Production contracts when investment falls. As capitalists only invest in order to make a profit, it follows that the only thing that acts as a brake on investment, must be falling profitability. It was Marx who first revealed the reasons for the fall in the rate of profit.
Marx was not the first theorist to be aware of the tendency for the rate of profit to fall – the ratio between the amount invested and the amount received back in profit. The best of the capitalist economists – Ricardo and Smith – were aware of it, but it fell to Marx to explain the nature of the fall.
The profit motive is the spring that drives capital. Without it, capitalism would cease to be a dynamic economy. Anything that weakens it weakens capitalism itself. By showing why falling profitability undermines this motive, Marx was able to demonstrate that capitalism was not a permanent system, that it was flawed from top to bottom, and prone to deepening economic crises..
The pre-Marxists had a simplified view of the rate of profit. The only capital they recognised was wages. Thus the rate of profit they took to be the ratio between wages and profits. Higher wages mean lower profits, and vice versa. They therefore blamed the fall in the rate of profit on rising wages. Their views were influenced by the growth of the urban industrial proletariat and its growing clamour for higher wages.
Marx demonstrated the opposite. He showed that it was possible for wages to rise without profits falling. In fact he showed that it was possible for wages and profits to rise together. This has been proved by countless trade union struggles where workers have managed to raise their wages without stopping profits from rising as well. Workers have to be stupid to fall for the argument that profit depends on wages. They know it depends on their productivity.
Rising productivity makes it possible for wages and profits to grow together. However, in order to make workers more productive, the capitalists have to spend more capital on machinery, equipment and materials. So when the capitalists invest, they do not spend all their money on wages. More and more of it is spent on means of production. The capital invested is therefore composed of two parts. The first is set aside to purchase means of production. The second is set aside to pay workers’ wages/salaries. Marx called the first form of capital, constant capital or c for short. The second he called variable capital or v. The total capital can thus be expressed as c + v.
The real rate of profit is thus: profits/constant capital + variable capital;
or in short:
s |
c + v |
Calculating the rate of profit therefore involves three components: (1) profits, (2) constant capital c, (3) variable capital v.
Smith and Ricardo failed to include c. In fact it was the missing c that held the key to understanding why and how the rate of profit could fall without wages being the key determinant. As capitalism grows, so does c. This is very obvious. Factories get bigger, and yet are manned by fewer and fewer workers. Indeed it is the proud boast of many captains of industry these days, that labour costs v are tiny compared to their other capital costs c.
It is now becoming obvious how the rate of profit can fall without wages rising. It can fall because c is expanding at such a fantastic rate. An example will clarify all.
The formula for the rate of profit is
s |
c + v |
In year one profits are £20 million, wages are £10 million and constant capital is £90 million. The total capital is therefore £100million and the rate of profit is 20% as shown below:
£20m |
= 20% |
£10m + £90m |
Now in year two workers have learnt to use the equipment better and more efficiently. Their productivity has gone up 15%. If all this productivity went to improving profits, profits would rise from £20m to £23m.
£23m |
= 23% |
£10m + £90m |
However, due to skilful negotiations and some militancy, workers win a £1m pay rise taking their total wages to £11m. So instead of £23m only £22m profit is realised. The rate of profit now looks as follows:
£22m |
= 21.8% |
£11m + £90m |
We see that the rate of profit has increased by nearly 2%, despite workers having secured a 10% pay rise. Wages and profits have both gone up. Each £1 of wages still produces £2 of profits (£11m:£22m) The key has been c. It is unchanged at £90 millions.
Let us now assume new technology arrives. Fewer workers are needed. After a defeated strike the company slims its work force, and as a result v falls from £11m to only £8m. Earlier we saw that each £1 of wages produced £2 of profits. Now £1 of wages produces £4 of profits. So £8m of wages produces £32m of profit. Despite the mass of profits rising from £22m to £32m we find the rate of profit has fallen to 17% from 21.8%.
£32m |
= 17% |
£8m + £180m |
The reason profitability has fallen is because c has grown from £90m to £180m.
To make each worker produce twice as much profit, the company has had to invest twice as much constant capital, i.e. new equipment, plant etc.
Of course, our capitalist critics may say we are pulling figures out of a hat. Why do we not raise profits (s) at the same, or even faster rate than c? This would raise the rate of profit.
Were we to do so we would be ignoring an important aspect of the rise in productivity, and that is its effect on prices. In reality, our company would find that it is not alone in introducing new technology. Its competitors are doing so too. The result is price competition, falling prizes. It is this lid on prices that limits the growth in profits, as we shall see later
THE VEIL OF PAPER MONEY
As workers’ productivity increases, it takes less time to produce each product. As the cost of each product is measured by labour time, higher productivity means lower costs. Of course this should translate into lower prices.
In fact this did happen for extended periods during the 19th century. During the 20th century falling prices have been the exception. These days we expect prices to rise, rather than to fall.
How do we explain this contradiction? We do so by looking at money. Money is the measure of cost or value. If money is manipulated, made elastic, or to put it bluntly, debauched, prices can be made to vary without real costs changing.
This debauching is made possible by the historical emergence of paper money. Paper money is symbolic money. When it was introduced it was tied to real money – gold. This limited how much could be issued. However, during this century that link has been broken, and with it financial discipline.
Now more paper money can be issued to circulate higher prices. These higher prices reflect the fact that the money in your pocket is worth less and less. It does not mean the goods you buy are more valuable because they now cost more labour time.
The following example will clarify this. Assume that in the past £20 represented 1 hour of average labour time. Assume that a few years on it now takes £40 to represent the same 1 hour. We can therefore say £40 of new money is equivalent to £20 of old money. The Pound has lost half its symbolic value, so that £2 now represents £1. All things being equal, prices will double because it now takes £2 to buy the same thing compared to £1 before.
In other words, higher prices, inflation, is the biggest fraud committed in society. It is committed against the working class to defraud them of their wages and salaries. It is used by the capitalist class whenever they are not strong enough to resist higher wage demands. So while workers may receive more money in wages, this is cancelled out by the depreciated Pound.
Of course, the value of money is very important to the capitalist class. They would prefer not to debauch their currency. Debauching their currency means it cannot function as a store of value. It also upsets the relation between debtor and creditor. It is much better for them to keep wages dcwn and productivity up.
However, to do that needs a decisive defeat of the international working class. Inflation is the barometer of class struggle. If today inflation is down compared with the 1970s and 1980s, that reflects the subdued class struggle. No doubt, as soon as workers find their militant feet again and struggle to end low wages and bad working conditions, inflation will magically reappear, as the capitalist class mount a back door attack on the working class through their currency.
WHY THE FALL IN PROFITABILITY IS ONLY A TENDENCY
But, you may ask, why does capitalism not simply collapse? Why does the rate of profit not fall year after year to the point where it approaches zero, extinguishing the flame of capitalism for ever? How is it that profit rates can recover, fall, then recover and so on?
Marx described the fall in the rate of profit as a tendency. By that he meant that while the fall was the dominant factor, there were additional factors that tended to offset or slow down this fall. To understand how this is possible we need to go back to the formula for the rate of profit.
To increase the rate of profit two things must happen. Profits must go up.
£100m profit |
= 20% |
£500m capital |
£125m profit |
= 25% |
£500m capital |
We see that in (b) profits have increased to £125 million resulting in the rate of profit rising to 25%.
Or the amount of capital is must be reduced.
