisation of authority”. After all, the people in charge at the top are reactionaries, so the more room there is for lower level units to determine their own affairs, the more chance there is to adopt more progressive policies in at least some places where radicals happen to be concentrated. The problems in other places, where radicals have no influence at all, are simply not worth even thinking about. Often a focus on “local” or “community” issues seems to reflect an acceptance that there is really nothing we can do about national and international issues.
With a revolutionary government in power, the situation should be reversed. The highest levels of the hierarchy should be more radical than the lower levels, and radicals at lower levels would be demanding obedience to government directives aimed at changing the social system, rather than agitating for autonomy where that would mean continuing in the old way. (Of course this can change, if the revolution is defeated and the “revolutionary government” ceases to be revolutionary – but that simply means the radicals are in opposition again – it does not mean that the whole problem could be mysteriously avoided by “decentralisation”.
Anarcho-syndicalists seem to imagine that if everybody democratically discusses everything, production units will be able to exchange their products to supply each other’s needs, and to supply consumer goods for the workers, with no more than ‘co-ordination” by higher level councils of delegates from the lower level establishments. Actually things are not so simple, and any attempt to realise that vision would only mean preserving market relations between independent enterprises, still not working to a common social plan. The concept involves a sort of “parliamentary cretinism of the workplace”, even though anarchists and syndicalists are generally well aware that the right to vote can not in itself transform bourgeois social relations into co-operative ones.
So far, modern big industry in the advanced capitalist countries, has always been based on capitalist production for profit, and nobody actually has much experience in how to run it any other way. Indeed many people allegedly on the “left” seem to be unable to conceive of it being run any other way, and dream of somehow going back to a smaller scale of production, for it to be “more human”. On the contrary, it was precisely small scale production that was suitable for capitalism, while the development of huge transnational corporations with a single management for entire sectors of the world economy, proves that the socialisation of production makes private ownership an anachronism.
The only experience we have of communist labour for the common good has been in a few “community projects” providing voluntary services to the public. Everything else is based on people working for wages under the supervision of bosses to produce commodities for sale on the market. Often voluntary community projects also end up adopting a boss system too, or remain hopelessly inefficient and get entangled in factional disputes that can not be resolved without a clear chain of authority, and in effect, “ownership”. Then they go under and reinforce the idea that capitalist production is the only system that can really work.
We should study the positive and negative lessons of the way small scale community projects and co-ops are managed, as well as studying capitalist management of big industry, in order to prepare for transforming the management of big industry. The mentality that equates “popular”, “democratic” and “co-operative” with “local” or “community” projects is a slave mentality that accepts the necessity of a bourgeois ruling class to manage big industry and the affairs of society as a whole. We do not just want to create some free space within which slaves can manage some of their own affairs, although that may sometimes be useful. We want to overthrow the slave owners and abolish slavery altogether.
If modern industry is to be run in a fundamentally different way, then essential policy and planning decisions to run it in that different way will have to be taken by somebody. Whether they are called the workers council, the revolutionary committee, or the state appointed management, somebody will have to take decisions about the sort of questions currently decided by the boards of directors and top management of BHP, the ANZ Bank, the Treasury and so on. More importantly, people will have to take decisions about economic, as well as other questions, currently resolved by the boards of directors of General Motors, ITT, the Chase Manhattan Bank, the Morgan Guarantee Company, Mitsubishi, the Central Committee of the CPSU or CPC and so on. Even more importantly, we will have to take decisions about questions which none of these bodies have the power to decide, since none of them controls the world market, either separately or together.
No amount of elections from below, directives from the revolutionary government, or consultations with the masses will change the fact that these people will be responsible for the policy decisions in industry and will have to know what they are doing. Nor would it change the fact that they are doing the job currently done by capitalists “bosses” and will have ample scope to develop into new capitalist bosses themselves (and bosses with wider and more totalitarian powers).
Most workers expect to have bosses, and that would not change overnight in a revolution. There would be a tremendous unleashing of workers initiative, but there would also be a strong tendency to retain or return to the old ways of doing things, with new bosses, or even the same old bosses, in charge. Electing new bosses does not abolish the boss system.
