[OPE-L:2981] response to Massimo

Fred B. Mosele (fmoseley@mhc.mtholyoke.edu)
Fri, 6 Sep 1996 13:49:38 -0700 (PDT)

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Thanks to Massimo for his comments on the Zapatista “encuentro” in
Chaipas and for his response to my comments on our different analyses of
the causes of the decline of the rate of profit. I am finally getting around
to responding, and I welcome the opportunity to continue the discussion.

(Massimo mentioned the “entertainment” night in Chaipas in which
different national delegations sang their country’s protest songs, etc. But in
his modesty he did not mention that the star performers of the evening
were the Italian delegation and that Massimo was their guitar-strumming
leader).

ANALYSIS

1. To begin with, let me briefly review my general framework for
analyzing the rate of profit. By rate of profit here, I mean the
“conventional” rate of profit for which profit is the difference between
surplus-value and unproductive costs
(P = S - U), and capital includes both productive and unproductive capital.
One can easily derive the following equation for the conventional rate of
profit
(as I have done in several of my writings):

RP = (RS - UV) / (CC + UV)

where RS stands for the rate of surplus-value, CC for the composition of
capital, and UV for the ratio of unproductive capital to variable capital
capital (a flow in the numerator and a stock in the denominator). The
ratios UV depend ultimately on the ratio of unproductive labor to
productive labor. Thus we can see that, according to this theory, the rate
of profit varies directly with the rate of surplus-value, and inversely with
the composition of capital and the ratio of unproductive labor to productive
labor.

2. My estimates of the US economy for 1947-77, i.e. the period during
which the rate of profit declined (since then the rate of profit has been
more or less constant), indicate that this decline was caused mainly by an
increase the ratio of unproductive labor to productive labor (which
accounts for about 2/3 of the decline of the rate of profit) and secondarily
by an increase in the composition of capital (which accounts for the
remaining 1/3). The rate of surplus-value increased and so was not a cause
of the decline of the rate of profit.

3. Now, in what sense was the decline in the rate of profit caused by
workers’ struggles, as Massimo suggests? To begin with, it was not caused
by workers’ struggles in the most common sense that higher wages caused
the rate of surplus-value to decline. This was the main point of my
original work on the rate of profit, which was a critique of Weisskopf who
has argued that the decline in the rate of profit was due to a decline in the
rate of surplus-value (which he labelled a “rising strength of labor”
explanation). But Weisskopf failed to distinguish between productive labor
and unproductive labor and therefore misestimated the rate of surplus-
value. And this was mainly what I had in mind when I said in Chaipas that
the decline in the rate of profit was not the result of workers’ struggles.

4. Could the labor-saving technological change that caused the composition
of capital to increase be attributed to workers’ struggles? Massimo argued
that the restructuring of the late 70s and 80s was a result of workers’
struggles. But this particular restructuring came AFTER the decline in the
rate of profit, and so cannot be a cause of this decline. One could argue in
general that labor-saving technological change is usually an attempt to
reduce the power of workers and in this sense a response to workers’
struggles. I think that this is true to some extent, but only to a limited
extent. I think that technological change is instead primarily the result of
capitalists’ relentless drive to reduce costs which is enfoced by competition
among capitalists, regardless of the state of workers’ struggles.

5. Could the relative increase of unproductive labor be attributed to
workers’ struggles? Unproductive labor employed by capital (which is
what I am talking about here; i.e. I am not talking about unproductive
labor hired by the government) consists of two main types: circulation
labor (sales, purchasing, accounting, advertising, finance, etc.) and
supervision labor (supervisors, managers, etc.). In the US, circulation
labor accounts for about 800f the total unproductive labor and
supervision labor the remaining 20%. Both types increased at roughly the
same rate during this period. Now, I think it is probably true that at least
part (and perhaps most) of the increase of supervisory labor was due to
attempts by capitalists to maintain an acceptable intensity of labor in
response to workers’ attempts to reduce the intensity of labor. But I think
there were also other causes of the increase of supervisory labor, such as
prestige-enhancing “empire-building” of top managers. But in any case,
supervisory labor is only 200f the total unproductive labor. Circulation
labor is quantitatively much more important, and I do not see how
workers’ struggles could have been an important cause of the increase of
circulation labor. The main cause seems to have been a slower increase of
the “productivity” of circulation labor in relation to the productivity of
productive labor, which meant that more and more circulation workers had
to be employed to “circulate” the ever-increasing quantity of goods
produced by productive workers. Another cause may have been an
increasing “sales effort” per unit of output. These and other possible
causes are discussed in Chapter 5 of my book.