£100m profit |
= 20% |
£500m capital |
£100m profit |
= 25% |
£400m capital |
The same result is achieved. Profits have risen to 25% because of the fall in capital from £500m to £400m. Up to now we have examined what causes profits to rise. Now we will look at what causes the value of capital to decline.
First we will look at the cheapening of capital. The value of a product, as we now know, reflects the labour time socially necessary for its production. This applies to capital as much as anything else. It means that over time the value of the same plant, equipment and material goes down. For example the prices of computers have been systematically falling for years, so that a computer that costs £3,000 today has the same processing power as a computer that cost £100,000 ten years ago..
Accordingly, while the physical amount of plant, equipment and materials invested in production increases, its value increases more slowly because it becomes cheaper to produce. This slows down the fall in the rate of profit.
In addition the second element of capital, variable capital, is cheapened. The standard of living of workers consists of diverse baskets of goods and services. To maintain their standard of living, wages have to pay for these baskets of goods and services. This is the cost or value of labour power.
As workers’ productivity increases, it takes less time to produce these baskets of goods. They become cheaper in real terms. This allows the capitalists to reduce the amount of wages. Of course, this event is obscured by inflation.
However, if wage increases are less than the combined increase in productivity and inflation, then this is exactly what is happening. For example, if productivity goes up 4% and inflation is 3%, making 7%, and workers receive only 5%, then 2% less labour is being paid for. Hence in real terms wages have fallen 2% In relation to their total productivity, workers are 2% worse off and the capitalists are 2% better off.
This cheapening of constant and variable capital reduces the amount of capital invested in production. This reduction in capital slows down the fall in the rate of profit. It takes longer than at first presumed. But the time does come when the rate of profit falls absolutely, and with it the incentive to invest. At that point more drastic measures are needed to reverse its decline.
It is these measures we will now examine. The first is the depreciation of capital. After long periods of falling rates of profit, pockets of capital stand idle, as some investors refuse to invest. A lack of buyers develops. Demand falls short of supply. Prices are bid down. Bargains are found. The result is that a new factory costs £80 million to set up instead of £100 million, or is set up in third world countries where costs are much lower and subsidies bigger.
Often individual capitalists are unable to sell their goods at prices high enough to recover their investment. They may go bankrupt or into liquidation. Their goods are bought up so cheaply that they find their way back into production.
But even this may not be enough. As the crisis deepens, so more drastic measures are called for. Now only the physical destruction of capital will suffice. Whole factories are closed down, industries wiped out, millions thrown on the dole. We begin to see the real barbarism of capitalism as the old capital is destroyed to make way for the new.
In the 1980s traditional heavy industry was destroyed, giving rise to the nick name the rust belts. In their place rose the silicon valleys. This time round it is the information processing industries that are the most vulnerable. Shall they be called silicon death valleys in time?
This tremendous and cumulative destruction of productive potential far exceeds the destruction of wars. Recently a director of Hitachi said that the recession in Japan had done more damage to his company than the Allied bombing of 1945. And it costs lives too, the well being of millions of the newly unemployed around the world, few of whom enjoy the social benefits secured by workers in Europe.
This massive destruction of capital means profits have to be measured against less capital. The rate of profit begins to rise again. The newer and cheaper factories in which the pace of production is more furious set the basis for the resumption of the cycle of growth.
And so once again capitalism is set on the road to recovery. Workers have paid the price with fallen wages, harder work, mass unemployment, and swathes of industry destroyed.
WORKERS HOLD THE KEY
Capital and labour have opposed and irreconcilable interests. During periods of economic growth it takes the persistent form of the wages struggle to divide and redivide the working day into its paid and unpaid parts around the slogan of a fair day’s pay for a fair day’s wage.
However, it takes a recession to bring out the real clash of class interests. For it now becomes a fight for survival on the part of whole sections of the working class. They are faced with workplace closures, the destruction of whole communities, mass unemployment, the tearing up of agreements, and the heavy hand of the state. At this time of crisis for capitalism, workers are called upon to do their bit and make sacrifices for the common good.
Sacrifices by workers would make sense if they were responsible for the recession. But they are not. It is capitalism that is responsible for its own failure. It is bound up in the system. Workers should therefore refuse to pay the price for reviving capitalism. As the old saying goes, during booms we pay for the profits with our wages, and in recessions we pay for it with our jobs.
The capitalist crisis results from there being too much capital in relation to profits. Some of it must be destroyed. But this capital has been produced by workers, and is the source of their jobs and livelihood. To destroy this capital, places of work, the capitalists must first defeat their workers who are inclined to spontaneously defend their interest. If they can be defeated, forced to give up their jobs, forced to work harder, take pay cuts, capital will prevail and the system will heal itself and regenerate.
If on the other hand workers refuse to pay this price, refuse to accept redundancies, lower pay or crushingly hard work, then capitalism will collapse. The rate of profit will plummet to below 0% and the flame of capitalism would begin to flicker. But for that to happen workers need to be convinced there is economic life after capitalism.
We can now sum up. Profit rates begin to fall, not because workers have become less productive, but because they have become more productive, not because wages are too high, but because investment is too high. The whole absurdity of capitalism is revealed. Here is a system whose very success is the cause of its recurring failure. And if the success of an economy causes it to fail, then the solution it simple, do away with it so that it may be superceded by a mode of production that does not suffer its limitations.
ABOLISH PRIVATE OWNERSHIP OF PRODUCTION
The historical mission of the working class is to abolish the profit motive as the driving force of economic life. The profit motive, which revolutionised production and raised capitalist society to such heights, threatens to hold it back, to plunge it into crisis, to destroy a lifetime’s work.
But the profit motive exists only because of private property. If the profit motive is to be abolished then so must its reason for being, private property. Let us examine this proposition more fully as it holds the key to understanding any future alternative.
Private property precedes the profit motive. Private property arose with the emergence of a permanent agricultural surplus thousands of years ago. This historic event was triggered by the development of farming and herding which replaced traditional hunting and gathering. It constitutes one of the greatest, but unrecognised, events in the history of our species.
In a hunter/gatherer society everyone had to work. Both hunting and gathering were time consuming and precarious. There was nothing to spare. Life was hard for all. Often the old and the infirm were were left to die in order to spare the rest of the community.
In this sense humanity had not yet risen above the animal world. But with farming and herding, particularly irrigated farming, all was to change. The productivity of labour leapt. Now the whole day did not have to be spent working. For the first time, a community could produce more than it needed to keep itself alive.
Not everyone needed to work. This led to a dramatic change in thought. Suddenly, a section of society could imagine not working, by forcing others to work for them. They could raise themselves above the general condition of society, by standing on the "shoulders" of exploited labourers.
Accordingly, the whole nature of war changed. Wars, which hitherto had been based on the conquest of territory, now changed to the conquest of people who could be put to work. Men, hunters now turned warriors, claimed trophies not of animals, but of man.
Society began to split into classes – those who worked but did not own, opposed by those who owned but did not work. Slave on the one side, and slave owner on the other.
Here, then, lies the origin of private property.
It is the legal separation of the producer from his or her product by means of ownership. It resulted in the division of society into classes based on ownership. It required the emergence of the state – the armed power of the minority over the majority – to protect this private property.
And it meant the oppression of women. From a matriarchial society where women were the leading sex, we now have a patriarchial society, one dominated by men. Private property needs to be preserved. That requires a blood line – inheritance – from father to son. But if that blood line is to be guaranteed women need to be made celibate to all men but their husband. They may not bear the seed of another lest it corrupt the blood line. And so, sanctified by religion, women became the chattels of men. Free love would be sacrificed for over a hundred generations.
