Seventeen Contradictions and the End of Capitalism (26 page)

Why these general global trends? Has there been something going on within the contradictory evolution of capital that would make them inevitable, or even necessary for the survival and reproduction of capital? Do increasingly lopsided wealth and income distributions within so many countries signal the existence of a moving contradiction and, if so, what sort of movement is it (for example, cyclical or linear)? Does this movement account for rising levels of unrest and social instability (as witnessed in 2013 from Stockholm to Istanbul and a hundred or so cities in Brazil)? Is it a harbinger of a grumbling and still unfolding macroeconomic crisis?

To answer these questions requires first that we establish how inequality is foundational for capital. The inequality derives from the simple fact that capital is socially and historically constructed as a class in dominance over labour. The distribution of income and of
wealth between capital and labour has to be lopsided if capital is to be reproduced. Distributional equality and capital are incompatible. Certain distributional disparities actually precede the rise of capital. Workers must be dispossessed of ownership and control over their own means of production if they are to be forced into wage labour in order to live. This distributional condition precedes the production of surplus value and it must be maintained over time. Once capital circulation and accumulation become general, the wage level has to be kept within limits that permit profit making. Any drive to maximise profits means driving down wage rates or increasing labour productivity. Fierce competition between capitals leads to a general reduction in wages no matter whether individual capitalists will it or not. The distributional share between wages and profits is a product of some mix of labour scarcities and the state of class struggle. The resultant configuration is geographically uneven.

A sufficient share of the total output of social value must flow to the capitalist class to (a) incentivise the capitalists by showering them with conditions of consumption worthy of some leisure class and (b) provide them with sufficient surplus to keep the economic engine of capital working and expanding powerfully and smoothly. The ‘Faustian dilemma’ that lurks within the breast of every capitalist between personal enjoyment and reinvestment can be resolved only with considerable surplus generation and appropriation. A disproportionate amount of the surplus must always flow to capital at the expense of labour. This is the only way for capital to be reproduced.

The superior economic resources that accrue to capital allow it and it alone to invest and create jobs in a purely capitalist economy. This provides the right-wing rationale for public policies (taxation arrangements in particular) that favour capital over labour. While the uneven income distribution may appear unfair, it is said, it actually is advantageous to labour because capital is in command of job creation and the more the capitalist class possesses the more job creation there will be. Unfortunately, this is not the whole story. Capital reinvests in job creation only when that activity is profitable. The last three recessions in the United States have been followed by
jobless recoveries because profitable opportunities were lacking even though wage rates were falling and labour surpluses were everywhere in evidence. Capital either ‘warehoused’ its cash or used its surplus incomes for speculative gains on the stock market, in property, in asset purchases (resources and land in particular) or in playing a casino game with new and unstable financial instruments. If it invested in production at all, it was more likely to invest in labour-saving technologies that increased unemployment rather than in job creation.

Meanwhile, the increasing concentration and centralisation of incomes and wealth within a capitalist class permitted it to exercise disproportionate influence and control over the media (public opinion) and the capitalist state apparatus. Capital procured privileged access to protection by a state which claims a monopoly over the legitimate use of violence and a monopoly over the means of money creation. It uses these privileges to protect its interests and perpetuate its power. Central banks always bail out banks but they never bail out the people. This is what the drift towards the formation of a global plutocracy and the incredible increases in the disparity of wealth and income in most countries around the world signal.

On the other side of the class divide, the neediness of workers accounts for very little or nothing as far as capital is concerned, except when the total aggregate demand exercised by workers is insufficient for the realisation of capital accumulation in the market. Capital is most immediately interested in keeping wage rates as low as possible. This defines a central contradiction, as we earlier saw, between realisation and production. The capitalist ability to manage the wage rate rests upon the availability of an ‘industrial reserve army’ of surplus workers. The function of this reserve is to supply the labour power required for future expansion of capital while acting as a dead weight upon the aspirations of those already employed as they struggle to improve rates of remuneration and working conditions. The industrial reserve army is of two sorts. First, there are the unemployed workers. Technological changes that enhance labour productivity produce layoffs and unemployment. Capital thus acquires
considerable power over the supply of surplus labour at the same time as it manages its own level of demand. In other words, capital is committed as much to the production of unemployment as it is to job creation. Providing tax incentives to capital to reinvest can just as easily lead to the elimination of jobs as to their creation (a fact that is rarely mentioned in political discussions on the subject even though it is as plain as a pikestaff to any worker who has been laid off for technological reasons).

Second, there were and still are latent reserves in the form of extensive peasant populations, the self-employed, women and children who have yet to be subjected to wage labour. The recent vast increase of wage labour in China has entailed a transformation of this kind. Africa still constitutes a vast potential reserve of labour that has yet to be mobilised. Much of the growth that has occurred in the BRIC countries and elsewhere has entailed a mobilisation of this latent reserve. In the advanced capitalist countries the mobilisation of women into the labour force earlier performed an analogous function even as the pool of surplus rural labour was early on drained dry. This latent reserve is not necessarily available in situ. From the 1960s onwards, the Germans turned to Turkey, the French to the Maghreb, the Swedes to the former Yugoslavia, the British to their former Empire and the USA to Mexico for immigrant labour. When a rising anti-immigrant fervour among the working classes grabbed hold, capital migrated to the Mexican
maquilas
, the Chinese and Bangladeshi factories, in a mass movement to wherever surplus labour was to be had. Even when capital does not migrate, the very threat that it might do so often serves to keep labour quiescent in its demands.

