BRITAIN ON THE EDGE OF THE ABYSS by ALAN JONES TABLE 1
Foreign trade Unemployment(a) (exports as % of imports) 5.0% 115.0% 5.0% 85.6% 5.8% 101.0% 4.4% 85.0% nificant improvement in this situation for the ruling class. The result of capitalist accumulation under conditions of an unfavorable relatiorship of class forces has been to produce an historically unprecedented (except in Germany after World War I) decline in the rate of profit. While there are considerable difficulties measuring this decline in absolute figures, all investigations reveal the sharp downward trend. (2) This is despite quite extraordinary concessions on the tax field designed to alleviate this trend. Even the most extreme conclusions as regards absolute figures agree that the share of profits in the economy approximately halved in the period from the early 1950s to the early T970 (3), and that the rate of profit fell by approximately the same amount. After-tax figures present o more complex picture, but the general indication points to a decline of between one-fourth and one-half. The following table
probably represents the best computation of the decline of the rate of profit up through the early 1970s (bearing in mind that there is greater agreement on the trend than on the absolute figures) :
Rate of Return on all British Companies,
Before and After Taxes (in %
Before*
After
1956
15.6
13.0
14.4
12.6
1957
13.1
13.9
1958
1959
15.0
14.7
1960
15.7
15.2
1961
13.5
13.6
1962
12.3
12.6
13.7
1963
13.4
1964
13.5
13.6
1965
12.7
14.6
1966
10.7
11.4
1967
11.1
12.4
1968
10.8
12.4
8.6
10.4
1969
1970
6.6
8.9
1971
6.4
9.8
1972
6.4
9.8
*Calculated less stock appreciation and capital consumption as % of net capital stock at current replacement cost.
*Calculated less stock appreciation, capital consumption, and taxes on income and property, plus investment grants as a rate of return on net capital stock at replacement cost.
(Burgess and Webb: Lloyds Bank Review, April 1974.)
On top of this general historic decline, however, it is clear that an extraordinarily accelerated process of decline set in after 1972. While calculations for this period are rendered more complex because of the accelerated rate of inflation, which causes problems in estimating stock appreciation, nevertheless the general trend is clear. Taking account of taxation, stock appreciation, and interest payments, money profits fell by
42.5% during 1973, declining to a mere 37% of their
1963 level. Deflating by the retail price index as a rough measure of inflation, after-tax profits for 1973 were 42.5% down compared with 1972 and 79% down compared with 1963. Estimates of such falls in relation to the total development of the economy vary somewhat
(according to the basis of calculation), but all indicate a general decline of at least half.
In short, between the early 1950s and the early 1970 the share of profits in the GNP and the rate of profit declined by approximately half pre-tax and by perhaps one-quarter to one-half post-tax, In the period 1973-
74 a further fall of one-third to one-half took place, with a corresponding fall in the rate. This is the scope of the crisis of profits which today afflicts British capitalism.
2. The crisis of financing
The result of such a decline in the rate of profit is that any check in output sends the private sector plunging into extraordinary debt. Again, exact figures are disguised by innumerable capitalist accounting methods, but the qualitative proportions are clear:
Capital Account of British Industrial and Commercial Companies
1973(c) 1974(c)
1972(b)
1971(a)
-E539m -E3649m
+E32m
+E215m
(a) Bank of England Quarterly Bulletin,
June 1973
(b) Bank of England Quarterly Bulletin,
March 1975
(c) Bank of England Quarterly Bulletin,
September 1975
(The figures are nof exactly comparable due to revisions on computation and problems concerned with stock appreciation, but indicate the clear trend.)
Taking a more exact breakdown on the same computational base, the trend is even clearer.