From these early days, thousands of years would elapse before private property was fully formed. History would be written in blood, as the drive to amass private property led to epic wars and empires. Empires would grow and collapse only to bury the newer forms of production in their rubble.
It was only in the 15th century, on one continent, Europe, that the conditions began to mature that would give rise to a fully formed economy based on private property. Until then the factors of production – land, instruments of production and, above all, labour power – could not become the private property of another. They remained attached in one form or another to their producers. But in Europe the bankrupting of the aristocracy set the land free, the break-up of the guilds set the instruments of production free, and the impoverishment of the peasantry created bands of free labourers. Facing them was a class of merchants and usurers made rich by international trade.
They were able to use their wealth as capital, by buying land, acquiring means of production and hiring workers. Their new bourgeois state enforced the discipline of the factory and the town. Through the industrial revolution that followed capitalism became established through large scale factory production. Finally, a society based solely on the market was born. The rule of capital began to shape and reshape the world.
Capitalist commodity production meant the capitalists were free to hire workers’ labour power, free to buy land, free to buy any equipment, and free to move goods without restrictions around the newly united national market. They were free to produce any product the market demanded. In this free-for-all, immersed in chaos and surrounded by anarchy, profit was their only compass. Where profits were greatest, investment flowed.
The market became the new jungle. Only the fittest survived. Competition silently stalked every company, forcing it to either adapt, grow and improve its efficiency or face extinction.
Competition disciplines the market by enforcing any changes to production on the rest of the economy. The market is in a state of constant change. Companies respond to competition, and add to it by their new investments.
This incessant investment is driven by the need for profits. The most efficient companies make super profits. This is well known. What is less well known is where these extra profits come from.
Earlier we saw that the actual cost of any product is the labour time needed to produce it. It follows that companies will have differing labour times depending on whether they are more efficient, or less efficient. More efficient companies have lower actual costs relative to less efficient companies which have higher actual costs.
But here is the rub. If they all sold their commodities at their actual costs, different actual costs will mean different selling prices, some higher and some lower. However, there cannot be a multitude of different selling prices.
Consumers would make sure of that. If they were faced with the same product selling at different prices, they would buy those products with the lowest selling price first. Soon these would run out, and they would move on to buy products with the next lowest price and so on. Clearly this is absurd.
What competition does is to average out the selling price. An average selling price means a single selling price for each commodity (though it is true the same thing will cost less at a supermarket than at the corner shop, but that is not significant compared with the price in each supermarket). Instead of an individual selling price of say £18 and another individual selling price of £22 we now have an average selling price of £20. The £18 is the selling price of the more efficient company and the £22 is the selling price of the less efficient one.
This average selling price affects profits in both companies. In the more efficient company it increases profits. Instead of selling its product at £18 it can now sell it for £20. This means £2 more money, and therefore £2 more profit.
Now let us look at the less efficient company. It is forced to sell its product for £20 instead of £22. It therefore loses £2 in cash, and therefore £2 in profit.
The more efficient companies therefore gain extra profit. The less efficient companies lose profit. Where do the extra profits of the more efficient companies come from? They come from the less efficient companies. [Note 2] The market price therefore redistributes profits from the less efficient to the more efficient companies. That is why capitalist firms cannot co-operate to curb competition, for to do so would be to ask the strong to curb their ability to exploit the weak.
Put another way, it is as if the capitalists in efficient companies are not only exploiting their own workers, but the workers of other less efficient companies. This is the magic of the profit motive. By making their companies more efficient, capitalists are able to drain profits from their less efficient competitors. In turn, unless inefficient companies are made efficient, they will be bled dry. And so the profit motive, acting through competition, forces capitalism to improve its overall efficiency by investing, investing, investing.
Fundamentally, this means that exchange is always unequal under capitalism. This inequality favours the more efficient at the expense of the less efficient. It is this inequality that redistributes profits, that is the essence of the profit motive. We cannot stress this enough. It makes a mockery of capitalism’s so called equal rights. At its most fundamental level, this economy works precisely because of its inequality.
Alas in time investment stalls as the rate of profit sags. Into this downward spiral all companies are dragged. The least efficient fall fastest and the most efficient slowest.
Now the fight to redistribute profits becomes a grim struggle against bankruptcy.
The collapse in the rate of profit finally disrupts investment. The profit motive has turned into its opposite. From being the driving force of production, it now becomes a brake holding it back. For society to move forward it needs to go beyond production for profit.
Thousands of years ago farming and herding introduced the first permanent surplus in society. It gave rise to private property, exploitation, classes and the state. There followed the bloodiest history of our species as war was fought to acquire or defend private property. Today capitalism bequeathes us a huge surplus, a surplus too large to be regulated by private property anymore.
It cries out to be freed from the narrow confines of private property and to be used for the benefit of all the peoples of our world. After all, a world in which the top 200 billionaires own more than the bottom 2,000 million people is a world not worth preserving. Whether this society will be transformed depends on the working class being brought to an awareness of its historic interest and its world role as emancipator of the human race.
Note 1
What the capitalists sell is the products of their workers’ labour. But what they buy is the labour power of their workers. Like all commodities, it too has a cost, or a value. The cost of labour power, is the cost of maintaining the worker and his or her family, thereby ensuring they are fit for work today and in the future. [Back to text]
Note 2
The initial spurt in profits comes from this unequal exchange. We are talking here of the redistribution of the existing mass of profits. Only later does this improvement in productivity result in the rise in the mass of profits. For that to happen it first has to reduce the prices of the commodities workers consume so that real wages can fall, thereby raising the rate of exploitation, and with it profits. At that point we have more profits available for redistribution between the capitalists themselves. [Back to text]
CHAPTER 2: THE SOCIALIST ALTERNATIVE
The history of production is the movement from private production to social production. Capitalist production has become world production. Its largest concentrations of capital – gigantic multinationals – each employs over 100,000 workers worldwide.
Nevertheless, while these gigantic capitals represent huge social enterprises, they remain encapsulated within the realm of capitalist private property. They operate independently of each other and in competition with one another. They remain dominated by the market.
It is this contradiction between increasingly socialised production and capitalist private property that is at the heart of capitalist economic crises. For it is this contradiction that ensures capitalist production becomes social, only indirectly, through exchange. No matter how huge the corporations of the capitalist class grow, they are walled off by capitalist private property.
Only the working class can abolish this contradiction by abolishing capitalist private property. As a result production becomes directly social, putting an end to the separation of production and consumption. The abolition of capitalist private property, does not mean transferring ownership to the state, but abolishing ownership altogether. In so far as the workers’ state may nationalise these corporations, it is a legal formality, a temporary step on the path to declaring them non-property.
An analogy will suffice. Early tribes used to talk of nature belonging to everyone, in which we were all merely caretakers. So, too, in the future will workers look at the factories, the shopping malls, the roads etc, and talk of them belonging to all and therefore to no one. From workers being proud owners at first, the concept of ownership will disappear altogether.
The abolition of private ownership of the means of production ushers in a whole new economic mode of production, with its own laws and dynamics. Society will no longer be divided between those who own, but do not work, and those who work, but do not own. All unpaid labour will be abolished, and with it any exploiting class that lives off it.
