“A society which could reduce its necessary labor to minimum would lose all objective reasons for social antagonisms. In all class societies, and this embraces all existing forms of capital-producing societies, the development of the social forces of production will be stopped when it threatens to endanger the welfare and existence of the socially dominating class. Economic abundance would render the social class structure pointless. The expectation of socialism is based on the possibility of such an abundance; but it presupposes the elimination of social class relations. This condition cannot be achieved within either the mixed or the state-capitalist economy.” - Marx & Keynes: The Limits of the Mixed Economy, by Paul Mattick (p 299)
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Suffering from chronic unemployment, home losses, and (what some might consider) the humiliation of visiting their local “food pantry” or applying for food stamps, many Americans---like the callers to NPR talk shows, my friends, my family members---continue to ask the same questions:
“Instead of giving billion dollar bailouts and trillion dollar interest free loans to the biggest banks, why doesn't the government give the money directly to consumers? That would immediately increase demand and get this stuck economy going again.” Or they ask, “Why aren't the banks willing to loan to credit-worthy individuals? Why doesn't the government just give the money to those small businesses ready and willing to create new jobs?”
The Objective of Capitalism and Jobs
To answer those questions, it is necessary---as upsetting as that may be---to face certain facts: To begin with, creating jobs is not the primary goal of a Capitalist system. Creating profits for the purpose of Capital accumulation and expansion is the sine qua non and essential function of Capitalism. As former U.S. Secretary of Labor, Robert Reich put it: “Under American-style capitalism, profits matter. Jobs don't.” (12/26/10, San Francisco Chronicle) Back in 1974, the Chairman of General Motors said it best in his NYT article “The Profit System and American Growth.” He reminded Americans that “wages, taxes, dividends” all come from profits. If there are no profits, he said, there is no money for education, health, welfare, no nothing (as the taxes which support these things come out of profits and wages paid by profitable enterprises). What the chairmen of capitalist industries know, but apparently professor Reich does not, is that under any form of Capitalism---American, Chinese, Brazilian, State Capitalism, National Socialist Kapitalism, Social Democratic so-called “Mixed Economy” Capitalism,---profits are what count. Jobs are the means to that end.
Increasing Productivity
Often larger profits can be made by increasing the productivity of workers and upping overall output. When such efforts are not possible or do not result in an increased rate of profit, some Capitalists---especially those who own and control vital resources---can limit real production, thus creating shortages of that essential product. They then raise prices without increasing production and thereby increase the profits for their particular enterprise. (Or, in the case of the US and British oil companies, they can support the creation of a foreign organization like OPEC that will cooperate in restricting output in ways that would be illegal in the US or Great Britain.) This hurts the "bottom-line" or profits of other industries dependent upon the restricted resource; and, therefore, is not a long-run solution for correcting crises in profitability for the Capitalist system as a whole.
Increased Hours and Slashing Wages & Benefits
If profits cannot be increased through new investment in updated labor-saving technology, then those Capitalists who can may increase the hours of their workers, as well as cut their wages and benefits in order to increase company profits. Or they may set up operations in a foreign country where worker's wages are much lower, benefits nonexistent, hours and other conditions relatively unregulated. Note the growing profits made by GM now that new hires get less than ½ the wage earned by veteran workers; company-paid health benefits have been eliminated, and production of cars in China exceeds that of cars produced in the US. “The new workers will be paid hourly wages starting below $15, half of the current UAW average. They also will have a cheaper health care plan and pension” (Reuters, 8/28/07, Krolicki and Bailey). In 2009, with the help of the Obama administration, GM and Chrysler workers were encouraged to give up employer funding of retiree health care benefits in exchange for stock in the company. Under conditions of the bailout, the union is now prohibited from striking over wages or benefits. (“Auto Show Up-date” Reuters, 1/10/11)
"In 2009, with the help of the Obama administration, GM and Chrysler workers were encouraged to give up employer funding of retiree health care benefits in exchange for stock in the company."
