Why does the capitalist class not invest?

Political economy of chaos

On the eve of the Critique conference Hillel Ticktin points to questions that need to be tackled

It is hard to believe how close the reporting of the current downturn is to the great depression of the 1930s. During that decade, hardly a week went by without a new report of recovery. The depression was always coming to an end. It seems we too may expect many years of such absurd economic news reporting.

The public sector is still dismissing workers both in the USA and the UK, not to speak of France. Unemployment is officially going down, although the number of zero-hours contracts keeps rising. Accurate figures for fully unemployed, part-time unemployed and temporarily unemployed workers are not published. They are generally reckoned to be at least double the numbers given. Officially unemployment stands roughly at seven percent, but the real figure will be between 14% and 20%, counting all those who have given up trying to find work, both male and female.

Bourgeois economists, the Bank of England and civil service chiefs worry about ensuring a five percent or so level of unemployment to act as a limited reserve army of labour and prevent inflation. As they cannot allow too many workers to starve or use food banks without the real possibility of riots or worse, they have to maintain some level of welfare benefits in developed countries. Yet they are keen to reduce them in order to maintain a tight control over the working class and they are effectively testing the water.

Accumulation and investment

Globally, governments maintain austerity and the bourgeoisie continues to withhold investment in the economy. Companies invest only enough to maintain their position within the market, under conditions of very limited competition. This is also very like the great depression. I have written on this issue in Critique (No67) and will discuss the point in some detail in our conference on Friday and Saturday of this week: ie, on April 11-12.

The first session of the Critique conference will in fact go back to 1870 and Lenin’s discussion of imperialism, when there will no doubt be a difference between Bob Brenner and myself. Bob has written a number of articles in the New Left Review, as well as several books on the current crisis. The second debate will be around the question of the falling rate of profit with Guglielmo Carchedi and Robert McKee.

The fundamental question is why the capitalist class stopped investing in its own countries and exported its capital, leading to imperialism and so to World War I. The issue has remained pertinent to this day, both in theory and in reality. Another war and renewed imperial conquest are in my view no longer possible, whatever the situation in the Ukraine today. But that is, of course, disputed and there are a number of groups which do think that the threat of global war is real. I do not, and no doubt the question will be discussed at our conference.

As indicated above, we are faced today with the same chain of causation that led to World War I, but the upshot is non-investment and depression rather than war. For a time, bourgeois economists and finance capital thought that China would continue expanding, helped by third-world industrial growth. But China’s own growth is down and the so-called Brics (Brazil, Russia, India, China and South Africa) are all in trouble. There is a return of capital to the developed world away from those countries, as rates of interest in the advanced countries begin to rise and quantitative easing declines. As a result speculative investment in the third world is retreating to the home countries.

The downturn of 1989 left Japan crippled by a depression, which has not yet ended, or at least fully ended, depending on your viewpoint. The Abe government has adopted classic Keynesian measures of state investment, combined with militant nationalism, not to speak of warlike gestures towards China. Thus far, success is not guaranteed. The Japanese yen has fallen, but exports have not taken off. As it was precisely the end of the long post-war export boom in Japan that triggered its downturn, the omens are not good. The Japanese, in other words, have grasped the bull by the horns and gone for government investment, justified in military terms. This is what the Nazis did from 1933 onwards and what maintained the long global post-war boom until the 1970s.

Falling rate of profit

The question, therefore, is what changed? Why does the capitalist class not invest? Classically, Marx wrote several chapters in volume 3 of Capital on the falling rate of profit when the rate was in decline in the UK, the global imperial power of the time.

Some people thus argue that the falling rate of profit has been the source of the whole problem both then and later, down to the present day. They claim that the problem is not why the bourgeoisie does not invest, but that it is not investing because profit is too low. That question is both theoretical and practical. In other words, assuming the labour theory of value, the issue is whether a rising organic composition of capital - ie, the capital to labour ratio - is a fundamental feature of capitalism. If it is, it can to lead to a decline in profitability and indeed ultimately to the abolition of value itself, since machines will be making machines in the very long run.

The rise in the organic composition of capital is not automatic, however, and quite evidently is itself brought about by rising productivity, which in turn can bring about a falling organic composition of capital. Two issues then arise. First, in the short to medium term the rise in the organic composition and so decline in the rate of profit is indeterminate. In the long run, the case for a falling rate of profit, with an overall decline in value itself, seems proven, always assuming the labour theory of value.

There are further issues which will be discussed at the conference, together with the question of the real possibility of calculating value, and the role of the unproductive sector: ie, finance, retailing, advertising, etc.

Monopoly and decline

Lenin took from Hilferding the concept of monopoly and its control over total production and the price of what is produced. He argued, basing himself on Hilferding, that the capitalist class today is monopolistic and only invests what is needed to ensure optimum profits. As a result there was surplus capital, for which it needed to find outlets. That provided the basis for imperialism and so war to subjugate territories and fend off global competitors.

In fact, however, Lenin and Hilferding were technically wrong, in that most of the surplus profits of western Europe went to other European countries and the USA rather than to the colonies. But that did not alter the point of the argument - nor the more fundamental one, that the restriction in investment, and use for war and superexploitation where possible, was part of the decline of capitalism itself. The evolution of finance capital which they described created an extended role for this unproductive form of capital. This form was and is short-termist, easily reverting to money - as has occurred in this crisis.

In other words, the rate of accumulation has decreased and the alternative to war and imperialism is crisis. World War I then appears as a result of the decline of capitalism itself. It was not itself an accident, although the time and place of its origins was fortuitous.

Bob Brenner does not accept this view. He rejects the role of monopoly and the falling rate of profit as a category, arguing rather that it is competition that has led to a drop in profit rates. This issue will be debated in the first session and the question of the rate of profit itself in the second session.

The question of World War I will be discussed in more detail in the subsequent sessions.

Click here for full details of the conference (Friday 11 & Saturday 12 April)