The product of society will now belong to its producers. They will share it in proportion to their contribution to production. This equal right will mean inequality at first. Those with the greater skills who contribute more will receive more than those who through lack of skill contribute less. This unfortunate state of affairs is the legacy of capitalism. Capitalism seeks to reduce the mass of workers to unskilled labour. The purpose of socialist society will be the opposite, to raise the mass of workers to skilled labour.
Of course not all that is produced can be consumed. Part of the surplus has to be put aside for investment, for education, for healthcare, for caring for the old and infirm, for insurance against natural disaster, for raising living standards in the "third world", for ecological repair, etc. These decisions will be taken by the working class for the working class. This is the highest form of democracy, working class democracy. We will be the multi-millioned board of directors of society.
Of course, differences will abound. Some sections of workers will seek to invest more, others will seek to spend more on repairing the wounds to the planet, while others will prioritise education in order to eradicate divisions in the working class, others the advancement of women, etc, etc. These views will be presented by pressure groups and even different parties if need be. In this vibrant political world every voice will count. Forever gone will be the feeling of powerlessness, of lack of control, of being used, of being ground down, all the stress and anguish that make us less than human.
Only those who seek to restore private property in the means of production will have no voice. Socialism cannot be built unless workers conquer state power and elevate themselves to the level of the ruling class. This workers’ state however cannot be compared to the bourgeois state.
There are two key differences. The first is that the bourgeois state is the rule of the minority over the majority. A workers’ state however is the rule of the majority over the minority. Secondly, the capitalists live off workers, so they seek to make their state and the economy it upholds, permanent. The workers however do not need the capitalists and so our state will be temporary, existing only as long as the remnants of capitalism survive. With the superseding of capitalism, and therefore classes, so the workers’ state is no longer needed and it withers away.
FALLING PRICES REPLACE THE PROFIT MOTIVE
On the industrial foundations inherited from capitalism, will be erected an international socialist economy. Just as the national market, and therefore the nation, was the historical home of capitalism, so the proletariat needs the world to realise its economic potential. By the day capital builds this world economy while nurturing small-minded nationalism amongst its workers. It does so in order to play off the workers of one country against the workers of another.
In this new world economy, the profit motive will no longer have a place nor a role. The profit motive owes its existence to private property, and therefore exchange. It is the inner spring of the commodity. We saw earlier that the profit motive can only function because of unequal exchange. It is through unequal exchange that the more efficient capitals exploit the less efficient capitals, thereby earning extra profits.
In a socialised economy there can be no unequal exchange. If a "company" now introduced a new technique of production that lowered its actual cost of production, its profit margin would not rise, it would fall initially. The reason is not hard to find. Increasing productivity reduces the labour time in each product. It therefore also reduces the surplus labour time. Translated into the language of money, this means the price of each product falls. This fall in price compresses the profit margin. So instead of earning extra profits, less profits are earned
Compare this with capitalism where unequal exchange, operating through an average market price, prevents this fall in price. The absence of a corresponding fall in price protects profit margins, and leads to higher profits being earned.
Without exchange, no profit motive. Without unequal exchange, no dynamic profit motive. So what will replace profit as the driving force under socialism?
The short answer is falling prices. All economy is the economy of labour time. Under capitalism this takes a coercive form that seems to rise above society, namely competition. It is the whip in the hands of the exploiters who seek to drive their workers harder and more efficiently than their competitors.
Under socialism, where the producers are in command, there is no need for an external coercive force. Workers know there is only one actual cost of production, their labour. They know how precious it is. They do not need anyone to tell them this.
They have no interest in squandering it. They have every interest in conserving it, in putting it to the best use, in quality, in co-operation, in the harmony of production, in the exquisite choreography of industry. Freed from exploitation the alienation of the working class will be ended, thereby releasing the magical potential of this wonderful class, society’s highest and final. Of course mistakes will be made, but corrected, they will point the way forward.
Under capitalism, paper money is the veil behind which prices are manipulated. Inflation is the price society pays for class conflict. If private property is legalised theft, then inflation is legalised fraud.
Only in a socialist society will prices become transparent and money no longer used to manipulate them. Prices will bear a direct relation to actual costs of production. As these fall, so will prices.
Workers will be rewarded by lower prices. They will therefore have every interest in working efficiently in order to bring down prices. Falling prices will mean that their "wages" go further, allowing them to consume more of these lower priced goods. Falling prices will benefit everyone equally.
Now it may be argued that this idea of falling prices is not important. It has to be viewed against the objection that it would be much better to keep prices stable and raise wages instead. After all higher wages as a reward for higher productivity are a direct link between the worker and his or her effort.
The answer is that rewarding higher productivity with higher wages will create sectional interests within the working class. If pay is tied to effort, then workers may strive to increase their output at the expense of society. More products, but of lower quality, will mean that workers further down the production line find their productivity falling as they compensate for these inferior goods. Soon conflict will emerge as one group enjoys higher wages, while another enjoys lower wages.
But this is only part of the picture. Generally when inferior goods are produced the whole of society suffers. It takes more labour in total to correct mistakes, than if those mistakes are not made in the first place. This lesson has already been taught the world by the Japanese with their "zero mistake policy".
No, falling prices are the glue that will bind socialist society together. Only through this will a collective consciousness develop, a consciousness that recognises my labour is part of the labour of society, and that if I reduce my labour time efficiently it will reduce the total labour time of society. This will bring down prices, benefiting us all.
In any case, falling prices reflect falling labour times. Raising wages means prices cannot fall in line with falling labour times. If prices did, however, fall in line with actual costs, there would be an excess of wages due to this increase in wages. [Note 1] This would bid up prices, and we would be back in the realm of demand and supply. Markets would spring up in the pores of our economy as workers with unspent wages looked for goods to buy. It is a nonsense.
And if prices and their movement did not accurately track costs of production, it would make it impossible to know how much labour went into anything. We could not plan.
THE NEED FOR PLANNING
Not only does the profit motive drive capitalism, it directs its investment. Capital flows to those sectors of the economy where profits are highest, from those sectors where it is lowest. Capital constantly washes around the economy, and as it does, it tips the bath first this way and then that, as it endlessly chases its tail. Despite the information technology revolution, this allocation of the surplus of capitalist society on the basis of profit remains a hit and miss affair.
Under socialism the direction of the resources of society, or what is the same thing, the allocation of labour time, becomes an increasingly conscious process. The abolition of private property makes possible co-operative production which allows for collective decision making. Collective decision-making means planning.
Within the largest companies planning is already the norm. It often takes the primitive form of budget making. Indeed, the more these large companies plan their activities, the more they realise how disruptive the market is of their plans.
When talking of planning under socialism, we talk of it becoming increasingly conscious. We use the word increasingly deliberately. For this to be a conscious process, we have to know what each thing costs to produce. Otherwise, we cannot make rational decisions as to whether it should be produced, and in what quantities
Unfortunately, because of unequal exchange, capitalism bequeathes us a catalogue of individual prices that bear little correlation to their actual costs of production. Prices are either below actual costs or above them. In one part of the economy they are lower, while in another they are higher. [Note 2]
The problem is that we need to know what individual products costs to produce. What does a ton of steel really cost to produce in every steel mill? We already know that average selling prices disguise the actual costs of production of companies in the same industry due to differing efficiencies.
More important are the following obstacles. The first is the law of supply and demand. In industries, generally newer ones, where demand exceeds supply, prices rise well above actual costs of production. This is compensated by the fall in those industries where demand is weaker and prices slip below actual costs of production.
