First published in News & Letters, December 1992, p. 9.

Political crises reflect the general absolute law of capitalist production differently in different historic periods. Thus, the Great Depression ... proved to the capitalists that they cannot get out of economic crisis unless they couple production with employment .... Today modern, profit-hungry capitalists, both private and state, think they can do the exact opposite–that is, ‘uncouple’ employment from production.
– Raya Dunayevskayai

In consequence of the collapse of ‘Communism’ and the global shift toward privatisation and the ‘free market’, bourgeois pundits have proclaimed the end of history, the victory of ‘human nature’ over Marxists’ failed utopian experimentation. Many on the Left have concluded that these changes, together with today’s unprecedented internationalisation of capital, have led to what M. C. Howard and J. E. King call the ‘decline in the economic role of the state’. Though once sympathetic to the concept of state capitalism, these authors consider it no longer relevant, as if we were in the midst of a return to competitive, laissez -faire capitalism. ii

There can be no denying that momentous changes have taken place in the world political economy. Yet a Marxist-Humanist analysis of these changes cannot start from the contrast of forms of property or distribution or relations among capitals, but must explore the historical development of the relation of rulers to the ruled, the two worlds within each country.

Inferno of state restructuring
Clearly the state’s role as direct producer and owner in many countries has ended for now, and deregulation in the West represents a lessening of one particular form of state intervention. Yet such changes are part and parcel of a heightened role for the state in ‘restructuring’ the various national economies and, as the rebellious masses of Los Angeles can testify, Reaganism’s smashing of the welfare state goes hand-in-hand with greater state military repression.

Throughout the world, ostensibly ‘free market’ aims coexist with state interventionist methods. Commenting on the drastic austerity measures instituted by the now discredited Collor government in Brazil in order to establish ‘free market’ reform, ex-central bank president Carlos Langoni said: ‘The great paradox is that to get to the free-market paradise, we have to go through the inferno of more intervention, more control and more bureaucracy’.iii For apologists for the International Monetary Fund (IMF) such as Naomi Chazan, the fundamental ‘democratic’ challenge facing Africa ‘is how to streamline the state without diminishing its control’.iv

Similarly, the ‘free market’ reforms introduced in Chile in the 1970s by Pinochet’s fascist regime are now regarded as a model, not only by most of Latin America’s rulers, but also by Russia’s Yeltsin and China’s Deng. Indeed, 95% of Yeltsin’s ‘reforms’ have been imposed by means of his ‘emergency powers’, without even the consent of Parliament. And at the same time as Italy’s ‘Socialist’ Prime Minister Amato proposed sweeping privatisation (and austerity) measures, he too asked for emergency powers to impose them–to which the response was the most massive protest of rank-and-file Italian workers in two decades.

To comprehend why the unity of these two opposites, privatisation and heightened state intervention, is taking place, it is helpful to recall Marx’s analysis of the ‘so-called primitive accumulation’ of capital. Protracted and often bloody institutional change was first needed before the ‘self-regulating’ tendencies of the capitalist system could come into play. In his chapter in Capital on ‘Bloody Legislation Against the Expropriated’ Marx wrote:

The silent compulsion of economic relations sets the seal on the domination of the capitalist over the worker. Direct extra-economic force is still of course used, but only in exceptional cases. In the ordinary run of things, the worker can be left to the ‘natural laws of production’ …. It is otherwise during the historical genesis of capitalist production. The rising bourgeoisie needs the power of the state, and uses it to ‘regulate’ wages, … to lengthen the working day, and to keep the worker himself at his normal level of dependence.’v

Does not the present moment of global economic crisis constitute an ‘exceptional case’ of the sort to which Marx referred, in which the overt compulsion of the state is needed to restructure the institutional framework so that the silent compulsion of ‘free market’ unemployment and austerity can then function? East European economists implicitly confirm this view, conceding that mainstream Western economic theory offers little guidance in the transition to market economies because its models tacitly assume the existence of the institutional structures needed for markets to function.

Changed appearance of crisis
As Gorbachev admitted in 1985, Russia was not exempt from the economic crisis–especially the slowdown in growth and productivity–which has plagued the Western world (and Japan) for the last two decades. Recognition of the severity and breadth of the global crisis has nonetheless been slow in coming, largely because it differs greatly, in form, from the Great Depression of the 1930s which has served as the common paradigm of economic crisis. One key reason for the changed appearance of crisis is the unprecedented global integration of the capitalist economy.

In one sense, crisis always appears to be due to lack of effective demand. That appearance was the primary one in the 1930s, given the fairly closed economies then in existence. In today's increasingly global economy, in contrast, the crisis typically appears to be due to foreign competition. Whereas in a closed economy, to capitalists experience a slump in business as a failure of consumers to buy, in an open economy, they experience it to a much greater extent as the purchase of foreign as against domestically produced goods.

Hence, while state planners who attempted to save capitalism in the 1930s implemented ‘Keynesian’ policies–promoting employment and consequently stimulating incomes and effective demand–even neo-Keynesian economists now widely concede that such domestic ‘demand-management’ policies are largely ineffective in a global economy. Thus, the changed appearance of crisis helps dictate a changed strategy on the part of state-capitalist planners and corporate managers to overcome it: enhance international ‘competitiveness’ by lowering costs and raising ‘productivity’. (The role of imperialist intervention, which helps secure favorable ‘terms of trade’, is also far from unimportant.)