Investment Without Production
If after cuts in wages, speed-ups, unpaid overtime, and longer hours, investment in new plant and equipment is still not deemed profitable, then Capitalists will invest their profits in things other than expanding real material production. Besides satisfying their own appetite for increased consumption of luxury goods, they turn to speculation in all forms of financial "instruments" (paper) that result in profits for the "winners" and enormous government bailouts for the so-called losers who are "too big to fail." No expansion of the real economy---i.e., no increased production of material goods, nor additional jobs---results from these high stakes gambling activities.
Consumer Demand and Capital Expansion & Accumulation
Whether at home or abroad, a rate of profit sufficient to attract investment in expanded Capital accumulation is what is necessary for increased Capitalist production in the real economy... the real economy of material production that is also the foundation for all other forms of exploitation and speculation. Increased consumption by exploited wage labor is contrary to the needs of Capitalism during periods of "economic down turns," and particularly during the global economic crisis we are experiencing today. In recent years, American retailers have greatly increased imports of cheap consumer goods—like clothing, shoes, nic nacks, and toys-- from poorer countries where the cost of labor is much lower than in the US. This has taken some of the bite out of declining real wages for workers in the US. However, increasing the labor force in order to produce more "consumer" goods for workers' consumption is not on the agenda, nor is it a rational solution for Capitalism in crisis.
Yet, the myth persists. Bourgeois theorists will insist that consumer demand of the working population is what drives Capitalist production. It is clear that many of these well intentioned spokespersons actually believe what they are saying. (Even though they may also insist, within the same sound bite, that economic growth and stability depends upon "consumers" saving more.) The simple lay person, the professionals concede sympathetically, often finds it difficult to understand complex and contradictory theories of economics. Well, let me share with you one admittedly simple little thought that I often toy with: If a feudal lord were to have told his serf, that the sole purpose of his exploitation was to enable his lord to provide the serf with the material goods necessary to maintain an acceptable level of poverty, the serf would have thought the lord insane. Likewise, if an African slave had been told by the American plantation owner that his enslavement and low standard of living was necessary so that the plantation could produce what the slave needed for survival, she would have thought her master crazy. But for some reason, laborers exploited by Capitalists are suppose to believe that the accumulation of vast resources, enormous factories, state-of-the art ports, refineries, etc., etc., owned by the Capitalists are necessary for, and simply serve the purpose of producing what working people need to survive and maintain an acceptable standard of living. It is all done for us, and it all comes back to us working people. If that sounds absurd to you, maybe the following will more clearly reflect your reality:
Yes, under the Capitalist system of production and distribution, "consumer goods" sufficient for the the employed labor force to survive (at a more or less acceptable standard of living), is necessary. However, Capital expansion and production of real, material "producer goods"--- such as industrial machinery, factories, infrastructure, technology, planes, company limos, corporate cars, trucks, freight trains, ships, docks, commercial ports and transport of all kinds, along with the communications centers, security apparatus, administrative compounds, together with the pipelines, refineries, natural resources, raw materials and fuel to operate this enormous, global empire---make up the larger part of material production and privately-owned accumulated wealth in this nation and globally; and these tremendous means of production are neither consumed by nor owned by the workers who produce them. Under a system of Capitalist production, exploitation of a labor force that produces much more than it consumes is the essential source of real profits. It is production and expansion of the enormous, modern industrial Capitalist empire that is the aim of Capitalism (and all those who identify as successful competitive players in this deadly game), not increased consumption of goods and services for working people. The latter is the necessary "spin-off" so to speak, until those workers themselves are no longer deemed "necessary."
Capitalism's Outcasts
If Capital expansion and accumulation can be periodically accomplished profitably with a smaller workforce, then that is incentive enough for Capitalism to ignore or eliminate, directly or indirectly, the "useless eaters" and the "unproductive" members of society (that is, those who cannot contribute to the profitability of Capitalist production)---like the old, the mentally and physically disabled, and others unemployable1. By 1937, Director of the WPA Harry Hopkins stated that Americans “were bored with the poor, the unemployed and the insecure.” The author of a social science journal article entitled “The Rise of the Outcasts in America” (A. Rockelt, Social Science, Fall 1936, p. 356) concluded that the population of unemployed workers “does not count in the welfare of the whole population... They have no market for their only economic good, their skill and labor...the unemployed constitute a new class in America, and just now they enjoy legal equality with other classes…But with passing of time the line of demarcation will become more definite. People will be born into this class who never will be employed...The unemployed class will become a class of outcasts. There will be no place for them, no real or fictitious social service they can render. The natural thing for society is to ignore this class and abandon it. It will exist as a nonentity; no one will care what becomes of it. Its members will steal and beg and live in squalor like their brothers in India.” (Economics, Politics, and the Age of Inflation, p 139)
"Austerity" for whom?