The big issues are not decided “on the shop floor”, to use a phrase much loved by advocates of “self management”. Capitalism is already transferring more and more authority on the shop floor to workers themselves rather than supervisors or lower level line management. This only highlights the fact that questions like unemployment are imposed by market forces outside the control of “shop floor” management, or higher management for that matter.
Elected workers’ councils would be in exactly the same position of having to lay off staff, if there is no market for the goods they produce. Revolutionaries have to raise their sights above the shop floor, to places where more important decisions are taken, and to issues on which decisions simply are not taken in a market economy, because there are no decision makers with authority over the economy as a whole, and our fate is still subject to the blind workings of economic laws beyond our control.
If we want a revolution, then left-wingers, revolutionaries, will have to take on the functions of directors and managers of big businesses, as well as government ministries. Not many genuine left-wingers and revolutionaries have any great hankering to be on the board of directors of the Reserve Bank or BHP. But if revolutionaries are not leading the workers’ councils to implement a socialist economic policy, then it can only be right-wingers, or unreliable middle-of-the-road “experts” who are doing (or sabotaging) the job of management. Indeed in socialist countries, economic management functions seem to have been breeding grounds for revisionist bureaucrats.
Just saying “the workers will do it” does not solve a thing. Who are these workers who will do it after the revolution, without discussing what they will do, before the revolution? Power will pass from the hands of the bourgeoisie to the hands of the working class, because the working class will put forward a clear cut program to rescue society from the impasse it finds itself in under bourgeois rule. Slogans simply demanding a change in power because it is “more democratic” will get nowhere. The issue of “who decides, who rules” only arises in the context of “what is to be done”.
Revolution occurs when those who presently hold power are unable to do what has to be done, and when the only way it can be done is for their opponents to take the power to do it. The most class conscious and politically conscious workers will be the ones discussing these problems beforehand, and if we do not
have any ideas, how can we expect others to?
The main areas of “management” in a typical capitalist firm are production, personnel, sales and finance. Research and development is another significant area in a small proportion of enterprises.
A lot of production management has become a fairly routine function which could be readily taken over and transformed by workers’ councils. Workers should have no difficulty rapidly improving productivity over what can be achieved under a basically antagonistic system of bossing. While workers’ productivity undoubtedly improves as a result of capitalist “bossing”, the very need for that bossing is itself a demonstration of how capitalism restricts productivity. Slave productivity was increased by harsh overseers, and also by having heavy tools that were hard to break (as well as hard to use). But productivity jumped much more with the elimination of slavery.
Capitalist bossing actually tries to keep workers stupid. “You’re not paid to think” is the supervisor’s catch cry, as soon as a worker starts saying “I think…”. But in fact workers are paid to think much more than slaves, serfs or peasants would think in their work, and they get sacked if they do not think. It is just that they are not supposed to think too much. Moreover modern technology places increasing demands on workers’ intelligence and requires a more and more educated labour force in greater and greater conflict with the old techniques of capitalist bossing. Communism would resolve this contradiction and unleash workers’ intelligence in production, so that “management”, “engineering”, “research”, “science” and so forth would cease to be restricted to an elite, excluding the contributions of the vast majority. Research and development would become much more widespread, be much closer to production, and require much less “management”.
Likewise personnel management is an essentially routine function that will be made much easier by the elimination of “industrial relations” between hostile employers and employees. There should be no problem organising the recruitment, training and allocation of labour in a plan based on full employment.
Purchasing and sales management does still involve an element of capitalist “entrepreneurialism”, although the work is done by salaried employees. But it can nevertheless readily be grasped and transformed, by the employees already engaged in it, and by other workers. The flexibility and dynamism of modern capitalism can be greatly exceeded by unleashing the workers’ initiative in this area too, as well as in production, to seek out new needs and new products. Even in a state capitalist market economy, the elimination of useless competition would save a lot of trouble, with unified marketing and supply arrangements under central planning. As the “market” is abolished, the supply function would become another aspect of production planning, rather than a separate problem of “marketing”.