Capital Account of Industrial and Commercial Companies
1972
2nd quarter
+E
62m
3rd quarter
+E 134m
+€ 245m
4th quarter
29
BREAIN
Ist quarter 2nd quarter 3rd quarter 4th quarter Ist quarter 2nd quarter 3rd quarter 4th quarter Ist quarter
(Bank of England Quarterly Bullerin, September, 1975.) It is readily seen from these figures that British industry fell into extroordinary deficit during 1974. Furthermore, the recovery in the last quarter of 1974 and the first quarter of 1975 reflects not an improvement in the underlying situation but simply the degree to which stocks have been cut back and investment abandoned. During this period, gross domestic capital formation fell by €850 million, from E2, 060 million to El, 210 million It is this gigantic deficit, which will total around E5, 0006, 000 million for 1973-75 (about six times the deficit for the period of the recession of 1969-71), that is bringing about a virtual revolution in the internal equilibrium of the British capitalist economy: 3. The crisis of relations between industrial & financial sectors In order to understand the present internal crisis of organization of the British economy, it is necessary to grasp that the relations of finance capital and industrial capital in Britain differ radically from those in the rest of West Europe. Primarily because of their orientation to foreign operations, the extremely powerful British banks are hardly oriented to financing industry in Britain. In Britain, about 70% of external finance of companies has come from the stock exchange and only 30% from the banks, a proportion approximately the reverse of most major European countries. There is no British equivalent of the holdings of the Deutsche Bank, Dresdner Bank or Commerzbank of West Germany; of the Compagnie Financière de Suez or the Compagnie Financière de Paris et de Pays-Bas of France; the Sociêté Générale or the Bruxelles-Lambert group of Belgium, etc. Financial deficits on the scale of 1973-74, however, virtually close the stock market as a source of funds. During the thirty-two months preceding January 1975, the value of shares fell by 73%. This was a more rapid fall than occurred even at the beginning of the crash of the 1930s, and means that share values in real terms fell to a level lower than that of 1940 - at the moment when the German army reached the Channel! 30
There are various ways of calculating this blocking off of the stock market, but they all show the same dramgtic trend: considering equities only, the fall in three years was more than 90%, From E640 million in 1972 to E137 million in 1973, and E43 million in 1974. Taking net figures and including other forms of stock finance other than equities, net issue of long-term loan capital by companies in Britain totaled £333 million in 1972, £56 million in 1973, and minus El4 million during the first eleven months of 1974. The first inevitable result of a simultaneous collapse of internally generated funds and of access to the stock market has been to dramatically push industry into debt with the banks. In the second quarter of 1974 industrial and commercial companies had a total borrowing need of E1,510 million, compared with only £441 million o year earlier. Some £1, 333 million of this was met by bank borrowing (compared with bank loans of E585 million raised in the same quarter of 1974). Interest payments by companies in the second quarter of 1974 were £1,074 million, compared to £774 million a year earlier. Taking 1974 as a whole, loans to manufacturing industry were up E2.7 thousand million - an increase of 41%. Taking the funds of industry as a whole, the percentage of bank borrowing in funds increased from T2% in 1971 to 32% in 1973. The extraordinary deficits created by the decline in the rate of profit of British industry have thus created an acute crisis of the internal financial organization of the economy. Not only are the sums involved huge by any standards; in addition, British finance institutions are not geared to long-term financing of industry. The huge deficits are financed primarily by short-term borrowing, which is obviously untenable for any length of time. With deficits of this size, the possibility of repayment is not altogether good. This was fully confirmed during 1975 as major manufacturing firms - such as British Leyland, Chrysler, Alfred Herbert - followed Court Line, G. Stribbe, and London Indemnity and General Assurance toward the point of collapse. It is in fact this latter process that indicates the second key change that must take place in the relation of the various sectors of the economy. While it was the banks that took the initial strain of the profits collapse of 1973-75, it is quite clear that this situation cannot continue for any prolonged period of time. The present sum involved (with no guarantees on repayment) are beyond the capacity of the banks. It is this intolerable situation that has already helped to produce the great crisis of the so-called secondary banking system (despite the modest name, there were in fact very big operations, accounting for a fifth of the increase in the major banks' own advances) and that has now placed the primary financial institutions themselves under colossal strain. It is in this way that the working through of the crisis of profits can be seen to affect the entire internal organization of the economy. The decline in the rate of profit creates huge financial deficits. The deficits overturn the traditional forms of finance and drive industry