Today, during the current economic crisis, similar concerns are masked in language of “austerity.” What is austerity and to whom is it to be applied? “In concrete terms, this means reducing public investments, cutting public benefits and rolling back government services.” (See: State of the Dream 2011: Austerity for Whom? By United for a Fair Economy) Congress and the Obama administration are seriously considering decreasing Social Security benefits. As Alexander Cockburn points out (“Making The Rich Happy” 12/24/10), Obama's successful deal with the Republicans on taxes included “$120 billion reduction in Social Security contributions by labor---reducing the rate of contributions to the Social Security pension fund from 6.2% of wages to 4.2%.” This, Cockburn says, is a set up for “an onslaught on Social Security a year down the road as underfunded and going swiftly bankrupt and ready to be auctioned off to Wall Street.”
"Obama's successful deal with the Republicans on taxes included '$120 billion reduction in Social Security contributions by labor---reducing the rate of contributions to the Social Security pension fund from 6.2% of wages to 4.2%'.”
When we include a reported 31 % decline in state revenues for 2009, unfunded retirement pensions, attacks on public unions and demands for salary and benefit reductions for public employees, it is clear that in the name of “austerity” and the cost-cutting deemed necessary by our Capitalist system in crisis, deep cuts in workers' consumption are essential to “economic recovery. Case in point: Andrew Cuomo, governor of New York declared a fiscal crisis, pledged to make New York a “business-friendly state” and, in the same breath, called for a freeze in public sector wages. He is also talking about cutting Medicare and Medicaid. Michael Zweig, economics professor at SUNY Stony Brook, stressed in an interview with Amy Goodman of Democracy Now (1/6/11) that “Medicaid is only for the poor, but if you cut those expenses for the poor, they're still going to show up in the hospital...unless they are going to let them die on the street in front of the hospital, which we don't want.” Of course not.
State Bankruptcy, Union Contracts and Social Programs
In the same interview, contributing editor at Washington Monthly, Art Levine, predicts “there's likely to be legislation at a federal level allowing states to declare bankruptcy. And if they did declare bankruptcy...they could rewrite all the union contracts. And that would be part of another way of going after unions.” (“Crackdown on Organized Labor” Democracynow.org 1/6/11) Across the nation, Governors, desperate to attract profit-seeking companies to their states, are stating their intent to take away the workers' right to bargain, to binding arbitration, and the right to strike, while insuring that “no worker should be forced to join a union.” Got it? The rate of profit ueber alles...without which there ain't nothing else. We have witnessed today (as throughout history) the standard methods of increasing productivity in pursuit of profits without increasing consumption or improving the standard of living of working people. Most economists now are in agreement that the average wage of the American worker has not increased in real value since 1970. During the same time period, American manufacturers have gone abroad in search of better rates of profit, and major American industries like steel and auto manufacturing plants have been closed and abandoned. During times like these, the most common Capitalist remedies to falling rates of profit include:
"Most economists now are in agreement that the average wage of the American worker has not increased in real value since 1970."
- demanding employees work longer hours for the same or less pay;
- raising prices without increasing production so that the value of real wages fall, workers' are forced to consume less, and the portion of value produced that goes to the Capitalist in form of profits increases;
- requiring increased involvement of the federal government in the process of redistributing value and resources away from the "consumer" and into the bank accounts of Capitalists.