Secondly, there is the averaging out of the rate of profit. It is clear from examining the economy that workers in different industries use different levels of equipment and materials. This has to do with the technical requirements of their industry. For example, workers in an oil refinery may have over £1 million invested in each of their jobs. Refineries cost at least £500 million to set up and yet are populated no more than 100 workers. Contrast this to the clothing industry which only requires thousands invested in each job. The oil refinery is part of a "capital intensive" industry while the clothing workshop is part of a "labour intensive" industry.
Let us look what happens to prices in a capital intensive industry first. Here extra profits need to be earned to compensate investors for all that capital. Otherwise the rate of profit would be so low no one would invest. For this to happen prices must rise way above actual costs of production. These higher prices yield extra profits. Exactly the opposite happens in labour intensive industries. Here prices fall below costs of production because less profits are needed to compensate investors due to less capital being employed.
Accordingly, we inherit prices rising above values in capital intensive industries compared to prices falling below values in labour intensive industries. What a mess and what a riddle! We will take much time and effort to untangle this web of disconnected prices.
Thirdly, when it comes to costs, the capitalists suffer from tunnel vision. The only costs they recognise are the ones they have to pay for. They do not recognise the costs to society of their industry. Foremost of this is the ecological damage they create. As long as nature can eliminate their smoke, their waste and their toxins, all is well. If workers in surrounding neighbourhoods suffer ill-health, so what? If things get too messy, there is always a poor third world country that would welcome their factory.
Under socialism the total environmental impact of any process of production will become part of the total cost of production. It would be stupid to exclude it, as society still has to pay for any mess. Only when its full cost becomes clear can society decide rationally whether or not to go on producing this product.
By degrees, through raising prices here and lowering them there, through increasing production here and reducing it there, prices of production will be brought into line with actual costs of production. They will cease to exist, and with them the law of value.
Costs will be determined directly through actual labour times. At that point we can consciously begin to allocate the labour time of society in accordance with the decisions made by society. At last conscious planning will come into being. It constitutes the complete victory of the plan over the market.
As we increase productivity throughout the economy, so labour times will fall. Products will become cheaper and cheaper. At some point the prices of the cheapest products will be so low, that it will take more labour time to take account of their prices, than to actually produce them. Pricing will begin to disappear. First the cheapest, followed by the less cheap and so on, in one unbroken ribbon. The era of truly free products will have arrived.
With it millions will be liberated from the accounts departments around the world, freed from having to count scraps of labour time. Growing abundance will give rise to truly communal production. No longer needing to redistribute on the basis of contribution, the labour of the individual will become communal labour, from which individuals will withdraw what they need, without regard to what they put in.
For this first time production will unite society, freeing human relations from the limitations imposed on them by nature. This is the golden age, when as Marx said, work will have become life’s joy, and when human relations will soar away from the meanness of spirit created by the isolating calculation of one’s personal share of production. It will be a time when productivity will be so developed, the necessary working day so shortened, and the realm of freedom so expanded, that the true social individual will step forth.
We can only wonder at these days to come as we trudge to work, insecure, isolated, making ourselves poor in order to enrich the tiny minority. But that time is of the future. Our real purpose is to end the present economic system which makes socialism both possible and necessary, in order to begin the emancipation of our race.
This is not wistful dreaming. It is based on the recognition that capitalism is a limited economic mode of production. Before long, it will stumble, then fall, posing the question as to whether the. working class can take society forward or whether the capitalists will drag it back. At that point it will be necessary to be idealists, to struggle for an ideal world. The Penalty for not doing so will be wars and counter-revolutions.
We are now in a position to look at what went wrong in the Soviet Union, why it had to collapse and the nature of its collapse. We will establish that, whatever collapsed, it was not the socialist alternative to capitalism.
Note 1
There are two ways to increase one’s contribution to the total labour time of society: to work longer hours or to acquire skills through training or further education. Both increase the total labour time consumed in production which requires higher wages to compensate. [Back to text]
Note 2
Prices diverge from costs only at an individual level. We really do not know what a barrel of oil costs or a ton of steel. Sometimes individual prices rise above costs or fall below them. However if we add up all these differences they will cancel each other out. The minuses will equal the pluses so that, when looking at the world economy as a whole, the total prices of production equal the total costs of production. In other word, the total labour time of society used up in production equals the total selling prices at the end of the day. Obviously, the task of socialism is to bring individual costs and prices into accord, so that prices equal costs at an individual level as well as a global level. [Back to text]
CHAPTER 3: WHY PLANNING HAD TO FAIL IN THE USSR
We can now turn to look at what happened in the Soviet Union. The economy in the Soviet Union manifested elements that were both higher and lower than capitalism.
It was essentially this contradiction that brought down its economy.
Following the October Revolution in 1917, during which few people died, the major powers fostered and financed a counter-revolution that would rage until 1921 and claim many millions of lives. By 1921 the people were exhausted, the vanguard of the working class was depleted and the economy crippled. The failure of the German revolutions of 1921 and 1923 was not only a tragedy for the German workers, but represented the last chance to revive the revolution in Russia itself.
The revolution degenerated, giving rise to an increasingly powerful bureaucracy, at whose head stood Stalin. Its policy of socialism in one country meant the abandoning of world revolution, and therefore the possibility of building a world socialist economy based on the most advanced economies. It meant a break with Marxism. Instead, it proposed to build socialism successfully in what was one of Europe’s most backward economies. This opportunism was to give rise to a deformed economy that had little in common with a real socialist economy.
The economy began to be organised around this new political caste. Its method of exploitation was to differ from capitalism. Under capitalism, the primary power of the ruling class rests on private property. The surplus of society is divided up in accordance with this capitalist private property. The bourgeois state exists primarily to guarantee that this property is not threatened. Accordingly, the capitalists tolerate multi-party democracy as long as the state continues to protect and expand private property and does not fundamentally interfere with its distribution.
In the Soviet Union, where private property in production was largely abolished, it could not be used to attract the surplus of society nor regulate its distribution. Individual bureaucrats did not own productive private property. They were not a class of property owners, merely an insecure caste of political bureaucrats.
In the absence of private property only the state could be used to redistribute the surplus of society. This meant the bureaucracy had to monopolise state power. They could not allow multi-party democracy, for if they lost the vote, they would in effect be voted out of office, and would have to return to the working class to become labourers once more. Hence the banning of parties other than the official party, the use of the secret police, the labour camps, the terror. Instead ot the state withering, it grew more powerful to ensure that this caste could appropriate the surplus of society through political compulsion.
Within this state hierarchy, individual bureaucrats’ privileges depended on how high they could rise within it. Competition and intrigue were rife within its ranks. The Bolshevik Party, which had led the revolution, was now used to organise and bring order to the bureaucracy. The Party became the brain, the nervous system and the fist of the bureaucracy. The most successful party in the history of the working class, bloodied and steeled in the class struggle, was now lost to revolution for ever.
This caste began to develop an interest apart from the working class. Entering the Party and using it as the stepping stone into the bureaucracy meant escaping a world of poverty, and entering a world of privilege. Rising above the rest of society, this caste had only one interest, to oppress the mass of workers and prevent them challenging its privileges.
By the end of the 1920s this caste had defeated its two main enemies. First was any opposition to its rule in the working class – the Left Opposition. Secondly, in this largely peasant-based society, any emergence of capitalist restoration – the kulaks. With its command over the surplus absolute, the bureaucracy implemented its first Five Year Plan in 1929.