into an unprecedented reliance on the financial institutions. These institutions are incapable of bearing the strain - particularly when, as discussed below, this is coupled with gigantically increased demands of the state expenditure - and turn to the state, which, as we shall see, occupies a central role in the economy out of all proportion to anything seen in the past. The only way out for the capitalists is clear. The rate of profit must be dramatically increased, which, with the given state of stagnation of accumulation, can be carried out only by cutting the real wages of the working class. Simultaneously, a new form of relation of state and financial capital must be developed. The entire situation presses in the direction of an assault on the working class and a shift to a new relation of industrial, finance, and state capital. The sole remaining question for the bourgeoisie is how, under what political conditions, and in what form this transformation is to be carried out. 11. THE EFFECTS 1. Growth of the state sector Under the conditions of collapse of profit rates that have prevailed in British industry, it is quite evident that the private capitalist sector of the economy can scarcely Sustain even a constant level of production, let alone a real growth. Above all, investment is insufficient to undertake a serious expansion of output. The international comparison in terms of total investment shows the situation clearly:
Investment as a Percentage of Gross Domestic Product range from 1960-72 Japan 30-35% West Germany 23-27% France 20-26% Britain 16-18% (The Economist, March 31, 1973.) The situation in private industrial investment is even worse. Since the mid-1960 industrial investment has declined almost continuously. In 1966 it was 8% of GNP; it fell to 7.8% in 1967, 5.7% in 1970, and 3.2% in 1973. There has been a sharp and continuous decline in investment throughout 1975; the decline was 8% in the first quarter, 7% in the second, and 6% in the third. Total investment in manufacturing is down 10% compared with the same period of 1974. In a context of decline in working class consumption and a decline in world trade, the result of this decline in investment is that only a vast expansion of the state sector prevents the economy from falling into a nosedive.
The following estimates — certainly overoptimistic - of the National Institute for Economic and Social Research (NIER) indicate the position clearly:
Forecast of % Change in Components of Gross Domestic Product
4th quarter 1975 4th quarter 1976 over over
4th quarter 1975
4th quarter 1974
Consumer expen-
-3.2
-0.4 diture
+4.4
+2.2
Public authorities
Gross fixed in-
-6.1
-0.6 vestment
-1.7
+4.0
Exports
-8.4
+3.6
Imports
Gross Domestic
-2.1
+1.9
Product
(Projection by National Institute for Economic and
Social Research, August 1975.)
Already, in common with all imperialist states, public sector expenditure in Britain has increased almost uninterruptedly in the postwar period. In a recent study
Barratt-Brown calculated the following:
Public Expenditure as Percentage of GNP
1968
1953
1958
1948
40.2
44.5
40. 6(a)
52.7
(a) This fall is almost entirely accounted for by reduction in armaments following the end of the Korean war.
(Barratt Brown, From Labourism to Socialism, p. 78.)
However, in the period since the current recession began, a development on an entirely different scale has started. State spending for 1974 rose to 57% of nationa!
income and for 1975 the projected level is 60%. (The
Economist, April 19, 1975.) As any attempt to finance this through taxation would depress all other elements of the economy still further, the result is a qualitative increase in the state budget deficit. (This deficit amounted to 6.9% of GNP in 1973, 9.8% in 1974, and will probably reach 12-13% in 1975.) In short, merely to prevent unemployment rising above 1.5 million and to hold
The fall in industrial production at 8% a year, it is necessary to run a budget deficit greater than one-tenth of the economy and that exceeds the level of industrial investment by a factor of three or four!