Social programs are cut, money is made available to Capitalists at 0% interest rates (while those on fixed incomes get just about 0% interest on their retirement and savings accounts ); and public services are discontinued or privatized as for-profit programs. Witness the $500 billion cut in
government funding of Medicare Advantage HMO programs. These HMO programs---the most popular Medicare programs among low-income elderly---were determined to be the most economically efficient and least costly of all the Medicare programs ( less costly than original Medicare) according to the 2009 and 2010 Report to Congress on Medicare Spending. Nevertheless, private insurance CEO's agreed to Obama's huge cut in these programs, in exchange for a much more lucrative scheme forcing all "consumers" to purchase private, for-profit, health insurance plans. (See my articles “A Who Done It: The Medicare Murder Mystery” and “The Real Medicare: Scapegoating Seniors”)
"Private insurance CEO's agreed to Obama's huge cut in these programs, in exchange for a much more lucrative scheme forcing all "consumers" to purchase private, for-profit, health insurance plans."
Where Goes the Bailout Money?
Yes, making available trillions of dollars to banks for “interest free” lending to large Capitalist corporations while allowing the foreclosure on home mortgages held by poor and middle class workers, is just one more example of how the government facilitates cuts in workers' consumption while increasing the Capitalists' piece of the pie--- all in the name of getting the economy going again. Nota Bene: It is not working this time.
The stockpiled banking and manufacturing trillions are not going into increased production and more jobs. The Obama administration complains that the banks are not making loans, and big manufacturers--- rather than invest in expanded production and employment---are just sitting on top of billions in record profits. No, they are not! Guess what they are doing with it...again. (Hint: Can you sing "I'm forever blowing bubbles, pretty bubbles in the air.")
Inflation: A Tool For Lowering Wages
John Maynard Keynes, the sweetheart of the liberal left, made it crystal clear that the use of inflation is a much better economic tool for lowering workers real wages and consumption than direct wage cuts by employers. He explained that angry workers could be a threat to individual Capitalists, whereas employing workers in government-funded industries and projects that did not produce consumer goods would cause generalized inflation, but make it hard for workers to know whom to blame for the diminished value of their wages, their declining standard of living and lower consumption. Government transferring labor and material into war production, while rationing consumer goods for working people, was greatly facilitated in the 1930's by nationalist propaganda finally justifying the US entry into WWII and requisite patriotic sacrifices.
Capital and Capitalist Production Reorganized in Times of War
What a magnificent booty was gained from America's participation in that fight for democracy and freedom overseas! And the Depression ended! The usual manner of correcting serious economic depressions is through wide-spread unemployment that lowers wages, causes bankruptcies of the less competitive companies, and facilitates the take over of devalued plant and equipment by larger corporations. This reorganization of Capitalist production on the basis of cheaper labor and cheaper materials all around, allows the surviving, enlarged and more "efficient" Capitalists to renew production at rates of profit, productivity and growth in employment even greater than before the downward dive in the "business cycle." Prior to "the war effort," this usual process was underway but had not gotten the economy going again.
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During the next two years, millions more workers lost their jobs as manufacturing production dropped sharply. Steel production(138) fell from 80 % capacity in 1935 to 19% in l937. It took US entry into WWII to turn the economy around.
The riches plundered in times of war---the take over and reorganization of conquered nations' entire material wealth, equipment, cheap labor, factories, and infrastructure---are vastly more profitable than is the process of domestic bankruptcies and economic rebuilding at home. Keynes knew this. Roosevelt (whom Keynes complained did not understand anything he told him) did not have to be told this. As FDR said, the model he followed had already been proven effective in Communist Russia, Fascist Italy, and Nazi Germany under those “command economies.”
For particular US Capitalists the prewar years had also been particularly profitable. During the 1930's and prior to US entry into WWII, American corporations largely increased production in Nazi Germany. Coca-Cola2, GM, Ford, Standard Oil of NJ/Exxon, Du Pont, Union Carbide, Westinghouse, General Electric, Goodrich, Stinger, Eastman Kodak, IBM, and ITT, and several other Capitalist enterprises expanded their operations in Germany becoming extremely profitable “thanks to the economic boom caused by Hitler's rearmament program.” Other US corporations “invested hundreds of millions of dollars in fascist Italy...American law firms, investment companies, and banks were also actively and profitably involved in America's investment offensive in fascist countries, among them the banks J. P. Morgan and Dillon,Read and Company, as well as the renowned Wall Street law firm Sullivan & Cromwell.”(The Myth of the Good War, p. 32)
"For particular US Capitalists the prewar years had also been particularly profitable. During the 1930's and prior to US entry into WWII, American corporations largely increased production in Nazi Germany."