Obtaining cost reductions (in the capitalist sense) largely depends on lowering wages and benefits. Increases in ‘productivity’ are either gained by intensifying labour, or they are increases in productivity in the proper sense, gained largely by mechanising, automating and robotising production. Lower pay and greater productivity both depend greatly on the ability of capital to weaken workers’ power. In the U. S. and Britain, for instance, this has been accomplished largely through greater unemployment; union-busting, sometimes government-initiated; runaway shops and threats to run away; divide-and-conquer strategies based on race, gender, nationality, etc.; reductions in the ‘social wage’ that increase the hardship of unemployment; and, lastly, laissez-faire ideology that legitimises the above as iron necessity and/or means to future prosperity.

The increase in unemployment and decline in median living conditions in most of Eastern Europe are undisputed. There is not yet widespread unemployment in Russia, though living conditions have declined severely. Consumer prices rose between 3½-fold and 7-fold in January and February of this year, while the minimum wage and pensions only doubled, pushing 85% to 90% of the population below the poverty line.

Not all such changes are intentional. It is, however, worth noting that, in Eastern Europe and Russia, the IMF and the World Bank are making new credits and grants. They are restructuring existing debts (dependent on the elimination of subsidised goods and services), revoking guarantees of employment, reducing social service spending and privatising industry in a manner that will not give significant ownership (much less control) to workers. Similar conditions have of course been imposed on much of the Third World in the past decade.

A serious global shortage of capital (surplus value) does exist, placing severe limits on spending for human needs. Yet the decline in living conditions and the deterioration of working conditions has not resulted automatically from a slowdown in economic growth or productivity. The imposition of austerity and unemployment–‘restructuring’–has been, and is, critical to the survival of each national capital, especially those devastated by crisis. ‘Free markets’ and privatisation are the primary ideological and distributive forms under which austerity is currently being imposed, though it has also taken the form of ‘four modernisations’ in China and ‘perestroika’ under Gorbachev. Rather than constituting evidence of a ‘new world order’, the imposition of restructuring is a desperate expression of, and response to, an unending worldwide crisis.

Despite the rhetoric of privatisation and ‘free markets’, unemployment and austerity have been imposed in the West largely, and in the East almost completely, by the one power capable of exercising the violence needed to enforce them: the state.vi Just as the emergence of the monopoly stage of capitalism appeared as its opposite, the dispersion of legal ownership among large numbers of shareholders, so today, privatisation and ‘free markets’ are forms of appearance of their opposite, the state’s increased involvement in the restructuring and maintenance of the capitalist system.vii

Permanence of the state & revolt
Viewed in light of the law of value as Marx analysed it in Capital, the current strategies aimed at enhancing ‘competitiveness’ and productivity can be seen to have a certain, though strictly limited, validity. While all new value and surplus value is only new ‘congealed’ labour extracted out of the labour force, individual capitals and capitalist nations appropriate new value not only by extracting it from their own workers but also by means of competitive redistribution.viii The more productive capitals appropriate more social value and surplus value than the individual value and surplus value they extract, and conversely for the less productive.

To the extent that they catch up, however, such superprofit is eliminated: this process only redistributes the substance of value. Apart from its secondary effect in lowering the value of wages, greater productivity neither generates additional profit nor raises the rate of profit for capital on a world scale. The same amount of abstract labour is merely spread among a greater number of articles. Moreover, the mechanisation of production that is largely responsible for greater labour productivity produces a tendency for the rate of profit, the ‘self-expansion of capital’, to decline, as value-transferring means of production are substituted for value-creating living labour.

Hence, the quest for global ‘competitiveness’ restricts capital’s ability to give greater employment to labour, while failure to do so restricts capital’s ability to grow. Under such conditions, any renewal of profitability depends largely on increasing surplus value at the expense of variable capital (living labour, wages). Austerity is consequently not a temporary way-station on the road to ‘free market’ prosperity, but the future of the continuing global economic crisis.

In his analysis of the Paris Commune, Marx concluded that the development of capitalist production and the class antagonisms it engendered had impelled the development of the state as the ‘national power of capital over labour … an engine of class despotism’.ix Raya Dunayevskaya’s state-capitalist theory was unique in that it did not focus on the particularities of Russia’s property forms or ‘planning’. Rather in continuity with Marx’s perspective, she theorised that capitalism’s tendencies and class antagonisms had developed to such an extent that by the Great Depression that, though property forms varies, the state had throughout the world assumed the permanent role as the ‘national power of capital over labour’.

This ‘economic role of the state’ is surely not now in decline. If, moreover, the above analysis is correct, then we should not expect the heavy hand of state intervention to wither away, or laissez-faire capitalism to return, after a period of ‘shock therapy’. Not only is the future of ‘free market’ restructuring very uncertain at this moment but, if it results in a continuation and deepening of unemployment and austerity, both repressive state intervention and revolts from below will certainly intensify.

i Raya Dunayevskaya, The Marxist-Humanist Theory of State-Capitalism (Chicago: News and Letters, 1992), p. 149.
ii M. C. Howard and J. E. King, A History of Marxian Economics, Vol. II, 1929-1990 (Princeton: Princeton Univ. Press, 1992), p. 388.
iii Quoted in New York Times, May 20, 1990, p. A12.
iv Naomi Chazan, ‘Africa’s Democratic Challenge’, World Policy Journal, Spring 1992, p. 302, emphasis added.
v Karl Marx, Capital, Vol.I (New York: Vintage, 1977) pp. 899-900.
vi This is in no way meant to imply the agents of a nation-state act in their own particular interests, in independence from demands of imperialist powers and their institutions such as the IMF and World Bank.
vii ‘Essence must appear, and the form of its appearance reveals not only the inherent contradiction but the historical origin and development’. Raya Dunayevskaya, op. cit., p.90
viii Karl Marx, Capital, Vol. III (New York: Vintage, 1981), pp. 281ff.
ix Karl Marx, ‘The Civil War in France’, Collected Works, Vol. 22 (New York: International Publishers, 1986), p.329.