The possibilities of getting out of this situation without some qualitative shift in the economy are nil. Any attempt to finance this deficit by simply printing money would send inflation, which ran at 25% this year, through the roof. Borrowing funds to finance it - the present policy of the government - maintains interest rates (currently running at 113% minimum lending rate) at levels
31
that both drain industry of funds on its current borrowing and present an immense obstacle to any increase of investment and export financing, even during an economic upturn. Any cut back in the deficit, however, means both dismantling whole sections of the "welfare state" and allowing unemployment to rise even beyond the 1.5 million to which it is presently headed. Furthermore, under conditions of the present decline in profits, there is no guarantee that such measures would produce a serious upturn in production without a major increase in exploitation and depression of real wages - with all the consequences of a confrontation with the working class which this poses. But this is the only serious perspective for the ruling class; it provides the background to the current Healey measures.
2. The Healey-Wilson measures Although a few rather senile left Social Democrats may have been under the illusion that there is a capitalist solution to the crisis other than an attack on the working class, the bourgeoisie itself has no such illusions.
The Economist, which speaks for the dominant sections of industrial capital, speaks bluntly: "Britain cannot have a faster rate of growth until it devotes 5-10% more of GNP to risk-taking investment and it will not get this until 5-10% more of GNP takes the form of rewards for risk-taking investment. Foreigners listen vith bewilderment as British politicians, commentators
Neddy the National Economic Development Council and even establishment figures pretend that it can really be done in some other ways, such as by setting up new investment banks to provide new loans that will presumably never be repaid. ... This schizophrenia is not compatible with the continued existence of a market system. The next few months may be British capitalism's last chance to begin to pull back from the abyss. " (The Economist, November 29, 1975.) The debate within the ruling class on how to achieve a shift in resources to alleviate the capitalist crisis at the expense of the working class was given a particular edge by the severity of the defeat suffered by the bourgeoisie with and following the fall of the Heath government. The response favored by those sections of the bourgeoisie most closely tied to finance capital (Sir Keith Joseph, chief "theorist" of the Thatcher leadership of the Tory party; Samuel Brittan, influential economist of the Financial Times; the Institute for Economic Affairs, etc.) was to raise unemployment through drastic reduction of state expenditure to the point where it would break the militancy of the working class. The problem here was that no one could predict in advance what this necessary level of unemployment would be. The level of 1 million was certainly not sufficient, and it was feared it might be necessary to go to 2 million, or even, on some speculations, 3 million. Such an increase was unacceptable to the main representatives of capital -both because it would entail a recession so deep that Britain would be unable to benefit from any upturn in the world economy, and second because it would at 32
----- pull-quotes on this page ----- BR to seriously expan on a capitalist basi the gains made by since 1945 will hat
one stroke overturn the entire postwar political situation and might create an uncontrollable working class response. The second alternative - the one adopted - was to allow inflation to rise to a new height, to cut real wages through the imposition of an incomes policy, and to postpone the most savage state expenditure cuts for a certain period in order to stop a more precipitate decline of production. While no measure was taken in the spring (in order to avoid any threat of a wrong outcome on the EEC referendum), Inflation was beginning to cut the living standard of the working class even during this period. The effects of the early success of the working class in driving up its living standard and the consequent decline in this living standard under the impact of inflation are clear from the following figures:
Index of Real Take-Home Pay January 1974 = 100 Oct Dec Feb April June Aug Oct Dec Feb April June 1973 1974 1975 105 106 99(a) 100 103 106 106 108 106 103 99 (Labour Research, September 1975.) (a) artificially depressed even below declining level by 3-day week. Equally clear are the consequences since the imposition of the E6 limit on pay increases set last July. The volume of retail sales, which account for nearly half of consumer sales and constitute the clearest advance indicator of shifts in living standards, fell by 3.1% between the second and third quarters of the year. The full further decline in real wages, for which estimates vary between the officially projected 2.5% and a more realistic 4.5-6% (Labour Research, September 1974), will depend on the exact fall in the rate of inflation. 3. Attack on the "welfare state" The focus of the second round of attacks on the working class is the slashing of public "welfare state" expenditure. The April 1975 budget already made cuts in the 1976-77 public expenditure program of 1.5% in current and the economy spending and 10% in capital spending, amounting to e1.1 thousand million at present prices. On top of this asis, the majority of the government is preparing o further round of cuts which will probably total around E1.5 thousand million. On the working class longer term projections it appears likely that a zero increase in spending is projected for 1976-78. It is impossible here to go into details about what these cuts will hane to be eliminated mean for the "welfare state, " but it is worth noting the main conclusions of a recent comprehensive study. (Cutting the Welfare State — Who Profits?, " published by Counter Information Services and the National Community Development Project. The facts in this section are from this study unless otherwise stated.)