These initial Five Year Plans did rapidly industrialise the Soviet Union. They probably represent the most rapid industrialisation the world has ever seen, and were the reason this agrarian society was able to defeat Hitler’s fascism less than 15 years later (the equivalent of just three Five Year Plans). They demonstrate how the abolition of capitalist private property can set free society’s productive potential. In this sense they represented a form of organisation higher than capitalism.
However, these first plans already contained the seed of the future collapse of the economy. The fundamental flaws in these plans were two-fold.
First, they were based on quantitative goals – so many tons of steel, so many metres of cloth, so many litres of chemicals etc. This planning by physical quantities, we are about to see, was actually a step back from capitalism, not a step forward.
It was primitive. It led to waste on a vast scale. Anything and everything that could be used to meet or exceed targets was used without regard to cost. As local bureaucrats’ jobs depended on achieving or exceeding these goals, they had no interest in curbing this waste. Instead of reducing costs, this rush to meet targets raised costs through the misuse and abuse of materials and labour.
Under capitalism, with all its faults, production is qualitative. Capitalists do not produce for the sake of producing, but to make profits. That means keeping costs under control and constantly reducing them. Only under conditions of crisis do the capitalists waste their investments, as the old capital is destroyed to make way for the new. But in the Soviet Union waste was endemic to the system. In this sense, economic activity was of a lower order than that found within capitalism itself.
In short there was no economy of labour time in the economy of the Soviet Union, whereas under capitalism there is.
Secondly, the workers were the victim of this plan, not its architect. The plan was superimposed on them Instead of a plan to fit their needs, they needed to fit the plan. This meant repression for questioning any directive, extraordinary hard work and cutting corners to stay ahead of targets. At first workers did act as a moderating influence on the more imbecilic aspects of the plan, helping to reduce waste, but in time, ground down by its demands, they increasingly gave up. Now there was nothing to prevent the plan running away from society..
This quantitative setting of goals was not an aberration. In an undeveloped economy with little education and few skills, quantitative goals are the easiest to set, implement and police. They are therefore a bureaucrat’s dream. Stalin and the centre could issue these clear goals and reward or punish their lower ranking bureaucrats and workers depending on how well they fulfilled them.
This top-down setting of targets could not be questioned by the lower down bureaucrats. Instead they manipulated these targets for their own ends. They understated the productive capacity of their plants in order to reduce targets. When these targets were not only met but comfortably exceeded, one could become a hero, be rewarded and promoted. Alas, it did not take time before the planners became aware of this mischief, and set higher targets.
This constant guerilla warfare between local bureaucrats and central planners made it even more difficult to know what was happening in the economy. It made planning extremely difficult, if not impossible. Any planning has to involve honesty, clarity, lack of fear and participation, exactly the opposite of what was happening. Instead of being informed the centre was misinformed. It was only the ever present terror that made things work. Behind every glowing statistic lay a drop of blood.
WORSE WAS TO COME
As Trotsky said, the success of the plan was measured statistically rather than economically. No real attempt was made to cost production. Accordingly, pricing became chaotic. This chaos was no accident, it served the interest of the bureaucracy.
The financing of the first Plan rested on two supports. The first was stripping the countryside of its agricultural surplus in order to feed the new cities. This forced collectivisation, in effect a war on the countryside by the despotic city, led to the deaths of millions.
The second was mvsive inflation, which defrauded the working class of its surplus. The rouble, which was equal to 14 French Francs in 1924, fell to just 3 in 1935 and 1.5 shortly thereafter. Rapidly rising prices boosted the turnover tax by means of which the state appropriated the surplus of society, both for investment and its own consumptive needs.
The rouble became increasingly worthless. It could not be used to measure the economy of planning. It corroded economic life. Little wonder Trotsky and the Left Opposition called this debauching of the currency and subsequent inflation "the syphilis of a planned economy".
This inflation, recognised by workers as an attack on their standards of living and ability to consume, further alienated workers from planned production. With prices increasingly meaningless, workers could not see the point of diligent and efficient work. The very knot that binds socialist economy, transparent and accurate pricing, was cut. It demoralised workers. Hence the famous dictum which encapsulated this whole tragedy, they pretended to pay us arid we pretended to work.
Once again this was a retreat from capitalism. Under capitalism, workers recognise their contribution to their company, to its income and profits, hence the struggle for a fair day’s wages. But under Stalin, it did not matter if one worked hard or not; it had no financial consequences.
As a result Stalin resorted to the worst practices of capitalism, enforced piece rates. i.e. payment by results. Piece rates, where physical quantity determines reward, fitted perfectly into a plan that was itself based on physical targets – physical targets for each worker and physical targets for society. All it needed was the ever present policeman to enforce them.
This movement came to be know as the Stakhanovite movement, and represented a dark time for workers. It failed. The mass of workers saw in the Stakhanovite movement the drive by the bureaucracy to increase their work targets. If the Stakhanovites could double production, then that was what was expected from ordinary workers. In order to defend themselves workers sabotaged these efforts, and even attacked representatives of this movement. And of course it led to huge waste, as the Stakanovites cut corners and monopolised the best production sites to bolster their output.
Despite the growing evidence of waste and inefficiency, the bureaucracy could not bring economy into planning. They could not cost and introduce accurate pricing. This was not due to technical inexperience, but to political imperatives.
In order to hide the surpluses produced by workers from the workers themselves, the books of account had to be closed. In addition, to disguise its parasitism, the bureaucracy engaged in false accounting right from the beginning. They lied to the workers and they lied to each other. Just as the bureaucracy hid their special shops from view, pretending they were not there, so they made prices pretend to be what they were not.
Nor did the plan lend itself to costing. If meeting physical targets is the prime directive, then costing can turn out to be obstructive to achieving this. The fact is that it often costs more to complete a plan than not to.
In a democratic society, it would be easy to say: look, it is more cost efficient to complete only 90% of the plan rather than 100%. If we complete the last 10%, we will need to use more expensive materials because we have run out of the cheaper ones, or we would not have time to repair and maintain the machinery, or we would have to lay on extra shifts of workers. To squeeze every ounce out of production can be very costly indeed.
In the absence of workers’ democracy in the Soviet Union, the opposite happened. When the introduction of economy into planning obstructed the achievement of targets, it was sacrificed, regardless of the cost to society as a whole. The contradiction between economic production and maximising production was always resolved on the side of maximising production. This contradiction reflected real life. Had workers been in control, treasuring their labour and seeking to economise on it, that contradiction would have been resolved the other way.
Nor did the relation between the various plants act as a discipline. They were unable to refuse inferior inputs. To do so meant they had no chance of reaching their own targets. Better inferior inputs than none at all. Without the circulation of these low quality products, the plan would have collapsed.
Here lies the secret of why the Soviet Union could not develop the consumer industries. These industries were given the lowest priority by the bureaucracy, demonstrating its contempt for workers and the siege mentality socialism in one country fostered. Actually, they should have had the highest priority, because in the end, the main reasons the Soviet Union collapsed was the far higher standards of living of workers in Western Europe and the USA.
The low priority given to the consumer sector meant that all the shoddiest goods were dumped there. The best steel was reserved for the armaments industry, the high tech industries and heavy industry. The crap steel went into housing, utensils and even the machinery that made consumer goods like cotton spinning. The recurrent breakdowns and obsolescence meant output here always lagged behind the rest of the economy.
Often plants ran out of inputs altogether, even shoddy ones. When this happened they began to barter amongst themselves. A crude market developed, punishment for the excesses and gaps in the plan. An informal economy began to coexist alongside the formal one. Like scaffolding, it served to support the foundationless plan.