IMPLICATIONS

Maybe there is not much point in trying to label these causes “workers’
struggles” or “not workers’ struggles”. The main point is to understand
these particular causes and their very important implications. Massimo
asked, “what are the political implications of Fred’s analysis?” I think that
the main implications are the following (very briefly put):

1. The essential precondition for a recovery from the current crisis
WITHIN CAPITALISM is an increase in the rate of profit.

2. Capitalists will probably continue to try to cut wages in order to restore
their rate of profit (which in the mid-90s has still not recovered).
Therefore the attack on workers’ living standards will continue. We are
not about to enter a renewed period of relative prosperity (like the early
postwar period) in which employment is close to full and living standards
rise steadily. The worst is yet to come. Attempts by workers to increase
their wages will be very difficult to win. As Paul Mattick (Sr) put it, in
times of crisis, simple reform demands (like more jobs and higher wages)
become revolutionary demands, because capitalism is not able to satisfy
even these demands.

3. Most importantly, even if capitalists succeed in cutting wages further,
this is not likely to increase the rate of profit significantly and therefore
not likely to end the current crisis. If the decline in the rate of profit were
caused by increasing wages, then cutting wages would make more of a
difference. This is one of the main implications of my analysis, in contrast
to Weisskopf’s analysis and similar “wage-push profit-squeeze” theories.

4. What is required to restore the rate of profit, in addition to wage cuts,
is a reversal of the two trends that caused the rate of profit to decline: a
reduction in the composition of capital and a reduction in the ratio of
unproductive labor to productive labor. Both of these “nesessary
adjustments” will of course have severe negative effects on workers. But
this is what is required to restore the rate of profit and thus what is
required for a recovery from the current crisis within capitalism.

5. Perhaps the most important implication of this theory: there is not
much governments can do to end the current crisis because there is not
much governments can do to increase the rate of profit. Government
economic policies have little or no effect on the deteminants of the rate of
profit: the composition of capital, the ratio of unproductive to productive
labor, and the rate of surplus-value. Therefore, alternative economic
policies WITHIN CAPITALISM, including alternatives to “neoliberalism”
(such as expansionary fiscal and monetary policies, protectionism, capital
controls, etc.), are not likely to make much of a difference. That is why I
said that the target of the Zapatista conference - “neoliberalism” - was
misdirected. This Marxist analysis of the “limits” of government policies
was of course pioneered by Mattick (Sr).

6. The only alternative to this increasingly grim future is some kind of
democratic socialism. I know this is difficult to imagine these days, but the
above analysis suggests that it is nonetheless true. Nothing less will provide
a permanent solution to the misery and depressions of capitalist economies
and make possible a decent and enjoyable life for all.

This is what I would say (and tried to say) to the Zapatistas and to the self-
organized Italian workers (that Massimo mentioned) and to anyone else
interested. It seems to me that these are the main implications of my
analysis of the falling rate of profit. Whether or not we think that the
relative increase of unproductive labor and the increase in the composition
of capital were the results of workers’ struggles, these are the main causes
of the decline in the rate of profit, which has the above implications for the
preconditions for recovery and the ineffectiveness of government policies.
I also think that, whether or not we think that these causes were the results
of workers struggles, it is certainly true that a movement for democratic
socialism can only be the result of workers’ struggles. I agree completely
with Massimo on this. And I think that our different analyses of the falling
rate of profit do not make a difference on this point.

Massimo asked: “How do we get to democratic socialism?” This is a
question that I cannot answer. I have a few ideas, but perhaps it would be
better if we save that discussion for later and first discuss the above
analysis and implications. Also, Massimo could perhaps at some point help
get a discussion of this further question going by summarizing his talk at
the Chaipas meeting.

Comradely,
Fred

P.S. Jerry, I would be happy to post my paper, as you suggested. If you
wish, please tell me the best way to do this.