War in Europe and England provided new opportunities for Capitalists at home in the USA to profit through production and sale of armaments and military equipment for the waring nations. Programs FDR set up to finance the purchase of American weapons and ammunition by the cash-strapped British “provided London with virtually unlimited credits.” In fact, American workers paid off much of the resulting accumulated national debt by means of direct and indirect regressive taxes such as the ”Victory Tax.” Again, the Capitalists pulled in huge “publicly financed” profits, while low-income workers paid the price through reduction of their personal consumption (remember “Oleo” and “Spam”), and reduction of their war-taxed real income. (The Myth of the Good War, p. 54-55)
What Keynes and Roosevelt could not have anticipated is the enormity of the current global depression . This time around, government-assisted attempts at redistribution of wealth, resources and cheaper labor does not appear to be adequate to the task of increasing U.S. Capitalists profitability sufficiently to encourage investment in the expansion of real material production domestically, and certainly not sufficient to attract private investment in overhauling existing, antiquated means of production. Waging wars this time has not provided a solution, although the economy is now dependent upon production and marketing of weapons, military equipment and related technology.
The Great Recession of 2007 - ?
A recent Bureau of Labor Statistics Bulletin states:
“The U.S. auto industry has been severely affected by the recession that began in December 2007... While the domestic automakers remain a critical part of the industry, motor vehicle and parts manufacturing is increasingly a global industry, with 'domestic' vehicles produced using parts manufactured around the world and many 'foreign' firms producing on U.S. soil.”
And The Puget Sound Business Journal (12/28/2010) predicts that any increases in US factory production in general will not result in a similar increase in jobs, “as companies increase their productivity to stay competitive.” For example:
“Aerospace suppliers are gearing up for Boeing’s plans to increase 737 and 777 production lines in the next two to three years, creating demand for skilled workers. But local manufacturers may not need as many new workers as before because of automation, 'lean production' techniques and outsourcing of less complicated work.”
You see, productivity gains come not just from each worker producing more “widgets,” but also from fewer workers producing more widgets at “leaner” labor costs and consequently higher profits for the manufacturer. No profits, no productivity. None that is recognized or valued by Capitalism, anyway.
China and India with large numbers of displaced peasants and an abundance of poorly paid labor may be able to increase profitability sufficiently to initiate the larger Capital goods production necessary to dominate the global economy, and set off yet another round of expanded global competition, depressions and war. A more likely scenario---given the authoritarian methods increasingly used throughout the world in an attempt to control all real and imagined forms of threat to those who had fancied themselves in control of global Capitalism---would be a world-wide economic collapse that could give birth to new forms of barbarism beyond what we have known in Fascist and Nazi attempts to overcome economic collapse. Get your wheel barrels ready.3
Responding to the Crises
Our solution is not to give up on demanding an end to the wars, or more jobs with good wages and benefits, universal health care, the preservation of social security, continued funding of public schools, or respect for civil rights and human rights. But our solution must address the larger context within which all these individual issues and concerns exist. For instance, when we work to "Stop Global Warming," we need to acknowledge that business and industry, by their own accounting, use over 80% of the energy sources that are polluting the atmosphere. A UN study from early 2010 revealed that “the world's largest corporations are responsible for over $2.2 trillion in environmental damage...companies would have to divert one-third of their profits to pay for the environmental damage they've caused.” (Democracynow.org 2/19/10) And the military is the biggest polluter of all. (Must Read: “US Department of Defense if the Worst Polluter on the Planet.” by Project Censored, 2010).
"For those who benefit the most from our militarized economy, increasing profits and maintaining their positions of power are more meaningful than survival of the planet and the human race."
