The Diminishing Rate of Profit
As capitalism matures, the rate of profit from a given unit of labour diminishes. That is, it becomes more difficult to squeeze a dime of profit from an hour of labour. To make matters worse, global competition has rendered the old formula where firms were subsided by the state to pay decent wages, dead. Workers are now competing with the most oppressive terms of exploitation on the planet. The old (so called) 'American dream' is finished. It's time to wake up.
Individual firms are under constant strain from two sources; competition from other firms and ongoing costs such as maintaining payment of wages to employees.
Firms aim to increase productivity as much as possible. This is accomplished through improving technology and through squeezing as much work from a worker as is manageable. It is in their interests to get workers to work as hard as possible for as little pay as possible. On both counts, they are doing very well.
It is vital to out-compete other firms; to drive costs down. This allows the firm to lower prices. Efficiency and low prices are the objective. Profit is the goal.
Large scale production has become impressive in its efficiency. To lower costs firms utilize lateral acquisition of resources that are required goods and services that go into production or, they contract out to sources that will fetch the product at lower prices than anyone else. Generally speaking, the pressure to cut costs also cuts the rate of profit.
Suppose the rate of profit were to remain constant. In that case profit would expand according to what was invested in stocks. If the rate is falling however, profit is naturally more difficult to achieve. And when this occurs, the incentive to invest in manufacturing diminishes. As investing in stocks grows more risky, the growth of capital in stocks falls. The rot of the integrity of the value of liquid capital spreads. Capital itself loses its integrity and value. And as long as they depend on worker's wages to pay the bills when in reality they can't, the crisis related to the value of money is magnified.
Additionally, the ensuing lack of wages results in not only lack of demand but in an evaporation of the tax base. Workers that depend on the tax base such as civil servants and teachers are thrown out of work as a result, further eroding the diminishing tax base. This exacerbates the problem by driving down demand for goods and services which in turn forces more firms out of business and workers onto the streets. We are entering an economic black hole, a period of crisis.
This crisis is fundamentally different than cyclical fluctuations (recessions) which may be remedied in various ways such as investing in public works with tax dollars and borrowing until the ship is righted again. Similar crisis occurred in the periods 1873 to 1893 and from 1929 to 1941.
In its heyday, the capitalist system saw increased real wages in western economies. From 1947 to 1967 real wages grew in the United States by approximately 50%. Unemployment was not an issue and deficits were miniscule. The so-called Western world was the base of manufacturing and consumption. But, as Professor Ismael Hossein-Zadeh points out in a recent article: "By the late 1960s and early 1970s ... both US capital and labor were no longer unrivaled in global markets. Furthermore, during the long cycle of the immediate post-war expansion US manufacturers had invested so much in fixed capital, or capacity building, that by the late 1960s their profit rates had begun to decline as the capital-labor ratio of their operations had become too high. In other words, the enormous amounts of the so-called “sunk costs,” mainly in the form of fixed capital, or plant and equipment, had significantly eroded their profit rates."
As the rate of capital accumulation decelerates, and capital, like a shark, needs to continually eat and grow, or die, the shark itself becomes more aggressive and ruthless. It will squeeze an extra dime from any unit of labour it can and, when that dries up, it will look elsewhere.
Since the 1980s capitalists and politicians have been kicking the can down the road. This mess has been coming at us for some time. Avoidance was helped by real growth due to the building of high tech infrastructure, which in turn has helped crucify the employee. The infrastructure, once built, will not need to be built again. And its maintenance is not going to save us.
Various bubbles (like the dot com bubble) had put the reality of our collective abyss out of view. Some bubbles were based in widespread criminal behaviour on the part of large corporations, bodies like the Federal Reserve in the United States, and scores of politicians. They have propped up the illusion (with the help of mainstream media and whores that have degrees in economics) that all is well - for three decades. In the meantime, the rot of the capitalist system has been eating away at our real security. We have continued to depend on something we can no longer depend on.
John Maynard Keynes is Dead
In the coming months and years there will be sincere and intelligent arguments from the left to return to Keynesian economic policies. After all, this formula has worked, arguably, better than anything else in history to provide a decent standard of living for the most people. The good ship Fabian appears to have sailed however. As Professor Hossein-Zadeh points out:
"The US capitalist class pursued the Keynesian-type policies in the immediate post-war period as long as political forces and economic conditions, both nationally and internationally, rendered those policies effective. Top among those conditions, as mentioned earlier, were nearly unlimited demand for US manufactures, both at home and abroad, and the lack of competition for both US capital and labor, which allowed US workers to demand decent wages and benefits while at the same time enjoying higher rate of employment.
By the late 1960s and early 1970s, however, both US capital and labor were no longer unrivaled in global markets. Furthermore, during the long cycle of the immediate post-war expansion US manufacturers had invested so much in fixed capital, or capacity building, that by the late 1960s their profit rates had begun to decline as the capital-labor ratio of their operations had become too high. In other words, the enormous amounts of the so-called “sunk costs,” mainly in the form of fixed capital, or plant and equipment, had significantly eroded their profit rates.
More than anything else, it was these important changes in the actual conditions of production and the realignment of global markets that precipitated the gradual abandoning of Keynesian economics. Contrary to the repeated claims of the liberal/Keynesian partisans, it was not Ronald Reagan’s ideas or schemes that lay behind the plans of dismantling the New Deal reforms in fact, steps to hammer away at those reforms had been taken long before Reagan arrived in the White House). Rather, it was the globalization, first, of capital and, then, of labor that rendered Keynesian or New Deal-type economic policies no longer attractive to capitalist profitability, and brought forth Ronald Reagan and Neoliberal austerity economics."
Let's not get caught up in the notion that the capitalist class and their paws (politicians) had decided to be kind to working classes or middle classes. Each and every benefit, including decent wages, social security, free medical care (except the USA), in developed countries were won through hard and sometimes deadly struggle. It was the threat of revolution and the preservation of the privileged class that compelled Keynes himself to distribute wealth.
We are about to witness a period unlike anything we have seen before. The tension on global capital, the increasing and continuing falling rate of profit, and the ensuing hunger of capital itself will reduce or eliminate your wages, your pension, social security, and it will find the change under the cushions of your sofa.
As we become increasingly dissatisfied with the status quo, as our kids lose hope for a decent future, as homeless people stand alongside burning barrels next to empty and foreclosed homes, we will hit the streets. Predictably, we will aim, at first, to resurrect John Maynard Keynes. We will discover, eventually, that Mr. Keynes is as dead as a doornail. Perhaps it is best to let him rest in peace.
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|Allen L. Jasson|