The weakness of supply and marketing in socialist economies has been due to the general backwardness of those economies. They are (or rather were) “socialist” only in the sense of having *had revolutionary governments determined to accelerate the transition from capitalist to communist social relations. As far as the actual level of social development is concerned, the advanced capitalist countries have already reached a higher level, and this includes a higher level of centralised management and a higher level of organisation of marketing and supply, as well as the well known higher level of productivity in most industries.
Monopoly capitalism has abolished purely commodity relations in many areas, since the “exchange” is taking place between units under the same control, while labour power, and capital itself, remains a commodity. Although commodity production has been more restricted in socialist countries, as regards labour power and capital, central control of many products was actually less developed than in advanced capitalist countries. The improvements in supply and marketing when socialist countries have restored capitalist market relations does not reflect any inherent superiority of capitalism. It reflects the superiority of free market capitalism over bureaucratically controlled capitalism. A classic cartoon shows a “socialist” factory overfulfilling its production quota for nails (measured by weight), by producing a single giant (completely useless) “nail”.
The revisionist solution is to find more rational ways for central planners to co-ordinate the factories output to social requirements – mainly by setting goals in terms of market profits rather than arbitrary physical measurements. But exactly the same problem is faced by the top managements of large corporations in advanced capitalist countries. Solutions include the establishment of separate “profit centres” within the one enterprise, so that local managers will be more sensitive to market profits rather than blindly responding to higher directives.
In both cases the problem is that there can be no substitute for the market in an economy based on commodity production. If social production is divided between separate enterprises with antagonistic interests, then they can really only be brought together through market exchange, the best measure of which is money prices. If instead they are brought together by some other form of external coercion, there will inevitably be some misallocation of resources because the quotas set do not exactly correspond to money – the only measure of social needs in a market economy.
The communist solution is to dissolve the antagonism between separate enterprises so that each is directly aiming to meet social needs as best it can, rather than responding in its own separate interests, to an external compulsion to do so. Setting quotas in terms of numbers of nails, or the price of nails, would not solve the problem (although the latter would improve it). Having a factory management (the workers themselves), who are dedicated to meeting social needs, would solve it completely, since they would interpret planning directives from a social viewpoint rather than a narrow one.
The question of centralisation and decentralisation of enterprise management, is quite separate from the question of abolishing commodity production. One may advocate more local initiative at the same time as completely abolishing market incentives. Indeed it is noticeable that in both China and the Soviet Union, revisionists have strengthened central controls over individual enterprises, at the same time as widening markets relations. Increasing bureaucratic regulation there is necessary for the same reasons that it is necessary here.
Enterprises already under bourgeois management in socialist countries show more initiative when given material incentives and market “freedom”, just as socialist enterprises lose their drive when asked to produce just for profit. Overall, supply and marketing workers in an advanced economy working for the public interest should be able to introduce new goods to meet new needs far more dynamically than where this is done only to squeeze extra profit for their employers.
“Socialism” does not imply the restricted range of products available in economically backward socialist countries any more than it implies the lower standard of living, longer working hours or lower cultural levels common in those countries as compared with advanced capitalist countries.
Backward capitalist economies in third world countries have far worse problems with shortages and misallocation of production etc than backward socialist countries have had. There is no reason to anticipate major problems with the replacement of “commerce” by unified supply and marketing arrangements in advanced industrial countries.
Although the above functions of “management” present no special problems, financial management and investment planning is still an exclusive “entrepreneurial” function of capitalists, and it is precisely this that is decisive in abolishing the market economy and eliminating unemployment. The job is done by salaried employees as well as actual capitalists, but many of the employees are accountants, lawyers, bankers, investment analysts and so on, not ordinary workers. We shall consider this problem in more detail than other “management” problems.