33
BRITAIN a. On Health Already the situation with regard to hospitals is appalling. Three-quarters of all hospital beds in Britain are in hospitals built before 1918, and only 41 of Britain's 2,300 hospitals (i.e., 2%) were built after 1945. The situation with mental hospitals is even worse: two-thirds were built before 1891. Despite this, the capital building program of the health service is to be reduced as follows: 1972-73 1973-74 1974-75 1975-76 1976-77 E362m E355m E286m E308m £284m (Labour Research, December 1975.) This entails a cut of 29% between 1972-73 and 197677. Together with the cutbacks in nurses and other staff already taking place, this means yet a further inadequacy in all forms of health treatment, and there are already waiting lists of, for example, four months for: a hysterectomy, twelve months for general gynecology, eighteen months for a tonsillectomy, etc. A serious possibility now exists of the creation of a two tier medical service, with an efficient private sector for the bourgeoisie and "middle class" and a patchwork "charity" service for the working class. b. On housing. Budgeted expenditure on housing is to be cut from £571 million to E27 million during 1975-76, and to E230 million by 1979c. On education Capital spending of E930 million in 1972-73 will have fallen to E629 million in 1974-75. All this is in addition to a whole range of other cutbacks on a wide field. For example, revenue support from local authorities to local bus transport will fall from E123 million to £91 million this year; capital expenditure on social security will be cut by 38% between 1974 and 1975. III. THE PERSPECTIVES Despite the severe declines in working class living standards, the scope of the recession is such that profits, investment, and production continue to fall. On profits some alleviation is occurring thanks to cuts in real wages, but the shift is as yet still downward, Under such conditions, investment is in a complete trough. In the vital machine-tool sector some companies are now down to 30% capacity utilization. In general, new orders in engineering were down 20% from the highest levels of 1974 to a level almost down to that of 1972, and with a further fall of 3-4% anticipated for 1976. The Department of Industry estimates that manufacturing investment as a whole will fall 11.5% in 1975 and a further 34
5% in 1976. This would mean that in the fourth quarter of 1975 manufacturing investment would be 17.5% lower in real terms than in the fourth quarter of 1974. (Financial Times, October 7, 1975.) The fall in investment is affecting an economy in which industrial output is already at a lower level than in 1970.
Industrial Production Production 1970 = 100 All Industry Manufacturing 1974 3rd quarter 108.4 109.9
4th quarter 105.3 106.1 1975 Ist quarter 104,4 105.7
2nd quarter 100.1 100.2 June 99.5 99.6 July 100.0 100.3 August 99.1 99.4 (Financial Times, October 11, 1975) This, however, greatly understates the fall in key sectors. Steel production in September was down 25% from the peak levels of the first nine months of 1973. Even in 1974, construction output was already 2% down from the level attained in 1970, with private house building starts down from 215, 000 in 1973 to 105, 000 in 1974; building in the public sector was down 20%. New orders in the construction industry were down 25% in 1974 compared with 1973 and fell a further 6% this year. The result is that by autumn 1975, some 171,000 workers in the construction industry were unemployed, oneseventh of the total unemployed work force, In the automobile industry, in addition to the crisis in British Leyland, Chrysler UK, which is bankrupt, could project a mere eleven days' work on its best-selling Avenger model during the two months preceding Christmas. The result of this depression in production and investment is that even after the Healey measures, bourgeois forecasts of economic prospects are universally gloomy. The following are the three most influential predictions regarding the course of the economy in the coming year.