Finally, the world bore witness to the ultimate productive insult in a society stripped of any economy, the madness of producing the fewest products to meet targets. For example if the target was 1000 kilos of nails per day, it was quicker to produce thousands of large nails than millions of small nails. And so society was flooded by large nails when it needed a variety of different sized nails. In this way the bureaucratic plan fragmented society instead of uniting it, as each productive unit sought to achieve its target regardless of the consequence to the rest of society.
Of course, if workers were in control of production, this madness would never have arisen. Workers do not produce for the sake of producing. It is their labour, after all, that is consumed in producing these things. But, oppressed and alienated, they were removed from decision making over their own life force. They acted out the instructions of the bureaucracy, regardless of whether they agreed with it or not. At the bottom of the suggestion box in the Soviet Union was the labour camps.
THE FAILURE OF FINANCIAL TARGETS
Towards the end of his life, Stalin began to realise the limitations of quantitative planning. This was due to the slowdown in production following post-war reconstruction. Workers’ enthusiasm was waning, consumer goods production virtually non-existent, the military needed better quality, and so on.
The response of the bureaucracy to the lack of economy in the Soviet Union was predictable – they increasingly introduced capitalist methods and techniques. Actually they tried to bolt them on to an economy whose laws no longer corresponded to capitalism, because production was now directly social. Capitalist technique could no longer be applied to an economy where exchange had been abolished in the main part of the economy.
They tried to introduce the profit motive. But as we have seen, the profit motive exists only on the basis of unequal exchange. This meant that in the Soviet Union, if the profit motive were to work, it would have to rely on one enterprise exploiting another. That would have required enterprises freely buying and selling their products as commodities around an average selling price. This would have made the bureaucracy redundant and ushered in private property. In fact all this happened much later, from 1989 onwards.
Instead, the bureaucracy adopted the profit motive as an accounting convention. It was purely symbolic. Enterprises were allowed to add a percentage profit to their cost base. Part of this profit they could keep, the rest would be taxed. Indeed, tax on profits became one of the main sources of revenue for the state in later years.
Alas, this profit motive had the opposite effect to that desired by the bureaucracy. Instead of leading to efficiency, it led to inefficiency. The reason is not hard to find. If an enterprise raises productivity it reduces the cost-base of its operation. For example this may fall from 500 million roubles to 400 millions. Now if the profit was based on adding 20% to the cost base, then the total profit would fall from 100 million roubles (500m x 20%) to only 80 millions (400m x 20%).
Instead of more profit, it produced less profit. The only thing that prevents the same thing happening under capitalism is the exploitation of less efficient firms through the market price, which means efficiency is rewarded with higher profits. The bureaucracy found that profit was counter-productive. It could not reorganise society, nor motivate its members.
The only alternative would have been for the bureaucracy to substitute itself for the market. Instead of the invisble hand of the market redistributing profits from the less efficient firms to the more efficient firms, the state could instead use the visible hand of taxation to remove profits from the less efficient enterprises and pass them on to the more efficient ones. It would take with one tax hand and give with another.
This would have reduced the standing of the bureaucracy. Instead of occupying the commanding heights of the economy and planning it, the bureaucracy would have assumed the diminished role of arbitrating between the affairs of the enterprises. It would have led to the more efficient enterprises swallowing up the less efficient ones. The enterprises, and therefore the plant directors, especially the efficient ones, would have been in control, which is one step removed from private property. It would have led to economic civil war as the less efficient enterprises sought to defend themselves from the aggression of the more efficient ones. This economic fragmentation would have torn the bureaucracy apart.
The failure of the profit motive explains another phenomenon. In the Soviet Union replication of factories rather than innovation was the norm. We found the phenomenon of the same factory being built over and over again, rather than the tireless quest to produce newer and better factories. The economy grew sideways rather than upwards, falling technically further and further behind the West.
Once again there was an economic logic to this, as well as a political logic. By duplicating factories, bureaucrats duplicated the number of workers at work. This had the effect of duplicating the total labour time at their disposal.
Furthermore, assuming that each worker continued to produce the same quantity of surplus labour, this meant duplicating surplus labour time as well. As this surplus labour was the source of their profit mark-up, they ended up duplicating their profits. It all made economic sense.
This could not happen under capitalism. Because of exchange, any reduction in labour times by competitors would reduce prices, and penalise companies that preserved their labour times. Duplicating factories would therefore lead to bankruptcy, as the gap between the more efficient and the less efficient companies opened up.
Hence, in the USSR, the profit motive led to duplication, whereas under capitalism it leads to innovation. The same motive, but opposite results.
At the political level, it is quicker and easier to replicate the same factory. It therefore disrupts production far less, making it easier to meet targets. New factories require mastering new techniques, which requires the retraining of workers, solving all the teething problems associated with new technology, and mastering new supply lines needed by this technology. New technology is risky, and there is no person more cautious than a bureaucrat
The real tragedy is that some of the best research institutions in the world existed in the Soviet Union. It led the world in many areas of technology. Many of its patents were taken up in the west. Unfortunately few of these ideas found their way past the bureaucracy and into industry.
THE ABSENT LABOUR MARKET
Nor could imposing labour discipline on workers provide the solution. By the time of Stalin’s death, the social weight of the working class had grown. Huge cities were populated by millions of increasingly educated and cultured workers. The fact that Stalin’s heir was not another Stalin, but a Khruschev, owes everything to this new reality.
This confirmed Trotsky and the Left Opposition’s view that the only way to regenerate the Russian working class was to industrialise the country. New industry would mean new workers, and new workers kept alive the promise of completing the socialist revolution.
Given the weight of the working class, the bureaucracy increasingly had to rely on incentives rather than terror. However, the dearth of consumer goods made the promise of higher wages meaningless. Very often obtaining everyday goods depended on who you knew rather than the size of your wage packet. Queues became an everyday experience for the majority of workers. They were the constipation of daily life, and a tremendous distraction from production.
Nor could the bureaucracy introduce a labour market. Under capitalism it is this market, created by a surplus of workers, that is the bedrock of labour discipline. The more unemployed workers there are, the greater the fear of unemployment is, the greater the control by management.
In the Soviet Union, on the other hand, there was always a shortage of workers. Enterprises actually hoarded workers. Surplus workers were seen as the only solution to the inefficiency of the economy. Extra workers could repair the machinery that always broke down, they could produce certain inputs when these were in short supply, they could work extra shifts if the enterprise was falling behind the plan. They were the only resource that could be used to compensate for the lack of resources in the rest of the economy.
Holding on to workers preoccupied the management of enterprises. They began to treat their workers as in a fiefdom. They provided housing, education, health-care, even holidays to their workers in order to bind them to the enterprise. This created the impression that management was dependent on the workers, rather than the workers dependent on management, as happens under the rule of capital.
Unable to discipline workers, and unable to motivate them, the bureaucracy lost complete control of the labour process. Waste increased. This waste became more unbearable the higher the technique of production. A substandard metal plate can be used to sheath a locomotive, but it cannot be used to sheath a jet plane never mind a rocket.
Waste grew in proportion to the growing need for quality. It ate away at the investable surplus of society. Ultimately, with little to invest, reproduction became impossible. The economy ground to a halt.
By the late 1970s the USSR was faced with a stark choice: either workers would make political revolution and free the economy of its caste of bureaucrats, or it would fall back into capitalism as the bureaucrats stripped the economy to finance their private property. Unfortunately, workers did not make the revolution, allowing the bureaucracy to complete the counter-revolution. Today capitalism raises its ugly head from the ruins of the degenerated workers’ state, with terrible consequences for the workers.