Capitalist industries and the military are fighting globally to protect the profitability of the system that benefits and empowers them. That system is suffering a global depression. The battle to sustain it leaves no room or resources for reorganizing Capitalist production to meet the needs of sound ecological production, let alone to provide for a better standard of living and increased consumption for working people. For those who benefit the most from our militarized economy, increasing profits and maintaining their positions of power are more meaningful than survival of the planet and the human race.
Notes
- The initiation of the Third Reich plan for exterminating unproductive consumers (“useless eaters”) was carried out sometime before the Communists, "Marxists," dissidents, and "Jews," became the expressly targeted victims of Nazi concentration camps, gas chambers and incinerators. Nazi’s began using euthanasia first with ill and deformed German babies, then with the mentally and physically disabled, and hospitalized elderly. With these populations they also began developing gas chambers (“showers”) and incinerations techniques at six killing centers and hospitals in Germany. Susan Campbell Bartoleti, in her book Hitler Youth: Growing up in Hitler’s Shadow, described patients being delivered several times a day by the bus loads to one such disposal site.
The children, she says, used to chant “Here come some more to be gassed.” And the local residents complained of a stench so nauseating it was impossible to eat dinner. Their complaints were met with threats of arrest and an invitation to join the aged and disabled bused into their towns. (Hitler Youth, pp 94 - 97) However, this concern for eliminating those who could not be profitably exploited preceded the times of Hitler. Robert Evans remarks that long before Hitler, and “well before the end of the Weimar Republic, experts had seized the opportunity afforded by the financial crisis to argue the best way to reduce the impossible burden of welfare on the economy was to prevent the underclass from reproducing, by subjecting them to forcible sterilization. Before many years had passed, there would thus be fewer indigent families to support. Before long, too, the numbers of alcoholics, 'work-shy', mentally handicapped, criminally inclined and physically disabled people in Germany would be drastically reduced—on the dubious assumption, of course, that all these conditions were overwhelmingly hereditary in nature--and the welfare state would be able to direct its dwindling resources on the deserving poor.” (The Coming of the Third Reich, p 377)
- “Coca-Cola's German subsidiary, for example, increased its sales from 243,000 cases in 1934 to 4.5 million cases by 1939. This success had a lot to do with the fact that, as the Hitler-admiring and -imitating national manager Max Keith explained, the caffeinated soft drink revealed itself to be a functional alternative to beer as a refreshment for Germany's workers, who were being driven 'to work harder [and] faster.' In Hitler's Third Reich, where labour unions and working-class political parties had been banned, the workers ‘were little more than serfs forbidden not only to strike, but to change jobs,’ and their wages ‘were deliberately set quite low.’” Hence the higher profits in general for all American capitalists in Germany. IBM's hugely profitable German subsidiary supplied the Nazi's with the new technology necessary to automate production as well as to identify and track Jews (The Myth of the Good War, pp 30 – 31). Another source of cheap labor was the full-time compulsory “muscle-tearing hard work” performed by German high school boys and girls serving as slave labor in factories and farms for 6 month to a year. However, these children were also subject to what the US Military today calls “stop-loss,” that is, the arbitrary extension of their service whenever necessary. (Hitler Youth, pp 62 -66).
- After WWI, Germans were reported to wander streets pushing wheel barrels filled with worthless Reich currency in attempt to purchase a loaf of bread.
Recommended Reading:
Economics, Politics, and the Age of Inflation, by Paul Mattick (1978)
Fascism and Big Business, by Daniel Guerin (1973)
The Coming of the Third Reich, by Richard J. Evans (2003)
The Myth of the Good War, by Jacques R. Pauwels (2002)
Mary Lynn Cramer, MA, MSW, LICSW has degrees in the history of economic thought and clinical social work , as well as over two decades of experience as a bilingual clinical social worker. For the past five years, she has been deeply involved in “economic field research” among elderly women and men dependent upon social security, Medicare, and food stamps, living in subsidized housing projects. She can be reached at: mllynn2@yahoo.com
(Shorter versions of article, revised, and expanded for Axis of Logic, have appeared on Counterpunch and Counter Currents.)