How do you decide whether to build a steel mill, or a hospital, or a thermal or hydro-electrical power station? Not just by democratically consulting steel workers, or hospital patients, or construction workers, or delegates from all three and others concerned. There must be some definite economic criteria for decision making. It is no good just saying we will build socially useful things like schools and hospitals instead of profitable things like steel mills or power stations. You need steel to build schools and hospitals, and you need electric power to run them.
The contempt a lot of “left” intellectuals have for industrial development, let alone “finance”, reflects a lack of seriousness about really doing anything. It implies either that we expect capitalist industry to somehow produce these things for the public benefit, or we postpone social change until everything can be produced free by magic (or we reduce our living standards below the appallingly low level that capitalism has managed to achieve).
At present the only criterion according to which goods and services are produced and investments are made to produce them, is market profitability. Some public services superficially have different criteria, but the “cost-benefit analysis” they use includes interest on capital as part of the costs, and measures benefit by what would be paid for the service if it was marketable. Government funds can only be invested if the overall social rate of return is sufficient to allow payment of interest on borrowings directly, or by taxes raised from sections of the economy that have benefited indirectly. Despite loud squeals from the “private sector”, no government projects are based on expropriation. It all has to pay for itself on the market, and return interest on the funds borrowed from the private sector.
The actively functioning capitalists today are the financial managers and similar functionaries (or party officials in “socialist countries”) who are not the nominal owners of the capital they control, but carry out the social functions of the capitalist controlling it, and live it up accordingly. Both in east and west, ownership is usually mediated via various “trusts” and capitalist luxury consumption owes as much to “perks” as to direct property income.
“Private ownership of capital”, in the sense of an individual capitalist directly owning means of production, is fairly obsolete. The difficulty Trotskyists have in finding a bourgeoisie in the Soviet block and China, ought to be just as great in the west, where capital is not usually privately owned by individuals either, and is certainly not passed on legally by inheritance, when death duties can be avoided. There are important differences between being a beneficiary under a trust, or enjoying perks as an executive, in the USA, and having a senior party position in the Soviet Union. But they are not as important as the differences between the bourgeoisie and the proletariat – between those who employ or exploit labour and those who are employed or exploited.
It is a specific function of the capitalist ruling class to allocate investments. It does this rather blindly, and with colossal waste, but it does do it and whatever is wasted, is often a loss to the particular capitalists concerned, as well as to society as a whole.
If the new regime had no criteria for regulating investments there would be general chaos as each workers’ council decides what it thinks should be produced and only finds out later that it lacks the necessary inputs or their is no market for the outputs.
In fact to begin with, the old criteria of market profitability would have to be used. To some extent even some of the old personnel, familiar with finance, would have to be used also. They would be disposing of state capital rather than private capital, and getting their perks from that, as before.
Starting from the old system, it would be a long struggle before the new system was really being used for planning, and experience in the Soviet Union and China shows that there is plenty of room for reversals along the way. As long as commodity production and wage labour exists, even the complete suppression of the old bourgeoisie and its replacement by a genuinely socialist state can not prevent some cadres of that state themselves degenerating into a new bourgeoisie.
Of course the top managers and administrators who can not be bribed or coerced into co-operating can simply be replaced by the workers’ councils. But most workers do not even know what they do, let alone how to do it differently, so there will be a pretty strong tendency to continue doing things the same old way. Workers would work, bosses would boss and financiers would finance, if these categories are not systematically uprooted.
Technically, it is not hard to imagine criteria for investment planning that are not simply based on “profitability” in disguise. There is even a substantial branch of orthodox “welfare economics” devoted to the problem of production for use.
But implementing new criteria means going from private production for profit to social production for social needs, and requires fundamentally changing the way things are done.
About 4% of the Australian labour force work directly in the “financial industry”, apart from those doing similar work in the industries being financed. That is about half the labour force employed by the construction industry, and most of its effort is tied up with just trying to keep track of who owns what and transferring profits from one pocket to another (and to or from the taxation system), rather than actual investment planning.