Predicted Percentage of Change Year 1976/Year 1975 NIESR LBS P&D Public Authority Consumption + 2.2 + 2.5 + 2.8 Exports 1.7 + - 3.5 + 3.8 Imports + 2.7 + 0.2 + 3.6 Stockbuilding (millions of E) Year 1976 -172 -119 +20 GDP after adjustment to factor cost + 0.3 + 1.4 + 1.4 Inflation 10,0 15.4 15.5 Balance of payments current account
Year 1976 -2509 -1131 -1600 NIESR - National Institute of Economic and Social
Research LBS - London Business School P & D - Phillips and Drew (The Times, December 4, 1975.) While the particular severity and especially the longevity of the recession in Britain is unacceptable to the ruling class and forces it to seek a new way out through attacks on the masses, it also places the working class in a radically new situation compared with its entire postwar experience. The effects on cuts in living standards and attacks on the welfare state have already been noted. But the most dramatic effect of all is the and of the state of so-called full employment that has existed since 1945. The implications of this fact - that so long as capitalism confinues to exist the working class will never again enjoy the conditions of employment that have shaped its entire postwar experience -have not yet been fully grasped by the labor movement, During the decode 1965-75 the bourgeoisie, by dint of considerable exertions, succeeded in increasing the rate of increase of productivity in manufacturing to 4% a year compared to 3% during the previous decode. (This was the bourgeoisie's only real success during this period; and even here it must be noted that the 4% figure is low compared with the 6% average for West Germany, Italy, and France.) However, industrial production only rose 15% during that decade, well under half the increase in productivity. Instead of an increase in output, workers were simply laid off: Industrial employment fell 14% during the decade. Relative full employ• ment was maintained only through an expansion of nonindustrial employment relative to industrial employment. This occurred on a vastly faster scale in Britain than elsewhere. Furthermore, the overwhelming bulk of this increase was in the state sector, with only a 7% increase in jobs in the (primarily private) services sector, but with a 14% increase in employment in the central government and a 53% increase in local government. (Sunday Times, November 2, 1975.) This was the social corollary in terms of the composition of the working class of the vast economic increase in the state sector. But once the state sector is checked, the whole mechanism cannot function. Any attack on the working class must attempt to drive the increase in productivity over the 4% average of the last decade; but with projected growth rates in industrial output of 1-2%, this means that industrial unemployment must increase still more rapidly. However, the cutbacks in the state sector mean that the one area that had previously absorbed unemploymant is now blocked. The sole perspective is one of a permanent and sharp increase in the rate of unemployment. In his budget, Healey claimed that the unemplayment peak would be 1 million by official figures; but that has already been exceeded, and this winter he upped the figure to 1,2 million for this winter and 1,5 -illion for winter 1975-76.