Workers failed to make their revolution because they believed in the market rather than planning. They were intoxicated with the success of the market in Western Europe and the USA. There they saw the market providing a high standard of living for workers, higher than those enjoyed by even the more privileged layers of bureaucrats in their own country. There was more freedom, and more possibilities for personal achievement.
At the heart of the false consciousness of the workers in the USSR and Eastern Europe was the belief that planning must give rise to a bureaucracy. The logic was as simple as it was wrong. Planning, it was said, requires lots of calculations and therefore the need for a whole army of calculators. Such an army amounts to a bureaucracy, the weight of which must stifle any economy and frustrate any initiatives
Not for the first time the world had been stood on its head. Instead of a bureaucracy giving rise to a misplanned economy, the plan had given rise to a bureaucracy. With the world turned upside down, where left and right is inverted, predictably workers ended up marching in the wrong direction, towards the market.
Actually, the number of managerial and supervisory workers under capitalism most probably exceeds those in the USSR. The fact that they are split up into many companies tends to obscure that fact. It would be quite a useful academic exercise to count all the managers in, say, the USA, and compare the total with that in the USSR.
But this is beside the point. The market works because the consumer is king under capitalism. In the world of luxury goods production, this was always so. Every whim of a prospective Rolls Royce car owner was catered for. Since 1973 and the outbreak of recessions with its more competitive environment, this due care has been extended to cheaper and cheaper commodities. Today the most successful companies are those which listen best to consumers and cater for their changing needs. More is spent on delivering service and quality, and relatively less on telling consumers what they need.
In the Soviet Union, enterprises produced crap and remained producing. In the world of capital, producing crap means a failure to sell, which means no new cash. No new cash results in bankruptcy and the loss of all one’s capital. Obviously the discipline of the market prevents this.
Now imagine a society where the consumer is not only king, but is the producer as well. Imagine a society where there is no separation between production and consumption. In such a society the needs of consumption will form the basis for the organisation of production. That is, incidentally, why we need world revolution, so that consumption will not be subordinated to the needs of war or a siege economy.
Planning is the unity of production and consumption. Planning is the conscious division of labour of a society in order to satisfy the expressed needs of that society. Through it the activities of millions of producers are joined, co-ordinated and synchronised in one co-operative effort.
To organise social production requires individual participation in planning. It is based on workers’ control of production. Capitalist democracy never extends into the workplace. But working class democracy, society’s ultimate form of democracy, is concentrated in production, society’s highest activity and the source of its life, culture and civilisation.
In this transparent world, where constructive criticism is the language of the plan, workers will be free to say what is possible and what should be corrected. Any arrogant or incompetent planner will swiftly be returned to the shop floor. So soon as it is possible, we stand for the rotation of every worker between planning and working. This marks the definitive end to the division between mental and physical labour.
Planning only becomes bureaucratic, i.e. alienated from the workers, when its purpose is to remove the surplus product from the working class so that it may be consumed outside the working class. So long as workers are in control, so long as the surplus of society is put to the needs of that society, bureaucratisation of the plan will not be possible. In the Soviet Union the bureaucracy preceded the plan. Indeed, had the bureaucracy not smashed the Left Opposition and the kulaks by 1928, to become masters of society, they would not have been in a position to initiate the First Five Year Plan.
Just as planning has got a bad press in the East, so under capitalism its virtues go unnoticed. The bigger the capitalist corporation, the more carefully and meticulously it has to plan its operations. At the very least, every department head has to submit budget plans. Looking further down the ladder we find that even the smallest entrepreneur has to provide the bank with a business plan when seeking a loan.
It has been the rising technique of production that has been the midwife for planning. Today, common computer platforms link companies and their suppliers. They all work collectively on the development of new products. The Boeing 777 was designed in concert by Boeing and its thousands of component suppliers. It meant the plane was designed in less time and with fewer problems. Without this level of planning it is unlikely this complex plane would ever have got off the ground.
Then there are the cost savings flowing from planning. Nowhere is this better demonstrated than "just in time" production. This means that assembly points do not store any stocks. These arrive only when they are needed from suppliers. It is as though the conveyor belt has reached beyond the factory perimeter itself, to extend to a network of suppliers, some hundreds of miles away. Such precision takes lots of planning and lots of computing power.
And here comes the rub. All this has required more workers’ control of the shop floor. Management has been forced to cede more day to day decisions to work teams at the cutting edge of production. Of course, all this delegation of responsibility requires class peace. It cannot take place amidst class conflict, which means that in the future, when class conflict erupts, this method of organisation will rupture at every turn, demonstrating all the better the need for complete workers’ control. The transitional demand of "all control to the work teams" needs to be included in any action programme.
Equally with just in time production, strikes, and therefore the threat of the disruption of supplies, will force companies to stock up and rely less on goods arriving at the last minute. It, too, will shatter this gain for modem management techniques.
At the political level, this explains the growing tendency by the state to impose discipline, to sweep away liberal conventions and ideas. The increasingly sophisticated economy requires more harmony for its fulfillment, which imposes a requirement on the state to police the family, police education and police the workplace more diligently. In inverse proportion to the withdrawal of the state from economic life, so it intervenes more emphatically in social life.
These developments expose the growing strain between the growth in the forces of production and the relations of production. The growing technique of production demands an end to class conflict and disruption by the market. It demands workers control of production, and through it planning.
The recession in the early 1990s took place in the dark shadow of the collapse of the USSR and Eastern Europe. Now, after a decade, the next severe recession will cast the spotlight on how fragile the foundations of these new management methods are, just how vulnerable and intolerant they are of the market.
TO CONCLUDE
In conclusion, many Marxists have made the lack of democracy the key reason why socialism failed in the Soviet Union. This methodology is unscientific. A phenomenon, any phenomenon, must be explained not by what is missing but by what is present, for only in that way can we understand its peculiar form.
Instead, we have sought to explain the limitations of planning by means of quantity, We have explained why the bureaucracy could not find a financial incentive to bring economy to its planning. Above all, we have explained why the profit motive, the driving force of capitalism, could not function in an economy that was now directly socialised.
Through so doing we have established that there is no viable exploitative mode of production beyond capitalism, or what is the same thing, between capitalism and living socialism. This is a very positive note, and the most important lesson to take away from the tragedy that was the Soviet Union.
Once we get rid of capitalism there is only socialism. Without it, society cannot finally be taken forward to escape the gravity of exploitation. There must never again be a repeat of socialism in one country. It will take all the resources of capitalism to build socialism. The consciousness of the working class must be raised beyond that of the nation, the ancestral home of capital, to take on the planet as a whole. There must be one world, one working class, one consciousness, the international consciousness of the proletariat.
The experience of the Soviet Union has weighed terribly on the consciousness of the international working class. Like an ideological landslide it has temporarily blocked the way forward. Fortunately, the instability of capitalism does ensure that landslides become dislodged. There will come a time when the market will be seen, not as the final solution to the economic plight of humanity, but as a threat to society’s future.
The debate on planning has not ended – it has only been interrupted. It is the most significant debate of all, for on its outcome hinges the future of mankind. Without it there can be no alternative to capitalism, and therefore no hope of our liberation from economic exploitation. Through planning, an emancipated working class can, and will, close the bloody chapter on class warfare, and usher in a golden epoch of real human development and fulfilment.