The capitalist parasites are not even very good at keeping track of their own wealth, as is shown by the various multi-million dollar frauds that have been coming to light. They certainly do not do a brilliant job of investing it more wisely and frugally than public servants would, as is constantly suggested by apologists for capitalism. In fact even their investment function is carried out for them by accountants, advisers, brokers etc who receive a share of the spoils, but are not the actual owners of the capital they invest.
After a revolution these workers could be employed far more productively to ensure that resources are used as efficiently as possible and to keep track of public property so that it is not misappropriated.
There is no great technical mystery about financial work that means it could only be done by and for an old or new bourgeoisie. It just requires a major struggle.
Under slavery, public officials were necessarily slave owners. Under feudalism magistrates were necessarily landowners and under capitalism captains of industry were necessarily capitalists. But social relations change. All it needs is revolution to change them.
Bourgeois “experts” can work for the new owners of industry just as they used to work for the old ones, being bribed with high salaries if necessary. Or they can work for their own account, as “Nepmen” did during the “New Economic Policy” following “War Communism” in the 1920s Soviet Union. But unless the new proletarian owners at least know what they want, the “experts” cannot be forced to work in a fundamentally new way. In the long run they have to be replaced by the workers themselves, and in the short run they have to be tightly controlled by the workers councils, while the workers develop their own expertise.
In the immediate period after winning power, real control of day to day management in most enterprises would continue to be in the hands of bourgeois “experts” who know how to do it, but only know how to do it in a capitalist way. Where managerial power was not in their hands, effective management would still be paralysed to some extent by the initial incompetence of workers who are taking on unfamiliar functions. No amount of decrees giving power to the workers councils would change those facts, unless we are supposed to wait until the working class has already completely changed, before having the revolution that will change it.
There would be considerable scope for resistance to and sabotage of government economic policy. There would also be difficulty reconciling the different priorities and demands of different sections of the working class itself. Only the practical takeover by the workers could gradually change this situation, and then only with reversals and a long historical struggle, combining mass pressure from the workers councils below, and coercion and inducements from the revolutionary government above, before the dictatorship of the proletariat has really effective control of even the state sector of the economy, let alone education, culture etc.
Nevertheless, the working class in advanced capitalist countries like Australia is already literate and quite highly educated compared with the workers that took power in the Soviet Union and China. Most “experts” are not bourgeois, but just highly trained workers, perhaps with a few airs. Even the managers and engineers in overall charge of industry at present are themselves salaried employees, mostly at no great social distance from the mass of workers. Engineering is already a basically proletarian occupation. Management not yet, but headed that way.
Where the workers councils are strong, it should not be all that difficult for them to encourage or compel most managers and engineers to cooperate, and take on the functions of those that won’t. It will be more difficult where the workers councils themselves are weak, which is bound to be the case in many places, since the revolution develops unevenly. But it would hardly be impossible.
The problem of abolishing unemployment by having a revolution is nowhere near as difficult as the impossible task of trying to abolish it without one! There is no need to politely cover up the absurdity of “left” schemes for dealing with unemployment within capitalism. We should say directly that these schemes are nonsense and go on to work out the realistic problems of preparing for revolution.
As the Communist Manifesto argued, we should raise the “property question” to the forefront of all immediate, practical struggles. Just how we can have a communist revolution in an advanced industrial society remains to be seen – it’s never been done before. But we should be quite clear that this is “what we are on about”.
 It can be proved mathematically that the capitalist pattern of investment according to the rate of profit can never lead to an efficient allocation of economic resources, and that “marginal cost pricing” amounts to a labour theory of value.
 The debate among allegedly “Marxist” economists about the so-called “transformation problem” relates closely to the problems Soviet bloc economies faced in allocating investments without using the traditional capitalist calculations based on an “average rate of profit”. A “rate of profit” is essential when enterprises have separate interests, and “marginal cost pricing” is only feasible when they do not. The “optimal” allocation of resources according to a central plan is not the same as the “equilibrium” possible when resources are privately owned – whether competition is “free”, “perfect” or monopolistic. “Equilibrium” situations can include unemployed labour and other resources, as long as the rate of profit is equalised and maximised.