The Financial Times (July 16, 1975) claims that as long ago as July the estimates the Treasury was working with were 1.5-2 million unemployed. The latest estimates of the influential Phillips and Drew projections is up to 2 million. The research unit of the union ASTMS has predicted 2.25 million, although this is probably exag gerated. The most likely estimate seems to be on the order of 1.5-2 million, with the probability of the upper figure increasing to the extent that the upturn in the world economy is delayed and the government makes any further cuts in state expenditure. But whille there is as yet some possible argument about the exact level to which unemployment will rise, nevertheless two things are clear. First, the level of unemployment rising to 1.5 million on official statistics means a real level of unemployment of 2-2.5 million, which will strikce with devastating effect against all super-oppressed layers and affect sections of the work force with no previous experience of unemployment. (4) Second, there is no clear perspective that this level will ever be seriously reduced. The implications of this fact have not yet been really grasped within the British workers movement. The whole postwar experience of the working class is geared to cyclical bouts of unemployment at worst. A squeeze on real living standards has always been followed by a return to relatively full employment. Today, however, the situation is radically different. The very conditions that actually drive down the living standards of the workers - a successful increase in the rate of exploitation through the Healey-Wilson measures coupled with a productivity drive - will not allow unemployment to be overcome but will even provoke a further exacerbation of it. To put it in quantitative terms: Without o policy that begins to make radical inroads into capitalist domination of the economy, unemployment in Britair is unlikely ever to fall below 1 million again. How the working class reacts to this - through a fall in militancy and intimidation or through a renewed round of struggle on a qualitatively higher programmatic level on which the general question of the organization of the economy can be tackled - will be a crucial determinant of the middle-term development of the situation in Britain. On this point, however, the purely economic analysis halts. The development of the economy out of the impasse depends not primarily on purely economic elements but on class consciousness, the relation of class forces, and politics. With the present relationship of closs forces, British copitalism cannot seriously recover from its present recession. Even a successfül imposition of the HealeyWilson measures would merely allow the economy to stabilize at a level of 1.5 million unemployed, a 1015% rate of inflation, a 3-5% fall in working class living standards, a fall in industrial production of 10%, and a rate of investment lower than in 1970. If would still leave no room for a real economic recovery of British capitalism. To actually bring about a serious new expansion of the economy on a capitalist basis something much more fundamental is required: on elimina-
BRITAIN tion of the major part of the economic gains made by the working class since 1945. It is this path that the
British ruling class has now embarked upon. Success would mean a major shift in the relationship of forces against the working class. A defeat for the bourgeoisie would plunge Britain into the deepest economic crisis seen in any imperialist country since 1929. Economic forces have placed the British class struggle at a furning point. It is working class struggle and politics that will decide the outcome.
December B, 1975 FOOTNOTES: 1. See Mandel, Late Capitalism, P. 179 F., as well as a whole series of empirical studies, of which Glyn and Sutcliffe, British Capitalism: Workers and the Profits Squeeze, is the best known. There have been various attempts to refute this view, notably by D. Yaffe in Class Struggle and the Rate of Profit (New Left Review, July 1973) and by P. Bullock and D. Yaffe in Inflation, the Crisis and the Post-War Boom (Revolutionary Communist, November 1975). However, despite the fact that Yaffe's work is in general the most significant contribution to Marxist economics presently being made in Britain, and despite the fact that theoretically Yaffe, and Bullock and Yaffe, utterly destroy the arguments of Glyn and Suteliffe, Gough, Hodgson, Steedeman, and the other neo-Ricardians now dominating radical economics in Britain, on this point Yaffe et. al. unfortunately commit two basic methodological errors. First, in their correct assertion of the historical truth that it is a rising organic composition of capital and not a declining rate of exploitation that causes the fall in the rate of profit, they fail to grasp that at the moment of the onset of conjunctural crisis, notably when the process of accumulation falters, it is perfectly possible, indeed inevitable, for direct struggle over the rate of exploitation to function as the cause of the onset of overt crisis. That is, Yaffe, et al. are guilty of reductionism in confusing the determinants of the decline in the rate of profit in the final analysis with the concrete causes of a particular crisis. Second, another example of a reductionist method, Yaffe confuses the question of the development of capitalism in general with the question of the development of any particular economy. The development of capital as a whole determines the development of any particular capitalism, but the development of a particular capitalism is not reducible to the development of capitalism as a whole. (For example, Trotsky's classic analysis of why the combination of elements of the crisis of 1929 produced an overwhelming specific crisis of German capitalism.) There is nothing contradictory whatever in understanding that in the final analysis the reason for the decline in the rate of profit is the changes in the organic composition 36 of capital and in understanding that in a particular capitalism, in a particular time, the dominant element in the crisis is played by a direct struggle between the working class and the bourgeoisie over the rate of surplus-value. Whether this is or is not the case cannot be determined by reference to the development of capital in general, but only by an investigation of the specific combination of this crisis in the case of a particular capitalism. On this, Glyn and Sutcliffe in particular have made a real contribution.