The intricate details of this need not detain us. All that matters is that we clearly register by what general means capital can keep the distributive share of labour in check and can manage it, even in the face of strong currents of organised opposition and the danger of triggering a realisation crisis by stifling workers’ effective demand. That it has done so over the last forty years by some mix of labour-saving technological changes and an alleatory globalisation is
obvious even as conditions of fiercer international competition have put downward pressures upon profit rates in spite of rising rates of exploitation of labour power. The net effect has been a global trend towards the reduction in the share of labour in the social product. This is what underpins increasing disparities in the individual distribution of wealth and income almost everywhere we look.

There is, however, another piece of the puzzle that has to be put in place. The obvious advantage that capital derives from the presence of a vast reserve of surplus labour poses the problem of how does the reserve population live when it is unemployed? In the case of latent reserves, this problem is often dealt with by what is called ‘partial proletarianisation’. Where labour reserves are drawn from rural regions, then workers can return to their rural base when thrown out of work and eke out a living there as they have always traditionally done. Much of the cost of reproduction and child rearing is also borne in the rural areas on the basis of remittances sent home by urban workers. This has been true of China, for example. It also applies to migrant (particularly undocumented) workers in the USA who return to Mexico, where they were born, when they are laid off or get sick (from excessive exposure to pesticides, for example). But, obviously, this does not work when whole families migrate into the city and cut their rural ties. Informal economies spring up (including those that entail criminal activities) to sustain life on marginal terms in low-cost accommodation in shacks, shanty towns and favelas. The unemployed eke out a living however they can in the urban slums. What this does, of course, is to define a way and standard of life and, even more importantly for capital, a cost of living that defines a lower bound for wage levels in the formal sector. That lower bound can be approached to the degree that workers can easily be recruited from the surplus that survives in the informal sector.

In the advanced capitalist countries this lower bound to wage levels is fixed by the level of social welfare and unemployment insurance established out of a long history of class struggle. This has led right-wing theorists to argue that unemployment arises because the standard of living available to the unemployed is too generous.
The best way to attack unemployment is to reduce unemployment benefits! Employers who cannot profitably produce because wage levels are too high will then increase employment opportunities at these lower wage levels. There is some evidence that something like this can indeed happen. The problem, of course, is that wage levels throughout the whole labour force diminish without necessarily generating much new employment, thus contributing to the rising rate of exploitation of labour and, other things being equal, higher profits for capital and widening income disparities. This was one of the effects of President Clinton’s reform of the welfare system in the United States and the introduction of ‘workfare’ requirements in 1995. The far more punitive conditions of welfare for the unemployed end up, of course, increasing the vast pool of poverty-ridden unemployed who cannot find a job because none are being generated in the face of the twin forces of globalisation (and competition with massive latent reserves) and labour-saving technological changes. Clinton has been handsomely rewarded since by business organisations, earning some $17 million in 2012 from speaker’s fees mainly from business groups.

The neoliberal approach to labour force management takes this tack. It comprises a broad offensive against all those institutions – such as trade unions and socialist political parties – that had for long struggled to protect labour from the worst impacts of periodic bouts of widespread unemployment. The conditions prevailing within the labour reserve have, as a consequence, deteriorated markedly since the 1980s for political and strategic reasons. Capital in effect has been deepening income inequalities and poverty in order to sustain itself.

This story is a gross oversimplification, but it provides a neat illustration of how the contradictory unity of production and realisation has been manifest historically through the cyclical movement in income disparities from relatively narrow to explosively expansive. It was also paralleled by shifts in economic orthodoxy. Keynesian demand management dominated economic thinking in the 1960s, as we earlier remarked, whereas monetarist supply-side theories came to dominate after 1980 or so.

This brings us back to the question of what level of social inequality is acceptable and desirable within capitalism. Complete economic egalitarianism is plainly impossible, in contrast to liberal political theory, which advocates (in theory) for equality in political, legal and citizenship rights. The separation between economic and political rights is palpable. But at what point does the contradiction between the production of wealth and poverty here identified as foundational for capital sharpen and become the locus of crisis formation? There are two ways in which crises might be produced.

Chronic inequalities produce imbalances between production and realisation. The lack of effective demand among the masses slows down or blocks the easy circulation of capital. The politics of austerity, widely being applied throughout much of the capitalist world in recent times, reduces effective demand and hinders the creation of profit opportunities. This explains the current situation in the USA, where business profits have been at an all-time high, while reinvestment has been weak. The second way is for unacceptable levels of inequality to fuel social discontent and revolutionary movements. This threat is not confined to situations of absolute deprivation. It can arise out of relative deprivation, particularly when that deprivation is tied to the inferior economic condition of some specific religious, ethnic, gendered or racial group. The labour unrest and the urban uprisings of the 1960s in the United States were of this sort. The social unrest in Brazil in 2013 arose at a time of modest reductions in inequality and could partially be attributed to rising expectations among hitherto marginalised populations and the failure of public services and facilities to keep up with their demands.

None of this explains the astonishing concentrations of wealth among an emergent global plutocracy at the top of the income distribution. But there is a structural explanation for this and it pivots around the rising role of merchant, media and financial capital. Rapidly evolving information technologies and space–time revolutions in communications have revolutionised the possibilities for the geographical mobility of money capital in particular. The emphasis within capital has shifted as a result towards global financialisation.
The dynamic shifts occurring across several of capital’s contradictions have in effect interacted in such a way as to widen disparities in income and wealth via this financialisation. Let me elaborate.