2. It is of course well known that none of the bourgeois computations calculate the rate of profit in Marxist terms. However, great difficulties exist, particularly under highly inflationary conditions, in calculating the
"rate of profit" even in capitalist terms. It depends, among other things, on whether calculation is pre- or post-tax; on the way in which state aid to industry is balanced against taxation; on the basis on which stock appreciation is calculated; on whether or not stock appreciation is included; on whether the rate is calculated on an historic-cost or replacement-cost basis; on how nationalized industries, whose rate of profit is subject to extreme political determination, are treated, etc. These differences help explain the divergences among the six major studies of the rate of profit in British capitalism carried out in the last period: Glyn and Sutcliffe; Hughes, Profit Trends and Price Controls, Spokesman pamphlet No. 41; Panic and Close, Profitability of British Manufacturing Industry, Lloyd's Bank Review, July 1973; King, Profit Crisis That Isn't, Guardian, November 14, 1973; Burgess and Webb, The Profits of British Industry, Lloyd's Bank Review, April 1974; Merrett and Sykes, How to Avoid a Liquidity Crisis, The Economist Supplement, August 3, 1974, plus a series of articles by the same authors throughout the summer of 1974 (notably Financial Times, September 30, 1974). To show the significance of these different methods of calculation we may merely note that for one single year, 1969, the calculated figures on the rate of profit by different methods arrive at estimates as widely varied as 16.8% (calculated by one method of Burgess and Webb) to 4.7% (Glyn and Sutcliffe). 3. Stuart Holland, in the major Bennite work The Socialist Challenge, claims that the major British monopolies are in a position to regulate their rate of profit (p. 55) and that no crisis of profits exists. This "argument" is notable for the fact that not one single figure, in a book of over 400 pages, is produced to support it! This is despite the fact that literally hundreds of pages have been written on the question of the rate of profit in Britain in the last five years and all of them show the exact opposite of what the Bennites claim. 4. As usual, unemployment hits the most oppressed workers hardest. Unemployment among immigrant workers has been rising more than twice as fast as the national average. At the other end of the scale, however, unemployment has developed among groups that used to be virtually immune. In September, for example, 5,200 teachers were registered as looking for work (Financial Times, October 14, 1975).
Just for the fun of it, we could cite some of the erroneous economic forecasts made by those who govern us. More interesting, however, are the observations currently made by the economic magazine Entreprise: "France's performances in 1974 (in the realm of the profitability of companies - INPRECOR) are nothing but the last spasms of a dying man who sees his friends hit before him.... The indications that we now have for the first half of 1975 seem to confirm this pessimistic judgment. " (November 1975, p.91.) More disquieting were the latest statements of Ceyroc, the president of the employers" association, published in the same issue of Entreprise: "Today Europe is suffering shock after shock. A boxer who takes punishment without dishing it out will not last fifteen rounds. We have to start over again. This will not
It is all very clear and logical. These speeches represent the first conscious threats of a bourgeoisie that is preparing to deal with a long-term oggravation of the economic and political situation. The reason is that the crisis now racking capital is a deep one, even if its First symptoms are still timid and even if a slight upturn is forecast for the coming months, The bourgeoisie is thus trying to endow itself with political instruments capable of dealing with that crisis.
The crisis results from the exhaustion, first slow and later sudden, of the factors that counteract the tendency of the rate of profit to fall. That is what we will demonstrate in the first part of this article. Because the crisis is not a fleeting one, the action of the state takes on some importance. Hence, in the second part of the article, we will show how the state tries to use the crisis to modify the apparatus of production, increase the rate of exploitation, and redress the rate of profit such that the conditions for the capitalist system to reproduce itself os such may be guaranteed in a lasting manner. But we will also show how the sudden scope of the crisis and the political dangers entailed in it force the state to take all necessary measures, to on a crisis tacts by P. SALAMA & A. LIND be done peacefully, without political confrontation. " (p. 191)
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